UNITED INDUSTRIES CORPORATION

(Exact name of registrant as specified in its charter)

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

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

As of ~~June~~September 30, 2001, the Registrant had ~~27,550,000~~27,721,000 Class A voting and ~~27,550,000~~27,721,000 Class B non-voting shares of common stock outstanding and 15,000 non-voting shares of Class A preferred stock outstanding.

			June 30,			June 30,			December 31,				September 30,			September 30,			December 31,
			2001			2000			2000				2001			2000			2000
ASSETS	ASSETS											ASSETS
Current assets:	Current 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
Cash and cash equivalents												Cash and cash equivalents	$	—		$	17,146		$	—
Accounts receivable (less allowance for doubtful accounts of $843 and $875 at September 30, 2001 and 2000 and $777 at December 31, 2000)												Accounts receivable (less allowance for doubtful accounts of $843 and $875 at September 30, 2001 and 2000 and $777 at December 31, 2000)		36,855			31,376			19,944
Inventories												Inventories		33,779			31,799			47,007
Prepaid expenses												Prepaid expenses		4,777			2,666			6,357

		Total current assets		120,024			117,864			73,308		Total current assets		75,411			82,987			73,308
Equipment and leasehold improvements, net	Equipment and leasehold improvements, net			24,276			26,336			24,736		Equipment and leasehold improvements, net		24,223			25,871			24,736
Deferred income tax	Deferred income tax			116,763			116,268			116,763		Deferred income tax		116,763			116,268			116,763
Other assets	Other assets			18,632			20,489			20,087		Other assets		17,915			19,806			20,087

		Total assets	$	279,695		$	280,957		$	234,894		Total assets	$	234,312		$	244,932		$	234,894

LIABILITIES AND STOCKHOLDERS' DEFICIT	LIABILITIES AND STOCKHOLDERS' DEFICIT											LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:	Current liabilities:											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
Current maturities of long-term debt and capital lease obligation												Current maturities of long-term debt and capital lease obligation	$	5,699		$	6,096		$	5,675
Accounts payable												Accounts payable		13,146			11,789			18,625
Accrued expenses												Accrued expenses		26,898			23,049			24,791
Short -term borrowings												Short -term borrowings		—			15,000			15,000

		Total current liabilities		87,657			79,095			64,091		Total current liabilities		45,743			55,934			64,091
Long-term debt	Long-term debt			323,693			349,125			329,000		Long-term debt		321,039			349,125			329,000
Capital lease obligation	Capital lease obligation			4,428			5,345			4,626		Capital lease obligation		4,329			5,261			4,626
Other liabilities	Other liabilities			16,167			11,922			7,940		Other liabilities		16,198			6,725			7,940

		Total liabilities		431,945			445,487			405,657		Total liabilities		387,309			417,045			405,657
Stockholders' deficit	Stockholders' deficit											Stockholders' deficit
Common Stock (27.7 million shares of $0.01 par value Class A and 27.7 million $0.01 par value Class B)												Common Stock (27.7 million shares of $0.01 par value Class A and 27.7 million $0.01 par value Class B)		554			554			554
Preferred Stock (15,000 shares of $0.01 par value Class A )												Preferred Stock (15,000 shares of $0.01 par value Class A )		—			—			—
Warrants												Warrants		2,784			—			2,784
Additional paid-in capital												Additional paid-in capital		139,051			126,865			139,081
Accumulated deficit												Accumulated deficit		(291,993	)		(296,832	)		(310,482	)
Accumulated other comprehensive loss												Accumulated other comprehensive loss		(693	)		—			—
Common stock held in grantor trust												Common stock held in grantor trust		(2,700	)		(2,700	)		(2,700	)
	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)			—			—			—		Total stockholders' deficit		(152,997	)		(172,113	)		(170,763	)
	Warrants			2,784			—			2,784
	Additional paid-in capital			139,081			126,865			139,081		Total liabilities and stockholders' deficit	$	234,312		$	244,932		$	234,894
	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

FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2001 AND 2000

			Three months ended June 30,				Six months ended June 30,					Three months ended September 30,					Nine months ended September 30,
			2001		2000		2001		2000			2001		2000			2001		2000
Sales before promotion expense	Sales before promotion expense		$	124,428	$	123,508	$	212,864	$	212,054	Sales before promotion expense	$	60,541	$	51,080		$	273,405	$	263,134
Promotion expense	Promotion expense			9,781		9,307		18,298		16,958	Promotion expense		4,748		4,056			23,046		21,014

Net sales	Net sales			114,647		114,201		194,566		195,096	Net sales		55,793		47,024			250,359		242,120

Operating costs and expenses:	Operating costs and expenses:										Operating costs and expenses:
	Cost of goods sold			60,748		62,134		104,707		105,971	Cost of goods sold		30,104		26,563			134,811		132,535
	Selling, general and administrative expenses			22,121		17,767		42,185		39,406	Selling, general and administrative expenses		16,970		15,043			59,155		54,449
											Dursban related expenses (see note 9)		—		8,000			—		8,000
		Total operating costs and expenses		82,869		79,901		146,892		145,377
											Total operating costs and expenses		47,074		49,606			193,966		194,984
Operating income				31,778		34,300		47,674		49,719

Operating income (loss)											Operating income (loss)		8,719		(2,582	)		56,393		47,136
Interest expense	Interest expense			9,388		10,479		19,401		21,084	Interest expense		8,407		10,120			27,808		31,204

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
Income (loss) before provision for income taxes											Income (loss) before provision for income taxes		312		(12,702	)		28,585		15,932
Income tax expense (benefit)											Income tax expense (benefit)		91		(5,120	)		8,375		1,243

Net income			$	15,753	$	18,455	$	19,989	$	22,272
Net income (loss)											Net income (loss)	$	221	$	(7,582	)	$	20,210	$	14,689

					Six months ended June 30,											Nine months ended September 30,
					2001			2000								2001			2000
Cash flows from operating activities:	Cash flows from operating activities:										Cash flows from operating activities:
	Net income				$	19,989		$	22,272		Net income					$	20,210		$	14,689
	Adjustments to reconcile net income to net cash used by operating activities:										Adjustments to reconcile net income to net cash used by operating activities:
		Non cash reduction of capital lease obligation				—			(1,182	)		Non cash reduction of capital lease obligation					—			(1,182	)
		Depreciation and amortization				2,436			2,881			Depreciation and amortization					3,658			4,088
		Amortization of deferred financing fees				1,346			1,140			Amortization of deferred financing fees					2,018			1,779
		Unrealized loss on interest rate swap, net of taxes				(329	)		—			Unrealized loss on interest rate swap, net of taxes					(693	)		—
		Provision for deferred income tax expense				8,284			6,363			Provision for deferred income tax expense					8,375			1,243
		Changes in assets and liabilities:										Changes in assets and liabilities:
			Increase in accounts receivable			(57,096	)		(56,876	)			Increase in accounts receivable				(16,911	)		(12,211	)
			Decrease in inventories			8,858			14,344				Decrease in inventories				13,228			21,444
			Decrease in prepaid expenses			1,522			577				Decrease in prepaid expenses				1,580			835
			Increase in accounts payable and accrued expenses			23,465			11,153				Increase (decrease) in accounts payable and accrued expenses				294			(13,437	)
			Decrease in Dursban charge			(4,614	)		—				Increase (decrease) in Dursban charge				(5,385	)		7,479
			Decrease in other assets			11			33				Decrease (increase) in other assets				6			(75	)
			Other, net			(57	)		77				Other, net				(148	)		—

				Net cash used by operating activities		3,815			782					Net cash provided by operating activities			26,232			24,652
Investing activities:	Investing activities:										Investing activities:
	Purchases of equipment and leasehold improvements					(1,878	)		(2,606	)	Purchases of equipment and leasehold improvements						(2,998	)		(3,175	)

				Net cash used by investing activities		(1,878	)		(2,606	)				Net cash used for investing activities			(2,998	)		(3,175	)
Financing activities:	Financing activities:										Financing activities:
	Transaction costs related to the redemption of treasury stock					—			(12,175	)	Transaction costs related to the redemption of treasury stock						—			(12,175	)
	Debt issuance costs					—			(903	)	Debt issuance costs						—			(924	)
	Proceeds from the issuance of debt					3,550			21,050		Proceeds from the issuance of debt						—			15,000
	Repayment of borrowings on revolver and other debt					(5,487	)		(6,148	)	Repayment of borrowings on revolver and other debt						(23,234	)		(6,232	)

