SCOTTS COMPANY - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(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, 2002

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
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 or Organization) (I.R.S. Employer Identification
Incorporation 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
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 number of Common Shares of the registrant outstanding as of December 6, 2002
was 30,385,680.

Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No _ .

The aggregate market value of Common Shares held by non-affiliates of the
registrant computed by reference to the price at which Common Shares were last
sold as of the last business day of the registrant's most recently completed
second fiscal quarter (March 28, 2002) was $887,969,390.
DOCUMENTS INCORPORATED BY REFERENCE:

PORTIONS OF THE PROXY STATEMENT FOR REGISTRANT'S 2003 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD JANUARY 30, 2003, ARE INCORPORATED BY REFERENCE INTO
PART III HEREOF.

PART I

ITEM 1. BUSINESS

GENERAL

The Scotts Company, an Ohio corporation, is the combination of two of the
most innovative companies in the consumer lawn and garden market: O.M. Scott &
Sons, which traces its heritage back to a company founded by O.M. Scott in
Marysville, Ohio in 1868, and Stern's Miracle-Gro Products, Inc., which traces
its heritage back to a company formed on Long Island by Horace Hagedorn and his
partner in 1951. In the mid 1900's, Scotts had become widely known for
innovation in the development of quality lawn fertilizers and grass seeds that
led to the creation of a new industry -- consumer lawn care. Sterns
Miracle-Gro(R)captured the attention of gardeners with its award-winning
advertising campaigns for plant food.

In fiscal 1995, through a merger, Scotts and Miracle-Gro joined forces in
what became the start of several acquisitions of other leading brands in the
lawn and garden industry in North America and Europe. In fiscal 1999, we
acquired the Ortho(R) brand and exclusive rights to market the consumer
Roundup(R) brand, thereby adding industry-leading pesticides and herbicides to
our controls portfolio. In the 1990's, we completed several acquisitions in
Europe which gave us well-known brands in France, Germany and the United
Kingdom. We are among the most widely recognized marketers and manufacturers of
products for lawns, gardens and professional horticulture, and we are rapidly
expanding into the lawn care service industry through our Scotts
LawnService(R)business.

We believe that our market leadership in the lawn and garden category is
driven by our leading brands, consumer-focused marketing, superior product
performance, supply chain competency and the strength of our extensive
relationships with major U.S. retailers in our categories. Our portfolio of
consumer brands, each of which we believe holds a leading market share position
in its respective U.S. markets, includes the following:

- Miracle-Gro(R)
- Scotts(R)
- Ortho(R)
- Roundup(R)*
- Turf Builder(R)
- Osmocote(R)
- Hyponex(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). We market and distribute consumer Roundup(R) products
for Monsanto under a marketing agreement. For additional information, please
see the discussion under the heading "-- Roundup(R) Marketing Agreement".

BUSINESS SEGMENTS

We divide our business into four reporting segments:

- North American Consumer;
- Scotts LawnService(R);
- Global Professional; and
- International Consumer.

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Financial information about these segments for the three years ended September
30, 2002 is presented in Note 21 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
that provide fast, easy and effective assistance to homeowners who seek to
nurture beautiful, weed and pest-free lawns, gardens and indoor plants. These
products are sold under brand names that people know and trust, and that
incorporate many of the best technologies available. These products include:

TURF BUILDER(R). We sell a complete line of granular lawn fertilizer and
combination products which include fertilizer and crabgrass control, weed
control or pest controls under the Scotts(R) 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 plant foods under the
Miracle-Gro(R) brand name. The leading product is a water-soluble plant food
that, when dissolved in water, creates 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(R) Bloom Booster(R). Miracle-Gro(R)
continues to develop 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 also introduced a
high quality, slow release line of Miracle-Gro(R) plant foods for extended
feeding convenience sold as Miracle-Gro(R) Shake 'n Feed.

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) control products include Weed-B-Gon(R),
Brush-B-Gon(R), 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).

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), Earthgro(R)
and Nature Scapes(R) brand names, as well as other labels. These products
include potting mix, garden soils, topsoil, manures, sphagnum peat and
decorative barks and mulches. The addition of the Miracle-Gro(R) brand name and
fertilizer to potting mix and garden soils has turned previously low-margin
commodity products into value-added category leaders.

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 other specified
countries, including Australia, Austria, Canada, France, Germany and the United
Kingdom.

OTHER PRODUCTS. We manufacture and market several lines of high quality lawn
spreaders under the Scotts(R) brand name, including Scotts EdgeGuard(TM) Total
Performance spreaders, SpeedyGreen(R) rotary spreaders, AccuGreen(R) drop
spreaders and Handy Green(R) II handheld lawn spreaders. We sell a line of
hose-end applicators for water-soluble plant foods such as Miracle-Gro(R)
products, and lines of applicators under the Ortho(R), Dial 'N Spray(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 geographies.
These consumer grass seed products are sold under the Scotts(R) Pure Premium(R),
Scotts(R) Turf Builder(R), Scotts(R) and PatchMaster(R) brands.

SCOTTS LAWNSERVICE(R)

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

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LawnService(R) had 60 company operated locations serving 42 metropolitan
markets, and 45 independent franchise locations as of September 30, 2002.

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.

Our professional products include a broad line of sophisticated
controlled-release fertilizers, water-soluble fertilizers, pesticide products,
wetting agents and growing media products which are sold under brand names that
include Banrot(R), Metro-Mix(R), Miracle-Gro(R), Osmocote(R), Peters(R),
Poly-S(R), Rout(R), ScottKote(R), Sierrablen(R), Shamrock(R) and Sierra(R).

Our Branded Plants business is also a part of the Global Professional
segment. This business arranges for the sale of high-quality annual plants to
retailers. The annuals are produced by independent growers according to a
defined protocol and branded with Scotts' trademarks, in accordance with a
licensing agreement. We receive a fee for each branded plant sold.

Our biotechnology activities are conducted within our Global Professional
Segment. For more information please see "Biotechnology".

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.

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. For example, 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 existing or develop
new products, manufacturing processes and packaging and delivery systems. In
fiscal 2002, 2001 and 2000, we spent 1.5% of our net sales, $26.2 million, $24.7
million and $24.1 million, 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 that 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

We believe that the development and commercialization of innovative
products is an important key to our continued success.

We have a long history of dedication to responsible research in search of
better, more effective and easier to use products. In particular, we have worked
for 75 years to create better products for the establishment and maintenance of
turfgrass. Biology and breeding have been a part of that research and
development for the past 40 years. We remain dedicated to being the technology
leader in turfgrass products. Today, that dedication results in research into
products that can be enhanced with biotechnology, as well as products that can
be improved through biology and breeding.

Before a product enhanced with biotechnology may be sold in the United
States, it must be "deregulated" by appropriate governmental agencies.
Deregulation involves compliance with the rules and regulations of and
cooperation with the United States Department of Agriculture, Animal and Plant
Health Inspection Service (the "USDA"), the Environmental Protection Agency (the
"EPA") and/or the Food and Drug Administration (the "FDA"). Therefore, any
product enhanced with biotechnology for which we seek commercialization to the
point of submitting a petition for deregulation, will be subjected to rigorous
and thorough governmental regulatory review.

More specifically, as part of the deregulation process for any product
enhanced with biotechnology, we are required to present evidence to the USDA in
the form of scientifically rigorous studies showing that the product is not
substantially different from products of the same species that have not been
enhanced with biotechnology. We are also required to satisfy other agencies,
such as the EPA and the FDA, as to their appropriate areas of regulatory
authority. This process typically takes years to complete and also includes at
least two opportunities for public comment.

We submitted a petition for deregulation of a non-residential turfgrass
product enhanced with biotechnology to the USDA on April 30, 2002. This
turfgrass has been shown, through our research trials, to provide simple, more
flexible, and better weed control for golf courses in a manner that we believe
is more environmentally friendly. The USDA requested additional information and
data. We determined that it was more expedient to withdraw the petition and
submit a revised petition that addressed the USDA's requests than to amend the
current petition. On October 3, 2002, we withdrew our petition. We are in the
process of preparing a revised petition that addresses the USDA's requests. We
intend to submit the revised petition sometime in the next twelve months.

There can be no assurance that our petition for deregulation of this
turfgrass product enhanced with biotechnology will be approved, or that if
approved and commercially introduced, it will generate any revenues for the
Company or contribute to the Company's earnings.

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, 2002, we held over 95 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 been
issued in numerous countries around the world, bringing our total worldwide
patents to more than 290. 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 205 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 2002, we were granted a number of key U.S. and International
patents. Some of the more significant new U.S. Patents include: new "Pull and
Spray" application technology, new Water Soluble Fertilizer and Growing Media
technologies, and Household Pest technology. Internationally, we

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extended patent coverage of our core fertilizer technologies (controlled release
and water soluble) and applicator technologies to additional countries within
our European and Asia/Pacific markets.

One of our material methylene-urea patents expired in July 2001. This
product composition patent covered Scotts(R) Turf Builder(R), Scotts(R) Turf
Builder(R) with Plus 2(R) Weed Control and Scotts(R) 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 new non-selective herbicides, we have specified rights to
market those products in the consumer lawn and garden market in the United
States and other specified countries. Glyphosate is no longer subject to a
patent in the United States or elsewhere.

Under the marketing agreement, we and Monsanto are jointly responsible for
developing global consumer and trade marketing programs for Roundup(R). We have
assumed responsibility for sales support, merchandising, distribution and
logistics for Roundup(R). 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 is entitled to the tie-breaking vote.

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 2002, this contribution payment was $20 million. Beginning in fiscal
2003 until 2018 or the earlier termination of the agreement, the minimum annual
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. For fiscal 2002, the net
commission was $16.2 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 with a separate determination
being made by the parties at the expiration of each such renewal term as to
whether to commence a subsequent renewal term. However, if Monsanto does not
agree to any of the renewal terms 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 an 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.

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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, in which
case we would not be able to collect 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 prior to September 30,
2003, we will be entitled to a termination fee of $185 million. The termination
fee declines over time to $100 million if a termination for the aforementioned
reasons occurs after September 30, 2003 but before September 30, 2008. 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 $150 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. The termination fee
declines to a minimum of $16 million per year for terminations after 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 any 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.

In the North American consumer do-it-yourself lawn and garden markets and
pest control markets, 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 markets include United Industries Corporation, Bayer AG, Central Garden
& Pet Company, Lesco, Inc., Garden Tech, Enforcer Products, Inc., Green Light
Company and Lebanon Chemical Corp.

TruGreen-ChemLawn, a division of ServiceMaster, has a leading 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 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.

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Internationally, we face strong competition in the consumer do-it-yourself
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

Approximately seventy percent (70%) of our worldwide sales in fiscal 2002
were made by our North American Consumer segment. Within the North American
Consumer segment, approximately 37% of our sales in fiscal 2002 were made to
Home Depot, 18% to Wal*Mart, 11% to Lowe's and 10% to Kmart. We face strong
competition for the business of these significant customers. The loss of any of
these customers or a substantial decrease in the volume or profitability of our
business with any of these customers could have a material adverse effect on our
earnings and profits.

STRATEGIC INITIATIVES

INTERNATIONAL PROFIT IMPROVEMENT

In August 2002 we announced an initiative to reduce costs and improve the
profitability of our European consumer and professional businesses. We expect to
invest between $50 and $60 million in these businesses over the next three
years. Approximately one-fourth of this amount will be capital expenditures,
most of which will involve installation of SAP, an ERP system, in all locations.
The project also involves reorganization and rationalization of our supply chain
activities in Europe to reduce costs and shift to pan-European category
management of our product portfolio. As part of this project, restructuring and
other charges will be incurred at various times. We expect this initiative will
substantively change our cost structure in Europe leading to a significant
improvement in the profitability from these businesses.

NEW BUSINESS DEVELOPMENT GROUP

In late fiscal 2002 we formed the New Business Development Group for the
North American consumer business. This group has three primary goals: (i) to
restore sales growth and profitability in the hardware and independent garden
center sector, which currently represents about 20% of our business, (ii) to
expand our presence for certain products in the grocery and drug store sectors,
and (iii) to identify opportunities to expand into adjacent segments of the lawn
and garden category such as tools, pottery and watering equipment.

INVESTMENT IN SCOTTS LAWNSERVICE(R)

Scotts LawnService(R) has grown from nearly $42 million in revenues in
fiscal 2001 to over $75 million in fiscal 2002 and is expected to grow by over
60% in fiscal 2003. A portion of this growth is being fueled by acquisitions. We
completed nearly $55 million on Scotts LawnService(R) acquisitions in fiscal
2002 and anticipate making up to $30 million in acquisitions annually for the
next several years. We are also making significant investments in our Scotts
LawnService(R) business infrastructure to improve information systems and
customer service.

NORTH AMERICAN SUPPLY CHAIN INITIATIVES WITH MAJOR RETAILERS

In the past few years, we invested over $50 million to install SAP, an ERP
system, for our North American businesses. With this single system supporting
our operations over the past two years, we have been able to realign our supply
chain operations and realign our sales force. In fiscal 2002 the benefits of the
new systems and processes were evident as we demonstrated our ability to meet
major North American retailers' demands for higher service levels, lower
inventory investment and on-time delivery of products to their stores and
warehouses. In fiscal 2003 we will be working even more closely with our retail
customers to further align our systems and processes to meet their needs. We
believe the investments we have made in systems, processes and people have
positioned us to be uniquely qualified to meet the ever increasing demands of
our major retail customers.

