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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2002

OR

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

For the transition period from  to

Commission File Number: 333-76055

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UNITED INDUSTRIES CORPORATION(Exact name of registrant as specified in its charter)

DELAWARE(State or other jurisdiction of
incorporation or organization)

43-1025604(I.R.S. Employer
Identification No.)8825 Page Boulevard
St. Louis, Missouri 63114(Address of principal executive office, including zip code)(314) 427-0780(Registrant's telephone number, including area code)


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

As
of November 12, 2002, the registrant had 33,143,000 Class A voting and 33,143,000 Class B non-voting shares of common stock outstanding and 37,600
Class A non-voting shares of preferred stock outstanding.

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UNITED INDUSTRIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
PERIOD ENDED SEPTEMBER 30, 2002

TABLE OF CONTENTS



|                                                                                              |                                                                                                       | Page No.
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | --------
|PART I. FINANCIAL INFORMATION                                                                 |                                                                                                       |         
|Item 1. Financial StatementsUnited Industries Corporation and Subsidiaries                   |                                                                                                       |         
|                                                                                              | Consolidated Balance Sheets as of September 30, 2002 and 2001, and December 31, 2001                  |         
|                                                                                              | Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001 |         
|                                                                                              | Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001           |         
|                                                                                              | Notes to Consolidated Financial Statements                                                            |         
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                       | 19      
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                       | 34      
|Item 4. Controls and Procedures                                                               |                                                                                                       | 35      
|PART II. OTHER INFORMATION                                                                    |                                                                                                       |         
|Item 1. Legal Proceedings                                                                     |                                                                                                       | 36      
|Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                       | 36      
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                       | 37      
|Signatures                                                                                    |                                                                                                       | 38      
|Certifications                                                                                |                                                                                                       | 39      

2

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this report constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this report regarding our financial position, business
strategy, budgets and plans and objectives of management for future operations are forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested
by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual results, our performance or achievements, 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 our Annual
Report on Form 10-K for the year ended December 31, 2001, 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, including acquisition or disposition of assets; availability and
quality of management; and availability, terms and deployment of capital. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

3

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)

|                                                    |                                                                                                                                                                                                                             | September 30,                               |         |          |        
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | -------- | -------
|
|
|
|ASSETS                                              |                                                                                                                                                                                                                             |                                             |         |          |        
|Current assets:                                     |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    | Cash and cash equivalents                                                                                                                                                                                                   |                                             | $       | 47,174   |        
|                                                    | Accounts receivable, less allowance for doubtful accounts of $4,513 and $843 at September 30, 2002 and 2001, respectively, and $1,147 at December 31, 2001                                                                  |                                             |         | 56,112   |        
|                                                    | Inventories                                                                                                                                                                                                                 |                                             |         | 44,000   |        
|                                                    | Prepaid expenses                                                                                                                                                                                                            |                                             |         | 6,307    |        
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    |                                                                                                                                                                                                                             | Total current assets                        |         |          | 153,593
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|Equipment and leasehold improvements, net           |                                                                                                                                                                                                                             |                                             | 27,785  |          |        
|Deferred income tax                                 |                                                                                                                                                                                                                             |                                             | 112,863 |          |        
|Goodwill and intangible assets, net                 |                                                                                                                                                                                                                             |                                             | 82,724  |          |        
|Other assets, net                                   |                                                                                                                                                                                                                             |                                             | 12,815  |          |        
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    |                                                                                                                                                                                                                             | Total assets                                |         | $        | 389,780
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|LIABILITIES AND STOCKHOLDERS' DEFICIT               |                                                                                                                                                                                                                             |                                             |         |          |        
|Current liabilities:                                |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    | Current maturities of long-term debt and capital lease obligation                                                                                                                                                           |                                             | $       | 9,530    |        
|                                                    | Accounts payable                                                                                                                                                                                                            |                                             |         | 21,878   |        
|                                                    | Accrued expenses                                                                                                                                                                                                            |                                             |         | 52,842   |        
|                                                    | Short-term borrowings                                                                                                                                                                                                       |                                             |         |         |        
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    |                                                                                                                                                                                                                             | Total current liabilities                   |         |          | 84,250 
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|Long-term debt, net of current maturities           |                                                                                                                                                                                                                             |                                             | 371,230 |          |        
|Capital lease obligation, net of current maturities |                                                                                                                                                                                                                             |                                             | 3,892   |          |        
|Other liabilities                                   |                                                                                                                                                                                                                             |                                             | 16,462  |          |        
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    |                                                                                                                                                                                                                             | Total liabilities                           |         |          | 475,834
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|Stockholders' deficit:                              |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    | Preferred stock (37,600 shares of $0.01 par value Class A issued and outstanding)                                                                                                                                           |                                             |         |         |        
|                                                    | Common stock (33.1 million shares each of $0.01 par value Class A and Class B issued and outstanding at September 30, 2002; 27.7 million shares of each issued and outstanding at September 30, 2001 and December 31,
2001) |                                             |         | 664      |        
|                                                    | Common stock subscription receivable                                                                                                                                                                                        |                                             |         | (26,071  | )      
|                                                    | Common stock repurchase option                                                                                                                                                                                              |                                             |         | (2,636   | )      
|                                                    | Warrants and options                                                                                                                                                                                                        |                                             |         | 11,888   |        
|                                                    | Additional paid-in capital                                                                                                                                                                                                  |                                             |         | 206,827  |        
|                                                    | Accumulated deficit                                                                                                                                                                                                         |                                             |         | (274,026 | )      
|                                                    | Accumulated other comprehensive loss                                                                                                                                                                                        |                                             |         |         |        
|                                                    | Common stock held in grantor trust                                                                                                                                                                                          |                                             |         | (2,700   | )      
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    |                                                                                                                                                                                                                             | Total stockholders' deficit                 |         |          | (86,054
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        
|                                                    |                                                                                                                                                                                                                             | Total liabilities and stockholders' deficit |         | $        | 389,780
|                                                    |                                                                                                                                                                                                                             |                                             |         |          |        

See accompanying notes to consolidated financial statements.

4

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UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)

|                                                   |                                              | Three months ended September 30, |         | Nine months ended September 30,
|-------------------------------------------------- | -------------------------------------------- | -------------------------------- | ------- | -------------------------------
|
|
|Sales before promotion expense                     |                                              | $                                | 111,372 |                                
|Promotion expense                                  |                                              |                                  | 10,695  |                                
|                                                   |                                              |                                  |         |                                
|Net sales                                          |                                              |                                  | 100,677 |                                
|                                                   |                                              |                                  |         |                                
|Operating costs and expenses:                      |                                              |                                  |         |                                
|                                                   | Cost of goods sold                           |                                  |         | 65,209                         
|                                                   | Selling, general and administrative expenses |                                  |         | 27,567                         
|                                                   |                                              |                                  |         |                                
|                                                   | Total operating costs and expenses           |                                  |         | 92,776                         
|                                                   |                                              |                                  |         |                                
|Operating income                                   |                                              |                                  | 7,901   |                                
|Interest expense, net                              |                                              |                                  | 7,386   |                                
|                                                   |                                              |                                  |         |                                
|Income before income tax expense                   |                                              |                                  | 515     |                                
|Income tax expense                                 |                                              |                                  | 98      |                                
|                                                   |                                              |                                  |         |                                
|Net income                                         |                                              | $                                | 417     |                                
|                                                   |                                              |                                  |         |                                
|Preferred stock dividends                          |                                              | $                                | 1,188   |                                
|                                                   |                                              |                                  |         |                                
|Net income (loss) available to common stockholders |                                              | $                                | (771    | )                              
|                                                   |                                              |                                  |         |                                

See
accompanying notes to consolidated financial statements.

5

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UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

|                                               |                                                                                  | Nine months ended September 30,                                               |                                      
|---------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------------------
|
|
|Cash flows from operating activities:          |                                                                                  |                                                                               |                                      
|                                               | Net income                                                                       |                                                                               | $                                    
|                                               | Adjustments to reconcile net income to net cash flows from operating activities: |                                                                               |                                      
|                                               |                                                                                  | Depreciation and amortization                                                 |                                      
|                                               |                                                                                  | Amortization of deferred financing fees                                       |                                      
|                                               |                                                                                  | Unrealized loss on interest rate swap, net of taxes                           |                                      
|                                               |                                                                                  | Provision for income tax expense                                              |                                      
|                                               |                                                                                  | Changes in operating assets and liabilities, net of effects from acquisition: |                                      
|                                               |                                                                                  |                                                                               | Accounts receivable                  
|                                               |                                                                                  |                                                                               | Inventories                          
|                                               |                                                                                  |                                                                               | Prepaid expenses                     
|                                               |                                                                                  |                                                                               | Accounts payable and accrued expenses
|                                               |                                                                                  |                                                                               | Dursban related expenses             
|                                               |                                                                                  |                                                                               | Other, net                           
|                                               |                                                                                  |                                                                               |                                      
|                                               |                                                                                  |                                                                               |                                      
|                                               |                                                                                  |                                                                               |                                      
|Cash flows from investing activities:          |                                                                                  |                                                                               |                                      
|                                               | Purchases of equipment and leasehold improvements                                |                                                                               |                                      
|                                               | Payments for Schultz merger, net of cash acquired                                |                                                                               |                                      
|                                               |                                                                                  |                                                                               |                                      
|                                               |                                                                                  |                                                                               |                                      
|                                               |                                                                                  |                                                                               |                                      
|Cash flows from financing activities:          |                                                                                  |                                                                               |                                      
|                                               | Proceeds from additional term debt                                               |                                                                               |                                      
|                                               | Repayment of borrowings on revolver and other debt                               |                                                                               |                                      
|                                               | Payments for debt issuance costs                                                 |                                                                               |                                      
|                                               | Proceeds from issuance of common stock                                           |                                                                               |                                      
|                                               | Payment received for common stock subscription receivable                        |                                                                               |                                      
|                                               |                                                                                  |                                                                               |                                      
|                                               |                                                                                  |                                                                               |                                      
|                                               |                                                                                  |                                                                               |                                      
|Net increase in cash and cash equivalents      |                                                                                  |                                                                               | 47,174                               
|Cash and cash equivalents, beginning of period |                                                                                  |                                                                               |                                     
|                                               |                                                                                  |                                                                               |                                      
|Cash and cash equivalents, end of period       |                                                                                  | $                                                                             | 47,174                               
|                                               |                                                                                  |                                                                               |                                      
|Noncash financing activities:                  |                                                                                  |                                                                               |                                      
|                                               | Preferred stock dividends accrued                                                |                                                                               | $                                    
|                                               |                                                                                  |                                                                               |                                      
|                                               | Common stock issued related to Schultz merger                                    |                                                                               | $                                    
|                                               |                                                                                  |                                                                               |                                      
|                                               | Common stock issued related to Bayer agreements                                  |                                                                               | $                                    
|                                               |                                                                                  |                                                                               |                                      

See
accompanying notes to consolidated financial statements.

