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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 December 31, 1999

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition period from to

(Mark One)

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

For the year ended December 31, 2002

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

For the transition period fromto
Commission File No.Number: 333-76055
UNITED INDUSTRIES CORPORATION
(Exact
(Exact name of registrant as specified in its charter)

DELAWARE 43-1025604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

8825 Page Boulevard
St. Louis, Missouri 63114
(Address of principal executive office, including zip code)

(314) 427-0780
(Registrant's Telephone Number, Including Area Code)

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

Securities registered pursuant to Section 12(g) of the Act:
Delaware
(State or other jurisdiction of
incorporation or organization) 43-1025604
(I.R.S. Employer
Identification Number)

2150 Schuetz Road
St. Louis, Missouri 63146
(Address of principal executive office, including zip code)
(314) 427-0780
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:None
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]ý No [_].o
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'sregistrant'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 10K. (N/A)

ThereForm 10-K. Not Applicable.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý
The aggregate market value of common stock held by non-affiliates is not determinable because there is no established public market for the Registrant'sregistrant's common stock.
As of March 30, 2000,February 28, 2003, the Registrantregistrant had 27,650,00033,188,000 Class A voting and 27,650,00033,188,000 Class B non-votingnonvoting shares of common stock outstanding and 37,600 nonvoting shares of Class A preferred stock outstanding.
Documents Incorporatedincorporated by Reference:reference: None

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UNITED INDUSTRIES CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

Page

PART I

Item 1.

Business.

4
Item 2. Properties. 12
Item 3. Legal Proceedings. 12
Item 4. Submission of Matters to a Vote of Security Holders. 13

PART II

Item 5.

Market for Registrant's Common Equity and Related Stockholder Matters.

13
Item 6. Selected Financial Data. 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 33
Item 8. Financial Statements and Supplementary Data. 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 34

PART III

Item 10.

Directors and Executive Officers of the Registrant.

35
Item 11. Executive Compensation. 38
Item 12. Security Ownership of Certain Beneficial Owners and Management. 42
Item 13. Certain Relationships and Related Transactions. 43
Item 14. Controls and Procedures. 45

PART IV

Item 15.

Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

SIGNATURES

CERTIFICATIONS

EXHIBIT INDEX

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements. These statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical facts included in this Annual Report, including statements regarding our strategy, future operations, financial position, estimated revenues, projected costs, projections, plans and objectives of management, are forward-looking statements. When used in this Annual Report the words "will," "believe," "plan," "may," "strategies," "goals," "anticipate," "intend," "estimate," "expect," "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date they were made. We do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved.
Our actual results could differ significantly from the results discussed in the forward-looking statements contained in this Annual Report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Exhibit 99.1 to this Annual Report and elsewhere in this Annual Report.

TRADEMARKS
Spectracide®, Spectracide Triazicide™, Spectracide Terminate®, Hot Shot®, Garden Safe™, Schultz®, Expert Gardener®, Rid-a-Bug®, Bag-a-Bug®, Real-Kill®, No-Pest®, Repel®, Gro Best®, Vigoro®, Sta-Green® and Bandini® are our trademarks and trade names. We also license certain Cutter®trademarks from Bayer A.G. and certain Peters® and Peters Professional® trademarks from The Scotts Company. Other trademarks and trade names used in this Annual Report are the property of their respective owners.
3

PART I

Item
ITEM 1. Business

GeneralBUSINESS.
Except as otherwise required by the context, references in this Annual Report to "United," the "company," "we," "us" and "our" each refers to United Industries Corporation (the "Company") isand its consolidated subsidiaries.
Operating as Spectrum Brands, we are the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticidecare and household insecticideinsect control markets in the United States. The
Company manufacturesUnder a variety of brand names, we manufacture and marketsmarket one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents, fertilizers, growing media and water-soluble fertilizers, under a variety of
brand names. The Company's "value" and "opening price point" brands generally
compete with higher priced premium brands.

In 1999, the Company generated net sales, income (loss) from continuing
operations and EBITDA of $304.0 million, $(9.3) million and $58.4 million,
respectively. The management team has grown the Company's business by
developing new products and acquiring strategic brands while also improving
operating efficiencies. As a result, from 1995 to 1999 the Company's:

. Net sales grew at a compound annual rate of 17.6%;

. EBITDA grew at a compound annual rate of 26.4%; and

. EBITDA margin increased from 14.4% to 19.2%.

Industry Overview

Retail sales of consumer lawn and garden pesticides and household
insecticides in the United States totaled $2.7 billion in 1999. Since 1995,
the market for these products has grown at an average annual rate of
approximately 3%. Historically, consumer lawn and garden care products have
been distributed through a variety of retail channels, including home
improvement centers, mass merchandisers, hardware stores, grocery and drug
stores, warehouse clubs and garden centers. In recent years, as home
improvement centers and mass merchandisers have added stores and expanded
their lawn and garden care departments, consumers have increasingly purchased
their lawn and garden care needs from these outlets due to their broader and
deeper product offerings, competitive prices and convenient locations and
hours.

Competitive Strengths

Leading Value-Oriented Brands. The Company is the leading manufacturer and
marketer of value-oriented branded products for the consumer lawn and garden
pesticide and household insecticide markets in the United States. The
Company's value and opening price point brands have driven a shift in the
industry by offering innovative products comparable or superior in quality to
premium brands at lower prices. As a result, the Company's products have
developed significant brand awareness and customer loyalty.

Strategic Partnerships With Leading Retailers. The Company has developed
"strategic partnerships" with a number of leading national retailers in the
fastest growing retail channels. The Company's four largest customers, Home
Depot, Wal*Mart, Lowes and Kmart, each hold significant positions in the lawn
and garden care market and have together opened approximately 1,000 net new
stores over the last five years. As a result, the Company has been able to
significantly increase sales as these retailers have added new stores and
captured market share.

Large, Exclusive Direct Sales Force. The Company has the largest direct
sales force in the industry, with approximately 270 sales representatives
dedicated to merchandising the Company's products. Each representative is
responsible for approximately 30 retail outlets and typically visits each
store on a weekly basis to merchandise shelf space, collect inventory data,
record orders and educate in-store personnel about the Company's products.
This process facilitates real time marketing, re-ordering and pricing
decisions, helping to maximize store-level profitability. In addition, the
Company's sales force helps to identify emerging trends and develop products
to meet consumers' needs.

Proprietary Management Information System. The Company's proprietary
management information system provides real time data on sales, orders and
inventories at each retail outlet, allowing targeted sales promotions and

efficient inventory management. With same-day order processing and
strategically located distribution centers throughout the United States, the
Company is generally able to deliver products to retailers within 72 hours of
an order, allowing retailers to maintain lower inventory levels, generate
higher turns and minimize costly returns.

Business Strategy

The Company plans to capitalize on its strengths and the favorable industry
trends to enhance its leadership position in value and opening price point
brands by implementing the following key elements of its business strategy:

Enhance Value Brand Position. The Company plans to maintain focus on
building its leading value brands for the consumer lawn and garden pesticide
and household insecticide markets. The Company's strategy is to provide
innovative products of comparable or superior quality to competitors at a
lower price to appeal to the segment of consumers that desire a better value.

Partner with Leading Retailers. The Company believes that its strong value
brand position coupled with its operational expertise will allow the Company
to partner with leading national retailers to develop opening price point
brands. The Company currently manufactures and markets the opening price point
brands for leading retailers such as Home Depot, Kmart and Lowes.

Maximize Category Profitability for Retailers. The Company focuses on
maximizing retailers' profitability in selling the Company's products by being
a low-cost provider and leveraging the Company's one-step distribution. The
Company is a low-cost provider as a result of its high level of vertical
integration and patented water-based aerosol technology. The Company has a
one-step distribution process through its approximately 270 person exclusive
direct sales force, the largest in the industry.

Leverage Distribution Network. The Company continually seeks to capitalize
on its strong distribution network and relationship with retailers. The
Company has increased its sales and improved operating leverage by supplying
complementary product lines to retailers. The Company adds new products either
through new product development or by acquiring product lines. The Company's
new product development strategy has been to introduce innovative products
that have superior performance, easy-to-understand packaging and value
pricing. New products generate additional sales and generally provide higher
margins to the Company and its retailers. The Company's brand acquisition
strategy has been to selectively acquire product lines that can benefit from
the Company's strong distribution network, product development expertise and
other competitive strengths. Acquired product lines such as Peters(R) and
Cutter(R) have experienced rapid growth upon integration into the Company's
distribution network.

Target Professional Market. While the primary end users of the Company's
products have historically been household consumers, the Company has begun to
target smaller independent pest control operators and lawn and garden care
professionals through its existing retail channels. Historically, these
professionals have purchased their pesticide and lawn and garden care products
from commercial distributors. The Company believes that these professionals
will increasingly utilize the home improvement center channel to take
advantage of the competitive prices, convenience of locations and hours,
delivery services and availability of credit offered. To benefit from and
further drive this trend, the Company developed Spectracide Pro(R), a group of
products designed specifically for the professional market. Launched in March
1999, this line of professional pesticides is supported by national
advertising in relevant trade magazines, in-store promotional campaigns, an
exclusive direct sales force and technical support. The Company believes that
it can capitalize on its strong relationships with leading national retailers
to gain a meaningful position in the professional market.

The Company's History

The Company was founded in 1969 and initially focused on metal works and
anchor and bolt production. In 1973, the Company acquired Spray Chem, a
contract manufacturer of liquid and aerosol insecticides and herbicides. In
1985, the Company acquired Real-Kill and entered into the manufacturing and
distribution of branded products. In 1988, the Company formed its core
businesses through the acquisition of certain assets of various businesses of
Chesebrough-

Ponds, a subsidiary of Unilever plc. The acquired brands included
Spectracide(R), Hot Shot(R), Rid-a-Bug(R), Bag-a-Bug(R) and No-Pest(R),
expanding the Company's products to include a wide array of value-oriented
indoor and outdoor pesticides. In 1994, the Company acquired assets relating
to the Cutter(R) brand from Miles, Inc. In 1995, the Company acquired assets
from Alljack Company and Celex Corporation, including a license to use the
Peters(R) brand name, the manufacturing rights of Kmart's opening price point
brands, Krid(R) and Kgro(R), and the Shootout(R) and Gro Best(R) brand names.

On January 20, 1999, pursuant to a Recapitalization Agreement with UIC
Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P., the
Company was recapitalized (the "Recapitalization") in a transaction in which:
(i) UIC Holdings, L.L.C. purchased common stock from the Company's existing
stockholders for approximately $254.7 million; (ii) the Company's senior
managers purchased common stock from the Company's existing stockholders for
approximately $5.7 million; and (iii) the Company used the net proceeds of a
Senior Subordinated Facility (which was subsequently refinanced by the
issuance of new notes) and borrowings under a Senior Credit Facility to redeem
a portion of the common stock held by the Company's existing stockholders.
Following the Recapitalization, UIC Holdings, L.L.C. owned approximately 91.9%
of the Company's issued and outstanding common stock, the existing
stockholders retained approximately 6.0% and the Company's senior managers
owned approximately 2.1%. On January 20, 1999, the total transaction value of
the Recapitalization was approximately $652.0 million, including related fees
and expenses, and the implied total equity value following the
Recapitalization was approximately $277.0 million. In December 1999, the
Company recorded a $7.2 million charge to equity to finalize costs associated
with the Recapitalization, increasing the total transaction value to $659.2
million.

Products

The Company manufactures and markets one of the broadest lines of
pesticides in the industry, including herbicides and indoor and outdoor
insecticides, as well as insect repellents and water soluble fertilizers,
under a variety of brand names. The Company's products have comparable or
superior quality and performance to premium brands, but are typically priced
at a 10% to 20% discount. The Company'ssoils. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to, premiumand at lower prices than, premium-price brands, but at a lower price, while the Company'sour opening price point brands are designed for cost conscious consumers who want quality products. Our products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and garden centers. Our three largest customers are The Home Depot, Lowe's and Wal*Mart, which are leading and fast growing retailers in our larger segments. During the year ended December 31, 2002, we had net sales of $480.0 million and operating income of $61.2 million.
During the third quarter of 2002, we began reporting operating results using three reportable segments:
•
Lawn and Garden(73% of 2002 net sales). This segment includes dry, granular slow-release lawn fertilizers, lawn fertilizer combined with lawn control products, herbicides, water-soluble and controlled-release garden and indoor plant foods, plant care products, potting soils and other growing media products, and insecticide products. This segment includes, among others, our Spectracide, Garden Safe, Schultz, Vigoro, Sta-Green, Real-Kill and No-Pest brands.

•
Household(23% of 2002 net sales). This segment includes household insecticides and insect repellents that allow consumers to repel insects and maintain a pest-free household. This segment includes our Hot Shot, Cutter and Repel brands, as well as a number of private label and other products.

•
Contract(4% of 2002 net sales). This segment includes our non-core products and various compounds and chemicals, such as cleaning solutions and other consumer products.
We compete in the $2.8 billion consumer lawn and garden retail markets and are benefiting from a shifting of consumer preferences toward value-oriented products. We believe a key growth factor in the lawn and garden retail market is the aging of the United States population, as consumers over the age of forty-five represent the largest segment of lawn and garden care product users and typically have more leisure time and higher levels of discretionary income than the general population. We also believe the growth in the home improvement center and mass merchandiser channels has increased the popularity of do-it-yourself activities, including lawn and garden projects.
Competitive Strengths
Our success is based on the following competitive strengths:
Strong Relationships with Leading and Fast Growing Retailers. Through our ability to "add value" for our retail customers, we have developed strong relationships with a number of leading national home centers and mass merchandisers. Three such retailers are our three largest customers—The Home Depot, Lowe's and Wal*Mart. These retailers each hold significant positions in the lawn and garden and household categories in which we compete and have together opened over 1,100 new stores
4

in the last three years. As a result, we have been able to significantly increase our sales as these retailers have added new stores and captured greater market share.
"One-Stop" Supplier. We offer a broad product line of the value-oriented products that consumers demand as an alternative to premium-priced products. This product breadth, enhanced by our ability to create innovative products and to acquire and integrate products and businesses, improves our ability to be a "one-stop" supplier of branded, value-oriented products in both the lawn and garden and household categories for our customers.
In-Store Category Management. We believe that our one-step distribution process, in which most shipments are made directly from our facilities to retail stores, and our direct in-store sales force enables us to manage customer relationships on a store-by-store basis better than other suppliers and helps us compete aggressively with premium-priced suppliers for shelf space. Our sales representatives visit most home center locations on a weekly basis to merchandise shelf space, collect market data and educate in-store personnel about our products. This process facilitates regionally appropriate, real-time marketing and promotional decisions, helping to maximize store-level sales and profitability for categories which have a high degree of sensitivity to local weather patterns. In addition, our sales force helps us to identify emerging trends and develop products to meet consumers' needs.
Broad Technology Portfolio. We have close relationships with key global active ingredient suppliers and have access to a broad portfolio of chemistry due to our significant presence in the pesticide market. This broad-based access to technology enables us to develop products that differentiate between our various opening-price point offerings and our nationally distributed value brands while offering product efficacy that is competitive with premium-priced products.
Strong Management Team. Our senior management team has extensive industry experience and has grown our business by developing and introducing new products, expanding our distribution channels and acquiring new brands and products, while improving our operating efficiencies.
Business Strategy
We plan to build on our strengths and favorable industry trends to enhance our competitive position by implementing the following key elements of our business strategy:
Enhance Relationships with Leading Retailers. We seek to leverage our strong value brand position and operational expertise to continue to deliver more value to leading retailers than our competitors. We focus on enhancing retailers' profitability in selling our products by being a low-cost provider and leveraging our one-step distribution process. We are able to compete as a low-cost provider due to our efficient marketing programs, high level of vertical integration and significant distribution leverage. We currently manufacture and market opening price point brands for leading retailers such as Ace Hardware, Albertsons, Dollar General, The Home Depot, Lowe's, Target, Tru*Serv, Walgreens and Wal*Mart. We also believe our relationship as a supplier of "house brands" provides a basis for broadening our product offerings and we intend to seek out new strategies for enhancing our position with key customers.
Leverage Our Operating Model. We continually seek to build the strength of our distribution network and relationships with retailers. We have increased our sales and improved operating leverage by supplying complementary product lines to retailers. Our strategy is to continue to add new products either through new product development or by acquiring product lines.
•
Organic Growth: Our new product development strategy is to introduce innovative products that have superior performance, easy-to-understand packaging, value pricing and that are technologically differentiated. Since 1999, we have developed over 200 new products. For
5
example, our introduction of the Spectracide Triazicide products propelled the Spectracide brand to a leading position in the home center channel in 2002.
•
Acquisitions: Our brand acquisition strategy is to selectively acquire product lines that can benefit from our position as a "house" supplier, strong distribution network, product development expertise, access to a broad technology portfolio and other competitive strengths. For example, we expect that the products we acquired in our Schultz Company merger and WPC Brands acquisition should benefit from our distribution leverage and certain of the acquired fertilizer brands should help us enhance our existing relationships with key customers.
Maintain and Enhance Technological Strength. We plan to continue to focus on building and maintaining a broad technology portfolio to enhance product differentiation and to maintain product efficacy. By increasing scale, we seek to leverage our relationships with global active ingredient suppliers to maintain and expand our technologically advanced product offerings, with a focus on exclusive chemistry and new technology.
Focus and Coordinate Sales Efforts. We have established four customer-focused platform teams that are comprised of dedicated executive, sales, marketing, supply chain and finance personnel. Three of these teams are located in the cities of our largest customers' headquarters while the fourth is based at our corporate headquarters to serve our other accounts. In addition, we have reorganized our direct retail sales force to improve service to key customers. This realignment, completed in 2002, allows us to provide separate, dedicated, individually tailored customer service to our key customers and should position us to respond more quickly and proactively to their specific needs.
Increase Supply Chain Efficiency. We plan to leverage our greater purchasing power for raw materials and active ingredients resulting from our organic growth and acquisitions to seek improved prices and terms from suppliers. In addition, we intend to selectively in-source or out-source products, based on the cost, quality and reliability of available alternatives. Toward that end, we recently improved costs and reliability by acquiring one fertilizer manufacturing plant and leasing another plant, which allows us to manufacture much of our granular fertilizer product, as opposed to relying on outsourcing arrangements.
Industry Overview
Retail sales of consumer lawn and garden products in the United States totaled approximately $2.8 billion during the year ended December 31, 2002. We believe that the industry will continue to grow over the next several years due to favorable demographic trends. According to a national, independent gardening survey conducted in 2001, approximately 85 million households in the United States, or 80% of all households in the United States, participate in some form of lawn and garden care activity. Moreover, consumers over the age of forty-five represent the largest segment of lawn and garden care product users and have more leisure time and higher levels of discretionary income than the general population. As the baby boom generation ages, this segment is expected to grow at a faster rate than that of the total population. We believe that this demographic trend is likely to increase the number of lawn and garden care product users which will contribute to continued growth of the industry.
Our History
We were founded in 1969 and incorporated as a Delaware corporation in 1973. On January 20, 1999, UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P. and its affiliates and some members of the management at that time, acquired substantially all of our capital stock in a recapitalization transaction. UIC Holdings, L.L.C. currently is the beneficial owner of approximately 84% of our capital stock on a fully diluted basis.
6

Acquisition of Brands. In 1973, we acquired the assets of Spray Chem, a contract manufacturer of liquid and aerosol insecticides and herbicides. In 1985, we acquired Real-Kill and entered into the manufacture and distribution of branded products. In 1988, we formed our core businesses through the acquisition of certain assets of various businesses of Chesebrough-Ponds. The acquired brands included Spectracide, Hot Shot, Rid-a-Bug, Bag-a-Bug and No-Pest. The acquisition of these brands expanded our products to include a wide array of value-oriented indoor and outdoor pesticides. In 1994, we acquired assets and licensing rights relating to Cutter from Miles, Inc. In 1995, we acquired assets from Alljack Company and Celex Corporation, including certain licensing rights and certain manufacturing rights of Kmart's opening price point brands.
On December 17, 2001, we advanced our strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green and Bandini, as well as acquiring licensing rights to the Best line of fertilizer products. These brands, which were formerly owned by or licensed to Pursell Industries, Inc., complement our consumer lawn, garden and insect control products.
Schultz Company. On May 9, 2002, a wholly owned subsidiary of the company merged with Schultz, a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became a wholly owned subsidiary of ours. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisitions."
WPC Brands, Inc. On December 6, 2002, we acquired WPC Brands, a manufacturer and distributor of various leisure-time consumer products, including a full line of insect repellants, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance our insect repellent product lines and to strengthen our presence at major customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisitions."
Strategic Relationship with Bayer. On June 14, 2002, we and Bayer Corporation and Bayer Advanced, L.L.C. (together referred to herein as Bayer) consummated a strategic transaction. The strategic transaction allows us to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Strategic Transactions."
Pursell Transaction. On October 3, 2002, we signed an asset purchase agreement to acquire certain assets from Pursell. The assets acquired included certain inventory, equipment at two of Pursell's facilities and real estate at one of the two facilities. These facilities, located in Orrville, Ohio and Sylacauga, Alabama, previously fulfilled, and are expected to continue to fulfill, over half of our fertilizer manufacturing requirements.
Also on October 3, 2002, we signed a tolling agreement with Pursell, whereby Pursell will supply us with the remainder of our fertilizer needs. The tolling agreement requires us to be responsible for all raw materials, certain capital expenditures and other related costs for Pursell to manufacture and supply us with fertilizer products. The agreement provides us with early termination rights without penalty upon a breach of the agreement by Pursell or upon our payment of certain amounts as set forth therein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Strategic Transactions."
7

Products
Under a variety of brand names, we manufacture and market one of the broadest lines of pesticides in our industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and fertilizers, growing media and soils. Most of our products are value oriented products, such as value brands and opening price point brands. Our value brands are targeted toward consumers who want products and packaging butthat are extremelycomparable or superior to, and at lower prices than, premium-priced brands, while our opening price point brands are designed for cost conscious.conscious consumers who want quality products. The following is a description of each of the
Company'sour major products.

Value Brands (80% of 1999 net sales)

The Company sellsproducts by segment:
Lawn and Garden
Our Lawn and Garden segment includes a broad line of brands and a variety of other value brands marketed under such names as
Spectracide(R), Spectracide Terminate(TM), Spectracide Pro(R), Hot Shot(R),
Cutter(R) and Peters(R).private label products. Below is a description of eachsome of the Company's value
brands:

Spectracide(R). these brands and products:
•
Spectracide. The Spectracide(R)Spectracide product line primarily consists of outdoor insect control products and herbicides, but it also includes indoor insect control products, specialty items such as plant disease control and rose care products and regional products such as fire ant killer and Japanese beetle traps.

Spectracide Terminate(TM). Introduced

•
Garden Safe. Launched in 1998, Spectracide Terminate(TM) is2002, the first ever do-it-yourself consumer termite killing system. The product is
based on professional bait stake technology and comes in 20 and 40 stake
packages to meet the needsGarden Safe brand represents a broad line of a wide range of property sizes.

Spectracide Pro(R). The Spectracide Pro(R) product line, which was
introduced in March 1999, targets smaller independent lawn and garden products for environmentally conscious consumers.

•
Schultz. The Schultz brand represents a wide array of lawn and garden, plant care, professionalspotting soils and pest control operators. Many trade professionals are
increasingly purchasing their suppliesother growing media products.

•
Vigoro. Vigoro has a broad line of lawn and garden fertilizers. The product was established in 1924 and has been sold exclusively to The Home Depot since 1996.

•
Sta-Green. Sta-Green has a complete line of lawn and garden fertilizers and value-added soils. The product was established in 1904 and has primarily been sold to Lowe's since 1996 and also to select, typically smaller, lawn and garden distributors.

•
Real-Kill. In 1997, we repositioned Real-Kill by re-launching the brand almost exclusively at home improvement centers. To benefit
from this trend, the Company developed the Spectracide Pro(R) line,The Home Depot as its opening price point brand. It is now also sold at other retailers and consists of various indoor and outdoor pesticide and rodenticide products.

•
No-Pest. In 1997, we introduced No-Pest exclusively at Lowe's as its opening price point brand. The brand consists of various indoor and outdoor pesticide products.

•
Other Value Brands. We also manufacture and market regional value brands and private label products for many other retailers and produce pesticides and other chemicals under contracts for other customers.
Household
We sell a groupbroad range of products designed specifically for the professional market.

household insecticides and insect repellents and a number of private label and other products. Below is a description of these brands and products.
•
Hot Shot(R). Shot. The Hot Shot(R)Shot product line consists of household insecticides, including items such as roach and ant killers, flying insect killers, foggers, wasp and hornet killers, rodenticides, flea control products, and most recently, a new line of roach and ant baits.

Cutter(R). Acquired from Miles, Inc. in 1994, the Cutter(R)

•
Cutter. The Cutter product line provides protection for the entire family, ranging from area repellentinsects, especially mosquitoes, through various aerosol and direct application products, as well as citronella candles, totorches and coils.
8
We offer a variety of products, designedincluding those marketed especially for use on childrenall members of the family, including children.
•
Repel. The Repel brand was obtained through our acquisition of WPC Brands and the
outdoorsman.offers an array of personal insect repellent products marketed primarily to outdoorsmen.
Contract
The Company has repositioned Cutter(R)Contract segment includes our non-core products and various compounds and chemicals, such as a value brand and
increased its distribution.

Peters(R). The Peters(R) product line is a water-soluble fertilizer
available in all-purpose formulations as well as specialty formulations for
lawns, roses, tomatoes, orchids and azaleas. In 1999, the Company introduced
new high-impact packaging graphics and new all-weather packaging material and
merchandising displays to improve shelf appearance and allow the products to
be displayed in the live goods departments of home improvement centers and
mass merchandisers.

Other Value Brands. The Company also manufactures and markets regional
value brands in Florida and the Caribbean. Rid-a-Bug(R), sold exclusively in
Florida, is a leading household pesticide product in that state. Real-Kill(R),
marketed as a Spanish-labeled product throughout the Caribbean, has become the
leading brand of household insecticides in Puerto Rico. The Company also
manufactures private label products for hardware co-operativescleaning solutions and other retailers and produce under contract pesticides and other products for other
customers.

Opening Price Point Brands (20% of 1999 net sales)

An important aspect of the Company's growth over the past few years has
resulted from the Company's introduction of opening price point brands at home
improvement centers and mass merchandisers. By introducing these products, the
Company has effectively acquired shelf space at the expense of its competitors
by displacing premium brands and lower quality regional brands. The Company's
strategic retail partners have also benefited from the Company's introduction
of opening price point brands through streamlined logistics, better inventory
control and higher margins. Below is a description of each of the Company's
opening price point brands.

Real-Kill(R). In 1997, the Company repositioned Real-Kill(R), relaunching
the brand exclusively at Home Depot as its opening price point brand. The
brand consists of indoor and outdoor pesticides.

No-Pest(R). In late 1997, the Company introduced No-Pest(R) exclusively at
Lowes as its opening price point brand. The brand consists of indoor and
outdoor pesticides.

Krid(R), Kgro(R), Shootout(R) and Gro Best(R). In late 1995, the Company
acquired the manufacturing operations, which produce the Kmart owned opening
price point brands, Krid(R) and Kgro(R), and the brand names, Shootout(R) and
Gro Best(R). These brands consist of indoor and outdoor pesticides and soluble
fertilizers.

consumer products.
Customers

The Company sells its
We sell our products through all major retail channels, including home improvement centers, mass merchandisers, hardware stores, grocery and drug stores, wholesale clubs and garden centers. The Company isWe are heavily dependent on The Home Depot, Lowe's and Wal*Mart Lowes and Kmart for a substantial portion of itsour sales. These fourThe sales to these customers, accounted for approximately 73%, 68% and
64%as a percentage of net sales, for 1999, 1998were:
Year Ended December 31,
2002 2001 2000
The Home Depot 33 % 25 % 24 %
Lowe's 23 % 22 % 19 %
Wal*Mart 18 % 17 % 16 %
Total 74 % 64 % 59 %
We manufacture and 1997, respectively.

The Company manufactures and suppliessupply products to hundreds of customers representing more than 70,000 retail stores across the United States and in select locations inof Canada, Puerto Rico and the Caribbean. The Company's
leadershipOur strong position in the home improvement center and mass merchandiser channels is a key element of itsto our past and future success. Industry wide,
category
Seasonality
Our business is highly seasonal because our products are used primarily in the spring and summer seasons. For the past three years, approximately 69% of our net sales continue to shift to the home improvement center and mass
merchandiser channels. Sales are seasonal as approximately 75% of shipments
will occurhave occurred in the first twoand second quarters, resulting in higher net revenues and results of operations during those quarters. Our working capital needs, and correspondingly our borrowings, generally peak in the first and second quarters of each year.
Backlog
Our backlog was $2.5 million as of December 31, 2002 and $0.3 million as of December 31, 2001. However, we do not believe that our backlog is a meaningful indicator of expected sales because of the fiscal year.

short lead time between order entry and shipment. We expect our backlog to be filled within each approaching season, but there can be no assurance that backlog at any point in time will translate into sales in any particular subsequent period.
Sales and Marketing

The Company conducts
We conduct sales activities through itsour exclusive direct sales force, which consists of approximately 250 territorymarket sales managers and 20merchandisers and area sales managers. TerritoryMarket sales managers are typically responsible for 30 retail
stores and visit stores on aaccounts weekly basis to merchandise shelves and collect
inventory data. Territory managers' store visits generate close to 1,000 store
reports a day. The data collected includes real-time information on SKUs,
inventory levels and sales. This data is used by territory managers and
customers to develop promotional campaigns and merchandising plans that
maximize store level sales and profitability. This process facilitates real-
time marketing, re-ordering and pricing decisions.shelves. In addition, the Company
supports the Spectracide Terminate(TM) productwe support certain products through employing a seasonal in-store sales force of approximately 100 people, and the Spectracide Pro(R)
line by an outside sales force of 20 people.

The Company'sforce.
9

Our marketing departmentteam leads theour new product development process and develops consumer support plans to help drive sales through the
Company's strongour distribution network. To promote the Company'sour products to consumers, the Company advertises on national and localwe advertise using television, radio and print media; developsmedia, develop consumer promotions;promotions and engagesengage in market research efforts.
Research and Development

In 1999, 1998
We spent $1.3 million in 2002, $2.4 million in 2001 and 1997, the Company spent $1.0 $0.8 and $0.6 million respectively,in 2000 on research and development. The Company'sdevelopment activities. Our research and development department hasfocuses on applied research using the strength and knowledge of our active ingredient suppliers and strategic active ingredient partners. We have developed over 80200 new products since 1996. Although
the Company's expertise is in applied formulation, items like the patented
water-based aerosol technology, the exclusive formulation of diquat fusillade
and the dual insect and disease control formulations were developed
internally.

1999.
Raw Materials and Suppliers
The key elementsprimary components of the Company'sour products areinclude various commodity and specialty chemicals including diazinon, Dursban(R) and sulfluramid, as well as packaging materials. The Company obtainsWe obtain raw materials from various suppliers.suppliers and we currently consider our array of alternative vendors to be adequate. No onesingle vendor is considered to be essential to the Company'sour operations and the Company haswe have never experienced a significant interruption of supply. Several of the Company'sour agreements with suppliers provide for price adjustments. In addition,adjustments and some of the Company's agreements with suppliers
provide for exclusivity rights, subject to minimum purchase requirements.

certain conditions.
Competition

The Company operates
Each of our segments operate in a highly competitive marketmarkets and competescompete against a number of national and regional brands. The Company'sWe believe the principal factors by which we compete are product quality and performance, value, brand strength and marketing. Our principal national competitors for our Lawn and Garden and Household segments include: The Scotts Company, which markets lawn and garden products under the Ortho(R)Scotts®, Roundup(R)Ortho®, Roundup®, Miracle-Gro® and Miracle-Gro(R)Hyponex® brand names; S.C. Johnson & Son, Inc., which markets insecticide and repellent products under the Raid(R)Raid® and OFF!(R)® brand names; Bayer A.G., which markets lawn and garden products under the Bayer Advantage® brand name; Central Garden & Pet Company, which markets insecticide and garden products under the AMDRO® and IMAGE® brand names; The Clorox Company, which markets products under the Combat(R)Combat® and Black Flag(R)Flag® brand names.

names; and The Servicemaster Company, which markets lawn care, tree and shrub services under the TruGreen^SM, ChemLawn^SM and Barefoot^SM service marks. In our Contract segment, we compete against a diverse group of companies. Some of our competitors in each segment have substantially greater financial resources and research departments than we do.
Intellectual Property

The Company operates
We own and ownsoperate using a substantial number of trademarks and tradenamestrade names including the following: Spectracide(R), Spectracide, Terminate(TM),
Spectracide Pro(R),Triazicide, Spectracide Terminate, Hot Shot(R), Rid-a-Bug(R), Bag-a-Bug(R), Real-Kill(R), No-
Pest(R), Shootout(R)Shot, Garden Safe, Schultz, Rid-a-Bug, Bag-a-Bug, Real-Kill, No-Pest, Repel, Gro Best, Vigoro, Sta-Green and Gro Best(R). The Company licensesBandini, as well as the Cutter(R)
trademark and other memberslicensing rights to the Best line of the Cutter(R) family offertilizer products. We also license certain Cutter trademarks from Bayer CorporationA.G. and the Peters(R)certain Peters and Peters Professional(R)Professional trademarks from The Scotts Company. These licenses are in effect,royalty-free, perpetual and exclusive.
Employees
As of March 30, 2000, the CompanyDecember 31, 2002, we had approximately 878725 full-time employees. Approximately 300 of the Company'sour employees are covered by a collective bargaining agreements, which expire in August, 2002,agreement with the Finishers, Maintenance Painters, Industrial and Allied Workers Local Union 980, AFL-CIO.

AFL-CIO which expires in August 2005. We consider our current relationship with our employees, both unionized and non-unionized, to be good.
10

Environmental Matters

The Company isand Regulatory Considerations
We are subject to federal, state, local and foreign laws and regulations governing environmental matters. The Company'sOur manufacturing operations are subject to requirements regulatingto regulate air emissions, wastewater discharge, waste management and the cleanup of contamination. Based on assessments conducted by independent environmental consultants, the Company
believes that it iswe believe we are generally and materially in material compliance with these requirements and hashave no material environmental liabilities. The CompanyWe may be subject to fines or penalties if the Company failswe fail to comply with these environmental laws and regulations. The Company doesWe do not anticipate any material capital expenditures for environmental controls in 2000.

The Company's2003 and 2004.
Our pesticide products must be reviewed and registered by the U.S. EPA and similar state agencies or, in foreign jurisdictions, by foreign agencies, before they can be marketed. The Company devotesWe devote substantial resources to

5
maintaining compliance with these registration requirements. If the Company
failsHowever, if we fail to comply however,with the regulatory requirements, registration of the affected pesticide could be suspended or canceled, and the Companywe could be subject to fines or penalties. Additionally, under the Food Quality Protection Act of 1996, the U.S. EPA is in the process of re-registering all pesticides and is requiring manufacturersactive ingredient suppliers and formulators to supply the U.S. EPA with additional data regarding their pesticides. Where possible, the Company is workingwe are coordinating with trade associations and suppliers to reduce the Company's costcosts of developing this data. The Company'sWhile we can not estimate the ultimate costs of these activities nor can we control the scope of information that may be required by the U.S. EPA, we currently estimate that the costs associated with these activities could total approximately $0.2 million annually for the next several years.
Our fertilizer products must be reviewed and registered by each state prior to sale. The statesEach state typically checkreviews the weight of the product and the accuracy of the analysis statement on the packaging. Other consumer products the Company marketswe market are subject to the safety requirements of the Consumer Product Safety Commission. If the Company failswe fail to comply with any of these requirements, the Companywe could be suspended or prohibited from marketing the affectedrelated product.

Item
Our healthcare products and packaging materials are subject to regulations administered by the Food and Drug Administration (FDA). Among other things, the FDA enforces statutory prohibitions against misbranded and adulterated products, establishes ingredients and manufacturing procedures for certain products, establishes standards of identity for certain products, determines the safety of products and establishes labeling standards and requirements. In addition, various states regulate these products by enforcing federal and state standards of identity for selected products, grading products, inspecting production facilities, and imposing their own labeling requirements.
As of December 31, 2002, we believe we were substantially in compliance with applicable environmental and regulatory requirements.
Financial Information about Segments
For information concerning our operating results by segment, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 18 of the Notes to Consolidated Financial Statements, included elsewhere in this Annual Report.
11

ITEM 2. Properties

The Company has two manufacturingPROPERTIES.
Our primary facilities locatedare as follows:
Location
Approximate Area of Square Feet Lease Expiration
(or Ownership) Primary Business Segment Served Description
St. Louis, MO(1) 79,200 12/13/12 All Corporate headquarters.
Vinita Park, MO—Plant I 32,800 Year-to-year through
12/31/05 Household and Contract Production facility.
Vinita Park, MO—Plant II 86,000 Year-to-year through 12/31/10 All Production facility.
Vinita Park, MO—Plant III 88,000 Year-to-year through 12/31/10 Household Production facility and warehouse.
Vinita Park, MO 86,000 Year-to-year through 12/31/10 All Warehouse.
Bridgeton, MO(2) 75,000-150,000 7/31/03 All Temporary storage.
Bridgeton, MO(3) 403,200 12/31/12 All Distribution center.
Orrville, OH 30,420 Own Lawn and Garden Production facility.
Orrville, OH 20,000 Own Lawn and Garden Distribution center.
Homesville, OH 100,000-260,000 11/30/04 Lawn and Garden Storage.
Sylacauga, AL 35,000 Month-to-month Lawn and Garden Production facility.
Sylacauga, AL 71,000 10/02/06 Lawn and Garden Distribution center.
Jackson, WI 75,000 2/28/07 Household and Contract Production facility.
Earth City, MO 153,000 1/31/15 Lawn and Garden Distribution center.
Allentown, PA 40,000 10/31/04 All Distribution center.
Gainesville, GA 126,000 11/30/06 All Distribution center.
Ontario, CA 61,000 12/31/05 All Distribution center.
(1)
During December 2002 and January 2003, we moved corporate personnel from three local locations into our new corporate headquarters.

(2)
Approximate square feet increases from 75,000 square feet during non-peak seasons to 150,000 square feet during peak seasons.

(3)
During December 2001, we finalized the consolidation of three local warehouses into this location. We recorded a $3.5 million charge during the fourth quarter of 2001 related to the warehouse consolidation project, primarily attributable to facility exit costs and resultant duplicate rent payments in Vinita Park,
Missouri2002.
We believe our current facilities are generally well maintained and one Manufacturing facility in Plymouth, Michigan. Threeprovide adequate production and distribution capacity for future operations. Our facilities primarily manufacture five types of product categories are manufactured at these facilities:categories: aerosols, liquids, baits, water-soluble fertilizers, and water-solublegranular fertilizers. TheOur typical manufacturing process consists of four stages: batch, fill, label and pack. The CompanyWe currently produces over 300
SKUs through the Company's fouroperate aerosol, production lines, three liquid, production linesbait, water-soluble fertilizer and two water-solublegranular fertilizer production lines. The
Company'sOur production lines are flexible and can operate at a variety of filling speeds and produce multiple shipping configurations. The Company uses
outside manufacturers forWe also selectively outsource the productionmanufacturing of granular insecticides, baitscertain of our products to contract manufacturers. Periodically, we evaluate the need to reposition our portfolio of products and candles.

The Company has four distribution centers, locatedfacilities to meet the needs of the changing markets we serve.

ITEM 3. LEGAL PROCEEDINGS.
We are involved from time to time in Vinita Park,
Missouri; Allentown, Pennsylvania; Gainesville, Georgia; and Ontario,
California.

Item 3. Legal Proceedings

In March 1998, a judgement for $1.2 million was entered against the Company
for a lawsuit filed in 1992 by the spouse of a former employee claiming
benefits from a Company-owned key man life insurance policy. On August 24,
1999 the Missouri District Court of Appeals, Eastern District, affirmed the
trial court's decision. On December 1, 1999, after the Missouri Supreme Court
further reviewed the trial courts decision, the Company paid $1.3 million to
satisfy the judgement entered in this case, includingroutine legal costs of $.1
million

The Company is involved in litigation and arbitration proceedings in the
normal course of business that assert product liabilitymatters and other claims. The
Company is contesting all such claims.claims incidental to the business. When it appears probable in management's judgment that the Companywe will incur monetary damages or
12

other costs in connection with such claims and proceedings, and such costs can be reasonably estimated, appropriate liabilities are recorded in the consolidated financial statements and charges are maderecorded against earnings. Management believesWe believe that the possibilityresolution of such routine matters and other incidental claims, taking into account established reserves and insurance, will not have a material adverse effectimpact on the
Company'sour consolidated financial position or results of operations and cash
flows from the claims and proceedings described above is remote.

Itemoperations.

ITEM 4. Submission of Matters to a Vote of Security HoldersSUBMISSION 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.
2002.

PART II

Item
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company doesMARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
We do not have publicly heldtraded common stock. PursuantIn addition, we have not historically paid dividends on common stock, nor do we presently intend to pay dividends in the Recapitalization Agreementforeseeable future. It is presently anticipated that earnings will be retained and reinvested to support the Company's Senior Managers purchased
approximately 2.1%growth of our business. The payment of future dividends, if any, on common shares will be determined by the Company's issuedBoard of Directors in light of conditions then existing, including our earnings, financial condition and outstanding common stock.

Itemcapital requirements, restrictions in financing agreements, business conditions and other factors. As of February 28, 2003, there were 47 stockholders of record.
13

ITEM 6. Selected Financial DataSELECTED FINANCIAL DATA.
The selected historical financial data as of December 31, 2002 and 2001 and for the fiscal yearyears ended December 31, 2002, 2001 and 2000 have been prepared from our audited consolidated financial statements included elsewhere in this Annual Report. The historical financial data as of December 31, 2000, 1999 and 1998 and for the years ended December 31, 1999 and 1998 have been derived from audited financial statements included
elsewhere in this report. The historical financial data for the years ended
December 31, 1997, 1996 and 1995 have been derived from audited financial
statements which do not appear in this report.herein. When you readreading this selected historical financial data, it is important that you read along with it the consolidated financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which isare included elsewhere in this report.