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SEASONALITY AND BACKLOG

Our business is highly seasonal with approximately 74% and 77% of our net
sales occurring in our combined second and third quarters of fiscal 2002 and
fiscal 2001, 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. 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.

DISTRIBUTION

We manufacture products for our North American Consumer business at our
facilities in Marysville, Ohio, Ft. Madison, Iowa and Temecula, California, and
by a number of third party contract packers. The primary distribution centers
for our North American Consumer businesses are strategically placed mixing
warehouses across the United States, that are managed by a third party logistics
provider.

Our Global Professional business produces horticultural products a
fertilizer manufacturing facility located in the United States, and a fertilizer
manufacturing facility located in Heerlen, the Netherlands. Certain products are
also produced for the Professional business from other Company facilities and
subcontractors in the United States and Europe. The majority of shipments to
customers are made via common carriers through distributors in the United States
and a network of public warehouses and distributors in Europe. Global
Professional products for the United Kingdom are warehoused and shipped from
warehouses in Daventry (Northamptonshire) and Chasetown (Staffordshire), in the
United Kingdom.

Our International Consumer business uses 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. We have
announced the mid-2003 closure of the Bramford facility as part of our
international growth and integration plan. All future requirements after fiscal
2003 will be sourced from the Howden facility.

EMPLOYEES

As of September 30, 2002, we employed 2,370 full-time workers in the United
States and an additional 1,041 full-time employees located outside the United
States. During peak production periods, we utilize temporary labor.

None of our U.S. employees are members of a 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

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9

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 (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 active
ingredients, 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 standard is the
reasonable certainty that no harm will result from the cumulative effects 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, this occurred in recent
years with regard to diazinon and chlorpyrifos. We cannot predict the outcome or
the severity of the effect of these continuing evaluations.

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 to individuals in the vicinity that
products will be applied in the future or may ban the use of certain
ingredients. We believe that we are operating in substantial compliance with, or
taking action aimed at ensuring compliance with, these laws and regulations.

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, English
Nature, 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. In April 2002, working in conjunction with Friends of the Earth (U.K.), we
reached agreement with English Nature to transfer our interests in the
properties and for the immediate cessation of all but a limited amount of peat
extraction on one of the three sites. As a result of this agreement, we have
withdrawn our objection to the proposed European designations as Special Areas
of Conservation and will undertake restoration work on the sites, for which we
will receive additional consideration from English Nature. We believe that we
have sufficient raw material supplies available to replace the peat extracted
from such sites.

REGULATORY ACTIONS

In June 1997, the Ohio Environmental Protection Agency 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 and Recovery Act. The
action

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10

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
and, in some cases, remediating, on a voluntary basis. On December 3, 2001, an
agreed judicial Consent Order was submitted to the Union County Common Pleas
Court and was entered by the court on January 25, 2002.

Now that the Consent Order has been entered, we have paid a $275,000 fine
and must satisfactorily remediate the Marysville site. We have continued our
remediation activities with the knowledge and oversight of the Ohio EPA. We
completed an updated evaluation of our expected liability related to this matter
based on the fine paid and remediation actions that we have taken and expect to
take in the future. As a result, we accrued an additional $3.0 million in the
third quarter of fiscal 2002 to increase our reserve based on the latest
estimates.

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 terms of
site remediation and the resolution of the Corps' civil penalty demand in
connection with our prior 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), United Kingdom facility. We have reserved
for our estimates of probable losses to be incurred in connection with each of
these matters.

At September 30, 2002, $8.2 million was accrued for the environmental and
regulatory matters described herein. The most significant component of this
accrual are estimated costs for site remediation of $5.9 million. Most of the
costs accrued as of September 30, 2002, are expected to be paid in fiscal 2003
and 2004; however, payments could be made for a period thereafter.

We believe that the amounts accrued as of September 30, 2002 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.

During fiscal 2002, we incurred approximately $0.3 million in environmental
capital expenditures and $5.4 million in environmental expenses, compared with
approximately $0.6 million in environmental capital expenditures and $2.1
million in environmental expenses for fiscal 2001. Included in the $5.4 million
is the $3.0 million increase in the accrual for future costs related to site
remediation as described above.

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 21 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 125 properties.

We lease land from the Union County Community Improvement Corporation in
Marysville, Ohio for our headquarters and 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.

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11

The North American Consumer business uses three additional research
facilities. We own one in Apopka, Florida, another in Gervais, Oregon, and a
third in Valley Center, California. 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 23
growing media facilities in 18 states; 18 of which are owned by us and five of
which are leased. Most of our growing media facilities include production lines,
warehouses, offices and field processing areas. We have one compost facility,
located at a bagging facility in Lebanon, Connecticut. We also lease sales
offices in Atlanta, Georgia; Troy, Michigan; Wilkesboro, North Carolina; Rolling
Meadows, Illinois; and Bentonville, Arkansas.

Scotts LawnService(R) conducts its company-owned operations from 60 leased
facilities, primarily office/warehouse units in industrial/office parks, in 42
major metropolitan areas primarily in the Midwest, Northeast and Southern
regions of the United States. The Global Professional business has offices in
Marysville, Ohio and Waardenburg, the Netherlands and a manufacturing facility
used to produce and pack coated fertilizers in Heerlen, the Netherlands. We also
lease two manufacturing facilities for Global Professional horticultural
products in North Charleston, South Carolina and Travelers Rest, South Carolina.

The International Consumer business leases its U.K. office, located in
Godalming (Surrey); its French headquarters and local operations office, located
in Ecully; a German office, located in Ingelheim; an Australian office, located
in Baulkan Hills (New South Wales); and a Canadian office located in Ontario. We
own manufacturing facilities in Howden and Hatfield (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. We lease a research and development facility
in Chazay, France. The manufacturing site in Heerlen, the Netherlands is also
used to produce coated fertilizers for the consumer market. We maintain a sales
and research and development facility at our Ingelheim, Germany site and own a
research and development facility in Levington, the United Kingdom. We lease a
sales office in Sint Niklaas, Belgium.

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. (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,
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). 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. Under

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12

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 June 29, 1999, AgrEvo also filed a complaint in the Superior Court of
the State of Delaware 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.

On May 15, 2002, AgrEvo filed an additional, duplicative complaint that
makes the same claims that are made in the amended complaint in the New York
Action, described above. On June 6, 2002, Scotts moved to dismiss this
duplicative complaint as procedurally improper. There has been no ruling by the
court on Scotts' motion.

Scotts believes that AgrEvo's claims in these matters are without merit and
intends to vigorously defend against them. 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. 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 $24 million in accounts receivable and additional damages for
other breaches of duty.

Central Garden filed counterclaims including 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). The court dismissed a number of Central Garden's counterclaims as
well as Scotts' claims that Central Garden breached other duties owed to Scotts.
On April 22, 2002, a jury returned a verdict in favor of Scotts of $22.5 million
and for Central Garden on its remaining counterclaims in an amount of
approximately $12.1 million. Various post-trial motions have been filed in the
Ohio Action, but so far Central Garden has not challenged the propriety of the
$22.5 million award to Scotts and Scotts has challenged only $750,000 of the
$12.1 million awarded to Central Garden on its counterclaim. Central Garden has
challenged, however, the dismissal during trial of several other counterclaims.

Two counterclaims that the court permitted Central Garden to add on the eve
of trial also remain pending. In these counterclaims, Central Garden seeks
damages in an unspecified amount for Scotts' alleged breach of contract and
conversion with respect to certain inventory held by Central Garden's subagents
and subdistributors. A trial date of October 6, 2003 has been set on these
remaining claims, and discovery has recently commenced.

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 April 15, 2002, Scotts and Central Garden each filed
summary judgment motions in this action. On June 26, 2002, the court granted
summary judgment in favor of Scotts and dismissed all of Central Garden's then
remaining claims. On July 28, 2002, Central Garden filed a notice of appeal. The
case is now pending on appeal in the Ninth Circuit Court of Appeals.

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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 that involve the same
subject matter. By order dated February 23, 2001, the Superior Court stayed the
action pending before it.

All claims in the Contra Costa action currently remain stayed. A further
status conference is set for May 29, 2003. Central Garden and Pharmacia have
settled their claims relating to this action.

Scotts believes that Central Garden's remaining claims are without merit
and intends to vigorously defend against them. Although Scotts has prevailed
consistently and extensively in the litigation with Central Garden, the
decisions in Scotts' favor are subject to appeal. If, upon appeal or otherwise,
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 it will continue to 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 the
claims brought against Scotts by Central Garden, except for amounts ordered paid
to Central Garden in the Ohio action for which Scotts believes it has adequate
reserves recorded for the amounts it may ultimately be required to pay.

SCOTTS V. UNITED INDUSTRIES AND PURSELL INDUSTRIES, SOUTHERN DISTRICT OF
FLORIDA

On April 15, 2002, Scotts and OMS Investments, Inc., a subsidiary of Scotts
that holds various Scotts intellectual property assets, filed a six count
complaint against United Industries Corp. and Pursell Industries, Inc. for acts
of (1) federal trademark and trade dress infringement; (2) federal unfair
competition; (3) federal dilution; (4) common law trademark and trade dress
infringement in violation of Florida law and other applicable law; (5) common
law unfair competition in violation of Florida law and other applicable law; and
(6) dilution in violation of Florida law and other applicable law. Scotts also
filed its motion for preliminary injunction, which motion seeks an injunction
enjoining United Industries, pending trial, from manufacturing, producing,
shipping, distributing, advertising, promoting, displaying, selling or offering
for sale products in the current packaging for its Spectracide(R) No Odor Fire
Ant Killer Ready-to-Use Dust product and from otherwise using any trademarks,
trade dress, packaging, promotional materials or other items which incorporate
or are confusingly similar to the trademarks and trade dress featured in Scotts'
Ortho(R) Orthene(R) Fire Ant Killer product packaging.

The claims in the complaint center upon United Industries' and Pursell's
use of trade dress on the packaging of their lawn care, garden care and
insecticide/herbicide products that closely mimic Scotts' unique, proprietary
and famous trademarks and trade dress. The complaint seeks an injunction
enjoining United Industries and Pursell from using any trademarks, trade dress,
packaging, promotional materials or other items which incorporate, which are
confusingly similar to or which dilute the trademarks and trade dress
encompassed in and featured in Scotts' Miracle-Gro(R) line, Ortho(R) line or
Turf Builder(R) line. The complaint also seeks compensatory damages, treble
damages, costs and attorney's fees.

United Industries subsequently filed its answer and counterclaim. Its
counterclaim seeks to cancel Scotts' Miracle-Gro(R) and Design trademark
registration and Scotts' pending Ortho(R) Orthene(R) Fire Ant Killer And Design
trademark application. We believe that this counterclaim is completely without
merit.

The court held a hearing on July 24 and 25, 2002, on Scotts' motion for
preliminary injunction and denied the motion on August 23, 2002. We have
appealed this court's denial of our motion for preliminary injunction.

We do not anticipate incurring any damages relating to this action.

SCOTTS V. AVENTIS S.A. AND STARLINK LOGISTICS, INC.

On August 9, 2002, Scotts filed suit against Aventis S.A. and its wholly
owned subsidiary Starlink Logistics, Inc. in the U.S. District Court for the
Southern District of Ohio. In the complaint, Scotts alleges it is entitled to
injunctive and monetary relief arising from Aventis' and Starlink's interference
with Scotts'

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contractual right to purchase a company called TechPac, L.L.C. from one of
Aventis' former subsidiaries, Aventis CropScience. The complaint alleges that
pursuant to a contract between Scotts and a predecessor-in-interest to Aventis
CropScience, Aventis CropScience was obligated to make a bona fide offer to sell
its interest in TechPac to Scotts. The complaint further alleges that Aventis
directed Aventis CropScience to make a belated sham offer to Scotts and that
later, upon the sale of Aventis CropScience to Bayer AG, Aventis transferred
ownership of TechPac to Starlink, an act which has made it impossible for
Aventis CropScience's successor-in-interest to make a bona fide offer to sell
TechPac to Scotts.

In this suit, Scotts seeks to ensure that it is able to exercise its right
to receive a bona fide offer to acquire TechPac, and Scotts seeks to recover
compensatory and punitive damages in an amount as yet undetermined for Aventis'
and Starlink's interference with Scotts' right to receive such an offer. On
October 4, 2002, Starlink filed a motion to dismiss the complaint on
jurisdictional grounds. Scotts intends to vigorously oppose this motion and to
vigorously prosecute its claims against Aventis and Starlink. Discovery on
jurisdictional issues recently commenced. A trial date has not been set.

OTHER

We are involved in other lawsuits and claims which arise in the normal
course of our business. In our opinion, these claims individually and in the
aggregate are not expected to result in a material adverse effect on our 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 2002.

SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT

The executive officers of The Scotts Company, their positions and, as of
November 25, 2002, 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
pursuant to employment agreements or other arrangements.

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

Mr. Berger was elected Chairman of the Board of Directors of Scotts in
August 1996. From August 1996 to May 2001, he was also Chief Executive Officer
of Scotts, and from August 1996 until April 2000, he was also President of
Scotts. Mr. Berger came to Scotts from H.J. Heinz Company. During his 32-year
career at Heinz, he held the positions of Chairman and Chief Executive Officer
of Heinz India Pvt. Ltd. (Bombay); Chairman, President and Chief Executive
Officer of Weight Watchers International, Inc., a Heinz affiliate; Managing
Director and Chief Executive Officer of Heinz-Italy (Milan), the largest Heinz
profit center in Europe; General Manager, Marketing, for Heinz U.S. grocery
products; Marketing Director for Heinz U.K.