6

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UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (UNAUDITED)

Note 1Organization and Basis of Presentation

United Industries Corporation (the Company) is the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden care and
insect control 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, fertilizers and soils, under a variety of brand names. As described further in Note 12, the Company's operations are divided into three business segments: Lawn and
Garden, Household and Contract.

The
accompanying consolidated financial statements include the accounts and balances of the Company and its wholly owned subsidiaries. All material intercompany transactions have been
eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures typically included in the Company's Annual
Report on Form 10-K have been condensed or omitted for this report. As such, this report should be read in conjunction with the financial statements and accompanying notes in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001. Certain amounts in the 2001 consolidated financial statements included herein have been
reclassified to conform with the 2002 presentation.

The
accompanying consolidated financial statements are unaudited. In the opinion of management, such statements include all adjustments, which consist of only normal recurring
adjustments, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for a full year. The preparation of financial
statements in conformity with
accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.

Note 2Business Combination

On May 9, 2002, a wholly owned subsidiary of the Company completed a merger with and into Schultz Company (Schultz), a manufacturer of horticultural
products and specialty items, particularly for the indoor houseplant care segment of the market, and a distributor of charcoal, potting soil and soil conditioners. Schultz products are distributed
primarily to retail outlets and nurseries throughout the United States and Canada. The merger was executed in order to achieve economies of scale and synergistic efficiencies. As a result of the
merger, Schultz became a wholly owned subsidiary of the Company. The total purchase price included cash payments of $38.3 million, including related acquisition costs, issuance of 600,000
shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of Class B non-voting common stock valued at $3.0 million. In
exchange for the Company's cash and common stock consideration, the Company received all of the outstanding shares of Schultz. The Company has preliminarily allocated 50% of the purchase price to
intangible assets and 50% to goodwill. The acquired intangible assets consist of trade names and other intellectual property, as well as a $1.5 million purchase accounting inventory
write-up, which are not deductible for tax purposes.

The
transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in
the

7

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consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on fair values. The allocation of the purchase price
is based, in part, on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the
preliminary allocation included in this report, management believes that finalization of the allocation of the purchase price will not have a material impact on the consolidated results of operations
or financial position of the Company. Allocation of the purchase price is expected to be completed by the second quarter of 2003.

The
Company's unaudited consolidated results of operations on a pro forma basis, as if the merger had occurred on January 1, 2001, include net sales of $487.0 million for
the nine months ended September 30, 2002 and $333.5 million for the nine months ended September 30, 2001 and net income of $40.6 million for the nine months ended
September 30, 2002 and $21.7 million for the nine months ended September 30, 2001. This unaudited pro forma financial information does not purport to be indicative of the
consolidated results of operations that would have been achieved had this transaction been completed as of the assumed date or which may be obtained in the future.

The
Company's funding sources for the merger were as follows: an additional $35.0 million add-on to Term Loan B of the Company's senior credit facility (see
Note 9), the issuance of 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and the issuance of 1,690,000 shares of Class B
non-voting common stock to UIC Holdings, L.L.C. for $8.5 million. The issuance of shares to UIC Holdings, L.L.C. was a condition precedent to the amendment of the senior credit
facility.

Note 3Inventories

Inventories consist of the following (dollars in thousands):

September 30,December 31,
20012002

2001Raw materials

$
16,153

$
7,421

$
11,104Finished goods


32,242


27,593


40,688Allowance for obsolete and slow-moving inventory


(4,395
)

(1,235
)

(2,700
)Total inventories

$
44,000

$
33,779

$
49,092


8

---

Note 4Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following (dollars in thousands):

September 30,December 31,
20012002

2001Machinery and equipment

$
36,137

$
29,460

$
30,279Office furniture and equipment


19,768


11,120


15,181Automobiles, trucks and aircraft


6,245


6,156


6,157Leasehold improvements


8,645


7,372


7,40570,795


54,108


59,022Accumulated depreciation and amortization


(43,010
)

(29,885
)

(31,092
)Total equipment and leasehold improvements, net

$
27,785

$
24,223

$
27,930


Note 5Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following (dollars in thousands):

September 30,December 31,
20012002

2001Goodwill

$
25,449

$
5,665

$
5,616Intangible assets


58,688





37,500Accumulated amortization


(1,413
)




57,275





37,500Total goodwill and intangible assets, net

$
82,724

$
5,665

$
43,116


On
January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for
recording intangible assets separately from goodwill. SFAS No. 142, among other things, eliminates the amortization of goodwill and indefinite-lived intangible assets and requires them to be
tested for impairment at least annually. During the first quarter of 2002, the Company performed an impairment analysis of its goodwill and intangible assets using the discounted cash flow method. The
Company did not incur any impairment charges related to this analysis. Prospectively, the Company will test goodwill and intangible assets for impairment annually, or more frequently as warranted by
events or changes in circumstances.

9

---

As
prescribed by SFAS No. 142, prior period operating results were not restated. However, a reconciliation follows which reflects net income as reported by the Company and as
adjusted to reflect the impact of SFAS No. 142, as if it had been adopted as of January 1, 2001 (dollars in thousands):

Three months ended
September 30, 2001

Nine months ended
September 30, 2001Net income, as reported

$
221

$
20,210Amortization of goodwill


49


199Net income, as adjusted

$
270

$
20,409


On
December 17, 2001, the Company acquired the Vigoro®,
Sta-Green®and Bandini®brand names, as well as licensing rights to
the Best®line of fertilizer products from Pursell Industries, Inc. (Pursell) for $37.5 million. The acquired brand names and
licensing rights are being amortized over 40 years.

As
described in Note 2, on May 9, 2002, a wholly owned subsidiary of the Company completed a merger with and into Schultz. The purchase price included cash payments of
$38.3 million, including related acquisition costs, of which the Company has preliminarily allocated 50% to intangible assets and 50% to goodwill. The acquired intangible assets are being
amortized over 25 years.

On
January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets and for long lived assets to be disposed of and supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by
sale and resolves implementation issues related to SFAS No. 121. Adoption of SFAS No. 144 did not have a material impact on the Company's consolidated financial statements.

Note 6Other Assets

Other assets consist of the following (dollars in thousands):

September 30,December 31,
20012002

2001Deferred financing fees

$
20,922

$
18,067

$
18,067Accumulated amortization


(9,079
)

(6,429
)

(7,102
)11,843


11,638


10,965Other


972


612


872Total other assets, net

$
12,815

$
12,250

$
11,837


10

---

Note 7Accrued Expenses

Accrued expenses consist of the following (dollars in thousands):

September 30,December 31,
20012002

2001Advertising and promotions

$
26,112

$
10,513

$
12,125Facilities rationalization


2,682





3,500Dursban related expenses





681


82Interest


7,406


7,723


3,763Cash overdraft





1,171


7,126Non-compete agreement


1,625





1,360Preferred stock dividends accrued


7,268


2,039


2,612Severance costs


878


205


1,679Other


6,871


4,566


1,759Total accrued expenses

$
52,842

$
26,898

$
34,006


Note 8Facilities and Organization Rationalization

During
the fourth quarter of 2001, the Company recorded accrued expenses of $5.6 million related to facilities and organization rationalization. In connection therewith, 85
employees were terminated and provided severance packages. All costs associated with the facilities and organization rationalization are expected to be incurred by December 31, 2002. The
following table presents the balances of and amounts recorded against such accrued expenses for the nine months ended September 30, 2002 (dollars in thousands):

Facilities
Rationalization

Severance
Costs

Total
CostsBalance at December 31, 2001

$
3,500

$
1,658

$
5,158Charges against the accrued expenses


(818
)

(820
)

(1,638
)Balance at September 30, 2002

$
2,682

$
838

$
3,520


11

---

Note 9Long-term Debt

Long-term debt consists of the following (dollars in thousands):

September 30,December 31,
20012002

2001Senior Credit Facility:Term Loan A

$
32,285

$
41,511

$
39,205Term Loan B


198,040


134,835


134,488Revolving Credit Facility








23,45097/8% Series B Senior Subordinated Notes


150,000


150,000


150,000380,325


326,346


347,143Less current maturities


(9,095
)

(5,307
)

(28,757
)Total long-term debt, net of current maturities

$
371,230

$
321,039

$
318,386


The
senior credit facility was provided by Bank of America, N.A. (formerly known as NationsBank, N.A.), Morgan Stanley Senior Funding, Inc. and CIBC Inc. and consists of
(i) a $90.0 million revolving credit facility (the Revolving Credit Facility); (ii) a $75.0 million term loan facility (Term Loan A); and (iii) a
$215.0 million term loan facility (Term Loan B). The Revolving Credit Facility and Term Loan A mature 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 during the period between August 1 and November 30 in each calendar year. At September 30, 2002, the clean-down period had been completed and no
amounts were outstanding under the Revolving Credit Facility, nor were there any compensating balance requirements.

In
connection with the Company's merger with Schultz, the senior credit facility was amended to increase Term Loan B from $180.0 million to $215.0 million, increase the
Revolving Credit Facility from
$80.0 million to $90.0 million and provide additional capital expenditure flexibility. The Company incurred $2.2 million of fees related to the amendment which were recorded as
deferred financing fees and are being amortized over the remaining term of the senior credit facility. The amendment did not change the existing covenants of the senior credit facility.

The
principal amount of Term Loan A is to be repaid in 23 consecutive quarterly installments commencing September 30, 1999 with a final installment due January 20, 2005.
The principal amount of Term Loan B is to be repaid in 27 consecutive quarterly installments commencing September 30, 1999 with a final installment due January 20, 2006.

