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

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

FORM 10-Q

(MARK ONE)

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBERFor the quarterly period ended June 30, 2000

2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO ______________ TO ______________

COMMISSION FILE NO.For the Transition period fromto
Commission File No. 333-76055

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

UNITED INDUSTRIES CORPORATION
(Exact
(Exact name of registrant as specified in its charter)
DELAWARE 43-1025604
(State
(State or other jurisdiction of (I.R.S Employer

incorporation or organization) 43-1025604
(I.R.S Employer
Identification No.)
8825 PAGE BOULEVARD
ST. LOUIS, MISSOURIPage Boulevard
St. Louis, Missouri 63114
(Address
(Address of principal executive office, including zip code)
(314) 427-0780
(Registrant's
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrantregistrant: (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//x/ No / /.

There is no established public market for the Registrant's common stock./
As of November 15, 2000,June 30, 2001, the Registrant had 27,650,00027,550,000 Class A voting and 27,650,00027,550,000 Class B non-voting shares of common stock outstanding and 15,000 non-voting shares of Class A Preferred Stockpreferred stock outstanding.

Documents Incorporated by Reference: None

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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

Financial Statements
UNITED INDUSTRIES CORPORATION

ASSETS

Current assets: Cash and cash equivalents............................ Accounts receivable (less allowance for doubtful accounts of $875 at September 30, 2000, $535 at September 30, 1999 and $1,031 at December 31, 1999).............................................. Inventories.......................................... Prepaid expenses.....................................

Total current assets.............................

Equipment and leasehold improvements, net.............. Deferred income tax.................................... Other assets...........................................

Total assets.....................................

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities: Current maturities of long-term debt and capital lease obligations.................................. Accounts payable..................................... Accrued expenses..................................... Short-term borrowings................................

Total current liabilities........................

Long-term debt......................................... Capital lease obligations.............................. Other liabilities......................................

Total liabilities................................

Stockholders' deficit.................................. Common stock......................................... Additional paid-in capital........................... Accumulated deficit..................................

Common stock held in grantor trust...................

Total stockholders' deficit......................

Total liabilities and stockholders' deficit......

name="toc_ca3069_4">BALANCE SHEETS SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31 2000 1999 1999 ------------- ------------- ----------- $ 17,146 $ 11,853 $ -- 31,376 32,750 19,165 31,799 35,987 53,243 2,666 1,352 3,501 --------- --------- --------- 82,987 81,942 75,909 25,871 27,567 27,860 116,268 107,574 116,268 19,806 21,018 20,870 --------- --------- --------- $ 244,932 $ 238,101 $ 240,907 ========= ========= ========= $ 11,846 $ 12,165 $ 12,178 11,789 13,024 25,507 23,049 19,876 27,464 15,000 -- -- --------- --------- --------- 61,684 45,065 65,149 343,375 352,000 349,125 5,261 8,127 7,952 6,725 5,377 5,483 --------- --------- --------- 417,045 410,569 427,709 554 554 554 126,865 116,687 126,865 (296,832) (287,009) (311,521) --------- --------- --------- (2,700) (2,700) (2,700) --------- --------- --------- (172,113) (172,468) (186,802) --------- --------- --------- $ 244,932 $ 238,101 $ 240,907 ========= ========= =========
JUNE 30, 2001 AND 2000, AND DECEMBER 31, 2000
(Dollars in thousands)
(Unaudited)
June 30, June 30, December 31,
2001 2000 2000
ASSETS
Current assets:
Cash and cash equivalents $ — $ — $ —
Accounts receivable (less allowance for doubtful accounts of $1,419 and $1,609 at June 30, 2001 and 2000 and $777 at December 31, 2000) 77,040 76,041 19,944
Inventories 38,149 38,899 47,007
Prepaid expenses 4,835 2,924 6,357
Total current assets 120,024 117,864 73,308

Equipment and leasehold improvements, net
24,276
26,336
24,736
Deferred income tax 116,763 116,268 116,763
Other assets 18,632 20,489 20,087
Total assets $ 279,695 $ 280,957 $ 234,894

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Current maturities of long-term debt and capital lease obligation $ 5,693 $ 6,096 $ 5,675
Accounts payable 29,527 24,109 18,625
Accrued expenses 33,887 27,840 24,791
Short-term borrowings 18,550 21,050 15,000
Total current liabilities 87,657 79,095 64,091
Long-term debt 323,693 349,125 329,000
Capital lease obligation 4,428 5,345 4,626
Other liabilities 16,167 11,922 7,940
Total liabilities 431,945 445,487 405,657
Stockholders' deficit
Common Stock (27.6 million shares of $0.01 par value Class A and 27.6 million $0.01 par value Class B) 554 554 554
Preferred Stock (15,000 shares of $0.01 par value Class A) — — —
Warrants 2,784 — 2,784
Additional paid-in capital 139,081 126,865 139,081
Accumulated deficit (291,640 ) (289,249 ) (310,482 )
Accumulated other comprehensive loss (329 ) — —
Common stock held in grantor trust (2,700 ) (2,700 ) (2,700 )
Total stockholders' deficit (152,250 ) (164,530 ) (170,763 )
Total liabilities and stockholders' deficit $ 279,695 $ 280,957 $ 234,894
See accompanying notes to financial statements
2

UNITED INDUSTRIES CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands)
(Unaudited)
Three months ended June 30, Six months ended June 30,
2001 2000 2001 2000
Sales before promotion expense $ 124,428 $ 123,508 $ 212,864 $ 212,054
Promotion expense 9,781 9,307 18,298 16,958
Net sales 114,647 114,201 194,566 195,096

Operating costs and expenses:
Cost of goods sold 60,748 62,134 104,707 105,971
Selling, general and administrative expenses 22,121 17,767 42,185 39,406
Total operating costs and expenses 82,869 79,901 146,892 145,377
Operating income 31,778 34,300 47,674 49,719
Interest expense 9,388 10,479 19,401 21,084
Income before provision for income taxes 22,390 23,821 28,273 28,635
Income tax expense 6,637 5,366 8,284 6,363
Net income $ 15,753 $ 18,455 $ 19,989 $ 22,272
See accompanying notes to financial statements.

2
3

UNITED INDUSTRIES CORPORATION
STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------

Net sales........................................ $ 51,080 $53,536 $263,134 $281,819
-------- ------- -------- --------

Operating costs and expenses:
Cost of goods sold............................. 26,563 25,224 132,535 137,925
Advertising and promotion expenses............. 4,021 4,115 23,489 29,024
Selling, general and administrative expenses... 15,078 16,425 51,974 54,331
Recapitalization transaction fees.............. -- -- -- 10,690
Change of control bonuses...................... -- -- -- 8,645
Severance charges.............................. -- -- -- 1,606
Durshan related expenses (see note 11)......... 8,000 -- 8,000 --
Non-recurring litigation charges............... -- -- -- 1,500
-------- ------- -------- --------
Total operating costs and expenses............. 53,662 45,764 215,998 243,721
-------- ------- -------- --------
Operating income (loss).......................... (2,582) 7,772 47,136 38,098
Interest expense................................. 10,120 9,020 31,204 26,388
-------- ------- -------- --------
Income (loss) before provision for income taxes,
and extraordinary item......................... (12,702) (1,248) 15,932 11,710
Income tax expense (benefit)..................... (5,120) 1,693 1,243 9,468
-------- ------- -------- --------
Income (loss) before extraordinary item.......... (7,582) (2,941) 14,689 2,242
Extraordinary loss from early extinguishment of
debt, net of income tax benefit of $1,425...... -- -- -- (2,325)
-------- ------- -------- --------
Net income (loss)................................ $ (7,582) $(2,941) $ 14,689 $ (83)
======== ======= ======== ========
CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands)
(Unaudited)
Six months ended June 30,
2001 2000
Cash flows from operating activities:
Net income $ 19,989 $ 22,272
Adjustments to reconcile net income to net cash used by operating activities:
Non cash reduction of capital lease obligation — (1,182 )
Depreciation and amortization 2,436 2,881
Amortization of deferred financing fees 1,346 1,140
Unrealized loss on interest rate swap, net of taxes (329 ) —
Provision for deferred income tax expense 8,284 6,363
Changes in assets and liabilities:
Increase in accounts receivable (57,096 ) (56,876 )
Decrease in inventories 8,858 14,344
Decrease in prepaid expenses 1,522 577
Increase in accounts payable and accrued expenses 23,465 11,153
Decrease in Dursban charge (4,614 ) —
Decrease in other assets 11 33
Other, net (57 ) 77
Net cash used by operating activities 3,815 782
Investing activities:
Purchases of equipment and leasehold improvements (1,878 ) (2,606 )
Net cash used by investing activities (1,878 ) (2,606 )