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15

(London); and Director of Corporate Planning at Heinz World Headquarters. Mr.
Berger intends to resign from his positions as Chairman of the Board and as a
director of The Scotts Company on January 30, 2003.

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.

Ms. Stump was named Senior Vice President, Human Resources Worldwide of
Scotts in October 2002. From July 2001 until October 2002, Ms. Stump served as
Vice President, Human Resources North America, of Scotts. From September 2000
until July 2001, Ms. Stump served as Vice President, Human Resources Technology
and Operations, of Scotts. From April 1998 to September 2000, Ms. Stump served
as Director, Human Resources, for the Ross Products Division of Abbott
Laboratories. Ms. Stump joined the Ross Products Division of Abbott Laboratories
in 1996.

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. Norton has announced his retirement from his position as Executive Vice
President and Chief Financial Officer to be effective January 1, 2003. He will
be succeeded by Mr. Christopher Nagel, Senior Vice President, Finance 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 Senior Vice President, International Consumer
Business Group 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.

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 future dividends, if any, 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 December 6, 2002, there were approximately 9,040 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 2002
presentation; these changes did not impact net income.

(1) Includes various Scotts LawnService(R) acquisitions from dates acquired.

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

(3) 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.

(4) Includes EarthGro, Inc. from February 1998.

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18

(5) Income from operations for fiscal 2002, 2001 and 1998 includes $8.1, $75.7
and $20.4 of restructuring and other charges, respectively. Gross profit for
fiscal 2002 and 2001 includes $1.7 and $7.3 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. EBITDA margin is calculated as
EBITDA divided into net sales. Our measure of EBITDA may not be similar to
other similarly titled captions used by other companies.

(7) For fiscal 2002, we adopted EITF 00-25 "Accounting for Consideration from a
Vendor to a Retailer in Connection with the Purchase or Promotion of the
Vendor's Products" which requires that certain consideration from a vendor
to a retailer be classified as a reduction in sales. As have many other
companies, we have historically classified these as advertising and
promotion costs. The information for all periods presented reflects this new
method of presentation. Also, certain expenses previously recorded as
advertising were reclassified to marketing within selling, general and
administrative expenses. The amounts reclassified as a result of adopting
this new accounting policy are as follows:

(8) Basic and diluted earnings per share would have been as follows if the
accounting change for intangible assets adopted in the fiscal year beginning
October 1, 2001, had been adopted as of October 1, 1999:

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. We also have a presence in Australia, the Far East, Latin America and
South America. Also, in the United States, we operate the second largest
residential lawn service business, Scotts LawnService(R). Our operations are
divided into four business segments: North American Consumer, Scotts
LawnService(R), International Consumer, and Global Professional. The North
American Consumer segment includes the Lawns, Gardens, Growing Media, Ortho and
Canadian business groups.

In fiscal 2002 we continued the rapid expansion of our Scotts
LawnService(R) business. Through acquisitions and internal growth, revenues
increased from nearly $42 million in fiscal 2001 to over $75 million in fiscal
2002. We expect to do approximately $30 million of lawn service acquisitions
annually for fiscal 2003 and beyond.

As a leading consumer branded lawn and garden company, we focus our
consumer marketing efforts, including advertising and consumer research, on
creating consumer demand to pull products through the retail distribution
channels. In the past three years, we have spent approximately 5% of our gross
sales

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19

annually on media advertising to support and promote our products and brands. We
have applied this consumer marketing focus for the past several years, and we
believe that Scotts receives a significant return on these marketing
expenditures. We expect that we will continue to focus our marketing efforts
toward the consumer and make additional significant investments in consumer
marketing expenditures in the future to continue to drive market share and sales
growth. In fiscal 2003 we expect to increase advertising spending and our
advertising to net sales ratio as we deliver a new media message for the Ortho
line, increase our advertising reach in Europe and continue to have the largest
share of voice in the lawn and garden category in North America.

Our sales are susceptible to global weather conditions, primarily in North
America and Europe. For instance, periods of wet weather can slow fertilizer
sales but can create increased demand for pesticide sales. We believe that our
past acquisitions have diversified both our product line risk and geographic
risk to weather conditions.

Our operations are also seasonal in nature. In fiscal 2001, net sales by
quarter were 8.7%, 42.1%, 35.2% and 14.0% of total year net sales, respectively.
Operating losses were reported in the first and fourth quarters of fiscal 2001
while significant profits were recorded for the second and third quarters. The
sales trend in fiscal 2002 followed a somewhat different pattern than our
historical experience due to retailer initiatives to reduce their investment in
inventory and improve their inventory turns. This has caused a sales shift from
the second quarter to the third and fourth quarters that coincides more closely
to when consumers buy our products. Net sales by quarter were 9.3%, 34.2%, 39.3%
and 17.2% in fiscal 2002. The trend of operating losses in the first and fourth
quarters and significant operating profits in the second and third quarters
continued in fiscal 2002. There has also been a shift in profitability between
the second and third quarters with the third quarter now more profitable than
the second.

In fiscal 2001, restructuring and other charges of $75.7 million were
recorded for reductions in work force, facility closures, asset writedowns, and
other related costs. Certain costs associated with this restructuring
initiative, including costs related to the relocation of equipment, personnel
and inventory, were not recorded as part of the restructuring costs in fiscal
2001. These costs, which totaled $4.1 million, were recorded as they were
incurred in fiscal 2002 as required under generally accepted accounting
principles in the United States.

In fiscal 2002 we announced a major initiative to improve the operations
and profitability of our European-based consumer and professional businesses.
Over the next three years we anticipate spending $50 to $60 million on various
projects, approximately 25% of which will be capital expenditures. Certain
projects will result in the recognition of restructuring and other charges over
the duration of this initiative. In the fourth quarter of fiscal 2002 we
announced the closure of a manufacturing plant in Bramford, England. The closure
will occur in late fiscal 2003. The depreciation of fixed assets at the facility
will be accelerated so that they are fully depreciated by the closure date. In
the fourth quarter of fiscal 2002 $4.0 million of severance and additional
pension costs related to the closure were recorded and reported as restructuring
and other charges.

In fiscal 2001, Scotts adopted accounting policies that required certain
amounts payable to customers or consumers related to the purchase of our
products to be recorded as a reduction in net sales rather than as advertising
and promotion expense (e.g., volume rebates and coupons). In fiscal 2002, Scotts
adopted EITF 00-25, "Accounting for Consideration from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's Products." This
standard requires Scotts to record certain of its cooperative advertising
expenditures as reductions of net sales rather than as advertising and promotion
expense. Results for fiscal years 2001 and 2000 have been reclassified to
conform to this new presentation method for these expenses.

In addition, in fiscal 2002 we adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets." This statement
eliminates the requirement to amortize indefinite-lived assets and goodwill. It
also requires an initial impairment test on all indefinite-lived assets as of
the date of adoption of this standard and impairment tests done at least
annually thereafter. As a result of adopting the standard as of October 1, 2001,
amortization expense for fiscal 2002 was reduced by approximately $21.0 million.

We completed our impairment analysis in the second quarter of 2002, taking
into account additional guidance provided by EITF 02-07, "Unit of Measure for
Testing Impairment of Indefinite-Lived Intangible

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20

Assets." As a result, a pre-tax impairment charge related to the value of
tradenames in our German, French and United Kingdom consumer businesses of $29.8
million was recorded as of October 1, 2001. After income taxes, the net charge
was $18.5 million which is recorded as a cumulative effect of a change in
accounting principle. There was no goodwill impairment as of the date of
adoption.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following discussion and analysis of the consolidated results of
operations and financial position should be read in conjunction with our
Consolidated Financial Statements included in Item 8 of this Annual Report on
Form 10-K for the fiscal year ended September 30, 2002.

Our discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to customer programs and incentives, product returns, bad debts,
inventories, intangible assets, income taxes, restructuring, environmental
matters, contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. The estimates that we believe are most
critical to our reporting of results of operations and financial position are as
follows:

- We have significant investments in property and equipment, intangible
assets and goodwill. Whenever changing conditions warrant, we review the
realizability of the assets that may be impacted. At least annually we
review indefinite-lived intangible assets for impairment. The review for
impairment of long-lived assets, intangibles and goodwill takes into
account estimates of future cash flows. Our estimates of future cash
flows are based upon budgets and longer-range plans. These budgets and
plans are used for internal purposes and are also the basis for
communication with outside parties (lenders, analysts, etc.) about future
business trends. While we believe the assumptions we use to estimate
future cash flows are reasonable, there can be no assurance that the
expected future cash flows will be realized. As a result, impairment
charges that possibly should have been recognized in earlier periods may
not be recognized until later periods if actual results deviate
unfavorably from earlier estimates.

- We continually assess the adequacy of our reserves for uncollectible
accounts due from customers. However, future changes in our customers'
operating performance and cash flows or in general economic conditions
could have an impact on their ability to fully pay these amounts which
could have a material impact on our operating results.

- Reserves for product returns are based upon historical data and current
program terms and conditions with our customers. Changes in economic
conditions, regulatory actions or defective products could result in
actual returns being materially different than the amounts provided for
in our interim or annual results of operations.

- Reserves for excess and obsolete inventory are based on a variety of
factors, including product changes and improvements, changes in active
ingredient availability and regulatory acceptance, new product
introductions and estimated future demand. The adequacy of our reserves
could be materially affected by changes in the demand for our products or
by regulatory or competitive actions.

- As described more fully in the notes to the consolidated financial
statements for the year ended September 30, 2002, we are involved in
significant environmental and legal matters which have a high degree of
uncertainty associated with them. We continually assess the likely
outcomes of these matters and the adequacy of amounts, if any, provided
for these matters. There can be no assurance that the ultimate outcomes
will not differ materially from our assessment of them. There can also be
no assurance that all matters that may be brought against us or that we
may bring against other parties are known to us at any point in time.

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21

- We accrue for the estimated costs of customer volume rebates, cooperative
advertising, consumer coupons and other trade programs as the related
sales occur during the year. These accruals involve the use of estimates
as to the total expected program costs and the expected sales levels.
Historical results are also used to evaluate the accuracy and adequacy of
amounts provided at interim dates and year end. There can be no assurance
that actual amounts paid for these trade programs will not differ from
estimated amounts accrued. However, we believe any such differences would
not be material to our financial position or results of operations.

- We record income tax liabilities utilizing known obligations and
estimates of potential obligations. A deferred tax asset or liability is
recognized whenever there are future tax effects from existing temporary
differences and operating loss and tax credit carryforwards. Valuation
allowances are used to reduce deferred tax assets to the balance that is
more likely than not to be realized. We must make estimates and judgments
on future taxable income, considering feasible tax planning strategies
and taking into account existing facts and circumstances, to determine
the proper valuation allowance. When we determine that deferred tax
assets could be realized in greater or lesser amounts than recorded, the
asset balance and income statement reflects the change in the period such
determination is made. Due to changes in facts and circumstances and the
estimates and judgments that are involved in determining the proper
valuation allowance, differences between actual future events and prior
estimates and judgments could result in adjustments to this valuation
allowance. The Company uses an estimate of its annual effective tax rate
at each interim period based on the facts and circumstances available at
that time, while the actual effective tax rate is calculated at year-end.

- Also, as described more fully in notes to the consolidated financial
statements, we have not accrued the deferred contribution under the
Roundup(R) marketing agreement with Monsanto or the per annum charges
thereon. We consider this method of accounting for the contribution
payments to be appropriate after consideration of the likely term of the
agreement, our 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. At
September 30, 2002, contribution payments and related per annum charges
of approximately $50.2 million had been deferred under the agreement.

NEW ACCOUNTING STANDARDS NOT YET EFFECTIVE

In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities". This statement modifies and amends the accounting
for restructuring activities that are currently accounted for in accordance with
EITF Issue 94-3 "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". SFAS No. 146 requires most charges to be recorded when they are
incurred, rather than when it is identified that a cost resulting from a
restructuring activity is likely to be incurred. This Statement applies to
restructuring activities occurring after December 31, 2002. The adoption of this
standard will not have an impact on the Company's restructuring costs incurred
prior to the adoption of SFAS No. 146. However the adoption of Statement 146 can
be expected to impact the timing of liability recognition associated with future
restructuring and exit activities.

Also, in fiscal 2003 we will change our accounting for stock option grants
prospectively. Grants awarded after September 30, 2002 will be expensed in
accordance with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation". Based on historical option grant levels,
compensation expense is expected to increase by approximately $4 million in
fiscal 2003. Since expensing occurs ratably over the three-year vesting period
of the options, the full effect of expensing option grants, assuming similar
levels of option grants in each of fiscal 2003, 2004 and 2005 and a constant
option value for each of the awards, will be approximately $12 million per year
beginning in fiscal 2005.

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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, 2002:

The following table sets forth net sales by business segment for the three
years ended September 30, 2002:

FISCAL 2002 COMPARED TO FISCAL 2001

Net sales for fiscal 2002 increased nearly 4% to $1,760.6 million from
$1,695.8 million in fiscal 2001.