				Net cash provided by (used for) financing activities		(1,937	)		1,824					Net cash used for financing activities			(23,234	)		(4,331	)
Net increase (decrease) in cash and cash equivalents						—			—
Net increase in cash and cash equivalents											Net increase in cash and cash equivalents						—			17,146
Cash and cash equivalents—beginning of period	Cash and cash equivalents—beginning of period					—			—		Cash and cash equivalents—beginning of period						—			—

Cash and cash equivalents—end of period	Cash and cash equivalents—end of period				$	—		$	—		Cash and cash equivalents—end of period					$	—		$	17,146

Noncash financing activity:
	Execution of capital lease				$	—		$	5,344		Noncash financing activity:
	Dividends declared				$	1,146		$	—						Execution of capital lease	$	—		$	5,344
															Dividends declared	$	1,719		$	—

UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

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 for complete financial statements. In the opinion of management, all 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 Report on Form 10-K of United Industries Corporation (the "Company") for the year ended December 31, 2000.

	2001			2000			2000			September 30, 2001			September 30, 2000			December 31, 2000
	June 30,			June, 30			December 31,
Raw materials	$	8,895		$	7,494		$	10,663		$	7,421		$	7,715		$	10,663
Finished goods		30,658			32,391			37,343			27,593			25,071			37,343
Allowance for obsolete and slow-moving inventory		(1,404	)		(986	)		(999	)		(1,235	)		(987	)		(999	)

Total inventories	$	38,149		$	38,899		$	47,007		$	33,779		$	31,799		$	47,007

	2001		2000		2000		September 30, 2001		September 30, 2000		December 31, 2000
	June 30,		June 30,		December 31,
Machinery and equipment	$	28,773	$	27,421	$	27,435	$	29,460	$	27,514	$	27,435
Office furniture and equipment		10,951		9,784		10,565		11,120		10,227		10,565
Automobiles, trucks and aircraft		6,156		6,290		6,067		6,156		6,412		6,067
Leasehold improvements		7,108		6,956		7,043		7,372		6,985		7,043

		52,988		50,451		51,110		54,108		51,138		51,110
Less: accumulated depreciation		28,712		24,115		26,374		29,885		25,267		26,374

	$	24,276	$	26,336	$	24,736	$	24,223	$	25,871	$	24,736

	2001			2000			2000			September 30, 2001			September 30, 2000			December 31, 2000
	June 30,			June 30,			December 31,
Goodwill	$	7,175		$	7,988		$	7,988		$	7,175		$	7,988		$	7,988
Accumulated amortization		(1,461	)		(2,075	)		(2,175	)		(1,510	)		(2,130	)		(2,175	)

		5,714			5,913			5,813			5,665			5,858			5,813

Deferred financing fees		18,067			17,087			18,067			18,067			17,108			18,067
Accumulated amortization		(5,757	)		(3,131	)		(4,411	)		(6,429	)		(3,770	)		(4,411	)

		12,310			13,956			13,656			11,638			13,338			13,656

Other		608			620			618			612			610			618

Total other assets	$	18,632		$	20,489		$	20,087		$	17,915		$	19,806		$	20,087

	2001		2000		2000		September 30, 2001		September 30, 2000		December 31, 2000
	June 30,		June 30,		December 31,
Advertising and promotional	$	13,506	$	11,615	$	5,520	$	10,513	$	8,009	$	5,520
Dursban charge		1,452		—		6,066		681		7,479		6,066
Interest		3,834		4,019		3,886		7,723		3,782		3,886
Cash overdraft		7,414		6,586		6,181		1,171		—		6,181
Dividend payable		1,466		—		320		2,039		—		320
Severence charges		457		1,168		1,010		205		952		1,010
Other		5,758		4,452		1,808		4,566		2,827		1,808