Financing activities:
Transaction costs related to the redemption of treasury stock — (12,175 )
Debt issuance costs — (903 )
Proceeds from the issuance of debt 3,550 21,050
Repayment of borrowings on revolver and other debt (5,487 ) (6,148 )
Net cash provided by (used for) financing activities (1,937 ) 1,824

Net increase (decrease) in cash and cash equivalents
—
—
Cash and cash equivalents—beginning of period — —
Cash and cash equivalents—end of period $ — $ —
Noncash financing activity:
Execution of capital lease $ — $ 5,344
Dividends declared $ 1,146 $ — See accompanying notes to financial statements.

3
4
UNITED INDUSTRIES CORPORATION

STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
2000 1999
-------- ---------

Cash flows from operating activities:
Net income (loss)......................................... $ 14,689 $ (83)
Loss from early extinguishment of debt.................. -- 3,750
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non cash reduction of capital lease obligation........ (1,182) --
Deferred compensation................................. -- 2,700
Depreciation and amortization......................... 4,088 3,468
Recapitalization transaction fees..................... -- 10,690
Amortization of deferred financing fees............... 1,779 1,493
Provision for deferred income tex expense............. 1,243 8,043
Changes in assets and liabilities:
Increase in accounts receivable..................... (12,211) (15,575)
Decrease in inventories............................. 21,444 5,457
Decrease in prepaid expenses........................ 835 820
Decrease in accounts payable and accrued expenses... (13,437) (3,649)
Increase in Dursban related expenses................ 7,479 --
Decrease in other assets............................ (75) (413)
Other, net.......................................... -- 188
-------- ---------
Net cash provided by operating activities......... 24,652 16,889

Investing activities:
Purchase of equipment and leasehold improvements.......... (3,175) (1,499)
-------- ---------
Net cash used for investing activities............ (3,175) (1,499)

Financing activities:
Redemption of treasury stock.............................. (12,175) (337,896)
Transaction costs related to redemption of treasury
stock................................................... -- (11,378)
Recapitalization transactions with affiliate.............. -- (5,700)
Issuance of common stock.................................. -- 1,990
Shareholder equity contribution........................... -- 8,425
Debt issuance costs....................................... (924) (19,271)
Proceeds from the issuance of short-term debt............. 15,000 520,205
Payments on debt.......................................... (6,232) (160,162)
Repayment of note receivable from employee................ -- 250
-------- ---------
Net cash used for financing activities............ (4,331) (3,537)

Net increase in cash and cash equivalents................... 17,146 11,853
Cash and cash equivalents - beginning of period............. -- --
-------- ---------
Cash and cash equivalents - end of period................... $ 17,146 $ 11,853
======== =========

See accompanying notes to financial statements.

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

(Dollars in thousands)
(Unaudited)
Note 1—Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles
in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should be read in conjunction with the financial statements and notes thereto included in the annual reportAnnual Report on Form 10-K of United Industries Corporation (the "Company") for the year ended December 31, 1999. Certain balance sheet accounts have been
reclassified from the September 30, 1999 and December 31, 1999 balance sheets in
order to provide a consistent comparison with the September 30, 2000 balance
sheet.

NOTE 2--RECAPITALIZATION OF THE COMPANY AND NON-RECURRING CHARGES

On January 20, 1999, pursuant 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"), the Company was recapitalized (the "Recapitalization") in a
transaction in which: (i) the Equity Investor purchased common stock from the
Company's existing stockholders for approximately $254,700; (ii) the Company's
senior managers purchased common stock from the Company's existing stockholders
for approximately $5,700; and (iii) the Company used the net proceeds of a
senior subordinated facility (the "Senior Subordinated Facility") and borrowings
under a Senior Credit Facility (the "Senior Credit Facility") to redeem a
portion of the common stock held by the Company's existing stockholders.
Following the Recapitalization, the Equity Investor 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 $652,000, including related fees and
expenses, and the implied total equity value following the Recapitalization was
approximately $277,000. 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 date of the Recapitalization and excess taxes
of certain stockholders arising from the Company's Section 338(h)(10) election.
In December 1999, the Company recorded a $7,200 charge to equity to finalize the
costs associated with the Recapitalization increasing the total transaction
value to $659,200.

On January 20, 1999, the Recapitalization was funded by: (i) $225,000 of
borrowings under the Senior Credit Facility; (ii) $150,000 of borrowings under
the Senior Subordinated Facility; (iii) $254,700 equity investment by the THL
Parties through the Equity Investor; (iv) $5,700 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
$16,600.

The Recapitalization was accounted for as a leveraged recapitalization,
which had no impact on the Company's historical basis of assets and liabilities
for financial reporting purposes.

During 1999, the Company recorded $31,312 in fees and expenses associated
with the Recapitalization. The total fees and expenses consist of: (i) fees and
expenses related to the debt and

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

(UNAUDITED)

NOTE 2--RECAPITALIZATION OF THE COMPANY AND NON-RECURRING CHARGES (CONTINUED)
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 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 based on the Company's estimate of the effort spent in the
activity giving rise to the fee or expense. The allocation of fees and expenses
to the debt, equity and Recapitalization transaction fees is as follows:

DEBT EQUITY 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 the first nine months of 1999, the Company recorded various
non-recurring charges as follows: (i) change of control bonuses to some members
of senior management totaling $8,645, which were contractually required as a
result of the Recapitalization (senior management reinvested $2,700 of their
change in control bonuses in the Company's common stock through a Grantor
Trust); (ii) $1,100 to cost of goods sold for the write-off of its "Citri-Glow"
candle inventory (the Company discontinued this product line during 1999 and
chose to dispose of the inventory by selling it through discount channels at
prices below cost); and (iii) $900 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.

NOTE 3--COMMON STOCK AND STOCK SPLIT

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
65,000 shares, of which 32,500 have been designated as Class A Voting Common
Stock and 32,500 have been designated as Class B Non-Voting Common Stock. As of
January 20, 1999, there were 27,600 shares of Class A Voting Common Stock
outstanding and 27,600 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.

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

(UNAUDITED)

NOTE 4--INVENTORIES2000.
Note 2—Inventories
Inventories are as follows:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- -------------

Raw materials.......................................... $ 7,715 $ 5,899 $ 9,916
Finished goods......................................... 25,071 30,919 44,149
Allowance for obsolete and slow-moving inventory....... (987) (831) (822)
------- ------- -------
Total inventories...................................... $31,799 $35,987 $53,243
======= ======= =======

NOTE 5--EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
June 30, June, 30 December 31,
2001 2000 2000
Raw materials $ 8,895 $ 7,494 $ 10,663
Finished goods 30,658 32,391 37,343
Allowance for obsolete and slow-moving inventory (1,404 ) (986 ) (999 )
Total inventories $ 38,149 $ 38,899 $ 47,007
Note 3—Equipment and leasehold improvements
Equipment and leasehold improvements net are as follows:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- -------------

Machinery and equipment................................ $27,514 $25,763 $26,791
Office furniture and equipment......................... 10,227 9,182 9,606
Automobiles, trucks and aircraft....................... 6,412 9,574 9,573
Leasehold improvements................................. 6,985 6,834 6,848
------- ------- -------
51,138 51,353 52,818
Less: accumulated depreciation......................... 25,267 23,786 24,958
------- ------- -------
$25,871 $27,567 $27,860
======= ======= =======

