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

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2002

OR

For the Transition period from                              to                             

Commission File No. 333-76055

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

8825 Page Boulevard
St. Louis, Missouri 63114
(Address of principal executive office, including zip code)
(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 July 31, 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 non-voting shares of Class A preferred stock outstanding.

PART 1
FINANCIAL INFORMATION

Item 1. Financial Statements

UNITED INDUSTRIES CORPORATION

BALANCE SHEETS

JUNE 30, 2002 AND 2001, AND DECEMBER 31, 2001

(Dollars in thousands)

(Unaudited)

See accompanying notes to financial statements.

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UNITED INDUSTRIES CORPORATION

STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001

(Dollars in thousands)

(Unaudited)

See accompanying notes to financial statements.

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UNITED INDUSTRIES CORPORATION

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001

(Dollars in thousands)

(Unaudited)

See accompanying notes to financial statements.

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UNITED INDUSTRIES CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

Note 1—Basis of presentation

        The accompanying unaudited financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all material adjustments considered necessary for a fair presentation have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for the full year. These statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K of United Industries Corporation (the "Company") for the year ended December 31, 2001.

Note 2—Business combination

        On May 9, 2002 the Company completed a merger with Schultz Company (Schultz). Schultz manufactures horticultural products and specialty items, particularly for the indoor houseplant care segment of the market. Schultz also distributes charcoal, potting soil and soil conditioners. Schultz distributes its products mainly 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. Goodwill was recognized in the merger due to the purchase price being in excess of the estimated fair value of net assets acquired, including identified intangibles and tradenames. The transaction was accounted for using purchase accounting. The total purchase price included cash payments of $37,550, issuance of 600,000 shares of Class A Voting Common Stock valued at $3,000 and issuance of 600,000 shares of Class B Non-Voting Common Stock valued at $3,000. 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 in excess of the estimated fair value of assets acquired and liabilities assumed to intangibles and 50% to goodwill. The actual purchase price allocation to reflect the fair values of assets acquired and liabilities assumed will be completed once the Company finishes its valuation of such assets acquired and liabilities assumed. The valuation will be completed during the third quarter of 2002. The final purchase price allocation may differ significantly from the preliminary allocation included in this report. The merger included estimated goodwill and other intangible assets of $38,050. The acquired intangible assets consist of tradenames and other intellectual property and are not deductible for tax purposes. The results of Schultz are included in the Company's consolidated financial statements from the date of the merger through the end of the period. The Company's unaudited consolidated results of operations on a pro forma basis assuming the merger had occurred at the beginning of fiscal 2001 are: net sales of $386,289 and $264,964 for the six months ended June 30, 2002 and June 30, 2001, respectively. Net income of $40,227 and $23,827 for the six months ended June 30, 2002 and June 30, 2001, respectively. These pro forma results are not indicative of the operating results that would have occurred had these acquisitions been consummated at the beginning of the year or of future operating results.

        The Company's funding sources for the merger were as follows: (1) additional $35,000 add-on to the Term Loan B of the Company's Senior Credit Facility. The newly amended Senior Credit Facility increased the Term Loan B from $180,000 to $215,000, increased the revolving credit facility from $80,000 to $90,000 and provided additional capital expenditure flexibility. The Senior Credit Facility retains Banc of America Securities, L.L.C. as sole Lead Arranger and Lead Agent. The Company

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incurred $2,168 of fees related to the new amendment to the Senior Credit Facility. The new amendment to the Senior Credit Facility did not cause a change in the existing financial covenants; and (2) Issuance of 1,690,000 shares of Class A Voting Common Stock to UIC Holdings, L.L.C. in exchange for $8,450 and issuance of 1,690,000 shares of Class B Non-Voting Common Stock to UIC Holdings, L.L.C. in exchange for $8,450. The issuance of shares to UIC Holdings, L.L.C. was a condition precedent to the effectiveness of the newly amended Senior Credit Facility.

Note 3—Inventories

        Inventories are as follows:

Note 4—Equipment and leasehold improvements

        Equipment and leasehold improvements are as follows:

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Note 5—Goodwill and intangible assets

        Goodwill and intangible assets are as follows:

        On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) 141, "Business Combinations" and 142, "Goodwill and Other Intangible Assets". SFAS 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 separate from goodwill. SFAS 142 eliminates the amortization of goodwill and instead requires goodwill to be tested for impairment annually. Under SFAS 142, if the intangible asset has an indefinite useful life, it is not amortized until its life is determined to be finite. SFAS No. 142 provides a staggered timeline for completing transitional impairment testing of goodwill and indefinite-lived intangible assets. The Company completed its transitional impairment analysis in the first quarter of 2002. Fair value was estimated using the discounted cash flow method. The Company did not identify any significant impairment related to the completion of this transitional analysis. Prospectively, the Company will test its goodwill and intangible assets for impairment as part of its annual business planning cycle in the fourth quarter of each fiscal year.