Year Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(000's)

Statements of Operations:
Net sales................... $304,048 $282,676 $242,601 $199,495 $159,192
-------- -------- -------- -------- --------
OperatingAnnual Report.
Year Ended December 31,
2002(1) 2001 2000 1999 1998
(dollars in thousands)

Statement of Operations Data:
Net sales before promotion expense $ 521,286 $ 297,776 $ 288,618 $ 304,048 $ 282,676
Promotion expense 41,296 24,432 22,824 19,572 31,719
Net sales 479,990 273,344 265,794 284,476 250,957
Operating costs and expenses:
Cost of goods sold(2)(3) 305,644 148,371 146,229 150,344 140,445
Selling, general and administrative expenses 113,162 74,689 69,099 80,496 61,066
Facilities and organizational rationalization(3) — 5,550 — — —
Dursban related expenses(4) — — 8,000 — —
Recapitalization transaction fees(5) — — — 10,690 —
Change of control bonuses(6) — — — 8,645 —
Severance charge(6) — — — 2,446 —
Litigation charges(7) — — — 1,647 2,321
Total operating costs and expenses 418,806 228,610 223,328 254,268 203,832
Operating income 61,184 44,734 42,466 30,208 47,125
Interest expense, net 32,410 35,841 40,973 35,223 1,106
Income (loss) before provision for income taxes, discontinued operations and extraordinary item 28,774 8,893 1,493 (5,015 ) 46,019
Income tax expense 3,438 2,167 134 4,257 992
Income (loss) from continuing operations, before extraordinary item(8) $ 25,336 $ 6,726 $ 1,359 $ (9,272 ) $ 45,027
Preferred stock dividends $ 6,880 $ 2,292 $ 320 $ — —
Net income (loss) available to common stockholders(9) $ 18,456 $ 4,434 $ 1,039 $ (11,597 ) $ 46,741

Other Financial Data:
Cash flows from continuing operating activities $ 37,858 $ 25,035 $ 10,793 $ 24,504 $ 47,615
Cash flows used for continuing investing activities (68,250 ) (45,416 ) (3,950 ) (3,038 ) (3,628 )
Cash flows used for continuing financing activities 40,710 20,381 (6,843 ) (21,466 ) (45,940 )
EBITDA(10) 71,424 49,652 47,727 34,923 50,963
Depreciation and amortization(11) 10,240 4,918 5,261 4,715 3,838
Capital expenditures(12) 10,450 7,916 3,950 3,038 3,628
Ratio of earnings to fixed charges(13) 1.5x 1.2x 1.0x 0.9x 17.6x

Balance Sheet Data (end of period):
Cash and cash equivalents $ 10,318 $ — $ — $ — $ —
Working capital(14) 50,149 19,703 29,892 22,938 30,042
Total assets 386,003 272,556 234,894 241,878 94,161
Total debt, including capital lease 404,936 351,768 354,301 369,255 4,645
Stockholders' equity (deficit) (96,236 ) (144,417 ) (170,763 ) (186,802 ) 58,257
(1)
Our historical operating results for the year ended December 31, 2002 include the operating results of Schultz from May 9, 2002, the date of the merger, and WPC Brands from December 6, 2002, the date of acquisition.

(2)
Cost of goods sold for the year ended December 31, 2002 includes a $1.5 million inventory write-up for inventory recorded at fair value in connection with the Schultz merger in May 2002.
14
(3)
During the year ended December 31, 2001, we recorded an $8.5 million charge, of which $5.6 million was recorded in facilities and organizational rationalization, $2.7 million was recorded in cost of goods sold, and $0.2 million was recorded in selling, general and administrative expenses.

(4)
During the year ended December 31, 2000, the U.S. EPA and manufacturers of the active ingredient chlorpyrifos including Dow AgroSciences L.L.C. which sold chlorpyrifos to us under the trademark "Dursban™," entered into a voluntary agreement that provided for withdrawal of virtually all residential uses of chlorpyrifos in pesticide products. Formulation of chlorpyrifos products intended for residential use ceased by December 1, 2000 and formulators discontinued the sale of such products to retailers after February 1, 2001. Retailers were not allowed to sell chlorpyrifos products after December 31, 2001. Accordingly, a charge of $8.0 million was recorded in September 2000 for costs associated with this agreement, including customer markdowns, inventory write-offs and related disposal costs. All of our accrued costs associated with this agreement and additional amounts totaling under $0.1 million were incurred by December 31, 2002.

(5)
During the year ended December 31, 1999, we recorded $31.3 million in fees and expenses associated with the recapitalization. Fees and expenses that were specifically identified as relating to the issuance of debt were capitalized and are being amortized over the remaining term of the debt as interest expense. The fees and expenses relating to the equity transactions were charged directly to equity. Other transaction fees were allocated between debt and
expenses:
Cost of goods sold......... 150,344 140,445 128,049 106,640 82,603
Advertising and promotion
expenses.................. 29,182 31,719 25,547 22,804 17,813
Selling, general and
administrative expenses... 70,886 61,066 52,092 46,276 38,629
Recapitalization
transaction fees.......... 10,690 -- -- -- --
Change of control bonuses.. 8,645 -- -- -- --
Severance charge........... 2,446 -- -- -- --
Non-recurring litigation
charges................... 1,647 2,321 -- -- --
-------- -------- -------- -------- --------
Total operating costs and
expenses................... 273,840 235,551 205,688 175,720 139,045
-------- -------- -------- -------- --------
Operating income............ 30,208 47,125 36,913 23,775 20,147
Interest expense............ 35,223 1,106 1,267 1,502 609
-------- -------- -------- -------- --------
(Loss) income before
provision for income taxes,
discontinued operations and
extraodinary item.......... (5,015) 46,019 35,646 22,273 19,538
Income tax expense.......... 4,257 992 726 447 289
-------- -------- -------- -------- --------
(Loss) income from
continuing operations...... $ (9,272) $ 45,027 $ 34,920 $ 21,826 $ 19,249
======== ======== ======== ======== ========
Other Financial Data:
Cash flow from continuing
operations................. $ 23,434 $ 50,763 $ 35,136 $ 27,741 $ 14,316
Cash used by investing
activities continuing
operations................. 3,038 3,628 5,138 6,384 19,253
Cash (used by) provided by
financing activities....... 20,396 49,088 32,329 23,645 (607)
EBITDA (1).................. 58,351 53,284 40,510 27,336 22,862
Depreciation and
amortization............... 4,715 3,838 3,597 3,561 2,715
Capital expenditures (2).... 3,038 3,628 5,138 6,384 4,726
Gross margin................ 50.6% 50.3% 47.2% 46.5% 48.1%
EBITDA margin............... 19.2 18.8 16.7 13.7 14.4
Ratio of earnings to fixed
charges (3)................ .9x 17.6x 13.9x 8.3x 12.4x
Balance Sheet Data:
Working Capital(4).......... $ 22,938 $ 30,042 $ 32,046 $ 26,919 $ 29,565
Total assets................ 241,878 94,161 97,441 84,254 82,979
Total debt.................. 369,255 4,645 3,997 13,960 16,200
Stockholder's equity
(deficit).................. (186,802) 58,257 64,449 46,829 45,864

- -------
(1) EBITDA represents income from continuing operations before interest
expense, income tax expense, depreciation and amortization, recapitalization transaction fees expense based on our estimate of the related activities.

(6)
During the year ended December 31, 1999, we recorded various charges as follows: (i) change of control bonuses paid to certain members of senior management amounting to $8.6 million; and (ii) $2.4 million of severance charges incurred as a result of the termination of our former President and non-recurring litigation charges. Chief Executive Officer and Senior Vice President, Sales.

(7)
During the year ended December 31, 1999, the Company
accrued $10,690 for recapitalization transaction fees, $8,645 for changewe recorded $1.5 million of control bonuses and $2,446 for severance charges. For 1999 and 1998,
the Company accrued $1,647 and $2,321 for non-recurring litigation charges respectively. The Company has included information concerning
EBITDA becauseto primarily reserve for the Company believes it is usedexpected cost of an adverse judgment on a counterclaim filed by certain investors as one
measuredefendants in the case of United Industries Corporation vs. John Allman, Craig Jackman et al. This case was settled in July 1999. In 1998, we recorded litigation charges of $2.3 million related to two separate lawsuits. In March 1998, a judgment was entered against us in a lawsuit filed by the spouse of a company's historical abilityformer employee claiming benefits from a United-owned key man life insurance policy. We recorded a charge of $1.2 million for this case in the first quarter of 1998 and an additional $0.1 million in the fourth quarter of 1999. We also incurred costs pertaining to fund operations and meet its
financial obligations. EBITDA is not intendedcertain litigation concerning the advertising of our Spectracide Terminate product for which a settlement was negotiated. Costs related to represent cash flow from
operations as defined by generally accepted accounting principles and
should not be used as an alternativethis case amounted to operating income or income from
continuing operations as an indicator of the Company's operating
performance or cash flow as a measure of liquidity. In addition, the
Company's definition of EBITDA may not be comparable to that reported by
other companies. EBITDA is calculated as follows:

Year Ended December 31,
----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------

Income (loss) from continuing
operations (a)................. $(9,272) $45,027 $34,920 $21,826 $19,249
Interest expense................ 35,223 1,106 1,267 1,502 609
Income tax expense.............. 4,257 992 726 447 289
Depreciation and amortization... 4,715 3,838 3,597 3,561 2,715
Recapitalization transaction
fees (b)....................... 10,690 -- -- -- --
Change of control bonuses (c)... 8,645 -- -- -- --
Severance charges (c)........... 2,446 -- -- -- --
Non-recurring litigation charges
(c)............................ 1,647 2,321 -- -- --
------- ------- ------- ------- -------
EBITDA (c)...................... $58,351 $53,284 $40,510 $27,336 $22,862
======= ======= ======= ======= =======

-------
(a) $1.1 million.

(8)
Does not reflect the elimination of stockholder salaries and certain fringe benefits that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the Recapitalization,recapitalization, offset by the salary and fringe benefit structure that was implemented with the Recapitalization. The related
party transactions' amounts were $7,740, $3,061, $3,847,recapitalization. During the year ended December 31, 1998, we reported discontinued operations and $4,215 foran extraordinary item.

(9)
During the yearsyear ended 1998, 1997, 1996, and 1995.
(b) As of December 31, 1999, the Companywe incurred $31,312 in fees and
expenses associated with the Recapitalization. Fees and expenses that
could be specifically identified as relating to the issuancean extraordinary loss from early extinguishment of debt, were capitalizednet of a $1.4 million income tax benefit, in the amount of $2.3 million. During the year ended December 31, 1998, we had income from a discontinued operation, net of tax, of $1.7 million.

(10)
EBITDA represents income from continuing operations before interest expense, net, income tax expense, depreciation and willamortization. We have included information concerning EBITDA as a measure of liquidity because we believe certain investors use it as one measure of historical ability to fund operations and meet financial obligations. However, EBITDA is not presented to represent cash flow from operations as defined by accounting principles generally accepted in the United States, nor does management recommend that it be amortized overused as an alternative to, or superior measure of, operating income or income from continuing operations as an indicator of our operating performance, cash flow as a measure of liquidity or our ability to repay our debt obligations. We have provided below a reconciliation of EBITDA to cash flows from operating activities since we deem that it is the lifemost directly comparable measure under generally accepted accounting
15
principles. In addition, our definition of EBITDA may not be comparable to that reported by other companies. EBITDA and the reconciliation to operating cash flows is as follows:
Years Ended December 31,
2002 2001 2000 1999 1998
Income (loss) from continuing operations $ 25,336 $ 6,726 $ 1,359 $ (9,272 ) $ 45,027
Interest expense, net 32,410 35,841 40,973 35,223 1,106
Income tax expense 3,438 2,167 134 4,257 992
Depreciation and amortization 10,240 4,918 5,261 4,715 3,838
EBITDA 71,424 49,652 47,727 34,923 50,963
Interest expense less amortization (29,130 ) (33,150 ) (38,553 ) (33,232 ) (1,106 )
Change in current assets and liabilities (4,436 ) 8,533 2,801 9,423 (1,250 )
Current income taxes — — — — (992 )
Non-cash reduction of capital lease — — (1,182 ) — —
Deferred compensation plan (grantor trust) — — — 2,700 —
Recapitalization fees charged to equity — — — 10,690 —
Operating cash flows from continuing operations $ 37,858 $ 25,035 $ 10,793 $ 24,504 $ 47,615
(11)
Depreciation and amortization for the year ended December 31, 2002 does not include amortization of goodwill in accordance with current accounting standards. Each of the debt as
interest expense. The fees and expenses that could be specifically
identified as relating to the equity transactions were charged directly
to equity. Other transaction fees were allocated between debt and
Recapitalization transaction fees expense based on United's estimate of
the effort spentyears in the activity giving rise to the fee or expense.
(c) During 1999, the Company recorded various charges as follows: (a)
change of control bonuses paid to certain members of senior management
amounting to $8,645; (b) $2,446 of severance charges incurred as a
result of the President and Chief Executive Officer and Senior Vice
President, Sales terminating their employment with the Company; and (c)
$1,500 of non-recurring litigation charges to primarily reserve for the
expected cost of an adverse judgement on a counterclaim filed by
defendants in the case of United Industries Corporation vs. John
Allman, Craig Jackman et al. This case was settled in July 1999. In
1998, the Company recorded non-recurring litigation charges of $2,321four-year period ended December 31, 2001 includes amortization expense related to two separate lawsuits. In March 1998, a judgment was entered
against us for a lawsuit filed by the spousegoodwill of a former employee
claiming benefits from a United-owned key man life insurance policy.
The Company recorded a charge of $1,200 for this case in the first
quarter of 1998 and an additional $147 in the fourth quarter of 1999.
The Company also incurred costs pertaining to certain litigation
concerning the advertising of the Company's Spectracide TerminateTM
product for which a settlement was negotiated. Costs related to this
case amounted to $1,121.
(2) less than $0.1 million.

(12)
Capital expenditures presented for 19952000 exclude $8,272the execution of expenditures related to
acquisitions. Capital expenditures for 1999 exclude a capital lease obligationfor $5.3 million. The execution of $9,215.
(3) such capital lease is considered a capital expenditure but is reflected in the supplemental noncash financing activities section in the accompanying consolidated statements of cash flows presented elsewhere in this Annual Report.

(13)
For purposes of this calculation, earnings are defined as income before provision for income taxes, discontinued operations and extraordinary itemtax expense plus fixed charges.charges less pre-tax income required to pay dividends on preferred stock. Fixed charges include interest expense on all indebtedness, (includingincluding amortization of deferred financing costs) andcosts, the portion of operating lease rental expense which management believes is representative of the interest factor of rent expense, (approximately one-
thirdapproximately 33% of total rent expense).
(4) expense, and pre-tax income required to pay dividends on preferred stock. For the year ended December 31, 1999, our earnings were insufficient to cover our fixed charges by $5.0 million.

(14)
Working capital is defined as current assets, (excludingexcluding cash and cash equivalents)equivalents, less current liabilities, (excludingexcluding short-term debtborrowings and current portionmaturities of long-term debt).

Itemdebt.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of OperationsMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of the Company'sour consolidated financial condition and results of operations included herein should be read in conjunction with theour historical financial information included in the audited financial statements and the related notes thereto elsewhere in this Annual Report. Future results could differ materially from those discussed below for many reasons, including the risks discussed in Exhibit 99.1 to this Annual Report and elsewhere in this Annual Report.
Overview
Doing business as Spectrum Brands, we are majority owned by UIC Holdings, L.L.C. and are the auditedleading manufacturer and marketer of value-oriented products for the consumer lawn and garden care and insect control markets in the United States. Under a variety of brand names, we manufacture and market one of the broadest lines in the industry. Our operations are divided into three business
16

segments: Lawn and Garden, Household and Contract. We believe that the key growth factors for the $2.8 billion consumer lawn and garden and pesticide retail markets include:
•
the aging of the United States population because consumers over the age of forty-five represent the largest segment of lawn and garden care product users and typically enjoy more leisure time and higher levels of discretionary income than the general population;

•
growth in the home improvement center and mass merchandiser channels; and

•
shifting consumer preferences toward value-oriented products.
We do not believe that our historical financial statements.

Results of Operations

The following discussion regardingcondition and results of operations refersare accurate indicators of future results because of certain significant past events. Those events include mergers, acquisitions, strategic transactions and equity and debt financing transactions over the last several years. Furthermore, our sales are seasonal in nature and are susceptible to net
sales, costweather conditions that vary from year to year.
Critical Accounting Policies
Our significant accounting policies are described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report. While all of goods sold, advertisingthe significant accounting policies are important to our consolidated financial statements, some of these policies may be viewed as being critical. Such policies are those that are both most important to the portrayal of our financial condition and promotion expenserequire our most difficult, subjective or complex estimates and sellingassumptions that affect the reported amounts of assets and generalliabilities and administrativedisclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses whichduring the Company definesreporting period. We base our estimates and assumptions on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates and assumptions. We believe our most critical accounting policies are as follows:

.
Revenue Recognition. Net sales arerepresent gross sales of products sold to customers upon shipment of
product less any applicable customer discounts from list price, and customer returns.

. Cost of goods sold includes chemicals, container and packaging material
costs as well as direct labor, outside labor, manufacturing overhead and
freight.

. Advertisingreturns and promotion expense through cooperative programs with retailers. The provision for customer returns is based on historical sales returns and analysis of credit memo and other relevant information. If the historical or other data used to develop these estimates do not properly reflect future returns, net sales may need to be adjusted. Sales reductions related to returns were $7.4 million in 2002, $6.5 million in 2001 and $7.6 million in 2000. Amounts included in the allowance for doubtful accounts were $2.0 million as of December 31, 2002 and $0.4 million as of December 31, 2001.
Inventories. Inventories are reported at the lower of cost or market. Cost is determined using a standard costing system that approximates the first-in, first-out method and includes raw materials, direct labor and overhead. An allowance for potentially obsolete or slow-moving inventory is recorded based on our analysis of inventory levels and future sales forecasts. In the costevent that our estimates of advertisingfuture usage and sales differ from actual results, the allowance for obsolete or slow-moving inventory may be adjusted. Amounts recorded for potentially obsolete or slow-moving inventory were $5.4 million in 2002, $2.7 million in 2001 and $0.3 million in 2000. The allowance for potentially obsolete or slow-moving inventory was $5.8 million as of December 31, 2002 and $2.7 million as of December 31, 2001.
Promotion Expense. We advertise and promote our products through national and regional media as well as the advertisingmedia. Products are also advertised and promotion of productspromoted through cooperative programs with retailers. Advertising and promotion costs are expensed as incurred, although costs incurred during interim periods are generally expensed ratably in relation to revenues. Management develops an estimate of the amount of costs that have been incurred by the retailers under our cooperative programs based on an analysis of
17

specific programs offered to retailers and historical information. Actual costs incurred may differ significantly from our estimates if factors such as the level of participation and success of the retailers' programs or other conditions differ from our expectations. Promotion expense, including cooperative programs with customers, is recorded as a reduction of sales and was $41.3 million in 2002, $24.4 million in 2001 and $22.8 million in 2000. Accrued advertising and promotion expense was $16.4 million as of December 31, 2002 and $12.1 million as of December 31, 2001. In addition, advertising costs are incurred irrespective of promotions. Such costs are included in selling, general and administrative expenses in our consolidated statements of operations and were $3.3 million in 2002, $1.3 million in 2001 and $2.4 million in 2000.
Income Taxes. Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled. The judgment of management is required to determine income tax expense, deferred tax assets and any related valuation allowance and deferred tax liabilities. We have recorded a valuation allowance of $104.1 million as of December 31, 2002 due to uncertainties related to the ability to utilize some of the deferred tax assets, primarily consisting of certain net operating loss carryforwards that were generated in 1999 through 2002 and deductible goodwill recorded in connection with our recapitalization in 1999. The valuation allowance is based on our estimates of future taxable income by jurisdiction in which the deferred tax assets will be recoverable.
As previously noted, we generated net operating losses for tax purposes for each of the years 1999 through 2002. Our current estimates indicate that we will generate taxable income for 2003. If we achieve such results, 2003 would be the first year that taxable income would be generated since our recapitalization in 1999. In addition, as our budgets for future years indicate that we will continue to generate taxable income, it is possible the valuation allowance will need to be reduced. Any adjustment to the valuation allowance could materially impact our consolidated financial position and results of operations. In addition, we currently anticipate that our effective tax rate beginning in 2003 will be 38%, absent any reduction of the valuation allowance previously described.
Goodwill and Other Intangible Assets. We have acquired intangible assets or made acquisitions in the past that resulted in the recording of goodwill or intangible assets, including our acquisition of certain fertilizer brands in December 2001, our merger with Schultz in May 2002 and our acquisition of WPC Brands in December 2002. Under generally accepted accounting principles previously in effect, goodwill and intangibles were amortized over their estimated useful lives, and were tested periodically to determine if they were recoverable from their cash flows on an undiscounted basis over their useful lives.
Effective in 2002, goodwill is no longer amortized and is subject to impairment testing at least annually. We evaluate the recoverability of long-lived assets, including goodwill and intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or changes in circumstances could include such factors as changes in technological advances, fluctuations in the fair value of such assets or adverse changes in relationships or vendors. If a review indicates that the carrying value of goodwill and other intangible assets are not recoverable, the carrying value of such asset is reduced to its estimated fair value. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our evaluations. Therefore, impairment losses could be recorded in the future.
18

Recent Acquisitions
Schultz Company. On May 9, 2002, one of our wholly owned subsidiaries completed a merger with and into Schultz, a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became a wholly owned subsidiary. The total purchase price included cash payments of $38.3 million, including related acquisition costs of $5.0 million, issuance of 600,000 shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of Class B nonvoting common stock valued at $3.0 million and the assumption of $20.6 million of outstanding debt which was repaid at closing. In exchange for cash, common stock and the assumption of debt, we received all of the outstanding shares of Schultz. We have preliminarily allocated 50% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($19.7 million) and 50% to goodwill ($19.7 million), which is not deductible for tax purposes. The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, we were required to write-up the value of inventory acquired from Schultz by $1.5 million to properly reflect its fair value.
This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, we believe that finalization of the allocation will not have a material impact on the consolidated results of operations or our financial position. Completion of the purchase price allocation is expected by the second quarter of 2003.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition (dollars in thousands):
Description
Amount
Current assets $ 40,856
Equipment and leasehold improvements 3,901
Intangible assets 20,632
Goodwill 19,744
Other assets 811
Total assets acquired 85,944

Current liabilities
19,857
Long-term debt 20,662
Other liabilities 1,125
Total liabilities 41,644
Net assets acquired $ 44,300
Our funding sources for the Schultz merger included an additional $35.0 million add-on to the Term Loan B of our senior credit facility, an additional $10.0 million add-on to the revolving credit facility, the issuance of 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and the issuance of 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million. The issuance of shares to UIC Holdings, L.L.C. was a condition precedent to
19

the amendment of the senior credit facility. The value of the shares issued was determined using $5 per share, the fair value of our common stock ascribed by an independent third party valuation.
WPC Brands, Inc. On December 6, 2002, one of our wholly owned subsidiaries completed the acquisition of WPC Brands, a manufacturer and distributor of various leisure-time consumer products, including a full line of insect repellents, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance our insect repellent product lines and to strengthen our presence at major customers. The total purchase price was $19.5 million in cash in exchange for all of the outstanding shares of WPC Brands. We have preliminarily allocated 75% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($9.7 million) and 25% to goodwill ($3.2 million). The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, we were required to write-up the value of inventory acquired from WPC Brands by $2.0 million to properly reflect its fair value.
This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, we believe that finalization of the allocation will not have a material impact on the consolidated results of operations or our financial position. Completion of the purchase price allocation is expected by the third quarter of 2003.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition (dollars in thousands):
Description
Amount
Current assets $ 7,987
Equipment and leasehold improvements 844
Intangible assets 11,294
Goodwill 3,222
Other assets 455
Total assets acquired 23,802

Current liabilities
3,286
Other liabilities 1,016
Total liabilities 4,302
Net assets acquired $ 19,500
Our funding source for the WPC Brands acquisition was a portion of the proceeds received from an additional $25.0 million add-on to the Term Loan B of our senior credit facility.
In addition, we are currently considering selling certain or all of the non-core product lines received in the acquisition of WPC Brands. Total assets represented by these product lines are approximately $1.6 million with annual net sales in 2002 of approximately $6.1 million.
Recent Strategic Transactions
Acquisition of Brands. On December 17, 2001, we advanced our strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green
20
and Bandini, as well as acquiring licensing rights to the Best® line of fertilizer products, for a cash purchase price of $37.5 million. The brands, which were formerly owned by or licensed to Pursell, complement our consumer lawn, garden and insect control products. In connection with financing this transaction, we issued 22,600 shares of preferred stock for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, and warrants to purchase 6,300,000 shares of common stock initially to UIC Holdings, L.L.C. for net cash proceeds of $22.0 million.
Strategic Relationship with Bayer. On June 14, 2002, we and Bayer consummated a strategic transaction. The strategic transaction allows us to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. In connection with the strategic transaction, Bayer acquired a minority ownership interest, approximately 9.3% of the issued and outstanding shares of our common stock, under the terms of an Exchange Agreement in exchange for promissory notes due to Bayer from Pursell and the execution of the Supply and In-Store Service Agreements.
We have the right to terminate the In-Store Service Agreement at any time without cause upon 60 days advance notice to Bayer. Following any such termination, we would have 365 days to exercise an option to repurchase all of our stock issued to Bayer. We could repurchase the stock at a price based on equations contained in the Exchange Agreement designed to represent in part the fair market value of the shares at the time such repurchase option is exercised and in part the original cost of such stock. In the event we exercise this repurchase option, Bayer would have the right to terminate the Supply Agreement. Because Bayer is both a competitor and a supplier, we are constantly reevaluating our relationship with Bayer and the value of this relationship to us, and may decide to terminate the In-Store Service Agreement and exercise our repurchase option at any time.
In consideration for the Supply and In-Store Service Agreements, and in exchange for the promissory notes of Pursell, we issued to Bayer 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs. We reserved for the entire face value of the promissory notes due to Bayer from Pursell as we did not believe they were collectible and an independent third party valuation did not ascribe any value to them.
Based on the independent third party valuation, we assigned a fair value of $30.7 million on June 14, 2002 to the transaction components recorded relative to the common stock issued to Bayer as follows:
Description
Amount
Common stock subscription receivable $ 27,321
Supply Agreement 5,694
Repurchase option 2,636
In-Store Services Agreement (4,931 )
$ 30,720
Under the requirements of the agreements, Bayer will make payments to us which total $5.0 million annually through June 15, 2009, the present value of which equals the value assigned to the common stock subscription receivable, which is reflected in the equity section in our accompanying consolidated balance sheet as of December 31, 2002. The common stock subscription receivable will be repaid in 28 quarterly installments of $1.25 million, the first of which was received at closing on June 17, 2002. The difference between the value ascribed to the common stock subscription receivable and the installment payments will be reflected as interest income in our consolidated statements of operations through June 15, 2009.
21

Bayer has the right to put the shares received back to us under the terms of the Exchange Agreement. Bayer can terminate the Exchange Agreement within the first 36 months if we fail to meet certain performance guidelines as established in the In-Store Service Agreement. In conjunction with the termination, Bayer can put the shares received back to us within 30 days of the termination of the Exchange Agreement at a price provided for in the Exchange Agreement. We believe that the put price per share would represent in part the fair market value of the shares at the time such put option is exercised and in part the original cost of such shares.
The value of the Supply Agreement and the liability associated with the In-Store Service Agreement are being amortized over the period in which economic benefits under the Supply Agreement are utilized and the obligations under the In-Store Service Agreement are fulfilled. We are amortizing the asset associated with the Supply Agreement to cost of goods sold and currently anticipate the benefit will be recognized over a three to five-year period. We are amortizing the obligation associated with the In-Store Service Agreement to revenues over the seven-year life of the agreement. In December 2002, we and Bayer amended the In-Store Service Agreement to reduce the scope of services provided by approximately 80%. As a result, we reduced our obligation under the agreement accordingly and reclassified $3.6 million to additional paid-in capital to reflect the increase in value of the original agreement.
The independent third party valuation obtained by us also indicated that value should be ascribed to the repurchase option we have under the agreements. The repurchase option is reflected as a reduction of equity in the accompanying consolidated balance sheet as of December 31, 2002. This amount will be recorded as a component of additional paid-in capital upon exercise or expiration of the option.
Pursell Transaction. In October 2002, we purchased certain assets from Pursell, which renamed itself U.S. Fertilizer subsequent to the agreement, for a cash purchase price of $12.1 million and forgiveness of the Pursell promissory notes previously obtained from Bayer, as described above. The assets acquired included certain inventory, equipment at two of Pursell's facilities and real estate at one of the two facilities. These facilities, located in Orrville, Ohio and Sylacauga, Alabama, previously fulfilled, and are expected to continue to fulfill, over half of our fertilizer manufacturing requirements.
Also in October 2002, we signed a tolling agreement with Pursell, whereby Pursell will supply us with fertilizer. The tolling agreement requires us to be responsible for all raw materials, certain capital expenditures and other related costs for Pursell to manufacture and supply us with fertilizer products. The agreement does not require a minimum volume purchase from Pursell, but does provide for a fixed monthly payment of $0.7 million through the term of the tolling agreement, which expires on September 30, 2007. The fixed monthly payment of $0.7 million through the term of the tolling agreement is included in our standard inventory costs and is not expensed monthly as a period cost. In addition, beginning on March 1, 2004 and on each anniversary thereafter, the fixed payment is subject to certain increases for labor, materials, inflation and other reasonable costs as outlined in the tolling agreement. The agreement provides us with certain termination rights without penalty upon a breach of the agreement by Pursell or upon our payment of certain amounts as set forth therein. As a result of our purchase of the Ohio plant and lease of the Sylacauga facility, we expect to be able to produce over one half of our fertilizer requirements. We expect that as a result of manufacturing our fertilizer our cost of goods sold will decrease although the decrease will be partially offset by an increase in selling, general and administrative expenses resulting from operation of these facilities.
22

Results of Operations
The following table presents amounts and the percentages of net sales that items in the accompanying consolidated statements of operations constitute for the periods presented:
Year Ended December 31,
2002 2001 2000
(dollars in thousands)

Net sales by segment:
Lawn and Garden $ 352,269 73.4 % $ 169,267 61.9 % $ 177,981 67.0 %
Household 108,752 22.7 % 101,186 37.0 % 82,018 30.9 %
Contract 18,969 4.0 % 2,891 1.1 % 5,795 2.1 %
Total net sales 479,990 100.0 % 273,344 100.0 % 265,794 100.0 %
Operating costs and expenses:
Cost of goods sold 305,644 63.7 % 148,371 54.3 % 146,229 55.0 %
Selling, general and administrative
expenses 113,162 23.6 % 74,689 27.3 % 69,099 26.0 %
Facilities and organizational rationalization — 0.0 % 5,550 2.0 % — 0.0 %
Dursban related expenses — 0.0 % — 0.0 % 8,000 3.0 %
Total operating costs and expenses 418,806 87.3 % 228,610 83.6 % 223,328 84.0 %
Operating income (loss) by segment:
Lawn and Garden 38,064 7.9 % 24,637 9.0 % 24,309 9.1 %
Household 23,159 4.8 % 20,280 7.3 % 17,814 6.7 %
Contract (39 ) 0.0 % (183 ) -0.1 % 343 0.2 %
Total operating income 61,184 12.7 % 44,734 16.4 % 42,466 16.0 %
Interest expense, net 32,410 6.8 % 35,841 13.1 % 40,973 15.4 %
Income before income tax expense 28,774 5.9 % 8,893 3.3 % 1,493 0.6 %
Income tax expense 3,438 0.7 % 2,167 0.8 % 134 0.1 %
Net income $ 25,336 5.2 % $ 6,726 2.5 % $ 1,359 0.5 %
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Net Sales. Net sales represent gross sales less any applicable customer discounts from list price, customer returns and promotion expense through cooperative programs with retailers. Net sales increased $206.7 million, or 75.6%, to $480.0 million for the year ended December 31, 2002 from $273.3 million for the year ended December 31, 2001. The increase, primarily in our Lawn and Garden segment, as well as the change in our sales mix by segment, were due mainly to our expanded product lines resulting from our acquisition of various fertilizer brands and our merger with Schultz in May 2002, coupled with an increase in sales of specific product lines described further below. This increase was partially offset by an increase in promotion expense and retailers maintaining lower inventory levels.
Net sales in the Lawn and Garden segment increased $183.0 million, or 108.0%, to $352.3 million for the year ended December 31, 2002 from $169.3 million for the year ended December 31, 2001. Net sales of this segment increased $137.4 million as a result of our acquisition of various fertilizer brands and $28.7 million as a result of our merger with Schultz. These increases were partially offset by lower sales volume of various other products in the Lawn and Garden segment. Net sales in the Household segment increased $7.6 million, or 7.5%, to $108.8 million for the year ended December 31, 2002 from $101.2 million for the year ended December 31, 2001. Net sales of this segment increased primarily due to increases in sales of our repellents and insecticides and in our private label products. Net sales in
23

the Contract segment increased $16.1 million to $19.0 million for the year ended December 31, 2002 from $2.9 million for the year ended December 31, 2001. Net sales of this segment increased primarily due to our merger with Schultz.
Gross Profit. Gross profit increased $49.3 million, or 39.4%, to $174.3 million for the year ended December 31, 2002 from $125.0 million for the year ended December 31, 2001. The increase in gross profit was primarily due to our acquisition of various fertilizer brands and our merger with Schultz, coupled with favorable materials costs of key ingredients. The increase in gross profit was partially offset by the recognition of a $1.5 million purchase accounting inventory write-up in cost of goods sold related to the merger with Schultz. As a percentage of net sales, gross profit decreased to 36.3% for the year ended December 31, 2002 from 45.7% for the year ended December 31, 2001. The decrease in gross profit as a percentage of net sales was primarily due to our acquisition of various fertilizer brands and our merger with Schultz, which both have lower margins than our other products. Gross profit as a percentage of sales is expected to improve in 2003 as we continue to achieve operational and financial efficiencies resulting from our acquisitions and other strategic transactions in 2002.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include all costs associated with the selling and distribution of product, product registrations and administrative functions such as finance, information systems and human resources. Selling, general and administrative expenses increased $38.5 million, or 51.5%, to $113.2 million for the year ended December 31, 2002 from $74.7 million for the year ended December 31, 2001. The following table sets forthincrease was primarily due to our acquisition of various fertilizer brands and our merger with Schultz. As a percentage of net sales, selling, general and administrative expenses decreased to 23.6% for the year ended December 31, 2002 from 27.3% for the year ended December 31, 2001. The decrease was primarily due to additional sales related to our acquisition of various fertilizer brands and our merger with Schultz, with a lesser corresponding increase in selling, general and administrative expenses.
Operating Income. Operating income increased $16.5 million, or 36.9%, to $61.2 million for the year ended December 31, 2002 from $44.7 million for the year ended December 31, 2001. The increase was due to the factors described above. As a percentage relationship of certain itemsnet sales, operating income decreased to 12.7% for the year ended December 31, 2002 from 16.4% for the year ended December 31, 2001. The decrease was primarily in our Lawn and Garden segment due to lower margins on the products we acquired in our merger with Schultz and our acquisition of various fertilizer brands.
Operating income in the Company'sLawn and Garden segment increased $13.5 million, or 54.9%, to $38.1 million for the year ended December 31, 2002 from $24.6 million for the year ended December 31, 2001. Operating income statementof this segment increased primarily due to our acquisition of various fertilizer brands and strong growth in our Spectracide brand. These increases were partially offset by lower sales volume and margins of various other products. Operating income in the Household segment increased $2.9 million, or 14.3%, to $23.2 million for the year ended December 31, 2002 from $20.3 million for the year ended December 31, 2001. Operating income of this segment increased primarily due to increases in sales of our Cutter and Hot Shot brands and in our private label products. Operating loss in the Contract segment decreased $0.2 million for the year ended December 31, 2002 from $0.2 million for the year ended December 31, 2001. Operating loss of this segment decreased primarily due to sales of new products acquired in our merger with Schultz.
Interest Expense, Net. Interest expense, net, salesdecreased $3.4 million, or 9.5%, to $32.4 million for 1999, 1998the year ended December 31, 2002 from $35.8 million for the year ended December 31, 2001. The decrease in net interest expense was due to a decline in our average variable borrowing rate of 1.68 percentage points to 7.71% for the year ended December 31, 2002 from 9.39% for the year ended December 31, 2001, resulting primarily from the effects of two unfavorable interest rate swaps terminated in 2002 and 1997:

Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------

Net sales:
Value brands................................ 80.0% 82.3% 81.4%
Opening price point brands.................. 20.0 17.7 18.6
------- ------- -------
Total net sales............................... 100.0 100.0 100.0
Operating costs and expenses:
Cost of goods sold.......................... 49.4 49.7 52.8
Advertising and promotion expenses.......... 9.6 11.2 10.5
Selling, general and administrative
expenses................................... 23.3 21.6 21.5
Recapitalization transaction fees........... 3.5 -- --
Change of control bonuses................... 2.8 -- --
Severance charges........................... 0.8 -- --
Non-recurring litigation charges............ 0.6 0.8 --
------- ------- -------
Total operating costs and expenses............ 90.0 83.3 84.8
------- ------- -------
Operating income.............................. 10.0 16.7 15.2
Interest expense.............................. 11.6 0.4 0.5
------- ------- -------
(Loss) income before provision for income
taxes, discontinued operations and
extraordinary item........................... (1.6) 16.3 14.7
Income tax expense............................ 1.4 0.4 0.3
------- ------- -------
(Loss) income from continuing operations,
before extraordinary item.................... (3.0) 15.9 14.4
======= ======= =======

FISCAL 1999 COMPARED TO FISCAL 1998a general decline in variable borrowing rates. This decrease was also due to interest income recognized on payments received on the common stock subscription receivable from
24

Bayer, coupled with an increase in our average cash balances available for investment during 2002. These decreases were partially offset by an increase in our average debt outstanding during 2002, which resulted from additional borrowings under our senior credit facility to increase liquidity in February 2002, finance our merger with Schultz and finance the acquisition of WPC Brands.
Income Tax Expense. For the year ended December 31, 2002, our effective income tax rate was 11.9%. This rate is lower than our statutory rate for federal taxes and state taxes, net of federal benefit, of 38.0% because it reflects our estimated utilization of our goodwill deduction in 2002. The goodwill deduction is related to the step up in tax basis that occurred in conjunction with our recapitalization in 1999.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Sales. Net sales increased 7.5%$7.5 million, or 2.8%, to $304.0$273.3 million for 1999the year ended December 31, 2001 from $282.7$265.8 million for 1998.the year ended December 31, 2000. This increase was driven by a combination of offsetting factors including:

.including the continued shiftincrease in demand for insect repellent, increased sales of consumers' preferences toward valueSpectracide Terminate, increased sales in the hardware channel, decreased sales related to the loss of Kgro private label business for 2001 and opening
price point brands;

.decreased sales related to products that contain chlorpyrifos.
Net sales in the Lawn and Garden segment decreased $8.7 million, or 4.9%, to $169.3 million for the year ended December 31, 2001 from $178.0 million for the year ended December 31, 2000. Net sales of this segment decreased primarily due to lost sales of products that contained chlorpyrifos. During 2000, the U.S. EPA and manufacturers of the active ingredient chlorpyrifos, including Dow AgroSciences L.L.C. which sold the chlorphyrifos under the trademark "Dursban," entered into a voluntary agreement that provided for the withdrawal of virtually all residential uses of Dursban. These decreases were partially offset by increased sales of various other products in the Lawn and Garden segment. Net sales in the Household segment increased $19.2 million, or 23.4%, to $101.2 million for the year ended December 31, 2001 from $82.0 million for the year ended December 31, 2000. Net sales of this segment increased primarily due to increased demand for insect repellents by $11.0 million due to weather conditions and the introduction of Spectracide Pro(R); and

. expanded distribution at home improvement centers and mass merchandisers
duenew products. Net sales in the Contract segment decreased $2.9 million to continued store expansion.$2.9 million for the year ended December 31, 2001 from $5.8 million for the year ended December 31, 2000. Net sales of the Company's value brands increased 4.6%this segment decreased primarily due to $243.3 million
for 1999 from $232.6 million for 1998. This increase was a result of continued
growth of core value brands including Spectracide(R), Bag-a-Bug(R) and
Cutter(R). Netchanges in sales of opening price point brands increased 21.2% to $60.7
million for 1999 from $50.1 million for 1998 driven by the continued rapid
pace of store openings by the Company's top retail customers. The net sales
growth described above was primarily driven by sales volume. Selling price
changes did not have a material impact on 1999 net sales growth. The 1999
trend of opening price point brands growing at a greater percentage rate than
value brands will continue in 2000, as some branded SKU's previously sold to
Home Depot have been deleted or have been converted to our opening price point
brand at Home Depot.mix.
Gross Profit. Gross profit increased 8.1%$5.4 million, or 4.5%, to $153.7$125.0 million for 1999the year ended December 31, 2001 compared to $142.2$119.6 million for 1998. As a percentage of sales, gross profit
increased slightly to 50.6% for 1999 as compared to 50.3% for 1998. In March
1999,

9
the Company recorded a charge of $1.1 million to cost of goods sold for the
write-off of the Company's "Citri-Glow" candle inventory. The Company
discontinued the production of this product line during 1999 and chose to
dispose of the inventory by selling it through discount channels at prices
below cost. If this charge had not been recorded, gross profit for 1999 would
have been 50.9% of sales and would have increased 8.9% to $154.8 million as
compared to $142.2 million for 1998. The 1999 gross profit trend should
continue intoyear ended December 31, 2000.