The
senior credit facility agreement contains restrictive affirmative, negative and financial covenants. Affirmative and negative covenants place restrictions on levels of investments,
indebtedness, insurance and capital expenditures. Financial covenants require the maintenance of certain financial ratios at defined levels. At September 30, 2002, the Company was in compliance
with all covenants. While the Company does not anticipate an event of non-compliance in the immediate future, the effect of non-compliance would require the Company to request
a waiver or an amendment to the senior credit facility. The result of amending the senior credit facility could result in changes to the Company's borrowing capacity or its effective interest rates.
Under the covenants, interest rates on the

12

---

Revolving Credit Facility, Term Loan A and Term Loan B range from 2.50% to 4.00% above LIBOR depending on certain financial ratios. Unused commitments under the Revolving Credit Facility are subject
to a 0.5% annual commitment fee. LIBOR was 1.82% at September 30, 2002.

The
senior credit facility may be prepaid at any time in whole or in part without premium or penalty. During 2001, the Company made principal payments of $9.2 million on Term Loan
A and $1.4 million on Term Loan B, which included optional principal prepayments of $4.1 million on Term Loan A and $0.7 million on Term Loan B. During the nine months ended
September 30, 2002, the Company made optional principal prepayments of $4.6 million on Term Loan A and $0.9 million on Term Loan B. The optional payments were made in order for
the Company to remain two quarterly payments ahead of the regular payment schedule. According to the senior credit facility agreement, each prepayment on Term Loan A and Term Loan B can be applied to
the next principal repayment installments. Management intends to pay a full year of principal installments in 2002 in accordance with the terms of the senior credit facility.

Substantially
all of the properties and assets of the Company and substantially all of the properties and assets of any current or future domestic subsidiaries of the Company secure
obligations under the senior credit facility.

The
carrying amount of the Company's obligation under the senior credit facility approximates fair value because the interest rates are based on floating interest rates identified by
reference to market rates.

In
November 1999, the Company issued $150.0 million in aggregate principal amount of 97/8% Series B senior subordinated notes (the Senior Subordinated
Notes) due April 1, 2009. Interest accrues at the rate of 97/8% per annum, payable semi-annually on each April 1 and October 1.

The
table below presents the aggregate future principal payments under the senior credit facility and the Senior Subordinated Notes as of September 30, 2002 (dollars in
thousands):

Year

AmountRemainder of 2002

$
4,0352003


9,1742004


18,6292005


150,0022006


48,485Thereafter


150,000$
380,325


Note 10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 by giving advance notice of at least twelve months. Such notice was given relative to the Company's corporate
headquarters in St. Louis as the Company prepares to move to its newly constructed corporate headquarters in December 2002. In addition, the Company leases a

13

---

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 such lease
beginning January 1, 2006. Management believes that the terms and expenses associated with these leases are similar to those that would be negotiated with unrelated parties.

The
Company is obligated under other operating leases for use of warehouse space. The leases expire at various dates through December 31, 2012. Five of the leases provide as many
as five options to renew for five years per renewal.

Note 11Contingencies

We are involved from time to time in routine legal matters and other claims incidental to our business. When it appears probable in management's judgment that the
Company will incur monetary damages or other costs in connection with such claims and proceedings, and such costs can be reasonably estimated, liabilities are recorded in the consolidated financial
statements and charges are made against earnings. We believe that the resolution of such routine matters and other incidental claims, taking into account established reserves and insurance, will not
have a material adverse impact on our consolidated financial position or results of operations.

Note 12Segment Information

During the third quarter of 2002, the Company began reporting its operating results using three reportable segments: Lawn and Garden, Household and Contract.
Segments were established primarily by product type which represents the basis upon which management reviews and assesses the Company's financial performance. The Lawn and Garden segment primarily
consists of dry, granular slow-release lawn fertilizers, lawn fertilizer combination and lawn control products, herbicides and selective herbicides, water-soluble and controlled-release
garden and indoor plant foods, plant care products, potting soils and other growing media products, and outdoor pesticide products. Products are marketed to mass merchandisers, home improvement
centers, hardware chains, nurseries and gardens centers. This segment includes, among others, the Company's Spectracide®, Spectracide Terminate®, Peters®, Garden
Safe®, Schultz®, Expert Gardener®, Vigoro® and Sta-Green® brands.

The
Household segment represents household insecticides and insect repellants that allow consumers to achieve and maintain a pest-free household and repel insects. The
Household segment includes, among others, the Company's Hot Shot®and Cutter®brands, as well as a number of private label products.

The
Contract segment represents the Company's non-core products and includes various compounds and chemicals such as charcoal, cleaning solutions and automotive products.

The
table which follows presents certain financial segment information in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The
accounting policies of the reportable segments are the same as those described in the summary of significant
policies in Note 1 to the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, as applicable. The segment
financial information presented

14

---

includes comparative periods prepared on a basis consistent with the current year presentation (dollars in thousands).

Three months ended September 30,

Nine months ended September 30,2002

2001

2002

2001Net sales:Lawn and Garden

$
64,465

$
31,013

$
319,044

$
154,559Household


29,406


24,101


98,057


93,468Contract


6,806


679


15,103


2,332Total net sales

$
100,677

$
55,793

$
432,204

$
250,359Operating income:Lawn and Garden

$
1,372

$
3,668

$
42,381

$
32,722Household


5,963


5,065


26,813


23,591Contract


566


(14
)

1,184


80Total operating income

$
7,901

$
8,719

$
70,378

$
56,393Operating margin:Lawn and Garden


2.1
%

11.8
%

13.3
%

21.2
%Household


20.3
%

21.0
%

27.3
%

25.2
%Contract


8.3
%

-2.1
%

7.8
%

3.4
%Total operating margin


7.8
%

15.6
%

16.3
%

22.5
%


Operating
income represents earnings before net interest expense and income tax expense. Operating income is the measure of profitability used by management to assess the Company's
financial performance. Operating margin represents operating income as a percentage of net sales.

The
majority of the Company's sales are made to customers in the United States. The Company's international sales comprise less than 10% of total net sales in the aggregate. In addition,
no single product comprises more than 10% of the Company's net sales. The Company's three largest customers were responsible for 83.0% of net sales for the three months ended September 30,
2002, 75.5% for the three months ended September 30, 2001, 81.7% for the nine months ended September 30, 2002 and 74.8% for the nine months ended September 30, 2001.

As
the Company's assets support production across all segments, they are managed on an entity-wide basis at the corporate level and are not recorded or analyzed by segment.
Substantially all of the Company's assets are located in the United States.

Note 13Shipping and Handling Costs

Shipping and handling costs of $3.6 million for the three months ended September 30, 2002, $2.9 million for the three months ended
September 30, 2001, $12.2 million for the nine months ended September 30, 2002 and $10.8 million for the nine months ended September 30, 2001 are included in
selling, general and administrative expenses in the accompanying consolidated statements of operations. These costs represent internal freight movements and distribution costs. Additional shipping and

15

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handling costs, representing out-bound freight, are included in cost of goods sold in the accompanying consolidated statements of operations.

Note 14Derivatives and Hedging Activities

The Company is exposed to market risks relating to changes in interest rates and raw materials prices. The Company periodically enters into derivative or hedging
agreements to manage and reduce the impact of changes in interest rates or raw materials price fluctuations. The Company does not enter into derivatives or other hedging arrangements for trading or
speculative purposes. As of September 30, 2002, the Company did not utilize any derivative or hedging instruments.

Note 15Comprehensive Income

Comprehensive income differs from net income due to a one-year interest rate hedging arrangement which expired on April 1, 2002 that was
accounted for as a cash flow hedge. Comprehensive income (loss) was $0.4 million for the three months ended September 30, 2002, $(0.1 million) for the three months ended
September 30, 2001, $37.0 million for the nine months ended September 30, 2002 and $19.5 million for the nine months ended September 30, 2001.

Note 16Bayer Strategic Partnership

On June 14, 2002, the Company and Bayer Corporation and Bayer Advanced, L.L.C. (together referred to herein as Bayer) consummated a strategic partnership.
The strategic partnership allows the Company to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through
an In-Store Service Agreement. In connection with the strategic partnership, Bayer acquired a minority ownership interest, approximately 9.3% of the issued and outstanding shares of the
Company's common stock, under the terms of an Exchange Agreement in exchange for promissory notes due to Bayer from Pursell (see Note 19) and the execution of the Supply and
In-Store Service Agreements.

Under
the terms of the Exchange Agreement, the Company has the right to repurchase the shares issued to Bayer upon termination of the In-Store Service Agreement. Termination
of the In-Store Service Agreement can occur with or without cause. If the Company elects to terminate the In-Store Service Agreement without cause, it must give Bayer sixty
days notice of its intention to terminate. If the Company exercises its repurchase option, it will repurchase its shares based on a price as provided for in the In-Store Service Agreement.
It is generally believed that the repurchase price per share would represent the fair market value of the shares at the time such repurchase option is exercised.

In
exchange for the promissory notes received from Bayer and the execution of the Supply and In-Store Service Agreements, the Company issued to Bayer 3,072,000 shares of
Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B non-voting common stock valued at $15.4 million. The Company reserved for
the entire face value of the promissory notes due to Bayer from Pursell as the Company did not believe they were collectible and an independent third party valuation did not ascribe any value to them.

16

---

In
addition, based on the independent third party valuation, the Company has assigned a fair value of $30.7 million to the common stock issued to Bayer as follows (dollars in
thousands):

Description

AmountCommon stock subscription receivable

$
27,321Supply Agreement


5,694Repurchase option


2,636In-Store Service Agreement


(4,931
)$
30,720


Under
the requirements of the agreements, Bayer will make payments to the Company which total $5.0 million annually for the next seven years, the present value of which equals the
value assigned to the common stock subscription receivable, which is reflected in the equity section in the Company's
accompanying consolidated balance sheet at September 30, 2002. The common stock subscription receivable will be repaid in 28 quarterly installments of $1.25 million, one of which was
received at closing on June 17, 2002. The difference between the value ascribed to the common stock subscription receivable and the installment payments will be reflected as interest income in
the Company's consolidated statements of operations over the next seven years.

Bayer
has the right to put the shares received back to the Company under the terms of the Exchange Agreement. Bayer can terminate the Exchange Agreement within the first 36 months
if the Company fails to meet certain performance guidelines as established in the Exchange Agreement. In conjunction with the termination, Bayer can put the shares received back to the Company within
30 days of the termination of the Exchange Agreement at a price as provided for in the Exchange Agreement. It is generally believed that the put price per share would represent the fair market
value of the shares at the time such put option is exercised.

