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

FORM 10-K

Commission File Number: 333-76055

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

        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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Not Applicable.

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o    No ý

        The aggregate market value of common stock held by non-affiliates is not determinable because there is no established public market for the registrant's common stock.

        As of February 28, 2003, the registrant had 33,188,000 Class A voting and 33,188,000 Class B nonvoting shares of common stock outstanding and 37,600 nonvoting shares of Class A preferred stock outstanding.

        Documents incorporated by reference: None

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

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

        Our actual results could differ significantly from the results discussed in the forward-looking statements contained in this Annual Report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Exhibit 99.1 to this Annual Report and elsewhere in this Annual Report.

TRADEMARKS

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

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PART I

ITEM 1.    BUSINESS.

        Except as otherwise required by the context, references in this Annual Report to "United," the "company," "we," "us" and "our" each refers to United Industries Corporation and its consolidated subsidiaries.

        Operating as Spectrum Brands, we are the leading manufacturer and marketer of value-oriented products for the consumer lawn and garden care and insect control markets in the United States. Under a variety of brand names, we manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents, fertilizers, growing media and soils. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to, and at lower prices than, premium-price brands, while our opening price point brands are designed for cost conscious consumers who want quality products. Our products are marketed to mass merchandisers, home improvement centers, hardware chains, nurseries and garden centers. Our three largest customers are The Home Depot, Lowe's and Wal*Mart, which are leading and fast growing retailers in our larger segments. During the year ended December 31, 2002, we had net sales of $480.0 million and operating income of $61.2 million.

        During the third quarter of 2002, we began reporting operating results using three reportable segments:

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Lawn and Garden (73% of 2002 net sales). This segment includes dry, granular slow-release lawn fertilizers, lawn fertilizer combined with lawn control products, herbicides, water-soluble and controlled-release garden and indoor plant foods, plant care products, potting soils and other growing media products, and insecticide products. This segment includes, among others, our Spectracide, Garden Safe, Schultz, Vigoro, Sta-Green, Real-Kill and No-Pest brands.



•

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



•

Contract (4% of 2002 net sales). This segment includes our non-core products and various compounds and chemicals, such as cleaning solutions and other consumer products.

        We compete in the $2.8 billion consumer lawn and garden retail markets and are benefiting from a shifting of consumer preferences toward value-oriented products. We believe a key growth factor in the lawn and garden retail market is the aging of the United States population, as consumers over the age of forty-five represent the largest segment of lawn and garden care product users and typically have more leisure time and higher levels of discretionary income than the general population. We also believe the growth in the home improvement center and mass merchandiser channels has increased the popularity of do-it-yourself activities, including lawn and garden projects.

Competitive Strengths

        Our success is based on the following competitive strengths:

        Strong Relationships with Leading and Fast Growing Retailers.    Through our ability to "add value" for our retail customers, we have developed strong relationships with a number of leading national home centers and mass merchandisers. Three such retailers are our three largest customers—The Home Depot, Lowe's and Wal*Mart. These retailers each hold significant positions in the lawn and garden and household categories in which we compete and have together opened over 1,100 new stores

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in the last three years. As a result, we have been able to significantly increase our sales as these retailers have added new stores and captured greater market share.

        "One-Stop" Supplier.    We offer a broad product line of the value-oriented products that consumers demand as an alternative to premium-priced products. This product breadth, enhanced by our ability to create innovative products and to acquire and integrate products and businesses, improves our ability to be a "one-stop" supplier of branded, value-oriented products in both the lawn and garden and household categories for our customers.

        In-Store Category Management.    We believe that our one-step distribution process, in which most shipments are made directly from our facilities to retail stores, and our direct in-store sales force enables us to manage customer relationships on a store-by-store basis better than other suppliers and helps us compete aggressively with premium-priced suppliers for shelf space. Our sales representatives visit most home center locations on a weekly basis to merchandise shelf space, collect market data and educate in-store personnel about our products. This process facilitates regionally appropriate, real-time marketing and promotional decisions, helping to maximize store-level sales and profitability for categories which have a high degree of sensitivity to local weather patterns. In addition, our sales force helps us to identify emerging trends and develop products to meet consumers' needs.