Advertising and Promotion Expenses. Advertising and promotion expenses
decreased 7.9% to $29.2 million for 1999 compared to $31.7 million for 1998. As a percentage of net sales, advertising and promotion expenses decreased
9.6%gross profit increased to 45.7% as compared to 45.0% for 1999 from 11.2% for 1998. Advertising and promotion expenses
decreasedthe year ended December 31, 2000. The increase in gross profit as a percentage of net sales growth since mostwas the result of a change in sales mix to value brands, which are higher margin products, and was partially offset by a $2.7 million inventory rationalization charge recorded during the Company's
first, second and thirdfourth quarter 1999 growth was due to store expansion by home
improvement centers. For 1999, the Company recorded a charge of $.9 million
related to deductions taken by customers for advertising and promotional
spending in excess of contractual obligations for which the Company elected
not to pursue collection. This charge has been included in advertising and
promotion expense for 1999. If this charge had not been recorded in 1999,
advertising and promotional expenses would have decreased 10.7% to $28.3 as
compared to $31.7 million for 1998. As a percentage of sales, advertising and
promotional expenses would have decreased to 9.3% for 1999 from 11.2% for
1998.2001.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 16.0%$5.6 million, or 8.1%, to $70.9$74.7 million for 1999the year ended December 31, 2001 from $61.1$69.1 million for 1998.the year ended December 30, 2000. As a percentage of net sales, selling, general and administrative expenses increased to 23.3%27.3% for 1999the year ended December 31, 2001 from 21.6%26.0% for 1998.the year ended December 30, 2000. The overall increase is attributed to increased advertising spending to support the value brands, along with additional spending for in-store sales and support in home centers. Prior year selling, general and administrative expenses wasalso reflect a cost reduction due to the impact of terminating a capital lease.
Facilities and Organizational Rationalization. During the fourth quarter of 2001, we recorded a non-recurring charge of $5.6 million. The components of the charge included severance cost of
25

$2.1 million related to higher selling, marketingan early voluntary retirement program for 85 employees, a $3.5 million charge attributed to facility exit costs for warehouse and distribution costs to support the growthoffice consolidation and a $2.7 million charge for inventory rationalization which was recorded in sales. The Company is continuing to seek ways to reduce costs.

Recapitalization Transaction Fees. Ascost of December 31, 1999, the Companygoods sold. There were no similar charges recorded $31.3 million in fees and expenses associated with the
Recapitalization. Fees and expenses that could be specifically identified as
relating to the issuance of debt were capitalized and will be amortized over
the life of the debt as interest expense. The fees and expenses that could be
specifically identified as relating to the equity transactions were charged
directly to equity. Other transaction fees were allocated between debt and
recapitalization transaction fees expense based on the Company's estimate of
the effort spent in the activity giving rise to the fee or expense. For 1999,
the Companyduring 2000.
Dursban Related Expenses. During 2000, we recorded a non-recurring charge of $10.7$8.0 million, for Recapitalization
transaction fees.

Change of Control Bonuses. During 1999, the Company recorded charges for
change of control bonuses paid to some members of senior management amounting
to $8.6 million,including customer markdowns, inventory write-offs and related disposal costs which were contractually requiredprimarily affected our Lawn and Garden segment results, as a result of the Recapitalization.

Severance Charges. During 1999,voluntary agreement between the Company recorded severance chargesU.S. EPA and manufacturers of $2.4 million as a resultDursban to discontinue inclusion of the Company's President and Chief Executive
Officer and Senior Vice President, Sales terminating their employment with the
Company.

Non-recurring Litigation Charges. The Company recorded non-recurring
litigation charges of $1.6 million for 1999 and $2.3 million for 1998. In
March 1999, the Company took a charge of $1.5 million to primarily reserve for
the expected cost of an adverse judgment on a counterclaim filed by defendantsactive chemical in the case of United Industries Corporation vs. John Allman, Craig Jackman et
al., pending in the U.S. District Court in Detroit, Michigan; Case No. 97-
76147. The Company alleged that defendants breached contracts by failing to
perform various services. Defendants counterclaimed for sales commissions
allegedly earned by them but not paid to them by the Company. On July 29,
1999, the Company paid $900 in liquidating damages and $112 in past
commissions. The remaining amounts accrued in connection with the $1,500
chargeour products. There were primarily be used to cover legal cost associated with this case.

Charges recorded as of December 31, 1998 of $2.3 million were related to
two separate lawsuits. During 1998, the Company incurred $1.1 million in
settlement costs pertaining to certain litigation concerning the advertising
of the Company's Spectracide Terminate(TM) product. In 1992, the spouse of a
former employee filed suit against the Company claiming benefits from a
Company-owned key man life insurance policy. On December 1, 1999, after the
Missouri Supreme Court further reviewed the trial courts decision, the Company
paid $1.3 million in settlement of this case including legal costs of $.1
million. Settlement and legal costs in excess of the original charge of $1.2
million recorded in 1998 were charged to non-recurring litigation charges in
the fourth quarter of 1999.

Several of the Company's debt covenants are based upon EBITDA. EBITDA for
1999 was $58.4 million, which excludesno similar charges recorded for Recapitalization
transaction fees, change of control bonuses, a severance charge and non-
recurring litigation charges. If the Company had excluded the $1.1 million
write-off of the Company's "Citri-Glow" candle inventory and the $.9 million
charge related to advertising deductions taken by customers in excess of
contractual obligations, EBITDA would have been $60.4 million for 1999.during 2001.
Operating Income. Operating income decreased 35.9% to $30.2 million for
1999 from $47.1 million for 1998. As a percentage of net sales, operating
income decreased to 9.9% for 1999 from 16.7% for 1998, primarily as a result
of the factors discussed above.

Income tax expense. In conjunction with the Recapitalization, the Company
converted from an "S" corporation to a "C" corporation. The one-time impact of
this conversion was $2.1 million. The Company's effective income tax rate
reflects the one time impact of the conversion from an "S" corporation to a
"C" corporation, offset by the estimated fiscal year 1999 benefit related to
the step up in tax basis in conjunction with the Recapitalization.

FISCAL 1998 COMPARED TO FISCAL 1997

Net Sales. Net sales increased 16.5% to $282.7 million in 1998 from $242.6
million in 1997. This increase was driven by a combination of factors
including:

. the continued shift of consumers' preferences toward value and opening
price point brands;

. the introduction of Spectracide Terminate(TM); and

. expanded distribution at home improvement centers and mass merchandisers
through increased shelf space and rapid store expansion.

Net sales of the Company's value brands increased 17.8% to $232.6 million
in 1998 from $197.5 million in 1997. This increase was a result of continued
growth of core value brands including Spectracide(R), Hot Shot(R) and
Peters(R), and the introduction of Spectracide Terminate(TM). Net sales of
opening price point brands increased 11.1% to $50.1 million in 1998 from $45.1
million in 1997 driven by the continued rapid pace of store openings by the
Company's top retail customers. Net sales of other brands decreased 11.4% to
$16.0 million in 1998 from $18.1 million in 1997 due to the Company's effort
to shift away from other brands with reduced margins. The net sales growth
described above was primarily driven by sales volume. Selling Price changes
did not have a material impact on 1998 net sales growth.

Gross Profit. Gross profit increased 24.2% to $142.2 million in 1998
compared to $114.6 million in 1997. As a percentage of net sales, gross profit
increased to 50.3% in 1998 compared to 47.2% in 1997. The improvement in gross
profit as a percentage of net sales was a result of a more profitable sales
mix, mainly attributable to the introduction of Spectracide Terminate(TM), and
volume efficiencies.

Advertising and Promotion Expenses. Advertising and promotion expenses
increased 24.2% to $31.7 million in 1998 from $25.5 million in 1997. As a
percentage of net sales, advertising and promotion expenses increased to 11.2%
in 1998 from 10.5% in 1997. The overall increase in advertising and promotion
expenses was primarily related to the launch of Spectracide Terminate(TM).

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.2% to $61.1 million in 1998 from $52.1
million in 1997. As a percentage of net sales, selling, general and
administrative expenses increased slightly to 21.6% in 1998 from 21.5% in
1997. The overall increase in selling, general and administrative expenses was
related to higher selling, marketing and distribution costs to support the
launch of Spectracide Terminate(TM) and the rapid growth in sales, as well as
higher related party expenses.

Non-recurring Litigation Charges. Non-recurring litigation charges totalled
$2.3 million in 1998 and were related to two separate lawsuits. In March 1998,
a judgment was entered against United for a lawsuit filed in 1992 by the
spouse of a former employee claiming benefits from a company-owned key man
life insurance policy. The Company recorded a charge of $1.2 million for this
case in the first quarter of 1998. In October 1998, the FTC and several state
attorneys general filed a lawsuit concerning the advertising of the Company's
Spectracide Terminate(TM) product. The

FTC and attorneys general alleged that deceptive and unsubstantiated claims
were made regarding this product. In February 1999, a settlement agreement
with the FTC was negotiated. The settlement reached includes an agreement that
the advertising for this product be modified and the other parties be
reimbursed for certain costs incurred. The settlement also confirmed the
Company denial of liability and wrongdoing in the matter. Total charges of
$1.1 million included $0.4 million paid to 10 states attorneys general for
reimbursement of their legal expenses and $0.7 million for legal expenses
incurred for the Company's defense.

Operating Income. Operating income increased 27.7%$2.2 million, or 5.2%, to $47.1$44.7 million in 1998for the year ended December 31, 2001 from $36.9$42.5 million in 1997.for the year ended December 31, 2000. As a percentage of net sales, operating income increased to 16.7%16.4% for the year ended December 31, 2001 from 16.0% for the year ended December 31, 2000. The increase was due to the factors described above.
Operating income in 1998the Lawn and Garden segment increased $0.3 million, or 1.2%, to $24.6 million for the year ended December 31, 2001 from 15.2%$24.3 million for the year ended December 31, 2000. Operating income of this segment increased primarily due to increased sales of Spectracide Terminate and increases in 1997 as a resultsales of improved gross
margins as discussed above.

various other products in the Lawn and Garden segment, partially offset by lost sales of products that contained chlorpyrifos. Operating income in the Household segment increased $2.5 million, or 15.3%, to $20.3 million for the year ended December 31, 2001 from $17.8 million for the year ended December 31, 2000. Operating income of this segment increased primarily due to increased sales of insect repellents. Operating income in the Contract segment decreased $0.5 million to an operating loss of $0.2 million for the year ended December 31, 2001 from operating income of $0.3 million for the year ended December 31, 2000. Operating income of this segment decreased primarily due to changes in sales mix.
Income Tax Expense. For the year ended December 31, 2001, our effective income tax rate was 24.4%. This rate is lower than our statutory rate for federal taxes and state taxes, net of federal benefit, of 38% because it reflects our estimated utilization of our goodwill deduction in 2001. The goodwill deduction is related to the step up in tax basis that occurred in conjunction with our recapitalization in 1999.
Liquidity and Capital Resources
Our principal liquidity requirements are for working capital, capital expenditures and debt service under the senior credit facility and the senior subordinated notes.
Operating Activities. Operating activities provided cash of $37.9 million during the year ended December 31, 2002 compared to $25.0 million for the year ended December 31, 2001. The increase in cash provided by operations was primarily due to increased profitability, offset by increased inventories of $19.9 million in the year ended December 31, 2002 compared to the year ended December 31, 2001. This increase was partially offset by an increase in our allowance for doubtful accounts of $2.1 million and an increase in our allowance for potentially obsolete and slow-moving inventory of $3.1 million during the year ended December 31, 2002. The seasonal nature of our operations generally requires cash to fund significant increases in working capital, primarily accounts receivable and inventories, during the first half of the year. Accounts receivable and accounts payable also build substantially in the first half of the year in line with increasing sales as the season begins. These balances liquidate over the latter part of the second half of the year as the lawn and garden season winds down. Net of effects from acquisitions, changes in current operating assets resulted in a decline in cash flows from operating activities of $7.2 million compared to 2001. Net of effects from acquisitions, changes in current operating liabilities resulted in a decline in cash flows from operating activities of $20.8 million
26

compared to 2001. Operating activities in 2001 provided $14.2 million more cash than in 2000, primarily due to a $13.1 million net increase in current operating liabilities in 2001 over 2000, net of effects from acquisitions.
Charge for Facilities, Product Line and Organizational Rationalization. During the fourth quarter of 2001, we recorded an $8.5 million charge related to facilities, product line and organizational rationalization, which primarily affected our Lawn and Garden segment results. The components of the charge included $2.7 million for obsolete inventory primarily related to the discontinuance of our Spectracide Pro® product line and damaged product from the warehouse consolidation and move, which was recorded in costs of goods sold, $2.1 million for severance costs associated with an early voluntary retirement program that was offered to 85 employees during December 2001, a $3.5 million charge during the fourth quarter of 2001 related to the warehouse consolidation project, primarily attributable to facility exit costs and resultant duplicate rent payments in 2002 and $0.2 million was recorded in selling, general and administrative expenses. Approximately $3.1 million of this charge affected cash flows from operating activities during 2001 and $3.5 million affected cash flows from operating activities during 2002. The consolidation resulted in cost savings of approximately $1.8 million in 2002 with a return on investment expected by 2004.
Dursban Agreement. During the year ended December 31, 2000, the U.S. EPA and manufacturers of the active ingredient chlorpyrifos, including Dow AgroSciences L.L.C. which sold the chlorphyrifos under the trademark "Dursban," entered into a voluntary agreement that provided for withdrawal of virtually all residential uses of Dursban in pesticide products. Formulation of Dursban products intended for residential use ceased by December 1, 2000 and formulators discontinued the sale of such products to retailers after February 1, 2001. Retailers were not allowed to sell Dursban products after December 31, 2001. Accordingly, a charge of $8.0 million was recorded in September 2000 for costs associated with this agreement, including customer markdowns, inventory write-offs and related disposal costs, which primarily affected our Lawn and Garden segment results. All of our costs associated with this agreement were incurred by December 31, 2002. Approximately $1.9 million of this charge affected cash flows from operating activities during 2000, $6.0 million affected cash flows from operating activities during 2001, and $0.1 million affected cash flows from operating activities during 2002.
Investing Activities. Investing activities used cash of $68.3 million during the year ended December 31, 2002 compared to $45.4 million for the year ended December 31, 2001. The increase in cash used in investing activities was primarily the result of an increase in strategic transactions during 2002 compared to 2001. Cash flows associated with these transactions included the merger with Schultz for $38.3 million in May 2002 and the acquisition of WPC Brands for $19.5 million in December 2002. The purchase of fertilizer brands for $37.5 million was the only significant strategic transaction completed during 2001. Also contributing to the increase in cash used for investing activities was an increase of $2.5 million in purchases of equipment and leasehold improvements during the year ended December 31, 2002 compared to the year ended December 31, 2001. Investing activities in 2001 used $41.4 million more cash than in 2000, primarily due to payments for the purchase of fertilizer brands for $37.5 million in 2001 and an increase in purchases of equipment and leasehold improvements of $3.9 million in 2001 over 2000.
Financing Activities. Financing activities provided cash of $40.7 million during the year ended December 31, 2002 compared to $20.4 million for the year ended December 31, 2001. The increase in cash from financing activities was primarily due to borrowings of $90.0 million under Term Loan B of our senior credit facility during 2002 and proceeds from the issuance of common stock of $17.5 million, partially offset by repayments on borrowings of $59.0 million exclusive of cash overdrafts. A portion of the borrowings and the net proceeds of the issuance of common stock were used to finance a portion of the merger with Schultz and the acquisition of WPC Brands. Financing activities in 2001 provided $27.2 million more cash than in 2000, primarily due to an increase in the proceeds from the issuance of
27

preferred stock of $7.0 million in 2001 over 2000, the decrease of repayments on borrowings exclusive of cash overdrafts of $15.9 million in 2001 over 2000 and the absence of treasury stock redemption costs in 2001 which were $12.2 million in 2000.
Historically, the Company haswe have utilized internally generated funds and borrowings under credit facilities to meet ongoing working capital and capital expenditure requirements. As a result of the Recapitalization, the Companyour recapitalization in 1999 and increased borrowings, we have significantly increased cash requirements for debt service relating to the
Company'sour senior subordinated notes and Senior Credit Facility. Assenior credit facility. We had total long-term debt and capital lease obligations outstanding of $404.9 million as of December 31, 1999, the
Company had total debt outstanding of $369.3 million. As2002 and $351.8 million as of December 31, 1998,
on a pro forma basis, the Company would have had long-term debt outstanding of
approximately $375.0 million and up to $110.0 million available under the
Company's Revolving Credit Facility. The Company2001. We will rely on internally generated funds and, to the extent necessary, borrowings under the Company's
Revolving Credit Facilityour revolving credit facility to meet liquidity needs. As of December 31, 2002, we had unused availability of $90.0 million under our revolving credit facility.
We believe that cash flows from operations, together with available borrowings under our revolving credit facility, will be adequate to meet the anticipated requirements for working capital, capital expenditures and scheduled principal and interest payments for at least the next two years. We are regularly engaged in acquisition discussions with a number of companies, although we have no definitive agreements at this time. We cannot guarantee that any acquisitions will be consummated. If we do consummate any acquisitions it could be material to our business and require us to incur additional debt under our revolving credit facility or otherwise.
We cannot ensure that sufficient cash flow will be generated from operations to repay the notes and amounts outstanding under the senior credit facility at maturity without requiring additional financing. Our ability to meet debt service and clean-down obligations and reduce debt will be dependent on our future performance, which in turn, will be subject to general economic and weather conditions and to financial, business and other factors, including factors beyond our control. Because a portion of our debt bears interest at floating rates, our financial condition is and will continue to be affected by changes in prevailing interest rates.
Capital Expenditures
Capital expenditures relate primarily to the enhancement of our existing facilities and the construction of additional capacity for production and distribution, as well as the implementation of our enterprise resource planning, or ERP, system. Cash used for capital expenditures was $10.5 million in 2002, $7.9 million in 2001 and $4.0 million in 2000. The Company'sincrease in 2002 capital expenditures from 2001 is primarily related to our purchase of fertilizer manufacturing equipment from Pursell in October 2002, coupled with expenditures related to our ERP system. We expect to spend approximately $4.0 million in 2003 on our ERP system. No costs were incurred for the ERP system during 2000. During the year ended December 31, 2000, we executed a capital lease agreement for the lease of our corporate aircraft for $5.3 million.
Financing Activities
Senior Credit FacilityFacility. Our senior credit facility, as amended as of December 6, 2002, was provided by Bank of America, N.A. (formerly known as NationsBank, N.A.), Morgan Stanley Senior Funding, Inc. and Canadian Imperial Bank of Commerce and consists of:

of (1) a $90.0 million revolving credit facility; (2) a $75.0 million term loan facility (Term Loan A); and (3) a $240.0 million term loan facility (Term Loan B). The $110.0 million Revolving Credit Facility, under which no borrowings
were outstanding at the closing of the Recapitalization and at December
31, 1999;

. The $75.0 million Term Loan A ($62.5 million outstanding at December 31,
1999); and

. The $150.0 million Term Loan B ($148.1 million outstanding at December
31, 1999).

The Company's Revolving Credit Facilityrevolving credit facility and Term Loan A maturesmature on January 20, 2005 and Term Loan B matures on January 20, 2006. As of December 31,
1999, the Company had $210.6 million outstanding under the Senior Credit
Facility. The Revolving Credit Facilityrevolving credit facility is subject to a clean-down period during which the aggregate amount outstanding under the revolving credit facility shall not exceed $10.0 million for 30 consecutive days occurring
during the period between August 1 and November 30 in aeach calendar year. As of December 31, 2002, the clean-down period had been completed and no
28
amounts were outstanding under the revolving credit facility, nor were there any compensating balance requirements.
On January 24, 2000February 13, 2002, the Senior Credit Facility agreementsenior credit facility was amended to increase Term Loan B from $150.0 million to $180.0 million and provide new provisionsadditional liquidity and flexibility for financial covenant requirements and a waivercapital expenditures subsequent to our purchase of various fertilizer brands in December 2001. We incurred $1.1 million in fees related to the covenant requirements at December 31, 1999. The amendment contains provisions
for the increase in interest rates upon reaching certain maximum leverage
ratios. As part of the amended agreement, the Company paid bank fees of $862,
which will be reflectedwere recorded as deferred financing fees in January 2000 and are being amortized over the liferemaining term of the debt as interest expense.senior credit facility. The Senior Subordinated Facility was redeemed throughamendment did not change any other existing covenants of the issuance of 9
7/8% Senior Subordinated Notes due April 1, 2009. Insenior credit facility.
On May 8, 2002, in connection with this
redemption,our merger with Schultz, the Company incurred an extraordinary losssenior credit facility was amended to increase Term Loan B from $180.0 million to $215.0 million, increase the early
extinguishment of debt, net of tax of $2,325. In the fourth quarter of 1999,
the Company exchanged the 9 7/8% Senior Subordinated Notes for new notes
registered under the Securities Act of 1933. The new notes are substantially
identicalrevolving credit facility from $80.0 million to the old notes.

The Company's principal liquidity requirements are for working capital,
capital expenditures and debt service under the Senior Credit Facility and the
notes. Cash flow from continuing operations provided net cash of approximately
$23.4 million, $50.8$90.0 million and $35.1provide additional flexibility for capital expenditures. We incurred $2.2 million in 1999, 1998 and 1997,
respectively. Net cash used by operating activities fluctuates during the year
as the seasonal nature of the Company's sales results in a significant
increase in working capital (primarily accounts receivable and inventory)
during the first half of the year, with the second and third quarters being
significant cash collection periods.

Capital expenditures arefees related to the enhancementamendment which were recorded as deferred financing fees and are being amortized over the remaining term of the Company'ssenior credit facility. The amendment did not change any other existing facilitiescovenants of the senior credit facility.
On December 6, 2002, in connection with our acquisition of WPC Brands, the senior credit facility was amended to increase Term Loan B from $215.0 million to $240.0 million and the construction ofprovide additional production and
distribution capacity. Cash usedflexibility for capital expendituresexpenditures. We incurred $1.1 million in 1999, 1998fees related to the amendment which were recorded as deferred financing fees and 1997are being amortized over the remaining term of the senior credit facility. The amendment did not change any other existing covenants of the senior credit facility.
On March 19, 2003, the senior credit facility was $3.0

million, $3.6 million and $5.1 million, respectively. In addition, the Company
entered intoamended to permit a capital lease agreement in March 1999 for $9.2 million. Cash
used for capital expenditures in fiscal 2000 is expected to be less than $5.0
million.

Principal on thepossible offering of 9⁷/8% Series C Senior Subordinated Notes.
The principal amount of Term Loan A is required to be repaid in 24 consecutive quarterly in annual
amountsinstallments commencing June 30, 1999 with a final installment due January 20, 2005. The principal amount of $10.0 million for years one through four and $17.5 million for
years five and six after the closing of the Senior Credit Facility. Principal
on the Term Loan B is required to be repaid in 28 consecutive quarterly in annual amountsinstallments commencing June 30, 1999 with a final installment due January 20, 2006.
The senior credit facility agreement contains restrictive affirmative, negative and financial covenants. Affirmative and negative covenants place restrictions on, among other things, levels of $1.5 million for the first six years and $141.0 million for the seventh year
after the closing of the Senior Credit Facility. On December 31, 1999,
principal payments on Term Loans A and B of $2.5 million and $.4 million,
respectively, were paid.

The Company believes that cash flow from operations, together with
available borrowings under the Revolving Credit Facility, will be adequate to
meet the anticipated requirements for working capital,investments, indebtedness, insurance, capital expenditures and scheduled principaldividend payments. The financial covenants require the maintenance of certain financial ratios at defined levels. As of and during the years ended December 31, 2002 and 2001, we were in compliance with all covenants. While we do not anticipate an event of non-compliance in the foreseeable future, the effect of non-compliance would require us to request a waiver or an amendment to the senior credit facility. Amending the senior credit facility could result in changes to our borrowing capacity or our effective interest payments for at leastrates. Under the next year.
However, the Company cannot ensure that sufficient cash flow will be generated
from operations to repay the notes and amounts outstanding under the Senior
Credit Facility at maturity without requiring additional financing. The
Company's ability to meet debt service and clean-down obligations and reduce
debt will be dependentagreements, interest rates on the Company's future performance, which in turn,
will be subjectrevolving credit facility, Term Loan A and Term Loan B range from 1.50% to general economic conditions and to financial, business and
other factors, including factors beyond the Company's control. Because a
portion of the Company's debt bears interest at floating rates, the Company's
financial condition is and will continue to be affected by changes in
prevailing interest rates.

Seasonality

The Company's business is highly seasonal because the Company's products
are used primarily in the spring and summer. For the past two years,
approximately 75% of the Company's net sales have occurred in the first and
second quarters. The Company's working capital needs, and correspondingly the
Company's borrowings, peak near the end of the Company's first quarter.

Recently Issued Accounting Pronouncements

The Financial Accounting Standard Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" in June 1998. SFAS 133
provides standards on accounting and disclosure for derivative instruments and
requires that all derivatives be measured at fair value and reported as either
assets or liabilities on the balance sheet. The Company will be required to
adopt this statement no later than the beginning of fiscal year 2001. The
Company has not completed the analysis to determine the impact of this
statement on the Company's financial statements; however, the impact is not
expected to be material.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." This Staff Accounting Bulletin
summarizes certain of the staff's views on applying Generally Accepted
Accounting Principles to revenue recognition in financial statements. The
Company will be required to adopt this statement no later than the second
quarter of 2000. The Company has not yet completed the analysis to determine
the impact of this statement on the Company's financial statements; however,
the impact is not expected to be material.

Year 2000 Compliance

The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. Costs related to
the year 2000 issue were included in the $2.5 million management information
systems upgrade that occurred in 1999. The Company does not anticipate any
additional costs relating to the year 2000 issue which would have a material
adverse effect on the Company's financial condition or results of operations.

Through February 2000, the Company has not experienced any significant year
2000 business systems issues. Thorough testing of the business systems and
plant and building infrastructure systems during the January 1st 2000 weekend
uncovered very few date related issues. Almost all of these issues were minor
and were related to reporting or queries. The Company has not experienced any
significant product or service supply problems arising from the Company's
vendors' Y2K preparations.

Although there is no guarantee that all year 2000 issues have been
identified and resolved, the Company believes that any issues arising will be
insignificant. The Company continues to monitor and correct any issues related
to the year 2000.

Forward Looking Statements

This report and other public reports or statements made from time to time
by the Company or its management may contain "forward-looking statements
concerning possible future events, objectives, strategies, trends or results.
Such statements are identified either by the context in which they appear or
by use of words such as "anticipate," "believe," "estimate," "expect," "plan"
or the like. Readers are cautioned that any forward-looking statement reflects
only the beliefs of the Company or its management at the time the statement is
made. In addition, readers should keep in mind that, because all forward
looking statements deal with the future, they are subject to risks,
uncertainties and developments that might cause actual events or results to
differ materially from those envisioned or reflected in any forward-looking
statement. Moreover, the Company does not have and does not undertake any duty
to update any forward-looking statement to reflect events or circumstances
after the date on which the statement was made. For all of these reasons,
forward-looking statements should not be relied upon as a prediction of actual
future events, objectives, strategies, trends or results. It is not possible
to anticipate and list all of the risks, uncertainties and developments which
may affect the future operations or performance of the Company, or which
otherwise may cause actual events or results to differ from forward-looking
statements. However, some of these risks and uncertainties include the
following: general economic and market conditions and risks, such as the rate
of economic growth in the United States, inflation, interest rates, taxation,
and the like; risks and uncertainties which could affect industries or markets
in which the Company participates, such as growth rates and opportunities in
those industries, or changes in demand for certain products, or unfavorable
weather patterns, etc.; and factors which could impact costs, including but
not limited to the availability and pricing of raw materials, the availability
of labor and wage rates.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate

We are exposed to market risks relating to changes in interest rates. We do
not enter into derivatives or other financial instruments for trading or
speculative purposes. We enter into financial instruments to manage and reduce
the impact of changes in interest rates.

We manage our interest rate risk by balancing the amount of our fixed and
variable debt. For fixed rate debt, interest rate changes affect the fair
market value of such debt but do not impact earnings or cash flows. Conversely
for variable rate debt, interest rate changes generally do not affect the fair
market value of such debt but do impact future earnings and cash flows,
assuming other factors are held constant. At December 31, 1999, we had
variable rate debt of $210.6 million.

Interest ranges from 200 to 375 basis points4.00% above LIBOR, depending on certain financial ratios. LIBOR was 6.21%1.38% as of December 31, 2002 and 1.88% as of December 31, 2001. Unused commitments under the revolving credit facility are subject to a 0.5% annual commitment fee. The interest rate of Term Loan A was 4.67% and 5.43% as of December 31, 2002 and 2001, respectively. The interest rate of Term Loan B was 5.42% and 5.93% as of December 31, 2002 and 2001, respectively.
The senior credit facility may be prepaid in whole or in part at any time without premium or penalty. During the year ended December 31, 2002, we made principal payments of $11.0 million on Term Loan A and $2.0 million on Term Loan B, which included optional principal prepayments of $6.3 million on Term Loan A and $1.1 million on Term Loan B. During the year ended December 31, 2001, we made principal payments of $9.2 million on Term Loan A and $1.4 million on Term Loan B, which included optional principal prepayments of $4.1 million on Term Loan A and $0.7 million on Term Loan B. The optional payments were made to remain two quarterly payments ahead of the
29

regular payment schedule. According to the senior credit facility agreement, each prepayment on Term Loan A and Term Loan B can be applied to the next principal repayment installments.
Substantially all of the properties and assets of our current or future domestic subsidiaries collateralize obligations of the senior credit facility.
9 ⁷/₈% Series B Senior Subordinated Notes. In November 1999, we issued $150.0 million in aggregate principal amount of 9⁷/8% Series B senior subordinated notes due April 1, 2009. Interest accrues at a rate of 9⁷/8% per annum, payable semi-annually on April 1 and October 1. The indenture governing the Series B senior subordinated notes, among other things, (1) restricts our ability and the ability of our subsidiaries to incur indebtedness, create liens, repurchase stock, pay dividends and make distributions or enter into transactions with affiliates and (2) places restrictions on our ability and the ability of our subsidiaries to merge or consolidate all of our assets.
The carrying amount of our obligations under the senior credit facility approximates fair value because the interest rates are based on floating interest rates identified by reference to market rates. The fair value of the senior subordinated notes was $151.5 million as of December 31, 2002 and $141.0 million as of December 31, 2001, based on their quoted market price on such dates.
Stock Issuances. In connection with our merger with Schultz, the Board of Directors adopted resolutions, which were approved by our stockholders, to amend our Certificate of Incorporation to increase the number of shares of authorized Class A voting common stock from 37,600,000 shares to 43,600,000 shares and increase the number of shares of authorized Class B nonvoting common stock from 37,600,000 shares to 43,600,000 shares. In addition, as part of the purchase price, we issued 600,000 shares of Class A voting common stock valued at $3.0 million and 600,000 shares of Class B nonvoting common stock valued at $3.0 million. In addition, to raise equity to partially fund the merger, we issued 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million.
In connection with our transaction with Bayer in June 2002, we issued 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs.
30

Contractual Cash Obligations. The following table presents the aggregate amount of future cash outflows of our contractual cash obligations as of December 31, 2002, excluding amounts due for interest on outstanding indebtedness:
Obligations due in:
Contractual Cash Obligations
Total Less Than 1 Year 1-3 Years 4-5 Years After 5 Years
(dollars in thousands)

Senior credit facility $ 250,715 $ 9,222 $ 241,493 $ — $ —
9⁷/8% Series B Senior Subordinated Notes 150,000 — — — 150,000
Capital lease 4,221 443 3,778 — —
Operating leases 62,990 8,872 21,566 10,801 21,751
Tolling agreement with Pursell(1) 40,419 8,509 25,528 6,382 —
Urea purchase agreements(2) 4,853 4,853 — — —
Urea hedging agreements(3) 5,994 5,994 — — —
Services agreements(4) 6,650 2,550 2,600 1,500 —
Total contractual cash obligations $ 525,842 $ 40,443 $ 294,965 $ 18,683 $ 171,751
(1)
Represents fixed monthly payments of $0.7 million through September 30, 2007 for the purchase of fertilizer products from Pursell.

(2)
Represents purchase commitments for granular urea during January and February 2003.

(3)
Represents commitments under derivative hedging agreements maturing monthly through April 2003 relating to the purchase of granular urea.

(4)
Includes monthly payments of $62,500 for management and other consulting services provided by affiliates of Thomas H. Lee Partners, L.P., which owns UIC Holdings, L.L.C., our majority owner. The associated professional services agreement automatically extends for successive one-year periods beginning January 20 of each year, unless notice is given as provided in the agreement. Also includes $1.8 million due in 2003 and $0.4 million due in 2004 pursuant to a consulting agreement.
We lease several of our operating facilities from Rex Realty, Inc., a company owned by our stockholders and operated by a former executive and past member of our Board of Directors. The operating leases expire at various dates through December 31, 2010. We have options to terminate the leases on an annual basis by giving advance notice of at least one year. As of December 31, 2002, notice had been given on two such leases. We lease a portion of our operating facilities from the same company under a sublease agreement expiring on December 31, 1999.

2005 with minimum annual rentals of $0.7 million. We have two five-year options to renew this lease, beginning January 1, 2006. Management believes that the terms of these leases are arms length. Rent expense under these leases was $2.3 million in 2002, $2.3 million in 2001 and $2.2 million in 2000.
We are obligated under additional operating leases for other operations and the use of warehouse space. The leases expire at various dates through December 31, 2015. Five of the leases provide for as many as five options to renew for five years each. During the years ended December 31, 2002, 2001 and 2000, aggregate rent expense under these leases was $3.8 million, $5.1 million and $5.0 million, respectively.
In March 2000, we entered into a capital lease agreement for $5.3 million for our aircraft. We are obligated to make monthly payments of $0.1 million, with a balloon payment of $3.2 million in February 2005. We have the option of purchasing the aircraft following the expiration of the lease agreement for a nominal amount.
31

Guarantees and Off-Balance Sheet Risk. In the normal course of business, we are a party to certain guarantees and financial instruments with off-balance sheet risk, such as standby letters of credit and indemnifications, which are not reflected in the accompanying consolidated balance sheets. At December 31, 2002, we had $1.9 million in standby letters of credit pledged as collateral to support the lease of our primary distribution facility in St. Louis, a United States customs bond, certain product purchases and various workers' compensation obligations. These agreements mature at varying dates through October 2003 and may be renewed as circumstances warrant. Such financial instruments are valued based on the amount of exposure under the instruments and the likelihood of performance being required. In our past experience, no claims have been made against these financial instruments nor do we expect any losses to result from them. As a result, we determined the fair value of such instruments to be zero and have not recorded any related amounts in our consolidated financial statements.
We are the lessee under a number of equipment and property leases, as described in Note 13 of the notes to our consolidated financial statements included elsewhere in this Annual Report. It is common in such commercial lease transactions for us to agree to indemnify the lessor for the value of the property or equipment leased should it be damaged during the course of our operations. We expect that any losses that may occur with respect to the leased property would be covered by insurance, subject to deductible amounts. As a result, we determined the fair value of such instruments to be zero and have not recorded any related amounts in our consolidated financial statements.
Related Party Transactions
See "Certain Relationships and Related Transactions" for information regarding related party relationships and transactions.
Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements. We are required to adopt SFAS No. 145 during the first quarter of 2003. Adoption will not have a material impact on our consolidated financial statements. However, SFAS No. 145 could affect how we record certain expenses after December 31, 2002.
In June 2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity and also establishes fair value as the objective for initial measurement of the liability. SFAS No. 146 will be adopted for exit or disposal activities that are initiated after December 31, 2002. Adoption will not have a material impact on our consolidated financial statements. However, SFAS No. 146 will affect how we recognize exit costs after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of
32

accounting for stock-based employee compensation and the effect of the method used on reported results. Certain provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and other provisions are effective for fiscal years beginning after December 15, 2002. Unless we elect in the future to change from the intrinsic value method to the fair value method of accounting for stock-based employee compensation, SFAS No. 148 will not have a material impact on our consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). The disclosure requirements of FIN 45 are effective for our consolidated financial statements for the year ended December 31, 2002. For applicable guarantees issued after January 1, 2003, FIN 45 requires that a guarantor recognize a liability for the fair value of obligations undertaken in issuing guarantees.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to financial statements to be issued after 2002; however, disclosures are required currently if any variable interest entities are expected to be consolidated. The adoption of FIN 46 will not have a material effect on our consolidated financial statements as we do not have any variable interest entities that will be consolidated as a result of FIN 46.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rates and Raw Materials Prices
In the normal course of business, we are exposed to fluctuations in interest rates and raw materials prices. We have established policies and procedures that govern the management of these exposures through the use of derivative hedging instruments, including swap agreements. Our objective in managing our exposure to such fluctuations is to decrease the volatility of earnings and cash flows associated with changes in interest rates and certain raw materials prices. To achieve this objective, we periodically enter into swap agreements with values that change in the opposite direction of anticipated cash flows. Derivative instruments related to forecasted transactions are considered to hedge future cash flows, and the effective portion of any gains or losses is included in accumulated other comprehensive income until earnings are affected by the variability of cash flows. Any remaining gain or loss is recognized currently in earnings.
We have formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting treatment. The cash flows of the derivative instruments are expected to be highly effective in achieving offsetting cash flows attributable to fluctuations in the cash flows of the hedged risk. Changes in the fair value of agreements designated as derivative hedging instruments are reported as either an asset or liability in the accompanying consolidated balance sheets with the associated unrealized gains or losses reflected in accumulated other comprehensive income. As of December 31, 2002 and 2001, unrealized losses of $32,000 and $0.5 million, respectively, related to derivative instruments designated as cash flow hedges were recorded in accumulated other comprehensive income. Such instruments at December 31, 2002 represent hedges on forecasted purchases of raw materials during the first half of 2003 and are scheduled to mature by May 2003. The amounts are subsequently reclassified into cost of goods sold in the same period in which the underlying hedged transactions affect earnings.
If it becomes probable that a forecasted transaction will no longer occur, any gains or losses in accumulated other comprehensive income will be recognized in earnings. We have not incurred any gains or losses for hedge ineffectiveness or due to excluding a portion of the value from measuring
33

effectiveness. We do not enter into derivatives or other hedging arrangements for trading or speculative purposes.
The following table summarizes our derivative hedging contracts as of December 31, 2002:
Number of
Contracts
Maturity Date Notional Amount in Tons Weighted Average
Contract Price Contract Value
Upon Effective Contract Date Contract
Value at
December 31,
2002 Gain (Loss) at
December 31,
2002
3 January 30, 2003 14,500 $ 133.00 $ 1,928,500 $ 1,916,465 $ (12,035 )
3 February 28, 2003 15,000 135.00 2,025,000 2,010,000 (15,000 )
2 March 28, 2003 10,000 135.50 1,355,000 1,353,300 (1,700 )
1 April 24, 2003 5,000 137.00 685,000 681,650 (3,350 )
9 44,500 $ 5,993,500 $ 5,961,415 $ (32,085 )
In April 2001, we entered into two interest rate swaps that fixed the interest rate as of April 30, 2001 for $75.0 million in variable rate debt under our senior credit facility. The interest rate swaps settled on April 30, 2002 and a derivative hedging loss of $0.5 million was reclassified from accumulated other comprehensive income into interest expense.
The following table summarizes information about our debt instruments that are sensitive to changes in interest rates as of December 31, 2002. The table presents future principal cash flows and related weighted-average interest rates by expected maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 2002 (dollars in thousands):
Description
2003 2004 2005 2006 2007 Thereafter Total Fair Value
Long-term debt:
Fixed rate debt $ — $ — $ — $ — $ — $ 150,000 $ 150,000 $ 151,500
Average interest rate — — — — — 9.875 % 9.875 %
Variable rate debt $ 9,222 $ 18,444 $ 168,439 $ 54,610 — — $ 250,715 $ 250,715
Average interest rate 5.14 % 5.60 % 6.11 % 6.53 % — — — Exchange Rate

The Company doesRates
International sales during the years 2000 through 2002 comprised less than 1% of total net sales. We do not use derivative instruments to hedge against its
foreign currency exposures related to transactions denominated in currencies
other than the United States dollar. Substantiallyas substantially all of our foreign currency transactions are denominated in United StatesU.S. dollars.

Commodity Price

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company does not use derivative instruments to hedge its exposures to
changes in commodity prices. The Company utilizes various commodity and
specialty chemicals in its production process. Purchasing procedures and
arrangements with major customers serve to mitigate its exposure to price
changes in commodity and specialty chemicals.

Item 8. Financial Statements and Supplementary Data

The Financial Statementsfinancial statements and supplementary data included in this Annual Report are listed in Item 14 and begin immediately after Item 14.

Item 9. Changes in and Disagreements with Accountants on Accountingthe Index to Financial Statements and Financial DisclosureStatement Schedule on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
34

PART III

Item
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors and Executive Officers
The following table presents the members of the Registrant

Set forth below is the name, age and positionBoard of eachDirectors of the Company's
executive officers and directors. The Company's board ofUnited Industries Corporation. All directors presently
consists of seven directors who are elected annually. Executive officers serve
at the discretion of the board of directors and, in the case of Messrs. Caulk,
Bender and Johnston, pursuant to employment agreements.