The
value of the Supply Agreement and the liability associated with the In-Store Service Agreement will be amortized over the period in which economic benefits under the
Supply Agreement are utilized and the obligations under the In-Store Service Agreement are fulfilled. The Company is amortizing the asset associated with the Supply Agreement to cost of
goods sold and currently anticipates the benefit will be recognized over a three to five-year period. The Company is amortizing the obligation associated with the In-Store
Service Agreement to revenues over the seven-year life of the agreement (see Note 19). The independent third party valuation obtained by the Company also indicated that value should
be ascribed to a repurchase option owned by the Company under the agreements. The effect of the repurchase option is reflected as a reduction to equity in the accompanying consolidated balance sheet
at September 30, 2002. This amount will be recorded as a component of additional paid-in capital upon the exercise of the option or its expiration.

Note 17Related Party Transactions

On September 28, 2001, the Company entered into a loan agreement with Robert L. Caulk, the President, Chief Executive Officer and Chairman of the Board of
Directors of the Company, for $400,000 which matures on September 28, 2006 (the 2001 Loan). On March 8, 2002, the Company entered into a loan agreement with Mr. Caulk for $51,685
which matures on March 8, 2007 (the 2002

17

---

Loan). The purpose for both loans was to allow Mr. Caulk to purchase shares of the Company's common and preferred stock. The loans bear interest at LIBOR which is adjusted on the respective
anniversary date of each loan. The interest rate in effect as of September 30, 2002 was 1.81%. Interest on both loans is payable annually, based on outstanding accrued amounts on
December 31 of each year. Principal payments on both loans are based on 25% of the gross amount of each annual bonus awarded to Mr. Caulk and are immediately payable, except that
principal payments on the 2002 Loan are immediately payable only if all amounts due under the 2001 Loan are fully paid. Any unpaid principal and interest on both loans is due upon maturity. The
outstanding principal balance for the 2001 Loan was $352,000 as of September 30, 2002 and $400,000 as of December 31, 2001. The outstanding principal balance of the 2002 Loan was $51,685
as of September 30, 2002.

Note 18Recently Issued Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS
No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for
costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity and also establishes fair value as the objective
for initial measurement of the liability. SFAS No. 146 will be adopted by the Company for exit or disposal activities that are initiated after December 31, 2002. Adoption will not have a
material impact on the consolidated financial statements of the Company.

Note 19Subsequent Events

On October 3, 2002, the Company signed an asset purchase agreement to acquire certain assets from Pursell, which renamed itself U.S. Fertilizer subsequent
to the agreement, for a cash purchase price of $12.1 million and forgiveness of the Pursell promissory notes (see Note 16), subject to final purchase price adjustments. The assets
acquired included certain inventory and equipment at two of Pursell's facilities and real estate at one of the two facilities. The facilities acquired from Pursell, located in Orrville, Ohio and
Sylacauga, Alabama, previously fulfilled, and are expected to continue to fulfill, over half of the Company's fertilizer manufacturing requirements.

Also
on October 3, 2002, the Company signed a tolling agreement with Pursell whereby Pursell will supply the Company with the remainder of its fertilizer needs. The tolling
agreement requires the Company to be responsible for certain raw materials, capital expenditures and other related costs for Pursell to manufacture and supply the Company with fertilizer products. The
agreement does not require a minimum volume purchase of Pursell's manufacturing services but does provide for a fixed monthly payment of $0.7 million through the term of the tolling agreement
which expires on September 30, 2007. The agreement provides the Company with early termination rights without penalty. In addition, beginning on March 1, 2004 and on each anniversary
thereafter, the fixed payment is subject to certain increases for labor, materials, inflation and other reasonable costs as outlined in the tolling agreement.

18

---



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

The discussion and analysis of our consolidated financial condition and results of operations included herein should be read in conjunction with our historical
financial information included in the unaudited consolidated financial statements and the related notes thereto included elsewhere in this report.

General

We are the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden care and insect control markets in the United
States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents, fertilizers and
soils, under a variety of brand names. We believe that the key drivers of growth for the $2.8 billion consumer lawn and garden pesticide and household insecticide retail markets include:
(a) the aging of the United States population; (b) growth in the home improvement center and mass merchandiser channels; (c) shifting consumer preferences toward value-oriented
branded products; and (d) increased levels in consumer income, debt and spending.

During
the third quarter of 2002, we began reporting operating results using three reportable segments: Lawn and Garden, Household and Contract. Segments were established primarily by
product type which represents the basis upon which management reviews and assesses our financial performance. The Lawn and Garden segment primarily consists of dry, granular slow-release
lawn fertilizers, lawn fertilizer combination and lawn control products, herbicides and selective herbicides, water-soluble and controlled-release garden and indoor plant foods, plant care products,
potting soils and other growing media products, and outdoor pesticide products. Products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and gardens centers.
This segment includes, among others, our Spectracide®, Spectracide Terminate®, Peters®, Garden Safe®, Schultz®, Expert
Gardener®, Vigoro® and Sta-Green® brands.

The
Household segment represents household insecticides and insect repellants that allow consumers to achieve and maintain a pest-free household and repel insects. The
Household segment includes, among others, our Hot Shot® and Cutter® brands, as well as a number of private label products.

The
Contract segment represents our non-core products and includes various compounds and chemicals such as charcoal, cleaning solutions and automotive products.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis based on a combination of historical information and various other assumptions that are believed
to be reasonable under the particular circumstances. Actual results may differ from these estimates based on different assumptions or conditions. The accounting policies that we believe most impact
our consolidated financial statements and that require our management to make difficult, subjective or complex judgments are described below. These should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and "Note 1Summary of Significant Accounting Policies" to our financial statements included in our Annual
Report filed on Form 10-K for the year ended December 31, 2001.

19

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Revenue Recognition

Net sales represent gross sales less any applicable customer discounts from list price, customer returns and promotion expense through cooperative programs with
retailers. The provision for customer returns is based on historical sales returns, analysis of credit memo information and any other pertinent factors. If the historical or other data used to
calculate these estimates do not properly reflect future returns, net sales could be overstated.

Inventories

Inventories are reported at the lower of cost or market. Cost is determined using the first-in, first-out method and includes raw
materials, direct labor and overhead. An allowance for potentially obsolete or slow-moving finished goods and raw materials is recorded based on management's analysis of inventory levels
and future sales forecasts. In the event that our estimates of future usage and sales differ from actual results, the allowance for obsolete or slow-moving finished goods and raw materials
may be adjusted.

Promotion Expense

We advertise and promote our products through national and regional media. Products are also advertised and promoted through cooperative programs with retailers.
Advertising and promotion costs are expensed as incurred, although costs incurred during interim periods are generally expensed ratably in relation to revenues. Management judgment is required to
estimate the amount of costs that have been incurred by the retailers under our cooperative programs. Actual costs incurred may differ significantly from our estimates if factors such as the level of
participation and success of the retailers' programs or other conditions differ from our expectations.

Income Taxes

In conjunction with our recapitalization consummated on January 20, 1999, we converted our company from an S corporation to a C corporation. As a C
corporation, we account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial reporting basis and the tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled. Management
judgment is required to determine income tax expense, deferred tax assets and any valuation allowance recorded against such assets and deferred tax liabilities. We have recorded a valuation allowance
of $111.4 million as of September 30, 2002 due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating loss
carryforwards and deductible goodwill recorded in connection with our recapitalization in 1999. The valuation allowance is based on our estimates of taxable income by jurisdiction in which our
deferred tax assets will be recoverable. In the event that actual results differ from those estimates or we adjust these estimates in future periods, we may need to adjust the valuation allowance,
which could materially impact our consolidated financial position and results of operations.

Goodwill and Other Intangible Assets

We have acquired intangible assets or made acquisitions in the past that resulted in the recording of goodwill, including our acquisition of fertilizer brands in
December 2001 and our merger with Schultz Company in May 2002, respectively. Under generally accepted accounting principles previously in effect, these assets were amortized over their
estimated useful lives, and were tested periodically to determine if they were recoverable from operating earnings on an undiscounted basis over their useful lives.

20

---

Effective
in 2002, goodwill is no longer amortized and is subject to impairment testing at least annually. We evaluate the recoverability of long-lived assets, including
goodwill and intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Such events or changes in circumstances could include such factors as changes in technological advances, fluctuations in the fair value of such assets or adverse changes in
relationships with vendors or customers. If a review indicates that the carrying value of an asset is not recoverable based on projected undiscounted net cash flows related to the asset over its
remaining life, the carrying value of such asset is reduced to its estimated fair value. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such
cash flows could materially affect our evaluations. Therefore, impairment losses could be recorded in the future.

Results of Operations

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

The following table presents amounts and the percentages of net sales that items in the accompanying consolidated statements of operations constitute for the
periods presented (dollars in thousands):

|                                 |                                              | Three Months Ended September 30, |      
|-------------------------------- | -------------------------------------------- | -------------------------------- | -----
|
|
|Net sales by segment:            |                                              |                                  |      
|                                 | Lawn and Garden                              |                                  | $    
|                                 | Household                                    |                                  |      
|                                 | Contract                                     |                                  |      
|                                 |                                              |                                  |      
|                                 | Total net sales                              |                                  |      
|                                 |                                              |                                  |      
|Operating costs and expenses:    |                                              |                                  |      
|                                 | Cost of goods sold                           |                                  |      
|                                 | Selling, general and administrative expenses |                                  |      
|                                 |                                              |                                  |      
|                                 | Total operating costs and expenses           |                                  |      
|                                 |                                              |                                  |      
|Operating income by segment:     |                                              |                                  |      
|                                 | Lawn and Garden                              |                                  |      
|                                 | Household                                    |                                  |      
|                                 | Contract                                     |                                  |      
|                                 |                                              |                                  |      
|                                 | Total operating income                       |                                  |      
|Interest expense, net            |                                              |                                  | 7,386
|                                 |                                              |                                  |      
|Income before income tax expense |                                              |                                  | 515  
|Income tax expense               |                                              |                                  | 98   
|                                 |                                              |                                  |      
|                                 | Net income                                   |                                  | $    
|                                 |                                              |                                  |      

Net Sales.Net sales represent gross sales less any applicable customer discounts from list price, customer returns and
promotion expense through cooperative programs with retailers. Net sales increased $44.9 million, or 80.5%, to $100.7 million for the three months ended September 30, 2002 from
$55.8 million for the three months ended September 30, 2001. The increase, primarily in our Lawn and Garden segment, and the change in our sales mix by segment, were due to our expanded
product line resulting from our merger with Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001, coupled with an increase in sales of specific product
lines described further below. This increase was partially offset by an increase in promotion expense and retailers maintaining lower inventory levels.