NOTE 6--OTHER ASSETS
June 30, June 30, December 31,
2001 2000 2000
Machinery and equipment $ 28,773 $ 27,421 $ 27,435
Office furniture and equipment 10,951 9,784 10,565
Automobiles, trucks and aircraft 6,156 6,290 6,067
Leasehold improvements 7,108 6,956 7,043
52,988 50,451 51,110
Less: accumulated depreciation 28,712 24,115 26,374
$ 24,276 $ 26,336 $ 24,736
5
Note 4—Other assets
Other assets are as follows:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- -------------

Goodwill............................................... $ 7,988 $ 7,988 $ 7,988
Accumulated amortization............................... (2,130) (1,909) (1,964)
------- ------- -------
5,858 6,079 6,024
------- ------- -------
Deferred financing fees................................ 17,108 15,534 16,184
Accumulated amortization............................... (3,770) (1,506) (1,991)
------- ------- -------
13,338 14,028 14,193
------- ------- -------
Other.................................................. 610 911 653
------- ------- -------
Total other assets..................................... $19,806 $21,018 $20,870
======= ======= =======

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

(UNAUDITED)

NOTE 7--ACCRUED EXPENSES

June 30, June 30, December 31,
2001 2000 2000
Goodwill $ 7,175 $ 7,988 $ 7,988
Accumulated amortization (1,461 ) (2,075 ) (2,175 )
5,714 5,913 5,813
Deferred financing fees 18,067 17,087 18,067
Accumulated amortization (5,757 ) (3,131 ) (4,411 )
12,310 13,956 13,656
Other 608 620 618
Total other assets $ 18,632 $ 20,489 $ 20,087
Note 5—Accrued expenses
Accrued expensed are as follows:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- -------------

Recapitalization costs................................. $ -- $ 5,800 $13,000
Advertising and promotional............................ 8,009 10,150 4,799
Dursban................................................ 7,479 -- --
Interest............................................... 3,782 -- 3,840
Cash overdraft......................................... -- -- 2,078
Severance charges...................................... 952 1,115 1,805
Settlement charges and litigation...................... -- 1,200 114
Other.................................................. 2,827 1,611 1,828
------- ------- -------
Total accrued expenses................................. $23,049 $19,876 $27,464
======= ======= =======

NOTE 8--LONG-TERM DEBT AND CREDIT FACILITIES
June 30, June 30, December 31,
2001 2000 2000
Advertising and promotional $ 13,506 $ 11,615 $ 5,520
Dursban charge 1,452 — 6,066
Interest 3,834 4,019 3,886
Cash overdraft 7,414 6,586 6,181
Dividend payable 1,466 — 320
Severence charges 457 1,168 1,010
Other 5,758 4,452 1,808
Total accrued expenses $ 33,887 $ 27,840 $ 24,791
6
Note 6—Long-term debt and credit facilities
Long-term debt is comprised of the following:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- -------------

Senior Credit Facility:
Term loan A.......................................... $ 57,500 $ 65,000 $ 62,500
Term loan B.......................................... 147,375 148,500 148,125
Revolving credit facility.............................. 15,000 -- --
9 7/8% Series B Registered Senior Subordinated Notes... 150,000 150,000 150,000
-------- -------- --------
369,875 363,500 360,625
Less portion due within one year....................... (26,500) (11,500) (11,500)
-------- -------- --------
Total long-term debt net of current portion............ $343,375 $352,000 $349,125
======== ======== ========
June 30, June 30, December 31,
2001 2000 2000
Senior Credit Facility:
Term Loan A $ 43,817 $ 57,500 $ 48,430
Term Loan B 135,183 147,375 135,878
Revolving Credit Facility 18,550 21,050 15,000
9⁷/8% Series B Registered Senior Subordinated Notes 150,000 150,000 150,000
347,550 375,925 349,308
Less portion due within one year (23,857 ) (26,800 ) (20,308 )
Total long-term debt net of current portion $ 323,693 $ 349,125 $ 329,000
The Senior Credit Facility was provided by NationsBank, N.A., Morgan Stanley Senior Funding, Inc. and CIBC Inc. and consists of (i) a $110,000$80,000 revolving credit facility (the "Revolving Credit Facility"); (ii) a $75,000 term loan facility ("Term Loan A"); and (iii) a $150,000 term loan facility ("Term Loan B"). The Revolving Credit Facility and Term Loan A matures on January 20, 2005, and Term Loan B matures on January 20, 2006. The Revolving Credit Facility is subject to a clean-down period during which the aggregate amount outstanding under the Revolving Credit Facility shall not exceed $10,000$10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. In 2000, the actual clean-down
period began on August 2. On SeptemberJune 30, 2000, $15,0002001, $18,550 was outstanding under the $110,000 revolving credit facility.Revolving Credit Facility. There were no compensating balance requirements for the $110,000 revolving credit facilityRevolving Credit Facility at SeptemberJune 30, 2000.

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

(UNAUDITED)

NOTE 8--LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)2001.
The principal amount of Term Loan A is to be repaid in twenty-three consecutive quarterly installments commencing MarchJune 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-seven consecutive quarterly installments commencing MarchJune 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 covenants put restrictions on levels of investments, indebtedness, insurance and capital expenditures. Financial covenants require the maintenance of certain financial ratios at defined levels. At December 31, 1999,June 30, 2001, the Company was not in compliance with certainall financial covenants. On January 24, 2000 the Senior
Credit Facility agreement was amended to provide new provisions for financial
covenant requirements and a waiver of 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 were reflected as deferred financing fees
in January 2000 and will be amortized over the life of the debt as interest
expense. At September 30, 2000, the Company was not in compliance with certain
financial covenants. See subsequent event footnote.
Under the January 24, 2000 covenants, interest on the Revolving Credit Facility, Term Loan A and Term Loan B ranges from 200250 to 375400 basis points above LIBOR depending on certain financial ratios. Unused commitments under the Revolving Credit Facility are subject to a 50 basis point annual commitment fee. LIBOR was 6.62%3.86% at SeptemberJune 30, 2000.2001.
7
Note 6—Long-term debt and credit facilities (continued)
The Senior Credit Facility may be prepaid at any time in whole or in part without premium or penalty. During 1999,fiscal 2000, principal payments on Term Loans A and B of $12,500$14.1 million and $1,875,$12.2 million, respectively, were paid, which included optional principal prepayments of $5,000$4.1 million and $675$10.8 on Term Loan A and Term Loan B, respectively. During the six month period ended June 30, 2001, optional principal prepayments of $4.6 million and $.7 million on Term Loan A and Term Loan B, respectively, were paid. The optional payments were made in order for the Company to remain two quarterly payments ahead. 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. In the nine months ended September 30, 2000,Management intends to pay a full year of principal payments on
Term Loans A and B of $5,000 and $750, respectively, were paid. The optional
principal payments were applied September 2000.

Obligations underrepayment installments in 2001 in accordance with the Senior Credit Facility agreement.
In November 1999, the Company issued 9⁷/8% Senior Subordinated Notes for $150 million that are secured by substantiallydue April 1, 2009.
Interest accrues at the rate of 9⁷/8% per annum, payable semi-annually on each April 1 and October 1.
Substantially all of the properties and assets of the Company and substantially all of the properties and assets of the Company's future domestic subsidiaries.

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

(UNAUDITED)

NOTE 8--LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
Aggregate maturities under the Senior Credit Facility (excluding the revolving credit facility)Revolving Credit Facility) and the Senior Subordinated Notes are as follows:
2000 Remainder of year...................................... $ 2,875
2001........................................................ 11,500
2002........................................................ 11,500
2003........................................................ 17,125
2004........................................................ 18,375
Thereafter.................................................. 293,500
--------
$354,875
========

The company entered into a capital lease agreement in March 1999 for $9,215,
which was cancelled in May of 2000. A new capital lease agreement was entered
into in March of 2000 for $5,869. The effect of the two capital lease
transactions was a non-cash gain of $1,182.