Name Age Position
- ---- --- --------

David A. Jones.......... 50 Directors
Position(s)
Robert L. Caulk Chairman of the Board; Director

Robert L. Caulk......... 48Board of Directors; President and Chief Executive Officer; Director

Richard A. Bender....... 50 SeniorOfficer
Daniel J. Johnston Director; Executive Vice President Human Resources & Operations

Daniel J. Johnston...... 41 Senior Vice President,and Chief Financial Officer Information
Systems, Legal & Administration; Director

Matthew M. McCarthy..... 52 Vice President, General Counsel and Secretary

David C. Pratt.......... 55 Director

C. Hunter Boll.......... 44 Boll* Director

Scott A. Schoen......... 41 Director

Charles A. Brizius...... 31 Brizius* Director
John W. FromanDirectorDavid A. JonesDirectorGary M. Rodkin*DirectorScott A. SchoenDirector
*
Member of the Audit Committee.
The following presents biographical information with respect to each of the directors listed above as of December 31, 2002.
Robert L. Caulk, 51, joined United Industries in November 1999 as President and Chief Executive Officer. He was elected as Chairman of the Board of Directors during 2001. Prior to joining United Industries, Mr. Caulk spent over four years from 1995 to 1999 as the President and Executive Vice President of Clopay Building Products Company, Inc., a marketer and manufacturer of residential and commercial garage doors. Between 1989 and 1994, Mr. Caulk was President-North America, Vice President/General Manager and Director of Corporate Acquisitions and Planning at Johnson Worldwide Associates, a manufacturer of outdoor recreational products. From 1979 to 1989, Mr. Caulk held various management positions at S.C. Johnson & Son, Inc. Mr. Caulk is also a director of Sligh Furniture Company. Mr. Caulk received a Bachelor of Arts degree from the University of Delaware and an M.B.A. from the Harvard Graduate School of Business Administration.
Daniel J. Johnston, 44, became a director in January 1999. He was promoted to Executive Vice President in 2001 and has served as Chief Financial Officer with responsibility over information systems and administration as a Senior Vice President since 1997. Mr. Johnston joined United Industries as Controller in 1994 and has also held various other positions with responsibility over manufacturing, distribution and product supply during his tenure. Prior to joining United Industries, Mr. Johnston spent five years from 1990 to 1994 at Cooper Industries, Inc. in various financial positions at its corporate office and Bussmann Division. Before joining Cooper Industries, Inc., he worked for nine years at Price Waterhouse, LLP from 1982 to 1990. Mr. Johnston received a B.S. in Accountancy from the University of the CompanyMissouri-Columbia.
C. Hunter Boll, 47, became a director in January 1999 in connection with our recapitalization. Mr. Boll is a Managing Director of Thomas H. Lee Partners, L.P., a private equity investment firm, which he joined in 1986. In addition, Mr. Boll is a Principal Managing Director and Member of Thomas H. Lee Advisors, L.L.C., the Recapitalizationgeneral partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, L.P. and Thomas H. Lee Equity Fund V, L.P. He is Vice President of T. H. Lee Mezzanine II, the investment advisor to ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P. Mr. Boll also serves as a director of Cott Corporation, Metris Companies, Inc., and TransWestern Publishing, L.P. Mr. Boll received a
35

B.A. in Economics from Middlebury College and an M.B.A. from Stanford Graduate School of Business.
Charles A. Brizius, 34, became a director in January 1999 in connection with our recapitalization. Mr. Brizius is a Vice President of Thomas H. Lee Partners, L.P. a private equity investment firm, where he was appointedemployed from 1993 to 1995, and which he rejoined in 1997. Mr. Brizius is also a Member of Thomas H. Lee Advisors, L.L.C., the general partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, L.P. and Thomas H. Lee Equity Fund V, L.P. From 1991 to 1993, Mr. Brizius worked at Morgan Stanley & Co. Incorporated in the Corporate Finance Department. He is also a director of Eye Care Centers of America, Inc., Houghton Mifflin Company and TransWestern Publishing, L.P. Mr. Brizius received a B.B.A. in Finance and Accounting from Southern Methodist University and an M.B.A. from the Harvard Graduate School of Business Administration.
John W. Froman, 48, became a director in November 2002. Mr. Froman has been with Circuit City Stores, a specialty retailer, since 1986 and currently serves as its Executive Vice President and Chief Operating Officer. Prior to joining Circuit City, Mr. Froman was President of The Contempos Division of Craddock-Terry Shoe Corporation and, prior to that, Manager of U.S. Merchandising for Avon Products, Inc.
David A. Jones, 53, became a director in January 1999 and served as Chairman of the Board inof Directors from June 1999.1999 until 2001. Mr. Jones has been the President, Chief Executive Officer and a
DirectorChairman of the Board of Directors of Rayovac Corporation, a consumer battery and lighting device company, since March 1996. Between February 1995 and March 1996, Mr. Jones was Chief Operating Officer, Chief Executive Officer and Chairman of the Board of Directors of Thermoscan, Inc. From 1989 to 1994, he served as President and Chief Executive Officer of The Regina Company, a manufacturer of vacuum cleaners and other floor care equipment. Robert L. Caulk joined the CompanyMr. Jones is also a director of Tyson Foods.
Gary M. Rodkin, 50, became a director in November 1999 as the Company's
President and Chief Executive Officer. Prior to joining the Company, Mr. Caulk
spent five years from 1995-1999 as the President and Executive Vice President
of Clopay Corporation, a marketer and distributor of garage doors. Between
1989 and 1994, Mr. Caulk was President, Vice President/General Manager and
Director of Corporate Acquisitions and Planning at Johnson Worldwide
Associates, a manufacturer of outdoor recreational products. From 1980 to
1989, Mr. Caulk held various management positions at S.C. Johnson & Son, Inc.

Richard A. BenderFebruary 2002. He has served as the Company's Senior ViceChairman and CEO of PepsiCo Beverages and Foods, a newly created $10 billion division of PepsiCo, Inc. which combines the Pepsi-Cola, Gatorade, Tropicana and Quaker Foods business units in the United States and Canada, since June 2002. Prior positions at PepsiCo include President Human
Resources and Operations since 1996.CEO Pepsi-Cola North America and President and CEO Tropicana. Before joining Tropicana in 1995, Mr. Bender joined us in 1988 as ViceRodkin held positions of increasing responsibility at General Mills, Inc. from 1979 to 1995, including President of Human Resources. He has held various positions during his tenure
with us, including responsibilities in the Company's former metals group
division, administration, management information systems, product supply and
distribution. Prior to joining the Company, Mr. Bender was a general manager
in an automotive related private business and spent 13 years in various roles
including sales, plant operations and human resources at Colgate-Palmolive Co.

Daniel J. Johnston has served as the Company's Senior Vice President,
Finance and MIS and Chief Financial Officer since 1997. Mr. Johnston joined us
in 1994 as Controller and then worked as Assistant to the Chairman. Prior

to joining us, he spent five years from 1990 to 1994 at Cooper Industries,
Inc. in various financial functions at its corporate office and Bussmann
Division. Prior to joining Cooper Industries, Inc., he was employed by
PriceWaterhouse, LLP from 1982 to 1990.

Matthew M. McCarthy has served as the Company's Vice President and General
Counsel since 1994, as well as the Company's Secretary since 1999. Prior to
joining us, Mr. McCarthy was Vice President, General Counsel and Secretary
from 1986 to 1994 for Wetterau Incorporated, a food wholesaler and retailer
based in St. Louis. From 1975 to 1986 Mr. McCarthy served in various in-house
corporate legal functions at Wetterau and at General Grocer Company, both St.
Louis area food distributors.

David C. Pratt was the Company's President and Chief Executive Officer from
the Company's inception until the Recapitalization and thereafter served as
Chairman of the Board until Mr. Jones' acceptance of that position. Mr. Pratt
has continued as a director and consultant of the Company.

C. Hunter BollYoplait-Colombo.
Scott A. Schoen, 44, became a director of the Company in January 1999 in connection with the Recapitalization.our recapitalization. Mr. BollSchoen is a managing directorManaging Director of Thomas H. Lee Company wherePartners, L.P., a private equity investment firm, which he has been employed sincejoined in 1986. In addition, Mr. BollSchoen is also a Principal Managing Director and Member of Thomas H. Lee Advisors, LLC,L.L.C., the general partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, L.P. and Vice President of Thomas H. Lee Advisors I andEquity Fund V, L.P. He is Vice President of T. H. Lee Mezzanine II, affiliates of ML-Lee Acquisition
Fund, L.P.,the investment advisor to ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P., respectively. Mr. Boll He is also serves as a director of Cott Corporation., The Smith & Wollensky Restaurant Group, Inc., Freedom
SecuritiesAffordable Residential Communities, Syratech Corporation, Metris Companies, Inc., Big V Supermarkets, Inc., TransWestern Publishing, L.P., Wyndham International Inc., Axis Capital Holdings and several private corporations. Scott A.Mr. Schoen received a B.A. in History from Yale University, a J.D. from Harvard Law School and an M.B.A. from the Harvard Graduate School of Business Administration.
36

Executive Officers
The following table presents the executive officers of United Industries Corporation:
Executive Officers
Position(s)
Robert L. Caulk Chairman of the Board of Directors; President and Chief Executive Officer
Daniel J. Johnston Director; Executive Vice President and Chief Financial Officer
Kent J. Davies Senior Vice President, Marketing
Louis N. Laderman Vice President, Secretary and General Counsel
Robert S. Rubin Vice President, Corporate Development
Steven D. Schultz Senior Vice President, Business Development
Rick K. Spurlock Vice President, Human Resources
John F. Timony Senior Vice President, Operations
The following presents biographical information as of December 31, 2002 with respect to each of the executive officers listed above who do not also serve as directors.
Kent J. Davies, 39, has served as the Senior Vice President, Marketing since April 2001 and assumed additional responsibilities for the Research & Development and Regulatory Affairs groups in March 2002. Prior to joining United Industries, Mr. Davies spent seven years with Kimberly-Clark Corporation serving in various marketing and general management capacities including General Manager, Global Strategic Marketing from 2000 to 2001, General Manager, Global Surgical Products Business from 1999 to 2000, and General Manager, Professional Heath Care—Europe, while based in Brussels, Belgium, from 1998 to 1999. Prior to joining Kimberly-Clark, Mr. Davies held marketing positions with the 3M Company and various field sales roles with General Mills, Inc. Mr. Davies received a B.A. in History from the University of California at Berkeley and an M.B.A. from the University of Minnesota.
Louis N. Laderman, 51, has served as the Vice President, Secretary and General Counsel since 2001. Prior to joining United Industries, from 1996 through 2000, Mr. Laderman was Vice President and General Counsel of Service Experts, Inc., an operator and consolidator of heating, air conditioning and ventilating contractors. Between 1976 and 1996, Mr. Laderman was engaged in the private practice of law in St. Louis, Missouri. Mr. Laderman received a B.S. in Industrial Management, with a minor in Industrial Engineering, from Purdue University and a J.D., cum laude, from St. Louis University.
Robert S. Rubin, 36, has served in various capacities since 1995, including Vice President, Corporate Development, responsible for Mergers, Acquisitions and Strategic Alliance efforts; Vice President and General Manager—Strategic Accounts, Retail Sales and Retail Marketing; and Vice President, Marketing, R&D and Regulatory Affairs. Mr. Rubin joined United Industries in 1995 as a Brand Manager. Prior to joining United Industries, Mr. Rubin spent three years from 1992 to 1995 at Ralston Purina in various marketing roles. From 1988 to 1992, Mr. Rubin was employed by the advertising agency DMB&B/St. Louis. Mr. Rubin received a B.S. in Business Administration from Miami University, Oxford, Ohio.
Steven D. Schultz, 55, has served as the Senior Vice President, Business Development since 2002. Prior to joining United Industries, Mr. Schultz worked at Schultz Company, where he started his career after college and held various management positions until 1982 when he became the President and Chief Executive Officer. Mr. Schultz maintained that position until Schultz merged with a wholly owned subsidiary of United Industries in May 2002. Mr. Schultz received a B.S. in Journalism from the University of Oklahoma.
37

Rick K. Spurlock, 43, has served as the Vice President, Human Resources since 2002. Prior to joining United Industries, Mr. Spurlock was Vice President of Human Resources at Pursell Industries, Inc., a national lawn and garden company, from 2000 to 2002. From 1984 to 2000, Mr. Spurlock had management responsibilities in the areas of human resources, organization development and manufacturing with the Mechanics Tools Division of The Stanley Works, an international manufacturer of hand tools. Prior to joining The Stanley Works, he was employed by Cincinnati Milacron in various roles from 1980 to 1984. Mr. Spurlock received a B.S. in Business Management from Wright State University.
John F. Timony, 53, has served as the Senior Vice President, Operations since 2001. Prior to joining United Industries, Mr. Timony was Vice President—Operations for Rexam Medical Packaging from 1994 to 2000. From 1981 to 1994, Mr. Timony worked for Sterling Winthrop, Inc. in various engineering, management and executive positions, most recently as Vice President—Operations. Prior to joining Sterling Winthrop, Inc., Mr. Timony was an engineer for Container Corporation of America from 1978 to 1981 and a Lieutenant in the United States Navy from 1972 to 1978. Mr. Timony received a B.S. in Electrical Engineering from the United States Naval Academy, a Master's Degree in Electrical Engineering from the U.S. Naval Postgraduate School and an M.B.A. from Monmouth University.

ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table presents information regarding the compensation paid to our Chief Executive Officer and each of the other four most highly compensated executive officers during 2002 (collectively, the Named Executive Officers) for services rendered for the years ended December 31, 2002, 2001 and 2000:

Annual Compensation Long-Term
Compensation
Name and Principal Position
Year
Ended
December 31, Salary
($) Bonus
($) Securities
Underlying Stock Options (#) All Other
Compensation
($)(1)
Robert L. Caulk
Chairman of the Board of Directors; President and Chief Executive Officer 2002
2001
2000 $

500,000
400,000
400,000 $

320,000
292,000
120,000 —
1,600,000
— $

14,082
5,100
101,244 (2)

(3)

Daniel J. Johnston
Director; Executive Vice President and Chief Financial Officer

2002
2001
2000

335,000
325,000
300,000

175,205
259,875
—

—
700,000
—

7,091
5,100
5,100
(4)

Kent J. Davies
Senior Vice President, Marketing

2002
2001
2000

205,500
134,103
—

105,995
51,733
—

—
200,000
—

80,972
66,705
—
(5)
(6)

John F. Timony
Senior Vice President, Operations

2002
2001
2000

229,000
198,564
—

117,172
78,731
—

—
200,000
—

8,656
15,636
—
(7)
(8)

Robert S. Rubin
Vice President, Corporate Development

2002
2001
2000

202,500
193,000
185,500

103,883
139,263
40,588

100,000
100,000
—

5,904
5,100
5,100
(9)

(1)
Unless otherwise indicated, represents matching contributions under our 401(k) plan for each year of employment presented and reimbursement for long-term disability premiums in 2002.
38
(2)
Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $8,582.

(3)
Includes relocation payments of $96,144.

(4)
Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $1,591.

(5)
Includes a loan forgiven of $75,000, matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $472.

(6)
Includes relocation payments of $66,705.

(7)
Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $3,156.

(8)
Includes relocation payments of $15,636.

(9)
Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $404.
Stock Option Grants
The following table presents individual grants of options to the Named Executive Officers during the year ended December 31, 2002. No stock appreciation rights have been granted or are outstanding under any of our long-term equity plans.
Individual Grants
Name
Number of Securities
Underlying
Options (#)(1) % of Total Options Granted to Employees in 2002 Exercise Price ($/Share) Expiration Date Grant Date Present Value ($)(2)
Robert L. Caulk — — $ — — $ —
Daniel J. Johnston — — — — —
Kent J. Davies — — — — —
John F. Timony — — — — —
Robert S. Rubin 50,000 5.3 % 3.25 1/31/12 55,950
50,000 5.3 % 5.00 8/06/12 64,450
(1)
Of the options granted during 2002, one-third vests over a four-year period at a rate of 25% on each anniversary of the grant date. The remaining two-thirds vest based on performance targets over a three to ten year period from the date of grant.

(2)
The grant date present value is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions for the year ended December 31, 2002: expected volatility of zero, weighted average risk-free interest rate of 4.61%, dividend yield of zero and an expected life of ten years.
39
Aggregated Option Exercises and Option Value Table
The following table presents information concerning stock options held by the Named Executive Officers as of December 31, 2002:
Name
Shares Acquired Upon Exercise (#)(1) Value Realized ($) Number of Securities Underlying Unexercised Options (#)
Exercisable/
Unexercisable Value of Unexercised In-the Money Options ($)
Exercisable/
Unexercisable(2)
Robert L. Caulk — $ — 693,361/906,639 $ 1,480,083/$2,119,917
Daniel J. Johnston — — 265,001/434,999 795,003/1,304,997
Kent J. Davies — — 50,000/150,000 150,000/450,000
John F. Timony — — 50,000/150,000 150,000/450,000
Robert S. Rubin — — 47,001/152,999 105,584/281,917
(1)
As of December 31, 2002, no outstanding options had been exercised.

(2)
There was no active trading market for our common stock as of December 31, 2002, thus fair value was determined by our Board of Directors, based primarily on valuations obtained from independent appraisals.
The 2001 Stock Option Plan
We grant stock options to eligible employees, officers and directors pursuant to the 2001 Stock Option Plan, which is administered by the Compensation Committee of the Board of Directors. The 2001 Stock Option Plan superseded the 1999 Stock Option Plan which was terminated during 2001. Upon termination, all 3,096,000 issued and outstanding options under the 1999 Stock Option Plan were cancelled.
The 2001 Stock Option Plan provides for an aggregate of 5,800,000 shares of common stock that may be issued in the form of Class A voting common stock, Class B nonvoting common stock or a combination thereof. The options to purchase shares of common stock are subject to time and performance-based vesting schedules which generally range from four to ten years. Options are generally granted with an exercise price equal to or greater than the estimated fair value of common stock on the grant date and expire ten years thereafter. After termination of employment, unvested options are forfeited immediately, within thirty days or within one year, as provided under the plan agreement.
Deferred Compensation Plans
We sponsor two deferred compensation plans for certain members of our senior management team. The plans are administered by the Compensation Committee of our Board of Directors. The plans provide for the establishment of grantor trusts for the purpose of accumulating funds to purchase shares of our common stock for the benefit of the plan participants. One plan allows participants to contribute an unlimited amount of earnings to the plan while the other provides for contributions of up to 20% of a participant's annual bonus. We do not provide matching contributions to these plans and have the right to repurchase shares held in the grantor trusts under certain circumstances. The common stock held in the grantor trusts was valued at $2.7 million as of December 31, 2002 and 2001.
Compensation of Directors
Messrs. Caulk and Johnston, who were the only directors that served as employees during 2002, did not receive any additional compensation for serving as a director or attending any meeting of the Company
40

Board of Directors during 2002. During 2002, Mr. Jones received $30,000 in January 1999directorship fees and Mr. Rodkin received $25,833 in connection with the Recapitalization. He is a Managing Director of Thomas H.
Lee Company, which he joineddirectorship fees. Messrs. Boll, Brizius and Schoen did not directly receive any directorship fees in 1986. In addition, Mr. Schoen is a Principal
Managing Director and Member of Thomas H. Lee2002, but THL Equity Advisors, IV, LLC, the general
partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, LPL.P., and Vice President of Thomas H. Lee Advisors
ICapital, L.L.C., entities with whom Messrs. Boll, Brizius and T. H. Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P., ML-
Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement
Accounts), L.P., respectively. He is also a director of Rayovac Corporation,
Syratech Corporation, TransWestern Publishing, L.P., Wyndham International
Inc. and several private corporations.

Charles A. Brizius became a director of the Company in January 1999 in
connection with the Recapitalization. Mr. Brizius worked at Thomas H. Lee
Company from 1993 to 1995, rejoined in 1997 and currently serves as an
Associate. Mr. Brizius is a Member of Thomas H. Lee Advisors, LLC, the general
partner of Thomas H. Lee Partners, L.P., which controls the general partner of
Thomas H. Lee Equity Fund IV, L.P. From 1991 to 1993, Mr. Brizius worked at
Morgan Stanley & Co. Incorporated in the Corporate Finance Department. He is
also a director of Eye Care Centers of America, Inc. and Big V Supermarkets,
Inc.

Item 11. Executive Compensation

Compensation of Executive Officers

The following table sets forth the compensation of the Company's Current
Chief Executive Officer and other individuals who either served, or acted in a
similar capacity, as the Company's Chief Executive Officer during 1999 and the
four other most highly compensated executive officers serving as executive
officers at the end of 1999 (collectively, the "Named Executive Officers").

Summary Compensation Table

Annual Compensation
---------------------------------
Other
Annual All Other
Name and Principal Compensation Compensation
Position Year Salary ($) Bonus ($) ($) (f) ($) (g)
- ------------------ ---- ---------- --------- ------------ ------------

Robert L. Caulk......... (a) 1999 100,000 30,247 -- --
President and Chief
Executive Officer

David A. Jones.......... (b) 1999
Chairman of the Board;
Acting President and
Chief Executive Officer

Stephen R. Brian........ (c) 1999 196,184 100,000 123,894 --
President and Chief
Executive Officer

David C. Pratt.......... (d) 1999 13,960 17,758 2,444 --
President and Chief
Executive Officer 1998 250,000 2,771,061 42,740 --

Richard A. Bender....... 1999 300,000 120,000 -- 2,808,490
Senior Vice President, 1998 100,000 260,143 24,018 --
Human Resources
Operations

Daniel J. Johnston...... 1999 300,000 120,000 -- 2,808,490
Senior Vice President,
Chief Financial
Officer, 1998 100,000 251,809 4,716 --
Information Systems,
Legal and
Administration

Matthew M. McCarthy..... 1999 179,000 46,504 5,880 --
Vice President, General
Counsel and Secretary 1998 125,000 105,079 5,880 --

William P. Johnson...... (e) 1999 300,000 65,000 -- 2,808,490
Senior Vice President,
Sales 1998 100,000 251,809 4,716 --

- -------
(a) Mr. Caulk joined the Company in November 1999.
(b) Mr. Jones was acting President and Chief Executive Officer from June 1999
to November 1999. Compensation was paid through the Chairman's Agreement
as identified in Compensation of Directors.
(c) Mr. Brian held this position from January 20, 1999 until June 29, 1999.
(d) Mr. Pratt resigned as President and Chief Executive Officer on January 20,
1999 in connection with the Recapitalization.
(e) Mr. Johnson resigned from this position in December of 1999.
(f) Includes deferred compensation under Long-term incentive compensation
Plan, which was terminated in 1998, automobile allowance, relocation and
country club dues.
(g) Includes change of control bonuses paid as a result of the
Recapitalization. Mr. Bender contributed $700,000 while Messrs. Johnston
and Johnson contributed $1,000,000 of the change of control bonusesSchoen are affiliated, received fees pursuant to a grantor trust established pursuant to the Company's Deferred Compensation
Plan.

Stock Option Grants

The following table sets forth information with respect toprofessional services agreement described below.
Employment Agreements
Each of the Named Executive Officers concerning options granted during 1999.

Number of % of Total
Securities Options Granted to Exercise Grant Date
Underlying Employees in or Base Expiration Present Value
Name Options Granted Fiscal Year Price ($/SH) Date ($)
- ---- --------------- ------------------ ------------ ---------- -------------

Robert L. Caulk......... 266,667 9.0% 5.00 01/21/04 370,667
533,333 18.0% 5.00 01/21/09 1,296,000

David A. Jones.......... 200,000 6.8% 5.00 01/21/04 278,000
400,000 13.5% 5.00 01/21/09 972,000

Richard A. Bender....... 200,000 6.8% 5.00 01/21/04 278,000
400,000 13.5% 5.00 01/21/09 972,000

Daniel J. Johnston...... 200,000 6.8% 5.00 01/21/04 278,800

400,000 13.5% 5.00 01/21/09 972,000
Matthew M. McCarthy..... 5,000 0.2% 5.00 01/21/04 6,950
10,000 0.3% 5.00 01/21/09 24,300
Stephen R. Brian(a)..... -0- -- -- -- --
William P. Johnson(a)... -0- -- -- -- --
David C. Pratt.......... -0- -- -- -- --

(a)Options were granted during 1999 and subsequently cancelled upon
resignation.

The fair valueis employed under a separate employment agreement. With the exception of Mr. Caulk's agreement, which expires on January 1, 2005, none of the options estimated at the dateagreements are effective for a specified period of grant using the
Black-Scholes option-pricing model was $2.08. The weighted average fair value
of the 1999 options granted is estimated on the date of grant using the
following assumption: expected volatility of 0%, risk-free interest rate of
6.765%, no dividend yield and an expected life of 5 or 10 years.

Stock Option Exercises and Holdingstime. The following table sets forth information with respectpresents the position, annual salary and stock options received, as well as the maximum potential annual bonus available, to each of the Named Executive Officers, concerning unexercised options heldunder his employment agreement, as of December 31,
1999.

Number of Value of
Securities Unexercised
Underlying In-the Money
Unexercised Options at
Options at FY-End FY-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Exercise(a) Realized Unexercisable Unexercisable(b)
----------- -------- ----------------- ----------------

Robert L. Caulk......... -- -- --/800,000 --/--

David A. Jones.......... -- -- --/600,000 --/--

Richard A. Bender....... -- -- --/600,000 --/--

Daniel J. Johnston...... -- -- --/600,000 --/--

Matthew M. McCarthy..... -- -- --/ 15,000 --/--
Stephen R. Brian........ -- -- --/-- --/--
William P. Johnson...... -- -- --/-- --/--
David C. Pratt.......... -- -- --/-- --/--

- -------
(a) As of December 31, 1999, no options were vested.
(b) There is currently no active trading market for the Common Stock and thus
the fair market value as of December 31, 1999 is not readily determinable.

Compensation of Directors

During 1999, the Company entered into a consulting agreement with David C.
Pratt. This consultingamended:
Name
Position(s) Annual Base
Salary Stock Options
Received Annual Bonus
Robert L. Caulk Chairman of the Board of Directors; President and Chief Executive Officer $ 500,000 1,600,000 Up to $500,000
Daniel J. Johnston Director; Executive Vice President and Chief Financial Officer 335,000 700,000 Up to $201,000
Kent J. Davies Senior Vice President, Marketing 205,000 200,000 Up to $123,300
John F. Timony Senior Vice President, Operations 229,000 200,000 Up to $137,400
Robert S. Rubin Vice President, Corporation Development 202,500 200,000 Up to $121,500 Each agreement provides that Mr. Pratt:

. receive a consulting payment of $15,000 per month,

. act as Chairmanfor base salary and bonus increases at the discretion of the Company's board of directors for four months
beginning on 1/21/99,

. remain a memberCompensation Committee of the Company's boardBoard of directors after his term as
Chairman has ended,

. receive a directorship fee of $25,000 per year, and

. receive Company-paid health and the welfare benefits for four months
beginning on 1/2/99.

On July 20, 1999, the Company entered into a chairman's agreement and a
stock option agreement with David A. Jones. These agreements provide that Mr.
Jones:

. receive an annual payment for services rendered of $300,000, which
supersedes his consulting payments and directorship fees, plus
participation in the Company'sDirectors. Annual incentive compensation plan;

. receive a one-time special bonus, which is contemplated to be between
$300,000 and $500,000, after the date which is six months after the date
that the Company hires a new full-time CEO;

. receive options pursuant to the 1999 Stock Option Plan to purchase an
additional 300,000 shares of common stock; and

. receive annual incentive compensation to be determined in accordance with the Company's attainment of certain levelsfinancial and performance targets. The agreements also provide that the officers are entitled to a monthly automobile allowance and to participate in any disability, pension or other benefit plan generally afforded to employees or executives.
Of the options issued to Mr. Caulk, 53,360 options vested immediately upon the grant date, 1,013,307 options vest over four years with 25% vesting on each anniversary after the grant date and the remaining 533,333 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options issued to Mr. Johnston, 80,000 options vested immediately upon the grant date, 206,665 options vest over four years with 25% vesting on each anniversary after the grant date and 413,335 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options granted to Messrs. Davies and Timony, one-third of EBITDA.

Employment Agreements

Messrs. Caulk, Benderthe options vest over four years with 25% vesting on each anniversary after the grant date while the remaining two-thirds vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options issued to Mr. Rubin, 4,000 vested immediately upon the grant date, 62,667 vest over four years with 25% vesting on each anniversary after the grant date and Johnston each entered into133,333 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date.
We may terminate an employment agreement with the Company. The Caulk agreement provides for employment until
October 2002 and the Bender and Johnston agreements until December 2001 unless
terminated earlier. The employment agreements provide for annual incentive
compensation to be determined in accordance with the Company's attainment of
certain EBITDA targets. Each employment agreement may be terminated by us at any time with or without cause. If thean employment agreement is terminated by us for cause or by the executive without good reason, the terminated executive will be entitled to any unpaid base salary through the date of termination plus any unpaid incentive compensation. If we terminate the employment agreement without cause or if the executive terminates the employment agreement for good reason or the executive dies or becomes disabled, he will be entitled to any unpaid base salary through the date of termination, any unpaid incentive
41

compensation and, under certain conditions, his base salary through the later of the contractfor a period and the first anniversary ofsubsequent to his termination, which shall in no case be greater than two years from his termination. Each employment agreement provides forincludes non-compete, nonsolicitationnon-solicitation and confidentiality provisions through the later of one year after the executive's date of termination or the last date that severance payments are owed to the executive.

In connection
401(k) Plan
We have a 401(k) savings plan for substantially all of our employees with entering his employment agreement, Mr. Johnston
purchased $1.0 millionsix months or more of common stock, and Mr. Bender purchased $700,000continuous service. The 401(k) plan allows participants to defer a portion of common stock. Messrs. Johnston and Bender purchased their common stock outeligible compensation on a tax-deferred basis. Under provisions of the proceeds of a bonus paid at the closing of the recapitalization. Under
some circumstances,plan, we have the right to repurchase the shares owned by
Messrs. Johnston and Bender.

1999 Stock Option Plan

In connection with the Recapitalization, the Company instituted the 1999
Stock Option Plan, which is administered by a committee of the Company's board
of directors. The 1999 Stock Option Plan was designed as an incentive to
selected employees, officers and directors to acquire proprietary interest in
the Company. The options are not designed to be incentive stock options within
the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as
amended. The option pool under the 1999 Stock Option Plan consists of an
aggregate of 4,000,000 shares of the Company's common stock that may consist
of shares of the Company's Class A Voting Common Stock, the Company's Class B
Non-Voting Common Stock or some combination of Class A Voting Common Stock and
Class B Non-Voting Common Stock. The options to purchase shares of common
stock are subject to vesting schedules, which are both time and performance
based. Unvested options are forfeited upon termination of employment.

Deferred Compensation Plan

On January 20, 1999, the Company established the United Industries
Corporation Deferred Compensation Plan ("the Plan"). A committee of the
Company's board of directors administers the Plan. Messrs. Bender, Johnson and
Johnston are eligible to participate in the Plan. The Plan provides for the
establishment of a grantor trust for the purpose of accumulating the assets
contributed pursuant to the Plan. The grantor trust used the funds contributed
to it to purchase:

. 70,000 shares of the Company's Class A Voting Common Stock and 70,000
shares of the Company's Class B Non-Voting Common Stock for the benefit
of Mr. Bender; and

. 100,000 shares of the Company's Class A Voting Common Stock and 100,000
shares of the Company's Class B Non-Voting Common Stock for the benefit
of Mr. Johnston.
. 100,000 shares of the Company's Class A Voting Common Stock and 100,000
shares of the Company's Class B Non-Voting Common Stock for the benefit
of Mr. Johnson.

401(k) Plan

The Company maintains a 401(k) defined contribution plan. The plan allows
for discretionary participant elective contributions. The Company is required
to match 50% of each participant'semployee's contributions up to 6% of the employee's
salary for those employees having less than 10 years of service andgross earnings. The matching amount generally increases to 75% of each participant'ssuch employee's contributions up to 6% of the employee's salary for those
employees having 10 or moregross earnings after ten years of service. Severance Agreements

In January 1999,The aggregate matching contribution made by us was $0.7 million in conjunction with the Company's Recapitalization,
Stephen R. Brian was hired as the Company's President2002, $0.6 million in 2001 and Chief Executive
Officer. Prior to joining the Company, Mr. Brian served as the President of
Home Products International. Mr. Brian announced his resignation$0.6 million in June 1999,
citing personal and family reasons for his departure. In connection with the
resignation of Mr. Brian, the Company entered into a severance agreement with
Mr. Brian, which provides that Mr. Brian will continue to receive his base
salary of $437,000 and benefits through January 31, 2002. Mr. Brian's benefits
consist of (a) whatever, if any, health, hospitalization, sick pay, life
insurance, disability insurance, profit sharing, pension, 401(k), and deferred
compensation plans and programs that the Company may have in effect from time
to time. In addition, the severance agreement provides that Mr. Brian will
receive a $95,000 bonus in respect of fiscal year 1999, use of an apartment
leased by the Company for a period of three months at Mr. Brian's expense, and
transition expenses with respect to his relocation away from St. Louis. On his
resignation, the Company (a) repurchased from Mr. Brian 100,000 shares of
common stock in exchange for a promissory note in the amount of $500,000, plus
accrued and unpaid interest, and (b) terminated his right to options under an
option agreement. The Company purchased from Mr. Brian the right to acquire
all of Mr. Brian's and his spouse's rights and obligations under a St. Louis
real estate sales contract. Unless the Company chooses to exercise this
option, the Company has no further liability or obligation under this real
estate contract and no contractual relationship with the builder. The
noncompetition and nonsolicitation provisions under Mr. Brian's original
employment agreement will continue in effect through January 31, 2002.

William P. Johnson served as the Company's Senior Vice President, Sales
since 1998. Mr. Johnson announced his resignation in December 1999. In
connection with the resignation of Mr. Johnson, the Company entered into a
severance agreement with Mr. Johnson, which provides that Mr. Johnson will
continue to receive his base salary of $300,000 and benefits through December
31, 2001. Upon his resignation, the Company terminated his right to options
under an option agreement. The noncompetition and nonsolicitation provisions
under Mr. Johnson's original employment agreement will continue in effect
through December 31, 2001.

Item2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners and Management

PRINCIPAL STOCKHOLDERS
The following table sets forthpresents certain information regarding the beneficial ownership of the Company'sour Class A Voting Common Stockvoting common stock by each of the
Company'sour directors and Named Executive Officers, by all of the Company'sour directors and executive officers as a group, and by each owner of more than 5% of the outstanding shares of Class A Voting Common Stock.voting common stock as of December 31, 2002. Each directorsdirector and Named Executive Officer owns an equala number of the Company'sshares of Class B Non-
Voting Common Stock.

Number of Percent of
Name of Beneficial Owner (1) Shares Class
- ---------------------------- ---------- ----------

UIC Holdings, L.L.C...................................... 25,468,000 92.1%
c/o Thomas H. Lee Company
75 State Street
Boston, Massachusetts 02109
David C. Pratt (2)....................................... 1,325,108 4.8%
Robert L. Caulk.......................................... -- *
Richard A. Bender........................................ -- *
Daniel J. Johnston....................................... -- *
William P. Johnson....................................... -- *
Stephen R. Brian......................................... 100,000 *
Matthew M. McCarthy...................................... 1,000 *
David A. Jones........................................... 100,000 *
C. Hunter Boll (3)....................................... 25,468,000 92.1%
Scott A. Schoen (3)...................................... 25,468,000 92.1%
Charles A. Brizius (3)................................... 25,468,000 92.1%
All Directors and Executive Officers as a Group (9
persons) (3)............................................ 26,869,108 97.2%

- -------
*Denotesnonvoting common stock equal to their number of owned shares of Class A voting common stock. Unless otherwise indicated, the mailing address for each principal stockholder, officer and director is c/o United Industries Corporation, 2150 Schuetz Road, St. Louis, Missouri 63146.
Name of Beneficial Owner(1)
Number of
Class A Common
Shares Owned Number of
Class A Common
Shares Receivable
Upon Exercise of
Stock Options Number of
Class A Common
Shares Receivable
Upon Exercise of
Stock Warrants Number of
Class A Common
Shares
Beneficially
Owned Percent
of Class
UIC Holdings, L.L.C. 27,158,000 — 4,673,957 31,831,957 84.2 %
Bayer Corporation(2) 3,072,000 — — 3,072,000 9.3 %
Robert L. Caulk 125,000 800,000 13,938 938,938 2.8 %
C. Hunter Boll(3) 27,158,000 — 4,673,957 31,831,957 84.2 %
Charles A. Brizius(3) 27,158,000 — 4,673,957 31,831,957 84.2 %
John W. Froman — 5,000 — 5,000 *
Daniel J. Johnston(4) — 350,000 27,876 377,876 1.1 %
David A. Jones 100,000 300,000 — 400,000 1.2 %
Gary M. Rodkin — 5,000 — 5,000 *
Scott A. Schoen(3) 27,158,000 — 4,673,957 31,831,957 84.2 %
Kent J. Davies — 100,000 1,394 101,394 *
John F. Timony — 100,000 4,181 104,181 *
Robert S. Rubin 3,500 100,000 2,091 105,591 *
All Directors and Executive Officers as a group (17 persons)(3) 27,686,500 1,885,000 4,737,375 34,308,875 86.3 %
*
Denotes less than one percent.

(1)
Beneficial owner generallyas used herein means any person who, directly or indirectly, has or shares voting power or investment power with respect to a security. All of the parties listed above are party to a stockholders agreement, pursuant to which they have agreed to vote their shares in the election of directors in accordance with the terms of the stockholders agreement. The number of shares indicated in this table does not include the shares of Class A Voting Common Stockvoting common stock that are held by other stockholders subject to the stockholders agreement. Unless otherwise indicated, the Company
believeswe believe that each person has sole voting and investment power with
42
regard to their shares listed as beneficially owned. The calculation of beneficial ownership is based on 27,650,000 shares outstanding.
(2) Includes 134,75633,143,000 shares of the Company's Class A Voting Common Stock heldvoting common stock outstanding as of December 31, 2002.
(2)
The address for Bayer Corporation is 100 Bayer Road, Pittsburgh, PA 15205.

(3)
Includes 31,831,957 shares beneficially owned by the David C. Pratt Grantor Retained Interest Trust and 157,216 shares
of the Company's Class A Voting Common Stock held by the 1994 Ryder Pratt
Grantor Retained Annuity Trust.
(3) All of the equity interests in UIC Holdings, L.L.C. areUIC Holdings, L.L.C. is controlled by the Thomas H. Lee Equity Fund IV, L.P. and its affiliates,, which may therefore be deemed to be the beneficial owner of the shares held by UIC Holdings, L.L.C. All of theSuch shares beneficially owned by the Thomas H. Lee Equity Fund IV,
L.P. and its affiliates may be deemed to be beneficially owned by Messrs. Boll, Brizius and Schoen, who are members of Thomas H. Lee Advisors, L.L.C., the general partner of Thomas H. Lee Partners L.P., which in turn is the managing member of THL Equity Advisors IV, L.L.C. ("Advisors"), Thomas H. Lee Equity Fund IV,
L.P.which is the general partner of THL Fund IV, by THL Equity Trust IV, the
general partner of Advisors, by THL and by Messrs. Boll, Schoen and
Brizius and the other officers of Thomas H. Lee Equity Fund IV, L.P. Each of these persons disclaimsMessrs. Boll, Brizius and Schoen disclaim beneficial ownership of such shares.

Itemshares except to the extent of their pecuniary interest therein.

(4)
Deferred compensation for the purchase of 100,000 shares each of Class A voting and Class B nonvoting common stock for the benefit of Mr. Johnston are held under a grantor trust.
Equity Compensation Plans
The following table presents information about our common stock that may be issued upon exercise of options, warrants and rights under our existing equity compensation plans, including the 2001 Stock Option Plan:
Equity Compensation Plan Information
(a)

(b)

(c)

Plan category Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights Weighted average
exercise price of
outstanding options,
warrants and rights Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column(a))
Equity compensation plans approved by security holders 5,760,000 $ 2.75 40,000

Equity compensation plans not approved by security holders(1)
540,000
5.00
—
Total
6,300,000
$
2.94
40,000
(1)
Issued under our Deferred Compensation Plans described under "Management—Deferred Compensation Plans."

ITEM 13. Certain Relationships and Related Transactions

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Professional Services Agreement

In connection with the Recapitalization, the Company entered into
We have a professional services agreement with THL Equity Advisors IV, L.L.C. and Thomas H. Lee Capital, LLC and THL Equity
Advisors IV, LLC.L.L.C., both affiliates of Thomas H. Lee Partners, L.P., which owns UIC Holdings, L.L.C., our majority owner. The professional services agreement has a term of three years, beginning January 20, 1999, and automatically extends for successive one yearone-year periods thereafter, unless the parties give 30
days'either party gives thirty days notice prior to the end of the term. The agreement provides for a
financial advisory fee of $12.0 million in connection with structuring,
negotiating and arrangingUnder the Recapitalization and structuring, negotiating
and arranging the debt financing, which was paid at the closingterms of the Recapitalization. In addition, Thomas H. Lee Capital, LLC andagreement, THL Equity Advisors IV, LLC will initially receive an aggregate ofL.L.C. receives $62,500 per month for management and other consulting services provided to us. The agreement also
provides that the Company will reimburse reasonableus and reimbursement of any related out-of-pocket expenses
incurred in connection with management advisory services. The Company believes
that the termsexpenses. During each of the professional servicesyears 2000 through 2002, we paid $0.75 million under this agreement, are comparable to those
that would have been obtained by unaffiliated sources.