Total accrued expenses	$	33,887	$	27,840	$	24,791	$	26,898	$	23,049	$	24,791

		2001			2000			2000				September 30, 2001			September 30, 2000			December 31, 2000
		June 30,			June 30,			December 31,
Senior Credit Facility:	Senior Credit Facility:										Senior Credit Facility:
	Term Loan A	$	43,817		$	57,500		$	48,430		Term Loan A	$	41,511		$	57,500		$	48,430
	Term Loan B		135,183			147,375			135,878		Term Loan B		134,835			147,375			135,878
	Revolving Credit Facility		18,550			21,050			15,000		Revolving Credit Facility		—			15,000			15,000
9⁷/8% Series B Registered Senior Subordinated Notes	9⁷/8% Series B Registered Senior Subordinated Notes		150,000			150,000			150,000		9⁷/8% Series B Registered Senior Subordinated Notes		150,000			150,000			150,000

			347,550			375,925			349,308				326,346			369,875			349,308
Less portion due within one year	Less portion due within one year		(23,857	)		(26,800	)		(20,308	)	Less portion due within one year		(5,307	)		(20,750	)		(20,308	)

Total long-term debt net of current portion	Total long-term debt net of current portion	$	323,693		$	349,125		$	329,000		Total long-term debt net of current portion	$	321,039		$	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 $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 $10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. On ~~June~~September 30, 2001, ~~$18,550~~$0 was outstanding under the Revolving Credit Facility. There were no compensating balance requirements for the Revolving Credit Facility at ~~June~~September 30, 2001.

The principal amount of Term Loan A is to be repaid in twenty-three consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2005. The principal amount of Term Loan B is to be repaid in twenty-seven consecutive quarterly installments 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 put restrictions on levels of investments, indebtedness, insurance and capital expenditures. Financial covenants require the maintenance of certain financial ratios at defined levels. At ~~June~~September 30, 2001, the Company was in compliance with all financial covenants.

Under the covenants, interest on the Revolving Credit Facility, Term Loan A and Term Loan B ranges from 250 to 400 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 ~~3.86%~~2.63% at ~~June~~September 30, 2001.

The Senior Credit Facility may be prepaid at any time in whole or in part without premium or penalty. During fiscal 2000, principal payments on Term Loans A and B of $14.1 million and $12.2 million, respectively, were paid, which included optional principal prepayments of $4.1 million

and $10.8 on Term Loan A and Term Loan B, respectively. During the ~~six~~nine month period ended ~~June~~September 30, 2001, optional principal prepayments of $4.6 million and ~~$.7~~$0.7 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.~~ahead of scheduled payments. 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. Management intends to pay a full year of principal repayment 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 due 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 secure obligations under the Senior Credit Facility.

The carrying amount of the Company's obligation under the Senior Credit Facility approximate fair value because the interest rates are based on floating interest rates identified by reference to market rates.

Aggregate maturities under the Senior Credit Facility (excluding the Revolving Credit Facility) and the Senior Subordinated Notes are as follows:

2001 Remainder of year	$	—	$	—
2002		10,614		7,961
2003		15,804		15,804
2004		17,534		17,534
2005		102,382		102,382
Thereafter		182,666		182,665

	$	329,000	$	326,346

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. The Company has two five-year options to renew this lease, beginning January 1, 2006. Management believes that the terms and expenses associated with

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. Five of the leases provide as many as five five-year options to renew.

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.

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 withdrawal of virtually all residential uses of Dursban. Formulation of new Dursban products intended for residential use were required to cease by December 1, 2000. Formulators can no longer sell such products to retailers as of February 1, 2001 and retailers will no longer be able to sell Dursban products after December 31, 2001. A charge of $8,000 was recorded in September 2000 for costs associated with this agreement. The Company believes that the accrual is adequate as of ~~June~~September 30, 2001.

	Accrual Balances at the end of 2000		Year to Date 2001 Utilization		Amount to be utilized during remainder of 2001			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		$	4,509	$	3,461	$	1,048
Inventory		1,118		1,064		54			1,118		1,064		54
Disposal and related costs		439		843		(404	)		439		860		(421	)

	$	6,066	$	4,614	$	1,452		$	6,066	$	5,385	$	681

~~Certain shipping~~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~~$2,902 and ~~$4,139~~$2,593 for the three months ended ~~June~~September 30, 2001 and 2000, respectively. The amount included is ~~$7,906~~$10,808 and ~~$7,752~~$10,345 for the ~~six~~nine months ended ~~June~~September 30, 2001 and 2000, respectively.