NOTE 9--COMMITMENTS
2001 Remainder of year $ —
2002 10,614
2003 15,804
2004 17,534
2005 102,382
Thereafter 182,666
$ 329,000
Note 7—Commitments
The Company leases the majority of its operating facilities from a company owned by a significant shareholder of the Company under various operating leases expiring December 31, 2010. The Company has options to terminate the leases on a year-to-year basis by giving advance notice of at least twelve months. 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 $653.2005. The Company has two five-year options to renew this lease, beginning January 1, 2006. Management believes that the terms and expenses associated with
8
the related party leases described above are similar to those negotiated by unrelated parties at arm's length.
The Company is obligated under other operating leases for use of warehouse space. The leases expire at various dates through December 1, 2006. SeveralFive of the leases provide as many as five five-year options to renew.

NOTE 10--CONTINGENCIES
Note 9—Contingencies
The Company is involved in litigation and arbitration proceedings in the normal course of business that assert product liability and other claims. The Company is contesting all such claims. 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 financial statements and charges are made against earnings.
Management believes the possibility of a material adverse effect on the Company's consolidated financial position, results of operations and cash flows from the claims and proceedings described above is remote.

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

(UNAUDITED)

NOTE 11--DURSBAN RELATED EXPENSES

On September 7,
Note 10—Dursban Charge
During 2000 the US Environmental Protection Agency and manufacturers of chlorpyrifos (the active ingredient in Dursban pesticidal products) entered into a voluntary agreement that provides for phasing out most
nonresidential uses andwithdrawal of virtually all residential uses of Dursban. Formulation of new Dursban products intended for residential use mustwere required to cease by December 1, 2000, and formulators2000. Formulators can no longer sell such products to retailers afteras of February 1, 2001. Retailers2001 and retailers will no longer be able to sell Dursban products after December 31, 2001. The Company has assessed the potential financial impact of the Dursban
agreement on its operations. A charge of $8,000 was bookedrecorded in September of 2000 for costs associated with this agreement. The Company currently has a
replacement chemical forbelieves that the active ingredient in Dursban, which chemicalaccrual is already being used in productionadequate as of new pesticidal products.June 30, 2001.
Details of this charge and the accrual balances remaining are as follows:
THIRD
QUARTER AMOUNTS UTILIZED THIRD QUARTER
2000 CHARGE DURING THIRD QUARTER 2000 ACCRUAL BALANCE
----------- -------------------- --------------------

Returns..................................... $5,415 $ 68 $5,347
Inventory................................... 1,370 -- 1,370
Disposal
Accrual Balances
at the end of 2000 Year to Date
2001 Utilization Amount to be utilized
during remainder of 2001
Customer returns and markdowns $ 4,509 $ 2,707 $ 1,802
Inventory 1,118 1,064 54
Disposal and related costs 439 843 (404 )
$ 6,066 $ 4,614 $ 1,452
Note 11—Shipping and handling costs
Certain shipping and handling costs are included in the selling, general and administrative expenses line item on the Company's Statements of Operations. The amount included is $4,230 and $4,139 for the three months ended June 30, 2001 and related costs.................. 1,215 453 762
------ ---- ------
$8,000 $521 $7,479
====== ==== ======

NOTE 12--SUBSEQUENT EVENT

On November 9, 2000, respectively. The amount included is $7,906 and $7,752 for the Seniorsix months ended June 30, 2001 and 2000, respectively.
9
Note 12—Derivatives and Hedging Activities
The Company is exposed to market risks relating to changes in interest rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company enters into financial instruments to manage and reduce the impact of changes in interest rates.
Effective April 1, 2001, the Company entered into two interest rate swaps that have fixed the interest rate as of April 30, 2001 for $75.0 million of variable rate debt under the Credit Facility. The interest rate swaps are for $50.0 and $25.0 million of the Credit Facility was amendedand will terminate on April 30, 2002. The fixed LIBOR interest rates are 4.74% and 4.66%, for the $50.0 and $25.0 million interest rate swaps, respectively. The Company's objective is to provide new
financial covenantsmanage the cash flow risks associated with its variable rate debt and not to trade such instruments for profit and loss. The Company's interest rate hedges are classified as cash flow hedges. For a waivercash flow hedge, the ineffective portion is deferred in accumulated other comprehensive income on the balance sheet until the transaction is realized, at which time any deferred hedging gains or losses are recorded in earnings. The fair value of certain covenantsthe interest rate swaps is reported as a liability and as a component of comprehensive income in Stockholders' deficit at SeptemberJune 30, 2000. As
a condition2001. The June 30, 2001 fair value is $0.3 million.
Note 13—Comprehensive Income
Comprehensive income differs from net income due to the effectivenesscash flow hedge. Comprehensive income for the three and six months ended June 30, 2001 was $15,424 and $19,660, respectively.
10
Item 2: Management's Discussion and Analysis of this amendmentFinancial Condition and waiver, the Company
agreed to the following items:

1. The Company agreed to terminate $30,000Results of the unused portion of the
Revolving Credit Facility under the credit agreement, thereby reducing the
Revolving Credit Facility from $110,000 to $80,000.

2. The Company agreed to sell Common Stock and/or permitted Preferred Stock to
the Equity Investors for net cash proceeds equal to $15,000, which net cash
proceeds have been applied to the prepayment of Term Loan advances.

3. Interest rate increase will range from 25 to 75 basis points higher than
previous Revolving Credit Facility.

On November 8, 2000, the Company Board of Directors, authorized the creation
of 15,000 shares of Class A Preferred Stock to be sold to UIC Holdings LLC at a
price of $1,000 per share.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Operations
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statementsstatements" within the meaning of Section27ASection 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended." All statements other than statements of historical facts included in this report regarding the Company's financial position, business strategy, budgets and plans and objectives of management for future operations are forward-looking statements. Although the management of the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those contemplated or projected, forecasted, estimated or budgeted in or expressed or implied by such forward-looking statements. Such factors include, among others, the riskrisks and other factors set forth under "Risk Factors" in the Company's Registration
Statement on Form S-4 filed with the Commission andItem 7A in the Company's Annual Report on Form 10-K for 1999the year ended December 31, 2000 as well as the following: general economic and business conditions; governmental regulations; industry trends; the loss of major customers or suppliers; cost and availability of raw materials; changes in business strategy or development plans; availability and quality of management; and availability, terms and deployment of capital. OVERVIEWThe Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
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 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 believes that the key drivers of growth for the $2.7 billion consumer lawn and garden pesticide and household insecticide retail markets include: (a) the aging of the population of the United States population;States; (b) growth in the home improvement center and mass merchandiser channels; and (c) shifting consumers preferences' toward value-oriented branded products.
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the historical financial information included in the unaudited quarterly financial statements and the related notes to the unaudited quarterly financial statements.

RESULTS OF OPERATIONSstatements contained elsewhere in this report.
Results of Operations
The following discussion regarding results of operations refers to net sales, cost of goods sold advertising and promotion expense and selling and general and administrative expenses, which the Company defines as follows:

-
•
Net sales are gross sales of products sold to customers upon shipment of
productin accordance with the shipping terms applicable to each sale less any customer discounts from list price and customer returns.

- returns; and promotion expense of products through cooperative programs with retailers.

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

- Advertising

•
Selling and promotion expense includes the cost of advertising of
products through national and regional media as well as the advertising
and promotion of products through cooperative programs with retailers.