21
which is included in selling, general and administrative expenses in our consolidated statements of operations included elsewhere in this Annual Report.
43

Stockholders Agreement

In connection with the Recapitalization, the Company
We have entered into a stockholders agreement with UIC Holdings, L.L.C., and certain other stockholders of
the Company.stockholders. Under the stockholders agreement, theour Class A common stockholders are required to vote their shares of capitalcommon stock of the Company for any sale or reorganization of the Company that has been approved by the Company's boardour Board of directorsDirectors or a majority of the stockholders. The stockholders agreement also grants the stockholders the right to effect the registration of their common stock they hold for sale to the public, subject to somecertain conditions and limitations. If the Company proposeswe elect to register any of the Company'sour equity securities under the Securities Act of 1933, as amended, the stockholders are entitled to notice of such registration, subject to somecertain conditions and limitations. Fees,Under the stockholders agreement, we are responsible to pay costs and expenses of the registration effected on behalf of the stockholders, under the stockholders agreement, other than underwriting discounts and commissions, will be paid by the Company.

commissions.
Recapitalization Agreement
The Company's Recapitalization Agreementrecapitalization agreement with UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P.,we entered into in connection with our recapitalization in 1999, contains customary provisions, including representations and warranties with respect to the condition and operations of the business, covenants with respect to the conduct of the business prior to the Recapitalizationour recapitalization closing date and various closing conditions, including the continued accuracy of the representations and warranties. In general, thethese representations and warranties made in the
Recapitalization agreement survive until the earlier of 10 days following the
delivery of the Company's December 31, 1999, audited financial statements orexpired by April 15, 2000. RepresentationsHowever, representations and warranties with respect to (1) tax matters survive until 30thirty days after the expiration of the applicable statute of limitations; representations with respect to(2) environmental matters survive
untilexpired December 31, 2002. Representations2002; and warranties regarding(3) ownership of stock do not expire. The total consideration paid to redeem the Company'sour common stock wasis subject to adjustments based on the excess taxes of the
Company'sour previous stockholders arising from the Company'sour Section 338(h)(10) election.election under the IRS tax code.
Pursuant to the Recapitalization Agreement and in consideration of payments
received under the Recapitalization Agreement, David C. Pratt and Mark R.
Gale, the Company's former Vice President and Secretary, agreed that for a
period ending on the fourth anniversary of the Recapitalization closing date
not to own, control, participate or engage in any line of business in which
the Company is actively engaged or any line of business competitive with the
Company anywhere in the United States and any other country in which the
Company were doing business at the closing of the Recapitalization.

In addition, each of the stockholders of the Company has agreed that for a
period ending on the fourth anniversary of the Recapitalization closing date
not to contact, approach or solicit for the purpose of offering employment to
or hiring any person employed by us during the four year period.

Pursuant to the Recapitalization, the Companyour recapitalization, we redeemed a portion of the
Company'sour common stock held by the Company'scertain stockholders and UIC Holdings, L.L.C. andwhich were purchased by certain members of the Company'sour senior management purchased a
portion of the Company's common stock from the Company's stockholders.management. In the Recapitalization, Messrs. Bender and Johnstonrecapitalization, certain executives collectively received an aggregate of approximately $4.0 million in cash and an additional $1.7$2.7 million with which the officers purchased the Company's common stock through grantor trusts.

Lease Agreements

The Company leases six facilitiestrusts, which is reflected as a reduction of equity in St. Louis from an affiliate of David
C. Pratt. Fiveour consolidated balance sheets included elsewhere in this Annual Report.
Loans to Chief Executive Officer
On September 28, 2001, we entered into a loan agreement with Robert L. Caulk, our President, Chief Executive Officer and Chairman of the leases expireBoard of Directors, for $400,000 which matures on September 28, 2006 (the 2001 loan). On March 8, 2002, we entered into a loan agreement with Mr. Caulk for $51,685 which matures on March 8, 2007 (the 2002 loan). The purpose for both loans was to allow Mr. Caulk to purchase shares of our common and preferred stock. Each loan bears interest at LIBOR on its effective date which is subsequently adjusted on each loan's respective anniversary date. The interest rate in effect for the 2002 loan was 1.96% as of December 31, 2002. The interest rate in effect for the 2001 loan was 1.81% as of December 31, 2002 and 2.59% as of December 31, 2001. Interest on both loans is payable annually, based on outstanding accrued amounts on December 31 of each year. Principal payments on both loans are based on 25% of the gross amount of each annual bonus awarded to Mr. Caulk and are immediately payable, except that principal payments on the 2002 loan are immediately payable only if all amounts due under the 2001 loan are fully paid. Any unpaid principal and interest on both loans is due upon maturity. The outstanding principal balance for the 2001 loan was $352,000 as of December 31, 2002 and $400,000 as of December 31, 2001. The outstanding principal balance of the 2002 loan was $51,685 as of December 31, 2002. The loans are reflected as a reduction of equity in the consolidated balance sheets included elsewhere in this Annual Report.
44

Leases with Stockholder and Former Executive and Member of the Board of Directors
We lease several of our operating facilities from Rex Realty, Inc., a company that is owned by stockholders who own, in the aggregate, approximately 5% of our common stock and is operated by a former executive and past member of the Board of Directors. The operating leases expire at various dates through December 31, 2010. The Company hasWe have options to terminate thesethe leases on a year-to-yearan annual basis withby giving advance notice of at least 12 months. Oneone year. As of December 31, 2002, notice had been given on one such lease. We lease a portion of our operating facilities from the leases issame company under a sublease agreement expiring on December 31, 2005 but may be extended forwith minimum annual rentals of $0.7 million. We have two additional five-year periodsoptions to renew this lease, beginning January 1, 2006. The Company believesWe believe that the terms of these leases are similar to those negotiatedthat could be obtained from a non-related party in the ordinary course of business. Rent expense under these leases was $2.3 million in 2002, $2.3 million in 2001 and $2.2 million in 2000.
Equity Transactions with UIC Holdings, L.L.C.
To raise equity to partially fund our merger with Schultz in May 2002, we issued 1,690,000 shares each of Class A voting and Class B nonvoting common stock to UIC Holdings, L.L.C., our majority owner, for $16.9 million.
In connection with the Pursell transaction in December 2001, we issued 22,600 shares of Class A nonvoting preferred stock to UIC Holdings, L.L.C. for $1,000 per share, the fair value as determined by unrelated partiesthe Board of Directors using a multiple of cash flows method, for net cash proceeds of $22.0 million and stock purchase warrants for a 10-year option to purchase up to 3,150,000 shares each of our Class A voting and Class B nonvoting common stock for $3.25 per share, the fair value of the shares of our common stock at arms length.

22
the time the warrants were issued as determined by the Board of Directors using a multiple of cash flows method.
In November 2000, we issued 15,000 shares of Class A nonvoting preferred stock to UIC Holdings, L.L.C. for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, for net cash proceeds of $15.0 million and stock purchase warrants for a 10-year option to purchase up to 1,600,000 shares each of our Class A voting and Class B nonvoting common stock for $2.00 per share, the fair value of the shares of our common stock at the time the warrants were issued as determined by the Board of Directors using a multiple of cash flows method.

ITEM 14. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the Evaluation Date) within 90 days before the filing date of this report, have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to us and our consolidated subsidiaries required to be included in our periodic filings under the Exchange Act.
Internal Controls
Since 2001, we have been in the process of developing an enterprise resource planning, or ERP, system on a company wide basis. As we believe is the case in most system changes, the development and eventual implementation of these systems has necessitated changes in operating policies and procedures and the related internal controls and their method of application. We believe that throughout this process, we have maintained internal accounting control systems that are adequate to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, and which produce adequate records for preparation of financial information.
45

PART IV

Item 14. Exhibits,
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a.
The following documents are filed as part of this Annual Report:

1.
Financial Statements.
The financial statements, notes thereto and reports of independent accountants are listed in the Index to Financial Statements and Financial Statement Schedule on page F-1.
2.
Financial Statement Schedules.
The financial statement schedule filed as part of this Annual Report is listed in the Index to Financial Statements and Financial Statement Schedule on page F-1. Schedules and other than the one listed on such index 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.
3.
The Exhibit Index begins on page 44.

b.
Reports on Form 8-K.

8-K
On December 9, 2002, we filed a current report on Form 8-K pursuant to Item 4, to announce our acquisition of WPC Brands, Inc.
46

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

Page UNITED INDUSTRIES CORPORATION,
Registrant

Dated: March 19, 2003

By:
/s/ ROBERT L. CAULK
Robert L. Caulk
Chairman of 10-K
-------

1.the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of United Industries Corporation in the capacities and on the dates indicated.
Signature Title Date

/s/ ROBERT L. CAULK
Robert L. Caulk Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) March 19, 2003

/s/ DANIEL J. JOHNSTON
Daniel J. Johnston

Executive Vice President and Chief Financial StatementsOfficer, Director (Principal Financial Officer and Principal Accounting Officer)

March 19, 2003

/s/ C. HUNTER BOLL
C. Hunter Boll

Director

March 19, 2003

/s/ CHARLES A. BRIZIUS
Charles A. Brizius

Director

March 19, 2003

/s/ JOHN W. FROMAN
John W. Froman

Director

March 19, 2003

/s/ DAVID A. JONES
David A. Jones

Director

March 19, 2003

/s/ GARY M. RODKIN
Gary M. Rodkin

Director

March 19, 2003

/s/ SCOTT A. SCHOEN
Scott A. Schoen

Director

March 19, 2003
47

CERTIFICATIONS
I, Robert L. Caulk, certify that:
1.
I have reviewed this annual report on Form 10-K of United Industries Corporation;

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

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

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

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

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

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

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

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

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

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

Dated: March 19, 2003

By:
/s/ ROBERT L. CAULK
Robert L. Caulk
President and Chief Executive Officer
48
I, Daniel J. Johnston, certify that:
1.
I have reviewed this annual report on Form 10-K of United Industries Corporation;

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

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

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

Dated: March 19, 2003

By:
/s/ DANIEL J. JOHNSTON
Daniel J. Johnston
Executive Vice President and
Chief Financial Statement Schedules CoveredOfficer
49

EXHIBIT INDEX
Exhibit
Number Exhibit Description
3.1 Amended and Restated Certificate of Incorporation of the Company, dated
January 13, 1999. (1)
3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, dated January 20, 1999. (1)
3.3 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, dated November 9, 2000. (4)
3.4 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company dated December 13, 2001.
3.5 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company dated May 7, 2002.
3.6 By-laws of the Company. (1)
4.1 Securities Purchase Agreement, dated as of March 19, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities L.L.C. (1)
4.2 Indenture, dated as of March 24, 1999, between the Company and State Street Bank and Trust Company as Trustee with respect to the⁹⁷/8% senior subordinated notes due 2009 (including the form of⁹⁷/8% senior subordinated notes). (1)
4.3 Registration Rights Agreement, dated as of March 24, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities L.L.C. (1)
10.1 United Industries Corporation Deferred Compensation Plan. (1)
10.2 Management Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian. (1)†
10.3 Management Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender. (1)†
10.4 Management Agreement, dated as of January 20, 1999, between the Company and William P. Johnson. (1)†
10.5 Management Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston. (1)†
10.6 Consulting Agreement, dated as of January 20, 1999, between the Company and David A. Jones. (1)
10.7 United Industries Corporation 1999 Stock Option Plan. (1)†
10.8 United Industries Corporation 2001 Stock Option Plan. (4)†
10.9 Stock Option Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian. (1)†
10.10 Stock Option Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender. (1)†
10.11 Stock Option Agreement, dated as of January 20, 1999, between the Company and William P. Johnson. (1)†
10.12 Stock Option Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston. (1)†
10.13 Stock Option Agreement, dated as of January 20, 1999, between the Company and David A. Jones. (1)
10.14 Stockholders Agreement, dated as of January 20, 1999, among the Company and the Stockholders (as defined therein). (1)
10.15 Professional Services Agreement, dated as of January 20, 1999, between THL Equity Advisors IV, L.L.C., Thomas H. Lee Capital, L.L.C. and the Company. (1)
50
10.16 Amended and Restated Credit Agreement dated as of March 24, 1999 among the Company, NationsBanc Montgomery Securities L.L.C., Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce, NationsBank, N.A., the Initial Lenders (as defined therein), the Swing Line Bank (as defined therein) and the Initial Issuing Bank
(as defined therein). (1)
10.17 Amendment No. 4 dated as February 13, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities LLC (formerly known as NationsBanc Montgomery Securities L.L.C.), Morgan Stanley Senior Funding, Inc. Canadian Imperial Bank of Commerce. (5)
10.18 Amendment No. 5 dated as May 8, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce. (6)
10.19 Amendment No. 6 dated as June 14, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce. (7)
10.20 Amendment No. 7 dated as of September 30, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce. (8)
10.21 Amendment No. 8 dated as of November 4, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce. (8)
10.22 Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.23 First Amendment dated as of August 31, 1987 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.24 Second Amendment dated as of March 2, 1990 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.25 Third Amendment dated as of April 3, 1992 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.26 Fourth Amendment dated as of June 6, 1994 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
51
10.27 Fifth Amendment dated as of October 1, 1996 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.28 Lease, dated as of December 1, 1995, between Rex Realty Co. and the Company. (1)
10.30 Lease, dated as of November 27, 1989, between Rex Realty Co. and the Company. (1)
10.31 Exchange Agreement dated as of June 14, 2002, among Bayer Corporation, an Indiana corporation, Bayer Advanced L.L.C., a Delaware limited liability company, and the Company.*(7)
10.32 In-Store Service Agreement dated as of June 7, 2002 among the Company, Bayer Corporation, an Indiana corporation, and Bayer Advanced L.L.C., a Delaware limited liability company.*(7)
10.33 Supply Agreement dated as of June 14, 2002 between Bayer Corporation, an Indiana corporation, and the Company.*(7)
21.1 Subsidiaries.
99.1 Risk Factors.
99.2 Form of Letter of Transmittal. (2)
99.3 Form of Letter of Notice of Guaranteed Delivery. (2)
99.4 Form of Tender Instructions. (2)
(1)
Previously filed as an Exhibit to Registrant's Registration Statement on Form S-4 (No. 333-76055) filed on April 9, 1999 and incorporated by reference herein.

(2)
Previously filed as an Exhibit to Registrant's Registration Statement on Form S-4/A (No. 333-76055) filed on July 22, 1999 and incorporated by reference herein.

(3)
Previously filed as an Exhibit to the Registrant's Form 10-K filed on March 30, 2000 and incorporated by reference herein.

(4)
Previously filed as an Exhibit to the Registrant's Form 10-K filed on April 20, 2001 and incorporated by reference herein.

(5)
Previously filed as an Exhibit to the Registrant's Form 8-K filed on February 16, 2002 and incorporated by reference herein.

(6)
Previously filed as an Exhibit to the Registrant's Form 8-K filed on May 24, 2002 and incorporated by reference herein.

(7)
Previously filed as an Exhibit to the Registrant's Form 10-Q filed on August 14, 2002 and incorporated by reference herein.

(8)
Previously filed as an Exhibit to the Registrant's Form 10-Q filed on November 12, 2002 and incorporated by reference herein.

(*)
Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

(†)
Management contract or compensatory plan.
52

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Accountants. 24

The Financial Statements listed below are included in this Report:Accountants

F-2
Consolidated Balance Sheets atas of December 31, 19992002 and 1998 252001 F-3
Consolidated Statements of Operations and Comprehensive Income for the years endedYears Ended December 31, 1999, 19982002, 2001 and 1997 262000 F-4
Consolidated Statements of Cash Flows for the years endedYears Ended December 31, 1999, 19982002, 2001 and 1997 272000 F-5
Consolidated Statements of Shareholders' (Deficit) EquityChanges in Stockholders' Deficit for the years endedYears Ended December 31, 1999, 19982002, 2001 and 1997 28
2000 F-6
Notes to Consolidated Financial Statements 29 F-7
Report of Independent Accountants on Financial Schedules not included have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

2. Exhibits--See Exhibit Index.

3. Reports on Form 8-K filed during the last quarter of 1999:

None.
Statement Schedule F-40
Schedule II—Valuation and Qualifying Accounts F-41

23
F-1
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS

Board of Directors and Stockholders of
United Industries Corporation St. Louis, Missouriand Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations shareholders' (deficit) equity and comprehensive income, of cash flows, and of changes in stockholders' deficit present fairly, in all material respects, the financial position of United Industries Corporation and its subsidiaries at December 31, 19992002 and 1998,2001, and the results of itstheir operations and itstheir cash flows for each of the three years in the period ended December 31, 1999 and 19982002 in conformity with accounting principles generally accepted in the United States.States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The financial statements of
the Company for the year ended December 31, 1997 were audited by other
independent accountants whose report dated our opinion.
February 25, 1998 expressed an
unqualified opinion on those statements.

/S/ PRICEWATERHOUSECOOPERS LLP
12, 2003
St. Louis, Missouri
February 17, 2000

24
F-2

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 1999 and 1998
(Dollars

(Dollars in thousands)

December 31,
-------------------
1999 1998
--------- --------
ASSETS

Current assets:
Cash and cash equivalents............................... $ -- $ --
Accounts receivable (less allowance for doubtful
accounts of $60 at December 31, 1999 and 1998)......... 20,136 17,650
Inventories............................................. 53,243 41,444
Prepaid expenses........................................ 3,501 2,172
--------- --------
Total current assets.................................. 76,880 61,266
Equipment and leasehold improvements, net................. 27,860 20,156
Deferred income tax....................................... 116,268 --
Other assets.............................................. 20,870 6,948
Investment in discontinued operations..................... -- 5,791
--------- --------
Total assets.......................................... $ 241,878 $ 94,161
========= ========

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current liabilities:
Current maturities of long-term debt and capital lease
obligation............................................. $ 12,178 $ 929
Accounts payable........................................ 25,507 18,519
Accrued expenses........................................ 28,435 12,705
--------- --------
Total current liabilities............................. 66,120 32,153
Long-term debt............................................ 349,125 3,716
Capital lease obligation.................................. 7,952 --
Other liabilities......................................... 5,483 35
--------- --------
Total liabilities..................................... 428,680 35,904

Commitments and contingencies (see notes 16 & 17) -- --

Stockholders' (deficit) equity:
Common stock............................................ 554 2
Additional paid-in capital.............................. 126,865 972
(Accumulated Deficit)/retained earnings................. (311,521) 70,193
Common stock held in grantor trust...................... (2,700) --
Treasury stock.......................................... -- (12,910)
--------- --------
Total stockholders' (deficit) equity.................. (186,802) 58,257
--------- --------
Total liabilities and stockholders' (deficit) equity.. $ 241,878 $ 94,161
========= ========
thousands, except share data)
December 31,
2002 2001
ASSETS
Current assets:
Cash and cash equivalents $ 10,318 $ —
Accounts receivable, less allowance for doubtful accounts of $3,171 and $1,147, respectively 23,321 21,585
Inventories 87,762 49,092
Prepaid expenses and other current assets 11,350 6,491
Total current assets 132,751 77,168
Equipment and leasehold improvements, net 34,218 27,930
Deferred tax asset 105,141 112,505
Goodwill and intangible assets, net 100,868 43,116
Other assets, net 13,025 11,837
Total assets $ 386,003 $ 272,556
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt and capital lease obligation $ 9,665 $ 5,711
Accounts payable 27,063 23,459
Accrued expenses 45,221 34,006
Short-term borrowings — 23,450
Total current liabilities 81,949 86,626
Long-term debt, net of current maturities 391,493 318,386
Capital lease obligation, net of current maturities 3,778 4,221
Other liabilities 5,019 7,740
Total liabilities 482,239 416,973
Commitments and contingencies
Stockholders' deficit:
Preferred stock (37,600 shares of $0.01 par value Class A issued and outstanding, 40,000 shares authorized) — —
Common stock (33.1 million shares each of $0.01 par value Class A and Class B issued and outstanding, 43.6 million shares of each authorized at December 31, 2002; 27.7 million shares of each issued and outstanding and 37.6 million shares of each authorized at December 31, 2001) 664 556
Warrants and options 11,745 11,745
Additional paid-in capital 210,480 152,943
Accumulated deficit (287,592 ) (306,048 )
Common stock subscription receivable (25,761 ) —
Common stock repurchase option (2,636 ) —
Common stock held in grantor trust (2,700 ) (2,700 )
Loans to executive officer (404 ) (400 )
Accumulated other comprehensive loss (32 ) (513 )
Total stockholders' deficit (96,236 ) (144,417 )
Total liabilities and stockholders' deficit $ 386,003 $ 272,556
See accompanying notes to consolidated financial statements.

25
F-3

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1999, 1998 & 1997
(DollarsAND COMPREHENSIVE INCOME

(Dollars in thousands)
For the years ended
December 31,
---------------------------
1999 1998 1997
-------- -------- --------

Net sales......................................... $304,048 $282,676 $242,601
-------- -------- --------
Operating costs and expenses:
Cost of goods sold.............................. 150,344 140,445 128,049
Advertising and promotion expenses.............. 29,182 31,719 25,547
Selling, general and administrative expenses.... 70,886 61,066 52,092
Recapitalization transaction fees............... 10,690 -- --
Change of control bonuses....................... 8,645 -- --
Severance charges............................... 2,446 -- --
Non-recurring litigation charges................ 1,647 2,321 --
-------- -------- --------
Total operating costs and expenses............ 273,840 235,551 205,688
-------- -------- --------
Operating income.................................. 30,208 47,125 36,913
Interest expense.................................. 35,223 1,106 1,267
-------- -------- --------
(Loss) income before provision for income taxes,
discontinued operations and extraordinary item... (5,015) 46,019 35,646
Income tax expense................................ 4,257 992 726
-------- -------- --------
(Loss) income from continuing operations, before
extraordinary item............................... (9,272) 45,027 34,920
Income from discontinued operations, net of tax... -- 1,714 1,923
-------- -------- --------
(Loss) income before extraordinary item........... (9,272) 46,741 36,843
Extraordinary loss from early extinguishment of
debt, net of income tax
benefit of $1,425................................ 2,325 -- --
-------- -------- --------
Net (loss) income................................. $(11,597) $ 46,741 $ 36,843
======== ======== ========

Years Ended December 31,
2002 2001 2000
CONSOLIDATED STATEMENTS OF OPERATIONS:
Net sales before promotion expense $ 521,286 $ 297,776 $ 288,618
Promotion expense 41,296 24,432 22,824
Net sales 479,990 273,344 265,794
Operating costs and expenses:
Cost of goods sold 305,644 148,371 146,229
Selling, general and administrative expenses 113,162 74,689 69,099
Facilities and organizational rationalization — 5,550 —
Dursban related expenses — — 8,000
Total operating costs and expenses 418,806 228,610 223,328
Operating income 61,184 44,734 42,466
Interest expense, net 32,410 35,841 40,973
Income before income tax expense 28,774 8,893 1,493
Income tax expense 3,438 2,167 134
Net income $ 25,336 $ 6,726 $ 1,359
Preferred stock dividends $ 6,880 $ 2,292 $ 320
Net income available to common stockholders $ 18,456 $ 4,434 $ 1,039
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME:
Net income $ 25,336 $ 6,726 $ 1,359
Other comprehensive income, net of tax:
Income (loss) on interest rate swap 513 (513 ) —
Loss on derivative hedging instruments (32 ) — —
Comprehensive income $ 25,817 $ 6,213 $ 1,359
See accompanying notes to consolidated financial statements.

26
F-4

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 1999, 1998 & 1997
(Dollars

(Dollars in thousands)
For the years ended
December 31,
-----------------------------
1999 1998 1997
--------- -------- --------

Cash flows from operating activities:
Net (loss) income............................... $ (11,597) $ 46,741 $ 36,843
Loss from early extinguishment of debt.......... 3,750 -- --
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations............. -- (1,714) (1,923)
Deferred compensation........................... 2,700 -- --
Depreciation and amortization................... 4,715 3,838 3,597
Loss on disposal of equipment................... 54 31 97
Recapitalization transaction fees............... 10,690 -- --
Amortization of deferred financing fees......... 1,991 -- --
Provision for deferred income tax expense....... 2,832 -- --
Changes in assets and liabilities:
(Increase) in accounts receivable.............. (2,486) (124) (5,410)
(Increase) decrease in inventories............. (11,799) 193 (6,608)
(Increase) decrease in prepaid expenses........ (57) (476) 92
Increase in accounts payable and accrued
expenses...................................... 22,718 2,411 8,565
Decrease in other assets....................... 52 -- --
Other, net..................................... (129) (137) (117)
--------- -------- --------
Cash flow from continuing operations.......... 23,434 50,763 35,136
Cash flow from discontinued operations........ -- 1,858 1,896
--------- -------- --------
Net cash provided by operating activities..... 23,434 52,621 37,032
Investing activities:
Purchases of equipment and leasehold
improvements................................... (3,038) (3,628) (5,138)
--------- -------- --------
Cash used by investing activities--continuing
operations..................................... (3,038) (3,628) (5,138)
Cash used by investing activities--discontinued
operations..................................... -- (221) (422)
--------- -------- --------
Net cash used by investing activities......... (3,038) (3,849) (5,560)
Financing activities:
Redemption of treasury stock.................... (350,895) -- --
Transaction costs related to the redemption of
common stock................................... (11,378) -- --
Recapitalization transactions/redemptions with
affiliate...................................... (4,249) -- --
Issuance of common stock........................ 1,990 -- --
Shareholder equity contribution................. 8,425 -- --
Debt issuance costs............................. (19,934) -- --
Proceeds from the issuance of debt.............. 670,205 -- --
Payment on debt................................. (314,810) (3,997) (10,177)
Repayment of note receivable from employee...... 250 -- --
Issuance of treasury stock...................... -- (1,173) --
Net advances from (to) affiliates............... -- 3,428 (3,144)
Distributions paid.............................. -- (47,346) (19,008)
--------- -------- --------
Net cash provided by financing activities..... (20,396) (49,088) (32,329)
Net increase (decrease) in cash and cash
equivalents..................................... -- (316) (857)
Cash and cash equivalents--beginning of period... -- 316 1,173
--------- -------- --------
Cash and cash equivalents--end of period......... $ -- $ -- $ 316
========= ======== ========
Supplemental disclosure of cash flow information:
Interest paid................................... $ 31,383 $ 1,584 $ 1,308
Income taxes paid............................... $ 371 $ 567 $ 612
Noncash financing activity:
Execution of capital lease...................... $ 9,215 $ -- $ --
Retirement of treasury stock.................... $ 12,910 $ -- $ --
Treasury stock reissued for shareholder notes... $ -- $ 4,645 $ --

Years Ended December 31,
2002 2001 2000
Cash flows from operating activities:
Net income $ 25,336 $ 6,726 $ 1,359
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization 10,240 4,918 5,261
Amortization of deferred financing fees 3,280 2,691 2,420
Deferred income tax expense 3,438 2,167 134
Noncash reduction of capital lease obligation — — (1,182 )
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable 26,579 (1,641 ) (779 )
Inventories (19,894 ) (2,085 ) 6,236
Prepaid expenses and other current assets (3,283 ) (134 ) (716 )
Other assets 5,995 9 (137 )
Accounts payable and accrued expenses (6,162 ) 11,126 (7,869 )
Facilities and organizational rationalization charge (3,216 ) 5,158 —
Dursban related expenses (82 ) (5,984 ) 6,066
Other operating activities, net (4,373 ) 2,084 —
Net cash flows from operating activities 37,858 25,035 10,793
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (6,450 ) (7,916 ) (3,950 )
Purchase of facilities and equipment from Pursell (4,000 ) — —
Payments for purchase of fertilizer brands — (37,500 ) —
Payments for Schultz merger, net of cash acquired (38,300 ) — —
Payments for WPC Brands acquisition, net of cash acquired (19,500 ) — —
Net cash flows used for investing activities (68,250 ) (45,416 ) (3,950 )
Cash flows from financing activities:
Proceeds from additional term debt 90,000 8,450 15,000
Repayment (borrowings) on cash overdraft (5,620 ) 945 4,103
Repayment of debt assumed in Schultz merger (20,577 ) — —
Repayment of borrowings on term debt (14,943 ) (10,983 ) (26,888 )
Repayments of short-term borrowings (23,450 ) — —
Payments for debt issuance costs (4,700 ) — (1,883 )
Proceeds from issuance of common stock 17,500 — —
Payments received for common stock subscription receivable 2,500 — —
Payments for treasury stock redemption costs — — (12,175 )
Proceeds from issuance of preferred stock — 21,969 15,000
Net cash flows from (used for) financing activities 40,710 20,381 (6,843 )
Net increase in cash and cash equivalents 10,318 — —
Cash and cash equivalents, beginning of period — — —
Cash and cash equivalents, end of period $ 10,318 $ — $ —
Noncash financing activities:
Common stock issued related to Schultz merger $ 6,000 $ — $ —
Common stock issued related to Bayer agreements $ 30,720 $ — $ —
Debt assumed in Schultz merger $ 20,577 $ — $ —
Preferred stock dividends accrued $ 6,880 $ 2,292 $ 320
Execution of capital lease $ — $ — $ 5,344
See accompanying notes to consolidated financial statements.

27
F-5
UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY

For the Years Ended December 31, 1999, 1998 and 1997
(DollarsSTOCKHOLDERS' DEFICIT
(Dollars in thousands)
Common
Stock
Accumulated Class A voting Class B voting Retained held in
other common stocks common stock Additional earnings Grant Treasury stock
comprehensive ------------------ ------------------ paid-in (accumulated or --------------
income Shares Amount Shares Amount capital deficit) Trust Shares Amount
------------- ---------- ------ ---------- ------ ---------- ------------ ------- ------ -------

Balance at
January 1, 1997. $ -- 1,000 $ 1 1,000 $ 1 $ 972 $ 52,963 $ -- (400) $(7,109)
Net income...... 36,843
Other
comprehensive
income..........
Distributions
paid............ (19,008)
Treasury stock
cost adjustment. (214)
Balance at
December 31,
1997............ -- 1,000 1 1,000 1 972 70,798 (400) (7,323)
--------- ---------- ---- ---------- ---- -------- --------- ------- ---- -------
Balance at
January 1, 1998. 1,000 1 1,000 1 972 70,798 -- (400) (7,323)
Net income...... 46,741
Other
comprehensive
income..........
Distributions
paid............ (47,346)
Treasury stock
purchased....... (120) (5,818)
Treasury stock
cost adjustment. 231
Balance at
December 31,
1998............ -- 1,000 1 1,000 1 972 70,193 -- (520) (12,910)
--------- ---------- ---- ---------- ---- -------- --------- ------- ---- -------
Balance at
January 1, 1999. -- 1,000 1 1,000 1 972 70,193 -- (520) (12,910)
Net income
(loss).......... (11,597)
Other
comprehensive
income..........
83,378.37838-
for-1 stock
split and
Treasury stock
redemption...... 27,699,000 277 27,699,000 277 (554) (363,805) 520 12,910
Stock received
and redeemed in
settlement of
shareholder note
purchased....... (50,000) (1) (50,000) (1) (521) --
Common stock
issued.......... 274,000 3 274,000 3 2,738
Spin-off of the
Metals Business. -- (5,791)
Fees and
expenses related
to the
Recapitalization
and equity
transactions.... (688)
Recapitalization
transactions/redemptions
with affiliate.. (544,000) (6) (544,000) (6) (4,237)
Equity
contributed by
senior managers. 270,000 3 270,000 3 2,694 (2,700)
Shareholder
capital
contribution.... 8,425
Tax benefit from
Recapitalization. 117,515
--------- ---------- ---- ---------- ---- -------- --------- ------- ---- -------
Balance at
December 31,
1999............ $ -- 27,650,000 $277 27,650,000 $277 $126,865 $(311,521) $(2,700) $-- $ --
========= ========== ==== ========== ==== ======== ========= ======= ==== =======

Total
Shareholders'
(Deficit)
Equity
-------------

Balance at
January 1, 1997. $ 46,828
Net income...... 36,843
Other
comprehensive
income..........
Distributions
paid............ (19,008)
Treasury stock
cost adjustment. (214)
Balance at
December 31,
1997............ 64,449
-------------
Balance at
January 1, 1998. 64,449
Net income...... 46,741
Other
comprehensive
income..........
Distributions
paid............ (47,346)
Treasury stock
purchased....... (5,818)
Treasury stock
cost adjustment. 231
Balance at
December 31,
1998............ 58,257
-------------
Balance at
January 1, 1999. 58,257
Net income
(loss).......... (11,597)
Other
comprehensive
income.......... --
83,378.37838-
for-1 stock
split and
Treasury stock
redemption...... (350,895)
Stock received
and redeemed in
settlement of
shareholder note
purchased....... (523)
Common stock
issued.......... 2,744
Spin-off of the
Metals Business. (5,791)
Fees and
expenses related
to the
Recapitalization
and equity
transactions.... (688)
Recapitalization
transactions/redemptions
with affiliate.. (4,249)
Equity
contributed by
senior managers. --
Shareholder
capital
contribution.... 8,425
Tax benefit from
Recapitalization. 117,515
-------------
Balance at
December 31,
1999............ $(186,802)
=============
Class A Nonvoting
Preferred Stock Class A Voting
Common Stock Class B Nonvoting
Common Stock
Warrants and Options
Common
Stock
Subscription
Receivable Common
Stock
Repurchasing
Option Common
Stock Held
Grantor
Trust
Accumulated
Other
Comprehensive
Loss
Additional
Paid-in
Capital Accumulated
Deficit Loans to
Executive
Officer Total
Stockholders'
Deficit
Shares Amount Shares Amount Shares Amount Shares Amount
Balance at January 1, 2000 — $ — 27,650,000 $ 277 27,650,000 $ 277 — $ — $ 126,865 $ (311,521 ) $ — $ — $ (2,700 ) $ — $ — $ (186,802 )
Net income — — — — — — — — — 1,359 — — — — — 1,359
Issuance of preferred stock and common stock warrants 15,000 — — — — — 3,200 2,784 12,216 — — — — — — 15,000
Preferred stock dividends — — — — — — — — — (320 ) — — — — — (320 )
��
Balance at December 31, 2000 15,000 — 27,650,000 277 27,650,000 277 3,200 2,784 139,081 (310,482 ) — — (2,700 ) — — (170,763 )
Net income — — — — — — — — — 6,726 — — — — — 6,726
Issuance of common stock — — 71,000 1 71,000 1 — — (2 ) — — — — — — —
Issuance of common stock options — — — — — — 600 456 — — — — — — — 456
Issuance of preferred stock and common stock warrants 22,600 — — — — — 6,300 8,505 13,464 — — — — — — 21,969
Preferred stock dividends — — — — — — — — — (2,292 ) — — — — — (2,292 )
Loan to executive officer — — — — — — — — 400 — — — — (400 ) — —
Unrealized loss on interest rate swap, net of taxes — — — — — — — — — — — — — — (513 ) (513 )
Balance at December 31, 2001 37,600 — 27,721,000 278 27,721,000 278 10,100 11,745 152,943 (306,048 ) — — (2,700 ) (400 ) (513 ) (144,417 )
Net income — — — — — — — — — 25,336 — — — — — 25,336
Issuance of common stock for Schultz acquisition and related financing — — 2,290,000 24 2,290,000 24 — — 22,866 — — — — — — 22,914
Issuance of common stock — — 60,000 — 60,000 — — — 600 — — — — — — 600
Issuance of common stock to Bayer — — 3,072,000 30 3,072,000 30 — — 30,430 — (27,321 ) (2,636 ) — — — 533
Amendment to Bayer agreement — — — — — — — — 3,641 — — — — — — 3,641
Proceeds for subscription receivable, net of interest — — — — — — — — — — 1,560 — — — — 1,560
Preferred stock dividends — — — — — — — — — (6,880 ) — — — — — (6,880 )
Loan to executive officer — — — — — — — — — — — — — (52 ) — (52 )
Payment on loan to executive officer — — — — — — — — — — — — — 48 — 48
Realized loss on interest rate swap, net of taxes — — — — — — — — — — — — — — 513 513
Changes in fair value of derivative hedging instruments — — — — — — — — — — — — — — (32 ) (32 )
Balance at December 31, 2002 37,600 $ — 33,143,000 $ 332 33,143,000 $ 332 10,100 $ 11,745 $ 210,480 $ (287,592 ) $ (25,761 ) $ (2,636 ) $ (2,700 ) $ (404 ) $ (32 ) $ (96,236 )
See accompanying notes to consolidated financial statements.

28
F-6

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars

(Dollars in thousands)

thousands, except share data)
Note 1--Summary1—Description of Business
Under a variety of brand names, the Company manufactures and markets one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents, fertilizer, growing media and soils. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to, and at lower prices than, premium price brands, while our opening price point brands are designed for conscious consumers who want quality products. Our products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and garden centers.
As described further in Note 18, the Company's operations are divided into three business segments: Lawn and Garden, Household and Contract. The Company's lawn and garden brands include, among others, Spectracide®, Garden Safe®, Real-Kill® and No-Pest® in the controls category, as well as Sta-Green®, Vigoro®, Schultz® and Bandini® brands in the lawn and garden fertilizer and growing media categories. The Company's household brands include, among others, Hot Shot®, Cutter® and Repel®. The Contract segment represents non-core products and includes various compounds and chemicals such as, among others, charcoal, water purification tablets, first-aid kits, barbeque sauce, fish attractant, cleaning solutions and automotive products.
Note 2—Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated during consolidation.
Use of Estimates and assumptions
The preparation of financial statements in conformity with U.S.accounting principles generally accepted accounting principlesin the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities theand disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reportedreporting period. Actual results could differ from those estimates.
Cash and cash equivalentsEquivalents
The Company considers all highly liquid investment instruments purchasedinvestments with an original maturitymaturities of three months or less to be cash equivalents. These investments are recorded at cost which approximates market value.
Inventories
Inventories are statedreported at the lower of cost or market, with cost beingmarket. Cost is determined using a standard costing system that approximates the first-in, first-out method. Costmethod and includes raw materials, direct labor and overhead. ProvisionAn allowance for potentially obsolete or slow-moving finished goods and raw materialsinventory is maderecorded based on management'sthe Company's analysis of inventory levels and future sales forecasts. EquipmentIn the event that estimates of future usage and sales differ from actual results, the allowance for obsolete or slow-moving inventory may be adjusted. For the years ended December 31, 2002, 2001 and 2000, amounts recorded for potentially obsolete or slow-moving inventory were $5.4 million, $2.7 million and $0.3 million, respectively. As of
F-7

December 31, 2002 and 2001, the allowance for potentially obsolete or slow-moving inventory was $5.8 million and $2.7 million, respectively.
Capitalized Software Costs
Capitalized software costs are included in equipment and leasehold improvements in the accompanying consolidated balance sheets. Once the underlying assets are placed into service, costs are amortized using the straight-line method over periods of related benefit ranging from three to five years. As of December 31, 2002 and 2001, the Company had $4.4 million and $3.5 million, respectively, in unamortized capitalized software costs related primarily to the Company's enterprise resource planning (ERP) implementation, including capitalized internal costs in 2002 of $0.4 million. No internal costs were capitalized in 2001. The Company expects to place certain modules of the ERP system into service and begin recognizing amortization expense thereon in the fourth quarter of 2003 and finalize the implementation in 2004. Related amortization expense was $0.1 million during each of the years ended December 31, 2002, 2001 and 2000.
Equipment and Leasehold Improvements
Expenditures for equipment and leasehold improvements and those whichthat substantially increase the useful lives of equipmentassets are capitalized.capitalized and recorded at cost. Maintenance, repairs and minor renewals are expensed as incurred. When equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any related gains or losses on
the dispositions are reflected in earnings. Depreciation is computed onrecorded using the straight-line basis by charges to costs or expenses at rates based onmethod over management's estimate of the
estimated useful lives of the related assets. Machinery and equipment are depreciated over periods ranging from three to twelve years. Office furniture and equipment are depreciated over periods ranging from five to ten years. Automobiles and trucks are depreciated over periods ranging from three to seven years. Leasehold improvements are amortized over periods rangingthe shorter of the lease term or the useful life of the related asset which generally ranges from five to thirty-nine years. Property held under capital lease is amortized over the term of the lease.
Goodwill and Intangible Assets
The Company has acquired intangible assets or made acquisitions in the past that resulted in the recording of goodwill or intangible assets. Under generally accepted accounting principles previously in effect, these assets were amortized over their estimated useful lives, and were tested periodically to determine if they were recoverable from operating earnings on an undiscounted basis over their useful lives. Beginning in 2002, the Company ceased to amortize goodwill but evaluates it annually for impairment as part of its annual planning process, or if events or changes in circumstances indicate the carrying amount may not be recoverable. If recovery is not reasonably assured, an appropriate adjustment using current market values, estimates of discounted future cash flows and other methods is made. Prior to 2002, goodwill was amortized using the straight-line method over 40 years and recorded in selling, general and administrative expenses (see Note 7).
Long-Lived Assets
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets Theand for long lived assets to be disposed of and supersedes SFAS
F-8

No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 144, the Company continuallyperiodically evaluates whether events and circumstances have
occurred that indicate the remaining useful livesrecoverability of long-lived assets, including equipment and leasehold improvements may warrant revisionfor impairment whenever events or changes in circumstances indicate that the remaining balancecarrying amount of equipment
and leasehold improvements may not be recoverable. The measurement of possible
impairment is based on the ability to recover the balance of the equipment and
leasehold improvements from expected future operating cash flows on a
undiscounted basis. In the opinion of management, no such impairment existed
as of December 31, 1999 and 1998.

Goodwill

Goodwill is included in other assets and represents the excess of cost over
the net tangible assets of acquired businesses and is amortized over 40 years.
Subsequent to the acquisition, the Company continually evaluates whether later
events and circumstances have occurred that indicate the remaining useful life
of an intangible asset may warrant revision or that the remaining balance of
an intangible asset may not be recoverable. If a review indicates that the carrying value of such asset is not recoverable based on its undiscounted future cash flows, a loss is recognized for the difference between the fair value of the asset and its carrying value. Adoption of SFAS No. 144 did not have a material impact on the Company's consolidated financial statements.
Derivative Instruments and Hedging Activities
The measurement of possible
impairmentCompany periodically uses interest rate and commodity price derivative hedging instruments to reduce fluctuations in cash flows. Using these agreements, the Company agrees to exchange, at specified intervals, the difference between fixed and variable amounts calculated by reference to an agreed-upon notional amount or index. Derivative hedging instruments are recorded in the consolidated balance sheets as assets or liabilities, as applicable, measured at fair value. The Company does not enter into derivatives or other hedging arrangements for trading or speculative purposes.
Revenue Recognition
Net sales represent gross sales less any applicable customer discounts from list price, customer returns and promotion expense through cooperative programs with retailers. The provision for customer returns is based on historical sales returns and analysis of credit memo and other relevant information. If the abilityhistorical or other data used to recoverdevelop these estimates do not properly reflect future returns, net sales may need to be adjusted. Sales reductions related to returns were $7.4 million, $6.5 million and $7.6 million for the balance of intangible assets
from expected future operating cash flows

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

on an undiscounted basis. Inyears ended December 31, 2002, 2001 and 2000, respectively. Amounts included in the opinion of management, no such impairment
existedallowance for doubtful accounts for product returns were $2.0 million and $0.4 million as of December 31, 19992002 and 1998.