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 Senior Credit Facility. The interest rate swaps are for $50.0 and $25.0 million of the Senior 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 Company's objective is to manage the cash flow risks associated with its variable rate debt and not to trade such instruments for profit ~~and~~or loss. The Company's interest rate hedges are classified as cash flow hedges. For a cash flow hedge, the ~~ineffective~~unrealized 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 the interest rate swaps is reported as a liability and as a component of comprehensive income in Stockholders' deficit at ~~June~~September 30, 2001. The ~~June~~September 30, 2001 fair value is ~~$0.3~~$0.7 million.

Comprehensive income differs from net income due to the cash flow hedge. Comprehensive income (loss) for the three and ~~six~~nine months ended ~~June~~September 30, 2001 was ~~$15,424~~($143) and ~~$19,660,~~$19,517 respectively.

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained herein constitute "forward-looking statements" within the meaning of Section 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 risks and other factors set forth under Item 7A in the Company's Annual Report on Form 10-K for the 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. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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; (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 contained elsewhere in this report.

The following discussion regarding results of operations refers to net sales, cost of goods sold and selling and general and administrative expenses, which the Company defines as follows:

The following table sets forth the percentage relationship of certain items in the Company's Statements of Operations to net sales for the three months ended ~~June~~September 30, 2001 and ~~June~~September 30, 2000:

		Three Months Ended June 30,					Three Months Ended September 30,
		2001		2000			2001		2000
Net sales:	Net sales:					Net sales:
	Value brands	81.9	%	74.1	%	Value brands	76.6	%	74.6	%
	Opening price point brands	18.1		25.9		Opening price point brands	23.4		25.4

Total net sales	Total net sales	100.0		100.0		Total net sales	100.0		100.0
Operating costs and expenses:	Operating costs and expenses:					Operating costs and expenses:
	Cost of goods sold	53.9		54.4		Cost of goods sold	54.0		56.5
	Selling, general and administrative expenses	19.3		15.6		Selling, general and administrative expenses	30.4		32.0
						Dursban related expenses (see note 10)	—		17.0

Total operating costs and expenses	Total operating costs and expenses	72.3		70.0		Total operating costs and expenses	84.4		105.5

Operating income		27.7		30.0
Operating income (loss)						Operating income (loss)	15.6		(5.5	)
Interest expense	Interest expense	8.2		9.2		Interest expense	15.1		21.5

Income before provision for income taxes		19.5		20.8
Income tax expense		5.8		4.6
Income (loss) before provision for income taxes						Income (loss) before provision for income taxes	0.6		(27.0	)
Income tax expense (benefit)						Income tax expense (benefit)	0.2		(10.9	)

Net income		13.7	%	16.2	%
Net income (loss)						Net income (loss)	0.4	%	(16.1	%)

Three Months Ended ~~June~~September 30, 2001 compared to Three Months Ended ~~June~~September 30, 2000

Net Sales. Net sales increased ~~0.4%~~18.7% to ~~$114.6~~$55.8 million for the three months ended ~~June~~September 30, 2001 from ~~$114.2~~$47.0 million for the three months ended ~~June~~September 30, 2001. This increase was driven by a combination of offsetting factors including:

Net sales of the Company's value brands increased ~~11.0%~~22.0% to ~~$93.9~~$42.8 million for the three months ended ~~June~~September 30, 2001 from ~~$86.4~~$35.1 million for the three months ended ~~June~~September 30, 2000. ~~Value brand~~The increase in value brands was lead by insect repellent sales to home centers and mass merchants. Demand for mass merchants were better aligned with consumer demand. Increase in hardware channels ~~increased $4.2 million~~ primarily due to additional product listings that were ~~secured. The gains achieved~~secured aided in the hardware channel, were partially offset by the lost sales of products that contain chlorpyrifos. During 2000 the US Environmental Protection Agency and manufacturers 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.increase. 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 conditions.

