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

FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999

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 1-11593

THE SCOTTS COMPANY
(Exact name of registrant as specified in its charter)

OHIO 31-1414921
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)


41 SOUTH HIGH STREET, SUITE 3500
COLUMBUS, OHIO 43215
(Address of principal executive offices) (Zip Code)


Registrant's telephone number, including area code: 614-719-5500

Securities registered pursuant to Section 12(b) of the Act:



NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------


Common Shares, Without Par Value New York Stock Exchange
(28,513,006 Common Shares
outstanding at December 1, 1999)


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

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

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

The aggregate market value of the common shares held by non-affiliates of the
registrant at December 1, 1999 was $717,019,251.

DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF THE PROXY STATEMENT FOR REGISTRANT'S 2000 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD FEBRUARY 15, 2000, ARE INCORPORATED BY REFERENCE INTO
PART III HEREOF.


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PART I

ITEM 1. BUSINESS

GENERAL

The Scotts Company (with our subsidiaries, "we" or "Scotts"), is among the most
widely recognized marketers and manufacturers of products for lawns, gardens,
professional turf and horticulture. Our Turf Builder(R) (for consumer lawn
care), Miracle-Gro(R) (for consumer garden care), Osmocote(R) (for professional
horticulture) and Ortho(R) (for consumer herbicides and disease-control
products) brands command market shares more than double those of the next ranked
competitors, in the referenced consumer or professional subgroup. In addition,
pursuant to an agreement with Monsanto Company, we have exclusive international
agency and marketing rights to Monsanto's consumer Roundup(R) herbicide
products. In the United Kingdom, our brands include: Weedol(R) and Pathclear(R)
consumer herbicides; the Evergreen(R) lawn fertilizer line; the Levington(R)
line of lawn and garden products; and Miracle-Gro(R) plant fertilizer. Our
brands in continental Europe include KB(R) and Fertiligene(R) in France and
NexaLotte(R) and Celaflor(R) in Germany. Our long history of technical
innovation, reputation for quality and service and marketing tailored to the
needs of do-it-yourself consumers, and professionals, have enabled us to
maintain market share leadership in our markets while delivering consistent
sales growth.

Domestic operating subsidiaries include: Hyponex Corporation, Scotts-Sierra
Horticultural Products Company, Republic Tool & Manufacturing Corp., and Scotts
Miracle-Gro Products, Inc. International operating subsidiaries include: Scotts
Canada Ltd. (Canada), Scotts Asef BVBA (Belgium), Scotts Horticulture Ltd.
(Ireland), Scotts France SAS (France), Scotts Celaflor GmbH & Co. KG (Germany),
Celaflor HG (Austria), ASEF BV and Scotts Europe BV (Netherlands), and The
Scotts Company (UK) Ltd. and Phostrogen Limited (United Kingdom).

Do-it-yourself consumers, and professionals, purchase through different
distribution channels and have different information and product needs. To
address all of our customers' needs and the increasingly international nature of
our business, we now have six business groups comprised of Consumer Lawns,
Consumer Gardens, Consumer Growing Media and Consumer Ortho (together, the
"North American Consumer Business Group"), the Professional Business Group and
the International Business Group.

FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS

During fiscal 1999, we operated in three principal business segments: (1) North
American Consumer Business Group, which includes products of the Consumer Lawns,
Consumer Gardens, Consumer Growing Media and Consumer Ortho groups, sold in the
United States and Canada; (2) Professional Business Group, including products of
the ProTurf(R) and Horticulture groups, sold in the United States and Canada;
and (3) International Business Group. The following chart shows, for fiscal
1999, each segment's contribution to consolidated sales and operating income
before general corporate expenses:



Percent of Fiscal
Percent of Fiscal Year 1999
Year 1999 Operating Income
Consolidated Sales Before Corporate Expenses
------------------ -------------------------

North American Consumer
Business Group 67% 75%
Professional Business Group 10% 8%
International Business Group 23% 17%


Financial information on our segments for the three years ended September 30,
1999, is presented in Note 20 of the Notes to Consolidated Financial Statements,
which are included under Item 8 of this Form 10-K.


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NORTH AMERICAN CONSUMER BUSINESS GROUP

PRODUCTS

Scotts' consumer products include: lawn fertilizers, lawn fertilizer combination
products and lawn control products, garden tools, walk-behind and riding mowers,
grass seed, lawn spreaders and lawn and garden carts; garden and indoor plant
care products; potting soils and other growing media products; and pesticides
(including herbicides, insecticides and fungicides).

Consumer Lawns Products. Among Scotts' most important consumer products are lawn
fertilizers, such as Scotts Turf Builder(R), and lawn fertilizer combination
products, such as Scotts Turf Builder(R) with Plus 2(R) Weed Control and Scotts
Turf Builder(R) with Halts(R) Crabgrass Preventer. Typically, these are
patented, homogeneous, controlled-release products which provide complete
controlled feeding for consumers' lawns for up to two months without the risk of
damage to the lawn presented by less expensive controlled- and
non-controlled-release products. Some of Scotts' products are specially
formulated for geographical differences and some, such as Bonus(R) S (to control
weeds in Southern grasses), are distributed to limited areas. Lawn control
products prevent or control lawn problems and contain no fertilizer component.
These control products include Scotts(R) Halts(R) Crabgrass Preventer, Scotts(R)
Lawn Fungus Control, Scotts(R) Moss Control Granules, Scotts(R) Diazinon Lawn
Insect Control and GrubEx(R) Season Long Grub Control. Scotts also sells a line
of Miracle-Gro(R) lawn fertilizers, including Miracle-Gro(R) Lawn Fertilizer and
Miracle-Gro(R) Weed and Feed. Scotts' lawn fertilizers, combination products and
control products are sold in dry, granular form.

Scotts also sells numerous varieties and blends of high quality grass seed, many
of them proprietary, designed for different uses and geographies.

Because Scotts' granular lawn care products perform best when applied evenly and
accurately, Scotts sells a line of lawn spreaders specifically manufactured and
developed for use with its products. For fiscal 1999, this line included three
sizes each of SpeedyGreen(R) rotary spreaders and AccuGreen(R) drop spreaders,
and the HandyGreen(R) II hand-held rotary spreaders, all marketed under the
Scotts(R) brand name. Management estimates that for the period January through
September 1999, Scotts' share of the U.S. do-it-yourself consumer lawn
fertilizer and combination products, grass seed (includes PatchMaster(R)
products) and spreaders market was approximately 48%. Durables (which include
spreaders and lawn and garden carts) are manufactured by Republic Tool.

Scotts has a licensing agreement in place with Union Tools, Inc. under which
Union Tools, in return for the payment of royalties, is granted the right to
produce and market a line of garden tools bearing the Scotts(R) trademark.
Scotts also is a party to a licensing agreement with American Lawn Mower Company
under which American Lawn Mower, in return for the payment of royalties, is
granted the right to produce and market a line of push-type walk-behind lawn
mowers bearing the Scotts(R) trademark. Also, Scotts is a party to a licensing
agreement with Home Depot U.S.A., Inc. and Murray, Inc. under which, in return
for the payment of royalties, Home Depot markets a line of motorized,
walk-behind lawnmowers bearing the Scotts(R) trademark, with the mowers
currently manufactured by Murray. These mowers are sold exclusively through Home
Depot retail stores. In management's estimation, Scotts did not have a material
share of the markets for these products in fiscal 1999.

Scotts' wholly-owned subsidiary OMS Investments, Inc. is a party to a licensing
agreement with Home Depot and Deere & Company, under which, in return for the
payment of royalties to OMS, Home Depot markets a line of high quality,
riding/tractor lawnmowers bearing the Scotts(R) trademark, with the mowers
currently manufactured by Deere. These mowers are sold exclusively through Home
Depot retail stores in Canada and the United States.

The Consumer Lawns Business Group has used Scotts(R) and Miracle-Gro(R) consumer
brand recognition to market "Scotts LawnService(R)". In January 1995, Scotts
entered into a licensing agreement with a lawn care service company, Emerald
Green Lawn Service, which allows Emerald Green to use the Scotts(R) name and
logo in its marketing efforts.


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Emerald Green applies Scotts(R) products exclusively. Through October 1998,
Scotts increased its equity interest in Emerald Green from 28% to 84%, and
re-positioned the business in the premium lawn and garden services segment.
Scotts LawnService(R) provides applications of lawn and garden fertilizer and
control products, and tree/shrub care services. During fiscal 1999, Scotts
re-branded the business as Scotts LawnService(R) in some existing Emerald Green
markets and expanded to several new markets. The business ended fiscal 1999 with
Scotts LawnService(R) in 12 markets, and 22 franchised outlets marketed as
Emerald Green Lawn Service featuring Scotts(R) and Miracle-Gro(R) products. The
strategy in fiscal 1999 was to refine the operations model and measure the
equity transfer of the Scotts(R) brands into this premium segment. The fiscal
2000 strategy will be similar with moderate expansion of the business planned
through owned or franchised locations, while applying market knowledge to
optimize opportunities in this service industry.

Consumer Gardens Products. Scotts sells a complete line of water-soluble
fertilizers under the Miracle-Gro(R) brand name. These products are primarily
used for garden fertilizer application. Scotts also produces and sells a line of
boxed Scotts(R) plant foods, garden and landscape fertilizers, Osmocote(R)
controlled-release garden fertilizers, hose-end feeders and houseplant
fertilizer products.

The Consumer Gardens Business Group, through Scotts Miracle-Gro, markets and
distributes the country's leading line of water-soluble plant foods, by market
share. These products are designed to be dissolved in water, creating a dilute
nutrient solution which is poured over plants or sprayed through an applicator
and rapidly absorbed by their roots and leaves.

Miracle-Gro(R) All-Purpose Water-Soluble Plant Food is the leading product in
the Miracle-Gro(R) line, by market share. Other water-soluble plant foods in the
product line include Miracid(R) for acid loving plants, Miracle-Gro(R) for
Roses, Miracle-Gro(R) for Tomatoes, Miracle-Gro(R) for Lawns and Miracle-Gro(R)
Bloom Booster(R) for flowers. Scotts Miracle-Gro also sells a line of hose-end
applicators for water-soluble plant foods, through the Miracle-Gro(R) No-Clog
Garden and Lawn Feeder line, which allow consumers to apply water-soluble
fertilizers to large areas quickly and easily with no mixing or measuring
required. Scotts Miracle-Gro also markets a line of products for houseplant use
including Liquid Miracle-Gro(R), African Violet Food, Plant Food Spikes, Leaf
Shine and Orchid Food.

Management estimates that for the period January through September 1999, Scotts'
share of the garden fertilizer market was 60%, and its share of the indoor plant
foods market was approximately 32%.

Consumer Growing Media Products. The Consumer Growing Media Business Group,
through Hyponex, sells a complete line of growing media products for indoor and
outdoor uses under the Miracle-Gro(R), Scotts(R), Hyponex(R), Earthgro(R),
Peters Professional(R), 1881 Select(R) and other labels. These products include
retail potting soils, topsoil, humus, peat, manures, soil conditioners, barks
and mulches. Products are primarily regionally formulated to respond to varying
consumer expectations and to utilize the suitable but varying raw materials
available in different areas of the country.

Management estimates that for the period January through September 1999, it had
approximately a 32% market share of the consumer large-bag outdoor landscaping
products market, and approximately a 49% market share of the consumer potting
soils market.

Consumer Ortho(R) Products. The new Consumer Ortho Business Group markets weed
control, insect control and plant disease control products under the Ortho(R)
brand name. The Ortho(R) product line includes over 150 different items that
solve outdoor pest problems faced by consumers. Ortho(R) products are available
in aerosol, liquid ready-to-use, concentrated, granular and dust forms in a wide
variety of sizes and delivery systems. This Group acts as the exclusive agent to
market and manage Monsanto's consumer Roundup(R) brand of non-selective weed
control in the United States. Roundup(R) is sold in aerosol, liquid
ready-to-use, concentrated and super-concentrated forms and is the leading brand
of consumer non-selective weed control, by market share, in the United States,
Germany, France, Australia, Denmark, Sweden, Norway, Belgium, Austria and Japan.


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Ortho(R) weed control products are led by its Weed-B-Gon(R) herbicide - the
leading selective consumer herbicide brand in the United States, by market
share. In addition, this Group sells products in the brush control segment
(Brush-B-Gon(R)) and total vegetation control segment (Triox(R)) of the weed
control market. Total vegetation controls eliminate existing weeds and grasses
and prevent growth in a treated area for up to one year.

The Consumer Ortho Business Group markets insect control products for outdoor
and indoor use. Outdoor insect control products include general insect control
under the Ortho(R), Bug-B-Gon(R), Diazinon Ultra(TM), Diazinon Plus(R),
Dursban(TM) (owned by Dow Agrosciences), Malathion 50 Plus(R), Isotox(R) and
Orthene(R) brand names. Because consumer satisfaction depends on easy and
accurate application of these products, this Group also markets a line of
applicators under the Ortho(R), Lock 'n Spray(R), Spray-ette(R), Dial 'n
Spray(R), Whirlybird(R) and Pull 'n Spray(TM) brands.

The Ortho(R) outdoor line also includes specialty insect control products under
the Ortho(R), RosePride(R), Ortho-Klor(R), Ant-Stop(R) and Orthene(R) Fire Ant
control brands. Specialty outdoor products include a line of snail and slug
brands under the Bug-Geta(R) and Bug-Geta(R) Plus brand names. There is also a
line of indoor insect control products under the Ortho(R) Home Defense(TM),
Flea-B-Gon(R) and Ant-Stop(R) brand names.

Separately, the Ortho(R) product line includes items that control common
diseases on lawns, roses, ornamental and vegetable gardens, and sensitive trees
and shrubs. Several of these disease control products also control insects.
These products are sold under the Ortho(R), Orthenex(R), Funginex(R) (owned by
American Cyanamid Company) and Daconil 2787(TM) (owned by ISK Biosciences) brand
names. The Group also markets a limited line of fertilizers under the
Greensweep(R) and Up-Start(R) brands.

The Ortho(R) product line is typically formulated with proprietary active
ingredients sourced from the world's largest agricultural and specialty chemical
manufacturers. A number of the packaging systems used in the line are unique,
including the Lock 'n Spray(R) hose-end dispensing system.

Management estimates that for the period January through September 1999, brands
marketed by this Group had a combined share of the U.S. consumer lawn and garden
chemicals segment of approximately 36%.

MARKET

Scotts believes that it has achieved its leading position, by market share, in
the U.S. consumer do-it-yourself lawn care and garden markets, on the basis of
its strong marketing and advertising programs, its sophisticated technology, the
superior quality and value of its products and the service it provides its
customers. Scotts seeks to maintain and expand its market position by
emphasizing these qualities and taking advantage of the name and reputation of
its many strong brands such as Scotts(R), Miracle-Gro(R), Ortho(R) and
Hyponex(R).

Scotts is the leader, by market share, in the lawn, garden and growing media
sections of the growing lawn and garden market. U.S. population trends indicate
that the consumer segment age of 40 and older, who represent the largest group
of lawn and garden product users, will grow by 28% from 1996 to 2010, a growth
rate more than twice that of the total population.

Drawing upon its strong research and development capabilities, Scotts intends to
continue to develop and introduce new and innovative lawn and garden products.
Scotts believes that its ability to introduce successful new consumer products
has been an important element in Scotts' growth. New consumer products in recent
years include:

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Fiscal 1997
- - -----------
- - - Scotts(R) potting soils and a complete line of indoor soil amendments such
as vermiculite, perlite and charcoal in resealable stand-up bags

Fiscal 1998
- - -----------
- - - the No-Clog-4 in 1(R), which allows for sprinkler feeding of fertilizer for
gardens and lawns
- - - a new line of Miracle-Gro(R) potting soil mix and soil amendment products
- - - an expanded assortment of professional nursery quality potting soil mixes
for consumers under the Scotts Pro Gro(TM) and Miracle-Gro(R) brands

Fiscal 1999
- - -----------
- - - Miracle-Gro(R) Flower Seeding Mix, a pre-mixed combination of flower seed,
fertilizer and mulch
- - - Miracle-Gro(R) Bloom Booster(R), a fertilizer for flowers
- - - three varieties of Miracle-Gro(R) Tree and Shrub Fertilizer Spikes, a
fertilizer for outdoor trees and shrubs
- - - Scotts(R) Master Collection, a slow-release fertilizer for outdoor plant
use

In fiscal 2000, Scotts plans to introduce: the Pure Premium(TM) line of
Scotts(R) grass seed for consumer use; Miracle-Gro(R) Garden Weed Prevent(TM)
and Miracle-Gro(R) Garden Weed Prevent and Plant Food(TM), which contain a
pre-emergent herbicide for outdoor gardening; and Miracle-Gro(R) Garden Soils, a
premium line of outdoor planting soils.

Scotts also seeks to capitalize upon the competitive advantages stemming from
its leading market share positions, and ability to act as a nationwide supplier
of a full line of consumer lawn and garden products. Scotts believes that this
gives it an advantage in selling to retailers, who value the efficiency of
dealing with a limited number of suppliers with high-recognition consumer
brands.

During 1999, Scotts continued to strengthen its relationship with key retailers
by establishing business development teams at Home Depot, Lowe's, the U.S.
military, and hardware co-operatives. Teams at Wal*Mart and Kmart had previously
been established during fiscal 1998. The business development teams work closely
with these retailers, who represent over 75% of sales volume for the North
American Consumer Business Group. The teams assist in all areas of business
including category management, product mix, merchandising, shelving and pricing.
Additionally, Scotts is a recognized source of consumer data that assists
retailers in identifying retail trends, which can lead to increased store sales.

Also, Scotts has formed a North American sales management team for fiscal 2000,
to coordinate customer programs, customer service, and retailer education
programs, offered by the North American Consumer Business Group.

MARKETING, PROMOTION AND BUSINESS STRATEGY

Consumer Lawns products are sold by an approximate 100-person direct sales force
to headquarters of national, regional and local retail chains. This sales force,
most of whom have college degrees and prior sales experience, also recruits and
supervises approximately 335 seasonal part-time merchandisers and 65 part-time
year-round merchandisers in connection with Scotts' emphasis on in-store retail
merchandising of lawn and garden products, a strategy Scotts intends to continue
for fiscal 2000. Most retail sales of Scotts' lawn products occur on weekends
during the Spring and Fall. The Consumer Lawns Business Group also employs
distributors on a selective basis.

For fiscal 1999, Consumer Gardens products were sold to a network of hardware
and lawn and garden wholesale distributors, with sales made directly to some
retailers. Most retail sales of Consumer Gardens products occur on or near
weekends during Spring and early Summer. In addition, Miracle-Gro(R) products
are sold directly to some retailers. For fiscal 2000, the sales force for
Consumer Gardens and Ortho(R) products were combined, for sales to retail home
center stores.


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The Consumer Growing Media Business Group utilizes a 22-person direct sales
force to cover the headquarters of national and regional chains, local accounts
of significant size and distributors who sell to smaller accounts. The Consumer
Growing Media Business Group's sales force hires and directs a network of
outside merchandising service companies to provide seasonal in-store retail
merchandising and re-order support on a national basis. Most retail sales of
Consumer Growing Media landscape products occur on weekends during late Spring,
while value-added products sell year-round.

For fiscal 1999, Ortho(R) brands were sold to the headquarters of the largest 25
retail customers through a 32-person direct salesforce, who work with the
Consumer Ortho Business Group's largest customers to secure retail placement for
Ortho(R) brands as well as ongoing promotional and cooperative advertising
support. Prior to fiscal 2000, Ortho(R) and Roundup(R) products were distributed
under an exclusive distribution agreement with Central Garden & Pet Company.

Scotts assumed the agreement with Central Garden, as part of the Ortho
acquisition. After the Central Garden agreement expired in September 1999,
Scotts began distributing Ortho(R) and Roundup(R) products in a manner similar
to its other lawn and garden products. This system involves a combination of
distributors, of which the largest is Central Garden, as well as direct sales by
Scotts to some major retailers. The terms of the Central Garden agreement are
complex and involve transfers of large amounts of Ortho(R) and Roundup(R)
product inventory and the related accounts receivable and accounts payable.
Scotts, Monsanto and Central Garden have begun preliminary discussions
addressing issues related to the termination of the agreement and to the
resolution of items relating to Central Garden for purposes of determining the
normalized working capital of the Ortho business as of the closing date of the
Ortho acquisition on January 21, 1999. For a variety of reasons, including the
indemnification provisions contained in the Ortho purchase agreement, Scotts
does not believe that the final resolution of the items in dispute among Scotts,
Monsanto and Central Garden will have a material adverse effect on Scotts.

The Consumer Lawns Business Group continues to support independent retailers
with a special line of products, marketed under the Lawn Pro(R) name. These
products include the 4-Step program, introduced in 1984, which encourages
consumers to purchase four products at one time (fertilizer plus crabgrass
preventer, fertilizer plus weed control, fertilizer plus insect control and a
special fertilizer for Fall application). Scotts promotes the 4-Step program as
providing consumers with all their annual lawn care needs for, on average, less
than one-third of what a lawn care service would cost. Scotts believes the Lawn
Pro(R) program has helped Scotts to grow its business with independent retailers
while they face increasing competition from mass merchandisers and home
improvement centers. The Consumer Growing Media Business Group similarly markets
a special line of growing media products under the 1881 Select(R) label, to
independent retailers on a regional basis.

Scotts supports its sales efforts with extensive advertising and promotional
programs, in furtherance of a consumer "pull" marketing strategy. Because of the
importance of the Spring sales season in the marketing of consumer lawn, garden
and growing media products, Scotts focuses advertising and promotional efforts
on this period. Through advertising and other promotional efforts, Scotts
encourages consumers to make the bulk of their lawn, garden and growing media
purchases in the early months of Spring in order to moderate the risk to its
consumer sales which may result from bad weekend weather. The Consumer Lawns
Business Group utilizes radio and television advertising to build consumer
product usage in the Fall, a recommended time to plant grass seed and plants.
The Consumer Lawns Business Group also promotes a Turf Builder(R) annual program
for home centers and mass merchandisers. This program encourages consumers to
purchase their entire year's supply of Turf Builder(R) products in early Spring,
for application in the early Spring, late Spring, Summer and Fall. The Consumer
Growing Media Business Group uses print and television advertising on
Miracle-Gro(R) branded products, and a consumer rebate program for selected
Hyponex(R) products, to encourage early and multiple purchases in the Spring.

Ortho(R) and Roundup(R) branded products are marketed in a manner similar to
Scotts' other consumer brands. Advertising primarily airs on national and
regional television and radio programming with supplemental efforts in key
markets via spot TV and radio.


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Advertising and retail customer promotional efforts, including feature displays,
coincide with periods of high seasonal demand.

The percentage of North American Consumer Business Group sales to mass
merchandisers, warehouse-type clubs, home improvement centers and large buying
groups continues to increase as a percentage of sales. The top ten accounts
(which include two buying groups of independent retailers) represented 77% of
the North American Consumer Business Group sales in fiscal 1998 and 79% in
fiscal 1999.

An important part of Scotts' sales effort is its national toll-free Consumer
Helpline, on which its Consumer Service consultants answer questions about
Scotts' products and give general lawn and garden advice to consumers. With the
Ortho acquisition, the Consumer Services divisions at Scotts and Ortho were
integrated. Scotts' consultants responded to approximately 650,000 telephone and
written inquiries in fiscal 1999, which is consistent with the number of
inquiries in prior years.

Backing up Scotts' marketing effort is its well-known Scotts No-Quibble
Guarantee(TM), instituted in 1958, which promises consumers a full refund if for
any reason they are not satisfied with the results after using Scotts' lawn,
garden and growing media products. Refunds under this guarantee have
consistently amounted to less than 0.4% of net sales for the North American
Consumer Business Group on an annual basis.

Scotts has an Internet web site at www.scottscompany.com, which provides lawn
care and gardening information for consumers, and special sections for the
Professional Business Group's customers, along with corporate and investment
information. Do-it-yourself consumer topics include basic lawn care and
gardening tips, problem solving, frequently asked questions, houseplant care,
landscaping with trees and shrubs and product guides. An arrangement with the
National Gardening Association (NGA) provides access to a database of more than
5,000 gardening questions with answers by NGA's staff horticulturists. The site
also provides an e-mail link to Scotts' Consumer Helpline for answers to lawn
care questions. The Professional Turf section delivers information for turf
managers, by providing Scotts' complete professional product guide, a Technical
Representative/distributor locator and information aimed at turf maintenance
workers and golf course superintendents. The Professional Horticulture section
points nursery and greenhouse growers to their nearest distributor, delivers the
latest news from the Horticulture business of the Professional Business Group of
Scotts, and directs users to customer service. For the period January through
September 1999, the site received approximately 41.7 million "hits", 788,000
user sessions and 20,000 e-mails to Scotts' Consumer Helpline. This represents
increases of 232% for the number of "hits", 300% for the number of user
sessions, and 90% for the number of e-mails, over the same period in 1998.

The fiscal 2000 marketing strategies for the Consumer Lawns Business Group are
to continue the efforts begun in prior years to improve Scotts' relationship
with consumers and retail customers, including: carefully directed consumer
research, to increase understanding of its markets, sales trends and consumer
needs; increased media advertising, with continuation of television advertising
featuring real-life stories of people's experiences with Scotts(R) products, and
of weekend radio advertising emphasizing that "this weekend" is the best time to
apply selected Scotts products; simplification of the product line; addressing
"just-in-time" customer purchasing through continued use of the "never-out"
program by which Scotts builds pre-season inventory of select high-volume
products, which enhances Scotts' ability to timely and completely fill customer
orders; and use of retail merchandisers to enhance communications with consumers
at the point of sale.

The fiscal 2000 marketing strategies for the Consumer Gardens Business Group are
to continue: conducting consumer and market research to analyze consumer
attitudes and purchase decisions; implementation of packaging improvements;
cost-reduction and quality enhancement efforts throughout all product lines;
increased national network television advertising; and use of Scotts
Miracle-Gro's sales and distribution network for Scotts(R) garden products.



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The fiscal 2000 strategy for the Consumer Growing Media Business Group is to
expand its market share of the potting soil and specialty planting soil market,
while maintaining a network of low-cost production facilities for the more
commodity-oriented outdoor landscaping products such as topsoil, manures and
barks/mulches. Scotts expects to grow its share of the potting and planting soil
markets by: developing products and national marketing programs which utilize
its Miracle-Gro(R), Scotts(R), Hyponex(R), Peters Professional(R), Earthgro(R)
and 1881 Select(R) brand names on high-quality, higher margin growing media
products such as potting mixes, with innovative and consumer-preferred
packaging; gaining national distribution of Miracle-Gro(R) value-added potting
soils; marketing Earthgro(R)-labeled organic landscape products nationally; and
conducting consumer research to better understand market needs.

The fiscal 2000 strategy for the Consumer Ortho Business Group is to increase
the size of the markets in which it competes and to capture a share of this
growth greater than its market share, through: the effective use of media
advertising; improved product availability and consumer communication at retail
point-of-purchase; and product and packaging improvements to make the products
easier to apply with good results. Growth is expected by attracting new users to
the categories and by increasing the frequency of use among current users. For
fiscal 2000, Scotts established a separate business office in Canada to manage
and further develop the Green Cross(R) brand of pesticide products there, and to
integrate Scotts' lawns, gardens and growing media businesses with the Green
Cross(R) business acquired in the Ortho acquisition. This office will operate as
Scotts Canada Ltd.

COMPETITION

The consumer lawn and garden market is highly competitive. Consumers have a
choice of do-it-yourself lawn care or use of a lawn service. In the
do-it-yourself lawn care and consumer garden markets, Scotts' products compete
primarily against "control-label" products produced by various suppliers and
sold by such companies as Home Depot (Vigoro(R)), Lowe's (Sta-Green(R)),
Wal*Mart (Sam's American Choice(R)), and Kmart (KGro(R)). "Control-label"
products are those sold under a retailer-owned label or a supplier-owned label
which is sold exclusively at a retail chain. These products compete across the
entire range of Scotts' consumer product line. Some of Scotts' consumer products
compete against nationally distributed branded fertilizers, pesticides and
combination products marketed by such companies as Lebanon Chemical Corp.
(Greenview(R)), United Industries Corporation (Peters(R) water-soluble
fertilizers for the consumer market), Vigoro/Pursell Industries (Vigoro(R),
Sta-Green(R)), the Bayer/Pursell Industries joint venture (Advanced Garden(TM),
Advanced Lawn(TM)), Central Garden (Pennington(R) Seed), and Schultz Co.
(Schultz(R) garden fertilizers and potting soils). Competitors in Canada include
Nu Gro, So Green and IMC Vigoro.

Based on a study covering the period from 1991 to 1996, management estimates
that approximately 15% of all homeowners with lawns use a lawn service. The most
significant competitors for the consumer market which uses a lawn service are
lawn care service companies. Service Master, which owns the Tru Green Company,
ChemLawn(R) and Barefoot Grass(R) lawn care service businesses, operates
nationally and is significantly larger than Scotts.

Most competitors, with the exception of lawn care service companies, sell their
products at prices lower than those of Scotts. Scotts competes primarily on the
basis of its strong brand names, consumer advertising campaigns, quality, value,
service, convenience and technological innovation. Scotts' competitive position
is also supported by its national sales force and its unconditional guarantee.
There can be no assurance, however, that additional competition from new or
existing competitors will not erode Scotts' share of the consumer market or its
profit margins.

Scotts' Consumer Growing Media business faces primarily regional competitors who
are able to compete very effectively on the basis of price in the areas near
their plants where they can reach customers with a lower cost of freight. The
low cost of entry to establish a commodity organics bagging facility and the
ready availability of raw materials make it likely that the large-bag outdoor
market will remain price competitive and lower margin into the future. Customers
require short lead-times, with very high on-time and complete fill rates. These
demands, combined with the high


9
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cost of freight, require the Consumer Growing Media business to continually
evaluate production locations to reduce costs.

The Consumer Ortho Business Group operates in highly competitive markets against
a large number of national and regional brands as well as retailer-supported
private or "control" labels. Given the large number of distinct market segments
and product types coupled with limited shelf space, retailer customers often are
forced to limit listings in any one product to two or three manufacturers. This
typically means one to two national brands, a regional brand and/or a private
label offering. Ortho's principal national competitors include: United
Industries Corporation (Spectracide(R), Hot Shot(R)), the Bayer/Pursell
Industries joint venture (Advanced Garden(TM), Advanced Lawn(TM) pesticide
line), American Cyanamid Company (Amdro(R)) and Enforcer Products, Inc.
(Enforcer(R)). Regional competitors include: The Chas. H. Lilly Co.
(Lilly-Miller(R)), Green Light Company (Green Light(R)), Sunnyland, Bonide
Products, Inc. (Bonide(TM)) and Farnam Companies, Inc. (Security(R) and
Finale(TM)). Customers with significant private label programs include:
Wal*Mart, Kmart, Home Depot, Lowe's, Tru-Serv and Ace Hardware. The Consumer
Ortho Business Group currently does not provide private label products to any of
its customers.

Roundup(R) competitors include United Industries Corporation (Spectracide(R)),
Enforcer Products, Inc. (Enforcer(R)), Farnam Companies, Inc. (Security (R) and
Finale(TM)) and private label products.

BACKLOG

The majority of annual consumer product orders (other than Consumer Growing
Media products which are normally ordered in season on an "as needed" basis) are
received from retailers during the months of October through April and are
shipped during the months of January through April. As of November 26, 1999,
orders on hand for retailers (excluding orders for Consumer Growing Media
products) totaled approximately $67.1 million compared to approximately $53.6
million on the same date in fiscal 1998. All such orders are expected to be
filled in fiscal 2000.

PROFESSIONAL BUSINESS GROUP

MARKET

Scotts sells its professional products to golf courses, commercial nurseries and
greenhouses, schools and sportsfields, multi-family housing complexes, business
and industrial sites, lawn and landscape services and specialty crop growers.
The Professional Business Group's two core businesses are ProTurf(R), the
professionally managed turf market, and Horticulture, the nursery and greenhouse
markets. In fiscal 1999, the Professional Business Group served such
high-profile golf courses as Augusta National (Georgia), Cypress Point and
Pebble Beach (California), Desert Mountain (Arizona), Oakmont Country Club
(Pennsylvania), Colonial Country Club (Texas) and Medinah Country Club
(Illinois). Sports complexes such as Fenway Park, Camden Yards, Wrigley Field,
Yankee Stadium and the Rose Bowl are professional customers, as are major
commercial nursery/greenhouse operations such as Monrovia, Hines and Imperial.

Golf courses and highly visible turf areas accounted for approximately 46% of
Scotts' Professional Business Group sales in fiscal 1999. Management estimates,
based on an independent bi-annual market survey and other information available
to Scotts, that Scotts' share of its target North American golf course high
value turf fertilizer and control products market was approximately 20% in
fiscal 1999.

According to the National Golf Foundation, approximately 350 new golf courses
have been constructed annually during the last three years. In 1999, there were
over 700 new golf courses under construction, and a record 500 or more courses
are expected to be completed in 1999. Management believes that the increase in
the number of courses, the concentration of the growth in the West/South with a
longer growing/maintenance season, the increasing playing time requiring more
course maintenance and the trend toward more highly maintained courses should
contribute to sales growth in the golf course market.



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Horticulture sales accounted for approximately 54% of Scotts' Professional
Business Group sales in fiscal 1999. Scotts sold products to thousands of
nursery, greenhouse and specialty crop growers through a network of
approximately 75 horticultural distributors. Scotts estimates that its leading
market share of the North American horticultural market was approximately 26% in
fiscal 1999. The Horticulture Group conducts business through Scotts'
subsidiary, Scotts-Sierra.

Management believes the increasing acceptance of controlled-release fertilizers
in horticultural/agricultural applications due to performance advantages, labor
savings and water quality concerns should contribute to sales growth in the
horticulture market. However, competitive product technologies may also make
inroads into the horticultural and turf markets.

PRODUCTS

Scotts' professional products, marketed under such brand names as ProTurf(R),
Osmocote(R), Miracle-Gro(R), Metro-Mix(R) and Terra-Lite(R), include a broad
line of sophisticated controlled-release fertilizers, water-soluble fertilizers,
pesticide products (herbicides, insecticides, fungicides and growth regulators),
wetting agents, growing media products, grass seed and application devices. The
fertilizer lines utilize a range of proprietary controlled-release fertilizer
technologies, including Contec(R), Poly-S(R), Osmocote(R) and ScottKote(R), and
proprietary water-soluble fertilizer technologies, including Miracle-Gro
Excel(R). Scotts applies these technologies to meet a wide range of professional
customer needs, ranging from quick-release greenhouse fertilizers to
controlled-release fairway/greens fertilizers to extended-release nursery
fertilizers that last up to a year or more.

To secure uninterrupted supply and consistent costs of raw materials, the
Horticulture group has entered into alliances with suppliers. Scotts works
closely with basic pesticide manufacturers to secure access to, and if possible,
exclusive positions on, advanced control chemistry which can be formulated on
granular carriers, including fertilizers, or formulated as a liquid application.
In fiscal 1998, Scotts signed an agreement with AgrEvo USA Company for the
exclusive domestic distribution rights to various AgrEvo active ingredients for
the professional horticulture market. These active ingredients were used to
create Scotts(R) branded herbicides, fungicides and insecticides such as
Contrast(TM), Closure(TM) and Ovation(TM), three new products launched in 1999.
Scotts expects this product group to represent 10% to 25% of Horticulture sales
by fiscal 2002.

Application devices in the professional line include both rotary and drop action
spreaders. Over 20 proprietary grass seed varieties are also part of the
professional line. The professional Horticulture line also includes an
established line of soil-less mixes in which controlled-release and control
products, and water-soluble fertilizers and wetting agents, can be incorporated
or applied, respectively, to customize potting media for nurseries and
greenhouses.