Advertising and promotion expenses2001, respectively.
Promotion Expense
The Company advertises and promotes its products through national and regional media. Products are also advertised and promoted through cooperative programs with retailers. The Company expenses advertisingAdvertising and promotion costs are expensed as incurred, although costs incurred during interim periods are generally expensed ratably in relation to revenues. Management develops an estimate of the amount of costs that have been incurred by the retailers under cooperative programs based on an analysis of specific programs offered to retailers and historical information. Actual costs incurred may differ significantly from estimates if factors such as the level of participation and success of the retailers' programs or other conditions differ from expectations. Promotion expense, including cooperative programs with customers, is recorded as a reduction of sales and was $41.3 million, $24.4 million and $22.8 million for the years ended December 31, 2002, 2001 and 2000, respectively. Accrued advertising and promotion expense was $16.4 million and $12.1 million as of December 31, 2002 and 2001, respectively. In addition, advertising costs are incurred irrespective of promotions. Such costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and were $3.3 million, $1.3 million and $2.4 million for the years ended December 31, 2002, 2001 and 2000, respectively.
F-9

Research and developmentDevelopment
Research and development costs are expensed as incurred and approximated
$1,038, $776are included in selling, general and $592 for 1999, 1998administrative expenses in the accompanying consolidated statements of operations. For the years ended December 31, 2002, 2001 and 1997,2000, research and development costs were $1.3 million, $2.4 million and $1.0 million, respectively.

Revenue recognition

The Company recognizes revenue upon shipment
Shipping and Handling Costs
Certain shipping and handling costs are included in selling, general and administrative expenses in the accompanying consolidated statements of its products. Sales are net
of discountsoperations. These costs primarily comprise personnel and allowances.

Comprehensive income

Comprehensive income is defined as the total of net incomeother general and all other
non-owner changes in equity. The Company has no other items that affect
comprehensive income other than net income.

Income taxes

In conjunctionadministrative costs associated with the Recapitalization, the Company converted from an "S"
corporationCompany's distribution facilities, and to a "C" corporation. As a "C" corporation,lesser extent, some costs related to goods shipped between the Company's facilities. For the years ended December 31, 2002, 2001 and 2000, these costs were $15.7 million, $13.4 million and $12.9 million, respectively. The remaining shipping and handling costs comprise those costs associated with goods shipped to customers and supplies received from vendors and are included in cost of goods sold in the accompanying consolidated statements of operations.
Stock-Based Compensation
The Company accounts for stock options issued to employees in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and applies the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123." Under APB No. 25 and related interpretations, compensation expense is recognized using the intrinsic value method for the difference between the exercise price of the options and the estimated fair value of the Company's common stock on the date of grant. See Note 19 for information regarding stock option activity during the years ended December 31, 2002, 2001 and 2000.
The following table presents net income, as reported, using the intrinsic value method and stock-based compensation included therein, stock-based compensation expense that would have been recorded using the fair value method and pro forma net income that would have been reported had the fair value method been applied:
Years Ended December 31,
2002 2001 2000
Net income, as reported $ 25,336 $ 6,726 $ 1,359
Stock-based compensation expense included in net income, as reported, net of tax — — —
Stock-based compensation expense using the fair method, net of tax 2,709 251 492
Pro forma net income 22,627 6,475 867
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled. Stock-Based CompensationManagement judgment is
F-10

required to determine income tax expense, deferred tax assets and any related valuation allowance and deferred tax liabilities. The Company has recorded a valuation allowance of $104.1 million as of December 31, 2002 due to uncertainties related to the ability to utilize some of the deferred tax assets, primarily consisting of certain net operating loss carryforwards generated in 1999 through 2002 and deductible goodwill recorded in connection with the Company's recapitalization in 1999. The valuation allowance is based on management's estimates of future taxable income by jurisdiction in which the deferred tax assets will be recoverable. In the event that actual results differ from those estimates, or the estimates are adjusted in future periods, the valuation allowance may need to be adjusted, which could materially impact the Company's consolidated financial position and results of operations.
Earnings Per Share
Earnings per share information is not required for presentation as the Company does not have publicly traded stock.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial conditions. The Company is dependent on three customers for stock-based compensationthe majority of its sales, as presented in the following table:
Years Ended December 31,
2002 2001 2000
The Home Depot 33 % 25 % 24 %
Lowe's 23 % 22 % 19 %
Wal-Mart 18 % 17 % 16 %
Total 74 % 64 % 59 %
As of December 31, 2002 and 2001, these three customers were responsible for 62% and 60% of accounts receivable, respectively.
Supplemental Cash Flow Information
During the years ended December 31, 2002, 2001 and 2000, the Company paid interest of $32.4 million, $36.0 million and $40.9 million, respectively, and recognized interest income (which is included in interest expense, net in the consolidated statements of operations) of $1.4 million, $0.1 million and $0.2 million, respectively. During the years ended December 31, 2002, 2001 and 2000, the Company paid income taxes of $0.6 million, $0.1 million and $0.2 million, respectively.
Reclassifications
Certain reclassifications have been made to the prior years' amounts to conform to the current year presentation. In addition, the Company has reclassified its borrowing on cash overdrafts to financing activities from operating activities.
F-11

Note 3—Acquisitions
Schultz Company
On May 9, 2002, a wholly owned subsidiary of the Company completed a merger with and into Schultz Company (Schultz), a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became a wholly owned subsidiary of the Company. The total purchase price included cash payments of $38.3 million, including related acquisition costs of $5.0 million, issuance of 600,000 shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of Class B nonvoting common stock valued at $3.0 million and the assumption of $20.6 million of outstanding debt, which was immediately repaid by the Company at closing. In exchange for cash, common stock and the assumption of debt, the Company received all of the outstanding shares of Schultz. The Company has preliminarily allocated 50% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($19.7 million) and 50% to goodwill ($19.7 million), which is not deductible for tax purposes. The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, the Company was required to write-up the value of inventory acquired from Schultz by $1.5 million to properly reflect its fair value.
This transaction was accounted for using the intrinsicpurchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, management believes that finalization of the allocation will not have a material impact on the consolidated results of operations or financial position of the Company. Completion of the purchase price allocation is expected by the second quarter of 2003.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:
Description
Amount
Current assets $ 40,856
Equipment and leasehold improvements 3,901
Intangible assets 20,632
Goodwill 19,744
Other assets 811
Total assets acquired 85,944

Current liabilities
19,857
Long-term debt 20,662
Other liabilities 1,125
Total liabilities assumed 41,644
Net assets acquired $ 44,300
F-12
The Company's funding sources for the Schultz merger included an additional $35.0 million add-on to Term Loan B of the Company's Senior Credit Facility (see Note 12), an additional $10.0 million add-on to the Company's Revolving Credit Facility, the issuance of 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and the issuance of 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million. The issuance of shares to UIC Holdings, L.L.C. was a condition precedent to the amendment of the Senior Credit Facility. The value method prescribedof the shares issued was determined using $5 per share, the fair value of the Company's common stock ascribed by an independent third party valuation.
WPC Brands, Inc.
On December 6, 2002, a wholly owned subsidiary of the Company completed the acquisition of WPC Brands, Inc. (WPC Brands), a manufacturer and distributor of various leisure-time consumer products, including a full line of insect repellents, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance the Company's insect repellent product lines and to strengthen its presence at major customers. The total purchase price was $19.5 million in Accounting Principles Board Opinion No. 25, "Accountingcash in exchange for Stock Issued to Employees." Compensation cost for stock options, if any,
is measured asall of the outstanding shares of WPC Brands. The Company has preliminarily allocated 75% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($9.7 million) and 25% to goodwill ($3.2 million), which is not deductible for tax purposes. The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, the Company was required to write-up the value of inventory acquired from WPC Brands by $2.0 million to properly reflect its fair value.
This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, management believes that finalization of the allocation will not have a material impact on the consolidated results of operations or financial position of the Company. Completion of the purchase price allocation is expected by the third quarter of 2003.
F-13

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:
Description
Amount
Current assets $ 7,987
Equipment and leasehold improvements 844
Intangible assets 11,294
Goodwill 3,222
Other assets 455
Total assets acquired 23,802

Current liabilities
3,286
Other liabilities 1,016
Total liabilities assumed 4,302
Net assets acquired $ 19,500
The Company's funding source for the WPC Brands acquisition was a portion of the proceeds received from an additional $25.0 million add-on to Term Loan B of the Company's Senior Credit Facility.
In addition, the Company is currently considering selling certain or all of the non-core product lines received in the acquisition of WPC Brands. Total assets represented by these product lines are approximately $1.6 million.
The Company's unaudited consolidated results of operations on a pro forma basis, as if these transactions had occurred on January 1, 2001, include net sales of $556.5 million and $388.3 million for the years ended December 31, 2002 and 2001, respectively, and net income of $28.4 million and $6.8 million for the years ended December 31, 2002 and 2001, respectively. This unaudited pro forma financial information does not purport to be indicative of the consolidated results of operations that would have been achieved had this transaction been completed as of the assumed dates or which may be obtained in the future.
Note 4—Strategic Transactions
On June 14, 2002, the Company and Bayer Corporation and Bayer Advanced, L.L.C. (together referred to herein as Bayer) consummated a strategic transaction. The strategic transaction allows the Company to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. In connection with the strategic transaction, Bayer acquired a minority ownership interest, approximately 9.3% of the issued and outstanding shares of the Company's common stock, under the terms of an Exchange Agreement in exchange for promissory notes due to Bayer from Pursell Industries, Inc. (Pursell) and the execution of the Supply and In-Store Service Agreements.
The Company has the right to terminate the In-Store Service Agreement at any time without cause upon 60 days advance notice to Bayer. Following any such termination, the Company would have 365 days to exercise an option to repurchase all of its stock issued to Bayer and could repurchase the stock at a price based on equations contained in the Exchange Agreement designed in part to represent
F-14

the fair market value of the Company's stockshares at the date of grant overtime such repurchase option is exercised and in part to represent the amount an employee must pay to acquire stock.

Earnings per shareoriginal cost. In accordance with generally accepted accounting principles, earnings per
share information is not presented sincethe event the Company does notexercises this repurchase option, Bayer would have publicly
heldthe right to terminate the Supply Agreement. Because Bayer is both a competitor and a supplier, the Company is constantly reevaluating its relationship with Bayer and the value of this relationship to it, and may decide to terminate the In-Store Service Agreement and exercise its repurchase option at any time.
In consideration for the Supply and In-Store Service Agreements, and in exchange for the promissory notes of Pursell, the Company issued to Bayer 3,072,000 shares of Class A voting common stock.

Note 2--Recapitalizationstock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs. The Company reserved for the entire face value of the Company and non-recurring charges

On January 20, 1999, pursuantpromissory notes due to a Recapitalization agreement with UIC
Holdings, L.L.C. (the "Equity Investor"), which is owned by Thomas H. Lee
Equity Fund IV, L.P. ("THL Fund IV" and, together with its affiliates, the
"THL Parties"),Bayer from Pursell as the Company was recapitalized (the "Recapitalization") in a
transaction in which: (i)did not believe they were collectible and an independent third party valuation did not ascribe any significant value to them.
Based on the Equity Investor purchased common stock from the
Company's existing stockholders for approximately $254.7 million; (ii) the
Company's senior managers purchased common stock from the Company's existing
stockholders for approximately $5.7 million; and (iii)independent third party valuation, the Company usedassigned a fair value of $30.7 million on June 14, 2002 to the net proceeds of a senior subordinated facility (the "Senior Subordinated

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Facility") and borrowings under a Senior Credit Facility (the "Senior Credit
Facility")transaction components recorded relative to redeem a portion of the common stock held byissued to Bayer as follows:
Description
Amount
Common stock subscription receivable $ 27,321
Supply Agreement 5,694
Repurchase option 2,636
In-Store Services Agreement (4,931 )
$ 30,720
Under the requirements of the agreements, Bayer will make payments to the Company which total $5.0 million annually through June 15, 2009, the present value of which equals the value assigned to the common stock subscription receivable, which is reflected in the equity section in the Company's existing stockholders. Followingaccompanying consolidated balance sheet as of December 31, 2002. The common stock subscription receivable will be repaid in 28 quarterly installments of $1.25 million, the Recapitalization,first of which was received at closing on June 17, 2002. The difference between the Equity Investor
owned approximately 91.9%value ascribed to the common stock subscription receivable and the installment payments will be reflected as interest income in the Company's consolidated statements of operations through June 15, 2009.
Bayer has the right to put the shares received back to the Company under the terms of the Company's issued and outstanding common
stock,Exchange Agreement. Bayer can terminate the existing stockholders retained approximately 6.0% andExchange Agreement within the Company's
senior managers owned approximately 2.1%. On January 20, 1999,first 36 months if the total
transaction valueCompany fails to meet certain performance guidelines as established in the In-Store Service Agreement. In conjunction with the termination, Bayer can put the shares received back to the Company within 30 days of the Recapitalization was approximately $652.0 million,
including related fees and expenses, and the implied total equity value
following the Recapitalization was approximately $277.0 million. The total
consideration paid to redeem the Company's common stock was subject to both
upward and downward adjustments based on the Company's working capital on the
datetermination of the Recapitalization and excess taxes of certain stockholders arising
fromExchange Agreement at a price provided for in the Company's Section 338(h)(10) election. In December 1999,Exchange Agreement. The Company believes that the Company
recorded a $7.2 million charge to equity to finalizeput price per share would represent in part the costs associated with
the Recapitalization increasing the total transaction value to $659.2 million.

On January 20, 1999, the Recapitalization was funded by: (i) $225.0 million
of borrowings under the Senior Credit Facility; (ii) $150.0 million of
borrowings under the Senior Subordinated Facility; (iii) $254.7 million equity
investment by the THL Parties through the Equity Investor; (iv) $5.7 million
equity investment by the Company's senior management team; and (v) equity
retained by the Company's existing stockholders having an implied fair market value of approximately $16.6 million.the shares at the time such put option is exercised and in part the original cost.
The Recapitalization was accounted for as a leveraged recapitalization,
which had no impact onvalue of the Company's historical basis of assetsSupply Agreement and liabilities for financial reporting purposes.

During 1999, the Company recorded $31,312 in fees and expensesliability associated with the Recapitalization. The total fees and expenses consist of: (i) fees
and expenses related to the debt and equity transactions, including bank
commitment fees and underwriting discounts and commissions; (ii) professional,
advisory and investment banking fees and expenses; and (iii) miscellaneous
fees and expenses such as printing and filing fees. The fees and expenses that
could be specifically identified as relating to the issuance of debt were
capitalized and will beIn-Store Service Agreement are being amortized over the period in which economic benefits under the Supply Agreement are utilized and the obligations under the In-Store Service Agreement are fulfilled. The Company is amortizing the asset associated with the Supply Agreement to cost of goods sold and currently anticipates the benefit will be recognized over a three to five-year period. The Company is amortizing the obligation associated with the In-Store Service Agreement to revenues over the
F-15

seven-year life of the debt as interest
expense.agreement. In December 2002, the Company and Bayer amended the In-Store Service Agreement to reduce the scope of services provided by approximately 80%. As a result, the Company reduced its obligation under the agreement accordingly and reclassified $3.6 million to additional paid-in capital to reflect the increase in value of the original agreement.
The fees and expensesindependent third party valuation obtained by the Company also indicated that couldvalue should be specifically identified as
relatingascribed to the repurchase option it has under the agreements. The repurchase option is reflected as a reduction of equity transactionsin the accompanying consolidated balance sheet as of December 31, 2002. This amount will be recorded as a component of additional paid-in capital upon exercise or expiration of the option.
Fertilizer Brands
On December 17, 2001, the Company advanced its strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green and Bandini, as well as acquiring licensing rights to the Best® line of fertilizer products, for a cash purchase price of $37.5 million. The brands, which were charged directlyformerly owned by or licensed to equity. Other
transaction fees were allocated between debt and Recapitalization transaction
fees based onPursell, complement the Company's estimateconsumer lawn, garden and insect control products. Pursell continues to manufacture, warehouse and distribute certain fertilizer products for the Company under a long-term agreement. In connection with financing this transaction, the Company issued 22,600 shares of preferred stock for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, and warrants to purchase 6,300,000 shares of common stock initially to UIC Holdings, L.L.C. for net cash proceeds of $22.0 million.
Fertilizer Assets
On October 3, 2002, the Company purchased certain assets from Pursell, which renamed itself U.S. Fertilizer subsequent to the agreement, for a cash purchase price of $12.1 million and forgiveness of the effort spentPursell promissory notes previously obtained from Bayer, as described above in the activity
giving rise todiscussion of the fee or expense.strategic transaction with Bayer. The allocationassets acquired included certain inventory, equipment at two of feesPursell's facilities and expenses toreal estate at one of the debt, equity and Recapitalization transaction fees is as follows:

Recapitalization
Debt Equity Transaction Fees Totals
------- ------ ---------------- -------

Direct costs..................... $17,205 $688 $ -- $17,893
Allocated costs.................. 2,729 -- 10,690 13,419
------- ---- ------- -------
Total fees and expenses.......... $19,934 $688 $10,690 $31,312
======= ==== ======= =======

During 1999,two facilities.
Also on October 3, 2002, the Company executed a tolling agreement with Pursell, whereby Pursell supplies the Company with fertilizer. The tolling agreement requires the Company to be responsible for certain raw materials, capital expenditures and other related costs for Pursell to manufacture and supply the Company with fertilizer products. The agreement does not require a minimum volume purchase from Pursell, but provides for a fixed monthly payment of $0.7 million through the term of the tolling agreement, which expires on September 30, 2007. The fixed monthly payment is included in the standard costs of our inventories and is not expensed monthly as a period cost. In addition, beginning on March 1, 2004 and on each anniversary thereafter, the fixed payment is subject to certain increases for labor, materials, inflation and other reasonable costs as outlined in the tolling agreement. The agreement provides the Company with certain termination rights without penalty upon a breach of the agreement by Pursell or upon the Company's payment of certain amounts as set forth therein.
F-16

Note 5—Inventories
Inventories consist of the following:
December 31,
2002 2001
Raw materials $ 27,853 $ 11,104
Finished goods 65,750 40,688
Allowance for obsolete and slow-moving inventory (5,841 ) (2,700 )
Total inventories $ 87,762 $ 49,092
Note 6—Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
December 31,
2002 2001
Machinery and equipment $ 39,609 $ 30,279
Office furniture, equipment, and capitalized software 26,299 15,181
Automobiles, trucks and aircraft 6,313 6,157
Leasehold improvements 9,512 7,405
Land and buildings 1,099 —
82,832 59,022
Accumulated depreciation and amortization (48,614 ) (31,092 )
Total equipment and leasehold improvements, net $ 34,218 $ 27,930
For the years ended December 31, 2002, 2001 and 2000, depreciation expense was $7.3 million, $4.7 million and $5.1 million, respectively. As of December 31, 2002 and 2001, the cost of the aircraft held under capital lease was $5.3 million and related accumulated amortization was $3.2 million and $2.0 million, respectively.
F-17

Note 7—Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
December 31, 2002 December 31, 2001
Amortization
Period Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Value Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Value
Intangible assets:
Trade names 25-40 $ 64,025 $ (1,918 ) $ 62,107 $ 37,500 $ — $ 37,500
Supply
agreement 4 5,694 (894 ) 4,800 — — —
Other intangible assets 25 5,401 (52 ) 5,349 — — —
Total intangible assets $ 75,120 $ (2,864 ) 72,256 $ 37,500 $ — 37,500
Goodwill 28,612 5,616
Total goodwill and intangible assets, net $ 100,868 $ 43,116
On January 1, 2002, the Company adopted SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separately from goodwill. SFAS No. 142, among other things, eliminates the amortization of goodwill and indefinite-lived intangible assets and requires them to be tested for impairment at least annually. During 2002, both at adoption and at the end of the year, the Company performed an impairment analysis of its goodwill. No impairment charges resulted from these analyses. Prospectively, the Company will test goodwill for impairment annually, or more frequently as warranted by events or changes in circumstances.
For the year ended December 31, 2002, goodwill recorded various non-recurring chargesin connection with acquisitions was $23.0 million. No amounts were recorded during 2001 or 2000. Changes in the carrying value of goodwill, allocated by segment, for the year ended December 31, 2002 are as follows:
Lawn and
Garden Household Contract Total
Balance at January 1, 2002 $ 3,478 $ 2,079 $ 59 $ 5,616
Goodwill acquired during the year 17,668 4,417 911 22,996
Balance at December 31, 2002 $ 21,146 $ 6,496 $ 970 $ 28,612
F-18
As prescribed by SFAS No. 142, prior period operating results were not restated. However, a reconciliation follows (i) changewhich reflects net income as reported by the Company and adjusted to reflect the impact of control bonusesSFAS No. 142, as if it had been effective for the periods presented:
Years Ended December 31,
2001 2000
Net income, as reported $ 6,726 $ 1,359
Amortization of goodwill, net of tax 46 46
Net income, as adjusted $ 6,772 $ 1,405
Intangible assets include patents, trade names and other intangible assets, which are valued at acquisition through independent appraisals where material, or using other valuation methods. Patents, trade names and other intangible assets are amortized using the straight-line method over periods ranging from 25 to some members40 years. The useful lives of senior management totaling
$8,645, whichintangible assets were contractually requirednot revised as a result of the Recapitalization
(senior management reinvested $2,700adoption of their changeSFAS No. 142.
As described in control bonusesNote 3, on May 9, 2002, a wholly owned subsidiary of the Company completed a merger with and into Schultz. The purchase price included cash payments of $38.3 million, including related acquisition costs of $5.0 million, issuance of 600,000 shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of Class B nonvoting common stock valued at $3.0 million and the assumption of $20.6 million of outstanding debt. The Company has preliminarily allocated 50% of the purchase price in excess of the fair value of net assets acquired to intangible assets and 50% to goodwill. The acquired intangible assets are being amortized over 25 to 40 years.
Also as described in Note 3, on December 6, 2002, a wholly owned subsidiary of the Company completed the acquisition of WPC Brands. The purchase price was $19.5 million in cash. The Company has preliminarily allocated 75% of the purchase price in excess of the fair value of net assets acquired to intangible assets and 25% to goodwill. The acquired intangible assets are being amortized over 25 to 40 years.
As described in Note 4, on December 17, 2001, the Company acquired the Vigoro, Sta-Green and Bandini brand names, as well as licensing rights to the Best line of fertilizer products from Pursell for $37.5 million. The acquired brand names and licensing rights are being amortized over 40 years.
For the years ended December 31, 2002, 2001 and 2000, aggregate amortization expense related to intangible assets was $2.9 million, $0.2 million and $0.2 million, respectively. The following table presents estimated amortization expense for intangible assets during each of the next five years:
Years Ended December 31,
Amount
2003 $ 3,175
2004 3,175
2005 3,175
2006 3,175
2007 1,850
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Note 8—Other Assets
Other assets consist of the following:
December 31,
2002 2001
Deferred financing fees $ 22,432 $ 18,067
Accumulated amortization (10,382 ) (7,102 )
Deferred financing fees, net 12,050 10,965
Other 975 872
Total other assets, net $ 13,025 $ 11,837
Note 9—Accrued Expenses
Accrued expenses consist of the following:
December 31,
2002 2001
Advertising and promotions $ 16,401 $ 12,125
Facilities rationalization 1,563 3,500
Dursban related expenses — 82
Interest 3,777 3,763
Cash overdraft 1,506 7,126
Noncompete agreement 1,770 1,060
Preferred stock dividends 9,492 2,612
Salaries and benefits 4,357 1,983
Severance costs 869 1,679
Other 5,486 76
Total accrued expenses $ 45,221 $ 34,006
Note 10—Charge for Facilities and Organizational Rationalization
During the fourth quarter of 2001, the Company recorded a charge of $8.5 million which included $5.6 million related to facilities and organizational rationalization which primarily affected the Company's common stock through a Grantor Trust); (ii) $2,446Lawn and Garden segment results $2.7 million of severance
charges incurredinventory obsolescense recorded as a result of the President and Chief Executive Officer and
the Senior Vice President, Sales terminating their employment with the
Company; (iii) $1,100 to cost of goods sold forand $.2 million of miscellaneous costs recorded as selling, general and administrative expense. In connection therewith, 85 employees were terminated and provided severance benefits. Approximately $3.5 million of costs associated with the write-offfacilities and organizational rationalization, which related primarily to facility exit costs and resultant duplicate rent payments in 2002, were incurred by December 31, 2002. Amounts remaining in the facilities and organizational rationalization accrual as of its "Citri-
Glow" candle inventory (the Company discontinued this product line during 1999December 31, 2002 represent duplicate rent payments expected through May 2003 and chosecosts associated with the restoration of leased facilities to disposetheir original condition. Such amounts are expected to be incurred by second quarter of 2003.
F-20

The following table presents amounts charged against the facilities and organizational rationalization accrual:
Facilities
Rationalization Severance
Costs Total
Costs
Balance at January 1, 2001 $ — $ — $ —
Provision charged to accrual 3,500 2,050 5,550
Charges against the accrual — (392 ) (392 )
Balance at December 31, 2001 3,500 1,658 5,158
Charges against the accrual (1,937 ) (1,279 ) (3,216 )
Balance at December 31, 2002 $ 1,563 $ 379 $ 1,942
Note 11—Dursban Related Expenses
During the year ended December 31, 2000, the U.S. Environmental Protection Agency (EPA) and manufacturers of the inventory by selling it through discount channels
at prices below cost); and (iv) $900 relatedactive ingredient chlorpyrifos, including Dow AgroSciences L.L.C. which sold chlorphyrifos to deductions taken by customers
for advertising and promotional spending in excess of contractual obligations
for which the Company electedunder the trademark "Dursban™," entered into a voluntary agreement that provided for withdrawal of virtually all residential uses of chlorpyrifos. Formulation of chlorpyrifos products intended for residential use ceased by December 1, 2000 and formulators discontinued the sale of such products to retailers after February 1, 2001. Retailers were not allowed to pursue collection.

Note 3--Discontinued operations

In connectionsell chlorpyrifos products after December 31, 2001. Accordingly, a charge of $8.0 million was recorded in September 2000 for costs associated with this agreement, including customer markdowns, inventory write-offs and related disposal costs, which primarily affected the Recapitalization, the Company formed a wholly owned
subsidiary DW Wej-it, Inc., a Delaware corporation ("DW").Company's Lawn and Garden segment results. All of the company's assetsCompany's accrued costs associated with this agreement and liabilities related toadditional amounts totaling under $0.1 million were incurred by December 31, 2002.
The following table presents amounts charged against the Company's business of
manufacturing and marketing construction anchoring fasteners and providing
contract manufacturing services in metals

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

fabrication (collectively referred to as the "Metals Business") were
contributed to DW. Effective January 1, 1999, the Company distributed allDursban accrual:
2002 2001 2000
Balance at beginning of year $ 82 $ 6,066 $ —
Provision charged to accrual — — 8,000
Charges against the accrual (82 ) (5,984 ) (1,934 )
Balance at end of year $ — $ 82 $ 6,066
F-21
Note 12—Long-Term Debt
Long-term debt, excluding capital lease obligations, consists of the shares of capital stock of DW owned by the Company to its shareholders.

=== ===

The Metals Business is accounted for as a discontinued operation in the
accompanying financial statements. The investment in discontinued operations
at December 31, 1998 is primarily comprised of cash, accounts receivable,
inventory, fixed assets, accounts payable and accrued expenses. Operating
results for the Metals Business have been included in the Statements of
Operations for 1998 and 1997.

Results for discontinued operations are as follows:

December 31,
--------------------
1999 1998 1997
---- ------- -------

Net sales........................................... $-- $18,038 $18,757
Income before income taxes.......................... -- 1,751 1,963
Income tax expense.................................. -- 37 40
---- ------- -------
Income from discontinued operations................. $-- $ 1,714 $ 1,923
==== ======= =======

Note 4--Common stock and stock split

The Company's articles of incorporation previously authorized 20,000 shares
of $1.00 par value Class A Voting shares and 20,000 shares of $1.00 par value
Class B Non-Voting shares. At December 31, 1998, 740 Class A Voting shares and
740 Class B Non-Voting shares were outstanding.

On January 20, 1999, the Company's Board of Directors declared an
83,378.37838 to 1 stock split and increased the Company's authorized capital
to 65.0 million shares, of which 32.5 million have been designated as Class A
Voting Common Stock and 32.5 million have been designated as Class B Non-
Voting Common Stock. As of January 20, 1999, there were 27.6 million shares of
Class A Voting Common Stock outstanding and 27.6 million shares of Class B
Non-Voting Common Stock outstanding. In conjunction with the stock split, the
Company's board of directors reduced the par value of both the Class A Voting
shares and Class B Non-Voting shares to $0.01 per share.

Note 5--Inventories

Inventories are as follows:

December 31,
----------------
1999 1998
------- -------

Raw materials........................................... $ 9,916 $ 7,748
Finished goods.......................................... 44,149 33,696
Allowance for obsolete and slow-moving inventory........ (822) --
------- -------
Total inventories....................................... $53,243 $41,444
======= =======

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Note 6--Equipment and leasehold improvements

Equipment and leasehold improvements are as follows:

December 31,
---------------
1999 1998
------- -------

Machinery and equipment.................................. $26,791 $30,243
Office furniture and equipment........................... 9,606 3,316
Automobiles, trucks and aircraft......................... 9,573 322
Leasehold improvements................................... 6,848 6,793
------- -------
52,818 40,674
Less: accumulated depreciation........................... 24,958 20,518
------- -------
$27,860 $20,156
======= =======

Depreciation expense was $4,495, $3,624 and $3,377 in 1999, 1998 and 1997,
respectively.

Note 7--Other assets

Other assets are as follows:

December 31,
----------------
1999 1998
------- -------

Goodwill................................................ $ 7,988 $ 7,988
Accumulated amortization................................ (1,964) (1,744)
------- -------
6,024 6,244
------- -------
Deferred financing fees................................. 16,184 --
Accumulated amortization................................ (1,991) --
------- -------
14,193 --
------- -------
Other................................................... 653 704
------- -------
Total other assets...................................... $20,870 $ 6,948
======= =======

Note 8--Accrued expenses

Accrued expenses are as follows:

December 31,
---------------
1999 1998
------- -------

Amounts due certain shareholders for recapitalization
costs.................................................. $13,000 $ --
Advertising and promotional expenses.................... 4,799 5,018
Interest expense........................................ 3,840 --
Cash overdraft.......................................... 2,078 3,148
Severance charges....................................... 1,805 --
Settlement charges and litigation expenses.............. 114 2,321
Other................................................... 2,799 2,218
------- -------
Total accrued expenses.................................. $28,435 $12,705
======= =======

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Note 9--Long-term debt and credit facilities

Long-term debt is comprised of the following:
December 31,
----------------
1999 1998
-------- ------

Senior Credit Facility:
Term loan A.......................................... $ 62,500 $ --
Term loan B.......................................... 148,125 --
Revolving credit facility............................ -- --
9 7/8% Series B Registered Senior Subordinated Notes... 150,000 --
Former stockholder note, unsecured, payable in annual
principal instalments of $929 plus interest at the
six-month U.S. Treasury Bill rate in effect on the
first day of each annual period....................... -- 4,645
-------- ------
360,625 4,645
Less portion due within one year....................... (11,500) (929)
-------- ------
Total long-term debt net of current portion............ $349,125 $3,716
======== ======
December 31,
2002 2001
Senior Credit Facility:
Term Loan A $ 28,250 $ 39,205
Term Loan B 222,465 134,488
Revolving Credit Facility — 23,450
9⁷/8% Series B Senior Subordinated Notes 150,000 150,000
400,715 347,143
Less current maturities and short-term borrowings (9,222 ) (28,757 )
Total long-term debt, net of current maturities $ 391,493 $ 318,386
Senior Credit Facility
The Senior Credit Facility, as amended as of December 6, 2002, was provided by Bank of America, N.A. (formerly known as NationsBank, N.A.), Morgan Stanley Senior Funding, Inc. and CIBC Inc.Canadian Imperial Bank of Commerce and consists of (i)(1) a $110,000$90.0 million revolving credit facility (the "revolving credit facility"), under which no
borrowings were outstanding at the closing of the Recapitalization; (ii)Revolving Credit Facility); (2) a $75,000$75.0 million term loan facility ("Term(Term Loan A")A); and (iii)(3) a $150,000$240.0 million term loan facility ("Term(Term Loan B")B). The revolving credit facilityRevolving Credit Facility and Term Loan A mature six years from the closing date of the Senior Credit Facility,on January 20, 2005 and Term Loan B matures seven years from the closing date of the Senioron January 20, 2006. The Revolving Credit Facility. The
revolving credit facilityFacility is subject to a clean-down period during which the aggregate amount outstanding under the revolving credit facilityRevolving Credit Facility shall not exceed $10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. As of December 31, 2002, the clean-down period had been completed and no amounts were outstanding under the Revolving Credit Facility, nor were there any compensating balance requirements.
On February 13, 2002, the Senior Credit Facility was amended to increase Term Loan B from $150.0 million to $180.0 million and provide additional liquidity and flexibility for capital expenditures subsequent to the acquisition of various fertilizer brands in December 2001. The Company incurred $1.1 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the Senior Credit Facility. The amendment did not change any other existing covenants of the Senior Credit Facility.
On May 8, 2002, in connection with the Company's merger with Schultz, the Senior Credit Facility was amended to increase Term Loan B from $180.0 million to $215.0 million, increase the Revolving Credit Facility from $80.0 million to $90.0 million and provide additional flexibility for capital expenditures. The Company incurred $2.2 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the Senior Credit Facility. The amendment did not change any other existing covenants of the Senior Credit Facility.
On December 6, 2002, in connection with the Company's acquisition of WPC Brands, the Senior Credit Facility was amended to increase Term Loan B from $215.0 million to $240.0 million and provide additional flexibility for capital expenditures. The Company incurred $1.1 million in fees related
F-22

to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the Senior Credit Facility. The amendment did not change any other existing covenants of the Senior Credit Facility.
The principal amount of Term Loan A is to be repaid in twenty-three24 consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2005. $10,000 will be payable in each of the first
four years and $17,500 will be repaid in each of the last two years. The principal amount of Term Loan B is to be repaid in twenty-seven28 consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2006. $1,500 will be paid in each of the first six years and
$141,000 will be payable in year seven.
The Senior Credit Facility agreement contains restrictive affirmative, negative and financial covenants. Affirmative and negative convenants putcovenants place restrictions on, among other things, levels of investments, indebtedness, insurance, capital expenditures and capital
expenditures. Financialdividend payments. The financial covenants require the maintenance of certain financial ratios at defined levels. AtAs of and during the years ended December 31, 1999,2002 and 2001, the Company was not in compliance with certain financialall covenants. On January 24, 2000While the Company does not anticipate an event of non-compliance in the foreseeable future, the effect of non-compliance would require the Company to request a waiver or an amendment to the Senior Credit Facility. Amending the Senior Credit Facility agreement was amendedcould result in changes to provide new provisions for financial
covenant requirements and a waiver of the covenant requirements at December
31, 1999. The amendment contains provisions forCompany's borrowing capacity or its effective interest rates. Under the increase inagreements, interest rates upon reaching certain maximum leverage ratios. As part of the amended
agreement, the Company paid bank fees of $862, which will be reflected as
deferred financing fees in January 2000 and amortized over the life of the
debt as interest expense.

Under the new covenants, interest on the revolving credit facility,Revolving Credit Facility, Term Loan A and Term Loan B rangesrange from 2001.50% to 375 basis points4.00% above LIBOR, depending on certain financial ratios. LIBOR was 1.38% as of December 31, 2002 and 1.88% as of December 31, 2001. Unused commitments under the revolving credit facility are subject to a 50 basis point0.5% annual commitment fee. LIBORThe interest rate of Term Loan A was 6.21% at4.67% and 5.43% as of December 31, 1999.2002 and 2001, respectively. The interest rate of Term Loan B was 5.42% and 5.93% as of December 31, 2002 and 2001, respectively.
The Senior Credit Facility may be prepaid at any time in whole or in part at any time without premium or penalty. During 1999,the year ended December 31, 2002, the Company made principal payments of $11.0 million on Term LoansLoan A and B of $12.5$2.0 million and $1.9 million, respectively, were paid,on Term Loan B, which included optional principal prepayments of $5.0$6.3 million and $0.7 on Term Loan A and $1.1 million on Term Loan B. During the year ended December 31, 2001, the Company made principal payments of $9.2 million on Term Loan A and $1.4 million on Term Loan B, respectively.which included optional principal prepayments of $4.1 million on Term Loan A and $0.7 million on Term Loan B. The optional payments were made to remain two quarterly payments ahead of the regular payment schedule. According to the Senior Credit Facility Agreement,agreement, each prepayment on Term Loan A and Term Loan B can be applied

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued) to the next principal repayment installments. Management intends to pay a full year of principal repayment installments in 20002003 in accordance with the terms of the Senior Credit Facility.
The Senior Credit Facility agreement.

Obligations under the Senior Credit Facility areis secured by substantially all of the properties and assets of the Company and substantially all of the
propertiesits current and assets of the Company's future domestic subsidiaries. The Senior Subordinated Facility was redeemed through the issuance of 9
7/8% Senior Subordinated Notes due April 1, 2009. In connection with this
redemption, the Company incurred an extraordinary loss from the early
extinguishment of debt, net of tax of $2,325. In the fourth quarter of 1999,
the Company exchanged the 9 7/8% Senior Subordinated Notes for new notes
registeredborrowings under the securities actSenior Credit Facility are fully and unconditionally guaranteed on a joint and several basis by each of 1933. The new notes are substantially
identical to the old notes.

No borrowings were outstanding underCompany's current subsidiaries and future subsidiaries that may be formed by the $110.0 million revolving credit
facility at December 31, 1999.

There were no compensating balance requirements for the $110.0 million
revolving credit facility at December 31, 1999.Company.
The carrying amount of the Company's obligation under the Senior Credit Facility approximates fair value because the interest rates are based on floating interest rates identified by reference to market rates.
F-23

Senior Subordinated Notes
In November 1999, the Company issued $150.0 million in aggregate principal amount of 9⁷/8% Series B senior subordinated notes (the Senior Subordinated Notes) due April 1, 2009. Interest accrues at a rate of 9⁷/8% per annum, payable semi-annually on April 1 and October 1.
The Company's indenture governing the Senior Subordinated Notes contain a number of significant covenants that could adversely impact the Company's business. In particular, the indenture of the Senior Subordinated Notes limit the Company's ability to:
•
pay dividends or make other distributions;

•
make certain investments or acquisitions;

•
dispose of assets or merge;

•
incur additional debt;

•
issue equity; and

•
pledge assets.
Furthermore, in accordance with the indenture governing the Senior Subordinated Notes, the Company is required to maintain specified financial ratios and meet financial tests. The ability to comply with these provisions may be affected by events beyond the Company's control. The breach of any of these covenants will result in a default under the applicable debt agreement or instrument and could trigger acceleration of the debt under the applicable agreement. Any default under the Company's indenture governing the Senior Subordinated Notes might adversely affect the Company's growth, financial condition and results of operations and the ability to make payments on the Senior Subordinated Notes.
The fair value of the 9 7/8% Senior Subordinated Notes was $137,250 at$151.5 million and $141.0 million as of December 31, 19992002 and 2001, respectively, based on thetheir quoted market price on such dates.
Aggregate future principal payments of the notes at that date.

Aggregate maturities under the Senior Credit Facility (excluding the
revolving credit facility) and the Senior Subordinated Noteslong-term debt, excluding capital lease obligation, as of December 31, 2002 are as follows:
2000............................................................. $ 11,500
2001............................................................. 11,500
2002............................................................. 11,500
2003............................................................. 17,125
2004............................................................. 18,375
Thereafter....................................................... 290,625
--------
$360,625
========

The Company entered into a capital lease agreement in March 1999 for $9.2
million.

Prior to the Recapitalization, the Company had available an unsecured
seasonal working capital line of credit with a bank. The agreement provided
the Company with a maximum $80,000 line of credit. Interest on outstanding
borrowings were payable monthly at a rate not to exceed the bank's LIBOR rate
plus 0.75% or the bank's prime rate less 1.75%. No borrowings were outstanding
at December 31, 1998. This agreement was canceled in conjunction with the
Recapitalization.

The long-term debt outstanding at December 31, 1998 was repaid in
conjunction with the Recapitalization on January 20, 1999.

Years Ended December 31,
Amount
2003 $ 9,222
2004 18,444
2005 168,439
2006 54,610
2007 —
Thereafter 150,000
$ 400,715
Note 10--Treasury stock

On January 20, 1999, the Company redeemed all of its treasury stock. (See
Note 2--Recapitalization of the Company and non-recurring charges.)

On January 30, 1998, the Company purchased 120 shares, which represented
all of the outstanding Common stock of three stockholders for cash of $1,173
and shareholder notes totaling $4,645. In 1998, the Treasury stock was
revalued, resulting in a decrease of $231 in treasury stock.

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

During 1997, the cost of the treasury stock purchased in 1996 was revalued,
resulting in an increase of $214 in treasury stock and long-term debt.

Note 11--Income taxes

Prior to the Recapitalization, the Company had elected "S" corporation
status under provisions of the Internal Revenue Code, and similar provisions
of Missouri tax law. As such, the Company was not liable for federal or
Missouri state income taxes, but rather the stockholders included their
distributive share of the taxable income of the Company on their respective
income tax returns. The Company was under a contractual obligation to its
stockholders to distribute a percentage of net income equal to 110% of the
highest personal income tax rates to provide the stockholders with funds to
make their personal quarterly estimated income tax payments.