Net sales of opening price point brands ~~decreased 30.0%~~increased 8.9% to ~~$20.7~~$13.0 million for the three months ended ~~June~~September 30, 2001 from ~~$29.6~~$12.0 million for the three months ended ~~June~~September 30, 2000. The ~~decrease~~increase was ~~driven~~lead by sales of insecticides at home centers and mass merchants, which was partially offset by the loss of the Kmart Kgro business that was discontinued in the third quarter of 2000.

Gross Profit. Gross profit increased ~~3.5%~~25.6% to ~~$53.9~~$25.7 million for the three months ended ~~June~~September 30, 2001 compared to ~~$52.1~~$20.5 million for the three months ended ~~June~~September 30, 2000. As a percentage of sales, gross profit increased to ~~47.0%~~46.0% for the three months ended ~~June~~September 30, 2001 as compared to ~~45.6%~~43.5% for

the three months ended ~~June~~September 30, 2000. The increase in gross profit as a

percentage of sales was the result of the change in mix of sales to more value brand sales, which are higher margin products.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased ~~24.5%~~12.8% to ~~$22.1~~$17.0 million for the three months ended ~~June~~September 30, 2001 from ~~$17.8~~$15.0 million for the three months ended ~~June~~September 30, 2000. As a percentage of net sales, selling, general and administrative expenses ~~increased~~decreased to ~~19.3%~~30.4% for the three months ended ~~June~~September 30, 2001 from ~~15.6%~~32.0% for the three months ended ~~June~~September 30, 2000. The increase is attributed to greater advertising spending to support the value brands ~~along with additional spending for in-store sales~~ and ~~support~~increase in ~~the home centers. Prior year expenses also reflect a~~variable cost ~~reduction due~~related to the ~~impact of the termination of a capital lease.~~increase in sales volume. The double-digit percentage increase should not be viewed as a trend for the future.

Dursban Related Expenses. During 2000, the Company recorded a non-recurring expense of $8.0 million as a result of the EPA and the manufacturers of Dursban voluntary withdrawal of the active chemical in the Company's products. There were no related charges in 2001. See footnote 9 to Financial Statements.

Operating Income. Operating income ~~decreased 7.4%~~increased 437.7% to ~~$31.8~~$8.7 million for the three months ended ~~June~~September 30, 2001 from ~~$34.3~~a loss of $2.6 million for the three months ended ~~June~~September 30, 2000. As a percentage of net sales, operating income ~~decreased~~increased to ~~27.7%~~15.6% for the three months ended ~~June~~September 30, 2001 from ~~30.0%~~(5.5%) for the three months ended ~~June~~September 30, 2000. Increase was driven by the $8.0 million charge for Dursban related expenses, during the three months ended September 30, 2000.

Income tax expense. For the three months ended ~~June~~September 30, 2001, the Company's effective income tax rate is ~~28.0%~~29.3%, which reflects the estimated utilization of the goodwill deduction in fiscal year 2001. The goodwill deduction and corresponding release of valuation allowance is related to the step up in tax basis in conjunction with the Recapitalization. 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").

The following table sets forth the percentage relationship of certain items in the Company's Statements of Operations to net sales for the ~~six~~nine months ended ~~June~~September 30, 2001 and ~~June~~September 30, 2000:

		Six Months Ended June 30,					Nine Months Ended September 30,
		2001		2000			2001		2000
Net sales:	Net sales:					Net sales:
	Value brands	82.6	%	75.7	%	Value brands	81.2	%	75.5	%
	Opening price point brands	17.4		24.3		Opening price point brands	18.8		24.5

Total net sales	Total net sales	100.0		100.0		Total net sales	100.0		100.0
Operating costs and expenses:	Operating costs and expenses:					Operating costs and expenses:
	Cost of goods sold	53.8		54.3		Cost of goods sold	53.8		54.7
	Selling, general and administrative expenses	21.7		20.2		Selling, general and administrative expenses	23.6		22.5
	Dursban charge	—		—		Dursban related expenses (see note 9)	—		3.3

Total operating costs and expenses	Total operating costs and expenses	75.5		74.5		Total operating costs and expenses	77.5		80.5