- 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.
11
The following table sets forth the percentage relationship of certain items in the Company's statementStatements of operationsOperations to net sales for the three months ended SeptemberJune 30, 20002001 and SeptemberJune 30, 1999 (percentages are calculated based on
actual data, but columns may not add due2000:
Three Months Ended June 30,
2001 2000
Net sales:
Value brands 81.9 % 74.1 %
Opening price point brands 18.1 25.9
Total net sales 100.0 100.0
Operating costs and expenses:
Cost of goods sold 53.9 54.4
Selling, general and administrative expenses 19.3 15.6
Total operating costs and expenses 72.3 70.0
Operating income 27.7 30.0
Interest expense 8.2 9.2
Income before provision for income taxes 19.5 20.8
Income tax expense 5.8 4.6
Net income 13.7 % 16.2 %
Three Months Ended June 30, 2001 compared to rounding):

THREE MONTHS
ENDED
SEPTEMBER 30,
----------------------
2000 1999
-------- --------

Net Sales:
Value brands.............................................. 74.7% 77.8%
Opening price point brands................................ 25.3 22.2
----- -----
Total net sales............................................. 100.0 100.0
Operating costs and expenses:
Cost of goods sold........................................ 52.0 47.1
Advertising and promotion expenses........................ 7.9 7.7
Selling, general and administrative expenses.............. 29.5 30.6
Recapitalization transaction fees......................... -- --
Change of control bonuses................................. -- --
Severance charge.......................................... -- --
Dursban related expenses.................................. 15.7 --
Non-recurring litigation charges.......................... -- --
----- -----
Total operating costs and expenses.......................... 105.1 85.4
----- -----
Operating income (loss)..................................... (5.1) 14.6
Interest expense............................................ 19.8 16.8
----- -----
Income (loss) before provision for income taxes and
extraordinary item........................................ (24.9) (2.2)
Income tax expense (benefit)................................ (10.0) 3.2
----- -----
Loss before extraordinary item.............................. (14.9)% (5.4)%
===== =====

THREE MONTHS ENDED SEPTEMBERThree Months Ended June 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999

NET SALES.
Net Sales. Net sales decreased 4.6%increased 0.4% to $51.1$114.6 million for the three months ended SeptemberJune 30, 20002001 from $53.5$114.2 million for the three months ended SeptemberJune 30, 1999.2001. This decreaseincrease was driven by a combination of offsetting factors including:

- Lost
•
Loss of Kmart Kgro private label business for 2001;

•
Heavy key account emphasis on lower retail inventories;

•
Gains related to restages of branded product;

•
Increased sales opportunity dueof value brands to voluntary phase-outhardware channels;

•
Decreased sales related to products that contain chlorpyrifos; and

•
Increase in demand of Dursban between EPAinsect repellents and manufacturer.

- Extreme weather conditions in our major markets in the United States.

- Decline in value brand sales due to the elimination of item listings at
Home Depot, partially offset by gains at other customers.

- Retail inventory balancing issues affecting shipments of Spectracide
Terminate-TM-.termiticides.
Net sales of the Company's value brands decreased 8.4%increased 11.0% to $38.1$93.9 million for the three months ended SeptemberJune 30, 20002001 from $41.7$86.4 million for the three months ended SeptemberJune 30, 1999.2000. Value brand sales to Home Depothardware channels increased $4.2 million primarily due to additional product listings that were impacted by Home
Depot's strategy to move more listings to opening price point brands, as well as
overall category sales performed below market trends at Home Depot.secured. The extreme
droughtgains achieved in the Southhardware channel, were partially offset by the lost sales of products that contain chlorpyrifos. During 2000 the US Environmental Protection Agency and Southwest combined with unusually wetmanufacturers of chlorpyrifos (the active ingredient in Dursban pesticidal products) entered into a voluntary agreement that provided for the withdrawal of virtually all residential uses of Dursban. The Increase in promotion expense was due to growth of the home centers business. The Increase in demand for insect repellants and termiticides was related primarily to weather in the
Northeast severely impacted customer point-of-sales in all seasonal goods.
Spectracide Terminate-TM- shipments

were impacted by high retail inventory levels. However, retail point-of-sale
trend continues to show improved consumer acceptance.conditions.
Net sales of opening price point brands increased 9.0%decreased 30.0% to $12.9$20.7 million for the three months ended SeptemberJune 30, 20002001 from $11.9$29.6 million for the three months ended SeptemberJune 30, 1999.2000. The increasedecrease was driven primarily by an increasethe loss of the Kmart Kgro business that was discontinued in opening price point
listings at Home Depot and continued same store and new store growth at Lowes.

GROSS PROFIT.the third quarter of 2000.
Gross Profit. Gross profit decreased 13.4%increased 3.5% to $24.5$53.9 million for the three months ended SeptemberJune 30, 2000,2001 compared to $28.3$52.1 million for the three months ended SeptemberJune 30, 1999.2000. As a percentage of sales, gross profit decreasedincreased to 48.0% as compared to 52.9%47.0% for the three months ended SeptemberJune 30, 1999.2001 as compared to 45.6% for
12
the three months ended June 30, 2000. The decreaseincrease in gross profit as a percentage of sales was the result of athe change in mix of sales mix to slightly lowermore value brand sales, which are higher margin products, offset by lower material costs
primarily driven by supplier rebates.

ADVERTISING AND PROMOTION EXPENSES. Advertisingproducts.
Selling, General and promotionAdministrative Expenses. Selling, general and administrative expenses decreased 2.3%increased 24.5% to $4.0$22.1 million for the three months ended SeptemberJune 30, 2000,
compared to $4.12001 from $17.8 million for the three months ended SeptemberJune 30, 1999. As a
percentage of net sales, advertising and promotion expenses increased to 7.9%
for the three months ended September 30, 2000 from 7.7% for the three months
ended September 30, 1999. The reduction in advertising and promotion expense is
due to the shift from media spending to supporting in store retail selling
programs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 8.2% to $15.1 million for the three months
ended September 30, 2000 from $16.4 million for the three months ended
September 30, 1999.2000. As a percentage of net sales, selling, general and administrative expenses decreasedincreased to 29.5%19.3% for the three months ended SeptemberJune 30, 20002001 from 30.7%15.6% for the three months ended SeptemberJune 30, 1999.2000. The overall decreaseincrease is attributed to greater advertising spending to support the value brands, along with additional spending for in-store sales and support in selling, general and administrativethe home centers. Prior year expenses was primarilyalso reflect a cost reduction due to reductionthe impact of marketing and sales expenses related to sales volume
decrease and other cost reduction efforts.

DURSBAN RELATED EXPENSES.the termination of a capital lease. The Company recorded a non-recurring expense of
$8.0 milliondouble-digit percentage increase should not be viewed as a result oftrend for the EPA and manufacturers voluntary phase-out of the
active chemical in the Company's products.

OPERATING INCOME (LOSS).future.
Operating Income. Operating income (loss) decreased 7.4% to $(2.6)$31.8 million for the three months ended SeptemberJune 30, 20002001 from $7.8$34.3 million for the three months ended SeptemberJune 30, 1999.2000. As a percentage of net sales, operating income decreased to (5.1)%27.7% for the three months ended SeptemberJune 30, 20002001 from 14.5%30.0% for the three months ended SeptemberJune 30, 1999.

INCOME TAX EXPENSE.2000.
Income tax expense. For the three months ended SeptemberJune 30, 2000,2001, the Company's effective income tax rate is 28.0%, which reflects the estimated utilization of the goodwill deduction in fiscal year 2000 and a reduction in the taxable income
estimate for fiscal year 2000 taxable income.2001. The goodwill deduction and corresponding release of valuation allowance is related to the step-upstep up in tax basis in conjunction with the Recapitalization. 14
On January 20, 1999, pursuant 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"), the Company was recapitalized (the "Recapitalization").
13
The following table sets forth the percentage relationship of certain items in the Company's income statementStatements of Operations to net sales for the ninesix months ended SeptemberJune 30, 20002001 and SeptemberJune 30, 1999 (percentages are calculated based on
actual data, but columns may not add due2000:
Six Months Ended June 30,
2001 2000
Net sales:
Value brands 82.6 % 75.7 %
Opening price point brands 17.4 24.3
Total net sales 100.0 100.0
Operating costs and expenses:
Cost of goods sold 53.8 54.3
Selling, general and administrative expenses 21.7 20.2
Dursban charge — —
Total operating costs and expenses 75.5 74.5
Operating income 24.5 25.5
Interest expense 10.0 10.8
Income before provision for income taxes 14.5 14.7
Income tax expense 4.3 3.3
Net income 10.2 % 11.4 %
Six Months Ended June 30, 2001 compared to rounding):