        Broad Technology Portfolio.    We have close relationships with key global active ingredient suppliers and have access to a broad portfolio of chemistry due to our significant presence in the pesticide market. This broad-based access to technology enables us to develop products that differentiate between our various opening-price point offerings and our nationally distributed value brands while offering product efficacy that is competitive with premium-priced products.

        Strong Management Team.    Our senior management team has extensive industry experience and has grown our business by developing and introducing new products, expanding our distribution channels and acquiring new brands and products, while improving our operating efficiencies.

Business Strategy

        We plan to build on our strengths and favorable industry trends to enhance our competitive position by implementing the following key elements of our business strategy:

        Enhance Relationships with Leading Retailers.    We seek to leverage our strong value brand position and operational expertise to continue to deliver more value to leading retailers than our competitors. We focus on enhancing retailers' profitability in selling our products by being a low-cost provider and leveraging our one-step distribution process. We are able to compete as a low-cost provider due to our efficient marketing programs, high level of vertical integration and significant distribution leverage. We currently manufacture and market opening price point brands for leading retailers such as Ace Hardware, Albertsons, Dollar General, The Home Depot, Lowe's, Target, Tru*Serv, Walgreens and Wal*Mart. We also believe our relationship as a supplier of "house brands" provides a basis for broadening our product offerings and we intend to seek out new strategies for enhancing our position with key customers.

        Leverage Our Operating Model.    We continually seek to build the strength of our distribution network and relationships with retailers. We have increased our sales and improved operating leverage by supplying complementary product lines to retailers. Our strategy is to continue to add new products either through new product development or by acquiring product lines.

•

Organic Growth: Our new product development strategy is to introduce innovative products that have superior performance, easy-to-understand packaging, value pricing and that are technologically differentiated. Since 1999, we have developed over 200 new products. For

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example, our introduction of the Spectracide Triazicide products propelled the Spectracide brand to a leading position in the home center channel in 2002.

•

Acquisitions: Our brand acquisition strategy is to selectively acquire product lines that can benefit from our position as a "house" supplier, strong distribution network, product development expertise, access to a broad technology portfolio and other competitive strengths. For example, we expect that the products we acquired in our Schultz Company merger and WPC Brands acquisition should benefit from our distribution leverage and certain of the acquired fertilizer brands should help us enhance our existing relationships with key customers.

        Maintain and Enhance Technological Strength.    We plan to continue to focus on building and maintaining a broad technology portfolio to enhance product differentiation and to maintain product efficacy. By increasing scale, we seek to leverage our relationships with global active ingredient suppliers to maintain and expand our technologically advanced product offerings, with a focus on exclusive chemistry and new technology.

        Focus and Coordinate Sales Efforts.    We have established four customer-focused platform teams that are comprised of dedicated executive, sales, marketing, supply chain and finance personnel. Three of these teams are located in the cities of our largest customers' headquarters while the fourth is based at our corporate headquarters to serve our other accounts. In addition, we have reorganized our direct retail sales force to improve service to key customers. This realignment, completed in 2002, allows us to provide separate, dedicated, individually tailored customer service to our key customers and should position us to respond more quickly and proactively to their specific needs.

        Increase Supply Chain Efficiency.    We plan to leverage our greater purchasing power for raw materials and active ingredients resulting from our organic growth and acquisitions to seek improved prices and terms from suppliers. In addition, we intend to selectively in-source or out-source products, based on the cost, quality and reliability of available alternatives. Toward that end, we recently improved costs and reliability by acquiring one fertilizer manufacturing plant and leasing another plant, which allows us to manufacture much of our granular fertilizer product, as opposed to relying on outsourcing arrangements.