Operating income	Operating income	24.5		25.5		Operating income	22.5		19.5
Interest expense	Interest expense	10.0		10.8		Interest expense	11.1		12.9

Income before provision for income taxes	Income before provision for income taxes	14.5		14.7		Income before provision for income taxes	11.4		6.6
Income tax expense	Income tax expense	4.3		3.3		Income tax expense	3.3		0.5

Net income	Net income	10.2	%	11.4	%	Net income	8.1	%	6.1	%

~~Six~~Nine Months Ended ~~June~~September 30, 2001 compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2000

Net Sales. Net sales ~~decreased 0.3%~~increased 3.4% to ~~$194.6~~$250.4 million for the ~~six~~nine months ended ~~June~~September 30, 2001 from ~~$195.1~~$242.1 million for the ~~six~~nine months ended ~~June~~September 30, 2000. This ~~decrease~~increase was driven by a combination of offsetting factors including:

Net sales of the Company's value brands increased ~~8.7%~~11.3% to ~~$160.6~~$203.4 million for the ~~six~~nine months ended ~~June~~September 30, 2001 from ~~$147.7~~$182.8 million for the ~~six~~nine months ended ~~June~~September 30, 2000. Value brand sales of Spectracide Terminate™ increased ~~$6.0~~$5.9 million primarily due to focused marketing programs and replenishment of inventory levels at retail. The gains achieved by Spectracide Terminate™, were partially offset by loss sales of products that contained chlorpyrifos. During 2000 the US Environmental Protection Agency and manufacturers 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~~Increase in demand for insect repellants is related primarily to weather conditions.

Net sales of opening price point brands decreased ~~28.3%~~20.8% to ~~$33.9~~$47.0 million for the ~~six~~nine months ended ~~June~~September 30, 2001 from ~~$47.4~~$59.3 million for the ~~six~~nine months ended ~~June~~September 30, 2000. The decrease was driven by the loss of the Kmart Kgro business that was discontinued in the third quarter of 2000. The decrease was partially offset by sales of insect repellants.

Gross Profit. Gross profit increased ~~0.8%~~5.4% to ~~$89.9~~$115.5 million for the ~~six~~nine months ended ~~June~~September 30, 2001 compared to ~~$89.1~~$109.6 million for the ~~six~~nine months ended ~~June~~September 30, 2000. As a percentage of sales, gross profit increased to 46.2% for the ~~six~~nine months ended ~~June~~September 30, 2001 as compared to ~~45.7%~~45.3% for the ~~six~~

nine months ended ~~June~~September 30, 2000. The increase in gross profit as a percentage of sales was the result of change in mix of sales to value brands, which are higher margin products.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased ~~7.1%~~8.6% to ~~$42.2~~$59.2 million for the ~~six~~nine months ended ~~June~~September 30, 2001 from ~~$39.4~~$54.4 million for the ~~six~~nine months ended ~~June~~September 30, 2000. As a percentage of net sales, selling, general and administrative expenses ~~increased~~decreased to ~~21.7%~~23.6% for the ~~six~~nine months ended ~~June~~September 30, 2001 from ~~20.2%~~25.8% for the ~~six~~nine months ended ~~June~~September 30, 2000. The increase is attributed to greater advertising spending to support the value brands, along with additional spending for in-store sales and support in the home centers. Prior year expenses also reflect a cost reduction due to the impact of the termination of a capital lease.

Operating Income. Operating income ~~decreased 4.1%~~increased 19.6% to ~~$47.7~~$56.4 million for the ~~six~~nine months ended ~~June~~September 30, 2001 from ~~$49.7~~$47.1 million for the ~~six~~nine months ended ~~June~~September 30, 2000. As a percentage of net sales, operating income ~~decreased~~increased to ~~24.5%~~22.5% for the ~~six~~nine months ended ~~June~~September 30, 2001 from ~~25.5%~~19.5% for the ~~six~~nine months ended ~~June~~September 30, 2000. Increase was primarily driven by the $8.0 million charge for Dursban related expenses, during the three months ended September 30, 2000.