North American Consumer segment net sales were $1,254.8 million in fiscal
2002, an increase of $38.0 million, or 3.1% from net sales for fiscal 2001 of
$1,216.8 million. Within the North American Consumer segment, compared to net
sales for fiscal 2001, Lawns net sales increased over 5.5% due to strong
acceptance of our new SummerGuard product and continued strong sales of Turf
Builder(R) weed control products and grass seed; Growing Media sales increased
over 11% due to continued strong performance of our value added line of
Miracle-Gro(R) potting mix and garden soil. Ortho sales were down slightly from
fiscal 2001 to fiscal 2002. Despite an increase in consumer purchases of certain
product

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23

lines, overall Ortho sales declined slightly in fiscal 2002 as we reduced
national television advertising support to reassess our campaign for this line
and prepare for a new campaign in fiscal 2003. Gardens sales declined over 5.5%,
primarily due to a colder and wetter May (the business' peak sales month) in the
Midwest and Eastern portions of the U.S.

Scotts LawnService(R) revenues increased over 83% from $41.2 million in
fiscal 2001 to $75.6 million in fiscal 2002. The growth in revenue reflects the
growth in the business from the acquisitions completed in fiscal 2002, new
branch openings in late winter of 2001 and the growth in customers from our
spring 2002 and fall 2001 marketing campaigns. Spending on acquisitions,
including seller-financing, increased from nearly $18.0 million in fiscal 2001
to over $54.0 million in fiscal 2002. Due to one major acquisition, nearly
one-half of fiscal 2002's acquisition spending occurred in August 2002 resulting
in only a minor contribution to fiscal 2002's revenue growth.

Net sales for the International Consumer segment were $249.0 million in
fiscal 2002, which were $3.1 million, or 1.2%, lower than net sales for fiscal
2001. Excluding the effects of currency fluctuations, net sales declined over
$7.0 million from fiscal 2001 to fiscal 2002. Efforts by retailers to reduce
their inventory investment and more closely time their purchases to consumer
purchases contributed to the year over year sales decrease.

Net sales for the Global Professional segment were $181.2 million in fiscal
2002, which were $4.5 million, or 2.4%, lower than net sales for fiscal 2001.
The decline was primarily in North America where our customers, the end-user
growers, have been impacted by retailer initiatives to reduce inventory levels.

Selling price changes were not material to net sales in fiscal 2002 or
fiscal 2001.

Gross profit increased $38.5 million in fiscal 2002 from fiscal 2001. As a
percentage of net sales, gross profit was 36.1% of net sales in fiscal 2002
compared to 35.2% in fiscal 2001. In North America, cost savings from our supply
chain and purchasing initiatives to reduce manufacturing costs were partially
offset by lower absorption of fixed costs due to lower production levels.
Production levels were lowered in order to reduce North American inventory
levels, which declined over $92 million from the end of fiscal 2001 to the end
of fiscal 2002. Other factors affecting margins were better product mix,
particularly in our Lawns and Growing Media businesses, and the increasing
contribution of our rapidly growing Scotts LawnService(R) business which has
higher margins than our other business units. Lastly, restructuring expenses
included in cost of sales declined from $7.3 million in fiscal 2001 to $1.7
million in fiscal 2002 which improved gross profit as a percentage of net sales
by 32 basis points.

The net commission earned from marketing agreement in fiscal 2002 was $16.2
million compared to $20.8 million in fiscal 2001. The decrease from the prior
year is primarily due to a $5.0 million increase in the contribution payment due
to Monsanto to $20.0 million in fiscal 2002 from $15.0 million in fiscal 2001.

Advertising expenses in fiscal 2002 were $82.2 million, a decrease of $6.9
million from advertising expenses in fiscal 2001 of $89.1 million. The decrease
in advertising expenses from the prior year is primarily due to efficiencies
from improved media buying and lower rates and reduced media spending on the
Ortho line which was replaced with more in-store promotional support, which is a
marketing expense included in selling, general and administrative expenses.

Selling, general and administrative ("SG&A") expenses in fiscal 2002 were
$336.0 million compared to $392.5 million for fiscal 2001. The reduction is
primarily due to restructuring and other charges of $68.4 million in fiscal 2001
compared to only $6.4 million in fiscal 2002. Excluding restructuring expenses
in both fiscal years, the $3.0 million environmental charge in fiscal 2002 and
selling, general and administrative expenses of the Scotts LawnService(R)
business from both fiscal 2002 and 2001 results, SG&A expenses were $295.8
million, or 17.6% of net sales, in fiscal 2002 compared to $307.5 million, or
18.6% of net sales in fiscal 2001 which reflects the benefits in fiscal 2002
from the cost reduction efforts undertaken in 2001 through reduction in
workforce and other restructuring activities even though other costs such as
litigation related legal expenses and information systems support expenses
increased in fiscal 2002 from fiscal 2001.

Fiscal 2002 includes $1.7 million of restructuring charges in costs of
goods sold related to the redeployment of inventory from closed plants and
warehouses and $2.4 million in selling, general and

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24

administrative expenses related to the relocation of personnel for the
restructuring activities initiated in fiscal 2001. Under generally accepted
accounting principles in the United States, these costs have been expensed in
the period incurred. Also, in the fourth quarter of fiscal 2002 approximately
$4.0 million in restructuring charges, primarily severance and pension costs,
related to the announced closure of a plant in Bramford, England were recorded.
In fiscal 2001, $7.3 million of restructuring and other charges were recorded in
cost of goods sold and $68.4 million in selling, general and administrative
costs.

Amortization of goodwill and intangibles in fiscal 2002 declined to $5.7
million from $27.7 million in fiscal 2001, primarily due to the adoption of SFAS
No. 142 in fiscal 2002 as described previously.

Other income was $12.0 million for fiscal 2002, compared to $8.5 million in
fiscal 2001. The increase is primarily due to the gain and other income from the
agreement for the cessation of peat extraction in the United Kingdom of
approximately $6.6 million. This transaction with English Nature is more fully
described in the "Liquidity and Capital Resources" section. This gain was
partially offset by lower royalty income due to the phase out in 2002 of a lawn
mower program at a major North American retailer and a one-time insurance
settlement gain in fiscal 2001.

Income from operations for fiscal 2002 was $239.2 million, compared with
$116.4 million for fiscal 2001. The increase in income from operations over the
prior year is the result of lower restructuring expenses, increased gross margin
from the increase in net sales, lower advertising spending, lower selling,
general and administrative expenses, and the effect of the change in accounting
for amortization of indefinite-lived assets.

For segment reporting purposes, earnings before interest, taxes and
amortization is used as the measure for Income from Operations ("operating
income"). On that basis, operating income in the North American Consumer segment
increased from $250.7 million for fiscal 2001 to $273.7 million for fiscal 2002
on an increase in net sales from $1,216.8 million in fiscal 2001 to $1,254.8
million in fiscal 2002. Gross margin improvement from supply chain cost
reductions, improved mix in Lawns and Growing Media, and reduced media spending
levels offset by lower overhead absorption due to lower production levels, lower
Roundup commission and lower licensee royalties generated the improvement of
North American Consumer operating income.

Scotts LawnService's(R) operating income increased from $4.7 million in
fiscal 2001 to $8.8 million in fiscal 2002 due to the over 80% increase in net
sales driven by internal growth and acquisitions.

International Consumer operating income was $16.6 million for fiscal 2002,
compared to a loss of $4.0 million for fiscal 2001 even though net sales
declined to $249.0 million from $252.1 million during the periods. Income
increased due to the peat transaction with English Nature, lower spending on
selling, general and administrative expenses, and restructuring charges which
declined from $10.5 million in fiscal 2001 to $4.5 million in fiscal 2002.

Global Professional operating income increased slightly to $13.1 million in
fiscal 2002 from $12.7 million in fiscal 2001 despite a slight reduction in net
sales due to cost controls implemented in fiscal 2002.

Interest expense for fiscal 2002 was $76.3 million, a decrease of $11.4
million from interest expense for fiscal 2001 of $87.7 million. The decrease in
interest expense was primarily due to a reduction in average borrowings as
compared to the prior year due to increased profitability and lower working
capital, and lower interest rates on our debt. The weighted average cost of debt
was 7.65% in fiscal 2002 compared to 8.47% in fiscal 2001.

Income tax expense for fiscal 2002 was $61.9 million, compared with income
tax expense for fiscal 2001 of $13.2 million. The increase in income tax expense
from the prior year is the result of higher pre-tax income in fiscal 2002 for
the reasons noted above. The lower estimated income tax rate for fiscal 2002 of
38% compared to 46% for fiscal 2001 is primarily due to effect of the
elimination of amortization expense for book purpose that was not deductible for
tax purposes and higher earnings in fiscal 2002.

The Company reported income before cumulative effect of accounting changes
of $101.0 million for fiscal 2002, compared to $15.5 million for fiscal 2001.
After the charge of $29.8 million ($18.5 million, net of tax) for the impairment
of tradenames in our German, French and United Kingdom businesses, net income
for fiscal 2002 was $82.5 million, or $2.61 per diluted share, compared to net
income of

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25

$15.5 million or $.51 per diluted share in fiscal 2001. If SFAS No. 142 had been
adopted as of the beginning of fiscal 2001 diluted earnings per share for fiscal
2001 would have been $1.05 excluding impairment charges, if any, that would have
been recorded upon adoption at October 1, 2000. Diluted earnings per share in
fiscal 2002 would have been $3.19 per share if the impairment charge was
excluded.

Average diluted shares outstanding increased from 30.4 million in fiscal
2001 to 31.7 million in fiscal 2002 due to option and warrant exercises, and the
impact on common stock equivalents of a higher average share price in fiscal
2002.

FISCAL 2001 COMPARED TO FISCAL 2000

Net sales for fiscal 2001 were $1,695.8 million, an increase of 2.4% over
fiscal 2000 sales of $1,656.2 million. As discussed below, net sales increased
over 2.3% in the North American Consumer segment; whereas, net sales declined by
4.8% in the International Consumer segment and Global Professional net sales
were up 2.9%. Net sales for the Scotts LawnService(R) segment increased 92.5% in
fiscal 2001 over fiscal 2000.

North American Consumer net sales were $1,216.8 million in fiscal 2001
compared to net sales of $1,189.5 million. Net sales in the Lawns business
within this segment were $495.8 million in fiscal 2001, a 9.6% increase over
fiscal 2000 net sales of $452.2 million, primarily due to the introduction of a
new line of grass seed products. Net sales in the Growing Media business
increased 3.5% to $296.9 million in fiscal 2001 from $287.0 million in fiscal
2000 due to 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 5.9% to
$222.2 million in fiscal 2001 from $236.1 million in fiscal 2000 due primarily
to the weather and product availability issues due to ERP system data problems.
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.

Net sales in the Scotts LawnService(R) business increased 92.5% to $41.2
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.

International Consumer net sales decreased 4.8% to $252.1 million in fiscal
2001, compared to $264.8 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 $185.7 million for fiscal 2001
increased 2.9% from fiscal 2000 net sales of $180.5 million. Excluding the
unfavorable impact of changes in foreign exchange rates, Global Professional net
sales increased approximately 6.3% year over year. Approximately half of the
increase was from professional seed sales which previously had been part of the
Pro Turf business which was sold in May 2000.

Gross profit decreased to $596.4 million in fiscal 2001, compared to $603.8
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 35.2% in fiscal 2001 compared to 36.5% in fiscal 2000. The
decrease in gross profit as a percentage of net sales was driven by the
restructuring charges in fiscal 2001 which reduced gross profit by 90 basis
points and 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 increased sales of value-added Growing Media products.

The net commission earned from the Roundup(R) 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

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26

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 expenses for fiscal 2001 were $89.1 million, compared to fiscal
2000 advertising expenses of $89.0 million. Advertising expense declined as a
percentage of net sales due to 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 $324.1
million, an increase of $11.3 million, or 3.6%, over similar expenses in fiscal
2000 of $312.8 million. As a percentage of sales, selling, general and
administrative expenses were 19.1% for fiscal 2001, compared to 18.9% 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 ("ERP") 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 obsolete 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 closures and
consolidations in North America and Europe covering approximately 340
administrative, production, selling and other employees. Most severance costs
were paid in fiscal 2002 with some payments extending into 2003. Most other
fiscal 2001 restructuring related activities and costs were completed by the end
of fiscal 2002.

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(R) acquisition in December 2000 and
numerous small acquisitions by Scotts LawnService(R) throughout fiscal 2001.