        As required by SFAS 142, the results for prior periods were not restated in the accompanying statements of operations. A reconciliation between income available to common stockholders as reported by the Company and income available to common stockholders to reflect the impact of SFAS 142 is as follows:

        On December 17, 2001 the Company acquired Vigoro®, Sta-Green® and Bandini®, as well as licensing rights to the Best® line of fertilizer products from Pursell Industries, Inc. for $37,500. The acquired brands are being amortized over 40 years.

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        On May 9, 2002 the Company completed a merger with Schultz Company. The merger included a preliminary allocation of purchase price to goodwill and other intangible assets of $38,050. The Company has preliminarily allocated 50% of the purchase price in excess of the fair value of assets acquired and liabilities assumed to intangibles and 50% to goodwill. The intangibles are being amortized over 25 years.

Note 6—Other assets

        Other assets are as follows:

Note 7—Accrued expenses

        Accrued expenses are as follows:

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Note 8—Long-term debt

        Long-term debt is comprised of the following:

        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 $90,000 revolving credit facility (the "Revolving Credit Facility"); (ii) a $75,000 term loan facility ("Term Loan A"); and (iii) a $215,000 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 $10,000 for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. On June 30, 2002, $0 was outstanding under the Revolving Credit Facility. There were no compensating balance requirements for the Revolving Credit Facility at June 30, 2002.

        On May 9, 2002 the Company merged with Schultz. In conjunction with the Schultz acquisition the Company received approval from its banking syndicate for an amendment to its Senior Credit Facility. The newly amended Senior Credit Facility increased the Term Loan B from $180,000 to $215,000, increased the revolving credit facility from $80,000 to $90,000 and provided additional capital expenditure flexibility. The Senior Credit Facility retains Banc of America Securities, L.L.C. as the sole Lead Arranger and Lead Agent.

        The principal amount of Term Loan A is to be repaid in twenty-three consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2005. The principal amount of Term Loan B is to be repaid in twenty-seven consecutive quarterly installments commencing June 30, 1999 with a final installment due January 20, 2006.

        The Senior Credit Facility agreement contains restrictive affirmative, negative and financial covenants. Affirmative and negative covenants put restrictions on levels of investments, indebtedness, insurance and capital expenditures. Financial covenants require the maintenance of certain financial ratios at defined levels. At June 30, 2002, the Company was in compliance with all financial covenants. While the Company does not anticipate an event of non-compliance with financial covenants in the future, the effect of non-compliance with financial covenants would cause the Company to request an

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amendment to the Senior Credit Facility. The result of amending the Senior Credit Facility could cause a reduction in the limit of the Company's Revolving Credit Facility and changes in the effective interest rates of the Revolving Credit Facility.

        Under the covenants, interest on the Revolving Credit Facility, Term Loan A and Term Loan B ranges from 250 to 400 basis points above LIBOR depending on certain financial ratios. Unused commitments under the Revolving Credit Facility are subject to a 50 basis point annual commitment fee. LIBOR was 1.84% at June 30, 2002.

        The Senior Credit Facility may be prepaid at any time in whole or in part without premium or penalty. During fiscal 2001, principal payments on Term Loans A and B of $9,200 and $1,400, respectively, were paid, which included optional principal prepayments of $4,100 and $700 on Term Loan A and Term Loan B, respectively. During the six month period ended June 30, 2002, optional principal prepayments of $4,612 and $936 on Term Loan A and Term Loan B, respectively, were paid. The optional payments were made in order for the Company to remain two quarterly payments ahead 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 Senior Credit Facility agreement.

        Substantially all of the properties and assets of the Company and substantially all of the properties and assets of the Company's future domestic subsidiaries secure obligations under the Senior Credit Facility.

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

        In November 1999, the Company issued 9⁷/8% Senior Subordinated Notes for $150 million that are due April 1, 2009. Interest accrues at the rate of 9⁷/8% per annum, payable semi-annually on each April 1 and October 1.

        Aggregate maturities under the Senior Credit Facility and the Senior Subordinated Notes are as follows:

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Note 9—Commitments

        The Company leases the majority of its operating facilities from a company owned by a significant shareholder of the Company under various operating leases expiring December 31, 2010. The Company has options to terminate the leases on a year-to-year basis by giving advance notice of at least twelve months. The Company leases a portion of its operating facilities from the same company under a sublease agreement expiring on December 31, 2005. The Company has two five-year options to renew this lease, beginning January 1, 2006. Management believes that the terms and expenses associated with the related party leases described above are similar to those negotiated by unrelated parties at arm's length.

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

Note 10—Contingencies

        The Company is involved in litigation and arbitration proceedings in the normal course of business that assert product liability and other claims. The Company is contesting all such claims. When it appears probable in management's judgment that the Company will incur monetary damages or other costs in connection with such claims and proceedings, and such costs can be reasonably estimated, appropriate liabilities are recorded in the financial statements and charges are made against earnings.

        Management believes the possibility of a material adverse effect on the Company's consolidated financial position, results of operations and cash flows from the claims and proceedings described above are remote.