In conjunction with the Recapitalization, the Company converted to a "C"
corporation and was subject to federal income tax in 1999. The impact of the
conversion to a "C" corporation was a charge of $2,062, which has been
reflected as income tax expense in the accompanying financial statements.

The income tax expense was allocated as follows:

Year Ended
December 31, 1999
-----------------

Income from continuing operations....................... $ 4,257
Extraordinary item...................................... (1,425)
-------
Total income tax expense............................ $ 2,832
=======

Income tax expense is as follows:

Year Ended
December 31, 1999
-----------------

Current:
Federal............................................... $ --
State and local....................................... --
-------
Total current....................................... --
=======
Deferred:
Federal............................................... 2,569
State and local....................................... 549
C-Corporation conversion charge....................... 2,000
Valuation allowance release........................... (2,286)
-------
Total deferred...................................... 2,832
-------
Income tax expenses..................................... $ 2,832
=======

Income tax expense attributable to the loss from continuing operations
differed from the amounts computed by applying the U.S. Federal income tax
rate of 35% to the loss from operations by the following amounts:

Year Ended
December 31, 1999
-----------------

Computed "expected" tax benefit......................... $(1,755)
Tax effect of:
Non-deductible recapitalization transaction fees...... 3,742
Valuation allowance release........................... (2,286)
C-Corporation conversion charge....................... 2,000
Pre-Recapitalization loss as an "S" corporation....... 1,684
Non-deductible goodwill............................... 77
Non-deductible meals & entertainment expenses......... 35
State and local taxes (net of Federal tax benefit).... 760
-------
Total tax expense on income from continuing
operations......................................... $ 4,257
=======

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Deferred income taxes are as follows:

December 31,
1999
------------

Deferred tax assets:
Goodwill................................................... $ 219,361
NOL carryforward........................................... 10,954
Inventories................................................ 186
Deferred compensation...................................... 1,026
Severance accruals......................................... 686
Other accruals............................................. 485
---------
Gross deferred tax assets.................................. 232,698
---------
Valuation allowance........................................ (115,158)
---------
Total deferred tax assets.................................... 117,540
---------
Deferred tax liabilities:
Equipment and leasehold improvements....................... (2,858)
---------
Net deferred tax assets.................................... $ 114,682
=========

The temporary difference for goodwill results from the step up in tax basis
due to the Recapitalization while maintaining historical basis for book
purposes. This benefit will be realized over 15 years. Based on historical
levels of income and the length of time required to utilize this benefit, a
valuation allowance representing 50% of the total benefit has been
established. The valuation allowance release of $2,286 was recorded to 1999
income tax expense to maintain the 50% valuation allowance against goodwill
and the NOL carryforward created in 1999.

Deferred income tax assets and liabilities are reflected in the balance
sheet as follows:

December 31,
1999
------------

Prepaid expenses............................................. $ 1,272
Deferred income tax.......................................... 116,268
Other liabilities............................................ (2,858)
--------
$114,682
========

Note 12--Stock options

In connection with the Recapitalization, the Company instituted the 1999
Stock Option Plan (the Plan), which is administered by a committee of the
Company's Board of Directors. The Plan was designed as an incentive plan for
selected employees and directors of the Company. The option pool under the
Plan consists of an aggregate of 4,000,000 shares of the Company's common
stock that may consist of shares of the Company's Class A Voting Common Stock,
par value $0.01, the Company's Class B Non-Voting Common Stock, par value
$0.01, or some combination of Class A Voting Common Stock and Class B Non-
Voting Common Stock. A portion of the options become exercisable ratably over
a five-year period beginning on the date of grant. The remaining portion the
options are vested based upon attainment of certain financial and performance
objectives, with a maximum vesting period of 10 years.

Changes in stock options outstanding at December 31, 1999 are summarized
below:

Shares Price
--------- -----

Outstanding at December 31, 1998......................... -- $ --
Granted in connection with the Recapitalization.......... 2,955,000 5.00
Exercised................................................ -- --
Cancelled................................................ -- --
--------- -----
Outstanding at December 31, 1999......................... 2,955,000 $5.00
--------- -----

At December 31, 1999, 1,045,000 shares were available for future grants
under the Plan.

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

The Company has elected to account for stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and not the fair value method as provided by FAS 123, "Accounting
and Disclosure of Stock-Based Compensation." Under APB 25, because the
exercise price of the Company's employee stock options equals the estimated
fair value of the underlying stock on the grant date, no compensation expense
is recognized.

Pro Forma information regarding net income and earnings per share is
required by FASB Statement No. 123, which also requires that the information
be determined as if the Company accounted for its employee stock options
subsequent to December 31, 1994 under the fair value method. The weighted
average fair value of the options estimated at the date of grant using the
Black-Scholes option-pricing model was $2.08. The fair value of the 1999
options granted is estimated on the date of grant using the following
assumptions: expected volatility of 0%, risk-free interest rate of 6.765%, no
dividend yield and an expected life of 5 or 10 years.

Because the Company's employee stock options have characteristics different
than those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
judgment, applying the provisions of FAS 123 does not necessarily provide a
reliable single measure of the fair value of its stock options. It is also not
likely that the current pro forma net income will be representative of pro
forma net income in future years. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options
vesting period.

The Company's pro forma information is as follows:

1999
--------

Pro forma Net Income/(Loss)..................................... $(12,064)

Note 13--Deferred compensation plans

The Company has a 401(k) savings plan, which covers substantially all of
its employees with six months or more continuous service. The 401(k) feature
allows participants to defer a portion of eligible compensation on a tax-
deferred basis. The plan provides for the Company to match 50% of each
employees voluntary contribution up to 6% of gross earnings. The matching
amount increases to 75% after ten years of service. The matching contribution
amounted to $467, $239 and $347 for 1999, 1998 and 1997, respectively.

The Company also sponsors a deferred compensation plan for certain members
of senior management. The plan allows participants to contribute an unlimited
amount of earnings to the plan. The Company does not match contributions to
this plan.

Note 14--Transactions with related parties

In connection with the Recapitalization Agreement, the Company entered into
a professional service agreement with the Thomas H. Lee Company. The agreement
extends for a term of three years, beginning January 20, 1999, and
automatically extends for successive one-year periods thereafter, unless the
parties give 30 days' notice prior to the end of the term. Under the
agreement, the Thomas H. Lee Company will receive $62.5 per month for
management and other consulting services provided to the Company. The
agreement also provides that the Company will reimburse out-of-pocket expenses
incurred in connection with management advisory services. During 1999, the
Company paid $710 under this agreement, which is reflected in selling, general
and administrative expenses in the accompanying statement of operations.

Prior to the Recapitalization, the Company occasionally advanced funds or
received funds from a company with common ownership to the Company. The
advances were unsecured and bore interest at the Company's borrowing rate. The
amounts due from the affiliated company bore interest at 10.5% per year and
were repaid in 1998. In addition, the

Company guaranteed the debt of an affiliated company. The guaranteed debt
amounted to approximately $4,833 at December 31, 1998. This debt guarantee was
terminated in connection with the Recapitalization.

Note 15--Concentration of credit risks, exposures and financial instruments

Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade accounts receivable.
The Company is heavily dependent on four customers for a substantial majority
of its sales. These four customers accounted for approximately 73%, 68% and
64% of net sales for 1999, 1998 and 1997, respectively. At December 31, 1999,
1998 and 1997, accounts receivable from these four customers were 71%, 56% and
51%, respectively, of total accounts receivable. (See Note 18--Segment
information)

The Company performs ongoing credit evaluations of its customers' financial
conditions and generally does not require collateral from its customers. The
Company maintains allowances for potential credit losses, and such losses have
generally been within management's expectations.

The Company does not use any derivative financial instruments to hedge its
exposure to interest rate changes. The Company does utilize various commodity
and specialty chemicals in its production process. The Company does not use
derivative commodity instruments to hedge its exposures to changes in
commodity prices.

The carrying value of cash and short-term financial instruments
approximates fair value due to the short maturity of those instruments.

Note 16--Commitments13—Commitments
The Company leases the majorityseveral of its operating facilities from Rex Realty, Inc., a company owned by stockholders and operated by a significant shareholderformer executive and past member of the Company under variousBoard of Directors of the Company. The operating leases expiringexpire at various dates through December 31, 2010. Rent expense under these operating leases
was approximately $2,415 during 1999. The Company has
F-24

options to terminate the leases on a year-to-yearan annual basis by giving advance notice of at least twelve
months.one year. As of December 31, 2002, notice had been given on one such lease. The Company leases a portion of its operating facilities from the same company under a sublease agreement expiring on December 31, 2005 with minimum annual rentals ranging from $578 to $653.of $0.7 million. The Company has two five-year options to renew this lease, beginning January 1, 2006. Management believes
thatDuring the termsyears ended December 31, 2002, 2001 and expenses associated with the related party leases described
above are similar to those negotiated by unrelated parties at arm's length.
Aggregate2000, rent expense amounted to $5,228, $4,367under these leases was $2.3 million, $2.3 million and $4,320 for 1999, 1998
and 1997,$2.2 million, respectively.
The Company is obligated under otheradditional operating leases for other operations and the use of warehouse space. The leases expire at various dates through December 1, 2006.31, 2015. Five of the leases provide for as many as five five-year options to renew.

The following is a summary of future minimum payments underrenew for five years each. During the operating
leases described above that have initial or remaining noncancelable lease
terms in excess of one year atyears ended December 31, 1999.

Operating Leases
-----------------
Affiliate Other Total
--------- ------- -------

Year Ended December 31,
2000........................................... $ 2,536 $ 2,229 $ 4,765
2001........................................... 2,612 2,307 4,919
2002........................................... 2,690 2,368 5,058
2003........................................... 2,771 2,282 5,053
2004........................................... 2,854 1,860 4,714
Thereafter..................................... 2,939 1,542 4,481
------- ------- -------
Total minimum lease payments................... $16,402 $12,588 $28,990
======= ======= =======

Note 17--Contingencies2002, 2001 and 2000, aggregate rent expense under these leases was $3.8 million, $5.1 million and $5.0 million, respectively.
In March 1999,2000, the Company recorded a non-recurring litigation charge of
$1,500 to primarily reserve for the expected cost of an adverse judgement on a
counterclaim filed by defendants in the case of United Industries

Corporation vs. John Allman, Craig Jackman et al., pending in the U.S.
District Court in Detroit, Michigan; Case No. 97-76147. The Company alleged
that defendants breached contracts by failing to perform various services.
Defendants counterclaimed for sales commissions allegedly earned by them but
not paid to them by the Company. On July 29, 1999, the Company paid $900 in
liquidated damages and $112 in past commissions. The remaining amounts accrued
in connection with the $1,500 charge were primarily used to cover legal costs
associated with this case.

In October 1998, the FTC and several state attorneys general filed a suit
against the Company seeking to enjoin the Company's advertising of Spectracide
Terminate(TM) as a "termite home defense system." The suit alleged that the
Company made deceptive and unsubstantiated claims regarding Spectracide
Terminate(TM); the Company denied the allegations. The Company entered into a settlementcapital lease agreement regardingfor $5.3 million for its advertising claims with the FTC and the
state attorney generals involved in the litigation. All parties without any
issues of fact or law having been adjudicated entered into the settlement
agreement. As part of the settlement, the Company agreed that it would not,
without competent and reliable scientific evidence, represent to consumers
that: (a) use of Spectracide Terminate(TM) alone is effective in preventing
terminate infestations or eliminating active termite infestations; (b)
Spectracide Terminate(TM) provides "protection for you home against
subterranean termites"; and (c) Spectracide Terminate(TM) is a "termite home
defense system" or make any representations comparing the performance of
Spectracide Terminate(TM) to other termite control methods.aircraft. The Company further agreed to apply to the federal EPA to rename the product as
"Spectracide Terminate(TM)" (without reference to "termite home defense
system"). The agreement provides that the Company may describe the product as
a "do-it-yourself termite killing system for subterranean termites." Finally,
in virtually any advertisement that indicates, either expressly or implicitly,
that Spectracide Terminate(TM) kills termites or prevents termite damage or
infestation, the Company agreedis obligated to make the following disclosure: "Not
recommended as sole protection against termites, and for active infestations,
getmonthly payments of $0.1 million, with a professional inspection." The Company recorded non-recurring litigation
charges from this suit totaling $1,121, including $400 paid to 10 states'
attorneys general for reimbursementballoon payment of their legal expenses and $721 for other
legal expenses the Company incurred$3.2 million in connection with this were paid in the
first quarter of 1999.

In March 1998, a judgement for $1,200 was entered against the Company for a
lawsuit filed in 1992 by the spouse of a former employee claiming benefits
from a Company-owned key man life insurance policy.February 2005. The Company has reflected
the judgement amount as non-recurring litigation charges for 1998. On August
24, 1999option of purchasing the Missouri District Court of Appeals, Eastern District, affirmedaircraft following the trial court's decision. On December 1, 1999, after the Missouri Supreme
Court further reviewed the trial courts decision, the Company paid $1,347 in
settlement of this case including legal costs of $88. Settlement and legal
costs in excessexpiration of the original chargelease agreement for a nominal amount.
The following table presents future minimum payments due under operating and capital leases as of $1,200 recorded in 1998 were charged
to non-recurring litigation charges in the fourth quarter of 1999.

The Company is involved in litigation and arbitration proceedings inDecember 31, 2002:
Operating Leases
Years Ended December 31,
Capital
Lease
Affiliate Other Total
2003 $ 1,726 $ 7,146 $ 818 $ 9,690
2004 1,766 6,348 818 8,932
2005 1,806 5,492 3,343 10,641
2006 1,847 4,307 — 6,154
2007 1,887 3,525 — 5,412
Thereafter 10,241 16,899 — 27,140
Total minimum lease payments $ 19,273 $ 43,717 4,979 $ 67,969
Less amount representing interest (758 )
Present value of net minimum lease payments, including current portion of $443 $ 4,221
Note 14—Contingencies
In the normal course of business, that assertthe Company is a party to certain guarantees and financial instruments with off-balance sheet risk, such as standby letters of credit and indemnifications, which are not reflected in the accompanying consolidated balance sheets. At December 31, 2002, the Company had $1.9 million in standby letters of credit pledged as collateral to support the lease of its primary distribution facility in St. Louis, a United States customs bond, certain product liabilitypurchases and other claims.various workers' compensation obligations. These agreements mature at varying dates through October 2003 and may be renewed as circumstances warrant. Such financial instruments are valued based on the amount of exposure under the instruments and the likelihood of performance being required. In the Company's past experience, no claims have been made against these financial instruments nor does management expect any losses to result from them.
F-25

The Company is contesting allthe lessee under a number of equipment and property leases, as described above. It is common in such claims.commercial lease transactions for the Company to agree to indemnify the lessor for the value of the property or equipment leased should it be damaged during the course of the Company's operations. The Company expects that any losses that may occur with respect to the leased property would be covered by insurance, subject to deductible amounts.
The Company has entered into certain derivative hedging instruments and other purchase commitments to purchase granular urea during its peak production season in 2003. See Note 16 for information regarding these commitments.
The Company is involved from time to time in routine legal matters and other claims incidental to its business. When it appears probable in management's judgment that the Company will incur monetary damages or other costs in connection with such claims and proceedings, and such costs can be reasonably estimated, appropriate liabilities are recorded in the consolidated financial statements and charges are maderecorded against earnings. Management believes that it is remote the possibilityresolution of such routine matters and other incidental claims, taking into account established reserves and insurance, will have a material adverse effectimpact on the Company's consolidated financial position, results of operations or liquidity.
Note 15—Stockholders' Equity
In connection with its merger with Schultz in May 2002, the Board of Directors adopted resolutions, which were approved by the Company's stockholders, to amend the Company's Certificate of Incorporation to increase the Company's total authorized Class A voting common stock from 37,600,000 shares to 43,600,000 shares and increase the Company's total authorized Class B nonvoting common stock from 37,600,000 shares to 43,600,000 shares. In addition, as part of the purchase price, the Company issued 600,000 shares of Class A voting common stock valued at $3.0 million and 600,000 shares of Class B nonvoting common stock valued at $3.0 million. In addition, to raise equity to partially fund the merger, the Company issued 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million.
In connection with its transaction with Bayer in June 2002, the Company issued 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs.
In connection with the Company's December 2001 transaction with Pursell, the Board of Directors adopted resolutions, which were approved by the Company's stockholders, to amend the Company's Certificate of Incorporation to:
•
Authorize issuance of 22,600 shares of $0.01 par value Class A nonvoting preferred stock to UIC Holdings, L.L.C. for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, for net cash proceeds of $22.0 million. Dividends accrue at 15% of liquidation value which equals $1,000 per share. Dividends, to the extent not paid on December 31 of each year, are cumulative. As of December 31, 2002 and 2001, 37,600 shares of preferred stock were outstanding and accrued dividends were $9.5 million and $2.6 million, respectively.

•
Increase the Company's total authorized Class A voting common stock from 34,100,000 to 37,600,000 shares to accommodate the granting of stock purchase warrants to UIC
F-26
Holdings, L.L.C., which received a 10-year warrant to purchase up to 3,150,000 shares of Class A voting common stock for $3.25 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method. These stock purchase warrants were issued in conjunction with the preferred stock.
•
Increase the Company's total authorized Class B nonvoting common stock from 34,100,000 to 37,600,000 shares to accommodate the granting of stock purchase warrants to UIC Holdings, L.L.C., which received a 10-year warrant to purchase up to 3,150,000 shares of Class B nonvoting common stock for $3.25 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method. These stock purchase warrants were issued in conjunction with the preferred stock.
The Company valued the 6,300,000 warrants issued above at $1.35 per warrant using the Black-Sholes option pricing model at the date of grant. Accordingly, $8.5 million of the proceeds received from the preferred stock offering were allocated to the warrants.
In November 2000, the Board of Directors adopted resolutions, which were approved by the Company's stockholders, to amend the Company's Certificate of Incorporation to:
•
Authorize issuance of 15,000 shares of $0.01 par value Class A nonvoting preferred stock to UIC Holdings, L.L.C. for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, for net cash proceeds of $15.0 million. Dividends accrue at 15% of liquidation value which equals $1,000 per share. Dividends, to the extent not paid on December 31 of each year, are cumulative.

•
Increase the Company's total authorized Class A voting common stock from 32,500,000 to 34,100,000 shares to accommodate the granting of stock purchase warrants to UIC Holdings, L.L.C., which received a 10-year warrant to purchase up to 1,600,000 shares of Class A voting common stock for $2.00 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method. These stock purchase warrants were issued in conjunction with the preferred stock.

•
Increase the Company's total authorized Class B nonvoting common stock from 32,500,000 to 34,100,000 shares to accommodate the granting of stock purchase warrants to UIC Holdings, L.L.C., which received a 10-year warrant to purchase up to 1,600,000 shares of Class B nonvoting common stock for $2.00 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method. These stock purchase warrants were issued in conjunction with the preferred stock.
The Company valued the 3,200,000 warrants issued at $0.87 per warrant using the Black-Sholes option pricing model at the date of grant. Accordingly, $2.8 million of the proceeds received from the preferred stock offering were allocated to the warrants.
Note 16—Accounting for Derivative Instruments and Hedging Activities
In the normal course of business, the Company is exposed to fluctuations in interest rates and raw materials prices. The Company has established policies and procedures that govern the management of these exposures through the use of derivative hedging instruments, including swap agreements. The Company's objective in managing its exposure to such fluctuations is to decrease the volatility of earnings and cash flows fromassociated with changes in interest rates and certain raw materials prices. To
F-27

achieve this objective, the claimsCompany periodically enters into swap agreements with values that change in the opposite direction of anticipated cash flows. Derivative instruments related to forecasted transactions are considered to hedge future cash flows, and proceedings described abovethe effective portion of any gains or losses is remote.

Note 18--Segment informationincluded in accumulated other comprehensive income until earnings are affected by the variability of cash flows. Any remaining gain or loss is recognized currently in earnings.
During the first half of each year, the price of granular urea, a critical raw material component used in the production of fertilizer, tends to increase significantly in correlation with natural gas prices. The costs of granular urea have generally, but not always, declined during the second half of the year. As of December 31, 2002, the Company had hedged nearly 50%, and had purchase agreements to effectively fix an additional 23%, of its 2003 urea purchases. The average contract price of the Company's derivative hedging instruments as of December 31, 2002, intended to fix the price of forecasted urea prices through April 2003, was approximately $135 per ton. The average purchase price of the Company's purchase agreements as of December 31, 2002 was approximately $130 per ton. While management expects these instruments and agreements to manage the Company's exposure to such price fluctuations, no assurance can be provided that the instruments will be effective in fully mitigating exposure to these risks, nor can assurance be provided that the Company will be successful in passing pricing increases on to its customers.
The Company operates in one segment consistinghas formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting treatment. The cash flows of the manufacturing,
marketingderivative instruments are expected to be highly effective in achieving offsetting cash flows attributable to fluctuations in the cash flows of the hedged risk. Changes in the fair value of agreements designated as derivative hedging instruments are reported as either an asset or liability in the accompanying consolidated balance sheets with the associated unrealized gains or losses reflected in accumulated other comprehensive income. As of December 31, 2002 and distribution2001, unrealized losses of less than $0.1 million and $0.5 million, respectively, related to derivative instruments designated as cash flow hedges were recorded in accumulated other comprehensive income. Such instruments at December 31, 2002 represent hedges on forecasted purchases of raw materials during the first half of 2003 and are scheduled to mature by May 2003. The amounts are subsequently reclassified into cost of goods sold in the same period in which the underlying hedged transactions affect earnings.
If it becomes probable that a forecasted transaction will no longer occur, any gains or losses in accumulated other comprehensive income will be recognized in earnings. The Company has not incurred any gains or losses for hedge ineffectiveness or due to excluding a portion of the value from measuring effectiveness. The Company does not enter into derivatives or other hedging arrangements for trading or speculative purposes.
F-28

The following table summarizes information about the Company's derivative hedging instruments and related gains (losses) as of December 31, 2002 (amounts not in thousands):
Number of
Contracts
Maturity Date Notional
Amount
in Tons Weighted
Average
Contract
Price Contract
Value Upon
Effective
Contract Date Contract
Value at
December 31,
2002 Gain (Loss) at
December 31,
2002
3 January 30, 2003 14,500 $ 133.00 $ 1,928,500 $ 1,916,465 $ (12,035 )
3 February 28, 2003 15,000 135.00 2,025,000 2,010,000 (15,000 )
2 March 28, 2003 10,000 135.50 1,355,000 1,353,300 (1,700 )
1 April 24, 2003 5,000 137.00 685,000 681,650 (3,350 )
9 44,500 $ 5,993,500 $ 5,961,415 $ (32,085 )
The following table summarizes information about the Company's purchase commitments of granular urea as of December 31, 2002 (amounts not in thousands):
Number of
Commitments
Expected
Purchase Month Commitment
Amount
in Tons Weighted
Average
Purchase
Price Value of
Purchase
Commitment on
Commitment Date
3 January 2003 18,750 $ 126.93 $ 2,380,000
2 February 2003 18,500 128.20 2,472,550
5 37,250 $ 4,852,550
In April 2001, the Company entered into two interest rate swaps that fixed the interest rate as of April 30, 2001 for $75.0 million in variable rate debt under the Senior Credit Facility. The interest rate swaps settled on April 30, 2002 and a derivative hedging loss of $0.5 million was reclassified from accumulated other comprehensive income into interest expense.
Note 17—Fair Value of Financial Instruments
The Company has estimated the fair value of its financial instruments as of December 31, 2002 and 2001 using available market information or other appropriate valuation methods. Considerable judgment, however, is required in interpreting data to develop estimates of fair value. Accordingly, the estimates presented in the accompanying consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.
The carrying amounts of cash, accounts receivable, accounts payable and other current assets and liabilities approximate fair value because of the short maturity of those instruments. The Company's Senior Credit Facility bears interest at current market rates and, thus, carrying value approximates fair value as of December 31, 2002 and 2001. The Company is exposed to interest rate volatility with respect to the variable interest rates of this instrument. The estimated fair values of the Company's Senior Subordinated Notes as of December 31, 2002 and 2001 of $151.5 million and $141.0 million, respectively, are based on quoted market prices.
F-29
Note 18—Segment Information
During the third quarter of 2002, the Company began reporting its operating results using three reportable segments: Lawn and Garden, Household and Contract. Segments were established primarily by product type which represents the basis upon which management, including the CEO who is the chief operating decision maker of the Company, reviews and assesses the Company's financial performance. The Lawn and Garden segment primarily consists of dry, granular slow-release lawn fertilizers, lawn fertilizer combination and lawn control products, herbicides, water-soluble and controlled-release garden and indoor plant foods, plant care products, potting soils and other growing media products and insecticide products. Products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and garden carecenters. This segment includes, among others, the Company's Spectracide, Garden Safe, Schultz, Vigoro, Sta-Green, Bandini, Real-Kill, and No-Pest brands.
The Household segment represents household insecticides and insect controlrepellents that allow consumers to achieve and maintain a pest-free household and repel insects. The Household segment includes the Company's Hot Shot, Cutter and Repel brands, as well as a number of private label and other products.
The Contract segment represents mainly non-core products, some of which are private label, and includes various compounds and chemicals such as, among others, charcoal water purification tablets, first-aid kits, barbeque sauce, fish attractant, cleaning solutions and automotive products.
The following tables present selected quarterly financial segment information in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," for the years ended December 31, 2002, 2001 and 2000. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 2, as applicable. The
F-30

segment financial information presented includes comparative periods prepared on a basis consistent with the current year presentation.
Year Ended December 31,
2002 2001 2000
Net sales:
Lawn and Garden $ 352,269 $ 169,267 $ 177,981
Household 108,752 101,186 82,018
Contract 18,969 2,891 5,795
Total net sales $ 479,990 $ 273,344 $ 265,794
Operating income (loss):
Lawn and Garden $ 38,064 $ 24,637 $ 24,309
Household 23,159 20,280 17,814
Contract (39 ) (183 ) 343
Total operating income $ 61,184 $ 44,734 $ 42,466
Operating margin:
Lawn and Garden 10.8% 14.6% 13.7%
Household 21.3% 20.0% 21.7%
Contract -0.2% -6.3% 5.9%
Total operating margin 12.7% 16.4% 16.0% Operating income represents earnings before net interest expense and income tax expense. Operating income is the measure of profitability used by management to retail channels principallyassess the Company's financial performance. Operating margin represents operating income as a percentage of net sales.
The majority of the Company's sales are conducted with customers in the United States. (See Note 3--Discontinued
operations--for a discussion of the spin-off of the Metals Business.) The Company's product lines include herbicides, household insecticides, insect
repellents and water-soluble fertilizers under a varietyinternational sales comprise less than 1% of brand names. The
product lines are as follows:

Value brands
. Spectracide(R)--consumer lawn and garden pesticides;
. Spectracide Terminate(TM)--consumer termite killing system;

. Spectracide Pro(R)--professional lawn and garden and pest control
products;
. Hot Shot(R)--household insecticides;
. Cutter(R)--consumer insect repellents; and
. Peters(R)--consumer water-soluble fertilizers.

Opening price point brands
. Real-Kill(R)--opening price point brand at Home Depot;
. No-Pest(R)--opening price point brand at Lowe's; and
. Krid(R), Kgro(R), Shootout(R) and Gro Best(R) --opening price point brand
at Kmart.

The Company sells and distributes both its value and opening price point
brands to its four largest customers. Net sales to the Company's four largest
customers were as follows:

For the year
ended December
31,
--------------
1999 1998 1997
---- ---- ----

Customer A................................................. 31% 26% 19%
Customer B................................................. 15% 17% 18%
Customer C................................................. 15% 14% 10%
Customer D................................................. 12% 11% 17%

No other customers representedtotal net sales. In addition, no single item comprises more than 10% of 1999 or 1998the Company's net sales. For the years ended December 31, 2002, 2001 and 2000, the Company's three largest customers were responsible for 74%, 64% and 59% of net sales, respectively. As of December 31, 2002 and 2001, these three customers were responsible for 62% and 60% of accounts receivable, respectively.
As the Company's assets support production across all segments, they are managed on an entity-wide basis at the corporate level and are not recorded or analyzed by segment. Substantially all of the Company's assets are located in the United States.
Note 19--Unaudited19—Stock-Based Compensation
The Company grants stock options to eligible employees, officers and directors pursuant to the 2001 Stock Option Plan, which is administered by the Compensation Committee of the Company's Board of Directors. The 2001 Stock Option Plan superseded the 1999 Stock Option Plan which was terminated during 2001. Upon termination, all 3,096,000 issued and outstanding options under the 1999 Stock Option Plan were forfeited. The following table presents a summary of activity for options of the
F-31

1999 Stock Option Plan prior to and including the forfeiture of all outstanding options (amounts not in thousands):
Years Ended December 31,
2001 2000
Number of
Options Weighted
Average
Exercise
Price Number of
Options Weighted
Average
Exercise
Price
Options outstanding, beginning of year 3,096,500 $ 5.00 2,955,000 $ 5.00
Granted — — 527,500 5.00
Exercised — — — —
Forfeited (3,096,500 ) 5.00 (386,000 ) 5.00
Options outstanding, end of year — $ — 3,096,500 $ 5.00
The 2001 Stock Option Plan provides for an aggregate of 5,800,000 shares of the Company's common stock that may be issued in the form of Class A voting common stock, Class B nonvoting common stock or a combination thereof. The options to purchase shares of common stock vest over a period no longer than 10 years. If certain performance targets are met, the vesting period could be shortened to four years. Options are generally granted with an exercise price equal to or greater than the estimated fair value of the Company's common stock on the grant date and expire ten years thereafter. After termination of employment, unvested options are forfeited immediately, within thirty days or within one year, as provided under the 2001 Stock Option Plan.
The following table presents a summary of activity for options of the 2001 Stock Option Plan (amounts not in thousands):
Years Ended December 31,
2002 2001
Number of
Options Weighted
Average
Exercise
Price Number of
Options Weighted
Average
Exercise
Price
Options outstanding, beginning of year 5,036,000 $ 2.39 — $ —
Granted 939,000 4.56 5,157,000 2.38
Exercised — — — —
Forfeited (215,000 ) 2.09 (121,000 ) 2.00
Options outstanding, end of year 5,760,000 $ 2.75 5,036,000 $ 2.39
Weighted average remaining contractual life (years) 8.35 9.15
Options exercisable, end of year 1,556,032 $ 2.54 278,710 $ 2.00
Weighted average fair value of options granted $ 1.40 $ 0.72
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The following table presents information about stock options outstanding and exercisable under the 2001 Stock Option Plan as of December 31, 2002 (amounts not in thousands):
Options Outstanding Options Exercisable
Range of
Exercise Prices Number
Outstanding Weighted
Average
Remaining
Contractual
Life (Years) Weighted
Average
Exercise
Price Number
Exercisable Weighted
Average
Remaining
Contractual
Life (Years) Weighted
Average
Exercise
Price
$2.00 to $3.25 4,657,500 8.20 $ 2.26 1,363,949 8.17 $ 2.21
$4.00 to $5.00 1,102,500 8.99 4.82 192,083 9.02 4.83
5,760,000 8.35 2.75 1,556,032 8.27 2.54
As of December 31, 2002, 40,000 shares were available for future grants and 1,566,032 shares were vested and exercisable under the 2001 Stock Option Plan.
SFAS No. 123 requires pro forma disclosure of the impact on earnings as if the Company determined stock-based compensation expense using the fair value method. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions for the years ended December 31, 2002 and 2001: expected volatility of zero, risk-free interest rate of 4.61% and 5.35%, respectively, dividend yield of zero and an expected life of ten years. The Company's employee stock options have characteristics different than those of traded options and changes in the input assumptions can materially affect the estimate of fair value. In addition, pro forma amounts are for disclosure purposes only and may not be representative of pro forma net income in the future. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the related vesting periods.
Note 20—Employee Benefit Plans
The Company has a 401(k) savings plan for substantially all of its employees with six months or more of continuous service. The 401(k) plan allows participants to defer a portion of eligible compensation on a tax-deferred basis. Under provisions of the plan, the Company matches 50% of each employee's contributions up to 6% of gross earnings. The matching amount generally increases to 75% of such employee's contributions up to 6% of gross earnings after ten years of service. For the years ended December 31, 2002, 2001 and 2000, the matching contribution amounted to $0.7 million, $0.6 million and $0.6 million, respectively.
The Company also sponsors two deferred compensation plans for certain members of its senior management team. The plans are administered by the Compensation Committee of the Board of Directors. The plans provide for the establishment of grantor trusts for the purpose of accumulating funds to purchase shares of the Company's common stock for the benefit of the plan participants. One plan allows participants to contribute an unlimited amount of earnings to the plan while the other provides for contributions of up to 20% of a participant's annual bonus. The Company does not provide matching contributions to these plans and has the right, under certain circumstances, to repurchase shares held in the grantor trusts. As of December 31, 2002 and 2001, the common stock held in the grantor trusts was valued at $2.7 million.
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Note 21—Income Taxes
Income tax expense consists of the following:
Years Ended December 31,
2002 2001 2000
Current:
Federal $ — $ — $ —
State and local — — —
Total current — — —
Deferred:
Federal 9,252 3,426 1,078
State and local 2,321 390 293
Valuation allowance reduction (8,135 ) (1,649 ) (1,237 )
Total deferred 3,438 2,167 134
Total income tax expense $ 3,438 $ 2,167 $ 134
The following table presents a reconciliation of income tax expense computed using the federal statutory rate of 35% and income tax expense:
Years Ended December 31,
2002 2001 2000
Computed "expected" tax expense $ 10,071 $ 3,113 $ 523
Tax effect of:
Nondeductible charitable contributions 57 — —
Nondeductible meals and entertainment expenses 84 62 62
Valuation allowance reduction (8,135 ) (1,649 ) (1,237 )
State and local taxes, net of federal tax benefit 845 641 786
Other, net 516 — —
Total income tax expense $ 3,438 $ 2,167 $ 134
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The following table presents the components of the net deferred tax asset:
December 31,
2002 2001
Deferred tax assets:
Goodwill $ 172,355 $ 188,294
NOL carryforward 35,920 35,489
Co-op advertising 3,566 2,713
Inventories 1,547 —
Deferred compensation 1,026 1,027
Facilities and organizational rationalization 511 3,081
Other, net 2,675 799
Gross deferred tax assets 217,600 231,403
Valuation allowance (104,137 ) (112,272 )
Total deferred tax assets 113,463 119,131
Deferred tax liabilities:
Equipment and leasehold improvements (3,013 ) (3,369 )
Other, net — (1,982 )
Net deferred tax asset $ 110,450 $ 113,780
The temporary difference for goodwill represents the step-up in tax basis due to the Company's recapitalization in 1999 while maintaining historical basis for financial reporting purposes. This benefit is available to be utilized through 2014.
Based on historical levels of income and the length of time required to utilize its deferred tax assets, the Company originally established a 50% valuation allowance against the tax deductible goodwill deduction that was created in 1999 in connection with the recapitalization of the Company. While the Company experienced an increase in taxable income during 2002 for financial reporting purposes, it continued to experience losses for income tax purposes as it did not generate enough taxable income to utilize the deduction for goodwill. Therefore, despite the increase in taxable income for financial reporting purposes, sufficient evidence does not yet exist for management to conclude it more likely than not that the entire gross amount of the deferred tax assets will be realized in the foreseeable future.
The valuation allowance was $104.1 million as of December 31, 2002. For the years ended December 31, 2002, 2001 and 2000, the valuation allowance was reduced by $8.1 million, $1.6 million and $1.2 million, respectively.
In addition, as of December 31, 2002, the Company had a net operating loss carryforwards of $94.5 million. If not utilized, the net operating loss carryforwards will begin to expire in 2019.
F-35

The following table presents the current and non-current components of the net deferred tax asset:
December 31,
2002 2001
Current (prepaid assets and other) $ 5,309 $ 1,275
Non-current 105,141 112,505
$ 110,450 $ 113,780
Note 22—Unaudited Quarterly Financial Information
The following table presents selected historical quarterly financial information
Year Ended December 31, 1999
----------------------------------------------
First Second Third Fourth Total
-------- -------- ------- -------- --------

Net sales................... $ 96,593 $131,690 $53,536 $ 22,229 $304,048
Operating (loss) income..... (2,255) 32,581 7,772 (7,890) 30,208
(Loss) income from
continuing operations...... (12,880) 18,063 (2,941) (11,514) (9,272)
Net (loss) income........... $(15,205) $ 18,063 $(2,941) $(11,514) $(11,597)

Year Ended December 31, 1998
----------------------------------------------
First Second Third Fourth Total
-------- -------- ------- -------- --------

Net sales................... $ 82,288 $126,938 $47,952 $ 25,498 $282,676
Operating (loss) income..... 15,476 29,816 4,220 (2,387) 47,125
(Loss) income from
continuing operations...... 14,989 28,470 4,237 (2,669) 45,027
Income from discontinued
operations, net of tax..... 420 534 424 336 1,714
Net (loss) income........... $ 15,409 $ 29,004 $ 4,661 $ (2,333) $ 46,741
for the Company. This information is derived from unaudited quarterly financial statements of the Company and includes, in the opinion of management, only normal and recurring adjustments that the Company considers necessary for a fair presentation of the results for such periods.
Year Ended December 31, 2002
First Second Third Fourth Total
Net sales $ 136,391 $ 195,136 $ 100,677 $ 47,786 $ 479,990
Gross profit 49,228 72,825 35,468 16,825 174,346
Operating income (loss) 21,989 40,488 7,901 (9,194 ) 61,184
Net income (loss) 10,162 26,420 417 (11,663 ) 25,336
Year Ended December 31, 2001
First Second Third Fourth Total
Net sales $ 79,919 $ 114,647 $ 55,793 $ 22,985 $ 273,344
Gross profit 35,960 53,899 25,689 9,425 124,973
Operating income (loss) 15,896 31,778 8,719 (11,659 ) 44,734
Net income (loss) 4,236 15,753 221 (13,484 ) 6,726 Due to the seasonal nature of the Company's business, net sales in the first and second quarters typically exceed net sales in the third and fourth quarters. DuringIn addition, during the firstfourth quarter of 1999, the Company recorded various non-
recurring charges to operations as follows: (i) $10,690 in recapitalization
transaction fees and expenses; (ii) change of control bonuses to some members
of senior management totaling $8,645; (iii) $1,100 to cost of goods sold for
the write-off of its "Citri-Glow" candle inventory; (iv) $900 related to
deductions taken by customers for advertising and promotional spending in
excess of contractual obligations; and (v) $1,500 to primarily reserve for the
expected cost of an adverse judgement on a counterclaim.