BUSINESS STRATEGY

Scotts' Professional Business Group focuses its sales efforts on the middle and
high ends of the professional market and generally does not compete for sales of
commodity products. Demand for Scotts' professional products is primarily driven
by product quality, performance and technical support. Scotts seeks to meet
these needs with a range of sophisticated, specialized products.

A primary focus of the Professional Business Group's strategy is to provide
innovative high-value new products to its professional customers. For fiscal
1999, in the horticulture market, the Group introduced Osmocote(R) Pro, a
modification of Osmocote(R) timed-release fertilizer with IBDU fertilizer for
U.S. markets, which was a result of a marketing agreement reached with NuGro,
Inc. Scotts' fertilizer technology is expected to lead to further new
combination product introductions in fiscal 2000 and beyond.



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MARKETING AND PROMOTION

For fiscal 1999, the Professional Business Group's sales force consisted of
approximately 50 territory managers. Many territory managers are experienced
former golf course superintendents or nursery managers and most have degrees in
agronomy, horticulture or similar disciplines. Territory managers work closely
with golf course and sports field superintendents, turf and nursery managers,
and other landscape professionals. In addition to marketing Scotts' products,
Scotts' territory managers provide consultation, testing services and advice
regarding maintenance practices, including individualized comprehensive programs
incorporating various products for use at specified times throughout the year.
The Professional Business Group is served primarily through an extensive network
of distributors.

In December 1998, Scotts reorganized its Professional Business Group to
strengthen distribution and technical sales support, integrate brand management
across market segments and reduce annual operating expenses. The reorganization
reduced the ProTurf(R) division's personnel to approximately 40 employees. The
Group retained a consultative field sales force and field-based technical group
to provide distributors with product training, address questions from customers
and maintain involvement in university trial work. In fiscal 2000, Scotts will
increase its distribution network for ProTurf(R) products, adding to the four
independent distributors appointed last December: Turf Partners, Inc. in the
Midwest and Northeast, BWI Companies, Inc. in the Southwest and Southeast,
Wilbur Ellis Company in the Pacific Northwest and Western Farm Services, Inc. in
California. Alliances are expected to be formed with other distributors as
necessary.

To reach potential purchasers, Scotts uses trade advertising and direct mail and
sponsors seminars throughout the country. In addition, Scotts maintains a
special toll-free number for its professional customers. The professional
customer service department responded to over 50,000 telephone inquiries in
fiscal 1999.

COMPETITION

In the professional turf and horticulture markets, Scotts faces a broad range of
competition from numerous companies ranging in size from multi-national chemical
and fertilizer companies such as DowElanco Company, Uniroyal, BASF and
Chisso-Asahi, to smaller specialized companies such as Lesco, Inc. and Lebanon
Chemical Corp., to local fertilizer manufacturers and blenders. Portions of this
market are served by large agricultural fertilizer companies, while other
segments are served by specialized, research-oriented companies. In specific
areas of the country, particularly Florida, a number of companies have begun to
offer turf care services, including product application, to golf courses. In
addition, the higher margins available for sophisticated products to treat
high-value crops continue to attract large and small chemical producers and
formulators, some of which have larger financial resources and research
departments than Scotts. Also, the influence of mass merchandisers, with
significant buying power, has increased the cost consciousness of horticulture
growers. While Scotts believes that its reputation, turf and ornamental market
focus, expertise in product development and sales and distribution network
should enable it to continue to maintain and build its share of the professional
market, there can be no assurance that Scotts will be able to maintain market
share or margins against new or existing competitors.

BACKLOG

A large portion of professional product orders is received during the months of
August through November and is filled during the months of September through
November. As of November 26, 1999, orders on hand from professional customers
totaled approximately $5.8 million compared with $13.4 million on the same date
in 1998. All of these orders are expected to be filled in fiscal 2000.




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INTERNATIONAL BUSINESS GROUP

MARKET

The International Business Group regularly sells its products to both consumer
and professional users in over 40 countries. Management believes that growth
potential should exist in both markets. This Group also manages and markets
consumer Roundup(R) internationally. Scotts has established business entities in
the markets with significant potential, which include Australia, the United
Kingdom, the Benelux countries, Germany, France, Spain and Italy.

Consumer lawn and garden products are sold under Scotts' various trademarks,
including the Scotts(R) label, in Australia, the European Union, New Zealand and
South America. In addition, products bearing the Miracle-Gro(R) trademark are
marketed in the Caribbean, Australia, New Zealand, the Netherlands and the
United Kingdom. Scotts' Hyponex(R) line of products is present in Japan as a
result of a long-term agreement with Hyponex Japan Corporation, Ltd., an
unaffiliated entity.

Professional markets include both the horticulture and turf industries. The
International Business Group markets professional products in Africa, Australia,
the Caribbean, the European Union, Japan, Latin America, Mexico, the Middle
East, New Zealand, South America and Southeast Asia. Horticultural products
mainly carry the Scotts(R), Sierra(R), Peters(R) and Osmocote(R) labels. Turf
products primarily use the Scotts(R) trademark.

Consumer products are sold by an approximate 193-person sales force and
professional products are sold by an approximate 87-person sales force.

Scotts has leading market share positions in the United Kingdom in a number of
lawn and garden market categories. Its major consumer brands there include
Miracle-Gro(R) plant fertilizers, Weedol(R) and Pathclear(R) herbicides,
EverGreen(R) lawn fertilizer, Levington(R) growing media, and Bug Gun(R)
insecticides.

In October 1998, Scotts, through subsidiaries, acquired from various affiliates
of Rhone-Poulenc Agro: the shares of Rhone-Poulenc Jardin SAS; the shares of
Celaflor GmbH; the shares of Celaflor Handelsgesellschaft m.b.H.; and the home
and garden business of Rhone-Poulenc Agro S.A. in Belgium (collectively
"Rhone-Poulenc Jardin"), each in a privately-negotiated transaction. Scotts
conducts the Rhone-Poulenc Jardin business through Scotts France SAS, based in
Lyon, France.

Scotts France SAS is continental Europe's largest producer of consumer lawn and
garden products. It manufactures and sells a full line of consumer lawn and
garden pesticides, fertilizers and growing media in France, Germany, the Benelux
countries, Austria, Italy and Spain. Brands include KB(R) and Fertiligene(R) in
France, and Celaflor(R) and NexaLotte(R) in Germany.

Also in October 1998, Scotts acquired from an agency of the Irish government,
Bord na Mona, the Shamrock(TM) trademark, a brand used to market peat products
in the United Kingdom and Ireland. As part of the agreement, Scotts has an
option to supply the Shamrock(TM) brand of peat in continental European markets.
Scotts also acquired the rights to a ten-year horticultural peat supply
agreement with Bord na Mona as supplier, with a renewable ten-year term at
Scotts' option. Under the agreement, Bord na Mona will mix and package peat and
other growing media products for Scotts. It is expected that this acquisition
will secure Scotts' access to high quality peat resources for both the consumer
and professional markets in the United Kingdom and Ireland and will also enable
Scotts to enter the professional horticultural compost market in mainland Europe
in due course. Scotts manages this business through Scotts Horticulture Ltd., an
affiliated entity domiciled in Ireland.

In December 1998, Scotts completed its acquisition of Asef Holding B.V., a
privately-held consumer lawn and garden products company, with operations in the
Netherlands. As part of the transaction, Scotts also acquired related assets in



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Belgium. Asef sells fertilizers, growing media and pesticides under the Asef
brand and through private label programs with major retailers. In Holland, Asef
also markets the Bayer line of pesticides. Asef has approximately 40 employees.
Scotts operates this business through Scotts Asef BVBA in Belgium, and ASEF BV
in the Netherlands.

In fiscal 1999, in connection with efforts to successfully integrate these
acquisitions, Scotts divided management of its international operations into
four zones, as follows: Zone 1 (the consumer business in the United Kingdom and
Ireland); Zone 2 (the consumer business in France, Belgium and Holland); Zone 3
(the consumer business in Germany, Austria and Australia); and Zone 4 (the
professional business). For fiscal 1999, Scotts experienced strong sales growth
in its continental European and Benelux consumer business, with weaker results
in the United Kingdom, where Scotts is continuing to integrate and restructure
operations of recently-acquired entities.

BUSINESS STRATEGY

An increasing portion of Scotts' sales and earnings is derived from customers in
foreign countries. The headquarters office for the International Business Group
is located in Lyon, France. The Professional Group of the International Business
Group maintains a separate office in Waardenburg, Netherlands. Scotts' managers
travel abroad regularly to visit its facilities, distributors and customers.
Scotts' own employees manage its affairs in Europe, Australia, Malaysia, Mexico,
Brazil and the Caribbean. The International Business Group plans to further
develop its international business in both the consumer and professional
markets. Scotts believes that the technology, quality and value that are widely
associated with its domestic and acquired brands should be transferable to the
global marketplace.

Management believes the International Business Group is well positioned to
obtain an increased share of the international market. Scotts has a broad,
diversified product line made up of value-added fertilizers which can be
targeted to the market segments of consumer, turf, horticulture and high value
agricultural crops. Also, Scotts has the capability to sell worldwide through
its extensive distributor network. However, there can be no assurance that
Scotts can maintain market share or margins against new or existing competitors,
or that Scotts can obtain an increased share of the international market.

Any significant changes in international economic conditions, expropriations,
changes in taxation and regulation by U.S. and/or foreign governments could have
a substantial effect upon the international business of Scotts. Management
believes, however, that these risks are not unreasonable in view of the
opportunities for profit and growth available in foreign markets. Scotts'
international earnings and cash flows are subject to variations in currency
exchange rates, which derive from sales and purchases of Scotts' products made
in foreign currencies. For a discussion of how Scotts manages its foreign
currency rate exposure, see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."

COMPETITION

The International Business Group's consumer business faces strong competition in
the lawn and garden market, particularly in Australia and the European Union.
Competitors in Australia include Chisso-Asahi, Debco and Yates. Competitors in
the European Union include Bayer, BASF and various local companies. Scotts has
historically responded to competition with superior technology, excellent trade
relationships, competitive prices, broad distribution and strong advertising and
promotional programs.

The international professional market is very competitive, particularly in the
controlled-release and water-soluble fertilizer segments. Numerous U.S. and
European companies are pursuing these segments internationally, including
Pursell Industries, Lesco, BASF, Norsk Hydro, Haifa Chemicals Israel, Kemira and
private label companies. Historically, Scotts' response to competition in the
professional markets has been to adapt its technology to solve specific user
needs which are identified by developing close working relationships with key
users.



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MATTERS RELATING TO THE COMPANY GENERALLY

ROUNDUP MARKETING AGREEMENT

On September 30, 1998, Scotts entered into an agency and marketing agreement
with Monsanto Company and became Monsanto's exclusive agent for the marketing
and distribution of consumer Roundup(R) products in the consumer lawn and garden
market within the United States and other specified countries, including
Australia, Austria, Canada, France, Germany and the United Kingdom. In addition,
if Monsanto develops new products containing glyphosate, the active ingredient
in Roundup(R), or other non-selective herbicides, Scotts has specified rights to
market these products in the consumer lawn and garden market.

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

COMMISSION STRUCTURE

Scotts is compensated under the marketing agreement based on the success of the
consumer Roundup business in the markets covered by the agreement. In addition
to recovering out-of-pocket costs on a fully burdened basis, Scotts receives a
graduated commission to the extent that the earnings before interest and taxes
of the consumer Roundup business in the included markets exceed specified
thresholds. To the extent that these earnings are less than the first commission
threshold set forth below, Scotts will not receive any commission. Net
commission is equal to the commission set forth in the following chart less the
contribution payment Scotts is required to make, as described below. The net
commission is the amount that Scotts actually recognizes on its income
statements.

The commission structure is as follows:


IF EARNINGS ARE
BETWEEN THE FIRST
AND SECOND
COMMISSION IF EARNINGS ARE
THRESHOLDS THE GREATER THAN THE
COMMISSION EQUALS SECOND COMMISSION
THE FOLLOWING THRESHOLD THE
PERCENTAGE OF THE COMMISSION EQUALS THE
DIFFERENCE BETWEEN FOLLOWING AMOUNT PLUS
FIRST SECOND THE EARNINGS AND 50% OF THE AMOUNT OF
COMMISSION COMMISSION THE FIRST COMMISSION THE EARNINGS
YEAR THRESHOLD THRESHOLD THRESHOLD ABOVE $80 MILLION
---- --------- --------- --------- -----------------


1999-2000...... $30,000,000 $80,000,000 46% $23,000,000
2001........... $31,250,000 $80,000,000 44% $21,450,000
2002........... $32,531,250 $80,000,000 40% $18,987,500
2003........... $33,844,531 $80,000,000 40% $18,462,188
2004........... $35,190,645 $80,000,000 40% $17,923,742
2005........... $36,570,411 $80,000,000 40% $17,377,836
2006........... $37,984,471 $80,000,000 40% $16,806,212
2007........... $39,434,288 $80,000,000 40% $16,226,285
2008........... $40,920,145 $80,000,000 40% $15,631,942
2009+.......... $30,000,000 $80,000,000 40% $20,000,000



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Earnings for purposes of the marketing agreement for the 1999 fiscal, or
program, year were increased by $15 million for purposes of calculating
Scotts' commission.

Under the agreement, Scotts is required to make an annual fixed contribution
payment to Monsanto. Nominally, this contribution payment will be $20 million
per fiscal year. However, Scotts was not required to make any contribution
payment in the 1999 fiscal year, and the contribution payments for 2000 and 2001
fiscal years will actually be $5 million and $15 million, rather than $20
million. Scotts and Monsanto have agreed to defer the difference between the $20
million nominal contribution payment and the actual contribution payment in the
first three fiscal/program years under the marketing agreement. Beginning with
the 2003 fiscal year and extending through Scotts' 2018 fiscal year, Scotts must
make a contribution payment of $25 million per fiscal year until Monsanto
recovers the $40 million deferred in the first three fiscal years plus interest
of 8% per year. In addition, during the 2003 through 2008 fiscal year period,
Scotts will apply 50% of the amount by which the net commission exceeds the
specified levels toward the reimbursement of the $40 million deferral.

Specifically, Scotts will apply toward the deferral 50% of the amount by which
Scotts' net commission exceeds the following levels:




YEAR NET COMMISSION LEVEL
- - ---- --------------------

2001..... $32,500,000
2002..... $28,100,000
2003..... $26,700,000
2004..... $30,500,000
2005..... $34,600,000
2006..... $38,900,000
2007..... $43,500,000
2008..... $49,000,000


TERM

The marketing agreement has no definite term, except as it relates to European
Union countries. However, as set forth below, for a period of 20 years Scotts
may be entitled to receive a termination fee if Monsanto terminates the
marketing agreement upon a change of control of Monsanto or the sale of the
consumer Roundup business. With respect to the European Union countries, the
initial term of the marketing agreement extends through September 30, 2005.
After September 30, 2005, the parties may agree to renew the agreement with
respect to the European Union countries for three successive terms ending on
September 30, 2008, 2015 and 2018, respectively. However, if Monsanto does not
agree to any of the extension periods with respect to the European Union
countries, the first commission threshold set forth in the table outlining the
commission structure above, will become $0.

TERMINATION

Monsanto has the right to terminate the marketing agreement upon a specified
event of default by Scotts or upon a change of control of Monsanto or the sale
of the consumer Roundup business, so long as the termination after a change of
control of Monsanto or the sale of the Roundup business occurs later than
September 30, 2003. The events of default by Scotts that could give rise to
termination by Monsanto include:

- - - "Material Breach" which is not cured within 90 days after written notice
from Monsanto and which is not remediable by the payment of damages or by
specific performance;
- - - "Material Fraud" which was engaged in with the intent to deceive Monsanto
and which is not cured, if curable, within 90 days after written notice from
Monsanto;
- - - "Material Willful Misconduct" which is not cured, if curable, within 90
days after written notice from Monsanto;
- - - "Egregious Injury" to the Roundup(R) brand that is not cured, if curable,
within 90 days after notice from Monsanto, unless the egregious injury resulted
from the exercise by Monsanto of its tie-breaking right with respect to
deadlocked actions by the Steering Committee or was caused primarily by an act
or omission of Monsanto;


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17
- - - Scotts' becoming insolvent;
- - - the acquisition of Scotts, by merger or asset purchase, or the acquisition
of more than 25% of Scotts' voting securities, without Monsanto's prior written
approval, by a competitor of Monsanto or by an entity that Monsanto reasonably
believes will materially detract from or diminish Scotts' ability to fulfill
Scotts' duties and obligations under the agreement; or
- - - the assignment by Scotts of all, or substantially all, of Scotts' rights or
obligations under the agreement.

In addition, Monsanto may terminate the marketing agreement within the North
America, U.K., France or "Rest of the World" regions for specified declines of
the consumer Roundup business. For purposes of determining Monsanto's rights
under the agreement, Scotts' performance is based on sales of Roundup(R) to the
ultimate consumers of the product, rather than on sales to retailers or
distributors. Scotts will measure sales to consumers by looking at point-of-sale
unit movement at selected, top-20 Roundup customers in the affected region.

More specifically, Monsanto may terminate the marketing agreement within one of
the regions if:

- - - sales to consumers decline cumulatively over a three fiscal year period
cumulative basis in the region; or
- - - sales to consumers decline by more than five percent in two consecutive
fiscal years within the region.

However, Monsanto may not exercise this termination right if Scotts can
demonstrate that the decline was caused by a severe decline of general economic
conditions or a severe decline in the lawn and garden market in the region
rather than by Scotts' failure to perform its duties under the agreement.
Monsanto would also not be able to terminate the agreement if the decline were
caused by Monsanto's exercise of its right to break ties with respect to
deadlocked decisions of the Steering Committee.

Scotts has rights similar to Monsanto's to terminate the agreement upon a
material breach, material fraud or material misconduct by Monsanto. In addition,
Scotts may terminate the marketing agreement upon Monsanto's sale of the
consumer Roundup business, although then Scotts would lose the termination fee
described below.

TERMINATION FEE

Except to the extent set forth below, if Monsanto terminates the marketing
agreement upon a change of control of Monsanto or the sale of the consumer
Roundup business, Scotts will be entitled to receive a significant termination
fee. Scotts will also be entitled to receive a termination fee if it terminates
the marketing agreement upon a material breach, material fraud or material
willful misconduct by Monsanto.

The termination fee will be calculated in accordance with the following
schedule:




THE TERMINATION FEE
PAYABLE TO
IF TERMINATION OCCURS PRIOR TO SEPTEMBER 30, SCOTTS WILL BE EQUAL TO:
- - -------------------------------------------- -----------------------

2003.................................................. $150,000,000 *
2004.................................................. $140,000,000
2005.................................................. $130,000,000
2006.................................................. $120,000,000
2007.................................................. $110,000,000
2008.................................................. $100,000,000


- - -----------
* Neither Monsanto nor a successor to the consumer Roundup business may
terminate the marketing agreement prior to September 30, 2003 upon a change
of control or a sale of the consumer Roundup business. If Monsanto or a
successor were to do so


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despite such prohibition, the termination fee payable to Scotts would be
$185 million.

Between October 1, 2009 and September 30, 2018, if Monsanto terminates the
marketing agreement upon a sale of the consumer Roundup business or if a
successor terminates the agreement following a change of control of Monsanto,
the termination fee will be equal to the greater of (i) a percentage of the
portion of the purchase price of the consumer Roundup business in excess of a
specified amount and (ii) $16 million.

In addition, if Monsanto terminates the marketing agreement for any reason other
than egregious injury, material fraud or material willful misconduct by Scotts,
Monsanto will forfeit recovery of any unpaid portion of the $40 million deferral
of contribution payments described above.

SALE OF ROUNDUP

Monsanto has agreed to provide Scotts with notice of any proposed sale of the
consumer Roundup business, allow Scotts to participate in the sale process and
negotiate in good faith with Scotts with respect to a sale. If the sale is run
as an auction, Scotts will further be entitled to a 15-day exclusive negotiation
period following the submission of all bids to Monsanto. During this period,
Scotts may revise its original bid, but Scotts will not have the right to review
the terms of any other bids.

In the event that Scotts acquires the consumer Roundup business in such a sale,
it will receive credit against the purchase price in the amount of the
termination fee that would otherwise have been paid to Scotts upon termination
by Monsanto of the marketing agreement upon the sale.

If Monsanto decides to sell the consumer Roundup business to another party,
Scotts must let Monsanto know within 30 days after receipt of notice of the
purchaser whether Scotts intends to terminate the marketing agreement and
forfeit any right to a termination fee or whether Scotts will agree to perform
its obligations under the agreement on behalf of the purchaser, unless and until
the purchaser terminates Scotts and pays the applicable termination fee.

MARKETING FEE

Upon execution of the marketing agreement, Scotts paid Monsanto a fee of $32
million in consideration for the rights obtained under the marketing agreement
with respect to North America.

RESOLUTION OF ISSUES RELATED TO ORTHO ACQUISITION

On January 21, 1999, Scotts completed the acquisition of the Ortho business from
Monsanto for $300 million, subject to adjustment depending on the level of
normalized working capital as of the January 21 closing date. In accordance with
the terms of the acquisition agreement, as of that date, Scotts received an
estimate of normalized working capital of $125.9 million. This estimate resulted
in Scotts making a transfer to Monsanto of $39.9 million on the closing date in
addition to the $300 million purchase price. Following the closing, as provided
by the acquisition agreement, Scotts gave Monsanto its estimate of normalized
working capital, which was significantly lower than $125.9 million, while
Monsanto provided Scotts with its revised estimate that was significantly higher
than $125.9 million.

Scotts and Monsanto have resolved many of the items in dispute which comprise
each party's working capital estimate. Scotts is in the process of resolving the
remaining items in dispute through negotiation and/or arbitration, as
contemplated by the acquisition agreement. Scotts expects that all remaining
issues will be finally resolved during the 2000 fiscal year, but cannot
currently estimate the final normalized working capital amount. To the extent
that the amount differs from $125.9 million, Scotts will either make an
additional payment to or receive a payment from Monsanto that will adjust the
working capital assets on Scotts' opening balance sheet



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for the Ortho business. In either case, Scotts does not believe that the final
resolution of the items in dispute will have a material adverse effect on
Scotts.

PATENTS, TRADEMARKS 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)",
"Lawn Pro(R)", "ProTurf(R)", "Osmocote(R)" and "Peters(R)", are federally and
internationally registered and are considered material to Scotts' business.
Scotts regularly monitors its trademark registrations, which are generally
effective for ten years, so that it can renew those nearing expiration. In 1989,
Scotts assigned rights to selected Hyponex trademarks to Hyponex Japan
Corporation, Ltd., an unaffiliated entity. In July 1995, Scotts-Sierra granted
an exclusive license to use the Peters trademark in the U.S. consumer market, to
Peters Acquisition Corporation, now owed by United Industries Corporation, for
the life of the mark.

As of September 30, 1999, Scotts held over 230 U.S. and international patents on
processes, compositions, grasses and application devices and has additional
patent applications pending. Patent protection generally extends 20 years from
the filing date, and many of Scotts' patents extend well into the next decade.
Scotts also holds exclusive and non-exclusive patent licenses from various
chemical suppliers permitting the use and sale of patented pesticides.

During fiscal 1999, Scotts secured several new U.S. patents. Scotts'
newly-formed biotechnology group within Scotts Research Center, was granted its
first patent, protecting a method for the genetic modification of grass plants,
and specifically, St. Augustinegrasses. In addition, Scotts was granted
separate U.S. patents for the Ortho "Lock 'n Spray(R)" applicator and a Kentucky
Bluegrass variety with high turf performance characteristics. Scotts also
secured seven international patents, one dealing with methylene-urea fertilizer
technology, and six covering various coated fertilizer technologies. Scotts'
methylene-urea technology was patented in Finland, and Poly-S technology was
patented in Norway and New Zealand. In addition, use patents were granted in
Australia, Indonesia and Africa, covering the use of controlled-release
fertilizers as an improved nutrient source for aquaculture. Finally, a new
(experimental) coated fertilizer technology was granted a patent in Mexico.

Scotts' methylene-urea product composition patent, which covers Scotts Turf
Builder(R), Scotts Turf Builder(R) with Plus 2(R) Weed Control and Scotts Turf
Builder(R) with Halts(R) Crabgrass Preventer, among other products, is deemed
material by Scotts and is due to expire in July 2001. Scotts believes that the
high entry costs of manufacturing needed to replicate this product and the value
of the Scotts(R) brand should lessen the likelihood of product duplication by
any competitor.

Glyphosate, the active ingredient in Roundup(R), is subject to a patent in the
United States that expires in September 2000. Scotts cannot predict the success
of Roundup(R) after glyphosate ceases to be patented. Substantial new
competition in the United States could adversely affect Scotts. Glyphosate is no
longer subject to patent in the European Union and is not subject to patent in
Canada. While sales of Roundup(R) in such countries have continued to increase
despite the lack of patent protection, sales in the United States may decline as
a result of increased competition after the U.S. patent expires. Any such
decline in sales would adversely affect Scotts' financial results through the
calculations of the commission under the Roundup(R) marketing agreement.

RESEARCH AND DEVELOPMENT

Scotts has a long history of innovation dating from the 1928 introduction of
Turf Builder(R), through the development, design and construction of its newest
state of the art methylene-urea fertilizer production facility in Marysville,
Ohio. Commissioned in 1999, this facility will produce the new and improved Turf
Builder(R) with Micromax(R) micronutrients for fiscal 2000. Scotts' continued
commitment to innovation has produced a portfolio of over 230 patents worldwide,
covering most of its fertilizers and many of its grasses and application
devices.



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Scotts operates what it believes to be one of the premier research and
development organizations in the lawn and garden industry. Headquartered in the
Dwight G. Scott Research Center for North America in Marysville, Ohio ("Scotts
R&D"), Scotts R&D's mission is to develop and enhance easy to use lawn and
garden products for consumers. This is accomplished through a comprehensive and
consolidated view of innovation including Scotts R&D divisions such as: product
development (agronomic performance); process/formulation development (design of
manufacture); packaging and durables development (new structures, forms,
dispensing and application devices); and regulatory and environmental affairs
(product registration, industry and government relations). Scotts R&D's
consolidated effort harnesses the synergies between all Scotts technologies
resulting in optimization for the lawn and garden consumer, from seed to soil,
fertilizer to weed/pest control.

Scotts R&D operates six research field stations strategically located throughout
the United States in Ohio, Florida, Texas, California, New Jersey and Oregon,
covering 212 acres. These facilities allow for evaluation of regional product
requirements (different soil, climatic and pest pressure) and flexibility for
year-round testing. The facilities also provide regional technical support and
training for sales personnel.

Scotts R&D underwent significant change in fiscal 1999 with the relocation of
the durable goods/application device development group from Republic Tool's
Carlsbad, California facility and the beginning of the relocation of the Ortho
research and development group from San Ramon, California, which is scheduled to
be completed in fiscal 2000. Product development efforts were also reorganized
in 1999 for better alignment with the business group marketing departments.

Since 1992, Scotts' entire line of controlled-released fertilizers has been
reformulated or upgraded with new technology. These include: patented Poly-S(R),
ScottKote(R) and methylene-urea; and Osmocote(R) patterned release,
polymer-encapsulated technology. These technologies service the turfgrass,
garden, horticultural and specialty agricultural markets both domestically and
internationally. Process development efforts continue to focus on process
innovation, capacity increase, quality enhancement and cost reduction. The
fiscal 2000 year impact of this work is expected to result in improvements
ranging from Miracle-Gro(R) Tree Spikes (cost reduction and quality improvement)
to controlled-release fertilizer for professional horticultural container-grown
plants (improved performance, cost reduction and quality improvement).

In fiscal 1998, Scotts consumer lawn fertilizer packaging was converted to high
quality plastic that has since become the industry standard. Scotts R&D applied
learning gained in that conversion to subsequently convert the Professional
Business Group's fertilizer line in fiscal years 1999 and 2000. The Consumer
Ortho Business Group will convert packaging for granular control chemicals in
fiscal 2000. Also new in fiscal 2000 is the sliding reclosure feature on
Miracle-Gro(R) Potting Soil. Scotts R&D should benefit from the consolidation of
resources from the relocation to Marysville, of the Ortho research and
development functions. Continued efforts will include package/dispensing
innovation, consumer ease of use and reduction of consumer exposure. Examples in
fiscal 1999 include the successful introduction of Pull 'n Spray(TM) and Lock 'n
Spray(R) in the Roundup(R) and Ortho(R) product lines, both unique combined
packaging/application systems.

Scotts R&D maintains an aggressive active ingredient access and evaluation
program, critical to the introduction of new and improved products. Over 100 new
formulations are prepared and evaluated each year in over 1,000 tests. Combined
with Scotts' brands and market/sales position, this capability has allowed
Scotts to gain exclusive and semi-exclusive access to new active ingredients
from major chemical suppliers. Examples in consumer products are: bifenthrin
insecticide (FMC Corporation); halofenozide insecticide (RohMid LLC); and
pendimethalin herbicide (American Cyanamid Company). Examples in professional
products are: myclobutanil fungicide (Rohm & Haas Company); paclobutrazol turf
growth regulator (Zeneca Professional Products); etridiazole fungicide (C&K
Witco); and flutolanil fungicide, propamocarb fungicide, deltamethrin
insecticide, bendiocarb insecticide, clofentezine miticide and buprofezin
insecticide (AgrEvo Environmental Health).



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Since 1997, Scotts has maintained a dedicated turfgrass genetic engineering
laboratory in its existing Scotts R&D facility in Marysville, to develop
turfgrass varieties with improved characteristics such as resistance to disease,
insects and herbicides. In January 1998, Scotts acquired an 80.8% interest in
Sanford Scientific, Inc., a research company in the rapidly growing field of
genetic engineering of plants. Sanford Scientific has developed and licensed a
broad portfolio of genes and genetic process technology. It holds the exclusive
license to use biolistic ("gene gun") technology in the commercial development
of genetically transformed turf grasses, flowers and woody ornamental plants.
Biolistic technology involves the delivery of desirable genetic characteristics
by high-velocity injection into cells. The technology is widely used in medical
research and agricultural fields for applications ranging from immunization and
cancer treatment to creation of new agricultural crop varieties, including corn
and soybeans. The biolistic approach to genetic engineering of plants has
important advantages over other transformation technologies. For some plant
species, transformation using the gene gun is largely considered the only
commercially viable method of inserting new gene traits into plants. In
addition, Sanford Scientific has developed and licensed a broad portfolio of
genes and genetic process technology with commercial potential.

Gene gun technology augments Scotts' genetic improvement program by allowing
researchers to create desirable varieties of plants with value-added traits
beyond the capabilities of conventional plant breeding techniques. Targets of
Scotts' research effort include disease and insect resistance, herbicide
tolerance and other consumer-relevant traits, such as turfgrasses that require
less mowing and flowers with novel colors and fragrances. Scotts expects that it
will commercialize selected genetically transformed plants within a few years.

Scotts acquired its interest from Sanford Scientific founder and president Dr.
John Sanford, who retained a 19.2% interest and remains involved with Sanford
Scientific, as a member of Sanford Scientific's Board of Directors. He also
provides consulting services to Sanford Scientific, under an agreement that
continues through January 31, 2000. Dr. Sanford led the team of Cornell
University scientists who invented the gene gun technology in the 1980's, and he
continues as a leading expert in the field. Sanford Scientific operates an
advanced genetic research facility in upstate New York, and actively
collaborates with other leading genetic scientists.

Exclusive access to this technology is a key element in Scotts' program to
create value by combining Scotts' brands and Sanford Scientific's biolistic
transformation process with proven genes licensed from technology partners.
Consistent with this strategy, in August 1998, Scotts completed an agreement
with Rutgers University, the State University of New Jersey. Under this
agreement, Scotts will fund, through research support and future royalties, a
combined effort by Rutgers' plant biotechnology and turfgrass breeding programs
to develop improved transgenic bentgrass varieties. In return, Scotts will
receive exclusive rights to market all Rutgers' patented transgenic bentgrass
varieties developed through 2005, likely extending to 2015. Rutgers' development
program will utilize the biolistic process and other enabling technologies under
license to Sanford Scientific to insert and activate genes that are proprietary
to Rutgers University. Any superior bentgrass varieties that result from the
program are expected to be commercialized in the golf course market.

In December 1998, Scotts entered into an agreement with Monsanto to bring the
benefits of biotechnology to the multi-billion dollar turfgrass and ornamental
plants business. Under the terms of the agreement, Scotts and Monsanto agree to
share technologies, including Monsanto's extensive genetic library of plant
traits and Scotts' proprietary gene gun technology to produce improved
transgenic turfgrasses and ornamental plants. Scotts and Monsanto will work with
each other exclusively on a global basis to develop these biotechnology products
in the professional and consumer markets. Each company will bring its leading
brands, marketing skills and technological expertise to create new products. In
addition to sales by Scotts, the companies plan to license the new products to
other marketing partners in the turf and ornamental industry. The collaborative
alliance will focus on providing professional and consumer benefits such as
turfgrass that requires less mowing and water, ornamental plants that last
longer and produce larger and more plentiful blooms, and plants that will allow
for better weed control. Scotts has been working



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since 1997 on Roundup Ready(R) turfgrass, which is tolerant to Monsanto's
Roundup(R), under a research agreement with Monsanto. The current alliance
expands that relationship to cover new applications for Roundup Ready(R)
technology as well as other improvements to ornamental plants.

In addition to Scotts R&D for North America, the International Business Group
conducts research and development in Levington, the United Kingdom; Lyon,
France; Ingelheim, Germany; Heerlen, Netherlands; and Sydney, Australia. The
Levington site supports consumer and professional formulation and testing of
lawn and garden fertilizers, pesticides and growing media. The Lyon and
Ingelheim sites support consumer household insecticide formulation and testing,
as well as lawn and garden fertilizers, pesticides and growing media. The
Heerlen facility supports professional formulation, testing and process
development of turf and horticultural fertilizers, and testing of pesticide
products. The Sydney site supports consumer and professional testing and
technical service of fertilizer and pesticide products. The Scotts Company
(U.K.) Ltd. leases a research facility and trial station in the United Kingdom
for formulating plant protection products for the consumer and professional
markets.

Company research and development expenses were approximately $21.7 million (1.3%
of net sales) for fiscal 1999 including environmental and regulatory expenses.
This compares to $14.8 million (1.3% of net sales) and $10.0 million (1.1% of
net sales) for fiscal 1998 and 1997.

SEASONALITY

Scotts' business is highly seasonal with approximately 74% of sales occurring in
the second and third fiscal quarters combined for fiscal 1999, and 72% for
fiscal 1998. Please also see the discussion in "North American Consumer Business
Group--Backlog" and "Professional Business Group--Backlog."

The products marketed by the Consumer Ortho Business Group are highly seasonal.
However, they are not necessarily driven by the same weather variables as are
the other products of Scotts. For example, insect populations (and corresponding
control product sales) tend to thrive when wet springs yield to hot, humid
summers. In contrast, fertilizer sells best in drier springs.