21

---

Net
sales in the Lawn and Garden segment increased $33.5 million, or 108.1%, to $64.5 million for the three months ended September 30, 2002 from $31.0 million
for the three months ended September 30, 2001. Net sales of this segment increased $14.6 million as a result of our merger with Schultz, $18.4 million as a result of our
acquisition of various fertilizer brands and $7.2 million from strong sales growth of our Spectracide®brand. These increases were
partially offset by lower sales volume of various other products in the Lawn and Garden segment. Net sales in the Household segment increased $5.3 million, or 22.0%, to $29.4 million for
the three months ended September 30, 2002 from $24.1 million for the three months ended September 30, 2001. Net sales of this segment increased primarily due to increases in sales
of our Cutter®and Hot Shot®brands and in our private label products. Net sales
in the Contract segment increased $6.1 million to $6.8 million for the three months ended September 30, 2002 from $0.7 million for the three months ended
September 30, 2001. Net sales of this segment increased primarily due to our merger with Schultz.

Gross Profit.Gross profit increased $9.8 million, or 38.1%, to $35.5 million for the three months ended
September 30, 2002 from $25.7 million for the three months ended September 30, 2001. The increase in gross profit was primarily due to our merger with Schultz in May 2002
and our acquisition of various fertilizer brands in December 2001, coupled with favorable materials costs of key ingredients. As a percentage of net sales, gross profit decreased to 35.2% for
the three months ended September 30, 2002 from 46.0% for the three months ended September 30, 2001. The decrease in gross profit as a percentage of net sales was primarily due to our
merger with Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001, which have lower margins than our other products.

Selling, General and Administrative Expenses.Selling, general and administrative expenses include all costs associated with
the selling and distribution of product, product registrations, and administrative functions such as finance, information systems and human resources. Selling, general and administrative expenses
increased $10.6 million, or 62.4%, to $27.6 million for the three months ended September 30, 2002 from $17.0 million for the three months ended September 30, 2001.
The increase was primarily due to our merger with Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001. As a percentage of net sales, selling, general
and administrative expenses decreased to 27.4% for the three months ended September 30, 2002 from 30.4% for the three months ended September 30, 2001. The decrease was primarily due to
additional sales related to our merger with Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001, with a lesser corresponding increase in selling,
general and administrative expenses.

Operating Income.Operating income decreased $0.8 million, or 9.2%, to $7.9 million for the three months ended
September 30, 2002 from $8.7 million for the three months ended September 30, 2001. The decrease was due to the factors described above. As a percentage of net sales, operating
income decreased to 7.8% for the three months ended September 30, 2002 from 15.6% for the three months ended September 30, 2001. The decrease was primarily in our Lawn and Garden segment
due to lower margins on the products we acquired in our merger with Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001.

Operating
income in the Lawn and Garden segment decreased $2.3 million, or 62.2%, to $1.4 million for the three months ended September 30, 2002 from
$3.7 million for the three months ended September 30, 2001. Operating income of this segment decreased primarily due to our merger with Schultz in May 2002 and our acquisition of
various fertilizer brands in December 2001, which had increased sales during the period but lower margins than our other products. Operating income in the Household segment increased
$0.9 million, or 17.6%, to $6.0 million for the three months ended September 30, 2002 from $5.1 million for the three months ended September 30, 2001. Operating
income of this segment increased primarily due to increases in sales of our Cutter®and Hot
Shot®brands and in our private label products. Operating income in the Contract segment increased to

22

---

$0.6 million for the three months ended September 30, 2002 primarily due to sales of new product acquired in our merger with Schultz.

Interest Expense, Net.Interest expense, net decreased $1.0 million, or 11.9%, to $7.4 million for the three
months ended September 30, 2002 from $8.4 million for the three months ended September 30, 2001. The decrease in net interest expense was due to a decline in our average variable
borrowing rate of 1.51 percentage points to 1.82% for the three months ended September 30, 2002 from 3.33% for the three months ended September 30, 2001, resulting from a general
decline in variable borrowing rates. This decrease was also due to interest income from an increase in our average cash balances available for investment during the current period, partially offset by
an increase in our average debt outstanding during the current period, both of which resulted from additional borrowings under our senior credit facility to finance our merger with Schultz.

Income Tax Expense.For the three months ended September 30, 2002, our effective income tax rate was 16.9%, which
reflects the estimated utilization of the goodwill deduction during 2002. The goodwill deduction was related to the step up in tax basis that occurred in conjunction with our recapitalization in 1999.
This rate reflects the rate required to adjust our effective income tax rate to 19%, which is based on our current estimate of annual pre-tax earnings and the utilization of our goodwill
deduction.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

The following table presents amounts and the percentages of net sales that items in the accompanying consolidated statements of operations constitute for the
periods presented (dollars in thousands):

|                                 |                                              | Nine Months Ended September 30, |       
|-------------------------------- | -------------------------------------------- | ------------------------------- | ------
|
|
|Net sales by segment:            |                                              |                                 |       
|                                 | Lawn and Garden                              |                                 | $     
|                                 | Household                                    |                                 |       
|                                 | Contract                                     |                                 |       
|                                 |                                              |                                 |       
|                                 | Total net sales                              |                                 |       
|                                 |                                              |                                 |       
|Operating costs and expenses:    |                                              |                                 |       
|                                 | Cost of goods sold                           |                                 |       
|                                 | Selling, general and administrative expenses |                                 |       
|                                 |                                              |                                 |       
|                                 | Total operating costs and expenses           |                                 |       
|                                 |                                              |                                 |       
|Operating income by segment:     |                                              |                                 |       
|                                 | Lawn and Garden                              |                                 |       
|                                 | Household                                    |                                 |       
|                                 | Contract                                     |                                 |       
|                                 |                                              |                                 |       
|                                 | Total operating income                       |                                 |       
|Interest expense, net            |                                              |                                 | 24,591
|                                 |                                              |                                 |       
|Income before income tax expense |                                              |                                 | 45,787
|Income tax expense               |                                              |                                 | 8,788 
|                                 |                                              |                                 |       
|                                 | Net income                                   |                                 | $     
|                                 |                                              |                                 |       

Net Sales.Net sales represent gross sales less any applicable customer discounts from list price, customer returns and
promotion expense through cooperative programs with retailers. Net sales

23

---

increased $181.8 million, or 72.6%, to $432.2 million for the nine months ended September 30, 2002 from $250.4 million for the nine months ended September 30, 2001.
The increase, primarily in our Lawn and Garden segment, and the change in our sales mix by segment, were due to our expanded product line resulting from our merger with Schultz in May 2002 and
our acquisition of various fertilizer brands in December 2001, coupled with an increase in sales of specific product lines described further below. This increase was partially offset by an
increase in promotion expense and retailers maintaining lower inventory levels.

Net
sales in the Lawn and Garden segment increased $164.4 million, or 106.3%, to $319.0 million for the nine months ended September 30, 2002 from
$154.6 million for the nine months ended September 30, 2001. Net sales of this segment increased $34.8 million as a result of our merger with Schultz, $128.7 million as a
result of our merger with Schultz and our acquisition of various fertilizer brands and $25.8 million from strong sales growth of our
Spectracide®brand. These increases were partially offset by lower sales volume of various other products in the Lawn and Garden segment.
Net sales in the Household segment increased $4.6 million, or 4.9%, to $98.1 million for the nine months ended September 30, 2002 from $93.5 million for the nine months
ended September 30, 2001. Net sales of this segment increased primarily due to increases in sales of our Cutter®and Hot
Shot®brands and in our private label products. Net sales in the Contract segment increased $12.8 million to $15.1 million for
the nine months ended September 30, 2002 from $2.3 million for the nine months ended September 30, 2001. Net sales of this segment increased primarily due to our merger with
Schultz.

Gross Profit.Gross profit increased $42.0 million, or 36.4%, to $157.5 million for the nine months ended
September 30, 2002 from $115.5 million for the nine months ended September 30, 2001. The increase in gross profit was primarily due to our merger with Schultz in May 2002
and our acquisition of various fertilizer brands in December 2001, coupled with favorable materials costs of key ingredients. The increase in gross profit was partially offset by the
amortization of a $1.5 million purchase accounting inventory write-up related to the Schultz merger. As a percentage of net sales, gross profit decreased to 36.4% for the nine
months ended September 30, 2002 from 46.2% for the nine months ended September 30, 2001. The decrease in gross profit as a percentage of net sales was primarily due to our merger with
Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001, which have lower margins than our other products.

Selling, General and Administrative Expenses.Selling, general and administrative expenses include all costs associated with
the selling and distribution of product, product registrations, and administrative functions such as finance, information systems and human resources. Selling, general and administrative expenses
increased $27.9 million, or 47.1%, to $87.1 million for the nine months ended September 30, 2002 from $59.2 million for the nine months ended September 30, 2001. The
increase was primarily due to our merger with Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001. As a percentage of net sales, selling, general and
administrative expenses decreased to 20.1% for the nine months ended September 30, 2002 from 23.7% for the nine months ended September 30, 2001. The decrease was primarily due to
additional sales related to our merger with
Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001, with a lesser corresponding increase in selling, general and administrative expenses.

Operating Income.Operating income increased $14.0 million, or 24.8% to $70.4 million for the nine months ended
September 30, 2002 from $56.4 million for the nine months ended September 30, 2001. The increase was due to the factors described above. As a percentage of net sales, operating
income decreased to 16.3% for the nine months ended September 30, 2002 from 22.5% for the nine months ended September 30, 2001. The decrease was primarily in our Lawn and Garden segment
due to lower margins on the products we acquired in our merger with Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001.

24

---

Operating
income in the Lawn and Garden segment increased $9.7 million, or 29.7%, to $42.4 million for the nine months ended September 30, 2002 from
$32.7 million for the nine months ended September 30, 2001. Operating income of this segment increased primarily due to our merger with Schultz, our acquisition of various fertilizer
brands and strong growth in our Spectracide®brand. These increases were partially offset by lower sales volume and margins of various other
products. Operating income in the Household segment increased $3.2 million, or 13.6%, to $26.8 million for the nine months ended September 30, 2002 from $23.6 million for
the nine months ended September 30, 2001. Operating income of this segment increased primarily due to increases in sales of our
Cutter®and Hot Shot®brands and in our private label products. Operating income
in the Contract segment increased $1.1 million to $1.2 million for the nine months ended September 30, 2002 from $0.1 million for the nine months ended September 30,
2001. Operating income of this segment increased primarily due to sales of new products acquired in our merger with Schultz.