NINE MONTHS
ENDED
SEPTEMBER 30,
----------------------
2000 1999
-------- --------

Net Sales:
Value brands.............................................. 75.7% 80.2%
Opening price point brands................................ 24.3 19.8
----- -----
Total net sales............................................. 100.0 100.0
Operating costs and expenses:
Cost of goods sold........................................ 50.4 48.9
Advertising and promotion expenses........................ 8.9 10.3
Selling, general and administrative expenses.............. 19.8 19.3
Recapitalization transaction fees......................... -- 3.8
Change of control bonuses................................. -- 3.1
Severance charge.......................................... -- 0.6
Dursban related expenses.................................. 3.0 --
Non-recurring litigation charges.......................... -- 0.5
----- -----
Total operating costs and expenses.......................... 82.1 86.5
----- -----
Operating income............................................ 17.9 13.5
Interest expense............................................ 11.9 9.4
----- -----
Income before provision for income taxes and extraordinary
item...................................................... 6.1 4.1
Income tax expense.......................................... 0.5 3.3
----- -----
Loss before extraordinary item.............................. 5.6% 0.8%
===== =====

NINE MONTHS ENDED SEPTEMBERSix Months Ended June 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999

NET SALES.
Net Sales. Net sales decreased 6.7%0.3% to $263.1$194.6 million for the ninesix months ended SeptemberJune 30, 20002001 from $281.8$195.1 million for the ninesix months ended SeptemberJune 30, 1999.2000. This decrease was driven by a combination of offsetting factors including:

- Extreme weather conditions in our major markets in the United States.

- Decline in value brand
•
Loss of Kmart Kgro private label business for 2001;

•
Increased sales due to the elimination of item listings at
Home Depot, partially offset by gains at other customers.

- Retail inventory balancing issues affecting shipments of Spectracide Terminate-TM-.

- LostTerminate™;

•
Decreased sales opportunity duerelated to voluntary phase-out of Dursban between EPAproducts that contain chlorpyrifos; and manufacturer.

- 1999 Spectracide Pro-Registered Trademark- sales reflected initial sell

•
Increase in to stock retail shelves.demand for insect repellants.
Net sales of the Company's value brands decreased 11.9%increased 8.7% to $199.2$160.6 million for the ninesix months ended SeptemberJune 30, 20002001 from $226.1$147.7 million for the ninesix months ended SeptemberJune 30, 1999.2000. Value brand sales of Spectracide Terminate™ increased $6.0 million primarily due to Home Depot were impactedfocused marketing programs and replenishment of inventory levels at retail. The gains achieved by Home
Depot's strategy to move more listings to opening price point brands as well as
overall category sales performed below market trends at Home Depot. The declines
at Home DepotSpectracide Terminate™, were partially offset by loss sales of products that contained chlorpyrifos. During 2000 the continual same storeUS Environmental Protection Agency and new store
growth at Lowes. The extreme droughtmanufacturers of chlorpyrifos (the active ingredient in the South and Southwest combined with
unusually wet weather in the Northeast severely impacted customer Point-of-Sales
in all seasonal goods. Spectracide Terminate-TM- shipments were impacted by high
retail inventory levels. However, retail point-of-sale trends continue

to show improved consumer acceptance. Spectracide Pro's net sales decreased
38.6% to $3.6 millionDursban pesticidal products) entered into a voluntary agreement that provided for the nine months ended September 30, 2000 from
$5.9 millionwithdrawal of virtually all residential uses of Dursban. The increase in demand for the nine months ended September 30, 1999, as the first half of
1999 reflected the initial sell ininsect repellants is related primarily to stock retail shelves.weather conditions.
Net sales of opening price point brands increased 14.8%decreased 28.3% to $63.9$33.9 million for the ninesix months ended SeptemberJune 30, 20002001 from $55.7$47.4 million for the ninesix months ended SeptemberJune 30, 1999.2000. The increasedecrease was driven by an increasethe loss of the Kmart Kgro business that was discontinued in opening price point listings at
Home Depot and continued same store and new store growth at Lowes.

GROSS PROFIT.the third quarter of 2000.
Gross Profit. Gross profit decreased 9.2%increased 0.8% to $130.6$89.9 million for the ninesix months ended SeptemberJune 30, 20002001 compared to $143.9$89.1 million for the ninesix months ended SeptemberJune 30, 1999.2000. As a percentage of sales, gross profit decreasedincreased to 49.6%46.2% for the six months ended June 30, 2001 as compared to 51.1%45.7% for the nine six
14
months ended SeptemberJune 30, 1999.2000. The minimal decreaseincrease in gross profit as a percentage of sales was the result of a
change in mix of sales mix to slightly lowervalue brands, which are higher margin products, offset by lower material
costs primarily driven by supplier rebates.

ADVERTISING AND PROMOTION EXPENSES. Advertisingproducts.
Selling, General and promotion expenses
decreased 19.1% to $23.5 million for the nine months ended September 30, 2000,
compared to $29.0 million for the nine months ended September 30, 1999. As a
percentage of net sales, advertising and promotion expenses decreased to 8.9%
for nine months ended September 30, 2000 from 10.3% for the nine months ended
September 30, 1999. The reduction in advertising and promotion expense is due to
the shift from media spending to supporting in store retail selling programs.
Additionally, a $0.9 million charge was taken in 1999 for customer deductions
taken in excess of contractual obligations, which the Company elected not to
pursue.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.Administrative Expenses. Selling, general and administrative expenses decreased 4.3%increased 7.1% to $52.0$42.2 million for the ninesix months ended SeptemberJune 30, 20002001 from $54.3$39.4 million for the ninesix months ended SeptemberJune 30, 1999.2000. As a percentage of net sales, selling, general and administrative expenses increased to 19.8%21.7% for the ninesix months ended SeptemberJune 30, 20002001 from 19.3%20.2% for the ninesix months ended SeptemberJune 30, 1999.2000. The overall decreaseincrease is attributed to greater advertising spending to support the value brands, along with additional spending for in-store sales and support in selling, general and administrativethe home centers. Prior year expenses was primarilyalso reflect a cost reduction due to a reductionthe impact of marketing and sales expenses related to sales volume
decrease,the termination of a capital lease and other cost reduction efforts.

RECAPITALIZATION TRANSACTION FEES. No charges were recorded for the nine
months ended September 30, 2000. For the nine months ended September 30, 1999,
the Company recorded a charge of $10.7 million for recapitalization transaction
fees. As of September 30, 2000, the Company recorded $32.2 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.

CHANGE OF CONTROL BONUSES. No charges were recorded for the nine months
ended September 30, 2000. For the nine months ended September 30, 1999, the
Company recorded charges for change of control bonuses paid to some members of
senior management amounting to $8.6 million, which were contractually required
as a result of the Recapitalization.

SEVERANCE CHARGES. No charges were recorded for the nine months ended
September 30, 2000. For the nine months ended September 30, 1999, the Company
recorded severance charges of $1.6 million as a result of the Company's
President and Chief Executive Officer terminating employment with the Company.

NON-RECURRING LITIGATION CHARGES. No charges were recorded for the nine
months ended September 30, 2000. For the nine months ended September 30, 1999,
the Company took a charge of $1.5 million 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. 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 by the Company. On July 29, 1999, the Company paid
$0.9 million in liquidating damages and $0.1 million in past commissions. The
remaining amounts accrued in connection with the $1.5 million charge were
primarily used to cover legal cost associated with the claim.

DURSBAN RELATED EXPENSES. The Company recorded a non-recurring expense of
$8.0 million as a result of the EPA and manufacturers voluntary phase-out of the
active chemical in the Company's products.

OPERATING INCOME.lease.
Operating Income. Operating income increaseddecreased 4.1% to $47.1$47.7 million for the ninesix months ended SeptemberJune 30, 20002001 from $38.1$49.7 million for the ninesix months ended SeptemberJune 30, 1999.2000. As a percentage of net sales, operating income increaseddecreased to 17.9%24.5% for the ninesix months ended SeptemberJune 30, 2000 and a reduction in the
estimates for fiscal year 2000 taxable income. Operating income was 13.5%2001 from 25.5% for the ninesix months ended SeptemberJune 30, 1999. Operating income in 1999 was primarily
negatively impacted by recapitalization transaction fees of $10.7 million and
change of control bonuses as a result of the recapitalization of $8.6 million.