OPERATIONS

PRODUCTION FACILITIES

The manufacturing plant for consumer and professional fertilizer products
marketed under the Scotts(R) label is located in Marysville, Ohio. Manufacturing
for these products is also conducted by approximately 40 contract manufacturers.
Demand for Turf Builder(R), Poly-S(R) and other products results in Scotts
expanding operations (generally from October through May) of its fertilizer
processing and packaging lines from five days per week, three-shift operations
to seven days, three-shift operations when necessary to prepare for the peak
demand periods. Scotts currently operates its three Turf Builder(R) lines seven
days per week, year round, and began engineering of a fourth Turf(R) Builder
production line, to meet capacity needs for those products. Scotts-Sierra
controlled-release fertilizers are produced in Charleston, South Carolina;
Milpitas, California; and Heerlen, Netherlands. Expansion at each facility
has been completed to permit the blending of products which utilize both Scotts
and Scotts-Sierra proprietary technology. Production schedules at
Scotts-Sierra's facilities vary to meet demand. Seed blending and packaging are
outsourced to various packaging companies located on the West Coast near seed
growers. Growing media products are processed and packaged in 27 locations
throughout the United States. Scotts operates two composting facilities where
yard waste (grass clippings, leaves, and twigs) is converted to raw materials
for Scotts' growing media products. Operations at these facilities have been
integrated with Scotts' 27 growing media facilities. Scotts also utilizes
approximately 30 contract production locations for growing media products.
Scotts' lawn spreaders and specialty hose sprayers are produced at the Republic
facility in Carlsbad, California. Republic Tool adjusts assembly capacity from
time to time, to meet demand. Both Hyponex's and Republic Tool's operations vary
production schedules to meet demand. The majority of


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Miracle-Gro(R) water-soluble fertilizers is contract-manufactured in three
facilities located in Ohio, Texas and Florida.

Granular and water-soluble fertilizers, liquid herbicides and pesticides and
growing media for the U.K. market, are produced in East Yorkshire (Howden,
Hatfield and Swinefleet) and Bramford (Suffolk), in the United Kingdom.

Bramford is the headquarters for U.K. operations and for the U.K. professional
business. The site houses a modern fertilizer granulation plant with automated
packing lines, liquid fertilizer production and bottling facilities. In
addition, there are facilities for formulating and bottling a wide range of
liquid plant protection products including herbicides, insecticides and
fungicides. Bramford produces a wide range of products for both the consumer and
professional businesses in Europe. These include the EverGreen(R) line of
consumer lawn products and Greenmaster(R) products for the professional turf
market. The Hatfield and Swinefleet factories contain modern facilities for the
screening and blending of peat, together with various additives to produce a
wide range of growing media. Peat to supply the facilities is harvested on both
sites and brought in from satellite sites in Northwest England and Scotland.
These facilities produce the Levington(R) brand of compost for both the consumer
and professional businesses. Peat from Ireland is imported to produce the
Shamrock(TM) range of growing media. Granular and water-soluble fertilizers and
pesticides are produced at Howden and growing media is produced at Swinefleet
and Hatfield.

At Hautmont, France, growing media and fertilizers for the consumer market are
blended and bagged, and at Bourth, France, pesticide products for the consumer
market are formulated, blended and packaged. Production schedules at Hautmont
vary from one shift to two shifts to meet demand, while Bourth maintains two
shifts year-round.

Liquid and granular ingredients made primarily for Ortho(R) and Roundup(R)
products are manufactured at Scotts' Fort Madison, Iowa facility and at several
contract facilities. The plants adjust to seasonal demands expanding from two
shifts five days a week to three shifts five days a week during peak season.

Resin used for producing Osmocote(R) controlled-release fertilizer in the United
States is manufactured by Sunpol Resins and Polymers, Inc. (formerly
Sierra-Sunpol Resins, Inc.). In March 1999, Scotts-Sierra sold its majority
stock interest in Sierra-Sunpol Resins, Inc., to the minority share owner and
facility manager, which operates as Sunpol Resins and Polymers, Inc. In
connection with the sale, Scotts entered into a five-year supply agreement for
resin for domestic operations.

Management believes that each of its facilities is well-maintained and suitable
for its purpose. However, due to the seasonal nature of Scotts' business,
Scotts' plants operate at maximum capacity during the peak production periods.
Therefore, an unplanned serious production interruption could have a substantial
adverse affect on Scotts' sales of the affected product lines.

CAPITAL EXPENDITURES

Capital expenditures totaled $66.7 million and $41.3 million for fiscal 1999 and
1998. Of the major expenditures for fiscal 1999, approximately $21.0 million was
spent on the implementation of the Enterprise Resource Planning information
services program, $11.0 million for completion of the third Turf Builder(R)
production line and associated packaging line additions, and over $2.0 million
for facility expansions required for integration of Ortho operations.
Engineering work has been initiated for the construction of a fourth Turf
Builder(R) line, which with additional blending and packaging expansions, is
expected to cost a total of $46.0 million for fiscal years 2000 and 2001. Thus,
Scotts estimates that capital spending will approximate $70.0 million for fiscal
2000, which will include additional production capacity for Osmocote(R) products
in Europe and expansion and automation of packaging capabilities in the Growing
Media and Ortho facilities. Capital spending will approximate $60.0 to $70.0
million for fiscal 2001 and thereafter for the foreseeable future.




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PURCHASING

The key ingredients in Scotts' fertilizer and control products are various
commodity and specialty chemicals including vermiculite, phosphates, urea,
potash, herbicides, insecticides and fungicides. Scotts obtains its raw
materials from various sources, which Scotts presently considers to be adequate.
No one source is considered to be essential to any of Scotts' North American
Consumer, Professional or International Business Groups, or to its business as a
whole. Scotts has never experienced a significant interruption of supply.

Raw materials for Scotts Miracle-Gro include phosphates, urea and potash. Scotts
considers its sources of supply for these materials to be adequate. All of the
products sold by Scotts Miracle-Gro in North America, are produced under
contract by independent fertilizer blending and packaging companies.

Scotts-Sierra purchases granular, homogeneous fertilizer substrates to be coated
and the resins for coating. These resins are primarily supplied domestically by
Sunpol Resins and Polymers, Inc.

Sphagnum peat, bark, peat, humus, vermiculite and manure constitute Hyponex's
most significant raw materials. At current production levels, Scotts estimates
Hyponex's peat reserves to be sufficient for its near-term needs in all
locations. Bark products are obtained from sawmills and other wood residue
producers and manure is obtained from a variety of sources, such as feed lots
and mushroom growers.

Raw materials for Republic Tool's operations include various engineered resins
and metals, all of which are available from a variety of vendors.

The Consumer Ortho Business Group's primary raw materials are pesticides similar
to those used by the agriculture industry. No single chemical is essential in
this market segment and all materials or suitable substitutes are expected to
remain readily available.

The International Business Group is comprised of Professional and Consumer
subgroups, which offer products that are very similar to those marketed by the
Professional and North American Consumer Business Groups. The raw materials are
therefore similar to those used by the Professional and North American Consumer
Business Groups. Scotts believes that its raw materials sources for the
International Business Group are sufficiently varied and anticipates no
significant raw material shortages. Both the North American and International
Consumer Businesses contract with essentially the same major chemical and
packaging companies, through short and long-term supply agreements, for the
supply of specialty chemicals, fertilizers and packaging materials. The North
American and International Professional Businesses contract with local major
producers, through short and long-term supply agreements, for the supply of
sphagnum peat, peat, humus and vermiculite, which constitute the most
significant raw materials for these businesses. Long-term supply arrangements
for peat, and owned peat reserves in the United Kingdom and Ireland, are
expected to be sufficient for the International Group's near-term needs, at
current production levels. Packaging materials are supplied by major packaging
companies, through short and long-term supply arrangements, which Scotts
considers adequate for its supply needs.

DISTRIBUTION

The primary distribution centers for Scotts(R) products are located near Scotts'
North American headquarters in central Ohio. Scotts' expansion of its Marysville
distribution facility was completed in December 1997. Scotts' products are
shipped by rail and truck. While the majority of truck shipments is made by
contract carriers, a portion is made by Scotts' own fleet of leased trucks.
Inventories are also maintained in contract field or public warehouses located
in major markets.

The products of Scotts Miracle-Gro are warehoused and shipped from three primary
contract packagers located throughout the United States. These contract
packagers ship Miracle-Gro(R) products via common carrier direct to customers,
lawn and garden distributors and to two contract distribution centers located in
Fresno, California and Jacksonville, Florida. Inventories of Scotts U.K.
products for the European


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market, which are produced at the East Yorkshire (Howden) and Bramford (Suffolk)
facilities, are distributed through a public warehouse in Daventry, the United
Kingdom. Professional products for the U.K. market are warehoused and shipped
from the Daventry and Chasetown, U.K. locations.

Most growing media products have low sales value per unit of weight, making
freight costs significant to profitability. Therefore, the Consumer Growing
Media Business Group has located all of its 27 plant/distribution locations near
large metropolitan areas in order to minimize shipping costs and to be near raw
material sources. The Group uses its own fleet of approximately 70 trucks as
well as contract haulers to transport its products from plant/distribution
points to retail customers. Large-bag outdoor landscaping products and much of
the indoor potting soil products are shipped directly to retail stores. A
portion of Scotts' indoor potting soil and additive products is shipped to
retailers' distribution centers for redistribution to their stores. In the
United Kingdom, growing media is packaged at Hatfield and Swinefleet and shipped
directly to customers in the United Kingdom. Growing media is also produced in
Hautmont, France and Didam, the Netherlands, and shipped directly to customers.

Scotts' Ortho(R) and Roundup(R) products are produced and shipped from two
primary manufacturing facilities, one owned by Scotts and located in Fort
Madison, Iowa and another at a contract packager located in Sullivan, Missouri.
These products are shipped via common carrier through a newly-created
distribution network of five contract distribution centers located in Fresno,
California; Jacksonville, Florida; Arlington, Texas; Parksburg, Pennsylvania;
and Wentzville, Missouri. These distribution centers ship directly to customers
and to various lawn and garden distributors across the United States.

Scotts-Sierra's products are produced at two fertilizer and two growing media
manufacturing facilities located in the United States and one fertilizer
manufacturing facility located in Heerlen, Netherlands. The majority of
shipments is via common carriers through distributors in the United States and a
network of public warehouses in Europe.

Republic Tool-produced, Scotts(R) branded spreaders are shipped via common
carrier to regional warehouses serving Scotts' retail network. A portion of
Republic Tool's spreader line and its private label lines is sold free-on-board
(FOB) Carlsbad with transportation arranged by the customer.

Fertilizers and pesticide products manufactured in Bourth, France are shipped to
customers via a central distribution center located in Blois, France.

SIGNIFICANT CUSTOMERS

Home Depot and Kmart Corporation represented approximately 17% and 9% of Scotts'
sales in fiscal 1999. Wal*Mart sales represented 7% of Scotts' fiscal 1999
sales. After allocating buying groups' sales to that retail customer, Wal*Mart
sales represented approximately 12% of Scotts' fiscal 1999 sales. All three
customers hold significant positions in the retail lawn and garden market. There
continues to be intense competition between and consolidation within the retail
outlets selling Scotts products. The loss of any of these customers or a
substantial decrease in the amount of their purchases could have a material
adverse effect on Scotts' business.

EMPLOYEES

Scotts' corporate culture is a blend of the history, heritage and culture of
Scotts and companies acquired over the past ten years. Scotts provides a
comprehensive benefits program to all full-time associates. As of September 30,
1999, Scotts employed approximately 2,900 full-time workers in the United States
(including all subsidiaries) and an additional 1,050 full-time employees located
outside the United States. As of September 30, 1999, full-time workers averaged
approximately eight years employment with Scotts or its predecessors. During
peak production periods, Scotts engages as many as 1,600 temporary workers in
the United States. In the United Kingdom, during peak periods, as many as 84
temporary workers are engaged and European operations engage an average of 53
temporary workers annually.

Scotts' U.S. employees are not members of a union, with the exception of 27 of
Scotts-Sierra's employees at its Milpitas facility, who are represented by the
International Chemical Workers Union Council/United Food and Commercial Workers



25

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Union. Approximately 100 of Scotts' full-time U.K. employees at the Bramford
(Suffolk), and East Yorkshire (Hatfield and Swinefleet) manufacturing sites
are members of the Transport and General Workers Union. A number of Scotts'
full-time employees at the headquarters office in Lyon, France are members
of the Confederation Generale des Cadres (CGC), Confederation Francaise
Democratique du Travail (CFDT) and Confederation Generale du Travail (CGT),
which number is confidential under French law. The average rate of union
membership among employees in France is approximately 15%. A number of union and
non-union full-time employees are members of work councils at three sites in
Bourth, Hautmont and Lyon, France, and a number of non-union employees are
members in Ingelheim, Germany. Work councils represent employees on labor and
employment matters and manage social benefits.

In connection with the Ortho acquisition, Scotts made offers of employment to
all but a very limited number of employees who worked primarily in the Ortho
business of Monsanto. While a majority of sales personnel accepted, most of the
corporate staff declined relocation. Through September 30, 1999, Scotts paid
severance, benefits and outplacement costs of $3.7 million for U.S. employees
based on Monsanto's severance policy, with an additional $1.6 million expected
to be paid during fiscal 2000. Scotts expects Monsanto to reimburse it for half
of the costs of such termination payments, up to a maximum of $5.0 million.

ENVIRONMENTAL AND REGULATORY CONSIDERATIONS

Local, state, federal and foreign laws and regulations relating to environmental
matters affect Scotts in several ways. In the United States, all products
containing pesticides must be registered with the United States Environmental
Protection Agency ("USEPA") (and in many cases, similar state and/or foreign
agencies) before they can be sold. The inability to obtain or the cancellation
of any such registration could have an adverse effect on Scotts' business. The
severity of the effect would depend on which products were involved, whether
another product could be substituted and whether Scotts' competitors were
similarly affected. Scotts attempts to anticipate regulatory developments and
maintain registrations of, and access to, substitute chemicals, but there can be
no assurance that it will continue to be able to avoid or minimize these risks.
Fertilizer and growing media products (including manures) are also subject to
state and foreign labeling regulations. Grass seed is also subject to state,
federal and foreign labeling regulations.

The Food Quality Protection Act, enacted by the U.S. Congress in August 1996,
establishes a standard for food-use pesticides, which is that a reasonable
certainty of no harm will result from the cumulative effect of pesticide
exposures. Under this Act, the USEPA is evaluating the cumulative risks from
dietary and non-dietary exposures to pesticides. The pesticides in Scotts'
products, which are also used on foods, will be evaluated by the USEPA as part
of this non-dietary exposure risk assessment. It is possible that the USEPA may
decide that a pesticide Scotts uses in its products, would be limited or made
unavailable to Scotts. Scotts cannot predict the outcome or the severity of the
effect of the USEPA's evaluation. Management believes that Scotts should be able
to obtain substitute ingredients if selected pesticides are limited or made
unavailable, but there can be no assurance that it will be able to do so for all
products.

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

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ultimate liability arising from these environmental matters, taking into
account established reserves, should not have a material adverse effect on
Scotts' financial position; however, there can be no assurance that the
resolution of these matters will not materially affect future quarterly or
annual operating results.

State and federal authorities generally require Hyponex 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. Hyponex is generally required by these permits
to limit its harvesting and to restore the property consistent with the intended
residual use. In some locations, Hyponex has been required to create water
retention ponds to control the sediment content of discharged water.

Regulations and environmental concerns exist surrounding peat extraction in the
United Kingdom. The Scotts Company (UK) Ltd. played a leading role in the
development and implementation of legislation concerning peat extraction, and
believes it complies with this legislation, regarding it as the minimum
standard.

Local, state, federal and foreign agencies regulate the disposal, handling and
storage of waste, air and water discharges from Scotts' facilities. During
fiscal 1999, Scotts had approximately $1.1 million in environmental capital
expenditures and $5.9 million in other environmental expenses, compared with
approximately $0.7 million in environmental capital expenditures and $3.1
million in other environmental expenses in fiscal 1998. Management anticipates
that environmental capital expenditures and other environmental expenses for
fiscal 2000 will not differ significantly from those incurred in fiscal 1999.

OHIO ENVIRONMENTAL PROTECTION AGENCY

Scotts has assessed and addressed environmental issues regarding the wastewater
treatment plants which had operated at the Marysville facility. Scotts
decommissioned the old wastewater treatment plants and has connected the
facility's wastewater system with the City of Marysville's municipal treatment
system. Additionally, Scotts has been assessing, under Ohio's Voluntary Action
Program ("VAP"), the possible remediation of several discontinued on-site waste
disposal areas dating back to the early operations of its Marysville facility.

In February 1997, Scotts learned that the Ohio Environmental Protection Agency
was referring certain matters relating to environmental conditions at Scotts'
Marysville site, including the existing wastewater treatment plants and the
discontinued on-site waste disposal areas, to the Ohio Attorney General's
Office. Representatives from the Ohio EPA, the Ohio AG and Scotts continue to
meet to discuss these issues.

In June 1997, Scotts received formal notice of an enforcement action and draft
Findings and Orders from the Ohio EPA. The draft Findings and Orders elaborated
on the subject of the referral to the Ohio AG alleging: potential surface water
violations relating to possible historical sediment contamination possibly
impacting water quality; inadequate treatment capabilities of Scotts' existing
and currently permitted wastewater treatment plants; and that the Marysville
site is subject to corrective action under the Resource Conservation Recovery
Act ("RCRA"). In late July 1997, Scotts received a draft judicial consent order
from the Ohio AG which covered many of the same issues contained in the draft
Findings and Orders including RCRA corrective action. As a result of ongoing
discussions, Scotts received a revised draft of a judicial consent order from
the Ohio AG in late April 1999, which is the focus of current negotiations.

In accordance with Scotts' past efforts to enter into Ohio's VAP, Scotts
submitted to the Ohio EPA a "Demonstration of Sufficient Evidence of VAP
Eligibility Compliance" on July 8, 1997. Among other issues contained in the VAP
submission, was a description of Scotts' ongoing efforts to assess potential
environmental impacts of the discontinued on-site waste disposal areas as well
as potential remediation efforts. Under the statutes covering VAP, an eligible
participant in the program is not subject to State enforcement actions for those
environmental matters

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being addressed. On October 21, 1997, Scotts received a letter from the Director
of the Ohio EPA denying VAP eligibility based upon the timeliness of and
completeness of the submittal. Scotts has appealed the Director's action to the
Environmental Review Appeals Commission. No hearing date has been set and the
appeal remains pending.

Scotts is continuing to meet with the Ohio AG and the Ohio EPA in an effort to
negotiate an amicable resolution of these issues but is unable at this stage to
predict the outcome of the negotiations. While negotiations have narrowed the
unresolved issues between Scotts and the Ohio AG/Ohio EPA, several critical
issues remain the subject of ongoing discussions. Scotts believes that it has
viable defenses to the State's enforcement action, including that it had been
proceeding under VAP to address specified environmental issues, and will assert
those defenses in any such action.

Since receiving the notice of enforcement action in June 1997, management has
continually assessed the potential costs that may be incurred to satisfactorily
remediate the Marysville site and to pay any penalties sought by the State.
Because Scotts and the Ohio EPA have not agreed to the extent of any possible
contamination and an appropriate remediation plan, Scotts has developed and
initiated an action plan to remediate the site based on its own assessments and
consideration of specific actions which the Ohio EPA will likely require.
Because the extent of the ultimate remediation plan is uncertain, management is
unable to predict with certainty the costs that will be incurred to remediate
the site and to pay any penalties. As of September 30, 1999, management
estimates that the range of possible loss that could be incurred in connection
with this matter is $2 million to $10 million. Scotts has accrued for the amount
it considers to be the most probable within that range and believes the outcome
will not differ materially from the amount reserved. Many of the issues raised
by the State are already being investigated and addressed by Scotts during the
normal course of conducting business.

LAFAYETTE

In July 1990, the Philadelphia District of the U.S. Army Corps of Engineers
("Corps") directed that peat harvesting operations be discontinued at Hyponex's
Lafayette, New Jersey facility, based on its contention that peat harvesting and
related activities result in the "discharge of dredged or fill material into
waters of the United States" and, therefore, require a permit under Section 404
of the Clean Water Act. In May 1992, the United States filed suit in the U.S.
District Court for the District of New Jersey seeking a permanent injunction
against such harvesting, and civil penalties in an unspecified amount. If the
Corps' position is upheld, it is possible that further harvesting of peat from
this facility would be prohibited. Scotts is defending this suit and is
asserting a right to recover its economic losses resulting from the government's
actions. The suit was placed in administrative suspense during fiscal 1996 in
order to allow Scotts and the government an opportunity to negotiate a
settlement, and it remains suspended while the parties develop, exchange and
evaluate technical data. In July 1997, Scotts' wetlands consultant submitted to
the government a draft remediation plan. Comments were received and a revised
plan was submitted in early 1998. Further comments from the government were
received during 1998 and 1999. Scotts believes agreement on the remediation plan
has essentially been reached. Before this suit can be fully resolved, however,
Scotts and the government must reach agreement on the government's civil penalty
demand. Management does not believe that the outcome of this case will have a
material adverse effect on Scotts' operations or its financial condition.
Furthermore, management believes Scotts has sufficient raw material supplies
available such that service to customers will not be materially adversely
affected by continued closure of this peat harvesting operation.

HERSHBERGER

In September 1991, Scotts was identified by the Ohio EPA as a Potentially
Responsible Party ("PRP") with respect to a site in Union County, Ohio (the
"Hershberger site"), because Scotts allegedly arranged for the transportation,
treatment or disposal of waste that allegedly contained hazardous substances, at
the Hershberger site. Effective February 1998, Scotts and four other named PRPs
executed an Administrative Order on Consent with the Ohio EPA, by which the
named PRPs funded remedial action at the Hershberger site. Construction of the
leachate collection system and reconstruction of the landfill cap were completed
in August 1998. Scotts expects its future obligation will consist primarily of
its share of annual operating and maintenance expenses. Management does not
believe that its obligations under the Administrative Order will have a
material adverse effect on Scotts' results of operations or financial condition.

BRAMFORD

In the United Kingdom, major discharges of waste to air, water and land are
regulated by the Environment Agency. The Scotts (UK) Ltd. fertilizer facility in
Bramford

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(Suffolk), United Kingdom, is subject to environmental regulation by this
Agency. Two manufacturing processes at this facility require process
authorizations and previously required a waste management license (discharge to
a licensed waste disposal lagoon having ceased in July 1999). Scotts expects to
surrender the waste management license in consultation with the Environment
Agency. In connection with the renewal of an authorization, the Environment
Agency has identified the need for remediation of the lagoon, and the potential
for remediation of a former landfill at the site. Scotts intends to comply with
the reasonable remediation concerns of the Environment Agency. Scotts previously
installed an environmental enhancement to the facility to the satisfaction of
the Environment Agency and believes that it has adequately addressed the
environmental concerns of the Environment Agency regarding emissions to air and
groundwater. Scotts and the Environmental Agency have not agreed on a final plan
for remediating the lagoon and the landfill. Management does not believe that
its remedial obligations at this site will have a material adverse effect on the
operations at the facility or on Scotts' results of operations or financial
condition.

YEAR 2000 READINESS

Please see the information contained under the caption "Year 2000 Readiness" in
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."

ITEM 2. PROPERTIES

Scotts has fee or leasehold interests in approximately 60 facilities.

Scotts owns approximately 875 acres of land, with 719 acres at its Marysville,
Ohio headquarters for the North American Consumer Lawns, Growing Media, and
Ortho Business Groups, and the Professional Business Group and Operations
functions. Scotts leases space in downtown Columbus for its World Headquarters
office. Four research facilities in Apopka, Florida; Cleveland, Texas; Gervais,
Oregon; and Moorestown, New Jersey, comprise 129 acres. The Ortho production
facility encompasses 27 acres in Fort Madison, Iowa. Scotts leases warehouse
space throughout the United States and continental Europe as needed. Republic
Tool leases its 20-acre spreader facility in Carlsbad, California.

Scotts operates 27 growing media facilities located nationwide in 23 states.
Twenty-four are owned by Scotts and three are leased. Most facilities include
production lines, warehouses, offices and field processing areas.

As of December 1, 1999, Scotts had two-remaining compost facilities in
Connecticut. One site is located at a bagging facility in Lebanon, Connecticut
and the other is a stand-alone leased facility in Fairfield, Connecticut. During
fiscal 1999, Scotts closed its other composting sites in the United States that
collected yard and compost waste on behalf of municipalities.

Scotts owns two Scotts-Sierra manufacturing facilities in Fairfield, California
and Heerlen, Netherlands. It leases two Scotts-Sierra manufacturing facilities
in Milpitas, California and North Charleston, South Carolina.

Internationally, Scotts leases its: U.K. headquarters, located in Godalming
(Surrey); French headquarters, located in Lyon, France; German headquarters,
located in Ingleheim, Germany; and Professional Group headquarters, located in
Waardenburg, Netherlands.

Scotts owns manufacturing facilities in East Yorkshire (Howden, Hatfield and
Swinefleet) and Bramford (Suffolk) in the United Kingdom. Scotts also owns the
Hautmont plant in France, a blending and bagging facility for growing media and
fertilizers sold to the consumer market; and the Bourth plant, also in France, a
facility for formulating, blending and packaging pesticide products for the
consumer market. A sales and research and development facility is maintained at
the Ingleheim, Germany site. Scotts leases sales offices and operates an
organics bagging facility in Didam, the Netherlands. Sales offices are also
leased in Saint Niklaas, Belgium.

Scotts leases property for ten lawn care service centers in Georgia, Illinois,
Indiana, Maryland, Missouri and Ohio. Scotts also leases the land upon which
Sanford Scientific is located in Waterloo, New York.

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During fiscal 1999, Scotts leased the land upon which Scotts Miracle-Gro's
(operating as the North American Consumer Gardens Business Group) headquarters
was located in Port Washington, New York. For fiscal 2000, operations at this
location will transfer to the North American headquarters in Marysville, Ohio.

As a result of the Ortho acquisition, Scotts acquired a plant in Fort Madison,
Iowa and research stations in Moorestown, New Jersey, and Valley Center,
California. The relocation of personnel from the San Ramon sales office to
Marysville, Ohio was completed in September 1999, with the office space being
subleased until lease termination. Foreign operations acquired as a result of
the Ortho acquisition include a plant in Corwen, United Kingdom. Scotts also
operates sales offices in Beaverton, Oregon; Rolling Meadows, Illinois, and
Bentonville, Arkansas.

It is the opinion of Scotts' management that its facilities are adequate to
serve their intended purposes at this time and that its property leasing
arrangements are stable. Please also see the discussion of Scotts' production
facilities in "ITEM 1. BUSINESS--Operations Group--Production Facilities" above.

ITEM 3. LEGAL PROCEEDINGS

As noted in the discussion of "Environmental and Regulatory Considerations" in
"ITEM 1. BUSINESS", Scotts is involved in several pending environmental matters.
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 the final resolution of these matters will not materially affect
Scotts' future quarterly or annual operating results.

Pending material legal proceedings are as follows:

AGREVO ENVIRONMENTAL HEALTH, INC. (New York District Court)

On June 3, 1999, a Complaint was filed in the United States District Court for
the Southern District of New York, styled AgrEvo Environmental Health, Inc. v.
Scotts Company (sic), Scotts Miracle-Gro Products, Inc. and Monsanto Company, in
which AgrEvo seeks damages and injunctive relief for alleged antitrust
violations and breach of contract by Scotts and Scotts Miracle-Gro, and alleged
antitrust violations and tortious interference with contract by Monsanto. Scotts
purchased a consumer herbicide business from AgrEvo in May 1998. AgrEvo claims
in the suit that Scotts' subsequent agreement to become Monsanto's exclusive
sales and marketing agent for Monsanto's consumer Roundup(R) business, violated
the federal antitrust laws. AgrEvo contends that Monsanto attempted to or did
monopolize the market for non-selective herbicides and conspired with Scotts to
eliminate the herbicide Scotts previously purchased from AgrEvo, which competed
with Monsanto's Roundup(R), in order to achieve or maintain a monopoly position
in that market. AgrEvo also contends that Scotts' execution of various
agreements with Monsanto, including the Roundup(R) marketing agreement, as well
as Scotts' subsequent actions, violated the purchase agreements between AgrEvo
and Scotts.

AgrEvo is requesting unspecified damages as well as affirmative injunctive
relief, and is seeking to have the court invalidate the Roundup(R) marketing
agreement as violative of the federal antitrust laws. On September 20, 1999,
Scotts filed an answer denying liability and asserting counterclaims that it was
fraudulently induced to enter into the agreement for purchase of the consumer
herbicide business and the related agreements, and that AgrEvo breached the
representations and warranties contained in these agreements. On October 1,
1999, Scotts moved to dismiss the antitrust allegations against it on the ground
that the claims fail to state claims for which relief may be granted. On October
12, 1999, AgrEvo moved to dismiss Scotts' counterclaims. Scotts intends to
vigorously defend against this action. 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. Scotts
currently is unable to determine the potential impact of these proceedings on
its future results of operations and financial condition.


AGREVO ENVIRONMENTAL HEALTH, INC. (Delaware)

On June 29, 1999, a Complaint was filed in the Superior Court of the State of
Delaware in and for New Castle County, styled AgrEvo Environmental Health, Inc.
v. Scotts Miracle-Gro Products, Inc. and OMS Investments, Inc., in which AgrEvo
seeks damages for alleged breach of contract against Scotts Miracle-Gro and OMS.
AgrEvo alleges that, under the contracts described above by which the herbicide
business was purchased from AgrEvo in May 1998, Scotts Miracle-Gro and OMS have
failed to pay


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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
Miracle-Gro and OMS have moved to dismiss or stay this action on the ground that
the claims asserted must be brought in the previously-described action in the
Southern District of New York. Oral argument on this motion is set for late
December 1999. Scotts Miracle-Gro and OMS intend to vigorously defend the
asserted claims, whether they are ultimately litigated in state court in
Delaware or the federal court in New York.

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

On October 15, 1999, Scotts began arbitration proceedings before the
International Chamber of Commerce against Rhone-Poulenc S.A. and Rhone-Poulenc
Agro S.A. (collectively, "Rhone-Poulenc") under arbitration provisions contained
in contracts relating to the purchase by Scotts of Rhone-Poulenc's European lawn
and garden business, Rhone-Poulenc Jardin, in 1998. Scotts alleges that the
combination of Rhone-Poulenc and Hoechst Schering AgrEvo GmbH into a new entity,
Aventis S.A., will result in the violation of non-compete and other provisions
in the contracts mentioned above. In the arbitration proceedings, Scotts is
seeking injunctive relief as well as an award of damages.

On November 25, 1999, the Tribunal suggested that the parties discuss an escrow
arrangement to protect Scotts' interests during the pendency of the arbitration
and denied Scotts' request for additional interim relief. Pursuant to the
Tribunal's suggestion, the parties are presently negotiating a segregated Record
Agreement and Order.

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

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

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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 the fiscal year covered by this Report.

EXECUTIVE OFFICERS OF REGISTRANT

The executive officers of The Scotts Company, their positions and, as of
December 10, 1999, their ages and years with The Scotts Company (and its
predecessors) are set forth below.



YEARS WITH
SCOTTS
(AND ITS
NAME AGE POSITION(S) HELD PREDECESSORS)
- - ---- --- ---------------- -------------

Charles M. Berger 63 Chairman of the Board, President 3
and Chief Executive Officer

James Hagedorn 44 President, Scotts North America, 12
and a Director

Jean H. Mordo 54 Group Executive Vice President, 2
International

David D. Harrison 52 Executive Vice President and 4 months
Chief Financial Officer

Michael P. Kelty, Ph.D. 49 Executive Vice President, Technology 20
and Operations, Scotts North America

G. Robert Lucas 56 Executive Vice President, General 2
Counsel and Secretary

Laurens J.M. de Kort 48 Senior Vice President, 17
Zone 4, International

William A. Dittman 43 Senior Vice President, Consumer 7
Growing Media Business Group

Michel J. Farkouh 43 Senior Vice President, 1
Zone 3, International

John Kenlon 68 Senior Vice President, Consumer Gardens Group, 39
and a Director

Nick G. Kirkbride 40 Senior Vice President, 1
Zone 1, International

Hadia Lefavre 54 Senior Vice President, 9 months
Human Resources Worldwide

Joseph M. Petite 49 Senior Vice President, 11
Business Process Development

William R. Radon 40 Senior Vice President, 2
Information Technology

Christian Ringuet 48 Senior Vice President, 13
Zone 2, International

James L. Rogula 65 Senior Vice President, 4
Consumer Ortho Business Group

L. Robert Stohler 58 Senior Vice President, 4
Consumer Lawns Business Group

Scott C. Todd 38 Senior Vice President, Professional 18
Business Group


Executive officers serve at the discretion of the Board of Directors and in the
case of: Mr. Berger, Mr. Hagedorn, Mr. Mordo, Mr. Harrison, Mr. Lucas, Mr. de
Kort, Mr. Kenlon, Mr. Kirkbride, Ms. Lefavre and Mr. Ringuet, pursuant to
employment agreements.

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

Mr. Berger was elected Chairman of the Board, President and Chief Executive
Officer of Scotts in August 1996. Mr. Berger came to Scotts from H. J. Heinz
Company, where, from October 1994 to August 1996, he served as Chairman and
Chief Executive Officer of Heinz India Pvt. Ltd. (Bombay). During his 32-year
career at Heinz, he also held the positions of

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Chairman, President and Chief Executive Officer of Weight Watchers
International, a Heinz affiliate; Managing Director and Chief Executive Officer
of Heinz-Italy (Milan), the largest Heinz profit center in Europe; General
Manager, Marketing, for all Heinz U.S. grocery products; Marketing Director for
Heinz UK (London) and Director of Corporate Planning at Heinz World
Headquarters. He is also a former director of Stern's Miracle-Gro Products, Inc.
("Miracle-Gro Products"), now known as Scotts Miracle-Gro.

Mr. Hagedorn was named President, Scotts North America, in December 1998. He was
previously Executive Vice President, U.S. Business Groups, of Scotts, since
October 1996. From May 1995 to October 1996, he served as Senior Vice President,
Consumer Gardens Group, of Scotts. He served as Executive Vice President of
Scotts Miracle-Gro since May 1995, and Executive Vice President of Miracle-Gro
Products from 1989 until May 1995. Mr. Hagedorn is the son of Horace Hagedorn, a
director of Scotts.

Mr. Mordo was named Group Executive Vice President, International, of Scotts, in
May 1999. He was previously Executive Vice President and Chief Financial Officer
of Scotts since January 1997. From 1992 through December 1996, he served as
Senior Vice President and Chief Financial Officer of Pratt and Whitney Aircraft,
a division of United Technologies Corporation.

Mr. Harrison was named Executive Vice President and Chief Financial Officer of
Scotts in August 1999. From August 1996 to August 1999, he was Executive Vice
President and Chief Financial Officer for Coltec Industries, Inc., a diversified
manufacturer of industrial and aerospace products. From August 1994 to August
1996, he served as Executive Vice President and Chief Financial Officer of
Pentair, Inc., a diversified general industrial manufacturing company.

Dr. Kelty was named Executive Vice President, Technology and Operations, of
Scotts, in February 1999. He was previously Senior Vice President, Professional
Business Group, of Scotts, since July 1995. Dr. Kelty had been Senior Vice
President, Technology and Operations, of Scotts from March 1994 to July 1995.

Mr. Lucas was named Executive Vice President, General Counsel and Secretary of
Scotts in February 1999. He was previously Senior Vice President, General
Counsel and Secretary of Scotts, since May 1997. From 1990 until the time he
joined Scotts, Mr. Lucas was a partner with the law firm Vorys, Sater, Seymour
and Pease LLP ("VSSP"). From 1993 to the time he joined Scotts, he was the lead
outside counsel at VSSP representing Scotts. Mr. Lucas is a director of Bob
Evans Farms, Inc.

Mr. de Kort was named Senior Vice President, Zone 4, International, of Scotts,
in May 1999, having been Vice President, Scotts Europe, Middle East, Africa,
since July 1994. Mr. de Kort is employed by Scotts Europe B.V., a wholly-owned
subsidiary of Scotts.