Interest Expense, Net.Interest expense, net decreased $3.2 million, or 11.5%, to $24.6 million for the nine
months ended September 30, 2002 from $27.8 million for the nine months ended September 30, 2001. The decrease in net interest expense was due to a decline in our average variable
borrowing rate of 2.41 percentage points to 1.84% for the nine months ended September 30, 2002 from 4.25% for the nine months ended September 30, 2001, resulting from a general
decline in variable borrowing rates. This decrease was also due to interest income from an increase in our average cash balances available for investment during the current period, partially offset by
an increase in our average debt outstanding during the current period, both of which resulted from additional borrowings under our senior credit facility to finance our merger with Schultz.

Income Tax Expense.For the nine months ended September 30, 2002, our effective income tax rate was 19.2%, which
reflects the estimated utilization of the goodwill deduction in fiscal year 2002. The goodwill deduction was related to the step up in tax basis that occurred in conjunction with our recapitalization
in 1999. This rate reflects the rate required to adjust our effective income tax rate to 19%, which is based on our current estimate of annual pre-tax earnings and the utilization of our
goodwill deduction.

Pro Forma Financial Information

On May 9, 2002, one of our wholly owned subsidiaries completed a merger with and into Schultz. As a result of the merger, Schultz became one of our wholly
owned subsidiaries. The transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been
included in the consolidated financial statements from the date of acquisition. Our fiscal year ends on December 31 while, prior to the merger, the fiscal year of Schultz ended on
September 30. Our unaudited consolidated statements of operations for the three and nine months ended September 30, 2002 and 2001 have been combined below with the unaudited statements
of operations of Schultz for the three and nine months ended September 30, 2002 and 2001, for purposes of providing the unaudited combined pro forma results of operations after giving effect to
the merger as if it had occurred on January 1, 2001. The unaudited combined results of operations were adjusted on a pro forma basis to illustrate the estimated effects of additional
amortization expense on the acquired intangible assets, interest expense for borrowings to finance the transaction and the associated income tax benefit. The unaudited pro forma consolidated results
of operations are presented to illustrate the potential operating results that may possibly have been achieved had this transaction been completed as of the assumed date but do not purport to be
indicative of the operating results of operations that would definitely have been achieved had this transaction been completed as of the assumed date or which may be obtained in the future.

25

---

The
following tables present the compilation of the unaudited pro forma consolidated results of operations for the three and nine-month periods ended September 30,
2002 and 2001 (dollars in thousands), followed by accompanying notes:

|                                                  |                                              | Three Months Ended
September 30, 2002 |         | Unaudited Pro Forma Statement of Operations for the
Three Months Ended September 30, 2001 |  
|------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------- | ----------------------------------------------------------------------------------------- | -
|
|Sales before promotion expense                    |                                              | $                                     | 111,372 |                                                                                           | $
|Promotion expense                                 |                                              |                                       | 10,695  |                                                                                           |  
|                                                  |                                              |                                       |         |                                                                                           |  
|Net sales                                         |                                              |                                       | 100,677 |                                                                                           |  
|                                                  |                                              |                                       |         |                                                                                           |  
|Operating costs and expenses:                     |                                              |                                       |         |                                                                                           |  
|                                                  | Cost of goods sold                           |                                       |         | 65,209                                                                                    |  
|                                                  | Selling, general and administrative expenses |                                       |         | 27,567                                                                                    |  
|                                                  |                                              |                                       |         |                                                                                           |  
|                                                  | Total operating costs and expenses           |                                       |         | 92,776                                                                                    |  
|                                                  |                                              |                                       |         |                                                                                           |  
|Operating income (loss)                           |                                              |                                       | 7,901   |                                                                                           |  
|Interest expense, net                             |                                              |                                       | 7,386   |                                                                                           |  
|                                                  |                                              |                                       |         |                                                                                           |  
|Income (loss) before income tax expense (benefit) |                                              |                                       | 515     |                                                                                           |  
|Income tax expense (benefit)                      |                                              |                                       | 98      |                                                                                           |  
|                                                  |                                              |                                       |         |                                                                                           |  
|Net income (loss)                                 |                                              | $                                     | 417     |                                                                                           | $
|                                                  |                                              |                                       |         |                                                                                           |  

|                                 |                                              | Unaudited Pro Forma Statement of Operations for the
Nine Months Ended September 30, 2002
|-------------------------------- | -------------------------------------------- | ----------------------------------------------------------------------------------------
|
|Sales before promotion expense   |                                              | $                                                                                       
|Promotion expense                |                                              |                                                                                         
|                                 |                                              |                                                                                         
|Net sales                        |                                              |                                                                                         
|                                 |                                              |                                                                                         
|Operating costs and expenses:    |                                              |                                                                                         
|                                 | Cost of goods sold                           |                                                                                         
|                                 | Selling, general and administrative expenses |                                                                                         
|                                 |                                              |                                                                                         
|                                 | Total operating costs and expenses           |                                                                                         
|                                 |                                              |                                                                                         
|Operating income                 |                                              |                                                                                         
|Interest expense, net            |                                              |                                                                                         
|                                 |                                              |                                                                                         
|Income before income tax expense |                                              |                                                                                         
|Income tax expense               |                                              |                                                                                         
|                                 |                                              |                                                                                         
|Net income                       |                                              | $                                                                                       
|                                 |                                              |                                                                                         

26

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|                                                  |                                              | Unaudited Pro Forma Statement of Operations for the
Nine Months Ended September 30, 2001
|------------------------------------------------- | -------------------------------------------- | ----------------------------------------------------------------------------------------
|
|Sales before promotion expense                    |                                              | $                                                                                       
|Promotion expense                                 |                                              |                                                                                         
|                                                  |                                              |                                                                                         
|Net sales                                         |                                              |                                                                                         
|                                                  |                                              |                                                                                         
|Operating costs and expenses:                     |                                              |                                                                                         
|                                                  | Cost of goods sold                           |                                                                                         
|                                                  | Selling, general and administrative expenses |                                                                                         
|                                                  |                                              |                                                                                         
|                                                  | Total operating costs and expenses           |                                                                                         
|                                                  |                                              |                                                                                         
|Operating income (loss)                           |                                              |                                                                                         
|Interest expense, net                             |                                              |                                                                                         
|                                                  |                                              |                                                                                         
|Income (loss) before income tax expense (benefit) |                                              |                                                                                         
|Income tax expense (benefit)                      |                                              |                                                                                         
|                                                  |                                              |                                                                                         
|Net income (loss)                                 |                                              | $                                                                                       
|                                                  |                                              |                                                                                         

Notes to Unaudited Pro Forma Statements of Operations

27

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Pro Forma Three Months Ended September 30, 2002 Compared to Pro Forma Three Months Ended September 30, 2001

The following table presents amounts and the percentages of net sales that items in the pro forma consolidated statements of operations constitute for the periods
presented (dollars in thousands):

|                                                  |                                              | Three Months Ended September 30, |      
|------------------------------------------------- | -------------------------------------------- | -------------------------------- | -----
|
|
|Net sales by segment:                             |                                              |                                  |      
|                                                  | Lawn and Garden                              |                                  | $    
|                                                  | Household                                    |                                  |      
|                                                  | Contract                                     |                                  |      
|                                                  |                                              |                                  |      
|                                                  | Total net sales                              |                                  |      
|                                                  |                                              |                                  |      
|Operating costs and expenses:                     |                                              |                                  |      
|                                                  | Cost of goods sold                           |                                  |      
|                                                  | Selling, general and administrative expenses |                                  |      
|                                                  |                                              |                                  |      
|                                                  | Total operating costs and expenses           |                                  |      
|                                                  |                                              |                                  |      
|Operating income by segment:                      |                                              |                                  |      
|                                                  | Lawn and Garden                              |                                  |      
|                                                  | Household                                    |                                  |      
|                                                  | Contract                                     |                                  |      
|                                                  |                                              |                                  |      
|                                                  | Total operating income                       |                                  |      
|Interest expense, net                             |                                              |                                  | 7,386
|                                                  |                                              |                                  |      
|Income (loss) before income tax expense (benefit) |                                              |                                  | 515  
|Income tax expense (benefit)                      |                                              |                                  | 98   
|                                                  |                                              |                                  |      
|                                                  | Net income (loss)                            |                                  | $    
|                                                  |                                              |                                  |      

Pro Forma Net Sales.Pro forma net sales represent gross sales less any applicable customer discounts from list price,
customer returns and promotion expense through cooperative programs with retailers. Pro forma net sales increased $32.1 million, or 46.8%, to $100.7 million for the three months ended
September 30, 2002 from $68.6 million for the three months ended September 30, 2001. The increase, primarily in our Lawn and Garden segment, was due to increases in sales of
specific product lines described further below. This increase was partially offset by an increase in promotion expense and retailers maintaining lower inventory levels.

Pro
forma net sales in the Lawn and Garden segment increased $26.6 million, or 70.2%, to $64.5 million for the three months ended September 30, 2002 from
$37.9 million for the three months ended September 30, 2001. Pro forma net sales of this segment increased due to increases in sales of Schultz, fertilizer and
Spectracide®products. Pro forma net sales in the Household segment increased $5.3 million, or 22.0%, to $29.4 million for the
three months ended September 30, 2002 from $24.1 million for the three months ended September 30, 2001. Pro forma net sales of this segment increased primarily
due to increases in sales of our Cutter®and Hot Shot®brands and in our private
label products. Pro forma net sales in the Contract segment increased $0.2 million, or 3.0%, to $6.8 million for the three months ended September 30, 2002 from $6.6 million
for the three months ended September 30, 2001.

Pro Forma Gross Profit.Pro forma gross profit increased $9.1 million, or 34.5%, to $35.5 million for the three
months ended September 30, 2002 from $26.4 million for the three months ended September 30, 2001. The increase in pro forma gross profit was primarily due to continued increases
in

28

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sales, coupled with favorable materials costs of key ingredients. As a percentage of pro forma net sales, pro forma gross profit decreased to 35.2% for the three months ended September 30,
2002 from 38.4% for the three months ended September 30, 2001. The decrease in pro forma gross profit as a percentage of pro forma net sales was primarily due to increased sales of our
fertilizer brands which have lower margins than our other products.