INCOME TAX EXPENSE.2000.
Income tax expense. For the ninesix months ended SeptemberJune 30, 2000,2001, the Company's effective income tax rate is 28.0%, which reflects the estimated utilization of the goodwill deduction in fiscal year 2000.2001. The goodwill deduction and corresponding release of valuation allowance is related to the step-upstep up in tax basis in conjunction with the Recapitalization. ForOn January 20, 1999, pursuant 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 nine
months ended September 30, 1999, income tax expense included the one-time impact
of the conversion of"THL Parties"), the Company from an "S" corporation to a "C" corporation of
$2.1 million. This conversion was in conjunction with the Recapitalization.

LIQUIDITY AND CAPITAL RESOURCESrecapitalized (the "Recapitalization").
Liquidity and Capital Resources
Historically, the Company has 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 Company has significantly increased cash requirements for debt service relating to the Company's notesSenior Subordinated Notes and Senior Credit Facility. As of December 31, 1999, the Company
had total debt and capital lease obligations outstanding of $369.3 million. As
of September 30, 2000, the Company had total debt and capital lease obligations
outstanding of $375.5$354.3 million. As of June 30, 2001, the Company had total debt outstanding of $352.4 million. The Company will rely on internally generated funds and, to the extent necessary, borrowings under the Company's Revolving Credit Facility to meet liquidity needs.
The Company's Senior Credit Facility consists of:

-
•
The September 30, 2000, $110.0$80.0 million Revolving Credit Facility, under which no$18.6 million in borrowings were outstanding at the closing of the
Recapitalization. As of SeptemberJune 30, 2000, $15.0 million was outstanding.
The amount is a current liability and will be paid by funds from
operations;

- 2001;

•
The $75.0 million Term Loan A ($57.543.8 million outstanding at SeptemberJune 30, 2000)2001); and

•
The $150.0 million Term Loan B ($147.4135.2 million outstanding at SeptemberJune 30, 2000)2001).
The Company's Revolving Credit Facility and the Term Loan A matures onmature in January 20, 2005, and the Term Loan B matures onin January 20, 2006. The Revolving Credit Facility 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 August 1 and November 30 in aeach calendar year.

On January 24, 2000, The Senior Credit Facility agreement was amended to
provide new provisions for financial covenant requirements and a waiver of the
covenant requirements at December 31, 1999. The amendment contains provisions
for an increase in interest rates upon reaching certain maximum leverage ratios.
As part of the amended agreement, the Company paid bank fees of $0.9 million,
which were reflected as deferred financing fees in January 2000 and will be
amortized over the life of the debt as interest expense.

On November 9, 2000, the Senior Credit Facility was amended to provide new
financial covenants and a waiver of certain covenants at September 30, 2000. As
a condition to the effectiveness of this amendment and waiver, the Company
agreed to the following items:

1. The Company agreed to terminate $30,000 of the unused portion of the
Revolving Credit Facility under the credit agreement, thereby reducing the
Revolving Credit Facility from $110,000 to $80,000.

3. Interest rate increase will range from 25 to 75 basis points higher than
previous Revolving Credit Facility.

On November 8, 2000, the Company Board of Directors, authorized the creation
of 15,000 shares of Class A Preferred Stock to be sold to UIC Holdings LLC at a
price of $1,000 per share.

The Company's previous 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 $2.3 million. 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
identical 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. NetCash flow from continuing operations provided net cash provided by operating activities was $24.7of approximately $3.8 million and $16.9$0.8 million for the ninesix months ended SeptemberJune 30, 20002001 and 1999,June 30, 2000, 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
15
accounts receivable)receivable and inventory) during the first half of the year, with the second and third quarters being significant cash collection periods.
In November 1999, the Company issued 9⁷/8% Senior Subordinated Notes for $150 million that are due April 1, 2009.
Interest accrues at the rate of 9⁷/8% per annum, payable semi-annually on each April 1 and October 1.
Capital expenditures are related to the enhancement of the Company's existing facilities and the construction of additional productionproductions and distribution capacity. Cash used for capital expenditures was $3.2$1.9 million and $1.5$2.6 million for the ninesix months ended SeptemberJune 30, 20002001 and 1999,June 30, 2000, respectively. In addition, the Company entered into a capital lease agreement in March 2000 for $5.9$5.3 million. Cash used for capital expenditures for the remainder of 2000fiscal 2001 is expected to be less than $5.0 million.

Principal
The principal amount on Term Loan A is required to be repaid in twenty-three 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 Term Loan B is required to be repaid in twenty-seven consecutive quarterly in annual amounts 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. For the nine months ended Septemberinstallments commencing June 30, 2000,
principal payments on Term Loans A and B of $5,000 and $750, respectively, were
paid.1999 with a final balloon installment due January 20, 2006.
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, capital expenditures and scheduled principal and interest payments for at least the next two years. However, the Company cannot ensure that sufficient cash flow will be generated from operations 18
to repay the notes and amounts outstanding under the senior credit facilitySenior 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 dependent on the Company's future performance, which in turn, will be subject 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
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.

IMPACT OF SEPTEMBER 7,
Impact of 2000 DURSBAN AGREEMENT

On September 7,Dursban Withdrawal
During 2000, the U.S. Environmental Protection Agency and manufacturers of chlorpyrifos (the active ingredient in Dursban pesticidal products) entered into a voluntary agreement that provides for phasing out most
nonresidential uses andwithdrawal of virtually all residential uses of Dursban. Formulation of new Dursban products intended for residential use mustwere required to cease by December 1, 2000, and formulators2000. Formulators can no longer sell such products to retailers afteras of February 1, 2001. Retailers will no longer be able to sell Dursban products after December 31, 2001.
The Company has assessed the potential financial impact of the Dursban
agreement on its operations. Arecorded a charge of $8,000 was recorded$8.0 million in September of 2000 for costs associated with this agreement. The Company currently has replacement chemicals for Dursban, whichand the replacement chemicals are currently being used in production of new pesticidal products.

SIGNIFICANT CUSTOMER

During
Recently Issued Accounting Pronouncements
The Emerging Issues Task Force (EITF) issued EITF 00-25. This issue addresses when consideration from a vendor to a retailer (a) in connection with the third quarter, Kmart notifiedretailer's purchase of the vendor's
16
products or (b) to promote sales of the vendor's products by the retailer should be classified in the vendor's income statement as a reduction of revenue. The Company has adopted EITF 00-25 for fiscal year 2001. The Company has reclassified all trade and co-op promotional expense in the Statements of Operations to net sales.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations." SFAS 141 requires that the contract to
manufacture KGro private label productspurchase method of accounting be used for all business combinations initiated after June 30, 2001 and establishes specific criteria for recognition of intangible assets separately from goodwill. For business combinations initiated after June 30, 2001, SFAS 141 also requires that unallocated negative goodwill be written off immediately as an extraordinary gain. Any unamortized deferred credit arising from a business combination completed before July 1, 2001 will not be renewed. Historically,recognized as the KGro business has had low margins and high operating costs.cumulative effect of a change in accounting principle. The Company doesis currently evaluating the impact of SFAS 141 on its financial statements.
Also in July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets". SFAS 142 eliminates the amortization of goodwill and instead requires goodwill to be tested for impairment annually. Also, intangible assets are required to be amortized over their useful lives and reviewed for impairment in accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Under SFAS 142, if the intangible asset has an indefinite useful life, it is not expect this developmentamortized until its life is determined to have a significantbe finite. The Company is required to adopt SFAS 142 no later than the first quarter of fiscal 2003, but is permitted to adopt as of the first quarter of fiscal 2002. The Company is currently evaluating the impact of SFAS 142 on EBITDA for 2001.