Mr. Dittman was named Senior Vice President, Consumer Growing Media Business
Group, of Scotts, in April 1998. From December 1996 to April 1998, he was Senior
Vice President of Sales, Marketing and Advertising of the Consumer Gardens Group
of Scotts. From 1992 to December 1996, he was Vice President of Sales,
Miracle-Gro Products.

Mr. Farkouh was named Senior Vice President, Zone 3, International, of Scotts,
in May 1999, 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. From 1991 to January 1997, he was General
Manager, Lawn and Garden Europe, of Monsanto.

Mr. Kenlon was named Senior Vice President, Consumer Gardens Group, of Scotts,
in May 1999, a change to make titles uniform within the Scotts' executive team.
He was previously President, Consumer Gardens Group, of Scotts from December
1996 until May 1999. He was previously Chief Operating Officer and President of
Scotts Miracle-Gro, since May 1995. Mr. Kenlon was the President of Miracle-Gro
Products from 1985 until May 1995. Mr. Kenlon began his association with the
Miracle-Gro companies in 1960. It is expected that Mr. Kenlon will resign from
his offices with Scotts, effective December 31, 1999, but he will remain a
member of the Board of Directors.
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Mr. Kirkbride was named Senior Vice President, Zone 1, International, of Scotts,
in May 1999, having joined The Scotts Company (UK) Ltd. in December 1998. From
January 1995 to the time he joined Scotts, he was Managing Director of The
Virgin Cola Company, a privately-held soft drink company.

Ms. Lefavre joined Scotts as Senior Vice President, Human Resources Worldwide,
in March 1999. From October 1995 to October 1998, she served as Senior Vice
President, Human Resources Worldwide, at Rhone-Poulenc Rorer Inc., a
pharmaceutical company, based in Pennsylvania. From April 1994 to October 1995,
she was Vice President, Executive Management, of Bull, a computer company based
in Paris, France. She served as Vice President of Human Resources and
Communications, Worldwide Manufacturing, of Bull, from April 1993 to April 1994.

Mr. Petite was named Senior Vice President, Business Process Development, of
Scotts, in February 1998. He served as Senior Vice President, Consumer Growing
Media Business Group, of Scotts from December 1996 to February 1998. From July
1996 to December 1996, he served as Vice President, Consumer Growing Media
Business Group, of Scotts. From November 1995 to July 1996, Mr. Petite served as
Vice President, Strategic Planning of Scotts. From 1989 to November 1995, he was
Vice President of Marketing, Consumer Business Group, of Scotts.

Mr. Radon joined Scotts in February 1998, as Senior Vice President, Information
Technology. From September 1995 to the time he joined Scotts, Mr. Radon was Vice
President, Chief Information Officer at Lamson & Sessions, a manufacturer and
distributor of plastic pipe, conduit and consumer electrical devices. From 1984
to September 1995, he was a management consultant at Ernst & Young.

Mr. Ringuet joined Scotts France SAS in October 1998 as Senior Vice President,
Zone 2, International. He was Managing Director of Rhone-Poulenc Jardin, from
March 1995 through September 1998. From 1986 to March 1995, he was Marketing and
Sales Manager of Rhone-Poulenc Jardin.

Mr. Rogula was named Senior Vice President, Consumer Ortho Business Group, of
Scotts, in October 1998. Prior thereto, he had been Senior Vice President,
Consumer Lawns Group, of Scotts since October 1996. He served as Senior Vice
President, Consumer Business Group, of Scotts from January 1995
to October 1996. From 1990 until the time he joined Scotts, he was President of
The American Candy Company, a producer of non-chocolate candies. He is also a
former director of Miracle-Gro Products.

Mr. Stohler was named Senior Vice President, Consumer Lawns Business Group, in
October 1998. Prior thereto, he had been Senior Vice President, International
Business Group, of Scotts since December 1996. From November 1995 to December
1996, he served as Vice President, International Business Group, of Scotts. From
January 1994 to October 1995, he was President of Rubbermaid Europe S.A., a
marketer of plastic housewares, toys, office supplies and janitorial and food
service products.

Mr. Todd was named Senior Vice President, Professional Business Group, of
Scotts, in February 1999. From November 1995 to January 1999, he was Vice
President, Horticulture, of Scotts. From 1992 to October 1995, he was General
Manager, Horticulture, 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".



SALES PRICES
------------
HIGH LOW
---- ---

FISCAL 1998
1st quarter $31 1/16 $26 1/4
2nd quarter 35 1/2 29 7/16
3rd quarter 38 32 1/2
4th quarter 41 3/8 26 3/8

FISCAL 1999
1st quarter $36 3/16 $26 5/8
2nd quarter 39 3/4 32 3/8
3rd quarter 47 5/8 38 1/2
4th quarter 46 3/8 34 5/8


Scotts has not paid dividends on the common shares in the past and does 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 Scotts' business. The payment of any future dividends on common shares will
be determined by the Board of Directors of Scotts in light of conditions then
existing, including Scotts' earnings, financial condition and capital
requirements, restrictions in financing agreements, business conditions and
other factors.

As of December 1, 1999, Scotts estimates there were approximately 8,500
shareholders including holders of record and Scotts' estimate of beneficial
holders.

On April 27, 1999, John Kenlon converted 571 shares of Scotts' Class A
Convertible Preferred Stock into 30,051 common shares in accordance with the
terms of Section 6 of Article FOURTH of Scotts' Amended Articles of
Incorporation. On August 30, 1999, Hagedorn Partnership, L.P. converted 3,135
shares of Class A Convertible Preferred Stock into 164,995 common shares.

Effective October 1, 1999, John Kenlon, Hagedorn Partnership, L.P. and Horace
Hagedorn converted the remainder of their shares of Convertible Preferred Stock
into 10,068,104 common shares. In exchange for this early conversion, those
shareholders received an aggregate amount of approximately $6.4 million,
representing the amount of the dividends on the Convertible Preferred Stock that
would have otherwise been payable through May 2000.

The common shares issued upon conversion of the Convertible Preferred Stock were
issued in reliance upon the exemption from registration provided by Section
3(a)(9) of the Securities Act of 1933.

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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) 1999(4) 1998(3) 1997(2) 1996 1995(1)
- - -------------------------------------- ------- ------- ------- ---- -------

OPERATING RESULTS:
Sales $1,648.3 $1,113.0 $899.3 $750.4 $731.1
Gross profit $ 659.2 $ 398.0 $325.7 $238.0 $232.3
Income from operations (5) $ 196.1 $ 94.1 $ 94.8 $ 26.3 $ 60.9
Income (loss) before extraordinary items $ 69.1 $ 37.0 $ 39.5 $ (2.5) $ 22.4
Income (loss) applicable to common
shareholders $ 53.5 $ 26.5 $ 29.7 $(12.3) $ 18.8
Depreciation and amortization $ 60.2 $ 37.8 $ 30.4 $ 29.3 $ 25.7
FINANCIAL POSITION:
Working capital (6) $ 274.8 $ 135.3 $146.5 $181.1 $227.0
Investments in property, plant and equipment $ 66.7 $ 41.3 $ 28.6 $ 18.2 $ 23.6
Property, plant and equipment, net $ 259.4 $ 197.0 $146.1 $139.5 $148.8
Total assets $1,769.6 $1,035.2 $787.6 $731.7 $809.0
Total debt $ 950.0 $ 372.5 $221.3 $225.3 $272.5
Total shareholders' equity $ 443.3 $ 403.9 $389.2 $364.3 $380.8
CASH FLOWS:
Cash flows from operating activities $ 78.2 $ 71.0 $121.1 $ 82.3 $ 4.5
Cash flows from investing activities $ (571.6) $ (192.1) $(72.5) $(17.4) $ (6.7)
Cash flows from financing activities $ 513.9 $ 118.4 $(46.2) $(61.1) $ (2.7)
RATIOS:
Operating margin 11.9% 8.5% 10.5% 3.5% 8.3%
Current ratio 1.7 1.6 2.1 2.6 2.8
Total debt to total book capitalization 68.2% 48.0% 36.2% 38.2% 41.7%
Return on average shareholders' equity 14.9% 9.2% 10.5% (0.7)% 8.2%
PER SHARE DATA:
Basic earnings (loss) per common share
before extraordinary items $ 3.25 $ 1.46 $ 1.60 $ (0.65) $ 1.01
Basic earnings (loss) per common share $ 2.93 $ 1.42 $ 1.60 $ (0.65) $ 0.99
Diluted earnings (loss) per common share
before extraordinary items $ 2.27 $ 1.22 $ 1.35 $ (0.65) $ 0.99
Diluted earnings (loss) per common share $ 2.08 $ 1.20 $ 1.35 $ (0.65) $ 0.99
Shareholders' equity $ 14.10 $ 12.82 $ 12.19 $ 11.44 $11.92
Price to diluted earnings per share,
end of period 16.6 25.5 19.4 nm 22.4
Stock price at year-end $ 34.63 $ 30.63 $ 26.25 $ 19.25 $22.13
Stock price range - High $ 47.63 $ 41.38 $ 30.56 $ 21.88 $23.88
Low $ 26.63 $ 26.25 $ 17.75 $ 16.13 $14.75
OTHER:
EBITDA (7) $ 256.3 $ 131.9 $125.2 $ 55.6 $ 86.6
EBITDA margin 15.5% 11.9% 13.9% 7.4% 11.8%
Interest coverage (EBITDA/interest expense) 3.2 4.1 5.0 2.2 3.5
Average common shares outstanding 18.3 18.7 18.6 18.8 18.7
Common shares used in diluted earnings
(loss) per common share calculation 30.5 30.3 29.3 18.8 22.6
Preferred stock dividends $ 9.7 $ 9.8 $ 9.8 $ 9.8 $ 3.6


NOTE: Prior year presentations have been changed to conform to fiscal 1999
presentation; these changes did not impact net income.

(1) Includes Scotts Miracle-Gro Products, Inc. from May 1995.

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

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

(4) Includes Rhone-Poulenc Jardin (nka Scotts France SAS) from October
1998, Asef Holdings BV from December 1998 and the non-Roundup
("Ortho") business from January 1999.

(5) Operating income for fiscal 1998 and 1996 includes $20.4 million and
$17.7 million of restructuring and other charges, respectively.

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37
(6) Working capital is defined as total current assets less total current
liabilities.

(7) 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.

nm Not meaningful


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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, professional turf care and professional horticulture
businesses in the United States and Europe. Our operations are divided into
three business segments: North American Consumer, Professional and
International. The North American Consumer segment includes the Lawns, Gardens,
Growing Media and Ortho business groups.

As a leading consumer branded lawn and garden company, we focus on our consumer
marketing efforts, including advertising and consumer research, to create demand
to pull product through the retail distribution channels. During fiscal 1999, we
spent $189.0 million on advertising and promotional activities, which is a
significant increase over fiscal 1998 spending levels. We have applied this
consumer marketing focus over the past several years, and we believe that Scotts
continues to receive a significant return on these increased marketing
expenditures. For example, sales in our Consumer Lawns business group increased
24.9% from fiscal 1998 to fiscal 1999, after having increased 12.9% from fiscal
1997 to fiscal 1998. We believe that this dramatic sales growth resulted
primarily from our increased consumer-oriented marketing efforts. We expect that
we will continue to focus our marketing efforts toward the consumer and to
increase consumer marketing expenditures in the future to drive market share and
sales growth.

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

On September 30, 1998, Scotts entered into a long-term marketing agreement with
Monsanto for its consumer Roundup(R) herbicide products. Under the marketing
agreement, Scotts and Monsanto will jointly develop global consumer and
trade-marketing programs for Roundup(R) and Scotts has assumed responsibility
for sales support, merchandising, distribution, logistics and certain
administrative functions. In addition, in January 1999 Scotts purchased from
Monsanto the assets of its worldwide consumer lawn and garden businesses,
exclusive of the Roundup(R) business, for $300 million plus an amount for
normalized working capital. These transactions with Monsanto further our
strategic objective of significantly enhancing our position in the pesticides
segment of the consumer lawn and garden category. These businesses make up the
Ortho business group within the North American Consumer segment.

We believe that these transactions provide us with several strategic benefits
including immediate market penetration, geographic expansion, brand leveraging
opportunities and the achievement of substantial cost savings. With the Ortho
acquisition, we are currently a leader by market share in all five segments of
the consumer lawn and garden category: lawn fertilizer, garden fertilizer,
growing media, grass seeds and pesticides. We believe that we are now positioned
as the only national company with a complete offering of consumer products.

The addition of strong pesticide brands completes our product portfolio of
powerful branded consumer lawn and garden products that should provide Scotts
with brand leveraging opportunities for revenue growth. For example, our
strengthened market position should create category management opportunities to
enhance shelf positioning, consumer communication, trade incentives and trade
programs. In addition, significant synergies have been and should continue to be
realized from the combined businesses, including reductions in general and
administrative, sales, distribution, purchasing, research and development and
corporate overhead costs. We have redirected, and expect to continue to
redirect, a portion of these cost savings into increased consumer marketing
spending to support the Ortho(R) brand.

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39
Over the past several years, we have made several other acquisitions to
strengthen our global market position in the lawn and garden category. In
October 1998, we purchased Rhone-Poulenc Jardin, a leading European lawn and
garden business, from Rhone-Poulenc for approximately $170 million. This
acquisition provides a significant addition to our existing European platform
and strengthens our foothold in the continental European consumer lawn and
garden market. Through this acquisition, we have established a strong presence
in France, Germany, Austria and the Benelux countries. This acquisition may also
mitigate, to a certain extent, our susceptibility to weather conditions by
expanding the regions in which we operate.

In December 1998, we acquired Asef Holdings B.V., a privately-held
Netherlands-based lawn and garden products company. In February 1998, we
acquired EarthGro, Inc., a Northeastern U.S. growing media producer. In December
1997, we acquired Levington Group Limited, a leading producer of consumer and
professional lawn fertilizer and growing media in the United Kingdom. In January
1997, we acquired the approximate two-thirds interest in Miracle Holdings
Limited which the Company did not already own. Miracle Holdings owns Miracle
Garden Care Limited, a manufacturer and distributor of lawn and garden products
in the United Kingdom. These acquisitions are consistent with our stated
objective of becoming the world's foremost branded lawn and garden company.

The following discussion and analysis of our consolidated results of operations
and financial position should be read in conjunction with our Consolidated
Financial Statements included elsewhere in this report. Dollars are in millions
except per share data.

RESULTS OF OPERATIONS

The following table sets forth the components of income and expense as a
percentage of sales for the three years ended September 30, 1999:



FISCAL YEAR ENDED
SEPTEMBER 30,
1999 1998 1997
---- ---- ----

Sales 100.0% 100.0% 100.0%
Cost of sales 60.0 64.2 63.8
----- ----- -----
Gross profit 40.0 35.8 36.2
Commission earned from agency agreement 1.8 - -
Advertising and promotion 11.5 9.4 9.3
Selling, general and administrative 17.1 15.2 14.6
Amortization of goodwill and other intangibles 1.5 1.2 1.1
Restructuring and other charges - 1.4 -
Other (income) expense, net (0.2) 0.1 0.6
----- ----- -----
Income from operations 11.9 8.5 10.5
Interest expense 4.8 2.9 2.8
----- ----- -----
Income before income taxes 7.1 5.6 7.7
Income taxes 2.9 2.2 3.3
----- ----- -----
Income before extraordinary items 4.2 3.4 4.4
Extraordinary loss on extinguishment of debt 0.4 0.1 -
----- ----- -----
Net income 3.8 3.3 4.4
Preferred stock dividends 0.6 0.9 1.1
----- ----- -----
Income applicable to common shareholders 3.2% 2.4% 3.3%
===== ===== =====



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The following table sets forth sales by business segment for the three years
ended September 30, 1999:




1999 1998 1997
---- ---- ----

North American Consumer:
Lawns $ 461.0 $369.1 $309.6
Gardens 147.4 133.0 127.0
Growing Media 264.3 231.6 182.6
Ortho 224.3 - -
-------- -------- ------
Total 1,097.0 733.7 619.2
Professional 159.4 179.4 165.5
International 391.9 199.9 114.6
-------- -------- ------
Consolidated $1,648.3 $1,113.0 $899.3



FISCAL 1999 COMPARED TO FISCAL 1998

Sales for fiscal 1999 were $1.65 billion, an increase of 48.1% over fiscal 1998
sales of $1.1 billion. On a pro forma basis, assuming that the Ortho,
Rhone-Poulenc Jardin, Levington and EarthGro acquisitions had occurred on
October 1, 1997, pro forma sales for fiscal 1999 were $1.68 billion, an 11%
increase over fiscal 1998 pro forma sales of $1.5 billion. As discussed below,
the increase in sales on a pro forma basis was primarily driven by exceptional
growth in the Consumer Lawns business group and strong revenue growth within the
Consumer Gardens and Growing Media business groups.

North American Consumer segment sales were $1.1 billion in fiscal 1999, an
increase of nearly 50% over fiscal 1998 sales of $734 million and an increase of
16% over fiscal 1998 on a pro forma basis. Sales in the Consumer Lawns business
group within this segment were $461.0 million in fiscal 1999, a 25% increase
over fiscal 1998 sales of $369.1 million. The continued dramatic revenue growth
in the Consumer Lawns business group is being driven by increases in
consumer-oriented marketing efforts such as advertising, consumer research and
packaging improvements, which have increased category growth and market share.
Sales in the Consumer Gardens business group increased 11% to $147.4 million in
fiscal 1999 due to several successful new product introductions and the
extension of the advertising season for All-Purpose Miracle Gro(R). Sales in the
Growing Media business group increased 14% to $264.3 million, or 11% on a pro
forma basis. Significantly higher levels of advertising and promotional spending
drove this revenue growth which resulted in increased sales for value-added
potting soils in particular. Sales in the Ortho business group were $224.3
million in fiscal 1999 which is an increase of 10% on a pro forma basis.

Professional segment sales were $159.4 million in fiscal 1999, a decrease of 11%
from fiscal 1998. The Professional segment consists of two businesses: the
ProTurf(R) business which provides turf care products to golf courses, athletic
fields, and related facilities; and the Horticulture business which provides
plant care products to professional nurseries and growers. The decrease in
fiscal 1999 sales in this segment was reflected in the ProTurf(R) business,
which changed its distribution model earlier in the year, electing to market and
deliver products through distributors rather than directly to customers.
Short-term interruptions associated with this change and the discontinuance of
certain commodity products resulted in lower sales volumes in fiscal 1999.

International segment sales increased to $391.9 million in fiscal 1999 compared
to $199.9 million in fiscal 1998, primarily the result of the Rhone-Poulenc
Jardin and Asef acquisitions in fiscal 1999. The increase in sales on a pro
forma basis was 9% which was primarily due to revenue growth in the European
Professional and Rhone-Poulenc Jardin businesses, partially offset by sales
declines in the U.K. consumer business caused by supply chain interruptions
resulting from the integration of the recently acquired businesses. Excluding
the effects of foreign currency

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41
translation, pro forma sales in fiscal 1999 would have been 10% higher than
fiscal 1998.

Selling price changes did not have a material impact on Scotts' results of
operations for fiscal 1999.

Gross profit increased to $659.2 million in fiscal 1999 compared to $398.0
million in fiscal 1998. On a pro forma basis, gross profit in fiscal 1999 was
$671.1 million, or 40% of sales, compared to $569.2 million in fiscal 1998, or
38% of sales. The increase in gross profit as a percentage of sales was driven
by improved raw material costs and improved manufacturing efficiencies from
higher volumes in fiscal 1999. Fiscal 1998 gross profit also reflected the
following charges: restructuring and other charges of $2.9 million as discussed
below; start-up costs of $1.4 million associated with the upgrade of certain
domestic manufacturing facilities; demolition costs of $1.4 million associated
with the removal of certain old manufacturing facilities; unplanned production
outsourcing costs of $2.8 million; the loss of a composting contract of $1.0
million; and unfavorable inventory adjustments of $0.8 million.

The "commission earned from agency agreement" in fiscal 1999 of $30.3 million
was generated from our marketing agreement with Monsanto for exclusive
international marketing and agency rights to Monsanto's consumer Roundup(R)
herbicide products. The commission earned under the agreement is based on EBIT
(as defined by the agreement) generated annually, net of an annual fixed
contribution payment, by the global Roundup(R) business.

Advertising and promotion expenses for fiscal 1999 were $189.0 million, an
increase of $84.6 million over fiscal 1998 advertising and promotion expenses of
$104.4 million. The recently acquired Ortho and Rhone-Poulenc Jardin businesses
contributed $30.7 million and $20.5 million, respectively, to this increase. The
remaining increase reflects continued emphasis on building consumer demand
through consumer-oriented marketing efforts, and is highlighted by 28%, 26% and
64% increases in advertising and promotional spending in the Consumer Lawns,
Consumer Gardens and Consumer Growing Media businesses, respectively. As a
percentage of sales, advertising and promotion expenses increased to 11% in
fiscal 1999 from 9% in fiscal 1998.

Selling, general and administrative expenses were $281.2 million in fiscal 1999,
an increase of $111.3 million over fiscal 1998 selling, general and
administrative expenses of $169.9 million. The recently acquired Ortho and
Rhone-Poulenc Jardin businesses contributed $30.2 million and $37.3 million,
respectively, to this increase. The significant components of the remaining
$43.8 million increase in selling, general and administrative expenses are:
additional information systems expenses of $0.5 million for year 2000
remediation and $5.6 million for enterprise system implementation efforts;
increased bad debt expenses of $4.6 million, primarily resulting from the
bankruptcy of Hechinger; increased marketing, selling and administrative costs
within the Consumer Lawns, Consumer Gardens, and Consumer Growing Media
businesses of $8.7 million to support higher sales volumes; costs of $2.5
million associated with changes in distribution arrangements in France; costs to
integrate the Ortho business of $8.4 million; increased research and development
spending of $6.9 million, largely in support of the acquired Ortho business; and
increased legal and environmental charges of $2.7 million, primarily for costs
associated with the environmental matter at our Marysville site.

Amortization of goodwill and other intangibles increased to $25.4 million in
fiscal 1999 compared to $12.9 million in fiscal 1998 due to additional
intangibles resulting from the Ortho, Rhone-Poulenc Jardin and Asef
acquisitions.

Restructuring and other charges in fiscal 1999 were $1.4 million, which
represents severance costs associated with the change in distribution methods
within the ProTurf(R) business of the Professional segment. In connection with
this

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restructuring, approximately 60 in-house sales associates were terminated in
fiscal 1999. Approximately $1.1 million of severance payments have been made to
these former associates during fiscal 1999; the remaining $0.3 million is
expected to be paid in fiscal 2000. Restructuring and other charges in fiscal
1998 were $20.4 million, $15.4 million of which is identified separately within
operating expenses, $2.9 million of which is included in cost of sales and $2.1
million of which is included in selling, general and administrative expenses.
See "Fiscal 1998 Compared to Fiscal 1997" below for further discussion of these
restructuring and other charges.

Other income/expense for fiscal 1999 was income of $3.6 million compared to $1.3
million of expense for fiscal 1998. Other income in fiscal 1999 represents
royalties received under license agreements for the use of some of our
trademarks. Other expenses in fiscal 1998 represent losses on the sale of fixed
assets and foreign currency, partially offset by royalty income described above.
Legal and environmental provisions of $5.4 million and $2.7 million for fiscal
1999 and 1998, respectively, have been reclassified from other income/expense to
selling, general and administrative expenses.

Income from operations for fiscal 1999 was $196.1 million compared to $94.1
million for fiscal 1998, primarily due to operating income realized from the
Ortho and Rhone-Poulenc Jardin businesses and significant improvements in the
Consumer Lawns and Growing Media businesses, partially offset by increased
selling, general and administrative and amortization expenses described above.

Interest expense for fiscal 1999 was $79.1 million, an increase of $46.9 million
over fiscal 1998 interest expense of $32.2 million. The increase in interest
expense was due to increased borrowings to fund the Ortho, Rhone-Poulenc Jardin
and Asef acquisitions and higher working capital levels to support the growth of
the businesses.

Income tax expense for fiscal 1999 was $47.9 million compared to $24.9 million
in fiscal 1998. Our effective tax rate was 41.0% in fiscal 1999 compared to
40.3% in fiscal 1998. The increase in the effective tax rate was primarily due
to a reduction in foreign dividends remitted which provided excess foreign tax
credits in fiscal 1998.

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

We reported net income of $63.2 million for fiscal 1999, or $2.08 per share on a
diluted basis, compared to $36.3 million for fiscal 1998, or $1.20 per share on
a diluted basis. Excluding the impact of the extraordinary loss discussed above,
earnings per share for fiscal 1999 were $2.27 on a diluted basis. Excluding the
impact of restructuring and other charges taken in fiscal 1998 as well as an
extraordinary loss on early extinguishment of debt, earnings per share for
fiscal 1998 were $1.62 on a diluted basis. The significant increase in diluted
earnings per share reflects the tremendous revenue growth being experienced by
many of our consumer businesses, the commission earned under the Roundup(R)
marketing agreement and the accretion of the Ortho and Rhone-Poulenc Jardin
businesses to earnings.

FISCAL 1998 COMPARED TO FISCAL 1997

Sales in fiscal 1998 were $1.1 billion, an increase of 23.8% over fiscal 1997
sales of $899.3 million. On a pro forma basis, assuming that the Levington and
EarthGro

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43
acquisitions had occurred on October 1, 1996, fiscal 1998 sales would have been
$1.1 billion, an increase of $100.1 million, or 9.7%, over fiscal 1997 pro forma
sales of $1.0 billion. The increase in these pro forma sales was driven
primarily by significant increases in sales in the Consumer Lawns business group
and the Professional segment as discussed below.

North American Consumer segment sales were $733.7 million in fiscal 1998, an
increase of $114.5 million, or 18.5%, over fiscal 1997 sales of $619.2 million.
Sales in the Consumer Lawns business group within this segment increased $59.5
million, or 19.2%, from fiscal 1997 to fiscal 1998, reflecting significant
volume growth year to year in our Turf Builder(R) line of products driven by
increased consumer-oriented marketing efforts. Sales in the Consumer Gardens and
Consumer Growing Media business groups increased $6.0 million, or 4.7%, and
$49.0 million, or 26.8%, respectively, from fiscal 1997 to fiscal 1998. The
increase in the Consumer Growing Media business group was primarily the result
of the EarthGro acquisition made earlier in fiscal 1998. The increase in sales
for the Consumer Gardens business group was driven primarily by strong volume,
particularly in the Osmocote(R) and Miracle-Gro(R) product lines, which we
believe was due to increased advertising. Increases were also due to the
introduction of certain new products. On a pro forma basis, including the
EarthGro acquisition, sales in the Consumer Growing Media business group
increased 4.4% from fiscal 1997 to fiscal 1998. More importantly, we made a
strategic decision to emphasize sales of higher margin, value-added products and
to deemphasize sales of lower margin landscape products. Selling price changes
did not have a material impact in the North American Consumer segment in fiscal
1998.

Professional segment sales were $179.4 million in fiscal 1998, an increase of
$13.9 million, or 8.4%, over fiscal 1997 sales of $165.5 million. This increase
in sales was primarily reflected in the ProTurf(R) business and resulted from
increased volumes as a result of emphasizing more technological support for
customers and new product introductions.

International segment sales were $199.9 million in fiscal 1998, an increase of
$85.3 million, or 74.4%, over fiscal 1997 sales of $114.6 million. After
considering the Levington acquisition, on a pro forma basis, sales in the
International segment increased 11.4% from fiscal 1997 to fiscal 1998, primarily
in the European professional business.

Gross profit increased to $398.0 million in fiscal 1998, an increase of 22.2%
over fiscal 1997 gross profit of $325.7 million. As a percentage of sales, gross
profit was 35.7% of sales for fiscal 1998, compared to 36.2% of sales for fiscal
1997. Fiscal 1998 gross profit reflects a charge of $2.9 million, or 0.3% of
fiscal 1998 sales, for restructuring and other charges as discussed below. Also
impacting fiscal 1998 gross margins were start-up costs of $1.1 million
associated with the upgrade of certain domestic manufacturing facilities,
demolition costs of $1.4 million associated with the removal of certain old
manufacturing facilities, unplanned production outsourcing costs of $2.7
million, the loss of a composting contract of $0.6 million and unfavorable
inventory adjustments of $0.8 million. The aggregate impact of these items,
approximately $8.0 million, was offset by favorable raw material pricing of
approximately $8.0 million.

Advertising and promotion expenses in fiscal 1998 were $104.4 million, an
increase of $20.5 million, or 24.4%, over fiscal 1997 advertising and promotion
expenses of $83.9 million. On a pro forma basis, including the Levington and
EarthGro acquisitions, advertising and promotion expenses increased 17.3% from
fiscal 1997 to fiscal 1998. This increase reflects continued emphasis on
building consumer demand through consumer-oriented marketing efforts, and is
highlighted by 18.5% and 58.9% increases in advertising and promotion expenses
in the Consumer Lawns business group and International segment (excluding the
Levington acquisition), respectively. As a percentage of sales, advertising and
promotion increased slightly to 9.4%, compared to 9.3% for the prior year.

Selling, general and administrative expenses in fiscal 1998 were $167.2 million,
an increase of $36.7 million, or 28.1%, over selling, general and administrative
expenses in fiscal 1997 of $130.5 million. As a percentage of sales, selling,
general and administrative expenses were 15.0% for fiscal 1998, compared to
14.5% for fiscal

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1997. On a pro forma basis, including the Levington and EarthGro acquisitions,
selling, general and administration expenses increased 13.1% from fiscal 1997 to
fiscal 1998. The increase in selling, general and administrative expenses was
due to several factors: the assumption of selling, marketing, research and
development and administrative functions related to acquired businesses;
information systems expenses of $1.9 million for Year 2000 compliance and $1.2
million for the enterprise system implementation efforts, as well as an increase
in information systems spending to support the new initiatives and additional
businesses; a $2.1 million charge for costs to integrate the acquired Levington
business as discussed below; and increased legal and environmental charges of
$1.6 million, primarily for additions to the reserve for environmental matters.

Amortization of goodwill and other intangibles increased to $12.9 million in
fiscal 1998, compared to $10.2 million in fiscal 1997, as a result of the
Levington and EarthGro acquisitions during the year.

Restructuring and other charges in fiscal 1998 were $20.4 million, $15.4 million
of which is identified separately within operating expenses, $2.9 million of
which is included in cost of sales and $2.1 million of which is included in
selling, general and administrative expenses. These charges were primarily
associated with three restructuring activities: (1) the consolidation of our two
U.K. operations into one lower-cost business; (2) the closure of nine composting
operations in the U.S. that collect yard and compost waste for certain
municipalities; and (3) the sale or closure of certain other U.S. plants or
businesses.

The charge for consolidation of our U.K. operations was $6.0 million and
consisted of:

- - - $0.9 million to write-off the remaining carrying value of certain property
and equipment. In connection with the integration of the Miracle Garden
Care and Levington businesses, management elected to move certain
production lines from a Miracle Garden Care facility in Howden to a
Levington facility in Bramford. As a result, certain production equipment
at the Howden facility will no longer be utilized. In addition, certain
computer hardware and software equipment previously used by the Miracle
Garden Care business would no longer be utilized as a result of electing to
use acquired information systems of the Levington business. We ceased
utilization of the production and computer equipment in the fourth quarter
of 1998. The assets written-off had nominal value and were scrapped or
abandoned.

- - - $2.1 million to write-off packaging materials rendered obsolete as a result
of new packaging design and to provide for costs incurred in 1998 to
relaunch products under a single branding strategy. The charges associated
with these actions were $0.8 million and $1.3 million, respectively.

- - - $1.4 million of severance costs associated with the termination of 25
employees made redundant by the integration of the two U.K. businesses. As
of September 30, 1998, six employees had been terminated. The remaining
employees were terminated in fiscal 1999. All severance costs accrued at
September 30, 1998 have been paid (except for an adjustment of $0.3 million
for over accrual).

- - - $0.6 million write-off of inventory rendered obsolete by the integration
activities and $0.8 million costs incurred in fiscal 1998 for other
integration-related costs.

The charge for closure of nine of our composting operations was $9.3 million and
consisted of:

- - - $4.5 million for costs to be incurred under contractual commitments for
which no future revenues will be realized. These costs are associated with
the final processing of remaining compost materials, as required, through
the end of the operating contract with the applicable municipality but
after the time which revenue-producing activities cease. Six of the
composting sites have operating contracts that ended in fiscal 1999 for
which $2.9 million was accrued; the

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operating contracts for the three remaining sites will expire in fiscal
2000 for which $1.6 million was accrued.

- - - $3.2 million to write-down to estimated fair value certain machinery and
equipment in accordance with SFAS No. 121 for assets held for use.
Depreciation continues to be recognized during the revenue-producing
periods. Fixed assets at facilities that have ceased operations have been
abandoned or scrapped.

- - - $1.1 million to write-off inventory which must be disposed of as a result
of closing the various composting sites. Such inventory must be removed
from the applicable sites and has only nominal value.

- - - $0.5 million for remaining lease obligations after revenue-producing
activities cease on certain machinery and equipment at the sites.

The composting facilities being closed as part of these restructuring
initiatives incurred losses of approximately $3.0 million and $2.0 million
during fiscal 1998 and fiscal 1997, respectively, which were included in our
consolidated results of operations for those years.

The charge for sale or closure of certain other U.S. plants or businesses was
$5.1 million and consisted of:

- - - $4.5 million to write-down to estimated net realizable value the assets
associated with our AgrEvo pesticides business acquired in fiscal 1998. We
elected to divest these assets in order to avoid potential trade conflicts
associated with our purchase of the Ortho business and the signing of the
marketing agreement for consumer Roundup(R) products. The AgrEvo business
incurred an operating loss of $0.8 million in 1998 and $0.5 million in 1999
before being sold in February 1999.

- - - $0.6 million to write-off and close a single growing media production
facility that was deemed to be redundant after the purchase of the EarthGro
business in February 1998. The closure of the facility was completed in
September 1998.

Other expenses for fiscal 1998 were $4.0 million, compared to $6.3 million in
fiscal 1997. The decrease was primarily due to a reduction in charges provided
for the disposal of assets and an increase in royalty income from licensing
arrangements for some of our brand names, partially offset by increased foreign
currency losses and legal and environmental provisions.

During fiscal 1997, we recorded charges of $6.0 million to write-down certain
long-lived assets to their estimated fair value. The components of these charges
were as follows:

- - - A charge of $2.2 million to write-down the carrying value of our peat
harvesting facility in Lafayette, New Jersey. Operations at this facility
were discontinued at the order of the Philadelphia District of the U.S.
Army Corps of Engineers in July 1990. While proceedings with the government
are on-going, we do not expect to resume operations at this site. The
charge reduced the carrying amount for this facility to its estimated fair
value based on appraisal.

- - - A charge of $1.6 million to write-off the carrying value of certain paper
packaging equipment that was rendered obsolete by management's decision to
convert to plastic packaging. The equipment was considered to have only
nominal value and has subsequently been abandoned or scrapped.

- - - A charge of $0.9 million to write-down the carrying value of our
water-soluble fertilizer plant in Allentown, Pennsylvania. In fiscal 1997,
management determined that the production capacity at this plant was
unnecessary after completing the merger with Miracle-Gro in fiscal 1995.
The Allentown facility was sold in July 1997.

- - - A charge of $0.7 million to write-off certain spreader molding equipment
that was considered obsolete. In fiscal 1997, management elected to upgrade
the production line at its spreader manufacturing facility in Carlsbad,
California. In connection with this change, certain production equipment
was unusable and was scrapped.