Industry Overview

        Retail sales of consumer lawn and garden products in the United States totaled approximately $2.8 billion during the year ended December 31, 2002. We believe that the industry will continue to grow over the next several years due to favorable demographic trends. According to a national, independent gardening survey conducted in 2001, approximately 85 million households in the United States, or 80% of all households in the United States, participate in some form of lawn and garden care activity. Moreover, consumers over the age of forty-five represent the largest segment of lawn and garden care product users and have more leisure time and higher levels of discretionary income than the general population. As the baby boom generation ages, this segment is expected to grow at a faster rate than that of the total population. We believe that this demographic trend is likely to increase the number of lawn and garden care product users which will contribute to continued growth of the industry.

Our History

        We were founded in 1969 and incorporated as a Delaware corporation in 1973. On January 20, 1999, UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P. and its affiliates and some members of the management at that time, acquired substantially all of our capital stock in a recapitalization transaction. UIC Holdings, L.L.C. currently is the beneficial owner of approximately 84% of our capital stock on a fully diluted basis.

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        Acquisition of Brands.    In 1973, we acquired the assets of Spray Chem, a contract manufacturer of liquid and aerosol insecticides and herbicides. In 1985, we acquired Real-Kill and entered into the manufacture and distribution of branded products. In 1988, we formed our core businesses through the acquisition of certain assets of various businesses of Chesebrough-Ponds. The acquired brands included Spectracide, Hot Shot, Rid-a-Bug, Bag-a-Bug and No-Pest. The acquisition of these brands expanded our products to include a wide array of value-oriented indoor and outdoor pesticides. In 1994, we acquired assets and licensing rights relating to Cutter from Miles, Inc. In 1995, we acquired assets from Alljack Company and Celex Corporation, including certain licensing rights and certain manufacturing rights of Kmart's opening price point brands.

        On December 17, 2001, we advanced our strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green and Bandini, as well as acquiring licensing rights to the Best line of fertilizer products. These brands, which were formerly owned by or licensed to Pursell Industries, Inc., complement our consumer lawn, garden and insect control products.

        Schultz Company.    On May 9, 2002, a wholly owned subsidiary of the company merged with Schultz, a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became a wholly owned subsidiary of ours. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisitions."

        WPC Brands, Inc.    On December 6, 2002, we acquired WPC Brands, a manufacturer and distributor of various leisure-time consumer products, including a full line of insect repellants, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance our insect repellent product lines and to strengthen our presence at major customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisitions."

        Strategic Relationship with Bayer.    On June 14, 2002, we and Bayer Corporation and Bayer Advanced, L.L.C. (together referred to herein as Bayer) consummated a strategic transaction. The strategic transaction allows us to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Strategic Transactions."

        Pursell Transaction.    On October 3, 2002, we signed an asset purchase agreement to acquire certain assets from Pursell. The assets acquired included certain inventory, equipment at two of Pursell's facilities and real estate at one of the two facilities. These facilities, located in Orrville, Ohio and Sylacauga, Alabama, previously fulfilled, and are expected to continue to fulfill, over half of our fertilizer manufacturing requirements.

        Also on October 3, 2002, we signed a tolling agreement with Pursell, whereby Pursell will supply us with the remainder of our fertilizer needs. The tolling agreement requires us to be responsible for all raw materials, certain capital expenditures and other related costs for Pursell to manufacture and supply us with fertilizer products. The agreement provides us with early termination rights without penalty upon a breach of the agreement by Pursell or upon our payment of certain amounts as set forth therein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Strategic Transactions."

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Products

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

Lawn and Garden

        Our Lawn and Garden segment includes a broad line of brands and a variety of other value and private label products. Below is a description of some of these brands and products:

•

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



•

Garden Safe.    Launched in 2002, the Garden Safe brand represents a broad line of lawn and garden products for environmentally conscious consumers.



•

Schultz.    The Schultz brand represents a wide array of lawn and garden, plant care, potting soils and other growing media products.