Pro Forma Selling, General and Administrative Expenses.Pro forma 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. Pro forma selling, general
and administrative expenses increased $6.9 million, or 33.3%, to $27.6 million for the three months ended September 30, 2002 from $20.7 million for the three months ended
September 30, 2001. The majority of the increase was related to supporting increased sales, especially of our Shultz and fertilizer brands. As a percentage of pro forma net sales, pro forma
selling, general and administrative expenses decreased to 27.4% for the three months ended September 30, 2002 from 30.1% for the three months ended September 30, 2001. The decrease was
primarily due to additional sales related to the fertilizer brands, with a lesser corresponding increase in selling, general and administrative expenses.

Pro Forma Operating Income.Pro forma operating income increased $2.2 million, or 38.6%, to $7.9 million for
the three months ended September 30, 2002 from $5.7 million for the three months ended September 30, 2001. The increase was due to the factors described above. As a percentage of
pro forma net sales, pro forma operating income decreased to 7.8% for the three months ended September 30, 2002 from 8.3% for the three months ended September 30, 2001. The decrease was
primarily in our Lawn and Garden segment due to lower margins on our Schultz and fertilizer products.

Pro
forma operating income in the Lawn and Garden segment increased $1.0 million to $1.4 million for the three months ended September 30, 2002 from
$0.4 million for the three months ended September 30, 2001. Pro forma operating income of this segment increased primarily due to increases in sales of Schultz, fertilizer and
Spectracide®products. Pro forma operating income in the Household segment increased $1.1 million, or 22.9%, to $6.0 million
for the three months ended September 30, 2002 from $4.9 million for the three months ended September 30, 2001. Pro forma operating income of this segment increased due to
increases in sales of our Cutter®and Hot Shot®brands and in our private label
products. Pro forma operating income in the Contract segment increased $0.1 million, or 20.0%, to $0.6 million for the three months ended September 30, 2002 from
$0.5 million for the three months ended September 30, 2001.

29

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Pro Forma Nine Months Ended September 30, 2002 Compared to Pro Forma Nine Months Ended September 30, 2001

The following table presents amounts and the percentages of net sales that items in the pro forma consolidated statements of operations constitute for the periods
presented (dollars in thousands):

|                                 |                                              | Nine Months Ended September 30, |       
|-------------------------------- | -------------------------------------------- | ------------------------------- | ------
|
|
|Net sales by segment:            |                                              |                                 |       
|                                 | Lawn and Garden                              |                                 | $     
|                                 | Household                                    |                                 |       
|                                 | Contract                                     |                                 |       
|                                 |                                              |                                 |       
|                                 | Total net sales                              |                                 |       
|                                 |                                              |                                 |       
|Operating costs and expenses:    |                                              |                                 |       
|                                 | Cost of goods sold                           |                                 |       
|                                 | Selling, general and administrative expenses |                                 |       
|                                 |                                              |                                 |       
|                                 | Total operating costs and expenses           |                                 |       
|                                 |                                              |                                 |       
|Operating income by segment:     |                                              |                                 |       
|                                 | Lawn and Garden                              |                                 |       
|                                 | Household                                    |                                 |       
|                                 | Contract                                     |                                 |       
|                                 |                                              |                                 |       
|                                 | Total operating income                       |                                 |       
|Interest expense, net            |                                              |                                 | 25,590
|                                 |                                              |                                 |       
|Income before income tax expense |                                              |                                 | 52,144
|Income tax expense               |                                              |                                 | 11,500
|                                 |                                              |                                 |       
|                                 | Net income                                   |                                 | $     
|                                 |                                              |                                 |       

Pro Forma Net Sales.Pro forma net sales represent gross sales less any applicable customer discounts from list price,
customer returns and promotion expense through cooperative programs with retailers. Pro forma net sales increased $153.5 million, or 46.0%, to $487.0 million for the nine months ended
September 30, 2002 from $333.5 million for the nine months ended September 30, 2001. The increase, primarily in our Lawn and Garden segment, was due to increases in sales of
specific product lines described further below. This increase was partially offset by an increase in promotion expense and retailers maintaining lower inventory levels.

Pro
forma net sales in the Lawn and Garden segment increased $147.4 million, or 68.5%, to $362.7 million for the nine months ended September 30, 2002 from
$215.3 million for the nine months ended September 30, 2001. Pro forma net sales of this segment increased due to increases in sales of Schultz, fertilizer and
Spectracide®products. Pro forma net sales in the Household segment increased $4.6 million, or 4.9%, to $98.1 million for the
nine months ended September 30, 2002 from $93.5 million for the nine months ended September 30, 2001. Pro forma net sales of this segment increased primarily due to increases in
sales of our Cutter®and Hot Shot®brands and in our private label products. Pro
forma net sales in the Contract segment increased $1.4 million, or 5.6%, to $26.2 million for the nine months ended September 30, 2002 from $24.8 million for the nine
months ended September 30, 2001.

Pro Forma Gross Profit.Pro forma gross profit increased $40.9 million, or 31.1%, to $172.6 million for the
nine months ended September 30, 2002 from $131.6 million for the nine months ended September 30, 2001. The increase in pro forma gross profit was primarily due to continued

30

---

increases in sales, coupled with favorable materials costs of key ingredients. As a percentage of pro forma net sales, pro forma gross profit decreased to 35.4% for the nine months ended
September 30, 2002 from 39.5% for the nine months ended September 30, 2001. The decrease in pro forma gross profit as a percentage of pro forma net sales was primarily due to increased
sales of our fertilizer brands which have lower margins than our other products.

Pro Forma Selling, General and Administrative Expenses.Pro forma 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. Pro forma selling, general
and administrative expenses increased $24.6 million, or 35.0%, to $94.8 million for the nine months ended September 30, 2002 from $70.2 million for the nine months ended
September 30, 2001. The majority of the increase is related to supporting increased sales, especially of our Schultz and fertilizer brands. As a percentage of pro forma net sales, pro forma
selling, general and administrative expenses decreased to 19.4% for the nine months ended September 30, 2002 from 21.0% for the nine months ended September 30, 2001. The decrease was
primarily due to additional sales related to the fertilizer brands, with a lesser corresponding increase in selling, general and administrative expenses. Non-recurring change of control
payments totaling $5.1 million paid to certain members of Schultz management have been excluded from the pro forma financial information.

Pro Forma Operating Income.Pro forma operating income increased $16.2 million, or 26.3%, to $77.7 million for
the nine months ended September 30, 2002 from $61.5 million for the nine months ended September 30, 2001. The increase was due to the factors described above. As a percentage of
pro forma net sales, pro forma operating income decreased to 16.0% for the nine months ended September 30, 2002 from 18.5% for the nine months ended September 30, 2001. The decrease was
primarily in our Lawn and Garden segment due to lower margins on our Schultz and fertilizer products.

Pro
forma operating income in the Lawn and Garden segment increased $12.9 million, or 35.8%, to $48.9 million for the nine months ended September 30, 2002 from
$36.0 million for the nine months ended September 30, 2001. Pro forma operating income of this segment increased due to increases in sales of Schultz, fertilizer and
Spectracide®products. Pro forma operating income in the Household segment increased $3.2 million, or 13.6%, to $26.8 million
for the nine months ended September 30, 2002 from $23.6 million for the nine months ended September 30, 2001. Pro forma operating income of this segment increased primarily due to
increases in sales of our Cutter®and Hot Shot®brands and in our private label
products. Pro forma operating income in the Contract segment increased $0.1 million, or 5.3%, to $2.0 million for the nine months ended September 30, 2002 from $1.9 million
for the nine months ended September 30, 2001.

Liquidity and Capital Resources

Our principal liquidity requirements are for working capital, capital expenditures and debt service under our senior credit facility and senior subordinated
notes. We have historically utilized internally generated cash flow and proceeds from borrowings and issuance of common and preferred stock to meet ongoing working capital and capital expenditure
requirements. As a result of our recapitalization in 1999, we have significantly increased cash requirements for debt service relating to our senior subordinated notes and senior credit facility. We
had total debt outstanding, including obligations under capital leases, of $384.7 million as of September 30, 2002 and $351.8 million as of December 31, 2001. We believe
internally generated cash flow from operations and, to the extent necessary, proceeds from borrowings under our revolving credit facility or from issuance of common and preferred stock will enable us
to meet anticipated requirements for working capital, capital expenditures and scheduled principal and interest payments for at least the next two years. However, we cannot ensure that sufficient cash
flow will be generated from operations to repay the senior subordinated notes and

31

---

amounts outstanding under our senior credit facility at maturity without requiring additional financing. Our ability to meet debt service and clean-down obligations and reduce debt will
be dependent upon our future performance, which in turn, will be subject to general economic conditions and to financial, business and other factors, including factors beyond our control. Because a
portion of our debt bears interest at floating rates, our financial condition is and will continue to be affected by changes in prevailing interest rates.

Operating Activities

Cash flow provided by operating activities was approximately $60.9 million for the nine months ended September 30, 2002 and $26.2 million for
the nine months ended September 30, 2001. The increase in cash flows provided by operating activities was primarily due to an increase in net income from our expanded product line, coupled with
changes in operating assets and liabilities, both of which resulted from our merger with Schultz in May 2002 and our acquisition of various fertilizer brands in December 2001. Net cash
used by operating activities fluctuates during the year as the seasonal nature of our sales results in a significant increase in working capital, primarily accounts receivable and inventory, during
the first half of the year, with the second and third quarters being heavy periods of cash collection. Our acquisition of various fertilizer brands and our merger with Schultz do not change the
seasonal nature of our working capital.

Investing Activities

On May 9, 2002, one of our wholly owned subsidiaries completed a merger with and into Schultz, a manufacturer of horticultural products and specialty
items, particularly for the indoor houseplant care segment of the market, and a distributor of charcoal, potting soil and soil conditioners. Schultz products are distributed primarily to retail
outlets and nurseries throughout the United States and Canada. The merger was executed in order to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became
one of our wholly owned subsidiaries. The total purchase price included cash payments of $38.3 million, including related acquisition costs, issuance of 600,000 shares of Class A voting
common stock valued at $3.0 million and issuance of 600,000 shares of Class B non-voting common stock valued at $3.0 million.

Our
funding sources for the merger were as follows:



On
June 14, 2002, we consummated a strategic partnership with Bayer Corporation and Bayer Advanced, L.L.C. (together referred to herein as Bayer). The strategic partnership allows
us to gain
access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. In
connection with the strategic partnership, Bayer acquired a minority ownership interest, approximately 9.3% of our issued and outstanding common stock, under the terms of an Exchange Agreement in
exchange for promissory notes due to Bayer from Pursell Industries, Inc. (Pursell) and the execution of the Supply and In-Store Service Agreements. Under the requirements of the
agreements, Bayer will make payments to us which total $5.0 million annually for the next seven years.