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- - - A charge of $0.6 million to write-off software costs that had been deferred
under an enterprise-wide applications systems implementation project. In
fiscal 1997, management elected to change the software platform that would
be used for this project. Costs that had been deferred while configuring
and installing the previous software were determined to have no future
benefit and were written-off.

Income from operations for fiscal 1998 was $94.1 million, compared to $94.8
million for fiscal 1997. Excluding the restructuring and other charges of $20.4
million discussed above, income from operations in fiscal 1998 was $114.5
million, or 10.3% of sales, which was just slightly below income from operations
as a percentage of sales for fiscal 1997 of 10.5%.

Interest expense for fiscal 1998 was $32.2 million, an increase of 27.8% over
fiscal 1997 interest expense of $25.2 million. The increase in interest expense
was due to increased borrowings to fund the Levington, EarthGro and Miracle
Garden acquisitions, partially offset by lower average debt levels excluding the
acquisition borrowings.

Income tax expense was $24.9 million for fiscal 1998, a 17.3% decrease from
income tax expense for fiscal 1997. Our effective tax rate decreased to 40.3% in
fiscal 1998 from 43.2% in fiscal 1997 as a result of favorable tax planning
strategies.

In February 1998, we secured a new revolving credit facility to replace our then
existing credit facility. Write-off of deferred financing costs associated with
the then existing credit facility resulted in an extraordinary loss, net of
income taxes, on the early extinguishment of debt of $0.7 million.

We reported net income of $36.3 million for fiscal 1998, or $1.20 per common
share on a diluted basis, compared to net income of $39.5 million for fiscal
1997, or $1.35 per common share on a diluted basis. Excluding the impact of the
restructuring and other charges and extraordinary loss discussed above, we
earned net income of $1.62 per share on a diluted basis, a 20% increase over
fiscal 1997. This increase reflects the impact of strong sales volumes during
fiscal 1998 as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities was $78.2 million, $71.0 million and
$121.1 million in fiscal 1999, 1998 and 1997, respectively. The decrease in cash
provided from operations for fiscal 1999 and fiscal 1998 compared to fiscal 1997
was primarily due to increased working capital levels in fiscal 1999 and fiscal
1998 to support increased sales revenues. The fiscal 1997 improvement compared
to fiscal 1996 was driven by higher earnings and improved working capital
management. The seasonal nature of our sales results in a significant increase
in working capital (primarily accounts receivable and inventory) during the
first half of the fiscal year, with the third quarter being a significant cash
collection period.

Cash used in investing activities was $571.6 million, $192.1 million and $72.5
million in fiscal 1999, 1998 and 1997, respectively. The increase in cash used
in investing activities in fiscal 1999 and fiscal 1998 was due to the cost of
businesses acquired during those years and increases in capital expenditures to
install our new enterprise-wide applications information system (see discussion
below) and to upgrade some of our manufacturing facilities to more
technologically advanced production capabilities. Our new credit facilities
restrict annual capital investments to $70.0 million.

Financing activities generated cash of $513.9 million and $118.4 million in
fiscal 1999 and 1998, respectively, and used cash of $46.2 million in fiscal
1997. Cash generated in fiscal 1999 was generally used to fund our acquisitions
during fiscal 1999, to repay our then existing credit facility and Senior
Subordinated Notes, and to fund increased working capital levels. Cash generated
in fiscal 1998 was generally provided by our credit facilities in order to
provide funds for the acquisitions during the year. The lower level of debt
repayment in fiscal 1997 reflects the usage of higher operating cash flows to
support the additional investment in Miracle Garden and higher net capital
investments.

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Total debt as of September 30, 1999 was $950.0 million compared to $372.5
million at September 30, 1998. The increase in debt year to year was primarily
due to borrowings to fund the Ortho, Rhone-Poulenc Jardin and Asef acquisitions
and higher working capital levels to support the growth of the business.

Shareholders' equity as of September 30, 1999 was $443.3 million, a $39.4
million increase compared to September 30, 1998. This increase was primarily
attributable to net income of $63.2 million, offset by convertible preferred
stock dividends of $9.7 million and net treasury stock purchases of $10.0
million.

The primary sources of our liquidity are funds generated by operations and
borrowings under our credit facilities. On December 4, 1998, we and most of our
subsidiaries entered into new credit facilities which provide for borrowings in
the aggregate principal amount of $1.025 billion and consist of term loan
facilities in the aggregate amount of $525 million and a revolving credit
facility in the amount of $500 million.

We funded the Rhone-Poulenc Jardin and Asef acquisitions with borrowings under
the new credit facilities. Proceeds from the private debt offering of the 8 5/8%
Senior Subordinated Notes and borrowings under the new credit facilities were
used to fund the Ortho acquisition and to repurchase our then outstanding 9 7/8%
Senior Subordinated Notes.

Capital expenditures were $66.7 million in fiscal 1999. We estimate that capital
expenditures will approximate $70 million in fiscal 2000 and 2001 and $60
million to $70 million for each of the next several years. Included in these
estimates are amounts to be spent on our information systems initiative in
fiscal 2000 and fiscal 2001.

In July 1998, our Board of Directors of authorized the repurchase of up to $100
million of our common shares on the open market or in privately negotiated
transactions on or prior to September 30, 2001. As of September 30, 1999,
494,195 common shares, or $16.7 million, have been repurchased under the new
repurchase program limit. The timing and amount of any purchases under the new
repurchase program will be at our discretion and will depend upon market
conditions and our operating performance and liquidity. Any repurchase will also
be subject to the covenants contained in our new credit facilities as well as
our other debt instruments. The repurchased shares will be held in treasury and
will thereafter be used for the exercise of employee stock options and for other
valid corporate purposes. We anticipate that all repurchases will be made in the
open market or in privately negotiated transactions, and that Hagedorn
Partnership, L.P. will sell its pro rata share (41%) of such repurchased shares
in the open market.

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.

In our opinion, cash flows from operations and capital resources will be
sufficient to meet debt service and working capital needs during fiscal 2000 and
thereafter for the foreseeable future. However, we cannot ensure that our
business groups will generate sufficient cash flow from operations, that
currently anticipated cost savings and operating improvements will be realized
on schedule or at all, or that future borrowings will be available under the new
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. We cannot ensure that we will be able to
refinance any indebtedness, including the new credit facilities, on commercially
reasonable terms, or at all.


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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 action aimed at ensuring
compliance with, such laws and regulations. We are involved in several
environmental related legal actions with various governmental agencies. 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 our future
quarterly or annual operating results. Additional information on environmental
matters affecting us is provided in Note 15 to our Consolidated Financial
Statements and in this Annual Report on Form 10-K under "ITEM 1.
BUSINESS--Environmental and Regulatory Considerations" and "ITEM 3. LEGAL
PROCEEDINGS."

YEAR 2000 READINESS

GENERAL

We may be impacted by the inability of our computer software applications and
other business systems (e.g., embedded microchips) to properly identify the Year
2000 due to a commonly used programming convention of using only two digits to
identify a year. Unless modified or replaced, these systems could fail or create
erroneous results when referencing the Year 2000.

Management has assessed the extent and impact of this issue and has implemented
a readiness program to mitigate the possibility of business interruption or
other risks. The readiness program includes all of our operations. Management
believes that all significant business systems are compliant. Progress is being
made on a limited number of open items, primarily relating to contingency
planning, that will be completed before year-end.

We have established a Year 2000 Program Office to oversee the readiness program.
The Program Office functions include regular communication with Year 2000
project managers and site visits to our various businesses to monitor
remediation efforts and verify progress toward stated compliance goals. The
Program Office reports to senior management, who in turn reports regularly to
Scotts' Board of Directors regarding our progress toward Year 2000 readiness.

INFORMATION TECHNOLOGY SYSTEMS

Currently, computer operations at our Marysville, Ohio North American
headquarters support all U.S. business groups with the exception of the Republic
Tool (spreaders) manufacturing operations. Our foreign operations generally do
not electronically interface with the U.S. headquarters.

The North American headquarters mainframe operations consist primarily of
internally developed systems that have been remediated. Other domestic and
international operations utilize commercial packaged software which has been
upgraded or replaced. Remediation of North American headquarters mainframe
applications, which was our most complex and costly effort, was completed in
April 1999.

Personal computers are being made Year 2000 compliant by systematic upgrade
through lease renewals and as part of the implementation of a company-wide
enterprise resource planning project. Many other hardware/software upgrades have
been executed under ongoing maintenance and support agreements with vendors.
Testing of upgrades is being performed internally.


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In support of our long-range strategic plans, an enterprise-wide application
systems project is under way to link all business groups. This enterprise-wide
system is being implemented in stages starting in July 1999. The primary
software provider for the enterprise-wide system has represented that its
software is Year 2000 compliant. Our Year 2000 compliance efforts are
concentrated on the currently existing systems to ensure there is adequate
information systems support until implementation of the enterprise-wide system
is completed.

NON-INFORMATION TECHNOLOGY SYSTEMS

Non-information technology systems, consisting mainly of equipment and machinery
operating and control systems, telecommunication systems, building air
management systems, security and fire control systems, electrical and natural
gas systems, have been assessed by each business group with advice from the
suppliers of these systems/services. Upgrades or replacements have been made as
necessary.

THIRD PARTY SUPPLIERS
We rely on third party suppliers for finished goods, raw materials,
water, other utilities, transportation and a variety of other key services.
Interruption of supplier operation due to Year 2000 issues could affect our
operations. We continue to evaluate the status of suppliers' efforts
through confirmation and follow-up procedures, including selected site
assessments, to determine contingency planning where necessary.

STATE OF READINESS

Each business group has completed an internal inventory and assessment to
identify information technology and non-information technology systems that are
susceptible to system failure or processing errors as a result of Year 2000
issues.

The headquarters mainframe remediation project is complete, including testing.
The upgrade or replacement and testing of information technology systems at
other North American operations is substantially complete. Non-information
technology efforts were performed concurrently and replacement and testing are
substantially complete. Site visits have been conducted by the Program Office to
verify year-to-date progress against plans.

Year 2000 readiness plans are being executed within the International segment.
Upgrades of packaged software for the primary systems are complete. Site visits
have been conducted by the Program Office to verify year-to-date progress
against plans.

A confirmation process with respect to third party suppliers continues.
Additionally, site visits were conducted with critical suppliers as necessary,
to determine whether alternative sources are needed.


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COSTS

We have been tracking incremental Year 2000 costs which exclude the costs of
internally dedicated resources. The current estimate of incremental costs for
the Year 2000 efforts (excluding those related to the enterprise-wide resource
planning project) is approximately $5.7 million. Of this amount, $4.8 million
has been incurred through September 30, 1999. These costs, with the exception of
relatively small capital expenditures, are being expensed as incurred and are
being funded through operating cash flows or from borrowings under our credit
facility. A summary of the cost components follows ($ in millions):



FISCAL FISCAL
LOCATION 1999 2000 TOTAL
- - -------- ---- ---- -----
(ACTUAL) (ESTIMATE)


Headquarters mainframe $3.0 $0.0 $3.0
Other U. S. operations 0.8 0.5 1.3
International operations 1.0 0.4 1.4
---- ---- ----
Total $4.8 $0.9 $5.7
==== ==== ====


RISKS

Our principal business risks relating to completion of Year 2000 efforts are:

- Reliance on key business partners to not have disruption in
their ability to provide goods and services as a result of
Year 2000 issues.

- Unforeseen issues arising in connection with recent and future
acquisitions/business partnerships.

- Forecasting unreliability due to customers' departures from
expected buying patterns.

- The ability to continue to focus on Year 2000 issues by
internal and external resources.

Because our Year 2000 readiness is dependent upon key business partners also
being Year 2000 ready, there can be no guarantee that our efforts will prevent a
material adverse impact on our results of operations, financial condition and
cash flows. The possible consequences to us of our key business partners'
inability to provide goods and services as a result of Year 2000 issue include
temporary plant closings; delays in delivery of finished products; delays in
receipt of key raw materials, containers and packaging supplies; invoice and
collection errors; and inventory and supply obsolescence. We believe that our
readiness efforts with critical partners, which include confirmation, site
visits and contingency planning, should reduce the likelihood of such
disruptions.

We cannot identify all possible worst-case scenarios; however, the most
reasonable worst-case scenario would be the failure of utilities and/or
transportation systems that are critical to our operations and that could not
quickly be replaced by other suppliers or through internal resources. In these
situations, operations at the affected facility or facilities would be
interrupted with adverse effects on our financial results. We are developing
contingency plans; however, these plans do not contemplate extended disruptions
by third-party suppliers of products or services to Scotts.

CONTINGENCY PLANS

A formal contingency planning process continues. We will continue to assess
where alternative courses of action are needed as the information technology and
non-information technology readiness plans are executed. Plans are in place to
alleviate internal issues and minimize customer impact of the most likely and
critical potential risks. Due to the nature of contingency planning, assessment
and planning efforts will continue through the end of 1999.


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ONGOING PROCESS

Our readiness program is an ongoing process and the estimates of costs and
completion dates for various components of the program described above are
subject to change.

ENTERPRISE RESOURCE PLANNING

In July 1998, we announced a project designed to bring our information system
resources in line with our current strategic objectives. The project will
include the redesign of many key business processes in connection with the
installation of new software on a world-wide basis over the course of the next
several fiscal years. We anticipate that the North American businesses will be
operating under the new information systems by the end of fiscal 2000. Our
international businesses should be operational within the next two years
thereafter. We estimate that the project will cost $53.2 million, approximately
75% of which will be capitalized over a period of four to eight years. SAP has
been selected as the primary software provider for this project.

EURO

A new currency called the "euro" has been introduced in certain Economic and
Monetary Union countries. During 2002, all EMU countries are expected to be
operating with the euro as their single currency. Uncertainty exists as to the
effects the euro currency will have on the marketplace. We are still assessing
the impact the EMU formation and euro implementation will have on our internal
systems and the sale of our products. We expect to take appropriate actions
based on the results of this assessment. We have not yet determined the cost
related to addressing this issue and there can be no assurance that this issue
and its related costs will not have a materially adverse effect on our business,
operating results and financial condition.

MANAGEMENT'S OUTLOOK

Fiscal 1999 was a very significant year for Scotts, as we reported record sales
of $1.65 billion, achieved market share growth in every one of our major U. S.
categories, and established a number one market share position in most of the
significant lawn and garden categories across the world. The strategic
acquisitions during fiscal 1999, most notably the Ortho and Rhone-Poulenc Jardin
businesses, were critical in providing us with dominant market positions in the
pesticides category as well as continental European lawn and garden markets. The
year's performance reflected the successful continuation of our primary growth
drivers: to emphasize consumer-oriented marketing efforts to pull demand through
its distribution channels, and to make strategic acquisitions to increase market
share in global markets and within segments of the lawn and garden category.

Looking forward to fiscal 2000, the timing of the Ortho acquisition in fiscal
1999 must be considered. Because the Ortho business was acquired in January
1999, fiscal 1999 earnings did not reflect the loss that is traditionally
incurred by the Ortho business during the October through December period, as
well as the amortization of goodwill and interest charges associated with the
acquisition. Management estimates that this one-time benefit was approximately
28 cents per share, which, when subtracted from fiscal 1999 reported earnings
per share, more accurately reflects Scotts' current year performance.

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

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

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

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

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

As part of our ongoing strategic plans, management has established challenging,
but realistic, financial goals, including:

(1) Sales growth of 6% to 8% in core businesses;

(2) An aggregate operating margin improvement of at least 2% over
the next four years; and

(3) Minimum compounded annual earnings per share growth of 15% to
20%.

FORWARD-LOOKING STATEMENTS

We have has 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 Annual Report, 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 the Act.

The forward-looking statements that we make in our Annual Report, 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 set
forth below. All forward-looking statements attributable to us or persons
working on our behalf are expressly qualified in their entirety by the following
cautionary statements.

- ADVERSE WEATHER CONDITIONS COULD ADVERSELY IMPACT FINANCIAL
RESULTS.

Weather conditions in North America and Europe have a
significant impact on the timing of sales in the spring
selling season and overall annual sales. Periods of wet
weather can slow fertilizer sales, while periods of dry, hot
weather can decrease

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pesticide sales. In addition, an abnormally cold spring
throughout North America and/or Europe could adversely affect
both fertilizer and pesticides sales and therefore our
financial results.

- OUR HISTORICAL SEASONALITY COULD IMPAIR OUR
ABILITY TO MAKE INTEREST PAYMENTS ON INDEBTEDNESS.

Because our products are used primarily in the spring and
summer, our business is highly seasonal. For the past two
fiscal years, approximately 70% to 75% of our sales have
occurred in the second and third fiscal quarters combined. Our
working capital needs and our borrowings peak near the end of
our first 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
cover interest payments due on our indebtedness at a time when
we are unable to draw on our credit facilities, this
seasonality could adversely affect our ability to make
interest payments as required by our indebtedness. Adverse
weather conditions could heighten this risk.

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

We manufacture and market a number of complex chemical
products, such as fertilizers, herbicides and pesticides,
bearing one of our brands. On occasion, customers allege that
some of these products fail to perform up to expectations or
cause damage or injury to individuals or property. Public
perception that our products are not safe, whether justified
or not, could impair our reputation, damage our brand names
and materially adversely affect our business.

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

Our substantial indebtedness could:

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

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

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

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

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

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

- limit our ability to borrow additional funds.

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



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

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

- WE MIGHT NOT BE ABLE TO INTEGRATE OUR RECENT ACQUISITIONS INTO
OUR BUSINESS OPERATIONS SUCCESSFULLY.

We have made several substantial acquisitions in the past four
years. The acquisition of the Ortho business represents the
largest acquisition we have ever made. The success of any
completed acquisition depends, and the success of the Ortho
acquisition will depend, on our ability to effectively
integrate the acquired business. We believe that our recent
acquisitions provide us with significant cost saving
opportunities. However, if we are not able to successfully
integrate Ortho, Rhone-Poulenc Jardin or our other acquired
businesses, we will not be able to maximize such cost saving
opportunities. Rather, the failure to integrate these acquired
businesses, because of difficulties in the assimilation of
operations and products, the diversion of management's
attention from other business concerns, the loss of key
employees or other factors, could materially adversely affect
our financial results.

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

Our top 10 North American retail customers together accounted
for approximately 52% of our fiscal 1999 sales and 41% of our
outstanding accounts receivable as of September 30, 1999. Our
top three customers, Home Depot, Wal*Mart and Kmart
represented approximately 17%, 12% and 9% of our fiscal 1999
sales. These customers hold significant positions in the
retail lawn and garden market. The loss of, or reduction in
orders from, Home Depot, Wal*Mart, Kmart or any other
significant customer could have a material adverse effect on
our business and our financial results, as could customer
disputes regarding shipments, fees, merchandise condition or
related matters. Our inability to collect accounts receivable
from any of these customers could also have a material adverse
affect.

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

If we were to commit a serious default under the marketing
agreement with Monsanto for consumer Roundup(R) products,
Monsanto may have the right to terminate the agreement. If
Monsanto were to terminate the marketing agreement rightfully,
we would not be entitled to any termination fee, and we would
lose all, or a significant portion, of the significant source
of earnings we believe the marketing agreement provides.
Monsanto may also 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 year fiscal year period; or

- By more than 5% for each of two consecutive fiscal
years. Monsanto may not terminate the marketing
agreement, however, if we can demonstrate that the
sales decline was caused by a severe decline of
general economic conditions or a severe decline in
the lawn and garden market in the region rather than
by our failure to perform our duties under the
agreement.

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55
- THE EXPIRATION OF PATENTS RELATING TO ROUNDUP(R) AND THE
SCOTTS TURF BUILDER(R) LINE OF PRODUCTS COULD SUBSTANTIALLY
INCREASE OUR COMPETITION IN THE UNITED STATES.

Glyphosate, the active ingredient in Roundup(R), is covered by
a patent in the United States that expires in September 2000.
Sales in the United States may decline as a result of
increased competition after the U.S. patent expires. Any
decline in sales would adversely affect our net commission
under the marketing agreement for consumer Roundup(R) products
and, therefore, our financial results. A sales decline could
also trigger Monsanto's regional termination right under the
marketing agreement.

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

- THE INTERESTS OF THE FORMER MIRACLE-GRO SHAREHOLDERS COULD
CONFLICT WITH THOSE OF OUR OTHER SHAREHOLDERS.

The former shareholders of Stern's Miracle-Gro Products, Inc.,
through Hagedorn Partnership, L.P., beneficially own
approximately 42% of the outstanding common shares of Scotts
on a fully diluted basis. The former Miracle-Gro shareholders
have sufficient voting power to significantly control the
election of directors and the approval of other actions
requiring the approval of our shareholders. The interests of
the former Miracle-Gro shareholders could conflict with those
of our other 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.
All products containing pesticides must be registered with the
United States Environmental Protection Agency and, in many
cases, similar state and/or foreign agencies before they can
be sold. The inability to obtain or the cancellation of any
registration could have an adverse effect on us. The severity
of the effect would depend on which products were involved,
whether another product could be substituted and whether
competitors were similarly affected. We attempt to anticipate
regulatory developments and maintain registrations of, and
access to, substitute chemicals. We may not always be able to
avoid or minimize these risks.

The Food Quality Protection Act, enacted by the U.S. Congress
in August 1996, establishes a standard for food-use
pesticides, which is that a reasonable certainty of no harm
will result from the cumulative effect of pesticide exposures.
Under this Act, the U.S. Environmental Protection Agency is
evaluating the cumulative risks from dietary and non-dietary
exposures to pesticides. The pesticides in our products, which
are also used on foods, will be evaluated by the U.S.
Environmental Protection Agency as part of this non-dietary
exposure risk assessment. It is possible that the U.S.
Environmental Protection Agency may decide that a pesticide we
use in our products, would be limited or made unavailable. We
cannot predict the outcome or the severity of the effect of
the U.S. Environmental Protection Agency's evaluation. We
believe that we should be able to obtain substitute
ingredients if selected pesticides are limited or made
unavailable, but there can be no assurance that we will be
able to do so for all products.

Regulations regarding the use of some pesticide and fertilizer
products may include requirements that only certified or
professional users apply the product or that the products be
used only in specified locations. 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. The use
of some ingredients has been banned. Even if we are able to
comply with all such regulations and obtain all necessary
registrations, we cannot assure that our products,
particularly pesticide products, will not cause injury to the
environment or to people under all circumstances. The costs of
compliance, remediation or products liability have adversely
affected operating results in the past and could materially
affect future quarterly or annual operating results.

The harvesting of peat for our growing media business has come
under increasing regulatory and environmental scrutiny. In the
United States, state regulations frequently require us to
limit our harvesting and to restore the property to its
intended use. 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. Since
1990, we have been involved in litigation with the
Philadelphia District of the U.S. Army Corps of Engineers
involving our peat harvesting operations at Hyponex's
Lafayette, New Jersey facility. The Corps of Engineers is
seeking a permanent

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56
injunction against harvesting and civil penalties in an
unspecified amount.

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 gave us formal notice of an enforcement
action concerning our old, decommissioned wastewater treatment
plants that had once operated at our Marysville facility. The
Ohio EPA action alleges surface water violations relating to
possible historical sediment contamination, inadequate
treatment capabilities at our existing and currently permitted
wastewater treatment plants and the need for corrective action
under the Resource Conservation Recovery Act. We are
continuing to meet with the Ohio EPA and the Ohio Attorney
General's office to negotiate an amicable resolution of these
issues. We are currently unable to predict the ultimate
outcome of this matter.

During fiscal 1999, we made approximately $1.1 million in
environmental capital expenditures and $5.9 million in other
environmental expenses, compared with approximately $0.7
million in environmental capital expenditures and $3.1 million
in other environmental expenses in fiscal 1998. Management
anticipates that environmental capital expenditures and other
environmental expenses for fiscal 2000 will not differ
significantly from those incurred in fiscal 1999. If we are
required to significantly increase our actual environmental
capital expenditures and other environmental expenses, it
could adversely affect our financial results.

- OUR FAILURE, OR THE FAILURE OF OUR SUPPLIERS OR CUSTOMERS, TO
ADDRESS INFORMATION TECHNOLOGY ISSUES RELATED TO THE YEAR 2000
COULD ADVERSELY AFFECT OUR OPERATIONS.

Like other business entities, we must address the inability of
our computer software applications and other business systems
to properly identify the year 2000 due to a commonly used
programming convention of using only two digits to identify a
year. Unless modified or replaced, these systems could fail or
create erroneous results when referencing the year 2000.

We rely on third party suppliers for finished goods, raw
materials, water, other utilities, transportation and a
variety of other key services. If one or more of our suppliers
fail to address the year 2000 problem adequately, their
operations could be interrupted. This interruption, in turn,
could adversely affect our operations. In addition, the
failure of our retailer customers adequately to address the
year 2000 problem could adversely affect our financial
results.

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

In January 1999, the "euro" was introduced in some Economic
and Monetary Union countries and by 2002, all EMU countries
are expected to be operating with the euro as their single
currency. Uncertainty exists as to the effects the euro
currency will have on the marketplace. Additionally, the
European Commission has not yet defined and finalized all of
the rules and regulations with regard to the euro currency. We
are still assessing the impact the EMU formation and euro
implementation will have on our internal systems and the sale
of our products. We expect to take appropriate actions based
on the results of our assessment. However, we have not yet
determined the cost related to addressing this issue and there
can be no assurance that this issue and its related costs will
not have a materially adverse effect on us or our operating
results and financial condition.

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

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

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57

Our international operations have increased with the acquisitions of
Levington, Miracle Garden, Ortho and Rhone-Poulenc Jardin and with the
marketing agreement for consumer Roundup(R) products. In fiscal 1999,
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.

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


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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, 1999 that are
impacted by changes in interest rates. As a means of managing our interest rate
risk on these debt instruments, we have entered into the following interest rate
swap agreements to effectively convert certain variable rate debt obligations to
fixed rates:

- A 20 million British Pounds Sterling notional amount swap to
convert variable-rate debt obligations denominated in British
Pounds Sterling to a fixed rate. The exchange rate used to
convert British Pounds Sterling to U.S. dollars at September
30, 1999 was $1.65: 1 Pound Sterling.

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




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59
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, 1999. For debt instruments, the table presents principal
cash flows and related weighted-average interest rates by expected maturity
dates. For interest rate swaps, the table presents expected cash flows based on
notional amounts and weighted-average interest rates by contractual maturity
dates. Weighted-average variable rates are based on implied forward rates in the
yield curve at September 30, 1999. The information is presented in U.S. dollars
(in millions):



EXPECTED MATURITY DATE
---------------------- FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----


Long-term debt:
Fixed rate debt $330.0 $330.0 $316.0
Average rate 8.625% 8.625%
Variable rate debt $ 26.2 $ 33.3 $ 44.3 $ 48.4 $48.4 $372.7 $573.3 $573.3
Average rate 6.77% 6.74% 6.71% 6.70% 6.70% 8.28% 7.73%
Interest rate derivatives:
Interest rate swap
on GBP LIBOR $ (0.4) $ (0.1) $ (0.1) $ (0.6) $ (0.5)
Average rate 7.62% 7.62% 7.62% 7.62%
Interest rate swaps
on USD LIBOR $ 0.9 $ 1.4 $ 1.1 $ 0.6 $ 0.2 $ 4.2 $ 3.3
Average rate 5.10% 5.10% 5.11% 5.16% 5.18% 5.11%
OTHER MARKET RISKS


Our market risk associated with foreign currency rates is not considered to be
material. Through fiscal 1999, we had only minor amounts of transactions that
were denominated in foreign currencies. 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.





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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 68 herein.

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

None.



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61
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

In accordance with General Instruction G(3), the information contained under the
captions "BENEFICIAL OWNERSHIP OF SECURITIES OF THE COMPANY --Section 16(a)
Beneficial Ownership Reporting Compliance" and "PROPOSAL NO. 1 - ELECTION OF
DIRECTORS" in Scotts' definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders to be held on February 15, 2000 to be 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 required by Item 401 of
Regulation S-K is included in Part I hereof under the caption "Executive
Officers of Registrant."

ITEM 11. EXECUTIVE COMPENSATION

In accordance with General Instruction G(3), the information contained under the
captions "EXECUTIVE COMPENSATION" and "ELECTION OF DIRECTORS--Compensation of
Directors" in Scotts' Proxy Statement, is incorporated herein by reference.
Neither the report of the Compensation and Organization Committee of the
Registrant's Board of Directors on executive compensation nor the performance
graph included in Scotts' Proxy Statement shall be deemed to be incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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



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PART IV

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

(a) DOCUMENTS FILED AS PART OF THIS REPORT

1 and 2. Financial Statements and Financial Statement Schedules:

The response to this portion of Item 14 is submitted as a separate section of
this Annual Report on Form 10-K. Reference is made to "Index to Consolidated
Financial Statements and Financial Statement Schedules" on page 68 herein.

3. Exhibits:

Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a
list of such exhibits, see "Index to Exhibits" beginning at page E-1. 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.

EXECUTIVE COMPENSATORY PLANS AND ARRANGEMENTS



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63



EXHIBIT
NO. DESCRIPTION LOCATION
- - --- ----------- --------

10(a) The O.M. Scott & Sons Company Excess Incorporated herein by
Benefit Plan, effective October 1, 1993 reference to the
Annual Report on Form
10-K for the fiscal
year ended September
30, 1993, of The Scotts
Company, a Delaware
corporation ("Scotts
Delaware") (File
No. 0-19768) [Exhibit 10(h)]

10(b) The Scotts Company 1992 Long Term Incorporated herein by
Incentive Plan reference to Scotts
Delaware's Registration
Statement on Form S-8
filed on March 26, 1993
(Registration No. 33-60056)
[Exhibit 4(f)]

10(c) The Scotts Company 1999 Executive and Management *
Incentive Plan

10(d) The Scotts Company 1996 Stock *
Option Plan (as amended through
December 8, 1999)

10(e) The Scotts Company Executive Incorporated herein by
Retirement Plan reference to the
Registrant's Annual
Report on Form 10-K for
the fiscal year ended
September 30, 1998
(File No. 1-11593)
[Exhibit 10(j)]



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64



EXHIBIT
NO. DESCRIPTION LOCATION
- - --- ----------- --------



10(f) Employment Agreement, dated as of Incorporated herein by
May 19, 1995, between the Registrant reference to the
and James Hagedorn Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1995
(File No. 1-11593)
[Exhibit 10(p)]

10(g) Consulting Agreement, dated July 9, 1997, Incorporated herein by
among Scotts Miracle-Gro Products, Inc., reference to the
the Registrant and Horace Hagedorn Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(1)]

10(h) Employment Agreement, dated as of May 19, Incorporated herein by
1995, among Stern's Miracle-Gro reference to the
Products, Inc. (nka Scotts Miracle-Gro Registrant's Annual
Products, Inc.), the Registrant and John Kenlon Report on Form 10-K
for the fiscal year
ended September 30,
1996 (File No. 1-11593)
[Exhibit 10(k)]

10(i) Employment Agreement, dated as of Incorporated herein by
August 7, 1998, between the Registrant reference to the
and Charles M. Berger, and three attached Registrant's Annual
Stock Option Agreements with the following Report on Form 10-K
effective dates: September 23, 1998; October 21, for the fiscal year
1998 and September 24, 1999 ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(n)]

10(j) Stock Option Agreement, dated as of Incorporated herein by
August 7, 1996, between the Registrant reference to the
and Charles M. Berger Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1996
(File No. 1-11593)
[Exhibit 10(m)]

10(k) Letter Agreement, dated December 23, 1996, Incorporated herein by
between the Registrant and Jean H. Mordo reference to the
Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(p)]

10(l) Specimen form of Stock Option Agreement *
for Non-Qualified Stock Options



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65



EXHIBIT
NO. DESCRIPTION LOCATION
- - --- ----------- --------



10(m) Letter Agreement, dated April 10, 1997, Incorporated herein by
between the Registrant and G. Robert Lucas reference to the
Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(r)]

10(n) Letter Agreement, dated December 17, 1997, Incorporated herein by
between the Registrant and William R. Radon reference to the
Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(s)]

10(o) Letter Agreement, dated March 30, 1998, Incorporated herein by
between the Registrant and William A. Dittman reference to the
Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(t)]

10(p) Letter Agreement, dated March 16, 1999, *
between the Registrant and Hadia Lefavre

10(q) Letter Agreement, dated July 21, 1999, *
between the Registrant and David D. Harrison

10(r) Contract of Employment dated February 28, 1996, *
between Rhodic (assumed by Scotts France SAS)
and Christian Ringuet

10(s) Employment Agreement, dated August 17, 1995, *
between Scotts Europe B.V. and Laurens J.M. de Kort

10(t) Service Agreement, dated September 9, 1998, *
between Levington Horticulture Limited (nka The Scotts
Company (UK) Ltd.) and Nicholas Kirkbride





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66
* Filed herewith.


(b) REPORTS ON FORM 8-K

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

(c) EXHIBITS

See Item 14(a)(3) above.

(d) FINANCIAL STATEMENT SCHEDULES

The response to this portion of Item 14 is submitted as a separate section of
this Annual Report on Form 10-K. See Item 14(a)(2) above.


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67
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 22, 1999 By: /s/ CHARLES M. BERGER
Charles M. Berger, Chairman
of the Board, President and
Chief Executive Officer

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



SIGNATURES TITLE DATE
- - ---------- ----- ----


/s/ JAMES B BEARD, PH.D. Director December 22, 1999
James B Beard, Ph.D.

/s/ CHARLES M. BERGER Chairman of the Board/President/ December 22, 1999
Charles M. Berger Chief Executive Officer

/s/ JOSEPH P. FLANNERY Director December 22, 1999
Joseph P. Flannery

/s/ HORACE HAGEDORN Vice Chairman/Director December 22, 1999
Horace Hagedorn

/s/ JAMES HAGEDORN President, Scotts North America/ December 22, 1999
James Hagedorn Director

/s/ ALBERT E. HARRIS Director December 22, 1999
Albert E. Harris

/s/ JOHN KENLON Director December 22, 1999
John Kenlon

/s/ KAREN GORDON MILLS Director December 22, 1999
Karen Gordon Mills

/s/ DAVID D. HARRISON Executive Vice President/Chief December 22, 1999
David D. Harrison Financial Officer/Principal
Accounting Officer

/s/ PATRICK J. NORTON Director December 22, 1999
Patrick J. Norton

/s/ JOHN M. SULLIVAN Director December 22, 1999
John M. Sullivan

/s/ L. JACK VAN FOSSEN Director December 22, 1999
L. Jack Van Fossen

/s/ JOHN WALKER, PH.D. Director December 22, 1999
John Walker, Ph.D.






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68
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES



FORM 10-K
ANNUAL REPORT

Consolidated Financial Statements of The Scotts Company and
Subsidiaries:
Report of Management
Report of Independent Accountants
Consolidated Statements of Operations for the years ended
September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997
Consolidated Balance Sheets at September 30, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for
the years ended September 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Schedules Supporting the Consolidated Financial Statements:
Report of Independent Accountants on Financial Statement Schedules
Valuation and Qualifying Accounts for the years ended September 30,
1999, 1998 and 1997


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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69
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
generally accepted accounting principles 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 objectives of these control systems.

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

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




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70
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, cash flows and changes in shareholders'
equity present fairly, in all material respects, the financial position of The
Scotts Company at September 30, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1999, in conformity with accounting principles generally accepted in the United
States. 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 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 the opinion expressed above.