ITEMits financial statements.
17
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATEQuantitative and Qualitative Disclosures about Market Risk
Interest Rate
The Company is exposed to market risks relating to changes in interest rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company enters into financial instruments to manage and reduce the impact of changes in interest rates.
The Company manages interest rate risk by balancing the amount of 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 SeptemberAs of June 30, 2000,2001, variable rate debt was $219.9 million.$197.6 million, which includes the interest rate swaps as discussed below.
The Company entered into two interest rate swaps that have fixed the interest rate as of April 30, 2001 for $75.0 million of variable rate debt under the Credit Facility. The interest rate swaps are for $50.0 and $25.0 million of the Credit Facility and will terminate on April 30, 2002. The fixed LIBOR interest rates are 4.74% and 4.66%, for the $50.0 and $25.0 million interest rate swaps, respectively. The change in fair value of the interest rate swaps is reported as a liability and as a component of comprehensive income in Stockholders' deficit at June 30, 2001. The June 30, 2001, reduction in fair value of $0.3 million is net of taxes.
Interest on Term Loan A and Term Loan B ranges from 200250 to 375400 basis points above LIBOR depending on certain financial ratios. LIBOR was 6.62% as of
September3.86% on June 30, 2000.

EXCHANGE RATE2001.
Exchange Rate
The Company does not use derivative instruments to hedge against foreign currency exposures related to transactions denominated in currencies other than the Company's functional currency. Substantially all foreign currency transactions are denominated in United States dollars.

COMMODITY PRICES
Commodity Price
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 the Company'sits exposure to price changes in commodity and specialty chemicals.

PART
18

Part II
OTHER INFORMATION

THERE IS NO INFORMATION REQUIRED TO BE REPORTED UNDER ANY ITEMS.

ITEM
Item 1. LEGAL PROCEEDINGS. Legal Proceedings. The Company has no reportable legal proceedings in the current period.

ITEM
Item 2. CHANGES IN SECURITIES. Changes in Securities. None.

ITEM
Item 3. DEFAULTS UPON SENIOR SECURITIES. None

ITEMDefaults Upon Senior Securities. None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Submission of Matters to a Vote of Security Holders. No matters were submitted.

ITEM
Item 5. OTHER INFORMATION.

On November 9, 2000, the Senior Credit Facility was amended to provide new
financial covenantsOther Information. None.
Item 6. Exhibits and a waiver of certain covenants at September 30, 2000. As
a condition to the effectiveness of this amendment and waiver, the Company
agreed to the following items:

1. The Company agreed to terminate $30,000 of the unused portion of the
Revolving Credit Facility under the credit agreement, thereby reducing the
Revolving Credit Facility from $110,000 to $80,000.

3. Interest rate increase will range from 25 to 75 basis points higher than
previous Revolving Credit Facility.

On November 8, 2000, the Company Board of Directors, authorized the creation
of 15,000 shares of Class A Preferred Stock to be sold to UIC Holdings LLC at a
price of $1,000 per share.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 27.1 Financial Data Schedule

(b) ReportReports on Form 8-K

None

21
(a)
Exhibits
None.
(b)
Reports on Form 8-K
None.
19

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) f 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

Dated: November 15, 2000 August 14, 2001

By: /s/
/s/ DANIEL J. JOHNSTON -----------------------------------------

Name: Daniel J. Johnston
Title: Executive Vice President and
Chief Financial Officer
(Duly authorized officer and principal
officer of the registrant)

~~~~QuickLinks~~~~

PART 1
FINANCIAL INFORMATION ITEM 1. Financial Statements
UNITED INDUSTRIES CORPORATION
BALANCE SHEETS
JUNE 30, 2001 AND 2000, AND DECEMBER 31, 2000
(Dollars in thousands) (Unaudited)
UNITED INDUSTRIES CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands) (Unaudited)
UNITED INDUSTRIES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands) (Unaudited)
UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited)
Part II
OTHER INFORMATION
SIGNATURES

		UNITED INDUSTRIES CORPORATION
Dated: ~~November 15, 2000~~ August 14, 2001		By: ~~/s/~~	/s/ DANIEL J. JOHNSTON ~~-----------------------------------------~~ Name: Daniel J. Johnston Title: Executive Vice President and Chief Financial Officer ~~(Duly authorized officer and principal officer of the registrant)~~

			June 30,			June 30,			December 31,
			2001			2000			2000
ASSETS
Current assets:
	Cash and cash equivalents		$	—		$	—		$	—
	Accounts receivable (less allowance for doubtful accounts of $1,419 and $1,609 at June 30, 2001 and 2000 and $777 at December 31, 2000)			77,040			76,041			19,944
	Inventories			38,149			38,899			47,007
	Prepaid expenses			4,835			2,924			6,357

		Total current assets		120,024			117,864			73,308
Equipment and leasehold improvements, net				24,276			26,336			24,736
Deferred income tax				116,763			116,268			116,763
Other assets				18,632			20,489			20,087

		Total assets	$	279,695		$	280,957		$	234,894

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
	Current maturities of long-term debt and capital lease obligation		$	5,693		$	6,096		$	5,675
	Accounts payable			29,527			24,109			18,625
	Accrued expenses			33,887			27,840			24,791
	Short-term borrowings			18,550			21,050			15,000

		Total current liabilities		87,657			79,095			64,091
Long-term debt				323,693			349,125			329,000
Capital lease obligation				4,428			5,345			4,626
Other liabilities				16,167			11,922			7,940

		Total liabilities		431,945			445,487			405,657
Stockholders' deficit
	Common Stock (27.6 million shares of $0.01 par value Class A and 27.6 million $0.01 par value Class B)			554			554			554
	Preferred Stock (15,000 shares of $0.01 par value Class A)			—			—			—
	Warrants			2,784			—			2,784
	Additional paid-in capital			139,081			126,865			139,081
	Accumulated deficit			(291,640	)		(289,249	)		(310,482	)
	Accumulated other comprehensive loss			(329	)		—			—
	Common stock held in grantor trust			(2,700	)		(2,700	)		(2,700	)

		Total stockholders' deficit		(152,250	)		(164,530	)		(170,763	)

		Total liabilities and stockholders' deficit	$	279,695		$	280,957		$	234,894

					Six months ended June 30,
					2001			2000
Cash flows from operating activities:
	Net income				$	19,989		$	22,272
	Adjustments to reconcile net income to net cash used by operating activities:
		Non cash reduction of capital lease obligation				—			(1,182	)
		Depreciation and amortization				2,436			2,881
		Amortization of deferred financing fees				1,346			1,140
		Unrealized loss on interest rate swap, net of taxes				(329	)		—
		Provision for deferred income tax expense				8,284			6,363
		Changes in assets and liabilities:
			Increase in accounts receivable			(57,096	)		(56,876	)
			Decrease in inventories			8,858			14,344
			Decrease in prepaid expenses			1,522			577
			Increase in accounts payable and accrued expenses			23,465			11,153
			Decrease in Dursban charge			(4,614	)		—
			Decrease in other assets			11			33
			Other, net			(57	)		77

				Net cash used by operating activities		3,815			782
Investing activities:
	Purchases of equipment and leasehold improvements					(1,878	)		(2,606	)

				Net cash used by investing activities		(1,878	)		(2,606	)
Financing activities:
	Transaction costs related to the redemption of treasury stock					—			(12,175	)
	Debt issuance costs					—			(903	)
	Proceeds from the issuance of debt					3,550			21,050
	Repayment of borrowings on revolver and other debt					(5,487	)		(6,148	)

				Net cash provided by (used for) financing activities		(1,937	)		1,824
Net increase (decrease) in cash and cash equivalents						—			—
Cash and cash equivalents—beginning of period						—			—

Cash and cash equivalents—end of period					$	—		$	—

Noncash financing activity:
	Execution of capital lease				$	—		$	5,344
	Dividends declared				$	1,146		$	—

2001 Remainder of year	$	—
2002		10,614
2003		15,804
2004		17,534
2005		102,382
Thereafter		182,666

	$	329,000

		Three Months Ended June 30,
		2001		2000
Net sales:
	Value brands	81.9	%	74.1	%
	Opening price point brands	18.1		25.9

Total net sales		100.0		100.0
Operating costs and expenses:
	Cost of goods sold	53.9		54.4
	Selling, general and administrative expenses	19.3		15.6
Total operating costs and expenses		72.3		70.0

Operating income		27.7		30.0
Interest expense		8.2		9.2

Income before provision for income taxes		19.5		20.8
Income tax expense		5.8		4.6

Net income		13.7	%	16.2	%