32

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Under
the terms of the Exchange Agreement, we have the right to repurchase the shares issued to Bayer upon termination of the In-Store Service Agreement. Termination of the
In-Store Service Agreement can occur with or without cause. It is generally believed that the repurchase price per share would represent the fair market value of the shares at the time
such repurchase option is exercised. In addition, Bayer has the right to put the shares received from us back to us under the terms of the Exchange Agreement. Bayer can terminate the Exchange
Agreement within the first 36 months if we fail to meet certain performance guidelines as established in the Exchange Agreement. It is generally believed that the put price per share would
represent the fair market value of the shares at the time such put option is exercised.

In
exchange for the promissory notes received from Bayer and the execution of the Supply and In-Store Service Agreements, we issued to Bayer 3,072,000 shares of
Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B non-voting common stock valued at $15.4 million. We reserved for the entire
face value of the promissory notes due to Bayer from Pursell as we did not believe they were collectible and an independent third party valuation did not ascribe any value to them.

On
October 3, 2002, we signed an asset purchase agreement to acquire certain assets from Pursell, which renamed itself U.S. Fertilizer subsequent to the agreement, for a cash
purchase price of $12.1 million and forgiveness of the Pursell promissory notes described above, subject to final purchase price adjustments. The assets acquired included certain inventory,
equipment at two of Pursell's facilities and real estate at one of the two facilities. The facilities acquired from Pursell, located in Orrville, Ohio and Sylacauga, Alabama, previously fulfilled, and
are expected to continue to fulfill, over half of the Company's fertilizer manufacturing requirements.

Also
on October 3, 2002, we signed a tolling agreement with Pursell whereby Pursell will supply us with the remainder of our fertilizer needs. The tolling agreement requires us to
be responsible for certain raw materials, capital expenditures and other related costs for Pursell to manufacture and supply us with fertilizer products. The agreement does not require a minimum
volume purchase of Pursell's manufacturing services but does provide for a fixed monthly payment of $0.7 million through the term of the tolling agreement which expires on September 30,
2007. The agreement provides us with early termination rights without penalty. In addition, beginning on March 1, 2004 and on each anniversary thereafter, the fixed payment is subject to
certain increases for labor, materials, inflation and other reasonable costs as outlined in the tolling agreement.

Financing Activities

Our senior credit facility consists of a $90.0 million revolving credit facility, of which no borrowings were outstanding at September 30, 2002; a
$75.0 million Term Loan A, of which $32.3 million was outstanding at September 30, 2002; and a $215.0 million Term Loan B, of which $198.0 million was outstanding at
September 30, 2002. Our revolving credit facility and Term Loan A mature 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 during the period
August 1 and November 30 in each calendar year. At September 30, 2002, the clean-down period had been completed and no amounts were outstanding under the revolving
credit facility, nor were there any compensating balance requirements. Our senior credit facility agreement contains restrictive affirmative, negative and financial covenants. Affirmative and negative
covenants place restrictions on levels of investments, indebtedness, insurance and capital expenditures. Financial covenants require the maintenance of certain financial ratios at defined levels. At
September 30, 2002, we were in compliance with all covenants. While we do not anticipate an event of non-compliance in the immediate future, the effect of non-compliance
would require us to request a waiver or an amendment to our senior credit facility. The result of amending our senior credit facility could result in changes to our borrowing

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capacity or the effective interest rates of the senior credit facility. Under the covenants, interest rates on the revolving credit facility, Term Loan A and Term Loan B range from 2.50% to 4.00%
above LIBOR depending on certain financial ratios. Unused commitments under the revolving credit facility are subject to a 0.5% annual commitment fee. LIBOR was 1.82% at September 30, 2002.

On
February 13, 2002, we received approval from our banking syndicate to amend our senior credit facility. The amendment increased Term Loan B from $150.0 million to
$180.0 million and provided additional capital expenditure flexibility. On May 8, 2002, we received approval from our banking syndicate to amend our senior credit facility. The amendment
increased Term Loan B from $180.0 million to $215.0 million, increased our revolving credit facility from $80.0 million to $90.0 million and provided additional
capital expenditure flexibility. On November 4, 2002, we received approval from our banking syndicate to amend our senior credit facility. The amendment provided us with greater flexibility
with regard to derivative and hedging activities.

We
have not entered into any off-balance sheet arrangements or obligations other than operating leases, which are not material to our consolidated financial condition or
results of operations.

Capital Expenditures

Capital expenditures relate to the enhancement of our existing facilities and the construction of additional capacity for production and distribution. Cash used
for capital expenditures for the
remainder of fiscal 2002 is expected to be less than $8.5 million. During the nine months ended September 30, 2002, we used $38.3 million of cash to partially finance our merger
with Schultz.

Certain Trends and Uncertainties

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

Recently Issued Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)."
SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity
and also establishes fair value as the objective for initial measurement of the liability. SFAS No. 146 will be adopted for exit or disposal activities that are initiated after
December 31, 2002. Adoption will not have a material impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rates

We are exposed to market risks relating to changes in interest rates. We do not enter into derivatives or other hedging arrangements for trading or speculative
purposes. We periodically enter into financial instruments to manage and reduce the impact of changes in interest rates. At September 30, 2002, we did not utilize any derivative or hedging
instruments.

Interest
rates on our revolving credit facility, Term Loan A and Term Loan B range from 2.50% to 4.00% above LIBOR depending on certain financial ratios. LIBOR was 1.82% on
September 30, 2002.

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Exchange Rates

We do not currently use derivatives or other hedging instruments to manage or reduce the risk of foreign currency exposure as nearly all of our foreign currency
transactions are denominated in United States dollars.

Commodity Prices

We utilize various commodity and specialty chemicals in our production process. Purchasing procedures and arrangements with major vendors and customers serve to
mitigate our exposure to price changes in commodity and specialty chemicals. In addition, we periodically enter into derivative or hedging agreements to manage and reduce the impact of changes in raw
materials price fluctuations. We do not enter into derivatives or other hedging arrangements for trading or speculative purposes. As of September 30, 2002, we did not utilize any derivative or
hedging instruments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the Evaluation Date) within 90 days before the filing date of this
report, have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to us and our
consolidated subsidiaries required to be included in our periodic filings under the Exchange Act.

Changes in Internal Controls

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We have no reportable legal proceedings in the current period. We are involved from time to time in routine legal matters and other claims incidental to our
business. When it appears probable in management's judgment that we will incur monetary damages or other costs in connection with such claims and proceedings, and such costs can be reasonably
estimated, liabilities are recorded in the consolidated financial statements and charges are made against earnings. We believe that the resolution of such routine matters and other incidental claims,
taking into account established reserves and insurance, will not have a material adverse impact on our consolidated financial position or results of operations.

Item 2. Changes in Securities and Use of Proceeds

Merger with Schultz Company

On May 9, 2002, one of our wholly owned subsidiaries completed a merger with and into Schultz, a manufacturer of horticultural products and specialty
items, particularly for the indoor houseplant care segment of the market, and a distributor of charcoal, potting soil and soil conditioners. The total purchase price included cash payments of
$38.3 million, including related acquisition costs, issuance of 600,000 shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of
Class B non-voting common stock valued at $3.0 million.

Our
funding sources for the merger were as follows: an additional $35.0 million add-on to Term Loan B of our senior credit facility, the issuance of 1,069,000 shares
of Class A voting common stock to UIC
Holdings, L.L.C. for $8.5 million and the issuance of 1,069,000 shares of Class B non-voting common stock to UIC Holdings, L.L.C. for $8.5 million. The issuance of
shares to UIC Holdings, L.L.C. was a condition precedent to the amendment of our senior credit facility.

The
issuance of the shares of our common stock in connection with the transactions described above was exempt from the registration provisions of the Securities Act of 1933, pursuant to
Section 4(2) of the Securities Act for transactions not involving a public offering, based on the fact that the common stock was offered and sold to accredited investors who had access to our
financial and other relevant data.

Strategic Partnership with Bayer Corporation

On June 14, 2002, we consummated a strategic partnership with Bayer. In connection with the strategic partnership, Bayer acquired a minority ownership
interest, approximately 9.3% of our issued and outstanding common stock, under the terms of an Exchange Agreement in exchange for promissory notes due to Bayer from Pursell and the execution of a
Supply Agreement and In-Store Service Agreement.

In
exchange for the promissory notes received from Bayer and the execution of the Supply and In-Store Service Agreements, we issued to Bayer 3,072,000 shares of
Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B non-voting common stock valued at $15.4 million. We reserved for the entire
face value of the promissory notes due to Bayer from Pursell as we did not believe they were collectible and an independent third party valuation did not ascribe any value to them. In connection with
the asset purchase agreement consummated with Pursell on October 3, 2002, the promissory notes described above that were due to us from Pursell were forgiven.

The
issuance of the shares of our common stock in connection with the transaction described above was exempt from the registration provisions of the Securities Act of 1933, pursuant to
Section 4(2) of the Securities Act for transactions not involving a public offering, based on the fact that

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the common stock was offered and sold to an accredited investor who had access to our financial and other relevant data.

Item 6. Exhibits and Reports on Form 8-K

|Exhibit
Number |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.35          |  | Amendment No. 7 dated as of September 30, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other
institutional lenders party thereto, Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian
Imperial Bank of Commerce.
|10.36          |  | Amendment No. 8 dated as of November 4, 2002 to the Amended and Restated Credit Agreement dated as of March 24, 1999 (as amended) among the Company, certain banks, financial institutions and other institutional lenders party thereto,
Bank of America, N.A. (formerly known as NationsBank, N.A.), Banc of America Securities L.L.C. (formerly known as NationsBanc Montgomery Securities L.L.C.) and Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce.  

None.

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SIGNATURES

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, registrant
|------------------------ |  | -----------------------------------------
|Dated: November 12, 2002 |  | By:                                      
|                         |  |                                          
|                         |  |                                          

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CERTIFICATIONS

I, Robert L. Caulk, certify that:



|Dated: November 12, 2002 |  | By: | /s/ROBERT L. CAULKRobert L. Caulk
President and
Chief Executive Officer
|------------------------ |  | --- | -----------------------------------------------------------------------

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I, Daniel J. Johnston, certify that:



|Dated: November 12, 2002 |  | By: | /s/DANIEL J. JOHNSTONDaniel J. Johnston
Executive Vice President and
Chief Financial Officer
|------------------------ |  | --- | --------------------------------------------------------------------------------------------

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