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 fiscal 2001 and an insurance settlement
from a seed warehouse fire. Fiscal 2000 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 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 in North America 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 $243.3 million in fiscal 2000 to $250.7 million in fiscal 2001
due to the 2.3% increase in sales offset by lower margins due to mix and higher
expenses for its sales force and the new ERP system. Scotts LawnService(R) had
income from operations in fiscal 2001 of $4.7 million, compared to $0.9 million
in fiscal 2000. This increase resulted from continued expansion through
acquisitions and new branch openings. Operating income in the Global
Professional segment declined from $26.4 million in fiscal 2000 to $12.7 million
in fiscal 2001 due to lower sales due to poor weather and higher operating costs
in the international Professional business, increased spending in biotechnology
and new investments in branded plants initiatives. 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 $4.0 million in fiscal 2001. Excluding restructuring charges, International
Consumer reported operating income of $6.0 million. The decline in income was
due to lower sales related to poor weather in Europe and higher operating costs.
The International Consumer cost structure was also

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27

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 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 option exercises
in fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities was $224.3 million for fiscal 2002,
compared to $65.7 million for fiscal 2001. The improvement in cash provided by
operations was primarily from increased profitability and improved working
capital driven by a reduction in inventory of over $99 million in fiscal 2002 as
compared to an increase of $68.5 million in fiscal 2001. The seasonal nature of
our operations generally requires cash to fund significant increases in working
capital (primarily inventory) during the first half of the year. Receivables and
payables also build substantially in the second quarter in line with increasing
sales as the season begins. These balances liquidate over the latter part of the
second half of the year as the lawn and garden season winds down. As of the end
of fiscal 2002, accounts receivable had not declined at the same pace as in the
prior year because of the shift in sales to the third and fourth quarters from
the second quarter in fiscal 2002. Net sales were $303.3 million in the fourth
quarter of fiscal 2002 compared to $236.7 million in the fourth quarter of
fiscal 2001. As a result, accounts receivable were $249.9 million at September
30, 2002 compared to $220.8 million at September 30, 2001. Other significant
changes in balance sheet accounts affecting cash provided by operating
activities were the payment in 2002 of $27.9 million of restructuring
liabilities from the 2001 restructuring compared to a buildup of restructuring
reserves in 2001 of $37.3 million and increases to other liabilities, primarily
pension related obligations, added $33.6 million in fiscal 2002 compared to only
$7.6 million in fiscal 2001. Deferred taxes added $21.2 million to cash flows
from operating activities due to tax benefits from the payment of restructuring
accruals from 2001 in fiscal 2002 and additional bonus depreciation recognized
for tax purposes in fiscal 2002.

Our pension liabilities increased dramatically in fiscal 2002 due to the
decline in investment performance and interest rates. The unfunded status of our
curtailed defined benefit plans in the United States increased from a deficit of
$12.2 million at September 30, 2001 to a deficit of $29.2 million at September
30, 2002. Our International plans went from a deficit of $24.3 million in fiscal
2001 to a deficit of $50.2 million in fiscal 2002. Employer contributions to the
plans in fiscal 2003 are not expected to increase appreciably from fiscal 2002
contributions of $7.8 million.

In April 2002, our subsidiary in the United Kingdom, working in conjunction
with Friends of the Earth (U.K.), reached agreement with English Nature on the
cessation of peat extraction activities at three peat bogs leased by us. In late
April 2002, we received payments totaling $18.1 million for the transfer of our
interests in the properties and for the immediate cessation of all but a limited
amount of peat extraction on one of the three sites. Approximately $13.0 million
was recorded as deferred income and will be recognized in income over the 29
month period which began in May 2002 and coincides with the period we are
allowed to complete extraction activities at the one site. An additional $2.8
million was received for peat inventory sold to English Nature which will be
used for restoration activities to be conducted at the various sites. We will
also receive compensation for services rendered from time to time in assisting

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28

English Nature in restoration activities. Further amounts of approximately $3.0
million will be payable to us upon cessation of peat extraction on the remaining
site before October 2004 and the final transfer of interests in the property.
This agreement is not expected to have an impact on the Company's ability to
source these raw materials in the near term. The deferred revenue recorded in
this transaction is included in the change in accrued taxes and liabilities for
the portion to be recognized in fiscal 2003 and in the increase in other
liabilities for the portion recognizable after fiscal 2003 in the Consolidated
Statements of Cash Flows.

Cash used in investing activities was $113.0 million for fiscal 2002,
compared to $101.0 million in the prior year period. Payments on seller notes
increased because of payments made on the Substral deferred purchase obligation
in fiscal 2002. Cash payments on acquisitions completed by Scotts LawnService(R)
increased to $30.5 million in fiscal 2002 from $13.0 million in fiscal 2001. The
total value of acquisitions by Scotts LawnService(R), including property and
equipment obtained in the acquisitions, in fiscal 2002 was $54.8 million,
compared to nearly $18.0 million in fiscal 2001.

In March 2002, an arbitration with Rhone-Poulenc Jardin concerning the
amount paid for businesses acquired in 1998 was settled for a cash payment of
$10.4 million to us of which $0.8 million was interest. After payment of legal
fees of $2.6 million, the net proceeds of $7.0 million were recorded as
reductions in goodwill and other indefinite-lived intangible assets. The net
proceeds are reflected in the Consolidated Statements of Cash Flows as other
cash flows from investing activities.

Financing activities used cash of $41.8 million for fiscal 2002, compared
to providing $21.4 million in the prior year. The decrease in cash from
financing activities was primarily due to the repayment of borrowings under our
credit facility in fiscal 2002 partially offset by the $70 million issuance of
subordinated notes in January 2002. The net proceeds of this issuance were used
to pay down borrowings on our revolving credit facility. Proceeds from the
exercises of stock options increased to $19.7 million in fiscal 2002 from $17.0
million in fiscal 2001. In addition to option exercises in fiscal 2002, 1.2
million warrants were exercised in exchange for the issuance of 0.5 million
treasury shares in a non-cash transaction.

Our primary sources of liquidity are funds generated by operations and
borrowings under our credit agreement. The credit agreement provided for
borrowings in the aggregate principal amount of $1.1 billion consisting of term
loan facilities in the aggregate amount of $525 million and a revolving credit
facility in the amount of $575 million. Due to paydowns on our term loans, the
amount available under the term loan facilities has been reduced to
approximately $375 million as of September 30, 2002. Also, as of September 30,
2002, approximately $14 million of the $575 million revolving credit facility is
committed for letters of credit; the balance of approximately $561 million is
available for use.

Total debt was $829.4 million as of September 30, 2002, a decrease of $58.4
million compared with total debt at September 30, 2001 of $887.8 million. The
decrease in debt compared to the prior year was primarily due to scheduled debt
repayments on our term loans during fiscal 2002 and the repayment of all
borrowings on our revolver as of September 30, 2002 due to significantly
improved cash flow from operations.

At September 30, 2002 we are in compliance with all debt covenants. The
credit agreement contains covenants on interest coverage and leverage. The
credit agreement and the Subordinated Note indenture agreement also contain
numerous negative covenants which we are also in compliance with in fiscal 2002.
We expect to be in compliance with all covenants in fiscal 2003. There are no
rating triggers in our credit agreement or the Subordinated Note indenture
agreement.

Total cash was $99.7 million at September 30, 2002, an increase of $81.0
million from September 30, 2001. Due to restrictions in our debt agreements on
voluntary prepayments of indebtedness, we elected not to use the cash on hand at
September 30, 2002 to paydown indebtedness because voluntary paydowns
permanently reduce the total borrowing commitment available under the credit
facility. A mandatory excess cash-flow prepayment of $24.4 million was paid in
November 2002 based upon fiscal 2002's results of operations and cash flows.

We did not repurchase any treasury shares in fiscal 2001 or fiscal 2002. 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

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29

is presently anticipated that earnings will be retained and reinvested to
support the growth of our business or to pay down indebtedness. The payment of
future dividends, if any, 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.

All of our off balance sheet financing is in the form of operating leases
which are disclosed in the notes to consolidated financial statements included
in Item 8 herein. We have no financial guarantees or other arrangements with any
related parties other than our subsidiaries. All material intercompany
transactions are eliminated in our consolidated financial statements. Certain
transactions with executive officers are fully described and disclosed in our
proxy statement. Such transactions pertain primarily to office space provided to
and administrative services provided by Hagedorn Partnership, L.P. and do not
exceed $150,000 per annum.

In late April 2002, a jury awarded us payment of $22.5 million for amounts
owed to us by Central Garden & Pet, a former distributor. At the same time, we
were ordered to pay Central Garden & Pet $12.1 million for fees and credits owed
to them. The verdict is subject to further revision by post trial motions and is
also appealable. The final outcome cannot be determined until the final judgment
is entered by the court and all appeals, if any, are concluded. We are unable to
predict at this time when the determination of a final amount will occur or
when, or if, we will receive final payment.

In July 2002, the Company's Board of Directors approved a plan designed to
significantly improve the profitability of the International consumer and
professional businesses. The plan includes implementation of an SAP platform
throughout Europe, as well as efforts to optimize operations in the United
Kingdom, France and Germany, including the creation of a global supply chain. We
estimate that there will be a cash outlay of $50-$60 million, of which
approximately 25% will be capital expenditures, to implement this plan fully
over by the end of fiscal 2005. A restructuring and other charge of $4.0 million
was recorded in the fourth quarter of fiscal 2002 related to one of the projects
in the plan, the announced closure of a manufacturing plant in Bramford,
England.

During the first quarter of fiscal 2003, a fork lift accident occurred at
Scotts' plant in Chino, California. The accident resulted in the death of a
Scotts' associate. Scotts believes that workers' compensation insurance coverage
is the family's exclusive remedy against Scotts and therefore does not currently
anticipate any action by the family against Scotts. There is some risk, however,
that claims will be made by the employee's family against third parties, in
which case Scotts may become involved in the litigation. Scotts believes it has
defenses to any attempt to add Scotts as a defendant, but there can be no
guarantees at this point that the defense would be successful. As of December
10, 2002, we are not aware of any complaint that has been filed relating to the
accident or any other action by the employee's family.

We are party to various pending judicial and administrative proceedings
arising in the ordinary course of business. These include, among others,
proceedings based on accidents or product liability claims and alleged
violations of environmental laws. We have reviewed our pending environmental and
legal proceedings, including the probable outcomes, reasonably anticipated costs
and expenses, availability and limits of our insurance coverage and have
established what we believe to be appropriate reserves. We do not believe that
any liabilities that may result from these proceedings are reasonably likely to
have a material adverse effect on our liquidity, financial condition or results
of operations.

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30

The following table summarizes our future cash outflows for contractual
obligations as of September 30, 2002 (in millions):

In our opinion, cash flows from operations and capital resources will be
sufficient to meet debt service and working capital needs during fiscal 2003,
and thereafter for the foreseeable future. However, we cannot ensure that our
business groups will generate sufficient cash flow from operations or that
future borrowings will be available under our credit facilities in amounts
sufficient to pay indebtedness or fund other liquidity needs. Actual results of
operations will depend on numerous factors, many of which are beyond our
control.

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".

MANAGEMENT'S OUTLOOK

We are very pleased with the Company's performance in fiscal 2002. We
entered the year having just completed a significant restructuring and reduction
in force in the fourth quarter of fiscal 2001. We set challenging goals for 2002
such as aggressive growth in sales and profitability, improved customer service
from our order processing and supply chain organizations, improved cash flows
from better management of working capital and significant cost savings from the
restructuring and from new supply chain initiatives to cut costs. We also faced
unforeseen problems during the year such as retailer initiatives to reduce
inventory levels and improve their inventory turns, and the bankruptcy of a
major customer in the United States.

We were successful in 2002 because we executed well on all fronts. Scotts
LawnService(R) increased revenues over 80%, while closing on more than $50
million of acquisitions, and our supply chain organization met its cost
reduction targets while reducing inventories in North America by over $90
million and improving customer service. Increased profitability and working
capital management brought free cash flow of $161 million. We also saw
improvement in our International businesses and improved our return on invested
capital.

Our success in fiscal 2002 sets the stage for fiscal 2003. We are committed
to the continued improvement of our International businesses. We have embarked
upon a three year plan to invest in systems and reorganize our International
operations to drive profitable growth. We have aggressive growth and acquisition
goals for Scotts LawnService(R). We expect continued excellence from our supply
chain
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31

organization in efficient operations, customer service and cost cutting. We will
invest in advertising and explore new distribution channels and products to
leverage our strong brands and drive profitable growth in our North American
businesses.

We believe fiscal 2003 will be a year of profitable growth, with continued
improvement in return on invested capital and strong cash flow.

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 2002 Summary Annual Report, our 2002 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.

Some forward-looking statements that we make in our 2002 Summary Annual
Report, in our 2002 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.

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

We have a significant amount of debt. Our substantial indebtedness could
have important consequences. For example, it could:

- make it more difficult for us to satisfy our obligations under
outstanding indebtedness and otherwise;

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

- 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,
advertising, 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;

- limit our ability to borrow additional funds; and

- expose us to risks inherent in interest rate fluctuations because some
of our borrowings are at variable rates of interest, which could
result in higher interest expense in the event of increases in
interest rates.

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.

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32

We cannot assure you 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
you 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 our other liquidity needs. We may need to refinance all or a portion
of our indebtedness, on or before maturity. We cannot assure you that we
will be able to refinance any of our indebtedness on commercially
reasonable terms or at all.

- RESTRICTIVE COVENANTS MAY ADVERSELY AFFECT US.

Our credit facility and the indenture governing our outstanding senior
subordinated notes contain restrictive covenants that require us to
maintain specified financial ratios and satisfy other financial condition
tests. Our ability to meet those financial ratios and tests can be
affected by events beyond our control, and we cannot assure you that we
will meet those tests. A breach of any of these covenants could result in
a default under our credit facility and/or our outstanding senior
subordinated notes. Upon the occurrence of an event of default under our
credit facility and/or the senior subordinated notes, the lenders and/or
noteholders could elect to declare the applicable outstanding indebtedness
to be immediately due and payable and terminate all commitments to extend
further credit. We cannot be sure that our lenders or the noteholders
would waive a default or that we could pay the indebtedness in full if it
were accelerated.