Income tax expense. For the ~~six~~nine months ended ~~June~~September 30, 2001, the Company's effective income tax rate is ~~28.0%~~29.3%, which reflects the estimated utilization of the goodwill deduction in fiscal year 2001. The goodwill deduction and corresponding release of valuation allowance is related to the step up in tax basis in conjunction with the Recapitalization. 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").

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 Senior Subordinated Notes and Senior Credit Facility. As of December 31, 2000, the Company had total debt outstanding of $354.3 million. As of ~~June~~September 30, 2001, the Company had total debt outstanding of ~~$352.4~~$331.1 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 Revolving Credit Facility and the Term Loan A mature in January 2005, and the Term Loan B matures in January 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 $10.0 million for 30 consecutive days occurring during the period August 1 and November 30 in each calendar year. The Company was in compliance with debt covenants at September 30, 2001.

The Company's principal liquidity requirements are for working capital, capital expenditures and debt service under the Senior Credit Facility and the ~~notes.~~Senior Subordinated Notes. Cash flow from continuing operations provided net cash of approximately ~~$3.8~~$26.2 million and ~~$0.8~~$24.7 million for the ~~six~~nine months ended ~~June~~September 30, 2001 and ~~June~~September 30, 2000, respectively. Net cash ~~used by~~related to 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.

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 productions and distribution capacity. Cash used for capital was ~~$1.9~~$3.0 million and ~~$2.6~~$3.2 million for the ~~six~~nine months ended ~~June~~September 30, 2001 and ~~June~~September 30, 2000, respectively. In addition, the Company entered into a capital lease agreement in March 2000 for $5.3 million. Cash used for capital expenditures for the remainder of fiscal 2001 is expected to be less than $5.0 million.

The principal amount on Term Loan A is to be repaid in twenty-three consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2005. The principal amount of Term Loan B is to be repaid in twenty-seven consecutive quarterly installments commencing June 30, 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 to repay the ~~notes~~Senior Subordinated 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 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.

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.

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 withdrawal of virtually all residential uses of Dursban. Formulation of new Dursban products intended for residential use were required to cease by December 1, 2000. Formulators can no longer sell such products to retailers as of February 1, 2001. Retailers will no longer be able to sell Dursban products after December 31, 2001.

The Company recorded a charge of $8.0 million in September 2000 for costs associated with this agreement. The Company currently has replacement chemicals for Dursban, and the replacement chemicals are currently being used in production of new pesticidal products.

The Company has been reviewing potential efficiencies and logistic opportunities related to warehousing and distribution. As a result the Company will be moving into a new warehouse facility, which will allow the consolidation of three existing facilities. As a result of the move, the Company will take a one-time charge during the fourth quarter of 2001, after a review of related leasehold improvements, duplicate lease payments and slow-moving inventory that doesn't justify the move to the new facility has been completed.

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 retailer's purchase of the vendor's

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 purchase 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 be recognized as the cumulative effect of a change in accounting principle. The Company is 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 amortized until its life is determined to be 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 its financial statements.

17 The FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") in 2001. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is required to adopt SFAS 143 no later than the first quarter of fiscal 2003, but is permitted to adopt earlier. The Company is currently evaluating the impact of SFAS 143 on its financial statements.

The FASB issued SFAS No. 143, "Accounting for the Impairment or Disposal of Long-Lived Assets," which provides guidance on the accounting for the impairment or disposal of long-lived assets. The provisions of the Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, although early adoption is allowed. The Company is currently evaluating the impact of SFAS 144 on its financial statements.

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. As of ~~June~~September 30, 2001, variable rate debt was ~~$197.6~~$176.3 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 Senior Credit Facility. The interest rate swaps are for $50.0 and $25.0 million of the Senior 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~~September 30, 2001. The ~~June~~September 30, 2001, reduction in fair value of ~~$0.3~~$0.7 million is net of taxes.

Interest ranges from 250 to 400 basis points above LIBOR depending on certain financial ratios. LIBOR was ~~3.86%~~2.63% on ~~June~~September 30, 2001.

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

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.

Pursuant to the requirements 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
Dated: ~~August~~November 14, 2001		By:	/s/ DANIEL J. JOHNSTON Name: Daniel J. Johnston Title: Executive Vice President and Chief ~~Chief~~ Financial Officer