PricewaterhouseCoopers LLP
Columbus, Ohio

October 21, 1999




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71
Consolidated Statements of Operations



For the fiscal years ended September 30, 1999,
1998 and 1997 (in millions except per share amounts) 1999 1998 1997


Sales $1,648.3 $1,113.0 $ 899.3
Cost of sales 989.1 715.0 573.6
-------- -------- -------
Gross profit 659.2 398.0 325.7
Commission earned from agency agreement 30.3 -- --
Operating expenses:
Advertising and promotion 189.0 104.4 83.9
Selling, general and administrative 281.2 169.9 131.6
Amortization of goodwill and other intangibles 25.4 12.9 10.2
Restructuring and other charges 1.4 15.4 --
Other (income) expense, net (3.6) 1.3 5.2
-------- -------- -------
Income from operations 196.1 94.1 94.8
Interest expense 79.1 32.2 25.2
-------- -------- -------

Income before income taxes 117.0 61.9 69.6
Income taxes 47.9 24.9 30.1
-------- -------- -------

Income before extraordinary item 69.1 37.0 39.5
Extraordinary loss on early extinguishment
of debt, net of income tax benefit 5.9 0.7 --
-------- -------- -------

Net income 63.2 36.3 39.5
Preferred stock dividends 9.7 9.8 9.8
-------- -------- -------

Income applicable to common shareholders $ 53.5 $ 26.5 $ 29.7

Basic earnings per share:
Before extraordinary loss $ 3.25 $ 1.46 $ 1.60
Extraordinary loss, net of tax (0.32) (0.04) --
--------- -------- -------
$ 2.93 $ 1.42 $ 1.60
Diluted earnings per share:
Before extraordinary loss $ 2.27 $ 1.22 $ 1.35
Extraordinary loss, net of tax (0.19) (0.02) --
--------- -------- -------
$ 2.08 $ 1.20 $ 1.35
Common shares used in basic earnings
per share calculation 18.3 18.7 18.6
Common shares and potential common shares used
in diluted earnings per share calculation 30.5 30.3 29.3



See Notes to Consolidated Financial Statements.



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Consolidated Statements of Cash Flows



For the fiscal years ended September 30, 1999,
1998 and 1997 (in millions) 1999 1998 1997
---- ---- ----

Cash Flows From Operating Activities

Net income $ 63.2 $ 36.3 $ 39.5
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 29.0 21.6 16.6
Amortization 31.2 16.2 13.8
Extraordinary loss 5.9 0.7 -
Restructuring and other charges - 19.3 -
Loss on sale of fixed assets 1.8 2.3 5.6
Deferred income taxes 0.5 (2.4) (1.5)
Changes in assets and liabilities, net of acquired businesses:
Accounts receivable 23.7 (8.6) 18.3
Inventories (21.6) (5.7) 17.3
Prepaid and other current assets (25.2) (2.1) 0.4
Accounts payable 10.7 8.8 1.1
Accrued taxes and liabilities (10.2) (14.4) 12.7
Other assets (35.9) 0.3 1.3
Other liabilities 1.7 2.3 (0.1)
Other, net 3.4 (3.6) (3.9)
------ ------ ------
Net cash provided by operating activities 78.2 71.0 121.1
------ ------ ------
Cash Flows From Investing Activities
Investment in property, plant and equipment (66.7) (41.3) (28.6)
Proceeds from sale of equipment 1.5 0.6 2.7
Investments in acquired businesses, net of
cash acquired (506.2) (151.4) (46.6)
Other, net (0.2) - -
------ ------ ------
Net cash used in investing activities (571.6) (192.1) (72.5)
------ ------ ------
Cash Flows From Financing Activities
Net borrowings under revolving and bank
lines of credit 65.3 140.0 (37.3)
Gross borrowings under term loans 525.0 - -
Gross repayments under term loans (3.0) - -
Repayment of outstanding balance on previous
credit facility (241.0) - -
Issuance of 8 5/8% senior subordinated notes 330.0 - -
Extinguishment of 9 7/8% senior subordinated notes (107.1) - -
Settlement of interest rate locks (12.9) - -
Financing and issuance fees (24.1) - -
Dividends on Class A Convertible Preferred Stock (12.1) (7.3) (9.8)
Repurchase of treasury shares (10.0) (15.3) -
Cash received from exercise of stock options 3.8 1.7 1.5
Other, net - (0.7) (0.6)
------ ------ ------
Net cash provided by (used in) financing
activities 513.9 118.4 (46.2)
------ ------ ------
Effect of exchange rate changes on cash (0.8) 0.3 -
------ ------ ------
Net increase (decrease) in cash 19.7 (2.4) 2.4
Cash and cash equivalents, beginning of period 10.6 13.0 10.6
------ ------ ------
Cash and cash equivalents, end of period $ 30.3 $ 10.6 $ 13.0
====== ====== ======



See Notes to Consolidated Financial Statements.



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Consolidated Balance Sheets



September 30, 1999 and 1998 (in millions) 1999 1998
---- ----

ASSETS
Current Assets:

Cash and cash equivalents $ 30.3 $ 10.6
Accounts receivable, less allowance for uncollectible
accounts of $16.4 in 1999 and $6.3 in 1998 201.4 146.6
Inventories, net 313.2 177.7
Current deferred tax asset 29.3 20.8
Prepaid and other assets 67.5 11.5
-------- --------
Total current assets 641.7 367.2
Property, plant and equipment, net 259.4 197.0
Intangible assets, net 794.1 435.1
Other assets 74.4 35.9
-------- --------
Total assets $1,769.6 $1,035.2
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 56.4 $ 13.3
Accounts payable 133.5 77.8
Accrued liabilities 157.7 124.9
Accrued taxes 19.3 15.9
-------- --------
Total current liabilities 366.9 231.9
Long-term debt 893.6 359.2
Other liabilities 65.8 40.2
-------- --------
Total liabilities 1,326.3 631.3
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Class A Convertible Preferred Stock, no par value 173.9 177.3
Common shares, no par value per share, $.01 stated
value per share, 21.3 shares issued in 1999,
21.1 shares issued in 1998 0.2 0.2
Capital in excess of par value 213.9 208.9
Retained earnings 130.1 76.6
Treasury stock, 2.9 shares in 1999 and 2.8 shares in
1998, at cost (61.9) (55.9)
Accumulated other comprehensive income (12.9) (3.2)
-------- --------
Total shareholders' equity 443.3 403.9
-------- --------
Total liabilities and shareholders' equity $1,769.6 $1,035.2
======== ========




See Notes to Consolidated Financial Statements.



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Consolidated Statements of Changes in Shareholders' Equity





For the fiscal years ended CLASS A CONVERTIBLE CAPITAL IN
September 30, 1999, 1998 and PREFERRED STOCK COMMON SHARES EXCESS OF RETAINED TREASURY STOCK
1997 (in millions) SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT

Balance, September 30, 1996 0.2 $177.3 21.1 $0.2 $207.6 $ 20.4 (2.5) $(43.4)
Net income 39.5
Foreign currency translation

Comprehensive income
Issuance of common shares
held in treasury 0.2 0.1 1.5
Preferred Stock dividends (9.8)
---- ------- ----- ----- ------- ------ ------ -------
Balance, September 30, 1997 0.2 $177.3 21.1 $0.2 $207.8 $ 50.1 (2.4) $(41.9)

Net income 36.3
Foreign currency translation
Minimum pension liability

Comprehensive income
Issuance of common shares
held in treasury 1.1 0.1 1.7
Purchase of common shares (0.5) (15.7)
Preferred Stock dividends (9.8)
---- ------- ----- ----- ------- ------ ------ -------
Balance, September 30, 1998 0.2 $177.3 21.1 $0.2 $208.9 $ 76.6 (2.8) $(55.9)

Net income 63.2
Foreign currency translation
Minimum pension liability

Comprehensive income
Issuance of common shares
held in treasury 1.6 0.2 4.0
Purchase of common shares (0.3) (10.0)
Preferred Stock dividends (9.7)
Conversion of Preferred Stock (3.4) 0.2 3.4


0.2 $173.9 21.3 $0.2 $213.9 $130.1 (2.9) $(61.9)
=== ====== ==== ==== ====== ====== ===== ======




ACCUMULATED OTHER
COMPREHENSIVE INCOME
For the fiscal years ended MINIMUM PENSION FOREIGN
September 30, 1999, 1998 and LIABILITY CURRENCY
1997 (in millions) ADJUSTMENT TRANSLATION TOTAL

Balance, September 30, 1996 $ 0.0 2.2 $364.3
Net income 39.5
Foreign currency translation (6.5) (6.5)
------
Comprehensive income 33.0
Issuance of common shares
held in treasury 1.7
Preferred Stock dividends (9.8)
----- ------ ------
Balance, September 30, 1997 $ 0.0 $(4.3) $389.2
------
Net income 36.3
Foreign currency translation 1.3 1.3
Minimum pension liability (0.2) (a) (0.2)
------
Comprehensive income 37.4
Issuance of common shares
held in treasury 2.8
Purchase of common shares (15.7)
Preferred Stock dividends (9.8)
----- ------ ------
Balance, September 30, 1998 $(0.2) $(3.0) $403.9
------
Net income 63.2
Foreign currency translation (5.7) (5.7)
Minimum pension liability (4.0) (a) (4.0)
------
Comprehensive income 53.5
Issuance of common shares
held in treasury 5.6
Purchase of common shares (10.0)
Preferred Stock dividends (9.7)
Conversion of Preferred Stock -


$(4.2) $(8.7) $443.3
===== ===== ======


(a) Net of tax benefits of $2.9 million and $0.1 million for fiscal 1999 and
1998, respectively.


See Notes to Consolidated Financial Statements.



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Notes to Consolidated Financial Statements


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


NATURE OF OPERATIONS


The Scotts Company is engaged in the manufacture and sale of lawn care and
garden products. The Company's major customers include mass merchandisers, home
improvement centers, large hardware chains, independent hardware stores,
nurseries, garden centers, food and drug stores, golf courses, professional
sports stadiums, lawn and landscape service companies, commercial nurseries and
greenhouses, and specialty crop growers. The Company's products are sold in the
United States, Canada, the European Union, the Caribbean, South America,
Southeast Asia, the Middle East, Africa, Australia, New Zealand, Mexico, Japan,
and several Latin American Countries.


ORGANIZATION AND BASIS OF PRESENTATION


The consolidated financial statements include the accounts of The Scotts Company
and its subsidiaries (collectively, the "Company"). 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. For certain large multi-location customers, products
may be shipped to third-party warehousing locations. Revenue is not recognized
until the customer places orders against that inventory and acknowledges in
writing ownership of the goods. Provisions for estimated returns and allowances
are recorded at the time of shipment.


RESEARCH AND DEVELOPMENT


All costs associated with research and development are charged to expense as
incurred. Expense for fiscal 1999, 1998 and 1997 was $21.7 million, $14.8
million and $10.0 million, respectively.


ADVERTISING AND PROMOTION


The Company advertises its branded products through national and regional media,
and through cooperative advertising programs with retailers. Retailers are also
offered pre-season stocking and in-store promotional allowances. Certain
products are also promoted with direct consumer rebate programs. Advertising and
promotion costs (including allowances and rebates) incurred during the year are
expensed ratably to interim periods in relation to revenues. All advertising and
promotions 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.


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.


USE OF ESTIMATES


The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying disclosures. The most significant of these estimates are related to
the allowance for doubtful accounts, inventory valuation reserves, expected
useful lives assigned to property, plant and equipment and goodwill and other
intangible assets, legal and environmental accruals, post-retirement benefits,
promotional and consumer rebate liabilities, income taxes and contingencies.
Although these estimates are based on


75
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management's best knowledge of current events and actions which the Company
may undertake in the future, actual results ultimately may differ from the
estimates.


INVENTORIES


Inventories are principally stated at the lower of cost or market, determined by
the FIFO method; however, certain growing media inventories are accounted for by
the LIFO method. At September 30, 1999 and 1998, approximately 8% and 12% 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.


LONG-LIVED ASSETS


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


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



Land improvements 10-25 years

Buildings 10-40 years

Machinery and equipment 3-15 years

Furniture and fixtures 6-10 years

Software 3-8 years


Interest is capitalized on all significant capital projects. The Company
capitalized $1.8 million and $0.8 million of interest costs during fiscal 1999
and 1998, respectively.


Goodwill arising from business acquisitions is amortized over its useful life,
which is generally 40 years, on a straight-line basis. Intangible assets include
patents and trademarks which are valued at acquisition through independent
appraisals. Debt issuance costs are being amortized over the terms of the
various agreements. Patents and trademarks are being amortized on a
straight-line basis over periods varying from 7 to 40 years. Accumulated
amortization at September 30, 1999 and 1998 was $96.2 million and $71.7 million,
respectively.


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


INTERNAL USE SOFTWARE


In July of fiscal 1998, the Company announced an initiative designed to enhance
its information system resources. The project includes re-design of certain key
business processes and the installation of new software on a world-wide basis
over the next several years. SAP has been chosen as the primary software
provider for this project. The Company is accounting for the costs of the
project 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 are expensed or capitalized depending on whether they
are incurred in the preliminary project stage, application development stage, or
the post-implementation/operation stage. All reengineering costs are expensed as
incurred.




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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.


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.


RECLASSIFICATIONS


Certain reclassifications have been made to the prior years' financial
statements to conform to fiscal 1999 classifications.


NOTE 2. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS




(in millions) 1999 1998
- - ------------- ---- ----

INVENTORIES, NET:

Finished Goods $ 206.4 $ 121.0

Raw Materials 106.5 55.8
-------- --------

FIFO Cost 312.9 176.8

LIFO Reserve 0.3 0.9
-------- --------

Total $ 313.2 $ 177.7
======== ========



Inventory balances are shown net of provisions for slow moving and obsolete
inventory of $30.5 million and $12.0 million as of September 30, 1999 and 1998,
respectively.

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(in millions) 1999 1998
- - ------------- ---- ----


PROPERTY, PLANT AND EQUIPMENT, NET:

Land and improvements $ 41.4 $ 41.1

Buildings 88.2 70.9

Machinery and equipment 213.7 169.7

Furniture and fixtures 19.8 17.0

Software 32.6 3.7

Construction in progress 26.3 28.8

Less: accumulated depreciation (162.6) (134.2)
--------- ---------

Total $ 259.4 $ 197.0
========= ==========






(in millions) 1999 1998
- - ------------- ---- ----

INTANGIBLE ASSETS, NET:

Goodwill $ 508.6 $ 268.1

Trademarks 207.9 144.0

Other 77.6 23.0
--------- ---------

Total $ 794.1 $ 435.1
========= ==========






(in millions) 1999 1998
- - ------------- ---- ----




ACCRUED LIABILITIES:

Payroll and other compensation accruals $ 42.5 $ 20.4

Advertising and promotional accruals 56.4 26.5

Other 58.8 78.0
--------- ---------

Total $ 157.7 $ 124.9
========= ==========






(in millions) 1999 1998
- - ------------- ---- ----

OTHER NON-CURRENT LIABILITIES:

Accrued pension and postretirement liabilities $ 50.4 $ 26.0

Environmental reserves 11.5 6.2

Other 3.9 8.0
--------- ---------

Total $ 65.8 $ 40.2
========= ==========



NOTE 3. AGENCY AGREEMENT


Effective September 30, 1998, the Company entered into an agreement with
Monsanto Company ("Monsanto") for exclusive international marketing and agency
rights to Monsanto's consumer Roundup(R) herbicide products. In connection with
the agreement, the Company paid a $32.0 million deferred marketing fee that is
being amortized over 20 years. The agreement covers most major consumer lawn and
garden markets in the world, including the U.S., Canada, Germany, France, other
parts of continental Europe, and Australia.


The agreement provides for the Company to earn a commission based on the EBIT
(as defined by the agreement) generated annually by the global consumer
Roundup(R) business. The Company records its estimated commission based upon the
actual EBIT of the Roundup(R) business for the periods presented, net of annual
fixed contribution payments to Monsanto.


NOTE 4. RESTRUCTURING AND OTHER CHARGES


1999 Charges


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

78
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1998 Charges


During fiscal 1998, the Company recorded $20.4 million of restructuring and
other charges, $15.4 million of which is identified separately within operating
expenses, $2.9 million of which is included in cost of sales and $2.1 million of
which is included in selling, general and administrative expenses. These charges
were primarily associated with three restructuring activities: (1) the
consolidation of the Company's two U.K. operations into one lower-cost business;
(2) the closure of nine composting operations in the U.S. that collect yard and
compost waste for certain municipalities; and (3) the sale or closure of certain
other U.S. plants and businesses. Most of these restructuring efforts were
completed during fiscal 1999, except as noted otherwise below.


Consolidation of UK Operations

In connection with management's decision in the second quarter of fiscal 1998 to
consolidate the Company's two U.K. operations (Miracle Garden Care and
Levington, into The Scotts Company (UK) Ltd.), the Company recorded charges of
$6.0 million which consisted of:


1. $0.9 million to write-off the remaining carrying value of certain
property and equipment. In connection with the integration of the U.K.
businesses, management elected to move certain production lines from a
Miracle Garden care facility in Howden to the newly acquired Levington
facility in Bramford. As a result, certain production equipment at the
Howden facility will no longer be utilized. In addition, certain
computer hardware and software equipment previously used by the Miracle
Garden Care business will no longer be utilized as a result of electing
to use acquired information systems of the Levington business. The
Company ceased utilization of the production and computer equipment in
the fourth quarter of fiscal 1998. The assets written-off had nominal
value and were scrapped or abandoned.


2. $2.1 million to write-off packaging materials rendered obsolete as a
result of new packaging design and to provide for costs incurred in
1998 to relaunch products under a single, integrated branding strategy.
The charges associated with these actions were $0.8 million and $1.3
million, respectively.


3. $1.4 million of severance costs associated with the termination of 25
employees of the Company's Miracle Garden Care operation that were made
redundant by the integration of the two U.K. businesses. As of
September 30, 1998, six employees had been terminated. The remaining
employees were terminated in fiscal 1999. All severance costs accrued
at September 30, 1998 have been paid (except for an adjustment of $0.3
million for overaccrual).


4. $0.6 million to write-off inventory rendered obsolete by the
integration activities and $0.8 million for costs incurred in fiscal
1998 for other integration-related costs.


Closure of Compost Sites

In connection with management's decision in the fourth quarter of fiscal 1998 to
close nine composting sites, the Company recorded charges of $9.3 million which
consisted of:


1. $4.5 million for costs to be incurred under contractual commitments for
which no future revenues will be realized. These costs are associated
with the final processing of remaining compost materials, as required,
through the end of the operating contract with the applicable
municipality but after the time when revenue-producing activities
cease. Six of the composting sites have operating contracts that ended
in fiscal 1999 for which $2.9 million was accrued; the operating
contracts for the three remaining sites will expire in fiscal 2000 for
which $1.6 million was accrued.


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2. $3.2 million to write-down to estimated fair value certain machinery
and equipment in accordance with SFAS No. 121 for assets held for use.
Depreciation will continue to be recognized during revenue- producing
periods. Fixed assets at facilities that have ceased operations have
been abandoned or scrapped.


3. $1.1 million to write-off inventory which must be disposed of as a
result of closing the various composting sites. Such inventory must be
removed from the applicable sites and has only nominal value.


4. $0.5 million for remaining lease obligations after revenue-producing
activities cease on certain machinery and equipment at the sites.


The composting facilities being closed as part of these restructuring
initiatives recorded losses included in the Company's consolidated results of
operations of approximately $3.0 and $2.0 for the fiscal years ended September
30, 1998 and 1997, respectively.


Sale and Closure of Certain U.S. Plants and Businesses:

The charge for sale or closure of certain other U.S. plants or businesses was
$5.1 million and consisted of:


1. $4.5 million to write-down to net realizable value the assets
associated with the Company's AgrEvo pesticides business. The Company
elected to divest these assets in order to avoid potential trade
conflicts associated with the Company's purchase of the Ortho business
and the signing of the Roundup(R) marketing agreement. The AgrEvo
business incurred an operating loss of $0.8 million in fiscal 1998 and
$0.5 million in fiscal 1999 before being sold in February 1999.

2. $0.6 million to write-off and close a single Growing Media production
facility in New York that was deemed to be redundant after the purchase
of the EarthGro business in February 1998. The closure of this facility
was completed in September 1998.

The following is a rollforward of the Company's 1998 restructuring charges:




Fiscal 1998 activity Fiscal 1999 activity
-------------------- --------------------
Type Classification Charge Payments Balance Payments Adjustments Balance
---- -------------- ------ -------- ------- -------- ----------- -------


Consolidation of UK operations
Property and equipment demolition Cash Restructuring $ 0.2 $ -- $ 0.2 $ (0.2) $ -- --
Product relaunch costs Cash SG&A 1.3 (0.4) 0.9 (0.9) -- --
Severance costs Cash Restructuring 1.4 (0.3) 1.1 (0.8) (0.3) --
Other integration costs Cash SG&A 0.8 (0.4) 0.4 (0.4) -- --
------
3.7

Property and equipment write-offs Non-cash Restructuring 0.9
Obsolete packaging write-offs Non-cash Cost of sales 0.8
Other inventory write-offs Non-cash Cost of sales 0.6
------
2.3

Closure of compost sites
Costs under contractual commitments Cash Restructuring 4.5 -- 4.5 (4.1) -- 0.4
Lease obligations Cash Restructuring 0.5 -- 0.5 -- -- 0.5
------
5.0

Property and equipment write-offs Non-cash Restructuring 3.2
Inventory write-offs Non-cash Cost of sales 1.1
------
4.3

Other businesses/plants
Sale of Agrevo business Non-cash Restructuring 4.5
Property and equipment write-offs Non-cash Restructuring 0.2
Inventory write-offs Non-cash Cost of sales 0.4
------
$ 5.1



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During fiscal 1999, the restructuring reserve established to integrate the U.K.
businesses was reduced by $0.3 for overestimates of severance costs. The
reserves remaining at September 30, 1999 associated with the closure of certain
compost sites are expected to be paid in fiscal 2000.

NOTE 5. ACQUISITIONS

In January 1999, the Company acquired the assets of Monsanto's consumer lawn and
garden businesses, exclusive of the Roundup(R) business ("Ortho"), for
approximately $300 million, subject to adjustment based on working capital as of
the closing date and as defined in the purchase agreement. Based on the estimate
of working capital received from Monsanto, the Company made an additional
payment of $39.9 million at the closing date. The Company has subsequently
provided Monsanto with its estimate of working capital, which would result in a
substantial reduction in the total purchase price. Monsanto has subsequently
provided the Company with a revised assessment of working capital which would
increase the final purchase price. The Company and Monsanto have resolved many
of the items in dispute and are currently in negotiations to resolve the
remaining disputed items.

In October 1998, the Company acquired Rhone-Poulenc Jardin, continental Europe's
largest consumer lawn and garden products company. Management's initial estimate
of the purchase price for Rhone-Poulenc Jardin was $216 million, however
subsequent adjustments for reductions in acquired working capital have resulted
in a final purchase price of approximately $170 million.

In February 1998, the Company acquired all the shares of EarthGro, Inc.
("EarthGro"), a regional growing media company located in Glastonbury,
Connecticut, for approximately $47.0 million, including deal costs and
refinancing of certain assumed debt.


In December 1997, the Company acquired all the shares of Levington Group Limited
("Levington"), a leading producer of consumer and professional lawn fertilizer
and growing media in the United Kingdom, for approximately $94.0 million,
including deal costs and refinancing of certain assumed debt.


During fiscal 1999 and 1998, the Company also invested in or acquired other
entities consistent with its long-term strategic plan. These investments include
Asef Holdings BV, Scotts Lawn Service, Sanford Scientific, Inc. and certain
intangible assets acquired in Ireland.


Each of the above acquisitions was made in exchange for cash or notes due to
seller and was accounted for under the purchase method of accounting.
Accordingly, the purchase prices have 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 of Rhone-Poulenc
Jardin, EarthGro and Levington were $137.3 million, $23.3 million and $62.8
million, respectively. Final determination of the purchase price of the Ortho
business, as well as the allocation of the purchase price to the net assets
acquired, is not complete as of September 30, 1999. The excess of the estimated
purchase price over the value of tangible assets acquired is currently recorded
as an intangible asset and is being amortized over a period of 35 years.
Intangible assets associated with the other acquisitions described above are
approximately $37.0 million on a combined basis.

81
82

The following unaudited pro forma results of operations give effect to the
Ortho, Rhone-Poulenc Jardin, EarthGro and Levington acquisitions and the
Roundup(R) marketing agreement as if they had occurred on October 1, 1997.



(in millions) 1999 1998
- - ------------- ---- ----

Net sales $ 1,681.3 $ 1,513.8

Income before extraordinary loss 60.7 46.4

Net income 54.8 45.7

Basic earnings per share:

Before extraordinary loss $ 2.79 $ 1.96

After extraordinary loss 2.47 1.92

Diluted earnings per share:

Before extraordinary loss $ 1.99 $ 1.53

After extraordinary loss 1.80 1.51



The pro forma information provided does not purport to be indicative of actual
results of operations if the Ortho, Rhone-Poulenc Jardin, EarthGro and Levington
acquisitions and the Roundup(R) marketing agreement had occurred as of October
1, 1997 and is not intended to be indicative of future results or trends.


NOTE 6. RETIREMENT PLANS


In September 1997, in conjunction with the decision to offer a new defined
contribution retirement savings plan to domestic Company associates, management
decided to suspend benefits under its Scotts and Sierra defined benefit pension
plans. The suspension of benefits under the defined benefit plans was accounted
for as a curtailment under SFAS No. 88 ("Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits"). The gain resulting from the curtailment of the qualified plans, as
well as the curtailment of the non-qualified plan discussed below, was less than
$0.1 million.


The curtailed 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 for the Scotts plan employees and for Sierra salaried
employees and on stated amounts for Sierra hourly employees. The Company's
funding policy, consistent with statutory requirements and tax considerations,
is based on actuarial computations using the Projected Unit Credit method.


The following table sets forth the changes in the projected benefit obligations
for the curtailed pension plans for fiscal 1999 and 1998:




(in millions) 1999 1998
- - ------------- ---- ----

Beginning balance $ 56.9 $ 49.9

Service cost -- --

Interest cost 4.2 3.6

Actuarial losses 1.2 6.2

Benefits paid (3.3) (2.8)
------- -------

Ending balance $ 59.0 $ 56.9
======= =======



The following table sets forth the changes in the fair value of the net assets
of the curtailed pension plans for fiscal 1999 and 1998:




(in millions) 1999 1998
- - ------------- ---- ----

Beginning balance $ 58.0 $ 53.9

Actual return on plan assets 2.1 6.3

Employer contributions -- 0.6

Benefits paid (3.3) (2.8)
------- -------
Ending Balance $ 56.8 $ 58.0
======= =======



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83
The following table sets forth the plans' funded status and the related amounts
recognized in the Consolidated Balance Sheets:



SEPTEMBER 30,

(in millions) 1999 1998
- - ------------- ---- ----


Actuarial present value of projected
benefit obligations:

Vested benefits $ (58.6) $ (49.3)

Nonvested benefits (0.4) (7.6)
----- -----

(59.0) (56.9)

Plan assets at fair value, primarily corporate bonds,

U.S. Government bonds and cash equivalents 56.8 58.0
------- -------

Plan assets (less) greater than projected benefit obligations (2.2) 1.1

Unrecognized losses 6.9 3.7
------- -------

Prepaid pension costs $ 4.7 $ 4.8
======= =======


Prepaid benefit costs $ -- $ 4.8

Accrued benefit liability (2.2) --

Accumulated other comprehensive income 6.9 --
------- -------

Prepaid pension costs $ 4.7 $ 4.8
======= =======



Pension cost includes the following components:



FISCAL YEAR ENDED
SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----

Service cost $ -- $ -- $ 1.9

Interest cost 4.2 3.6 4.1

Expected return on plan assets (4.5) (3.7) (7.0)

Net amortization and deferral 0.4 -- 2.8
------ ------ ------
Net pension cost $ 0.1 $ (0.1) $ 1.8
====== ====== ======



The weighted-average settlement rate used in determining the actuarial present
value of the projected benefit obligation was 7.75% and 6.75% as of September
30, 1999 and 1998, respectively. Future compensation was assumed to increase 4%
annually for fiscal 1997. The expected long-term rate of return on plan assets
was 8.0% and 7.0% for fiscal 1999 and 1998, respectively.


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




83
84
The following table sets forth the changes in the projected benefit obligations
for the international plans on a combined basis for fiscal 1999 and 1998:





(in millions) 1999 1998
- - ------------- ---- ----

Beginning balance $ 61.7 $ 47.0

Service cost 2.8 2.9

Interest cost 3.6 3.2

Participant contributions 0.5 0.3

Actuarial (gains) losses 7.6 (0.2)

Benefits paid (3.0) (1.2)
------- ------

Ending balance $ 73.2 $ 52.0
======= ======



The following table sets forth the changes in the fair value of the net assets
of the international plans on a combined basis for fiscal 1999 and 1998:




(in millions) 1999 1998
- - ------------- ---- ----

Beginning balance $ 49.1 $ 49.2

Return on plan assets 10.3 1.4

Employer contributions 2.7 1.2

Participant contributions 0.6 0.3

Benefits paid (2.8) (1.2)
------- ------

Ending balance $ 59.9 $ 50.9
======= ======



The following table sets forth the funded status and net amount recognized in
the Consolidated Balance Sheets for the Company's international plans on a
combined basis at September 30, 1999 and 1998:




SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----

Projected benefit obligations (73.2) (52.0)

Plan assets at fair value 59.9 50.9
------- -------

Projected benefit obligations

in excess of plan assets (13.3) (1.1)

Unrecognized items (0.5) (0.3)
------- -------

Accrued benefit costs $ (13.8) $ (1.4)
======= =======







SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----

Plans with benefit obligations in excess of plan assets:

Aggregate projected benefit obligations $ 33.7 $ 20.0

Aggregate fair value of plan assets 20.0 17.4


Plans with plan assets in excess of benefit obligations:

Aggregate projected benefit obligations $ 39.5 $ 32.0

Aggregate fair value of plan assets 39.9 33.5



Pension costs for the international plans on a combined basis consisted of the
following components for fiscal 1999 and 1998:



FISCAL YEAR ENDED
SEPTEMBER 30,

(in millions) 1999 1998
- - ------------- ---- ----

Service cost $ 3.2 $ 2.8

Interest cost 3.6 3.1

Expected return on plan assets (3.7) 0.4

Net amortization 0.3 (3.2)
----- -----

Net pension cost $ 3.4 $ 3.1
===== =====






84
85
The range of actuarial assumptions used for the various international plans for
the years presented were:



Settlement rates 4.5% - 6.3%

Compensation increases 2.0% - 4.0%

Rates of return on plan assets 4.0% - 8.0%



At September 30, 1997, 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 following table sets forth the changes in the projected benefit obligations
for the non-qualified plan for fiscal 1999 and 1998:



(in millions) 1999 1998
- - ------------- ---- ----

Beginning balance $ 1.8 $ 1.5

Service cost -- --

Interest cost 0.1 0.1

Actuarial losses 0.1 0.3

Benefits paid (0.1) (0.1)
------ ------

Ending balance $ 1.9 $ 1.8
====== ======




The following table sets forth the funded status of the non-qualified plan at
September 30, 1999 and 1998:



(in millions) 1999 1998
- - ------------- ---- ----

Actuarial present value of benefit obligations:

Vested benefits $ (1.8) $ (1.6)

Nonvested benefits (0.1) (0.2)
------ ------

Projected benefit obligations (1.9) (1.8)

Plan assets at fair value -- --
------ ------

Plan assets less than projected benefit obligations (1.9) (1.8)

Unrecognized losses 0.4 0.3
------ ------

Net pension liability $ (1.5) $ (1.5)
====== ======

Accrued benefit liability $ (1.9) $ (1.8)

Accumulated other comprehensive income 0.4 0.3
------ ------

Net pension liability $ (1.5) $ (1.5)
====== ======


Pension expense for the plan was $0.2 million, $0.1 million and $0.2 million in
fiscal 1999, 1998 and 1997, respectively, consisting primarily of interest costs
on the projected benefit obligations.


The actuarial assumptions used for the non-qualified supplemental pension plan
were the same as those used for the curtailed qualified plans as described
above.


NOTE 7. ASSOCIATE BENEFITS


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


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


85
86
The following table sets forth the changes in the accumulated post retirement
benefit obligation for the retiree medical plan for fiscal 1999 and 1998:



(in millions) 1999 1998
- - ------------- ---- ----

Beginning balance $ 15.2 $ 13.6

Service cost 0.4 0.4

Interest cost 1.1 1.0

Contribution by participants 0.2 0.2

Actuarial loss 0.1 0.9

Benefits paid (1.2) (0.9)
------- -------

Ending balance $ 15.8 $ 15.2
======= =======


The following table sets forth the changes in the fair value of the assets of
the retiree medical plan for fiscal 1999 and 1998:




(in millions) 1999 1998
- - ------------- ---- ----

Beginning balance $ - $ -

Company contributions 0.9 0.7

Contributions by participants 0.3 0.2

Benefits paid (1.2) (0.9)
------- -------

$ - $ -
======= =======



The following table sets forth the retiree medical plan status reconciled to the
amounts included in the Consolidated Balance Sheets, as of September 30, 1999
and 1998.



(in millions) 1999 1998
- - ------------- ---- ----

Accumulated postretirement benefit obligation:

Retirees $ 8.9 $ 7.3

Fully eligible active plan participants 0.5 0.4

Other active plan participants 6.4 7.4
------- -------

Total accumulated postretirement benefit obligation 15.8 15.1

Unrecognized prior service costs 5.0 5.0

Unrecognized net gains 5.6 5.9
------- -------

Accrued postretirement liability $ 26.4 $ 26.0
======= =======




Net periodic postretirement benefit cost includes the following components:




FISCAL YEAR ENDED
SEPTEMBER 30,

(in millions) 1999 1998 1997
- - ------------- ---- ---- ----

Service cost $ 0.4 $ 0.4 $ 0.3

Interest cost 1.1 1.0 1.1

Net amortization (1.0) (1.3) (1.2)
------ ------ ------

Net periodic postretirement benefit cost $ 0.5 $ 0.1 $ 0.2
====== ====== ======



The discount rates used in determining the accumulated postretirement benefit
obligation were 7.5% and 6.75% in fiscal 1999 and 1998, respectively. For
measurement purposes, annual rates of increase in per capita cost of covered
retiree medical benefits assumed for fiscal 1999 and 1998 were 7.25% and 7.75%
respectively. The rate was assumed to decrease gradually to 5.5% through the
year 2003 and remain at that level thereafter. A 1% increase in the health care
cost trend rate assumptions would increase the accumulated postretirement
benefit obligation (APBO) as of September 30, 1999 and 1998 by $0.5 million and
$0.7 million, respectively. A 1% increase or decrease in the same rate would not
have a material effect on service or interest costs.


86
87
Effective January 1, 1998, the Scotts, Hyponex and Sierra defined contribution
profit sharing and 401(k) plans were merged and the surviving plan was expanded
and amended to serve as the sole, active retirement savings plan for
substantially all U.S. employees. Full-time employees may participate in the
plan on the first day of the month after being hired. Temporary employees may
participate after working at least 1,000 hours in their first twelve months of
employment and after reaching the age of 21. The plan allows participants to
contribute up to 15% of their compensation in the form of pre-tax or post-tax
contributions. The Company provides a matching contribution equivalent to 100%
of participants' initial 3% contribution and 50% of the participants' remaining
contribution up to 5%. Participants are immediately vested in employee
contributions, the Company's matching contributions and the investment return on
those monies. The Company also provides a 2% automatic base contribution to
employees' accounts regardless of whether employees are active in the plan.
Participants become vested in the Company's 2% base contribution after three
years of service. The Company recorded charges of $8.4 million and $4.7 million
under the new plan in fiscal 1999 and 1998, respectively. Under the terminated
profit sharing and 401(k) plans, the Company recorded charges of $2.3 million in
fiscal 1997.