- 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. An abnormally cold spring throughout North America and/or Europe
could adversely affect both fertilizer and pesticide sales and therefore
our financial results.

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

Because our products are used primarily in the spring and summer, our
business is highly seasonal. For the past two fiscal years, more than 70%
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 effect on our
ability to conduct our business. Adverse weather conditions could heighten
this risk.

- 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
brand names. On occasion, allegations are made that some of our products
have failed to perform up to expectations or have caused damage or injury
to individuals or property. Based on reports of contamination at a third
party supplier's vermiculite mine, the public may perceive that some of
our products manufactured in the past using vermiculite are or may also be
contaminated. Public perception that our products are not safe, whether
justified or not, could impair reputation, involve us in litigation,
damage our brand names and have a material adverse affect our business.

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

North American Consumer net sales represent approximately 70% of our
worldwide net sales. Our top four North American retail customers together
accounted for over 75% of our North American Consumer fiscal 2002 net
sales and 42% of our outstanding accounts receivable as of September 30,
2002. Home Depot, Wal-Mart, Lowe's and Kmart represented approximately
37%,

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33

18%, 11% and 10%, respectively, of our fiscal 2002 North American Consumer
net sales. The loss of, or reduction in orders from, Home Depot, Wal-Mart,
Lowe's, Kmart 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.

We do not have long-term sales agreements or other contractual assurances
as to future sales to any of our major retail customers. In addition,
continued consolidation in the retail industry has resulted in an
increasingly concentrated retail base. To the extent such concentration
continues to occur, our net sales and operating income may be increasingly
sensitive to a deterioration in the financial condition of, or other
adverse developments involving our relationship with, one or more
customers.

Kmart, one of our top customers, filed for bankruptcy relief under Chapter
11 of the bankruptcy code on January 22, 2002. Following such filing, and
their successful obtaining of debtor-in-possession financing, we
recommenced shipping products to Kmart, and we intend to continue shipping
products to Kmart for the foreseeable future. If Kmart does not
successfully emerge from its bankruptcy reorganization, our business could
be adversely affected.

- THE HIGHLY COMPETITIVE NATURE OF THE COMPANY'S MARKETS COULD ADVERSELY
AFFECT THE ABILITY OF THE COMPANY TO GROW OR MAINTAIN REVENUES.

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, supply chain competency and advertising. Some of
our competitors have significant financial resources and research
departments. The strong competition that we face in all of our markets may
prevent us from achieving our revenue goals, which may have a material
adverse affect on our financial condition and results of operations.

- IF MONSANTO WERE TO TERMINATE THE MARKETING AGREEMENT FOR CONSUMER
ROUNDUP(R) PRODUCTS WITHOUT BEING REQUIRED TO PAY ANY TERMINATION FEE, 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 for cause, we would not be entitled to any termination fee, and
we would lose all, or a significant portion, of this significant source of
earnings and overhead expense absorption 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 HAGEDORN PARTNERSHIP L.P. BENEFICIALLY OWNS APPROXIMATELY 37% OF OUR
OUTSTANDING COMMON SHARES ON A FULLY DILUTED BASIS.

The Hagedorn Partnership L.P. beneficially owns approximately 37% of our
outstanding common shares 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.

- 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

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34

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: 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 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 from retailers by December 2004 of residential uses of products
containing diazinon, used also 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 you 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 is
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 and was entered by the court on January 25, 2002.

In fiscal 2002, we made $0.3 in environmental capital expenditures and
incurred approximately $5.4 million in other environmental expenses,
compared with approximately $0.6 million in environmental capital
expenditures and $2.1 million in other environmental expenses in fiscal
2001.

The adequacy of these estimated 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

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35

- 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.

- OUR SIGNIFICANT INTERNATIONAL OPERATIONS MAKE US 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, France and
the Netherlands. In fiscal 2002, international sales accounted for
approximately 24% 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.

In addition, our operations outside the United States are subject to the
risk of new and different legal and regulatory requirements in local
jurisdictions, potential difficulties in staffing and managing local
operations and potentially adverse tax consequences. 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, 2002 and 2001
that are impacted by changes in interest rates. As a means of managing our
interest rate risk on these debt instruments, we entered into the following
interest rate swap agreements to effectively convert certain variable rate debt
obligations to fixed rates:

- In fiscal 2001, we had 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.

- At September 30, 2002 and 2001, six and four interest rate swaps with a
total notional amount of $95.0 million and $105.0 million, respectively,
were used to hedge a portion of the term loan variable-rate obligations
under our credit facility.

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, 2002 and 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

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36

rates are based on implied forward rates in the yield curve at September 30,
2002 and 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 2002, 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 47 herein.

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

None.

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37

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 NUMBER
1 -- ELECTION OF DIRECTORS" in the Registrant's definitive Proxy Statement for
the 2003 Annual Meeting of Shareholders to be held on January 30, 2003 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 -- Summary of Cash and Other
Compensation, -- Option Grants in 2002 Fiscal Year, -- Option Exercises in 2002
Fiscal Year and 2002 Fiscal Year -- End Option Values, -- Equity Compensation
Plan Information, -- Executive Retirement Plan, -- Pension Plans,
and -- Employment Agreements and Termination of Employment and Change-in-Control
Arrangements" and "PROPOSAL NUMBER 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 AND
RELATED STOCKHOLDER MATTERS

In accordance with General Instruction G(3), the information contained
under the caption "BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY" and
"EXECUTIVE COMPENSATION -- Equity Compensation Plan Information" 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",
"PROPOSAL NUMBER 1 -- ELECTION OF DIRECTORS" and "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" in the Registrant's Proxy Statement is incorporated herein
by reference.

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38

PART IV

ITEM 14. CONTROLS AND PROCEDURES

Within 90 days of the date of the filing of this Annual Report on Form
10-K, an evaluation ("Evaluation") was performed under the supervision of, and
with the participation of, the Registrant's principal executive officer and
principal financial officer of the Registrant's disclosure controls and
procedures. Based upon the Evaluation, the principal executive officer and
principal financial officer concluded that:

(A) information required to be disclosed by the Registrant in this
Annual Report on Form 10-K would be accumulated and communicated to the
Registrant's management, including its principal executive and financial
officers, as appropriate, to allow timely decisions regarding required
disclosure; and

(B) information required to be disclosed by the Registrant in this
Annual Report on Form 10-K would be recorded, processed and summarized, and
would be reported within the time period specified in the SEC's rules and
forms.

No significant changes were made to the Registrant's internal controls or
in other factors that could significantly affect these internal controls
subsequent to the date of the Evaluation.

ITEM 15. 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 15 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 47 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 97. 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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39

EXECUTIVE COMPENSATORY PLANS AND ARRANGEMENTS

----
40

----
41

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

* Filed herewith.

(b) REPORTS ON FORM 8-K

The Registrant filed the following reports on Form 8-K during the last
quarter of the period covered by this Report:

(1) The Registrant filed a Current Report on Form 8-K dated August
8, 2002 reporting under "Item 9. Regulation FD Disclosure" sworn
statements submitted by the Principal Executive Officer, James Hagedorn,
and Principal Financial Officer, Patrick J. Norton, of The Scotts
Company pursuant to Securities and Exchange Commission Order No. 4-460.

(2) The Registrant filed a Current Report on Form 8-K dated August
21, 2002 reporting under "Item 9. Regulation FD Disclosure" that the
Registrant issued a press release announcing that Hagedorn Partnership,
L.P. exercised warrants for 1,140,750 common shares of the Registrant on
a cashless basis. Hagedorn Partnership, L.P. received 467,092 common
shares of the Registrant on a net basis and had remaining warrants for
1,792,608 common shares of the Registrant, which remain exercisable on,
or prior to, November 19, 2003.

(3) The Registrant filed a Current Report on Form 8-K dated
September 12, 2002 reporting under "Item 9. Regulation FD Disclosure"
that the Registrant issued a press release announcing its recently
approved international growth plan.

(4) The Registrant filed a Current Report on Form 8-K/A dated
September 13, 2002 (the "September 13th 8-K/A") amending the
Registrant's Current Report on Form 8-K dated June 24, 2002 (the "June
24th 8-K"). The June 24th 8-K contained the Items from the Registrant's
Form 10-K for the year ended September 30, 2001 that were being revised
to reflect retroactive income statement classification and disclosure
changes required upon the adoption of EITF 00-25, Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products, in the quarter ended December 29, 2001 and certain
other matters. The September 13th 8-K/A amends the June 24th 8-K to
reflect additional cooperative advertising costs as

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42

reductions to net sales and additional reclassifications of internal
marketing costs previously reported as advertising and promotion to
selling, general and administrative to achieve the Registrant's
objective of reporting only external media costs as advertising
expenses. The September 13th 8-K/A includes consolidated financial
statements as of and for the year ended September 30, 2001, 2000, and
1999 to reflect the new basis of segment reporting. The September 13th
8-K/A also reflects the adoption of Statement of Accounting Standard No.
142 ("SFAS No. 142") effective October 1, 2001 and the addition of Note
24 of the consolidated financial statements as of and for the years
ended September 30, 2001, 2000, and 1999 to reconcile the income
available to common shareholders as previously reported in the
Registrant's Form 10-K to the adjusted income available to common
shareholders and related earnings per share as if the provisions of SFAS
No. 142 had been adopted as of the earliest period presented.

(5) The Registrant filed a Current Report on Form 8-K dated
September 26, 2002 reporting under "Item 9. Regulation FD Disclosure"
that the Registrant issued a press release announcing that it increased
its net income outlook for the fiscal year ending September 30, 2002.

(6) The Registrant filed a Current Report on Form 8-K dated
September 27, 2002 to file the Consent of Independent Accountants in
respect of a Registration Statement on Form S-4 (File No. 333-92186).

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43

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 10, 2002 By: /s/ JAMES HAGEDORN
--------------------------------------------
James Hagedorn, President/
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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44

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, James Hagedorn, certify that:

1. I have reviewed this annual report on Form 10-K of The Scotts Company;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this
annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: December 10, 2002 /s/ JAMES HAGEDORN
-----------------------------------------------
By: James Hagedorn, President/
Chief Executive Officer

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45

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Patrick J. Norton, certify that:

1. I have reviewed this annual report on Form 10-K of The Scotts Company;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this
annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: December 10, 2002 /s/ PATRICK J. NORTON
-----------------------------------------------
By: Patrick J. Norton,Executive Vice President
and Chief Financial Officer

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46

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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47

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
appropriate in the circumstances 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 elements 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 in the United States of America.

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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48

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 and its subsidiaries at September
30, 2002, and September 30, 2001, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 2002,
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.

As discussed in Note 6 to the financial statements, effective October 1,
2001, the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets".

/s/ PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio

October 30, 2002

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49

THE SCOTTS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
(IN MILLIONS, EXCEPT PER SHARE DATA)

See Notes to Consolidated Financial Statements.

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50

THE SCOTTS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
(IN MILLIONS)

See Notes to Consolidated Financial Statements.

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51

THE SCOTTS COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND 2001
(IN MILLIONS EXCEPT PER SHARE DATA)

See Notes to Consolidated Financial Statements.

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52

THE SCOTTS COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
(IN MILLIONS)

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53

The Scotts Company
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive
Income (continued)
for the fiscal years ended September 30, 2002, 2001 and 2000
(in millions)

- ---------------
(a) Net of tax benefits of $14.8, $5.5, and $0.5 for fiscal 2002, 2001 and 2000,
respectively.

(b) Net of tax benefits of $0.3 and $1.1 for fiscal 2002 and 2001.

See Notes to Consolidated Financial Statements.

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54

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, marketing and sale of lawn care and
garden products. The Company's major customers include home improvement centers,
mass merchandisers, 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 primarily in North America and, the European Union.
We also operate the Scotts LawnService(R) business which provides lawn, tree and
shrub fertilization, insect control and other related services in the United
States.

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.

REVENUE RECOGNITION

Revenue is recognized when products are shipped and when title and risk of
loss transfer to the customer. Provisions for estimated returns and allowances
are recorded at the time of shipment based on historical rates of returns as a
percentage of sales. Scotts LawnService(R) revenues are recognized at the time
service is provided to the customer.

PROMOTIONAL ALLOWANCES

The Company promotes its branded products through cooperative advertising
programs with retailers. Retailers are also offered in-store promotional
allowances and rebates based on sales volumes. Certain products are also
promoted with direct consumer rebate programs. Promotion costs (including
allowances and rebates) incurred during the year are expensed to interim periods
in relation to revenues. All amounts paid or payable to customers or consumers
in connection with the purchase of our products are recorded as a reduction of
net sales.

ADVERTISING

The Company advertises its branded products through national and regional
media. Advertising costs incurred during the year are expensed to interim
periods in relation to revenues. All advertising 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.

Scotts LawnService(R) promotes its service offerings through direct
response mail campaigns. The external costs associated with these campaigns are
deferred and recognized ratably in proportion to revenues as advertising costs
over a period not in excess of one year.

FRANCHISE OPERATIONS

The Company's Scotts LawnService(R) segment consists of 60 company-owned
locations in 42 markets, with an additional 45 franchised locations at September
30, 2002. In fiscal 2001, there were 33 company-owned and 36 franchised
locations. Franchise fee income and royalties are immaterial to total net sales.

RESEARCH AND DEVELOPMENT

All costs associated with research and development are charged to expense
as incurred. Expense for fiscal 2002, 2001 and 2000 was $26.2 million, $24.7
million and $24.1 million, respectively.