In the second quarter of 1999,2001, the Company recorded a severance$8.5 million charge as discussed in Note 10.
Note 23—Related Party Transactions
Professional Services Agreement
The Company has a professional services agreement with THL Equity Advisors IV, L.L.C. and Thomas H. Lee Capital, L.L.C., both affiliates of $1,606the Thomas H. Lee Partners, LP, which owns UIC Holdings, L.L.C., the majority owner of the Company. The professional services agreement has a term of three years, beginning January 20, 1999, and automatically extends for successive one-year periods thereafter, unless either party gives thirty days notice prior to the end of the term. Under the terms of the agreement, THL Equity Advisors IV, L.L.C. receives $62.5 thousand per month for management and other consulting services provided to the Company and reimbursement of any related out-of-pocket expenses. During each of the years ended December 31, 2002, 2001 and 2000, the Company paid $0.75 million under this agreement, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.
F-36

Stockholders Agreement
The Company has entered into a stockholders agreement with UIC Holdings, L.L.C. and certain other stockholders. Under the agreement, the Class A common stockholders are required to vote their shares of common stock for any sale or reorganization that has been approved by the Board of Directors or a majority of the stockholders. The stockholders agreement also grants the stockholders the right to effect the registration of their common stock for sale to the public, subject to certain conditions and limitations. If the Company elects to register any of its securities under the Securities Act of 1933, as amended, the stockholders are entitled to notice of such registration, subject to certain conditions and limitations. Under the stockholders agreement, the Company is responsible to pay costs of the registration effected on behalf of the stockholders, other than underwriting discounts and commissions.
Recapitalization Agreement
The recapitalization agreement with UIC Holdings, L.L.C., which the Company entered into in connection with its recapitaization in 1999, contains customary provisions, including representations and warranties with respect to the condition and operations of the business, covenants with respect to the conduct of the business prior to the recapitalization closing date and various closing conditions, including the continued accuracy of the representations and warranties. In general, these representations and warranties expired by April 15, 2000. However, representations and warranties with respect to tax matters will survive until thirty days after the expiration of the applicable statute of limitations; representations with respect to environmental matters expired December 31, 2002. Representations and warranties regarding ownership of stock do not expire. The total consideration paid to redeem common stock is subject to adjustments based on the excess taxes of previous stockholders arising from the Company's Section 338(h)(10) election under the IRS tax code.
Pursuant to the recapitalization agreement, and in consideration of payments received thereunder, certain former executives agreed that for a period ending on the fourth anniversary of the recapitalization closing date not to own, control, participate or engage in any line of business in which the Company is actively engaged or any line of business competitive with it anywhere in the United States and any other country in which it conducts business at the date of recapitalization closing. In addition, each of these former executives has agreed that for a period ending on the fourth anniversary of the recapitalization closing date not to contact, approach or solicit for the purpose of offering employment to or hiring any person employed by the Company during the four year period.
Pursuant to the recapitalization, the Company redeemed a portion of its common stock held by certain stockholders and UIC Holdings, L.L.C. which were purchased by certain members of senior management. In the recapitalization, certain executives collectively received an aggregate of $4.0 million in cash and an additional $2.7 million with which the officers purchased common stock through grantor trusts, which is reflected as a reduction of equity in the accompanying consolidated balance sheets.
Loans to Chief Executive Officer
On September 28, 2001, the Company entered into a loan agreement with Robert L. Caulk, the President, Chief Executive Officer and Chairman of the Board of Directors of the Company, for $0.4 million which matures on September 28, 2006 (the 2001 Loan). On March 8, 2002, the Company entered into a loan agreement with Mr. Caulk for $51.7 thousand which matures on March 8, 2007 (the 2002 Loan). The purpose for both loans was to allow Mr. Caulk to purchase shares of the Company's common and preferred stock. Each loan bears interest at LIBOR on its effective date which is
F-37

subsequently adjusted on each loan's respective anniversary date. The interest rate in effect for the 2002 Loan was 1.96% as of December 31, 2002. The interest rate in effect for the 2001 Loan was 1.81% and 2.59% as of December 31, 2002 and 2001, respectively. Interest on both loans is payable annually, based on outstanding accrued amounts on December 31 of each year. Principal payments on both loans are based on 25% of the gross amount of each annual bonus awarded to Mr. Caulk and are immediately payable, except that principal payments on the 2002 Loan are immediately payable only if all amounts due under the 2001 Loan are fully paid. Any unpaid principal and interest on both loans is due upon maturity. The outstanding principal balance for the 2001 Loan was $0.35 million and $0.4 million as of December 31, 2002 and 2001, respectively. The outstanding principal balance of the 2002 Loan was $51.7 thousand as of December 31, 2002. The loans are reflected as a reduction of equity in the accompanying consolidated balance sheets.
Leases with Stockholder and Former Executive and Member of the Board of Directors
As further described in Note 13, the Company leases several of its operating facilities from Rex Realty, Inc., a company that is owned by stockholders who own, in the aggregate, approximately 5% of the Company's common stock and is operated by a former executive and past member of the Board of Directors.
Equity Transactions with UIC Holdings, L.L.C.
As further described in Note 15, during the years ended December 31, 2002, 2001 and 2000, the Company issued common and preferred stock and stock purchase warrants to UIC Holdings, L.L.C. as follows:
•
In connection with the Schultz merger in May 2002, the Company issued 1,690,000 shares each of Class A voting and Class B nonvoting common stock to UIC Holdings, L.L.C. for $16.9 million.
•
In connection with the Pursell transaction in December 2001, the Company issued 22,600 shares of $0.01 par value Class A nonvoting preferred stock to UIC Holdings, L.L.C. for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, for net cash proceeds of $22.0 million and a 10-year warrant to purchase up to 3,150,000 shares each of the Company's Class A voting and Class B nonvoting common stock for $3.25 per share, the fair value of the Company's common stock at the time the warrants were issued as determined by the Board of Directors using a multiple of cash flows method.
•
In November 2000, the Company issued 15,000 shares of $0.01 par value Class A nonvoting preferred stock to UIC Holdings, L.L.C. for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, for net cash proceeds of $15.0 million and a 10-year warrant to purchase up to 1,600,000 shares each of the Company's Class A voting and Class B nonvoting common stock for $2.00 per share, the fair value of the Company's common stock at the time the warrants were issued as determined by the Board of Directors using a multiple of cash flows method.
Note 24—Recently Issued Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements. The Company is required to adopt SFAS No. 145 during the first quarter
F-38

of 2003. Adoption will not have a material impact on the consolidated financial statements of the Company. However, SFAS No. 145 could affect how the Company records certain expenses after December 31, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity and also establishes fair value as the objective for initial measurement of the liability. SFAS No. 146 will be adopted by the Company for exit or disposal activities that are initiated after December 31, 2002. Adoption will not have a material impact on the consolidated financial statements of the Company. However, SFAS No. 146 will affect how the Company recognizes exit costs after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and other provisions are effective for fiscal years beginning after December 15, 2002. Unless the Company elects in the future to change from the intrinsic value method to the fair value method of accounting for stock-based employee compensation, SFAS No. 148 will not have a material impact on its consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). The disclosure requirements of FIN 45 are effective for the Company's consolidated financial statements for the year ended December 31, 2002. For applicable guarantees issued after January 1, 2003, FIN 45 requires that a guarantor recognize a liability for the fair value of obligations undertaken in issuing guarantees. See Note 13 for disclosures regarding guarantees of the Company.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to financial statements to be issued after 2002; however, disclosures are required currently if any variable interest entities are expected to be consolidated. The adoption of FIN 46 will not have a material effect on the Company's consolidated financial statements as the Company does not have any variable interest entities that will be consolidated as a result of the PresidentFIN 46.
F-39
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Chief Executive Officer terminating
employment with the Company. In the fourth quarterStockholders of 1999, the Company
recorded a severance charge of $840 as a result of the Senior Vice President,
Sales terminating employment with the Company.

SIGNATURES

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

United Industries Corporation /s/ Robert L. Caulk
By: ___________________________________
Robert L. Caulk,
President and Chief Executive
Officer
Dated: March 30, 2000

* * *

Pursuant to the requirementsSubsidiaries:
Our audits of the Securities Exchange Act of 1934,consolidated financial statements referred to in our report dated February 12, 2003 appearing in this report has been signed below by the following personsAnnual Report on behalfForm 10-K also included an audit of the registrant andfinancial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the capacities and oninformation set forth therein when read in conjunction with the dates indicated.

Signatures Title Date
---------- ----- ----

/s/ David A. Jones Chairman of the Board and a Director March 30, 2002
____________________________________
David A. Jones

/s/ Daniel J. Johnston Senior Vice President, Finance and MIS March 30, 2002
____________________________________ and Chief Financial Officer (Principal
Daniel J. Johnston Financial and Accounting Officer)

/s/ Matthew M. McCarthy Vice President, General Counsel & March 30, 2002
____________________________________ Secretary
Matthew McCarthy

/s/ C. Hunter Boll Director March 30, 2002
____________________________________
Hunter Boll

/s/ Scott A. Schoen Director March 30, 2002
____________________________________
Scott A. Schoen

/s/ Charles A. Brizius Director March 30, 2002
____________________________________
Charles A. Brizius

/s/ David C. Pratt Director March 30, 2002
____________________________________
David C. Pratt

42
related consolidated financial statements.
St. Louis, Missouri
February 12, 2003
F-40

UNITED INDUSTRIES CORPORATION

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(Dollars in thousands)
Column A
Column B
Column C
Column D
Column E
Description
Balance at
Beginning of
Period Additions Deductions Balance at
End of
Period
Year ended December 31, 2002:
Allowance for doubtful accounts $ 1,147 $ 2,055 $ (31 ) $ 3,171
Allowance for obsolete and slow-moving inventory 2,700 5,424 (2,283 ) 5,841
Valuation allowance for deferred tax assets 112,272 — (8,135 ) 104,137
Accrued advertising and promotion expense 12,125 41,296 (37,020 ) 16,401

Year ended December 31, 2001:
Allowance for doubtful accounts $ 777 $ 568 $ (198 ) $ 1,147
Allowance for obsolete and slow-moving inventory 999 2,700 (999 ) 2,700
Valuation allowance for deferred tax assets 113,921 — (1,649 ) 112,272
Accrued advertising and promotion expense 5,520 24,432 (17,827 ) 12,125

Year ended December 31, 2000:
Allowance for doubtful accounts $ 60 $ 848 $ (131 ) $ 777
Allowance for obsolete and slow-moving inventory 822 298 (121 ) 999
Valuation allowance for deferred tax assets 115,158 — (1,237 ) 113,921
Accrued advertising and promotion expense 4,324 22,824 (21,628 ) 5,520F-41

QuickLinks
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
TRADEMARKS
PART I
ITEM 1. BUSINESS.
ITEM 2. PROPERTIES.
ITEM 3. LEGAL PROCEEDINGS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ITEM 14. CONTROLS AND PROCEDURES.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX

(a) Exhibits.

3.1 Amended and Restated Certificate of Incorporation of the
Company, dated January 13, 1999.*

3.2 Certificate of Amendment of the Company, dated January 20,
1999.*

3.3 By-laws of the Company.*

4.1 Securities Purchase Agreement, dated as of March 19, 1999,
among the Company, CIBC Oppenheimer Corp. and NationsBanc
Montgomery Securities LLC.*

4.2 Indenture, dated as of March 24, 1999, between the Company
and State Street Bank and Trust Company as Trustee with
respect to the 9 7/8% Senior Subordinated Notes due 2009
(including the form of 9 7/8% Senior Subordinated Notes).*

4.3 Registration Rights Agreement, dated as of March 24, 1999,
among the Company, CIBC Oppenheimer Corp. and NationsBanc
Montgomery Securities LLC.*

10.1 United Industries Corporation Deferred Compensation Plan.*

10.2 Management Agreement, dated as of October 25, 1999,
between the Company and Robert L. Caulk.

10.3 Management Agreement, dated as of January 20, 1999,
between the Company and Richard A. Bender.+*

10.4 Management Agreement, dated as of January 20, 1999,
between the Company and Daniel J. Johnston.+*

10.5 Consulting Agreement, dated as of January 20, 1999,
between the Company and David A. Jones.*

10.6 United Industries Corporation 1999 Stock Option Plan.*

10.7 Stock Option Agreement, dated as of October 25, 1999,
between the Company and Robert L. Caulk.

10.8 Stock Option Agreement, dated as of January 20, 1999,
between the Company and Richard A. Bender.+*

10.9 Stock Option Agreement, dated as of January 20, 1999,
between the Company and Daniel J. Johnston.+*

10.10 Stock Option Agreement, dated as of January 20, 1999,
between the Company and David A. Jones.+*

10.11 Chairman's Agreement, dated as of July 21, 1999, between
the Company and David A. Jones.

10.12 Stockholders Agreement, dated as of January 20, 1999,
among the Company and the Stockholders (as defined
therein).+*

10.13 Professional Services Agreement, dated as of January 20,
1999, between THL Equity Advisors IV, L.L.C., Thomas H.
Lee Capital, L.L.C. and the Company.*

10.14 Amended and Restated Credit Agreement dated as of March
24, 1999 among the Company, NationsBanc Montgomery
Securities LLC, Morgan Stanley Senior Funding, Inc.,
Canadian Imperial Bank of Commerce, NationsBank, N.A..,
the Initial Lenders (as defined therein), the Swing Line
Bank (as defined therein) and the Initial Issuing Bank (as
defined therein).+*

10.15 Office Lease, dated as of June 15, 1987, between Mid-
County Trade Center Investment Company Limited
Partnership, Moran Foods and Moran Foods Inc.+*

10.16 First Amendment dated as of August 31, 1987 to Office
Lease, dated as of June 15, 1987, between Mid-County Trade
Center Investment Company Limited Partnership, Moran Foods
and Moran Foods Inc.

10.17 Second Amendment dated as of March 2, 1990 to Office
Lease, dated as of June 15, 1987, between Mid-County Trade
Center Investment Company Limited Partnership, Moran Foods
and Moran Foods Inc.

10.18 Third Amendment dated as of April 3, 1992 to Office Lease,
dated as of June 15, 1987, between Mid-County Trade Center
Investment Company Limited Partnership, Moran Foods and
Moran Foods Inc.
10.19 Fourth Amendment dated as of June 6, 1994 to Office Lease,
dated as of June 15, 1987, between Mid-County Trade Center
Investment Company Limited Partnership, Moran Foods and
Moran Foods Inc.

10.20 Fifth Amendment dated as of October 1, 1996 to Office
Lease, dated as of June 15, 1987, between Mid-County Trade
Center Investment Company Limited Partnership, Moran Foods
and Moran Foods Inc.

10.21 Lease, dated as of October 13, 1995, between First
Industrial Financing Partnership LP and Rex Realty Co.+

10.22 Sublease, dated as of October 13, 1995, between Rex Realty
Co. and the Company.+

10.23 Lease, dated as of December 1, 1995, between Rex Realty
Co. and the Company.+

10.24 Lease, dated as of November 27, 1989, between Rex Realty
Co. and the Company.+

12.1 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.

27.1 Financial Data Schedule.*

- --------
*Previously filed
INDEX TO FINANCIAL STATEMENTS
UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in the Company's Form S-4, dated October 6, 1999, or
amendment thereto.
+The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.

		Page
PART I
Item 1.	Business.	4
Item 2.	Properties.	12
Item 3.	Legal Proceedings.	12
Item 4.	Submission of Matters to a Vote of Security Holders.	13
PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters.	13
Item 6.	Selected Financial Data.	14
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	33
Item 8.	Financial Statements and Supplementary Data.	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	34
PART III
Item 10.	Directors and Executive Officers of the Registrant.	35
Item 11.	Executive Compensation.	38
Item 12.	Security Ownership of Certain Beneficial Owners and Management.	42
Item 13.	Certain Relationships and Related Transactions.	43
Item 14.	Controls and Procedures.	45
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K.	46
SIGNATURES	47
CERTIFICATIONS	48
EXHIBIT INDEX	50

		Year Ended December 31,
		2002		2001		2000
The Home Depot		33	%	25	%	24	%
Lowe's		23	%	22	%	19	%
Wal*Mart		18	%	17	%	16	%

	Total		74	%	64	%	59	%

Location	Approximate Area of Square Feet	Lease Expiration (or Ownership)	Primary Business Segment Served	Description
St. Louis, MO(1)	79,200	12/13/12	All	Corporate headquarters.
Vinita Park, MO—Plant I	32,800	Year-to-year through 12/31/05	Household and Contract	Production facility.
Vinita Park, MO—Plant II	86,000	Year-to-year through 12/31/10	All	Production facility.
Vinita Park, MO—Plant III	88,000	Year-to-year through 12/31/10	Household	Production facility and warehouse.
Vinita Park, MO	86,000	Year-to-year through 12/31/10	All	Warehouse.
Bridgeton, MO(2)	75,000-150,000	7/31/03	All	Temporary storage.
Bridgeton, MO(3)	403,200	12/31/12	All	Distribution center.
Orrville, OH	30,420	Own	Lawn and Garden	Production facility.
Orrville, OH	20,000	Own	Lawn and Garden	Distribution center.
Homesville, OH	100,000-260,000	11/30/04	Lawn and Garden	Storage.
Sylacauga, AL	35,000	Month-to-month	Lawn and Garden	Production facility.
Sylacauga, AL	71,000	10/02/06	Lawn and Garden	Distribution center.
Jackson, WI	75,000	2/28/07	Household and Contract	Production facility.
Earth City, MO	153,000	1/31/15	Lawn and Garden	Distribution center.
Allentown, PA	40,000	10/31/04	All	Distribution center.
Gainesville, GA	126,000	11/30/06	All	Distribution center.
Ontario, CA	61,000	12/31/05	All	Distribution center.

~~Name Age Position - ---- --- --------~~ ~~David A. Jones.......... 50~~
Directors		Position(s)
Robert L. Caulk		Chairman of the ~~Board; Director Robert L. Caulk......... 48~~Board of Directors; President and Chief Executive ~~Officer; Director Richard A. Bender....... 50 Senior~~Officer
Daniel J. Johnston		Director; Executive Vice President ~~Human Resources & Operations Daniel J. Johnston...... 41 Senior Vice President,~~and Chief Financial Officer ~~Information Systems, Legal & Administration; Director Matthew M. McCarthy..... 52 Vice President, General Counsel and Secretary David C. Pratt.......... 55 Director~~
C. Hunter ~~Boll.......... 44~~ Boll*		Director ~~Scott A. Schoen......... 41 Director~~
Charles A. ~~Brizius...... 31~~ Brizius*		Director

Executive Officers		Position(s)
Robert L. Caulk		Chairman of the Board of Directors; President and Chief Executive Officer
Daniel J. Johnston		Director; Executive Vice President and Chief Financial Officer
Kent J. Davies		Senior Vice President, Marketing
Louis N. Laderman		Vice President, Secretary and General Counsel
Robert S. Rubin		Vice President, Corporate Development
Steven D. Schultz		Senior Vice President, Business Development
Rick K. Spurlock		Vice President, Human Resources
John F. Timony		Senior Vice President, Operations

		Annual Compensation		Long-Term Compensation
Name and Principal Position	Year Ended December 31,	Salary ($)		Bonus ($)		Securities Underlying Stock Options (#)	All Other Compensation ($)(1)
Robert L. Caulk Chairman of the Board of Directors; President and Chief Executive Officer	2002 2001 2000	$	500,000 400,000 400,000		$	320,000 292,000 120,000	— 1,600,000 —	$	14,082 5,100 101,244	(2) (3)
Daniel J. Johnston Director; Executive Vice President and Chief Financial Officer	2002 2001 2000		335,000 325,000 300,000			175,205 259,875 —	— 700,000 —		7,091 5,100 5,100	(4)
Kent J. Davies Senior Vice President, Marketing	2002 2001 2000		205,500 134,103 —			105,995 51,733 —	— 200,000 —		80,972 66,705 —	(5) (6)
John F. Timony Senior Vice President, Operations	2002 2001 2000		229,000 198,564 —			117,172 78,731 —	— 200,000 —		8,656 15,636 —	(7) (8)
Robert S. Rubin Vice President, Corporate Development	2002 2001 2000		202,500 193,000 185,500			103,883 139,263 40,588	100,000 100,000 —		5,904 5,100 5,100	(9)

	Individual Grants
Name	Number of Securities Underlying Options (#)(1)	% of Total Options Granted to Employees in 2002		Exercise Price ($/Share)		Expiration Date		Grant Date Present Value ($)(2)
Robert L. Caulk	—	—		$	—		—		$	—
Daniel J. Johnston	—	—			—		—			—
Kent J. Davies	—	—			—		—			—
John F. Timony	—	—			—		—			—
Robert S. Rubin	50,000	5.3	%		3.25		1/31/12			55,950
	50,000	5.3	%		5.00		8/06/12			64,450

Name	Position(s)	Annual Base Salary
Robert L. Caulk	Chairman of the Board of Directors; President and Chief Executive Officer	$	500,000	1,600,000	Up to $500,000
Daniel J. Johnston	Director; Executive Vice President and Chief Financial Officer		335,000	700,000	Up to $201,000
Kent J. Davies	Senior Vice President, Marketing		205,000	200,000	Up to $123,300
John F. Timony	Senior Vice President, Operations		229,000	200,000	Up to $137,400
Robert S. Rubin	Vice President, Corporation Development		202,500	200,000	Up to $121,500

Name of Beneficial Owner(1)	Number of Class A Common Shares Owned	Number of Class A Common Shares Receivable Upon Exercise of Stock Options	Number of Class A Common Shares Receivable Upon Exercise of Stock Warrants	Number of Class A Common Shares Beneficially Owned	Percent of Class
UIC Holdings, L.L.C.	27,158,000	—	4,673,957	31,831,957	84.2	%
Bayer Corporation(2)	3,072,000	—	—	3,072,000	9.3	%
Robert L. Caulk	125,000	800,000	13,938	938,938	2.8	%
C. Hunter Boll(3)	27,158,000	—	4,673,957	31,831,957	84.2	%
Charles A. Brizius(3)	27,158,000	—	4,673,957	31,831,957	84.2	%
John W. Froman	—	5,000	—	5,000	*
Daniel J. Johnston(4)	—	350,000	27,876	377,876	1.1	%
David A. Jones	100,000	300,000	—	400,000	1.2	%
Gary M. Rodkin	—	5,000	—	5,000	*
Scott A. Schoen(3)	27,158,000	—	4,673,957	31,831,957	84.2	%
Kent J. Davies	—	100,000	1,394	101,394	*
John F. Timony	—	100,000	4,181	104,181	*
Robert S. Rubin	3,500	100,000	2,091	105,591	*
All Directors and Executive Officers as a group (17 persons)(3)	27,686,500	1,885,000	4,737,375	34,308,875	86.3	%

~~Page~~
		UNITED INDUSTRIES CORPORATION, Registrant
Dated: March 19, 2003		By:	/s/ ROBERT L. CAULK Robert L. Caulk Chairman of ~~10-K -------~~ 1.the Board, President and Chief Executive Officer (Principal Executive Officer)

Signature	Title	Date

/s/ ROBERT L. CAULK Robert L. Caulk	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	March 19, 2003
/s/ DANIEL J. JOHNSTON Daniel J. Johnston	Executive Vice President and Chief Financial ~~Statements~~Officer, Director (Principal Financial Officer and Principal Accounting Officer)	March 19, 2003
/s/ C. HUNTER BOLL C. Hunter Boll	Director	March 19, 2003
/s/ CHARLES A. BRIZIUS Charles A. Brizius	Director	March 19, 2003
/s/ JOHN W. FROMAN John W. Froman	Director	March 19, 2003
/s/ DAVID A. JONES David A. Jones	Director	March 19, 2003
/s/ GARY M. RODKIN Gary M. Rodkin	Director	March 19, 2003
/s/ SCOTT A. SCHOEN Scott A. Schoen	Director	March 19, 2003

Exhibit Number		Exhibit Description
3.1		Amended and Restated Certificate of Incorporation of the Company, dated January 13, 1999. (1)
3.2		Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, dated January 20, 1999. (1)
3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, dated November 9, 2000. (4)
3.4		Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company dated December 13, 2001.
3.5		Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company dated May 7, 2002.
3.6		By-laws of the Company. (1)
4.1		Securities Purchase Agreement, dated as of March 19, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities L.L.C. (1)
4.2		Indenture, dated as of March 24, 1999, between the Company and State Street Bank and Trust Company as Trustee with respect to the⁹⁷/8% senior subordinated notes due 2009 (including the form of⁹⁷/8% senior subordinated notes). (1)
4.3		Registration Rights Agreement, dated as of March 24, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities L.L.C. (1)
10.1		United Industries Corporation Deferred Compensation Plan. (1)
10.2		Management Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian. (1)†
10.3		Management Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender. (1)†
10.4		Management Agreement, dated as of January 20, 1999, between the Company and William P. Johnson. (1)†
10.5		Management Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston. (1)†
10.6		Consulting Agreement, dated as of January 20, 1999, between the Company and David A. Jones. (1)
10.7		United Industries Corporation 1999 Stock Option Plan. (1)†
10.8		United Industries Corporation 2001 Stock Option Plan. (4)†
10.9		Stock Option Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian. (1)†
10.10		Stock Option Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender. (1)†
10.11		Stock Option Agreement, dated as of January 20, 1999, between the Company and William P. Johnson. (1)†
10.12		Stock Option Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston. (1)†
10.13		Stock Option Agreement, dated as of January 20, 1999, between the Company and David A. Jones. (1)
10.14		Stockholders Agreement, dated as of January 20, 1999, among the Company and the Stockholders (as defined therein). (1)
10.15		Professional Services Agreement, dated as of January 20, 1999, between THL Equity Advisors IV, L.L.C., Thomas H. Lee Capital, L.L.C. and the Company. (1)

		Page
	Report of Independent ~~Accountants. 24 The Financial Statements listed below are included in this Report:~~Accountants		F-2
	Consolidated Balance Sheets atas of December 31, ~~1999~~2002 and ~~1998 25~~2001		F-3
	Consolidated Statements of Operations and Comprehensive Income for the ~~years ended~~Years Ended December 31, ~~1999, 1998~~2002, 2001 and ~~1997 26~~2000		F-4
	Consolidated Statements of Cash Flows for the ~~years ended~~Years Ended December 31, ~~1999, 1998~~2002, 2001 and ~~1997 27~~2000		F-5
	Consolidated Statements of ~~Shareholders' (Deficit) Equity~~Changes in Stockholders' Deficit for the ~~years ended~~Years Ended December 31, ~~1999, 1998~~2002, 2001 and ~~1997 28~~ 2000		F-6
	Notes to Consolidated Financial Statements 29		F-7
	Report of Independent Accountants on Financial Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 2. Exhibits--See Exhibit Index. 3. Reports on Form 8-K filed during the last quarter of 1999: None. Statement Schedule		F-40
	Schedule II—Valuation and Qualifying Accounts		F-41

		Years Ended December 31,
		2002		2001		2000
The Home Depot		33	%	25	%	24	%
Lowe's		23	%	22	%	19	%
Wal-Mart		18	%	17	%	16	%

	Total		74	%	64	%	59	%

thousands, except share data)
UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Dollars in thousands)
UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share data)
UNITED INDUSTRIES CORPORATION SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto

Delaware (State or other jurisdiction of incorporation or organization)		43-1025604 (I.R.S. Employer Identification Number)
2150 Schuetz Road St. Louis, Missouri 63146 (Address of principal executive office, including zip code)
(314) 427-0780 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:None Securities registered pursuant to Section 12(g) of the Act:None

Description		Amount
Current assets		$	40,856
Equipment and leasehold improvements			3,901
Intangible assets			20,632
Goodwill			19,744
Other assets			811

	Total assets acquired		85,944

Current liabilities			19,857
Long-term debt			20,662
Other liabilities			1,125

	Total liabilities		41,644

	Net assets acquired	$	44,300

Description		Amount
Current assets		$	7,987
Equipment and leasehold improvements			844
Intangible assets			11,294
Goodwill			3,222
Other assets			455

	Total assets acquired		23,802

Current liabilities			3,286
Other liabilities			1,016

	Total liabilities		4,302

	Net assets acquired	$	19,500

Description	Amount
Common stock subscription receivable	$	27,321
Supply Agreement		5,694
Repurchase option		2,636
In-Store Services Agreement		(4,931	)

	$	30,720

		Obligations due in:
Contractual Cash Obligations		Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
		(dollars in thousands)
Senior credit facility		$	250,715	$	9,222	$	241,493	$	—	$	—
9⁷/8% Series B Senior Subordinated Notes			150,000		—		—		—		150,000
Capital lease			4,221		443		3,778		—		—
Operating leases			62,990		8,872		21,566		10,801		21,751
Tolling agreement with Pursell(1)			40,419		8,509		25,528		6,382		—
Urea purchase agreements(2)			4,853		4,853		—		—		—
Urea hedging agreements(3)			5,994		5,994		—		—		—
Services agreements(4)			6,650		2,550		2,600		1,500		—

	Total contractual cash obligations	$	525,842	$	40,443	$	294,965	$	18,683	$	171,751

Number of Contracts	Maturity Date	Notional Amount in Tons	Weighted Average Contract Price		Contract Value Upon Effective Contract Date		Contract Value at December 31, 2002		Gain (Loss) at December 31, 2002
3	January 30, 2003	14,500	$	133.00	$	1,928,500	$	1,916,465	$	(12,035	)
3	February 28, 2003	15,000		135.00		2,025,000		2,010,000		(15,000	)
2	March 28, 2003	10,000		135.50		1,355,000		1,353,300		(1,700	)
1	April 24, 2003	5,000		137.00		685,000		681,650		(3,350	)

9		44,500			$	5,993,500	$	5,961,415	$	(32,085	)

Description			2003			2004			2005			2006			2007		Thereafter			Total			Fair Value
Long-term debt:
	Fixed rate debt		$	—		$	—		$	—		$	—		$	—	$	150,000		$	150,000		$	151,500
		Average interest rate		—			—			—			—			—		9.875	%		9.875	%
	Variable rate debt		$	9,222		$	18,444		$	168,439		$	54,610			—		—		$	250,715		$	250,715
		Average interest rate		5.14	%		5.60	%		6.11	%		6.53	%		—		—			—

Name	Shares Acquired Upon Exercise (#)(1)	Value Realized ($)		Number of Securities Underlying Unexercised Options (#) Exercisable/ Unexercisable	Value of Unexercised In-the Money Options ($) Exercisable/ Unexercisable(2)
Robert L. Caulk	—	$	—	693,361/906,639	$	1,480,083/$2,119,917
Daniel J. Johnston	—		—	265,001/434,999		795,003/1,304,997
Kent J. Davies	—		—	50,000/150,000		150,000/450,000
John F. Timony	—		—	50,000/150,000		150,000/450,000
Robert S. Rubin	—		—	47,001/152,999		105,584/281,917

		Equity Compensation Plan Information
		(a)	(b)		(c)
Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))
Equity compensation plans approved by security holders		5,760,000	$	2.75	40,000
Equity compensation plans not approved by security holders(1)		540,000		5.00	—

	Total	6,300,000	$	2.94	40,000

10.16		Amended and Restated Credit Agreement dated as of March 24, 1999 among the Company, NationsBanc Montgomery Securities L.L.C., Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce, NationsBank, N.A., the Initial Lenders (as defined therein), the Swing Line Bank (as defined therein) and the Initial Issuing Bank (as defined therein). (1)
10.17		Amendment No. 4 dated as February 13, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities LLC (formerly known as NationsBanc Montgomery Securities L.L.C.), Morgan Stanley Senior Funding, Inc. Canadian Imperial Bank of Commerce. (5)
10.18		Amendment No. 5 dated as May 8, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce. (6)
10.19		Amendment No. 6 dated as June 14, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce. (7)
10.20		Amendment No. 7 dated as of September 30, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce. (8)
10.21		Amendment No. 8 dated as of November 4, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce. (8)
10.22		Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.23		First Amendment dated as of August 31, 1987 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.24		Second Amendment dated as of March 2, 1990 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.25		Third Amendment dated as of April 3, 1992 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.26		Fourth Amendment dated as of June 6, 1994 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)

10.27		Fifth Amendment dated as of October 1, 1996 to Office Lease, dated as of June 15, 1987, between Mid-County Trade Center Investment Company Limited Partnership, Moran Foods and Moran Foods Inc. (3)
10.28		Lease, dated as of December 1, 1995, between Rex Realty Co. and the Company. (1)
10.30		Lease, dated as of November 27, 1989, between Rex Realty Co. and the Company. (1)
10.31		Exchange Agreement dated as of June 14, 2002, among Bayer Corporation, an Indiana corporation, Bayer Advanced L.L.C., a Delaware limited liability company, and the Company.*(7)
10.32		In-Store Service Agreement dated as of June 7, 2002 among the Company, Bayer Corporation, an Indiana corporation, and Bayer Advanced L.L.C., a Delaware limited liability company.*(7)
10.33		Supply Agreement dated as of June 14, 2002 between Bayer Corporation, an Indiana corporation, and the Company.*(7)
21.1		Subsidiaries.
99.1		Risk Factors.
99.2		Form of Letter of Transmittal. (2)
99.3		Form of Letter of Notice of Guaranteed Delivery. (2)
99.4		Form of Tender Instructions. (2)

			December 31,
			2002			2001
ASSETS
Current assets:
	Cash and cash equivalents		$	10,318		$	—
	Accounts receivable, less allowance for doubtful accounts of $3,171 and $1,147, respectively			23,321			21,585
	Inventories			87,762			49,092
	Prepaid expenses and other current assets			11,350			6,491

		Total current assets		132,751			77,168

Equipment and leasehold improvements, net				34,218			27,930
Deferred tax asset				105,141			112,505
Goodwill and intangible assets, net				100,868			43,116
Other assets, net				13,025			11,837

		Total assets	$	386,003		$	272,556

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
	Current maturities of long-term debt and capital lease obligation		$	9,665		$	5,711
	Accounts payable			27,063			23,459
	Accrued expenses			45,221			34,006
	Short-term borrowings			—			23,450

		Total current liabilities		81,949			86,626

Long-term debt, net of current maturities				391,493			318,386
Capital lease obligation, net of current maturities				3,778			4,221
Other liabilities				5,019			7,740

		Total liabilities		482,239			416,973

Commitments and contingencies
Stockholders' deficit:
	Preferred stock (37,600 shares of $0.01 par value Class A issued and outstanding, 40,000 shares authorized)			—			—
	Common stock (33.1 million shares each of $0.01 par value Class A and Class B issued and outstanding, 43.6 million shares of each authorized at December 31, 2002; 27.7 million shares of each issued and outstanding and 37.6 million shares of each authorized at December 31, 2001)			664			556
	Warrants and options			11,745			11,745
	Additional paid-in capital			210,480			152,943
	Accumulated deficit			(287,592	)		(306,048	)
	Common stock subscription receivable			(25,761	)		—
	Common stock repurchase option			(2,636	)		—
	Common stock held in grantor trust			(2,700	)		(2,700	)
	Loans to executive officer			(404	)		(400	)
	Accumulated other comprehensive loss			(32	)		(513	)

		Total stockholders' deficit		(96,236	)		(144,417	)

		Total liabilities and stockholders' deficit	$	386,003		$	272,556

	Class A Nonvoting Preferred Stock			Class A Voting Common Stock			Class B Nonvoting Common Stock
											Warrants and Options									Common Stock Subscription Receivable			Common Stock Repurchasing Option			Common Stock Held Grantor Trust						Accumulated Other Comprehensive Loss
											Warrants and Options			Additional Paid-in Capital			Accumulated Deficit												Loans to Executive Officer						Total Stockholders' Deficit
	Shares	Amount		Shares	Amount		Shares		Amount		Shares	Amount		Additional Paid-in Capital			Accumulated Deficit												Loans to Executive Officer						Total Stockholders' Deficit
Balance at January 1, 2000	—	$	—	27,650,000	$	277	27,650,000		$	277	—	$	—	$	126,865		$	(311,521	)	$	—		$	—		$	(2,700	)	$	—		$	—		$	(186,802	)
Net income	—		—	—		—	—			—	—		—		—			1,359			—			—			—			—			—			1,359
Issuance of preferred stock and common stock warrants	15,000		—	—		—	—			—	3,200		2,784		12,216			—			—			—			—			—			—			15,000
Preferred stock dividends	—		—	—		—	—			—	—		—		—			(320	)		—			—			—			—			—			(320	)
								��
Balance at December 31, 2000	15,000		—	27,650,000		277	27,650,000			277	3,200		2,784		139,081			(310,482	)		—			—			(2,700	)		—			—			(170,763	)
Net income	—		—	—		—	—			—	—		—		—			6,726			—			—			—			—			—			6,726
Issuance of common stock	—		—	71,000		1	71,000			1	—		—		(2	)		—			—			—			—			—			—			—
Issuance of common stock options	—		—	—		—	—			—	600		456		—			—			—			—			—			—			—			456
Issuance of preferred stock and common stock warrants	22,600		—	—		—	—			—	6,300		8,505		13,464			—			—			—			—			—			—			21,969
Preferred stock dividends	—		—	—		—	—			—	—		—		—			(2,292	)		—			—			—			—			—			(2,292	)
Loan to executive officer	—		—	—		—	—			—	—		—		400			—			—			—			—			(400	)		—			—
Unrealized loss on interest rate swap, net of taxes	—		—	—		—	—			—	—		—		—			—			—			—			—			—			(513	)		(513	)

Balance at December 31, 2001	37,600		—	27,721,000		278	27,721,000			278	10,100		11,745		152,943			(306,048	)		—			—			(2,700	)		(400	)		(513	)		(144,417	)
Net income	—		—	—		—	—			—	—		—		—			25,336			—			—			—			—			—			25,336
Issuance of common stock for Schultz acquisition and related financing	—		—	2,290,000		24	2,290,000			24	—		—		22,866			—			—			—			—			—			—			22,914
Issuance of common stock	—		—	60,000		—	60,000			—	—		—		600			—			—			—			—			—			—			600
Issuance of common stock to Bayer	—		—	3,072,000		30	3,072,000			30	—		—		30,430			—			(27,321	)		(2,636	)		—			—			—			533
Amendment to Bayer agreement	—		—	—		—	—			—	—		—		3,641			—			—			—			—			—			—			3,641
Proceeds for subscription receivable, net of interest	—		—	—		—	—			—	—		—		—			—			1,560			—			—			—			—			1,560
Preferred stock dividends	—		—	—		—	—			—	—		—		—			(6,880	)		—			—			—			—			—			(6,880	)
Loan to executive officer	—		—	—		—	—			—	—		—		—			—			—			—			—			(52	)		—			(52	)
Payment on loan to executive officer	—		—	—		—	—			—	—		—		—			—			—			—			—			48			—			48
Realized loss on interest rate swap, net of taxes	—		—	—		—	—			—	—		—		—			—			—			—			—			—			513			513
Changes in fair value of derivative hedging instruments	—		—	—		—	—			—	—		—		—			—			—			—			—			—			(32	)		(32	)

Balance at December 31, 2002	37,600	$	—	33,143,000	$	332	33,143,000		$	332	10,100	$	11,745	$	210,480		$	(287,592	)	$	(25,761	)	$	(2,636	)	$	(2,700	)	$	(404	)	$	(32	)	$	(96,236	)

		December 31,
		2002			2001
Raw materials		$	27,853		$	11,104
Finished goods			65,750			40,688
Allowance for obsolete and slow-moving inventory			(5,841	)		(2,700	)

	Total inventories	$	87,762		$	49,092

		December 31,
		2002			2001
Machinery and equipment		$	39,609		$	30,279
Office furniture, equipment, and capitalized software			26,299			15,181
Automobiles, trucks and aircraft			6,313			6,157
Leasehold improvements			9,512			7,405
Land and buildings			1,099			—

			82,832			59,022
Accumulated depreciation and amortization			(48,614	)		(31,092	)

	Total equipment and leasehold improvements, net	$	34,218		$	27,930

				December 31, 2002							December 31, 2001
			Amortization Period	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Intangible assets:
	Trade names		25-40	$	64,025	$	(1,918	)	$	62,107	$	37,500	$	—	$	37,500
	Supply agreement		4		5,694		(894	)		4,800		—		—		—
	Other intangible assets		25		5,401		(52	)		5,349		—		—		—

		Total intangible assets		$	75,120	$	(2,864	)		72,256	$	37,500	$	—		37,500

Goodwill										28,612						5,616

		Total goodwill and intangible assets, net							$	100,868					$	43,116

	Lawn and Garden		Household		Contract		Total
Balance at January 1, 2002	$	3,478	$	2,079	$	59	$	5,616
Goodwill acquired during the year		17,668		4,417		911		22,996

Balance at December 31, 2002	$	21,146	$	6,496	$	970	$	28,612

	Years Ended December 31,
	2001		2000
Net income, as reported	$	6,726	$	1,359
Amortization of goodwill, net of tax		46		46

Net income, as adjusted	$	6,772	$	1,405

		December 31,
		2002			2001
Deferred financing fees		$	22,432		$	18,067
Accumulated amortization			(10,382	)		(7,102	)

	Deferred financing fees, net		12,050			10,965

Other			975			872

	Total other assets, net	$	13,025		$	11,837

		December 31,
		2002		2001
Advertising and promotions		$	16,401	$	12,125
Facilities rationalization			1,563		3,500
Dursban related expenses			—		82
Interest			3,777		3,763
Cash overdraft			1,506		7,126
Noncompete agreement			1,770		1,060
Preferred stock dividends			9,492		2,612
Salaries and benefits			4,357		1,983
Severance costs			869		1,679
Other			5,486		76

	Total accrued expenses	$	45,221	$	34,006

		Facilities Rationalization			Severance Costs			Total Costs
Balance at January 1, 2001		$	—		$	—		$	—
	Provision charged to accrual		3,500			2,050			5,550
	Charges against the accrual		—			(392	)		(392	)

Balance at December 31, 2001			3,500			1,658			5,158
	Charges against the accrual		(1,937	)		(1,279	)		(3,216	)

Balance at December 31, 2002		$	1,563		$	379		$	1,942

		2002			2001			2000
Balance at beginning of year		$	82		$	6,066		$	—
	Provision charged to accrual		—			—			8,000
	Charges against the accrual		(82	)		(5,984	)		(1,934	)

Balance at end of year		$	—		$	82		$	6,066

				December 31,
				2002			2001
Senior Credit Facility:
	Term Loan A			$	28,250		$	39,205
	Term Loan B				222,465			134,488
	Revolving Credit Facility				—			23,450
9⁷/8% Series B Senior Subordinated Notes					150,000			150,000

					400,715			347,143
		Less current maturities and short-term borrowings			(9,222	)		(28,757	)

			Total long-term debt, net of current maturities	$	391,493		$	318,386

			Operating Leases
Years Ended December 31,			Operating Leases				Capital Lease
Years Ended December 31,			Affiliate		Other		Capital Lease			Total
2003			$	1,726	$	7,146	$	818		$	9,690
2004				1,766		6,348		818			8,932
2005				1,806		5,492		3,343			10,641
2006				1,847		4,307		—			6,154
2007				1,887		3,525		—			5,412
Thereafter				10,241		16,899		—			27,140

	Total minimum lease payments		$	19,273	$	43,717		4,979		$	67,969

	Less amount representing interest							(758	)

		Present value of net minimum lease payments, including current portion of $443					$	4,221

Number of Commitments	Expected Purchase Month	Commitment Amount in Tons	Weighted Average Purchase Price		Value of Purchase Commitment on Commitment Date
3	January 2003	18,750	$	126.93	$	2,380,000
2	February 2003	18,500		128.20		2,472,550

5		37,250			$	4,852,550

	Years Ended December 31,
	2001				2000
	Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
Options outstanding, beginning of year	3,096,500		$	5.00	2,955,000		$	5.00
Granted	—			—	527,500			5.00
Exercised	—			—	—			—
Forfeited	(3,096,500	)		5.00	(386,000	)		5.00

Options outstanding, end of year	—		$	—	3,096,500		$	5.00

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price
$2.00 to $3.25	4,657,500	8.20	$	2.26	1,363,949	8.17	$	2.21
$4.00 to $5.00	1,102,500	8.99		4.82	192,083	9.02		4.83

	5,760,000	8.35		2.75	1,556,032	8.27		2.54

		December 31,
		2002			2001
Deferred tax assets:
	Goodwill	$	172,355		$	188,294
	NOL carryforward		35,920			35,489
	Co-op advertising		3,566			2,713
	Inventories		1,547			—
	Deferred compensation		1,026			1,027
	Facilities and organizational rationalization		511			3,081
	Other, net		2,675			799

	Gross deferred tax assets		217,600			231,403

	Valuation allowance		(104,137	)		(112,272	)

Total deferred tax assets			113,463			119,131

Deferred tax liabilities:
	Equipment and leasehold improvements		(3,013	)		(3,369	)
	Other, net		—			(1,982	)

	Net deferred tax asset	$	110,450		$	113,780

	December 31,
	2002		2001
Current (prepaid assets and other)	$	5,309	$	1,275
Non-current		105,141		112,505

	$	110,450	$	113,780