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 $11.0 million, $8.6 million and
$7.9 million in fiscal 1999, 1998 and 1997, respectively. The Company is
self-insured for State of Ohio workers compensation up to $0.5 million per
claim. Claims in excess of stated limits of liability and claims for workers
compensation outside of the State of Ohio are insured with commercial carriers.


NOTE 8. DEBT




SEPTEMBER 30,
(in millions) 1999 1998
- - ------------- ---- ----

Revolving loans under credit facility $ 64.2 $ 253.5

Term loans under credit facility 509.0 --

Senior subordinated notes 318.0 99.5

Notes due to sellers 37.0 5.6

Foreign bank borrowings and term loans 17.6 9.0

Capital lease obligations and other 4.2 4.9
-------- --------

950.0 372.5

Less current portions 56.4 13.3
-------- --------

$ 893.6 $ 359.2
======== ========




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




CAPITAL OTHER
(in millions) Leases Debt
- - ------------- ------ ----

2000 $ 1.5 $ 54.6

2001 1.2 44.5

2002 0.1 57.0

2003 - 58.1

2004 - 48.4

Thereafter - 702.7
------ ------

$ 2.8 $965.3
Less: amounts representing interest (0.2) (17.9)
------ ------
$ 2.6 $947.4
====== ======


On December 4, 1998, Scotts and certain of its subsidiaries entered into a new
credit facility which provides for borrowings in the aggregate principal amount
of $1.025 billion and consists of term loan facilities in the aggregate amount
of $525 million and a revolving credit facility in the amount of $500 million.
Proceeds from borrowings under the new credit facility of approximately $241.0
million were used to repay amounts outstanding under the then existing credit
facility. The Company recorded a $0.4 million extraordinary loss, net of tax, in
connection with the retirement of the previous facility.

87
88
In February 1998, the Company had entered into a credit facility to replace its
then existing credit facility, which resulted in an extraordinary loss of $0.7
million, net of tax, for the write-off of unamortized deferred financing costs.
The term loan facilities consist of three tranches.

The Tranche A Term Loan Facility consists of three sub-tranches of French
Francs, German Deutschemarks and British Pounds Sterling in an aggregate
principal amount of $265 million which are to be repaid quarterly over a 6-1/2
year period. The Tranche B Term Loan Facility is a 7-1/2 year term loan facility
in an aggregate principal amount of $140 million, which is to be repaid in
nominal quarterly installments for the first 6-1/2 years and in substantial
quarterly installments in the final year. The Tranche C Term Loan Facility is a
8-1/2 year term loan facility in an aggregate principal amount of $120 million,
which is to be repaid in nominal quarterly installments for the first 7-1/2
years and in substantial quarterly installments in the final year.


The revolving credit facility provides for borrowings up to $500 million, which
are available on a revolving basis over a term of 6-1/2 years. A portion of the
revolving credit facility not to exceed $100 million is available for the
issuance of letters of credit. A portion of the facility not to exceed $225
million is available for borrowings in optional currencies, including German
Deutschemarks, British Pounds Sterling, French Francs, Belgian Francs, Italian
Lira and other specified currencies, provided that the outstanding revolving
loans in optional currencies other than British Pounds Sterling does not exceed
$120 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 pursuant to the new credit facility vary
according to the Company's leverage ratios and also within tranches. The
weighted-average interest rate on the Company's variable rate borrowings at
September 30, 1999 was 7.68%. In addition, the new credit facility requires that
the Company enter into hedge agreements to the extent necessary to provide that
at least 50% of the aggregate principal amount of the 8 5/8% Senior Subordinated
Notes due 2009 and term loan facilities is subject to a fixed interest rate.
Financial covenants include minimum net worth, interest coverage and net
leverage ratios. Other covenants include limitations on indebtedness, liens,
mergers, consolidations, liquidations and dissolutions, sale of assets, leases,
dividends, capital expenditures, and investments, among others. The Company and
all of its domestic subsidiaries pledged substantially all of their personal,
real and intellectual property assets as collateral on the borrowings under the
credit facility. The Company and its subsidiaries also pledged the stock in
foreign subsidiaries that borrow under the credit facility.


Approximately $12.6 million of financing costs associated with the new credit
facility have been deferred as of September 30, 1999 and are being amortized
over a period of approximately 7 years.


In January 1999, the Company completed an offering of $330 million of 8 5/8%
Senior Subordinated Notes ("the Notes") due 2009. The net proceeds from the
offering, together with borrowings under the Company's credit facility, were
used to fund the Ortho acquisition and to repurchase approximately 97% of Scotts
$100.0 million outstanding 9 7/8% Senior Subordinated Notes due August 2004. The
Company recorded an extraordinary loss before tax on the extinguishment of the 9
7/8% notes of approximately $9.3 million, including a call premium of $7.2
million and the write-off of unamortized issuance costs and discounts of $2.1
million. Approximately $11.4 million of issuance costs associated with the Notes
have been deferred as of September 30, 1999 and are being amortized over the
term of the Notes.


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


The Company entered into two interest rate locks in fiscal 1998 to hedge its
anticipated interest rate exposure on the Notes offering. The total amount paid
under the interest rate locks of $12.9 million has been recorded as a reduction
of the Notes' carrying value and is being amortized over the life of the Notes
as interest expense.

88
89
In conjunction with the acquisitions of Rhone-Poulenc Jardin and Sanford
Scientific, notes were issued for certain portions of the total purchase price
that are to be paid in annual installments over a four-year period. The present
value of remaining note payments is $32.2 million and $4.8 million,
respectively. The Company is imputing interest on the non-interest bearing notes
using an interest rate prevalent for similar instruments at the time of
acquisition.


The foreign term loans of $6.0 million issued on December 12, 1997, have an
8-year term and bear interest at 1% below LIBOR. The loans are denominated in
Pounds Sterling and can be redeemed, on demand, by the note holder. The foreign
bank borrowings of $11.6 million at September 30, 1999 represent lines of credit
for foreign operations and are denominated in French Francs, Australian Dollars
and Dutch Gilders.


NOTE 9. SHAREHOLDERS' EQUITY




(in millions) 1999 1998
- - ------------- ---- ----

STOCK
Class A Convertible Preferred Stock, no par value:

Authorized 0.2 shares 0.2 shares
Issued 0.2 shares 0.2 shares

Common shares, no par value

Authorized 50.0 shares 50.0 shares
Issued 21.3 shares 21.1 shares



Class A Convertible Preferred Stock ("Preferred Shares") with a face amount 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
Scotts' option after May 2000 at $19.00 per common share. Additionally, warrants
to purchase 3.0 million common shares of Scotts were issued as part of the
purchase price. The warrants are exercisable upon shareholder demand for 1.0
million common shares at $21.00 per share, 1.0 million common shares at $25.00
per share and 1.0 million common shares at $29.00 per share. The exercise term
for the warrants expires September 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 October 1999, all of the then outstanding Preferred Shares were converted
into 10.1 million common shares. In exchange for the early conversion, Scotts
paid the holders of the Preferred Shares $6.4 million. The amount represents the
dividends on the Preferred Shares that otherwise would have been payable through
May 2000, the month during which the Preferred Shares could first be redeemed by
Scotts. In addition, Scotts 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 Scotts' shareholders. Following the conversion and the
termination of the standstill provisions described above, the former
shareholders of Miracle-Gro own approximately 41% of Scotts' outstanding common
shares and have the ability to significantly control the election of directors
and approval of other actions requiring the approval of Scotts' shareholders. In
fiscal 1999, certain of the Preferred Shares were converted into 0.2 million
common shares at the holders' option.




89
90
Under The Scotts Company 1992 Long Term Incentive Plan (the "1992 Plan"), stock
options, stock appreciation rights 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 the Company. The maximum
number of common shares that may be issued upon the exercise of options granted
under the Plan is 1.7 million, plus the number of shares surrendered to exercise
options (other than director options) granted under the 1992 Plan, up to a
maximum of 1.0 million surrendered shares. Vesting periods under the 1992 Plan
vary and are determined by the Compensation and Organization Committee of the
Company's Board of Directors.


Under The Scotts Company 1996 Stock Option Plan (the "1996 Plan"), stock options
may be granted to officers, other key employees and non-employee directors of
the 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 and are
determined by the Compensation and Organization Committee of the Company's Board
of Directors.


Aggregate stock option activity consists of the following:



Fiscal year ended September 30,

1999 1998 1997

NUMBER OF WTD. AVG. NUMBER OF WTD. AVG. NUMBER OF WTD. AVG.
(in millions) SHARES PRICE SHARES PRICE SHARES PRICE
- - ------------- ------ ----- ------ ----- ------ -----

Beginning balance 3.8 $ 20.70 2.6 $ 18.35 1.6 $ 16.73

Options granted 1.4 35.70 1.4 29.43 1.1 20.18

Options exercised (0.2) 16.51 (0.1) 16.60 (0.1) 12.72

Options canceled (0.1) 30.94 (0.1) 29.63 0.0 19.27
----- --- ----
Ending balance 4.9 26.33 3.8 20.70 2.6 18.35
----- --- ----

Exercisable at September 30 1.9 19.77 1.8 18.17 1.5 17.30



The following summarizes certain information pertaining to stock options
outstanding and exercisable at September 30, 1999:



(in millions)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WTD. AVG. WTD. AVG. WTD. AVG.
RANGE OF NO. OF REMAINING EXERCISE NO. OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- - --------------- ------- ---- ----- ------- -----

$9.90 0.1 2.05 $ 9.90 0.1 $ 9.90

$15.00-$20.00 1.7 6.01 17.82 1.2 17.12

$20.00-$25.00 0.4 6.79 21.32 0.3 21.01

$25.00-$30.00 0.7 8.18 27.08 0.1 26.64

$30.00-$35.00 1.0 9.03 31.77 0.2 32.67

$35.00-$40.00 0.9 9.81 35.96 - -

$40.00-$46.38 0.1 9.85 42.11 - -
--- ------ --- ------

4.9 $26.33 1.9 $19.77
=== ====== === ======



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


The fair value of each option granted has been estimated on the grant date using
the Black-Scholes option-pricing model based on the following assumptions for
those granted in fiscal 1999, 1998 and 1997: (1) expected market-price
volatility of 24.44 %, 23.23% and 22.48%, respectively; (2) risk-free interest
rates of 6.0%, 4.3% and 6.6%, respectively; and (3) expected life of options of
6 years. The estimated weighted-average fair value per share of options granted
during fiscal 1999, 1998 and 1997 was $13.64, $9.28 and $8.00, respectively.






90
91
Had compensation expense been recognized for fiscal 1999, 1998 and 1997 in
accordance with provisions of SFAS No. 123, the Company would have recorded net
income and earnings per share as follows:




(in millions) 1999 1998 1997
- - ------------- ---- ---- ----
Net income used in per share calculation $ 55.3 $ 31.3 $ 37.3

Earnings per share:

Basic $ 2.50 $ 1.15 $ 1.48

Diluted $ 1.82 $ 1.03 $ 1.27


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.


In fiscal 1998, the Company sold 0.3 million put options which give the holder
the option to sell the Company's common shares to the Company at a strike price
of $35.32. The options could only be exercised on their expiration date in May
1999 and expired unused. The premium received on the sale of the put options was
considered additional paid-in capital. The put options did not impact the
Company's earnings per share calculation during fiscal 1999 since they would
have been anti-dilutive. The impact of the put options on the fiscal 1998
earnings per share calculation was less than $0.01 per share.


NOTE 10. EARNINGS PER COMMON SHARE


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




YEAR ENDED
SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----

BASIC EARNINGS PER COMMON SHARE:

Net income before extraordinary loss $ 69.1 $ 37.0 $ 39.5
Net income 63.2 36.3 39.5
Class A Convertible Preferred Stock dividend (9.7) (9.8) (9.8)
-------- -------- --------

Income available to common shareholders 53.5 26.5 29.7

Weighted-average common shares outstanding during
the period 18.3 18.7 18.6

Basic earnings per common share
Before extraordinary item $ 3.25 $ 1.46 $ 1.60
After extraordinary item $ 2.93 $ 1.42 $ 1.60

DILUTED EARNINGS PER COMMON SHARE:

Net income used in diluted earnings per
common share calculation $ 63.2 $ 36.3 $ 39.5

Weighted-average common shares outstanding
during the period 18.3 18.7 18.6

Potential common shares:
Assuming conversion of Class A Convertible
Preferred Stock 10.2 10.3 10.3
Assuming exercise of options 1.0 0.7 0.3
Assuming exercise of warrants 1.0 0.6 0.1
-------- -------- --------

Weighted-average number of common shares
outstanding and dilutive potential common
shares 30.5 30.3 29.3

Diluted earnings per common share
Before extraordinary item $ 2.27 $ 1.22 $ 1.35
After extraordinary item $ 2.08 $ 1.20 $ 1.35



Basic earnings per common share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period.

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Diluted earnings per share is computed by dividing net income by the
weighted-average number of common shares and dilutive potential common shares
(stock options, Class A Convertible Preferred Stock and warrants) outstanding
during each period.

NOTE 11. INCOME TAXES


The provision for income taxes, net of tax benefits associated with the 1999 and
1998 extraordinary losses of $4.1 million and $0.5 million, respectively,
consists of the following:




YEAR ENDED SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----

Currently payable:
Federal $ 34.5 $ 22.1 $ 21.6
State 4.4 3.9 3.4
Foreign 4.4 2.7 6.6

Deferred:
Federal 0.5 (4.0) (1.3)
State 0.0 (0.3) (0.2)
------- ------- -------

Income tax expense $ 43.8 $ 24.4 $ 30.1
======= ======= =======



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




YEAR ENDED SEPTEMBER 30,
(in millions) 1999 1998 1997
- - ------------- ---- ---- ----

Domestic $100.0 $ 57.1 $ 58.7
Foreign 6.9 3.5 10.9
------ ------ ------
Income before taxes $106.9 $ 60.6 $ 69.6
====== ====== ======



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




YEAR ENDED SEPTEMBER 30,
1999 1998 1997
---- ---- ----

Statutory income tax rate 35.0% 35.0% 35.0%

Effect of foreign operations (0.7) (1.6)

Goodwill amortization and other effects resulting
from purchase accounting 3.0 4.6 4.2

State taxes, net of federal benefit 2.6 3.8 3.0
Other 1.1 (1.5) 1.0
---- ---- ----

Effective income tax rate 41.0% 40.3% 43.2%
===== ==== ====



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



(in millions) 1999 1998
- - ------------- ---- ----

Net current asset $32.3 $20.8
Net non-current asset (liability) 11.3 (1.2)
---- -----
Net asset $43.6 $19.6
===== =====


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



SEPTEMBER 30,

(in millions) 1999 1998
- - ------------- ---- ----

ASSETS

Inventories $ 6.1 $ 5.9
Accrued liabilities 35.5 11.7
Postretirement benefits 9.6 9.8
Foreign net operating losses 1.9 6.0
Other 14.1 12.6
------- -------

Gross deferred tax assets 67.2 46.0
Valuation allowance (1.1) (6.0)
------- -------
Net deferred tax assets 66.1 40.0

LIABILITIES
Property, plant and equipment (22.5) (20.4)
------- -------
Net asset $ 43.6 $ 19.6
======= =======



Net operating loss carryforwards in foreign jurisdictions were $1.9 million and
$6.0 million at September 30, 1999 and 1998, respectively. The use of these
acquired carryforwards is subject to limitations imposed by the tax laws of each
applicable country.


As a result of tax planning strategies developed and implemented in fiscal 1999,
the Company realized $0.8 million of certain net operating losses during fiscal
1999. As a result of acquisitions and reorganizations during fiscal 1999, $4.1
million of foreign net operating losses are no longer available. These amounts
and the corresponding valuation allowance have been removed from the accounts.
The valuation allowance of $1.1 million at September 30, 1999 is to provide for
operating losses for which the benefits are not expected to be realized. The
foreign net operating losses of $1.9 million can be carried forward
indefinitely.


NOTE 12. FINANCIAL INSTRUMENTS


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


LONG-TERM DEBT


At September 30, 1999, the Company had $330 million outstanding of 8 5/8% Senior
Subordinated Notes due 2009 that were issued through a private offering. The
fair value of these notes was estimated based on recent trading information.
Variable rate debt outstanding at September 30, 1999 consists of revolving
borrowings and term loans under the Company's credit facility and local bank
borrowings for certain of the Company's foreign operations. The carrying amounts
of these borrowings are considered to approximate their fair values.


At September 30, 1998, the Company had outstanding $100.0 million in principal
amount of 9 7/8% Senior Subordinated Notes due 2004. The fair value of these
notes was based on the quoted market prices for the same or similar issues.
Borrowings at September 30, 1998 under the credit facility were at variable
rates. The carrying amounts of these borrowings were considered to approximate
their fair values.


INTEREST RATE SWAP AGREEMENTS


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


At September 30, 1998, the Company had outstanding the interest rate swap
agreement with a notional amount of 20.0 million British Pounds Sterling.

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


INTEREST RATE LOCKS


In fiscal 1998, the Company entered into two contracts, each with notional
amounts of $100.0 million to lock the treasury rate component of the Company's
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.


The Company entered into the interest rate locks to hedge its interest rate
exposure on the offering of the 9 7/8% Senior Subordinated Notes. Since the
interest rate locks were designated as hedging instruments, their fair value was
not reflected in the Company's Consolidated Balance Sheets; net amounts to be
received or paid under the interest rate locks will be reflected as an
adjustment to the carrying amount of the future debt offering. The fair value of
the interest rate locks was estimated based on the difference between the
contracted interest rates and the yield on treasury notes at September 30, 1998.


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





1999 1998
CARRYING FAIR CARRYING FAIR
(in millions) AMOUNT VALUE AMOUNT VALUE
- - ------------- ------ ----- ------ -----

Long-term debt $ 903.3 $ 889.3 $ 99.5 $ 106.8
Interest rate swap agreement -- 2.8 -- (1.5)
Interest rate locks -- -- -- (16.7)


NOTE 13. OPERATING LEASES

The Company leases buildings, land and equipment under various noncancellable
lease agreements for periods of two to six years. The lease agreements generally
provide that the Company pay taxes, insurance and maintenance expenses related
to the leased assets. Certain lease agreements contain purchase options. At
September 30, 1999, future minimum lease payments were as follows:



(in millions)
- - -------------

2000 $18.6
2001 15.1
2002 8.9
2003 5.2
2004 2.9
Thereafter 2.8
-----
Total minimum lease payments $53.5
=====


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
$18.5 million, $13.5 million and $12.3 million for fiscal 1999, 1998 and 1997,
respectively. The total to be received from sublease rentals in place at
September 30, 1999 is $4.1 million.

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NOTE 14. COMMITMENTS

The Company has entered into the following purchase commitments:

SEED: The Company is obligated to make future purchases based on estimated
yields. At September 30, 1999, estimated annual seed purchase commitments were
as follows:




(in millions)
- - -------------

2000 18.7

2001 16.4

2002 4.8

2003 4.1

2004 1.3




The Company made purchases of $13.2 million and $13.1 million under this
obligation in fiscal 1999 and 1998, respectively.


UREA: The Company is obligated to purchase 100,000 tons of urea annually. The
value to the Company based on current market prices of urea is approximately
$12.0 million. The purchase commitments expire December 31, 2001. The Company
purchased 172,000 tons and 104,000 tons under this obligation in fiscal 1999 and
1998, respectively.


GLUFOSINATE AMMONIUM: Under the terms of the agreement to acquire the AgrEvo
pesticides business, the Company is obligated to purchase glufosinate ammonium
valued at $12.6 million (approximately 315,000 pounds) through September 2001.
If the Company does not purchase product with a value of $12.6 million, the
Company is required to provide cash settlement in an amount equal to 50% of the
shortfall. In connection with the sale of this business in February 1999, the
purchaser agreed to purchase a minimum of 50,000 pounds of glufosinate ammonium
through September 2001. The Company has not purchased any glufosinate ammonium
under this commitment through September 30, 1999.

PEAT: The Company is obligated to purchase 470,000 cubic meters annually
(approximately $6.8 million based on average prices) for ten years. The
arrangement can be extended another ten years at the Company's option. If the
Company does not purchase required amounts, the Company will be required to
provide cash settlement equal to 50% of the quantity shortfall multiplied by the
average product price. The Company purchased 517,650 cubic meters of peat under
this contract in fiscal 1999.


NOTE 15. CONTINGENCIES


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


OHIO ENVIRONMENTAL PROTECTION AGENCY


The Company has assessed and addressed environmental issues regarding the
wastewater treatment plants which had operated at the Marysville facility. The
Company decommissioned the old wastewater treatment plants and has connected the
facility's wastewater system with the City of Marysville's municipal treatment
system. Additionally, the Company has been assessing, under Ohio's new Voluntary
Action Program ("VAP"), the possible remediation of several discontinued on-site
waste disposal areas dating back to the early operations of its Marysville
facility.


In February 1997, the Company learned that the Ohio Environmental Protection
Agency was referring certain matters relating to environmental conditions at the
Company's


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Marysville site, including the existing wastewater treatment plants and the
discontinued on-site waste disposal areas, to the Ohio Attorney General's
Office. Representatives from the Ohio Environmental Protection Agency, the Ohio
Attorney General and the Company continue to meet to discuss these issues.

In June 1997, the Company received formal notice of an enforcement action and
draft Findings and Orders from the Ohio Environmental Protection Agency. The
draft Findings and Orders elaborated on the subject of the referral to the Ohio
Attorney General alleging: potential surface water violations relating to
possible historical sediment contamination possibly impacting water quality;
inadequate treatment capabilities of the Company's existing and currently
permitted wastewater treatment plants; and that the Marysville site is subject
to corrective action under the Resource Conservation Recovery Act ("RCRA"). In
late July 1997, the Company received a draft judicial consent order from the
Ohio Attorney General which covered many of the same issues contained in the
draft Findings and Orders including RCRA corrective action. As a result of
on-going discussions, the Company received a revised draft of a judicial consent
order from the Ohio Attorney General in late April 1999, which is the focus of
the current negotiations.


In accordance with the Company's past efforts to enter into Ohio's VAP, the
Company submitted to the Ohio Environmental Protection Agency a "Demonstration
of Sufficient Evidence of VAP Eligibility Compliance" on July 8, 1997. Among
other issues contained in the VAP submission, was a description of the Company's
ongoing efforts to assess potential environmental impacts of the discontinued
on-site waste disposal areas as well as potential remediation efforts. Under the
statutes covering VAP, an eligible participant in the program is not subject to
State enforcement actions for those environmental matters being addressed. On
October 21, 1997, the Company received a letter from the Director of the Ohio
Environmental Protection Agency denying VAP eligibility based upon the
timeliness of and completeness of the submittal. The Company has appealed the
Director's action to the Environmental Review Appeals Commission. No hearing
date has been set and the appeal remains pending.

The Company is continuing to meet with the Ohio Attorney General and the Ohio
Environmental Protection Agency in an effort to negotiate an amicable resolution
of these issues but is unable at this stage to predict the outcome of the
negotiations. While negotiations have narrowed the unresolved issues between the
Company and the Ohio Attorney General/Ohio Environmental Protection Agency,
several critical issues remain the subject of ongoing discussions. The Company
believes that it has viable defenses to the State's enforcement action,
including that it had been proceeding under VAP to address specified
environmental issues, and will assert those defenses in any such action.


Since receiving the notice of enforcement action in June 1997, management has
continually assessed the potential costs that may be incurred to satisfactorily
remediate the Marysville site and to pay any penalties sought by the State.
Because the Company and the Ohio Environmental Protection Agency have not agreed
as to the extent of any possible contamination and an appropriate remediation
plan, the Company has developed and initiated an action plan to remediate the
site based on its own assessments and consideration of specific actions which
the Ohio Environmental Protection Agency will likely require. Because the extent
of the ultimate remediation plan is uncertain, management is unable to predict
with certainty the costs that will be incurred to remediate the site and to pay
any penalties. As of September 30, 1999, management estimates that the range of
possible loss that could be incurred in connection with this matter is $2
million to $10 million. The Company has accrued for the amount it considers to
be the most probable within that range and believes the outcome will not differ
materially from the amount reserved. Many of the issues raised by the State are
already being investigated and addressed by the Company during the normal course
of conducting business.


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LAFAYETTE


In July 1990, the Philadelphia District of the U.S. Army Corps of Engineers
("Corps") directed that peat harvesting operations be discontinued at Hyponex's
Lafayette, New Jersey facility, based on its contention that peat harvesting and
related activities result in the "discharge of dredged or fill material into
waters of the United States" and, therefore, require a permit under Section 404
of the Clean Water Act. In May 1992, the United States filed suit in the U.S.
District Court for the District of New Jersey seeking a permanent injunction
against such harvesting, and civil penalties in an unspecified amount. If the
Corps' position is upheld, it is possible that further harvesting of peat from
this facility would be prohibited. The Company is defending this suit and is
asserting a right to recover its economic losses resulting from the government's
actions. The suit was placed in administrative suspense during fiscal 1996 in
order to allow the Company and the government an opportunity to negotiate a
settlement, and it remains suspended while the parties develop, exchange and
evaluate technical data. In July 1997, the Company's wetlands consultant
submitted to the government a draft remediation plan. Comments were received and
a revised plan was submitted in early 1998. Further comments from the government
were received during 1998 and 1999. The Company believes agreement on the
remediation plan has essentially been reached. Before this suit can be fully
resolved, however, the Company and the government must reach agreement on the
government's civil penalty demand. The Company has reserved for its estimate of
the probable loss to be incurred under this proceeding as of September 30, 1999.
Furthermore, management believes the Company has sufficient raw material
supplies available such that service to customers will not be materially
adversely affected by continued closure of this peat harvesting operation.


HERSHBERGER

In September 1991, the Company was identified by the Ohio Environmental
Protection Agency as a Potentially Responsible Party ("PRP") with respect to a
site in Union County, Ohio (the "Hershberger site"), because the Company
allegedly arranged for the transportation, treatment or disposal of waste that
allegedly contained hazardous substances, at the Hershberger site. Effective
February 1998, the Company and four other named PRPs executed an Administrative
Order on Consent with the Ohio Environmental Protection Agency, by which the
named PRPs funded remedial action at the Hershberger site. Construction of the
leachate collection system and reconstruction of the landfill cap was completed
in August 1998. The Company expects its future obligation will consist primarily
of its share of annual operating and maintenance expenses. Management does not
believe that its obligations under the Administrative Order will have a
material adverse effect on the Company's results of operations or financial
condition.


AGREVO ENVIRONMENTAL HEALTH, INC.

On June 3, 1999, AgrEvo Environmental Health, Inc. ("AgrEvo") filed a complaint
against the Company, a subsidiary of the Company and Monsanto seeking damages
and injunctive relief for alleged antitrust violations and breach of contract
by the Company and its subsidiary and antitrust violations and tortious
interference with contact by Monsanto. The Company purchased a consumer
herbicide business from AgrEvo in May 1998. AgrEvo claims in the suit that
the Company's 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 the Company to eliminate
the herbicide the Company 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 the Company's execution of various
agreements with Monsanto, including the Roundup(R) marketing agreement, as well
as the Company's subsequent actions, violated the purchase agreements between
AgrEvo and the Company.



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AgrEvo is requesting unspecified damages as well as affirmative injunctive
relief, and seeking to have the court invalidate the Roundup(R) marketing
agreement as violative of the federal antitrust laws. On September 20, 1999, the
Company filed an answer denying liability and asserting counterclaims that it
was fraudulently induced to enter into the agreement for purchase of the
consumer herbicide business and the related agreements, and that AgrEvo breached
the representations and warranties contained in these agreements. On October 1,
1999, the Company moved to dismiss the antitrust allegations against it on the
ground that the claims fail to state claims for which relief may be granted. On
October 12, 1999, AgreEvo moved to dismiss the Company's counterclaims. The
Company intends to vigorously defend against this action. Under the
indemnification provisions of the Roundup(R) marketing agreement, Monsanto and
the Company each have requested that the other indemnify against any losses
arising from this lawsuit. The Company currently is unable to determine the
potential impact of these proceedings on its future results of operations and
financial condition.

On June 29, 1999, AgrEvo also filed a complaint 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. The Company's subsidiaries intend to vigorously defend the asserted
claims.


BRAMFORD


In the United Kingdom, major discharges of waste to air, water and land are
regulated by the Environment Agency. The Scotts (UK) Ltd. fertilizer facility in
Bramford (Suffolk), United Kingdom, is subject to environmental regulation by
this Agency. Two manufacturing processes at this facility require process
authorizations and previously required a waste management license (discharge to
a licensed waste disposal lagoon having ceased in July 1999). The Company
expects to surrender the waste management license in consultation with the
Environment Agency. In connection with the renewal of an authorization, the
Environment Agency has identified the need for remediation of the lagoon, and
the potential for remediation of a former landfill at the site. The Company
intends to comply with the reasonable remediation concerns of the Environment
Agency. The Company previously installed an environmental enhancement to the
facility to the satisfaction of the Environment Agency and believes that it has
adequately addressed the environmental concerns of the Environment Agency
regarding emissions to air and groundwater. The Company and the Environment
Agency have not agreed on a final plan for remediating the lagoon and the
landfill. The Company has reserved for its estimate of the probable loss to be
incurred in connection with this matter as of September 30, 1999.


OTHER


The Company has determined that quantities of cement containing asbestos
material at certain manufacturing facilities in the United Kingdom should be
removed. The Company has reserved for the estimate of costs to be incurred for
this matter as of September 30, 1999.





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NOTE 16. CONCENTRATIONS OF CREDIT RISK


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


At September 30, 1999, 66% of the Company's accounts receivable was due from
customers in North America. Approximately two-thirds of these receivables were
generated from the Company's North American consumer business. The most
significant concentration of receivables within this segment was from home
centers, which accounted for 19% of the Company's receivables balance at
September 30, 1999. No other retail concentrations (e.g., mass merchandisers,
independent hardware stores, etc. in similar markets) accounted for more than
10% of the Company's accounts receivable balance at September 30, 1999.


The remaining one-third of North American accounts receivable was generated from
the Company's North American Professional business. Due to seasonality, the
Professional segment accounts for a share of the Company's receivable balance at
September 30, 1999 that is disproportionate to its share of total company sales
for the year. As a result of the changes in distribution methods made earlier in
fiscal 1999 for the Professional business, nearly all products are sold through
distributors. Accordingly, nearly all of the Professional business accounts
receivable at September 30, 1999 is due from distributors.


The 34% of accounts receivable generated outside of North America is due from
retailers, distributors, nurseries and growers. No concentrations of or
individual customers within this group account for more than 10% of the
Company's accounts receivable balance at September 30, 1999.


At September 30, 1998, the Company's concentrations of credit risk were similar
to those existing at September 30, 1999 except that the North American
professional business accounted for 47% of North American receivables at that
time.


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




LARGEST 2ND LARGEST
CUSTOMER CUSTOMER
-------- --------

1999 17.4% 11.6%
1998 16.8% 10.6%
1997 16.1% 11.9%



Sales to the Company's two largest customers are reported within the Company's
North American Consumer Segment. No other customers accounted for more than 10%
of fiscal 1999, 1998 or 1997 net sales.


NOTE 17. OTHER EXPENSE (INCOME)


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




(in millions) 1999 1998 1997
- - ------------- ---- ---- ----

Royalty income $(4.0) $(3.4) $(2.0)
Asset valuation and write-off charges 1.2 2.3 6.0
Foreign currency losses 0.1 2.5 -
Other, net (0.9) (0.1) 1.2
----- ----- -----

Total $(3.6) $ 1.3 $ 5.2
----- ===== =====



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During fiscal 1997, the Company recorded charges of $6.0 million to write-down
certain long-lived assets to their estimated fair value. The components of these
charges were as follows:

- - - A charge of $2.2 million to write-down the carrying value of the Company's
peat harvesting facility in Lafayette, New Jersey. As disclosed in Note 15,
operations at this facility were discontinued at the order of the
Philadelphia District of the U.S. Army Corps of Engineers in July 1990.
While proceedings with the government are ongoing, the Company does not
expect to resume operations at this site. The charge reduced the carrying
amount for this facility to its estimated fair value based on appraisal.
- - - A charge of $1.6 million to write-off the carrying value of certain paper
packaging equipment that was rendered obsolete by management's decision to
convert to plastic packaging. The equipment was considered to have only
nominal value and has subsequently been abandoned or scrapped.
- - - A charge of $0.9 million to write-down the carrying value of the Company's
water soluble fertilizer plant in Allentown, Pennsylvania. In fiscal 1997,
management determined that the production capacity at this plant was
unnecessary after completing the merger transactions with Miracle-Gro in
fiscal 1995. The Allentown facility was sold in July 1997.
- - - A charge of $0.7 million to write-off certain spreader molding equipment
that was considered obsolete. In fiscal 1997, management elected to upgrade
the production line at its spreader manufacturing facility in Carlsbad,
California. In connection with this change, certain production equipment
was unusable and was scrapped.
- - - A charge of $0.6 million to write-off certain software costs that had been
deferred under an ERP implementation project. In fiscal 1997, management
elected to change the software platform that would be used for the
Company's ERP project. Software costs that had been deferred while
configuring and installing the previous software were determined to have no
future benefit and were written-off.

NOTE 18. NEW ACCOUNTING STANDARDS

In August 1998, the FASB issued SFAS No. 133, "Accounting For Derivative
Instruments and Hedging Activities." SFAS NO. 133 (as amended) is effective for
fiscal years beginning after June 15, 2000.

SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company has not yet
determined the impact this statement will have on its operating results. The
Company plans to adopt SFAS No. 133 in fiscal 2001.

In December 1999, the Securities and Exchange Commission issued SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
This staff accounting bulletin summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. The Company believes its annual accounting policies are
consistent with the staff's views. The Company will be required, however, to
conform its interim period revenue recognition policies for the commission under
the Roundup(R) marketing agreement to be consistent with the staff's views. The
impact of conforming the Company's interim period revenue recognition policies
for the commission under the Roundup(R) marketing agreement will require the
Company to defer the recognition of commission earned in interim periods but
will not impact the commission earned on an annual basis. The Company will adopt
the interim period revenue recognition policies no later than the first quarter
of the fiscal year ending December 31, 2001 as permitted by the staff accounting
bulletin.

NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION



(in millions) 1999 1998 1997
- - ------------- ------- ------- -------

Interest paid (net of amount capitalized) $ 63.6 $ 31.5 $ 24.2
Income taxes paid 50.3 38.6 20.5
Dividends declared not paid 2.5 --
Businesses acquired:
Fair value of assets acquired, net of cash 691.2 197.3 115.8
Liabilities assumed (149.3) (45.9) (69.2)
------- ------- -------
Net assets acquired 541.9 151.4 46.6
Cash paid 4.8 0.4 --
Notes issued to seller 35.7 -- --
Debt issued 501.4 151.0 46.6


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NOTE 20. SEGMENT INFORMATION

The Company is divided into three reportable segments--North American Consumer,
Professional and International. The North American Consumer segment consists of
the Lawns, Gardens, Growing Media and Ortho business units.

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 Professional segment is focused on a full line of turf and horticulture
products including controlled-release and water-soluble fertilizers and plant
protection products, grass seed, spreaders, custom application services and
growing media. Products are sold to golf courses, professional baseball,
football and soccer stadiums, lawn and landscape service companies, commercial
nurseries and greenhouses and specialty crop growers.

The International segment provides a broad range of controlled-release and
water-soluble fertilizers and related products, including ornamental
horticulture, turf and landscape, and consumer lawn and garden products which
are sold to all customer groups mentioned above.