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55

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.

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, 2002 and 2001, the
Company had $35.8 million and $36.7 million, respectively, in unamortized
capitalized internal use computer software costs. Amortization of these costs
was $5.8 million, $4.3 million and $0.9 million during fiscal 2002, 2001 and
2000, 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.

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, 2002 and 2001, approximately
7% and 9% 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 $25.9 million and $22.3 million at September 30, 2002
and 2001, respectively.

LONG-LIVED ASSETS

Property, plant and equipment, including significant improvements, are
stated at cost. Expenditures for maintenance and repairs are charged to expense
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.

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 $1.1 million, $3.1 million and $2.4 million of interest costs during
fiscal 2002, 2001 and 2000, respectively.

Management assesses the recoverability of property and equipment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable from its future

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56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

CASH AND CASH EQUIVALENTS

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

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 a 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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57

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.

STOCK OPTIONS

In July 2002, the Company announced that it would begin expensing employee
stock options prospectively beginning in fiscal 2003 in accordance with
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". The fair value of future stock option grants will be expensed
over the option vesting period, which has historically been three years. Based
on historical option grant levels, compensation expense is expected to increase
by approximately $4 million in fiscal 2003. Since expensing occurs ratably over
the three-year vesting period of the options, the full effect of expensing
option grants, assuming similar levels of option grants in each of fiscal 2003,
2004 and 2005 and a constant option value for each of the awards, will be
approximately $12 million per year beginning in fiscal 2005.

The Company currently accounts for stock options under APB 25 "Accounting
for Stock Issued to Employees" and, as allowable, adopted only the disclosure
provisions of SFAS No. 123.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' financial
statements to conform to fiscal 2002 classifications. The most significant of
these reclassifications is the adoption of EITF 00-25 "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products" which requires that certain consideration
from a vendor to a retailer be classified as a reduction in sales. Like many
other companies, we have historically classified these as advertising and
promotion costs. The information for all periods presented reflects this new
method of presentation. Also, certain expenses previously recorded as
advertising were reclassified to marketing within selling, general and
administrative expenses. The amounts reclassified as a result of adopting this
new accounting policy are as follows:

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58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS

NOTE 3. MARKETING AGREEMENT

Effective September 30, 1998, the Company entered into an agreement with
Monsanto Company ("Monsanto") 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.

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59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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
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, 2002, contribution payments and related per
annum charges of approximately $50.2 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.

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60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2002 CHARGES

During fiscal 2002, the Company recorded $8.1 million of restructuring and
other charges.

During the fourth quarter of fiscal 2002, the Company recorded $4.0 million
of restructuring and other charges associated with reductions of headcount from
the closure of a manufacturing facility in Bramford, England. The $4.0 million
charge is included in selling, general and administrative costs in the Statement
of Operations and consists of severance and pension related costs. All fiscal
2002 restructuring related activities and costs are expected to be completed by
the end of fiscal 2003.

Under accounting principles generally accepted in the United States of
America, certain restructuring costs related to relocation of personnel,
equipment and inventory are to be expensed in the period the costs are actually
incurred. During fiscal 2002, inventory relocation costs of approximately $1.7
million were incurred and paid and were recorded as restructuring and other
charges in cost of sales. Approximately $2.4 million of employee relocation and
related costs were also incurred and paid in fiscal 2002 and were recorded as
restructuring and other charges in operating expenses. These relocation charges
related to a plan to optimize the North American supply chain that was initiated
in the third and fourth quarters of fiscal 2001.

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
reductions in headcount and 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 the reduction in
force initiatives and facility closures and consolidations in North America and
Europe covered approximately 340 administrative, production, selling and other
employees. Most severance costs were paid in fiscal 2002 with some payments
extending into 2003. All other fiscal 2001 restructuring related activities and
costs were completed by the end of fiscal 2002.

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61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a rollforward of the cash portion of the restructuring and
other charges accrued in fiscal 2002 and 2001. The balance of the accrued
charges at September 30, 2002 are included in accrued liabilities and other
long-term liabilities on the consolidated balance sheets. The portion classified
as other long-term liabilities is future lease obligations that extend beyond
one year.

NOTE 5. ACQUISITIONS AND DIVESTITURES

During fiscal 2002, the Company's Scotts LawnService(R) segment acquired 17
individual lawn service entities for a total cost of $54.8 million. Of the total
cost, $33.9 million was paid in cash, with notes being issued for the remaining
$20.9 million. Three of the entities acquired were responsible for approximately
$44 million of the total acquisition costs.

Goodwill recognized in the fiscal 2002 acquisitions amounted to $42.7
million all of which is deductible for tax purposes. Other intangible assets,
primarily customer accounts and non-compete agreements, of $8.7 million and
working capital and property, plant and equipment of $3.4 million were also
recorded. These acquired assets are all within the Scotts LawnService(R)
segment.

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 final purchase price, 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, was $34.0 million.

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 $34.0 million.

The following unaudited pro forma results of operations give effect to the
Scotts LawnService(R) acquisitions and Substral(R) brand acquisition as if they
had occurred on October 1, 2000.

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.
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62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Effective October 1, 2001, Scotts adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets". In accordance with
this standard, goodwill and certain other intangible assets, primarily
tradenames, have been classified as indefinite-lived assets no longer subject to
amortization. Indefinite-lived assets are subject to impairment testing upon
adoption of SFAS No. 142 and at least annually thereafter. The initial
impairment analysis was completed in the second quarter of fiscal 2002, taking
into account additional guidance provided by EITF 02-07, "Unit of Measure for
Testing Impairment of Indefinite-Lived Intangible Assets". The value of all
indefinite-lived tradenames as of October 1, 2001 was determined using a
"royalty savings" methodology that was employed when the businesses associated
with these tradenames were acquired but using updated estimates of sales and
profitability. As a result, a pre-tax impairment loss of $29.8 million was
recorded for the writedown of the value of the tradenames in our International
Consumer businesses in Germany, France and the United Kingdom. This transitional
impairment charge was recorded as a cumulative effect of accounting change, net
of tax, as of October 1, 2001. After completing this initial valuation and
impairment of tradenames, an initial assessment for goodwill impairment was
performed. It was determined that a goodwill impairment charge was not required.

Intangible assets include patents, tradenames and other intangible assets
which are valued at acquisition through independent appraisals where material,
or through other valuation techniques. Patents, trademarks and other intangible
assets are being amortized on a straight-line basis over periods varying from 7
to 40 years. The useful lives of intangible assets still subject to amortization
were not revised as a result of the adoption of SFAS No. 142.

Management assesses the recoverability of goodwill, tradenames and other
intangible assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable from its discounted future
cash flows. Goodwill and unamortizable intangible assets are reviewed for
impairment at least annually. If it is determined that an impairment has
occurred, an impairment loss is recognized for the amount by which the carrying
of the asset exceeds its estimated fair value.

The following table presents goodwill and intangible assets as of the end
of each period presented. The September 30, 2002 balances reflect the impairment
charge recorded as of October 1, 2001.

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63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes to the net carrying value of goodwill by segment for the fiscal
year ended September 30, 2002 are as follows (in millions):

The North American Consumer segment goodwill reduction of $3.6 million is a
result of adjustments made to purchase accounting reserves in fiscal 2002. The
$5.5 million reduction in International Consumer goodwill is due to proceeds
received in fiscal 2002 for a legal settlement related to a previous
acquisition.

The following table represents a reconciliation of recorded net income to
adjusted net income and related earnings per share data as if the provision of
SFAS No. 142 relating to non-amortization of indefinite-lived intangible assets
had been adopted as of the beginning of the earliest period presented. This
presentation does not take into account the impairment charge, if any, that may
have been recorded if Statement 142 had been adopted in the earlier periods
presented. Basic and diluted earnings per share would have been $3.44 and $3.19,
respectively in fiscal 2002 excluding the impairment charge.

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64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total amortization expense for the years ended September 30, 2002, 2001
and 2000 was $5.7 million, $27.7 million and $27.1 million, respectively.

Estimated amortization expense for the existing amortizable intangible
assets for the years ended September 30, is as follows:

NOTE 7. 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. Part-time 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 taxable
wage base. Participants become vested in the Company's base contribution after
three years of service. The Company recorded charges of $7.3 million, $10.3
million and $7.4 million under the plan in fiscal 2002, 2001 and 2000,
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 as of
December 31, 1997. 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 International BV, ASEF 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 International BV, ASEF 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.

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. In connection with the
announced closure of a manufacturing plant in Bramford, England to occur in mid-
2003, special termination benefits of $1.5 million were recorded as a component
of restructuring expense in September 2002.

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65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2002, the status of the international plans was as follows
(in millions):

NOTE 8. 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 who were hired before January 1, 1998 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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67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The discount rates used in determining the accumulated postretirement
benefit obligation were 6.75% and 7.5% in fiscal 2002 and 2001, respectively.
For measurement purposes, annual rate of increase in per capita cost of covered
retiree medical benefits assumed for fiscal 2002 and 2001 was 9.50%. The rate
was assumed to decrease gradually to 5.5% through the year 2011 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, 2002 and 2001 by $1.6 million and $0.5 million, respectively. A 1%
decrease in health cost trend rate assumptions would decrease the APBO as of
September 30, 2002 and 2001 by $1.4 million and $0.5 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 $15.8, $14.7 million,
and $9.9 million in fiscal 2002, 2001 and 2000, respectively.

NOTE 9. DEBT

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68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The term loan facilities under the Credit Agreement (the "Credit
Agreement") consist of two tranches. The Tranche A Term Loan Facility consists
of three sub-tranches of Euros 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 ending June 30, 2005 as follows: quarterly installments of $8.3
million until September 30, 2004, quarterly installments of $9.8 million
beginning December 31, 2004 through March 31, 2005 and a final payment of $23.2
million on June 30, 2005 after a $7.3 million required mandatory pre-payment in
fiscal 2003. The 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
and installments of $59.4 million beginning March 31, 2007 through December 31,
2007 after a $17.1 million required mandatory pre-payment in fiscal 2003. These
future payments are presented at September 30, 2002 foreign exchange rates. The
term loan facilities have a variable interest rate, which was 5.43% at September
30, 2002.

The revolving credit facility under the Credit Agreement ("Credit
Agreement") provides for borrowings of up to $575 million, which are available
on a revolving basis over a term of 6 1/2 years ending June 30, 2005. 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 $360
million is available for borrowings in optional currencies, provided that the
outstanding revolving loans in other currencies do not exceed $200 million
except for British Pounds Sterling, which cannot exceed $360 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 Credit Agreement vary
according to the Company's leverage ratios and interest rates also vary within
tranches. The weighted-average cost of debt on the Company's borrowings for the
years ended September 30, 2002 and 2001 was 7.65% and 8.47% respectively.
Financial covenants include 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 Credit Agreement.

Approximately $17.0 million of financing costs associated with the credit
agreement have been deferred as of September 30, 2002 and are being amortized
over a period which ends June 30, 2005. Through September 30, 2002 approximately
$8.7 million of the total had been amortized to expense.

In January 2002, The Scotts Company completed an offering of $70 million of
8 5/8% Senior Subordinated Notes due 2009. The net proceeds from the offering
were used to pay down borrowings on our revolving credit facility. The effective
interest rate for the notes is 8 3/8%. The notes were issued at a

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69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

premium of $1.8 million. The issuance costs associated with the offering totaled
$1.6 million. Both the premium and the issuance costs are being amortized over
the life of the notes.

In January 1999, the Company completed an offering of $330 million of
8 5/8% Senior Subordinated Notes due 2009. 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.
The effective interest rate for the notes including the cost of the interest
rate locks is 9.24%.

In conjunction with previous acquisitions, notes were issued for certain
portions of the total purchase price that are to be paid in future periods. The
present value of the remaining note payments is $43.4 million. The Company is
imputing interest on the notes using the stated interest rate or an interest
rate prevalent for similar instruments at the time of acquisition on the
non-interest bearing notes.

Foreign notes 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, 2002 and 2001 was $2.6 million and $2.8 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 $4.4 million at September 30,
2002 and $6.6 million at September 30, 2001 represent lines of credit for
foreign operations and are primarily denominated in Euros.

NOTE 10. 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. In August 2002,
1.0 million warrants with an exercise price of $29 per share and 0.2 million
warrants with an exercise price of $25 per share were exercised by the issuance
of 499,310 common shares from treasury shares in a non-cash transaction. The
remaining warrants to purchase 1.8 million common shares of The Scotts Company
are exercisable upon shareholder demand for 1.0 million common shares at $21.00
per share and 0.8 million common shares at $25.00 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.

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

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70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. The Company also has a phantom option plan for certain
management employees which is payable in cash based on the increase in the
Company's share price over a three-year vesting period. None of the phantom
options awarded in fiscal 2001 or fiscal 2002 are vested as of September 30,
2002.

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71

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, 2002 (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. However,
effective October 1, 2002 the Company will expense options granted after that
date in accordance with the SFAS No. 123 recognition and measurement provisions.

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 2002, 2001 and 2000: (1) expected market-price
volatility of 29.7%, 29.5% and 27.05%, respectively; (2) risk-free interest
rates of 3.35%, 4.4% and 6.0%, respectively; and (3) expected life of options of
7 years for fiscal 2002 and 6 for fiscal 2001 and 2000. Options are generally
granted with a ten-year term. The estimated weighted-average fair value per
share of options granted during fiscal 2002, 2001 and 2000 was $15.83, $11.74
and $14.94, respectively.