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102
The following table presents segment financial information in accordance with
SFAS No. 131. "Disclosures about Segments of an Enterprise and Related
Information". Pursuant to that statement, the presentation of the segment
financial information is consistent with the basis used by management (i.e.,
certain costs not allocated to business segments for internal management
reporting purposes are not allocated for purposes of this presentation). Prior
periods have been restated to conform to this basis of presentation.



N.A.
(in millions) CONSUMER PROFESSIONAL INTERNATIONAL CORPORATE TOTAL

Sales:
1999 $1,097.0 $159.4 $391.9 $1,648.3
1998 733.7 179.4 199.9 1,113.0
1997 619.2 165.5 114.6 899.3

Operating Income (Loss):
1999 $ 234.6 $ 23.6 $ 53.0 $(115.1) $ 196.1
1998 126.5 23.5 30.0 $ (85.9) 94.1
1997 108.4 22.4 20.4 (56.4) 94.8

Operating Margin:
1999 21.4% 14.8% 13.5% nm 11.9%
1998 17.2 13.1 15.0 nm 8.5%
1997 17.5 13.5 17.8 nm 10.5

Depreciation and Amortization:
1999 $ 35.9 3.3 $ 15.1 5.9 $ 60.2
1998 24.1 2.7 7.7 3.3 37.8
1997 21.2 3.1 2.9 3.2 30.4

Capital Expenditures:
1999 $ 22.5 5.7 $ 10.6 $ 27.9 $ 66.7
1998 19.6 9.2 5.1 7.4 41.3
1997 16.5 5.5 2.0 4.6 28.6
Long-Lived Assets:
1999 649.0 98.5 322.7 57.7 1,127.9
1998 391.3 103.1 169.2 4.4 668.0

Total Assets:
1999 1,010.1 176.9 496.7 85.9 1,769.6
1998 581.8 182.6 246.0 24.8 1,035.2

nm Not meaningful.


Operating income (loss) reported for the Company's three operating segments
represents earnings before amortization of intangible assets since this is the
measure of profitability used by management. Accordingly, Corporate operating
loss for the fiscal years ended September 30, 1999, 1998 and 1997 includes
amortization of certain intangible assets, corporate general and administrative
expenses, research and development expense, interest expense, income tax expense
and "other" income/expense not allocated to the business segments. Corporate
operating income for fiscal 1998 includes $20.4 million of restructuring and
other charges.

Long-lived assets and total assets reported for the Company's operating segments
include the intangible assets for the acquired businesses within those segments.
Depreciation and amortization for the segments includes the amortization of
these intangibles. Corporate assets primarily include deferred financing and
debt issuance costs, corporate fixed assets as well as deferred tax assets.

102
103
NOTE 21. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations for
fiscal 1999 and 1998:



(in millions except for share data) 1ST QTR 2ND QTR 3RD QTR 4TH QTR FULL YEAR
- - ----------------------------------- ------- ------- ------- ------- ---------

FISCAL 1999

Net sales $ 184.4 $ 631.5 $ 586.2 $ 246.2 $ 1,648.3
Gross profit 64.7 268.9 236.4 89.2 659.2
Income (loss) before extraordinary
item (10.0) 54.7 41.6 (17.2) 69.1
Net income (loss) (10.4) 49.3 41.6 (17.3) 63.2
Basic earnings (loss)
per common share (0.70) 2.56 2.14 (1.07) 2.93
Shares used in basic
EPS calculation 18.3 18.3 18.3 18.3 18.3
Diluted earnings (loss)
per common share (0.70) 1.63 1.35 (1.08) 2.08
Shares used in diluted EPS
calculation 18.3 30.3 30.9 18.3 30.5




(in millions except for share data) 1ST QTR 2ND QTR 3RD QTR 4TH QTR FULL YEAR
- - ----------------------------------- --------- --------- --------- --------- ---------

FISCAL 1998


Net sales $ 124.8 $ 430.1 $ 367.0 $ 191.1 $ 1,113.0
Gross profit 41.3 170.5 131.3 54.9 398.0
Income (loss) before extraordinary
item (5.5) 33.5 24.4 (15.4) 37.0

Net income (loss) (5.5) 32.8 24.4 (15.4) 36.3
Basic earnings (loss)
per common share (.42) 1.62 1.18 (.96) 1.42
Shares used in basic
EPS calculation 18.7 18.7 18.7 18.6 18.7
Diluted earnings (loss)
per common share (.42) 1.08 .80 (.96) 1.20
Shares used in diluted EPS
calculation 18.7 30.4 30.6 18.6 30.3


NOTES:

Certain reclassifications have been made within interim periods.


The Company's business is highly seasonal with approximately 72% of sales
occurring in the second and third fiscal quarters combined.


103
104
NOTE 22. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTORS

In January 1999, the 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 1993. The Company intends to register these Notes
under the Securities Act.

The Notes are general obligations of the Company and are guaranteed by all of
the existing and future wholly-owned and significant domestic subsidiaries of
the Company. The following information presents consolidating Statements of
Operations, Statements of Cash Flows and Balance Sheets for the three years
ended September 30, 1999.




104
105
Statement of Operations

For the fiscal year ended September 30, 1999 (in millions)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------


Sales $1,242.5 $405.8 $1,648.3
Cost of sales 764.5 224.6 . 989.1
------- ------ ----- --------
Gross profit 478.0 181.2 659.2

29.8 0.5 30.3

Advertising and promotion 140.2 48.8 189.0
Selling, general and administration 193.1 88.1 281.2
Amortization or goodwill and other
intangibles 16.1 9.3 25.4
Restructuring and other changes 1.4 1.4
Equity income in non-guarantors (4.0) 4.0
Intracompany allocations (6.6) 6.6
Other income, net (2.9) (0.7) . (3.6)
------- ------ ----- --------
Income from operations 170.5 29.6 (4.0) 196.1
Interest expense 55.5 23.6 . 79.1
------- ------ ----- --------

Income before income taxes 115.0 6.0 (4.0) 117.0
Income taxes 45.9 2.0 . 47.9
------- ------ ----- --------
Income before extraordinary item 69.1 4.0 (4.0) 69.1
Extraordinary loss on early
extinguishment of debt, net
of income tax benefit 5.9 5.9
------- ------ ----- --------
Net income $ 63.2 $ 4.0 $(4.0) $ 63.2
======= ====== ===== ========



105
106
Statement of Cash Flows

For the fiscal year ended September 30, 1999 (in millions)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES

Net Income $ 63.2 $ 4.0 $ (4.0) $ 63.2
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 22.5 6.5 29.0
Amortization 21.3 9.9 31.2
Equity income in non-guarantors (4.0) 4.0
Extraordinary loss 5.9 - 5.9
Restructuring and other charges
Loss on sale of fixed assets 1.7 0.1 1.8
Deferred income taxes 0.5 - 0.5
Changes in assets and liabilities, net of acquired
businesses:
Accounts receivable 23.7 - 23.7
Inventories (21.6) - (21.6)
Prepaid and other current assets (14.6) (10.6) (25.2)
Accounts payable 14.6 (3.9) 10.7
Accrued taxes and other
liabilities 15.2 (25.4) (10.2)
Other assets (34.7) (1.2) (35.9)
Other liabilities 6.3 (4.6) 1.7
Other, net (1.0) 4.4 . 3.4
------ ------ ---- ------

Net cash provided by operating
activities 99.0 (20.8) 0.0 78.2
------ ------ ---- ------

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant
and equipment (56.0) (10.7) (66.7)
Proceeds from sale of equipment 1.5 0.0 1.5
Investments in non-guarantors (32.4) 32.4
Investments in acquired businesses,
net of cash acquired (350.1) (156.1) (506.2)
Other 0.5 (0.7) . (0.2)
------- ------- ---- --------

Net cash used in investing activities (436.5) (167.5) 32.4 (571.6)
------ ------ ---- ------


CASH FLOWS FROM FINANCING ACTIVITIES
Gross borrowings under term loans 260.0 265.0 525.0
Gross repayments under term loans (1.0) (2.0) (3.0)
Net borrowings under revolving
and bank lines of credit 160.7 (95.4) 65.3
Repayment of outstanding balance on
old credit facility (241.0) 0.0 (241.0)
Issuance of 8 5/8% Senior
Subordinated Notes 330.0 0.0 330.0
Extinguishment of 9 7/8% Senior
Subordinated Notes (107.1) 0.0 (107.1)
Settlement of interest rate locks (12.9) 0.0 (12.9)
Financing and issuance fees (24.1) 0.0 (24.1)
Dividends on Class A Convertible
Preferred Stock (12.1) 0.0 (12.1)
Repurchase of treasury shares (10.0) 0.0 (10.0)
Cash received from exercise of
stock options 3.8 0.0 3.8
Investment from parent 0.0 32.4 (32.4)
------ ------ ---- ------
Net cash provided by financing activities 346.3 200.0 (32.4) 513.9
Effect of exchange rate changes on cash 0.0 0.8 0.0 (0.8)
------ ------ ---- ------
Net increase (decrease) in cash 8.8 10.9 0.0 19.7
Cash and cash equivalents,
beginning of period 2.8 7.8 0.0 10.6
------ ------ ---- ------




106
107



Cash and cash equivalents,
end of period $ 11.6 $ 18.7 $ . $ 30.3
======= ======= ==== ========


107
108
Balance Sheet

As of September 30, 1999 (in millions, except share information)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
ASSETS
Current Assets:

Cash $ 11.6 $ 18.7 $ 30.3
Accounts receivable, net 131.6 69.8 201.4
Inventories, net 244.0 69.2 313.2
Current deferred tax asset 28.6 0.7 29.3
Prepaid and other assets 47.3 20.2 . 67.5
------- ----- ------ -------
Total current assets 463.1 178.6 0.0 641.7
Property, plant and equipment, net 216.8 42.6 259.4
Intangible assets, net 498.8 295.3 794.1
Other assets 64.7 9.7 74.4
Investment in affiliates 101.1 (101.1)
Intracompany assets 5.3 . (5.3)
------- ----- ------ -------
Total assets 1,349.8 526.2 (106.4) 1,769.6
======= ===== ====== =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt 27.7 28.7 56.4
Accounts payable 94.9 38.6 133.5
Accrued liabilities 121.2 36.5 157.7
Accrued taxes 16.8 2.5 . 19.3
------- ----- ------ -------
Total current liabilities 260.6 106.3 0.0 366.9
Long-term debt 594.4 299.2 893.6
Other liabilities 42.8 23.0 65.8
Intracompany liabilities . 5.3 (5.3) 0.0
------- ----- ------ -------
Total liabilities 897.8 433.8 (5.3) 1,326.3
Commitments and contingencies
Shareholders' equity:
Class A Convertible Preferred
Stock, no par value 173.9 - 173.9
Investment from parent 57.4 (57.4) 0.0
Common shares, no par value per share,
$.01 stated value per share 0.2 - 0.2
Capital in excess of par value 213.9 - 213.9
Retained earnings 130.1 43.7 (43.7) 130.1
Treasury stock, 2.8 shares at cost (61.9) - . (61.9)
Accumulated other comprehensive
income (4.2) (8.7) (12.9)
------- ----- ------ -------
Total shareholders' equity 452.0 92.4 (101.1) 443.3
------- ----- ------ -------
Total liabilities and shareholders'
equity $1,349.8 $526.2 $(106.4) $1,769.6
======= ===== ====== =======


108
109
Statement of Operations

For the fiscal year ended September 30, 1998 (in millions)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED


Sales $905.9 $207.1 $1,113.0
Cost of sales 598.1 116.9 . 715.0
------ ------ ----- --------
Gross profit 307.8 90.2 398.0
Advertising and promotion 83.3 21.1 104.4
Selling, general and administration 125.9 44.0 169.9
Amortization or goodwill and other
intangibles 8.9 4.0 12.9
Restructuring and other changes 12.9 2.5 15.4
Equity income in non-guarantors (3.5) 3.5
Intracompany allocations (1.3) 1.3
Other expenses, net 1.0 0.3 . 1.3
------ ------ ----- --------
Income from operations 80.6 17.0 (3.5) 94.1
Interest expense 21.1 11.1 . 32.2
------ ------ ----- --------
Income before income taxes 59.5 5.9 (3.5) 61.9
Income taxes 22.5 2.4 . 24.9
------ ------ ----- --------
Income before extraordinary item 37.0 3.5 (3.5) 37.0
Extraordinary loss on early
extinguishment of debt, net
of income tax benefit 0.7 0.7
------ ------ ----- --------
Net income $ 36.3 $ 3.5 $(3.5) $ 36.3
====== ====== ===== ========


109
110
Statement of Cash Flows

For the fiscal year ended September 30, 1998 (in millions)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED


CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 36.3 $ 3.5 $(3.5) $ 36.3
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 17.3 4.3 21.6
Amortization 11.8 4.4 16.2
Equity income in non-guarantors (3.5) 3.5
Extraordinary loss 0.7 0.0 0.7
Restructuring and other charges 14.4 4.9 19.3
Loss on sale of fixed assets 2.3 0.0 2.3
Deferred income taxes (2.4) 0.0 (2.4)
Changes in assets and liabilities,
net of acquired businesses:
Accounts receivable (10.5) 1.9 (8.6)
Inventories (5.2) (0.5) (5.7)
Prepaid and other current assets (2.2) 0.1 (2.1)
Accounts payable 9.7 (0.9) 8.8
Accrued taxes and other
liabilities (8.5) (5.9) (14.4)
Other, net 1.0 (2.0) . (1.0)
------ ----- --- ------
Net cash provided by operating
activities 61.2 9.8 0.0 71.0
------ ----- --- ------

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant
and equipment (35.9) (5.4) (41.3)
Proceeds from sale of equipment 0.6 0.6
Investments in acquired businesses,
net of cash acquired (63.8) (87.6) (151.4)
Investments in non-guarantors (6.7) . 6.7 .
------ ----- --- ------
Net cash used in investing activities (105.8) (93.0) 6.7 (192.1)
------ ----- --- ------

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under
revolving and bank lines of credit 67.6 72.4 140.0
Dividends on Class A Convertible
Preferred Stock (7.3) (7.3)
Repurchase of common shares (15.3) (15.3)
Investments from parent 6.7 (6.7)
Other, net 1.0 . . 1.0
------ ----- --- ------
Net cash provided by financing activities 46.0 79.1 (6.7) 118.4
Effect of exchange rate changes on cash . 0.3 . 0.3
------ ----- --- ------
Net increase (decrease) in cash 1.4 (3.8) (2.4)
Cash and cash equivalents,
beginning of period 1.4 11.6 . 13.0
------ ----- --- ------
Cash and cash equivalents,
end of period $ 2.8 $ 7.8 $ . $ 10.6
====== ====== ===== =======


110
111
Balance Sheet

As of September 30, 1998 (in millions, except share information)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED


ASSETS
Current Assets:
Cash $ 2.8 $ 7.8 $ 10.6
Accounts receivable, net 105.7 40.9 146.6
Inventories, net 147.9 29.8 177.7
Current deferred tax asset 20.8 20.8
Prepaid and other assets 10.1 1.4 . 11.5
----- ----- ----- -------
Total current assets 287.3 79.9 0.0 367.2
Property, plant and equipment, net 166.3 30.7 197.0
Intangible assets, net 285.1 150.0 435.1
Other assets 35.9 35.9
Investment in affiliates 75.1 (75.1) 0.0
Intracompany assets . 4.5 (4.5) 0.0
----- ----- ----- -------
Total assets 849.7 265.1 (79.6) 1,035.2
====== ====== ====== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt 10.5 2.8 13.3
Accounts payable 65.7 12.1 77.8
Accrued liabilities 95.2 29.7 124.9
Accrued taxes 12.6 3.3 . 15.9
----- ----- ----- -------
Total current liabilities 184.0 47.9 231.9
Long-term debt 214.0 145.2 359.2
Other liabilities 40.3 (0.1) 40.2
Intracompany liabilities 4.5 . (4.5) 0.0
----- ----- ----- -------
Total liabilities 442.8 193.0 (4.5) 631.3
Commitments and contingencies
Shareholders' equity:
Class A Convertible Preferred
Stock, no par value 177.3 177.3
Investment from parent 35.0 (35.0) 0.0
Common shares, no par value per
share, $.01 stated value per
share, issued 21.1 shares in
1998 and 1997 0.2 0.2
Capital in excess of par value 208.9 208.9
Retained earnings 76.6 40.1 (40.1) 76.6
Treasury stock, 2.8 shares at cost (55.9) . . (55.9)
Accumulated other comprehensive
income (0.2) (3.0) (3.2)
----- ----- ----- -------
Total shareholders' equity 406.9 72.1 (75.1) 403.9
----- ----- ----- -------
Total liabilities and shareholders'
equity $849.7 $265.1 $(79.6) $1,035.2
====== ====== ====== ========



111
112
Statement of Operations

For the fiscal year ended September 30, 1997 (in millions)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED



Sales $784.7 $114.6 $899.3
Cost of sales 515.2 58.4 . 573.6
------ ----- ----- --------
Gross profit 269.5 56.2 325.7
Advertising and promotion 74.2 9.7 83.9
Selling, general and administration 105.0 26.6 131.6
Amortization or goodwill and other
Intangibles 8.8 1.4 10.2
Equity income in non-guarantors (7.6) 7.6
Intracompany allocations (0.3) 0.3
Other expenses (income), net 4.7 0.5 . 5.2
------ ----- ----- --------
Income from operations 84.7 17.7 (7.6) 94.8
Interest expense 20.8 4.4 . 25.2
------ ----- ----- --------
Income before income taxes 63.9 13.3 (7.6) 69.6
Income taxes 24.4 5.7 . 30.1
------ ----- ----- --------
Net income 39.5 7.6 (7.6) 39.5


112
113
Statement of Cash Flows

For the fiscal year ended September 30, 1997 (in millions)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED

CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 39.5 $ 7.6 $(7.6) $ 39.5
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 15.7 0.9 16.6
Amortization 12.4 1.4 13.8
Equity income in non-guarantors (7.6) 7.6 0.0
Loss (gain) on sale of fixed assets 5.6 0.0 5.6
Deferred income taxes (1.5) 0.0 (1.5)
Changes in assets and liabilities,
net of acquired businesses:
Accounts receivable 6.5 11.8 18.3
Inventories 10.0 7.3 17.3
Prepaid and other current assets 0.4 0.4
Accounts payable 5.1 (4.0) 1.1
Accrued taxes and other
liabilities 13.2 (0.5) 12.7
Other, net 1.1 (3.8) . (2.7)
----- ----- ---- -----
Net cash provided by operating
activities 100.0 21.1 . 121.1
----- ----- ---- -----

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property, plant
and equipment (27.2) (1.4) (28.6)
Proceeds from sale of equipment 2.6 0.1 2.7
Dividends from non-guarantors 8.9 (46.6) (8.9) (46.6)
Investments in non-guarantors (7.1) . 7.1 .
----- ----- ---- -----
Net cash used in investing activities (22.8) (47.9) (1.8) (72.5)
----- ----- ---- -----

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under
revolving and bank lines of credit (71.9) 34.6 (37.3)
Dividends on Class A Convertible
Preferred Stock (9.8) (9.8)
Dividends to parent (8.9) 8.9 0.0
Investments from parent 7.1 (7.1) 0.0
Other, net 0.9 . . 0.9
------ ------ ----- -------
Net cash provided by (used in)
financing activities (80.8) 32.8 1.8 (46.2)
Effect of exchange rate changes on cash . 0.0 . 0.0
----- ----- ---- -----
Net increase (decrease) in cash (3.6) 6.0 2.4
Cash and cash equivalents,
beginning of period 5.0 5.6 . 10.6
----- ----- ---- -----
Cash and cash equivalents,
end of period $ 1.4 $ 11.6 $ . $ 13.0
====== ======= === =======


113
114
Balance Sheet

As of September 30, 1997 (in millions, except share information)



PARENT AND
SUBSIDIARY NON-
GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED

ASSETS
Current Assets:
Cash $ 1.4 $ 11.6 $ 13.0
Accounts receivable, net 84.3 20.0 104.3
Inventories, net 128.6 17.5 146.1
Current deferred tax asset 19.0 19.0
Prepaid and other assets 2.4 1.0 . 3.4
----- ----- ----- -----
Total current assets 235.7 50.1 0.0 285.8
Property, plant and equipment, net 135.2 10.9 146.1
Intangible assets, net 274.7 77.5 352.2
Other assets 3.5 3.5
Investment in affiliates 51.0 (51.0) 0.0
Intracompany assets . 0.3 (0.3) 0.0
----- ----- ----- -----
Total assets 700.1 138.8 (51.3) 787.6
====== ====== ====== ======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt 1.5 1.5
Accounts payable 49.6 4.5 54.1
Accrued liabilities 48.1 9.7 57.8
Accrued taxes 20.0 5.9 . 25.9
----- ----- ----- -----
Total current liabilities 119.2 20.1 0.0 139.3
Long-term debt 152.0 67.8 219.8
Other liabilities 35.1 4.2 39.3
Intracompany liabilities 0.3 . (0.3) .
----- ----- ----- -----
Total liabilities 306.6 92.1 (0.3) 398.4
Commitments and contingencies
Shareholders' equity:
Class A Convertible Preferred
Stock, no par value 177.3 177.3
Investment from parent 15.2 (15.2)
Common shares, no par value per
share, $.01 stated value per
share, issued 21.1 shares in
1998 and 1997 0.2 0.2
Capital in excess of par value 207.8 207.8
Retained earnings 50.1 35.8 (35.8) 50.1
Treasury stock, 2.8 shares at cost (41.9) . . (41.9)
Accumulated other comprehensive
income (4.3) (4.3)
----- ----- ----- -----
Total shareholders' equity 393.5 46.7 (51.0) 389.2
----- ----- ----- -----
Total liabilities and shareholders'
equity $700.1 $138.8 $(51.3) $787.6
====== ====== ====== ======


114
115
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 21, 1999 appearing in Item 14(a)(1) of this Annual Report on Form
10-K, also included an audit of the financial statement schedules listed in Item
14 (a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.



PricewaterhouseCoopers LLP
Columbus, Ohio

October 21, 1999

115
116
THE SCOTTS COMPANY AND SUBSIDIARIES

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




COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - -------- -------- -------- -------- -------- --------
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED CREDITED BALANCE
BEGINNING RESERVES TO AND AT END
CLASSIFICATION OF PERIOD ACQUIRED EXPENSE WRITE-OFFS OF PERIOD

Valuation and qualifying accounts deducted
from the assets to which they apply:
Inventory reserve $12.0 $19.0 $12.9 $(13.4) $30.5
Allowance for doubtful
accounts 6.3 3.4 11.1 (4.4) 16.4


SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
(IN MILLIONS)



COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - -------- -------- -------- -------- -------- --------
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED CREDITED BALANCE
BEGINNING RESERVES TO AND AT END
CLASSIFICATION OF PERIOD ACQUIRED EXPENSE WRITE-OFFS OF PERIOD


Valuation and qualifying accounts deducted
from the assets to which they apply:
Inventory reserve $11.8 $0.5 $4.8 $(5.1) $12.0
Allowance for doubtful
Accounts 5.7 0.8 2.6 (2.8) 6.3


SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
(IN MILLIONS)



COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - -------- -------- -------- -------- -------- --------
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED CREDITED BALANCE
BEGINNING RESERVES TO AND AT END
CLASSIFICATION OF PERIOD ACQUIRED EXPENSE WRITE-OFFS OF PERIOD

Valuation and qualifying accounts deducted
from the assets to which they apply:
Inventory reserve $8.7 $2.0 $8.5 $(7.4) $11.8
Allowance for doubtful
accounts 4.1 0.9 1.6 (0.9) 5.7


116
117
THE SCOTTS COMPANY

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999


INDEX TO EXHIBITS



EXHIBIT
NO. DESCRIPTION LOCATION



2(a) Amended and Restated Agreement and Plan of Incorporated herein by
Merger, dated as of May 19, 1995, among Stern's reference to the
Miracle-Gro Products, Inc., Stern's Nurseries, Inc., Registrant's Current
Miracle-Gro Lawn Products, Inc., Report on Form 8-K dated
Miracle-Gro Products Limited, Hagedorn May 31, 1995
Partnership, L.P., the general partners of (File No. 0-19768)
Hagedorn Partnership , L.P., [Exhibit 2(b)]
Horace Hagedorn, Community Funds, Inc., and
John Kenlon, The Scotts Company (the
"Registrant"), and ZYX Corporation

2(b) First Amendment to Amended and Restated Incorporated herein
Agreement and Plan of Merger, made and entered by reference to the
into as of October 1, 1999, among The Scotts Registrant's Current
Company, Scotts Miracle-Gro Products, Inc. (as Report on Form 8-K
successor to ZYX Corporation and Stern's dated October 4, 1999
Miracle-Gro Products, Inc.), Miracle-Gro Lawn (File No. 1-11593)
Products, Inc., Miracle-Gro Products Limited, [Exhibit 2]
Hagedorn Partnership, L.P., Community Funds,
Inc., Horace Hagedorn and John Kenlon, and
James Hagedorn, Katherine Hagedorn Littlefield,
Paul Hagedorn, Peter Hagedorn, Robert Hagedorn
and Susan Hagedorn

2(c) Master Contract, dated September 30, 1998, by Incorporated herein by
and between Rhone-Poulenc Agro; the Registrant; reference to the
Scotts Celaflor GmbH & Co. K.G.; "David" Registrant's Current
Sechsundfunfzigste Beteiligungs und Report on Form 8-K dated
Verwaltungsgesellschaft GmbH; Rhone-Poulenc October 22, 1998 (File
Agro Europe GmbH; Scotts France Holdings No. 1-11593) [Exhibit 2]
S.A.R.L.; Scotts France S.A.R.L.; and
Scotts Belgium 2 B.V.B.A.




117
118



EXHIBIT
NO. DESCRIPTION LOCATION


2(d) Asset Purchase Agreement, dated as *
of November 11, 1998, between
Monsanto Company and the Registrant
(replaces and supersedes Exhibit
2(a) to the Registrant's Quarterly
Report on Form 10-Q for the fiscal
quarter ended April 3, 1999
(File No. 1-11593))**

3(a) Amended Articles of Incorporation of the Registrant Incorporated herein
as filed with the Ohio Secretary of State on by reference to the
September 20, 1994 Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1994
(File No. 0-19768)
[Exhibit 3(a)]




3(b) Certificate of Amendment by Shareholders Incorporated herein by
to the Articles of Incorporation of the reference to the
Registrant as filed with the Ohio Secretary Registrant's Quarterly
of State on May 4, 1995 Report on Form 10-Q
for the fiscal quarter ended
April 1, 1995 (File No.
0-19768) [Exhibit 4(b)]

3(c) Regulations of the Registrant (reflecting Incorporated herein by
amendments adopted by the shareholders of reference to the
the Registrant on April 6, 1995) Registrant's Quarterly
Report on Form 10-Q for
the fiscal quarter ended
April 1, 1995
(File No. 0-19768)
[Exhibit 4(c)]





** Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment filed with the Securities and Exchange Commission
("SEC"). The non-public information has been filed separately with the SEC in
connection with that request.



118
119


EXHIBIT
NO. DESCRIPTION LOCATION


4(a) Form of Series A Warrant Included in Exhibit 2(a)
above

4(b) Form of Series B Warrant Included in Exhibit 2(a)
above

4(c) Form of Series C Warrant Included in Exhibit 2(a)
above

4(d) Credit Agreement, dated as of December 4, 1998, Incorporated herein by
by and among the Registrant; OM Scott reference to the
International Investments Ltd., Miracle Registrant's Current
Garden Care Limited, Scotts Holdings Limited, Report on Form 8-K,
Hyponex Corporation, Scotts Miracle-Gro dated December 11, 1998
Products, Inc., Scotts-Sierra Horticultural (File No. 1-11593)
Products Company, Republic Tool & [Exhibit 4]
Manufacturing Corp., Scotts-Sierra
Investments, Inc., Scotts France
Holdings SARL, Scotts Holding GmbH,
Scotts Celaflor GmbH & Co. KG, Scotts
France SARL, Scotts Belgium 2 BVBA
and The Scotts Company (UK) Ltd. as
Subsidiary Borrowers; the lenders party
thereto; The Chase Manhattan Bank as
Administrative Agent; Salomon
Smith Barney, Inc. as Syndication
Agent; Credit Lyonnais Chicago
Branch and NBD Bank as Co-
Documentation Agents; and Chase
Securities Inc. as Lead Arranger
and as Book Manager

4(e) Waiver, dated as of January 19, 1999, to *
the Credit Agreement, dated as of
December 4, 1998, among the Registrant;
OM Scott International Investments Ltd.,
Miracle Garden Care Limited, Scotts
Holdings Limited, Hyponex Corporation,
Scotts Miracle-Gro Products, Inc.,
Scotts-Sierra Horticultural Products
Company, Republic Tool & Manufacturing
Corp., Scotts-Sierra Investments, Inc.,
Scotts France Holdings SARL, Scotts
Holding GmbH, Scotts Celaflor GmbH & Co.
KG, Scotts France SARL, Scotts Belgium 2
BVBA, The Scotts Company (UK) Ltd. and
other subsidiaries of the Registrant who
are also borrowers from time to time;
the lenders party thereto; The Chase
Manhattan Bank as Administrative Agent;
Salomon Smith Barney, Inc. as
Syndication Agent; Credit Lyonnais
Chicago Branch and NBD Bank as
Co-Documentation Agents; and Chase
Securities Inc., as Lead Arranger and
Book Manager

4(f) Amendment No. 1 and Consent dated as of *
October 13, 1999 to the Credit
Agreement, dated as of December 4, 1998,
as amended by the Waiver, dated as of
January 19, 1999, among the Registrant;
OM Scott International Investments
Ltd., Miracle Garden Care Limited,
Scotts Holdings Limited, Hyponex
Corporation, Scotts Miracle-Gro
Products, Inc., Scotts-Sierra
Horticultural Products Company, Republic
Tool & Manufacturing Corp.,
Scotts-Sierra Investments, Inc. Scotts
France Holdings SARL, Scotts Holding
GmbH, Scotts Belgium 2 BVBA, The Scotts
Company (UK) LTD., Scotts Canada Ltd.,
Scotts Europe B.V., ASEF B.V. and other
subsidiaries of the Registrant who are
also borrowers from time to time; the
lenders party thereto; The Chase
Manhattan Bank as Administrative Agent;
Salomon Smith Barney, Inc. as
Syndication Agent; Credit Lyonnais
Chicago and NBD Bank as Co-Documentation
Agents; and Chase Securities Inc. as
Lead Arranger and Book Manager



4(g) Indenture, dated as of January 21, 1999, Incorporated herein by
between The Scotts Company and reference to the
State Street Bank and Trust Company, Registrant's Registration
as Trustee Statement on Form S-4
filed on
April 21, 1999
(Registration No.
333-76739)
[Exhibit 4]





119
120



EXHIBIT
NO. DESCRIPTION LOCATION

10(a) The O.M. Scott & Sons Company Excess Incorporated herein by
Benefit Plan, effective October 1, 1993 reference to the
Annual Report on Form
10-K for the fiscal
year ended September
30, 1993, of The
Scotts Company, a
Delaware corporation
("Scotts Delaware")
(File No. 0-19768)
[Exhibit 10(h)]



120
121



EXHIBIT
NO. DESCRIPTION LOCATION

10(b) The Scotts Company 1992 Long Term Incorporated herein by
Incentive Plan reference to Scotts
Delaware's Registration
Statement on Form S-8
filed on March 26, 1993
(Registration
No. 33-60056)
[Exhibit 4(f)]

10(c) The Scotts Company 1999 Executive and Management *
Incentive Plan

10(d) The Scotts Company 1996 Stock *
Option Plan (as amended through
December 8, 1999)

10(e) The Scotts Company Executive Incorporated herein by
Retirement Plan reference to the
Registrant's Annual
Report on Form 10-K for
the fiscal year ended
September 30, 1998
(File No. 1-11593)
[Exhibit 10(j)]

10(f) Employment Agreement, dated as of Incorporated herein by
May 19, 1995, between the Registrant reference to the
and James Hagedorn Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1995
(File No. 1-11593)
[Exhibit 10(p)]

10(g) Consulting Agreement, dated July 9, 1997, Incorporated herein by
among Scotts Miracle-Gro Products, Inc., reference to the
the Registrant and Horace Hagedorn Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(1)]

10(h) Employment Agreement, dated as of May 19, Incorporated herein by
1995, among Stern's Miracle-Gro reference to the
Products, Inc. (nka Scotts Miracle-Gro Registrant's Annual
Products, Inc.), the Registrant and John Kenlon Report on Form 10-
K for the fiscal year
ended September 30,
1996 (File No.
1-11593) [Exhibit
10(k)]




121
122


EXHIBIT
NO. DESCRIPTION LOCATION


10(i) Employment Agreement, dated as of Incorporated herein by
August 7, 1998, between the Registrant reference to the
and Charles M. Berger, and three attached Registrant's Annual
Stock Option Agreements with the following Report on Form 10-K
effective dates: September 23, 1998; October 21, for the fiscal year
1998 and September 24, 1999 ended September 30, 1998
(File No. 1-11593),
[Exhibit 10(n)]


10(j) Stock Option Agreement, dated as of Incorporated herein by
August 7, 1996, between the Registrant reference to the
and Charles M. Berger Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1996
(File No. 1-11593)
[Exhibit 10(m)]

10(k) Letter Agreement, dated December 23, 1996, Incorporated herein by
between the Registrant and Jean H. Mordo reference to the
Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(p)]

10(l) Specimen form of Stock Option Agreement *
for Non-Qualified Stock Options

10(m) Letter Agreement, dated April 10, 1997, Incorporated herein by
between the Registrant and G. Robert Lucas reference to the
Registrant's Annual
Report on Form 10-
K for the fiscal year
ended September 30, 1997
(File No. 1-11593)
[Exhibit 10(r)]

10(n) Letter Agreement, dated December 17, 1997, Incorporated herein by
between the Registrant and William R. Radon reference to the
Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(s)]

10(o) Letter Agreement, dated March 30, 1998, Incorporated herein by
between the Registrant and William A. Dittman reference to the
Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No. 1-11593)
[Exhibit 10(t)]

10(p) Letter Agreement, dated March 16, 1999, *
between the Registrant and Hadia Lefavre




122
123



EXHIBIT
NO. DESCRIPTION LOCATION


10(q) Letter Agreement, dated July 21, 1999, *
between the Registrant and David D. Harrison

10(r) Contract of Employment dated February 28, 1986, *
between Rhodic (assumed by Scotts France SAS)
and Christian Ringuet

10(s) Employment Agreement, dated August 1, 1995, *
between Scotts Europe B.V. and Laurens J.M. de Kort

10(t) Service Agreement, dated September 9, 1998, *
between Levington Horticulture Limited (nka The
Scotts Company (UK) Ltd.) and Nicholas Kirkbride


10(u) Exclusive Distributor Agreement--Horticulture, Incorporated herein by
effective as of June 22, 1998, between reference to the
the Registrant and AgrEvo USA Registrant's Annual
Report on Form 10-K
for the fiscal year
ended September 30, 1998
(File No.1-11593)
[Exhibit 10(v)]

10(v) Amended and Restated Exclusive Agency *
and Marketing Agreement, dated as
of September 30, 1998, between
Monsanto Company and the Registrant
(replaces and supersedes Exhibit 2(b)
to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter
ended April 3, 1999 (File No. 1-11593))**

21 Subsidiaries of the Registrant *

23 Consent of Independent Accountants *

27 Financial Data Schedule *


*Filed herewith.

** Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment filed with the Securities and Exchange Commission
("SEC"). The non-public information has been filed separately with the SEC in
connection with that request.
123