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72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Had compensation expense been recognized for fiscal 2002, 2001 and 2000 in
accordance with provisions of SFAS No. 123, the Company would have recorded net
income and earnings per share as follows:

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 11. EARNINGS PER COMMON SHARE

The following table presents information necessary to calculate basic and
diluted earnings per common share. Basic earnings per common share are computed
by dividing net income available to common shareholders by the weighted average
number of common shares outstanding. Options to purchase 0.1, 0.2 and 0.3
million shares of common stock for the years ended September 30, 2002, 2001 and
2000, respectively, were not included in the computation of diluted earnings per
common share. These options were excluded from the calculation because the
exercise price of these options was greater than the average market price of the
common shares in the respective periods, and therefore, they were antidilutive.

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73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. INCOME TAXES

The provision for income taxes consists of the following:

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

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74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

Net operating loss carryforwards in foreign jurisdictions were $0.6 million
and $5.2 million at September 30, 2002 and 2001, 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 was to
provide for operating losses for which the benefits were not expected to be
realized. However, due to U.K. capital gains generated during the year from a
disposition of peat bogs, the loss carryforward previously subjected to a
valuation allowance and the valuation allowance eliminated. Foreign net
operating losses of $0.6 million can be carried forward indefinitely.
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75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 2002 in accordance with APB 23 since such
earnings have been permanently reinvested.

NOTE 13. 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, 2002 and 2001, Scotts had $400 million and $330 million
outstanding, respectively, 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, 2002 and 2001 consisted of
revolving borrowings and term loans under the Company's credit agreement 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, 2002 and 2001, Scotts had outstanding six and five,
respective interest rate swaps with major financial institutions that
effectively convert variable-rate debt to a fixed rate. The swaps have notional
amounts between $10 million and $25 million ($95 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 3.75% 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. 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. Unrealized
gains or losses resulting from valuing these swaps at fair value are recorded in
other comprehensive income. 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.

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

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76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Excluded from the fair value table above are the following items that are
included in the Company's total debt balances at September 30, 2002 and 2001:

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 14. 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, 2002, 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 $33.6 million, $22.0 million and $17.8 million for fiscal 2002, 2001
and 2000, respectively. The total to be received from sublease rentals in place
at September 30, 2002 is $0.8 million.

NOTE 15. 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, 2002, estimated
annual seed purchase commitments were as follows:

The Company made purchases of $51.6 million, $53.9 million and $31.2
million under this obligation in fiscal 2002, 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

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77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 965,000 cubic meters of peat under this arrangement in fiscal
2002.

MEDIA ADVERTISING. As of September 30, 2002 the Company has committed to
purchase $3.0 million of airtime for both national and regional television
advertising in fiscal 2003. An additional $21.8 million for advertising in
fiscal 2003 was committed to on October 1, 2002.

NOTE 16. 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, worker's compensation, property losses and
other fiduciary liabilities for which the Company is self-insured or retains a
high exposure limit. Insurance reserves are established within an actuarially
determined range. 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.

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
sought 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 voluntarily. Since initiation of the action, we met with the Ohio
Attorney General and the Ohio EPA, and we were ultimately able 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 and was
entered by the court on January 25, 2002.

Now that the Consent Order has been entered, we have paid a $275,000 fine
and must satisfactorily remediate the Marysville site. We have continued our
remediation activities with the knowledge and oversight of the Ohio EPA. We
completed an updated evaluation of our expected liability related to this matter
based on the fine paid and remediation actions that we have taken and that we
expect to take in the future and, based on the latest estimates, we recorded a
charge of $3 million in the third quarter of fiscal 2002 to increase our reserve
accordingly.
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78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition to the dispute with the Ohio EPA, we are negotiating with the
Philadelphia District of the U.S. Army Corps of Engineers ("Corps") regarding
the terms of site remediation and the resolution of the Corps' civil penalty
demand in connection with our prior 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), United Kingdom facility. We have reserved
for our estimates of probable losses to be incurred in connection with each of
these matters.

Regulations and environmental concerns also exist surrounding peat
extraction in the United Kingdom and the European Union. In August 2000, English
Nature, 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. In April 2002, working in conjunction with Friends of the Earth (U.K.), we
reached agreement with English Nature to transfer our interests in the
properties and for the immediate cessation of all but a limited amount of peat
extraction on one of the three sites in exchange for $18.1 million received in
April 2002 and an additional approximately $3 million which will be received
when we cease extraction at the third site. A gain of approximately $5 million
is included in "Other Income". Proceeds of approximately $13 million have been
recorded as deferred income and will be recognized into income over the 29 month
period beginning May, 2002 which coincides with the expected peat extraction
period at the third site. As a result of this transaction we have withdrawn our
objection to the proposed European designations as Special Areas of Conservation
and will undertake restoration work on the sites for which we will receive
additional compensation from English Nature. We consider that we have sufficient
raw material supplies available to replace the peat extracted from such sites.

The Company has determined that cement containing asbestos material at
certain manufacturing facilities in the United Kingdom may require removal in
the future.

At September 30, 2002, $8.2 million is accrued for the environmental
matters described herein. The significant components of the accrual are costs
for site remediation of $5.9 million and costs for asbestos abatement and other
environmental exposures in the United Kingdom of $1.8 million. The significant
portion of the costs accrued as of September 30, 2002 are expected to be paid in
fiscal 2003; however, payments could be made for a period thereafter.

We believe that the amounts accrued as of September 30, 2002 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

(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.

For year ended September 30, 2002, we made approximately $0.3 million in
environmental capital expenditures and $5.4 million in environmental
expenditures, compared with approximately $0.6 million in environmental capital
expenditures and $2.1 million in other environmental expenses for fiscal year
2001.

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 the Company, a subsidiary of the Company
and Monsanto seeking damages and injunctive relief for alleged antitrust
violations and breach of contract
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79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

by the Company and its subsidiary, and antitrust violations and tortious
interference with contract by Monsanto. The suit arises out of Scotts' purchase
of 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 courts invalidate the Roundup(R) marketing
agreement as violative of the federal antitrust laws. 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
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 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.

On May 15, 2002, AgrEvo filed an additional, duplicative complaint that
makes the same claims that are made in the amended complaint in the New York
Action, described above. On June 6, 2002, Scotts moved to dismiss this
duplicative complaint as procedurally improper. There has been no ruling by the
court on Scotts' motion.

The Company believes that AgrEvo's claims in this matter are without merit
and 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 Scotts' results of operations, financial position and cash flows. 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, the Company filed suit against Central Garden & Pet
Company in the U.S. District Court for the Southern District of Ohio (the "Ohio
Action") to recover approximately $24 million in accounts receivable and
additional damages for other breaches of duty.

Central Garden filed counterclaims including 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). The court dismissed a number of Central Garden's counterclaims as
well as Scotts' claims that Central Garden breached other duties owed to Scotts.
On April 22, 2002, a jury returned a verdict in favor of Scotts of $22.5 million
and for Central Garden on its remaining counterclaims in an amount of
approximately $12.1 million. Various post-trial motions have been filed in the
Ohio Action, but so far Central Garden has not challenged the propriety of the
$22.5 million award to Scotts and Scotts has

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

challenged only $750,000 of the $12.1 million awarded to Central Garden on its
counterclaim. Central Garden has challenged, however, the dismissal during trial
of several other counterclaims.

Two counterclaims that the court permitted Central Garden to add on the eve
of trial also remain pending. In these counterclaims, Central Garden seeks
damages in an unspecified amount for Scotts' alleged breach of contract and
conversion with respect to certain inventory held by Central Garden's subagents
and subdistributors. A trial date of October 6, 2003 has been set on these
remaining claims, and discovery has recently commenced.

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

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.
As described above, Central Garden and Pharmacia have settled some or all of
their claims relating to this action.

On April 15, 2002, the Company and Central Garden each filed summary
judgment motions in this action. On June 26, 2002, the court granted summary
judgment in favor of the Company and dismissed all of Central Garden's claims.
On July 28, 2002, Central Garden filed a notice of appeal. The case is now
pending an appeal in the Ninth Circuit Court of Appeals.

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

On October 31, 2000, Central Garden filed an additional complaint against
the Company 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, 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.

All claims in the Contra Costa action currently remain stayed. A further
status conference is set for May 29, 2003. Central Garden and Pharmacia have
settled their claims relating to this action.

Scotts believes that Central Garden's remaining claims are without merit
and intends to vigorously defend against them. Although Scotts has prevailed
consistently and extensively in the litigation with Central Garden, the
decisions in Scotts' favor are subject to appeal. If, upon appeal or otherwise,
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 it will continue to 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
claims brought against Scotts by Central Garden, except for amounts ordered paid
to Central Garden in the Ohio Action for which the Company believes it has
adequate reserves recorded for the amounts it may ultimately be required to pay.

NOTE 17. 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, 2002, 67% of the Company's accounts receivable was due
from customers in North America. Approximately 94% 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

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81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

centers, which accounted for 32%, followed by mass merchandisers at 7% of the
Company's receivables balance at September 30, 2002. No other retail
concentrations (e.g., independent hardware stores, nurseries, etc. in similar
markets) accounted for more than 5% of the Company's accounts receivable balance
at September 30, 2002. The Company's two largest customers accounted for 33% of
the North American Consumer accounts receivable balance at September 30, 2002.

The remaining 6% of North American accounts receivable was generated from
customers of the Scotts LawnService(R) and Global Professional segments 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, 2002 is due from distributors.

The 33% 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, 2002.

At September 30, 2002, the Company's concentrations of credit risk were
similar to those existing at September 30, 2001.

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 2002, 2001 or 2000 net sales.

NOTE 18. OTHER EXPENSE (INCOME)

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

NOTE 19. NEW ACCOUNTING STANDARDS

In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities". This statement modifies and amends the accounting
for restructuring activities that are currently accounted for in accordance with
EITF Issue 94-3 "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". SFAS No. 146 requires most charges to be recorded when they are
incurred, rather than when it is identified that a cost resulting from a
restructuring activity is likely to be incurred. This Statement applies to
restructuring activities occurring after December 31, 2002. The adoption of this
standard will not have an impact on the Company's restructuring costs incurred
prior to the adoption of SFAS No. 146. However the adoption of SFAS No. 146

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82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

can be expected to impact the timing of liability recognition associated with
future restructuring and exit activities.

NOTE 20. SUPPLEMENTAL CASH FLOW INFORMATION

NOTE 21. SEGMENT INFORMATION

For fiscal 2002, the Company was divided into four reportable
segments--North American Consumer, Scotts LawnService(R), Global Professional
and International Consumer. The North American Consumer segment consists of the
Lawns, Gardens, Growing Media, Ortho and Canada businesses. These segments
differ from those used in the prior year due to segregating of the Scotts
LawnService(R) business from the North American Consumer business because of a
change in reporting structure whereby Scotts LawnService(R) no longer reports to
senior management of the North American Consumer segment.

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 Scotts LawnService(R) segment provides lawn fertilization, insect
control and other related services such as core aeration primarily to
residential consumers through company-owned branches and franchises. In most
company markets, Scotts LawnService(R) also offers tree and shrub fertilization,
disease and insect control treatments and, in our larger branches, we offer an
exterior barrier pest control service.

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,
commercial nurseries and greenhouses and specialty crop growers. Our Branded
Plants business and biotechnology operations are also part of the Global
Professional segment. 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 Statement of Financial Accounting Standards 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

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83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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' four 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, 2002, 2001 and 2000 includes amortization of certain intangible assets,
unallocated corporate general and administrative expenses, certain other
income/expense not allocated to the business segments and North America
restructuring charges in fiscal 2002 and 2001. International restructuring
charges of approximately $4.5 million and $10.4 million are included in
International Consumer's operating loss in fiscal 2002 and 2001, respectively.
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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84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations
for fiscal 2002 and 2001.

Certain reclassifications have been made within interim periods.

Common stock equivalents, such as stock options and warrants, 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 over 70% of sales occurring in the
second and third fiscal quarters combined.

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85

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. These Notes were
subsequently registered in December 2000. In January 2002, the Company issued an
additional $70 million of 8 5/8% Senior Subordinated Notes due 2009 and a Form
S-4 registration has been filed to register the Notes.

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, 2002 and
consolidated Balance Sheets as of September 30, 2002 and 2001. 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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86

THE SCOTTS COMPANY
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
(IN MILLIONS)

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87

THE SCOTTS COMPANY
STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
(IN MILLIONS)

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88

THE SCOTTS COMPANY
BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(IN MILLIONS)

----
89

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

----
90

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

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91

THE SCOTTS COMPANY
BALANCE SHEET
AS OF SEPTEMBER 30, 2001
(IN MILLIONS)

----
92

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

----
93

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

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94

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 30, 2002 appearing in Item 15(a)(1) of this Annual Report
on Form 10-K, also included an audit of the financial statement schedules listed
in Item 15(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 30, 2002

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95

THE SCOTTS COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
(IN MILLIONS)

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)

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96

THE SCOTTS COMPANY

INDEX TO EXHIBITS

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102

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103

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* Filed herewith.

** Certain portions of this Exhibit have been omitted based upon an Order
Granting Confidential Treatment from the Securities and Exchange Commission
("SEC"), dated August 23, 2002, extending through September 30, 2005.

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