•

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



•

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



•

Real-Kill.    In 1997, we repositioned Real-Kill by re-launching the brand almost exclusively at The Home Depot as its opening price point brand. It is now also sold at other retailers and consists of various indoor and outdoor pesticide and rodenticide products.



•

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



•

Other Value Brands.    We also manufacture and market regional value brands and private label products for many other retailers and produce pesticides and other chemicals under contracts for other customers.

Household

        We sell a broad range of household insecticides and insect repellents and a number of private label and other products. Below is a description of these brands and products.

•

Hot Shot.    The Hot Shot product line consists of household insecticides, including items such as roach and ant killers, flying insect killers, foggers, wasp and hornet killers, flea control products, and roach and ant baits.



•

Cutter.    The Cutter product line provides protection from insects, especially mosquitoes, through various aerosol and direct application products, as well as citronella candles, torches and coils.

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We offer a variety of products, including those marketed especially for use on all members of the family, including children.

•

Repel.    The Repel brand was obtained through our acquisition of WPC Brands and offers an array of personal insect repellent products marketed primarily to outdoorsmen.

Contract

        The Contract segment includes our non-core products and various compounds and chemicals, such as cleaning solutions and other consumer products.

Customers

        We sell our products through all major retail channels, including home improvement centers, mass merchandisers, hardware stores, grocery and drug stores, wholesale clubs and garden centers. We are heavily dependent on The Home Depot, Lowe's and Wal*Mart for a substantial portion of our sales. The sales to these customers, as a percentage of net sales, were:

        We manufacture and supply products to hundreds of customers representing more than 70,000 retail stores across the United States and in select locations of Canada, Puerto Rico and the Caribbean. Our strong position in the home improvement center and mass merchandiser channels is a key element to our past and future success.

Seasonality

        Our business is highly seasonal because our products are used primarily in the spring and summer seasons. For the past three years, approximately 69% of our net sales have occurred in the first and second quarters, resulting in higher net revenues and results of operations during those quarters. Our working capital needs, and correspondingly our borrowings, generally peak in the first and second quarters of each year.

Backlog

        Our backlog was $2.5 million as of December 31, 2002 and $0.3 million as of December 31, 2001. However, we do not believe that our backlog is a meaningful indicator of expected sales because of the short lead time between order entry and shipment. We expect our backlog to be filled within each approaching season, but there can be no assurance that backlog at any point in time will translate into sales in any particular subsequent period.

Sales and Marketing

        We conduct sales activities through our exclusive direct sales force, which consists of market sales managers and merchandisers and area sales managers. Market sales managers typically visit accounts weekly to merchandise shelves. In addition, we support certain products through employing a seasonal in-store sales force.

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        Our marketing team leads our new product development process and develops consumer support plans to help drive sales through our distribution network. To promote our products to consumers, we advertise using television, radio and print media, develop consumer promotions and engage in market research efforts.

Research and Development

        We spent $1.3 million in 2002, $2.4 million in 2001 and $1.0 million in 2000 on research and development activities. Our research and development focuses on applied research using the strength and knowledge of our active ingredient suppliers and strategic active ingredient partners. We have developed over 200 new products since 1999.

Raw Materials and Suppliers

        The primary components of our products include various specialty chemicals and packaging materials. We obtain raw materials from various suppliers and we currently consider our array of alternative vendors to be adequate. No single vendor is considered to be essential to our operations and we have never experienced a significant interruption of supply. Several of our agreements with suppliers provide for price adjustments and some agreements provide exclusivity rights, subject to certain conditions.

Competition

        Each of our segments operate in highly competitive markets and compete against a number of national and regional brands. We believe the principal factors by which we compete are product quality and performance, value, brand strength and marketing. Our principal national competitors for our Lawn and Garden and Household segments include: The Scotts Company, which markets lawn and garden products under the Scotts®, Ortho®, Roundup®, Miracle-Gro® and Hyponex® brand names; S.C. Johnson & Son, Inc., which markets insecticide and repellent products under the Raid® and OFF!® brand names; Bayer A.G., which markets lawn and garden products under the Bayer Advantage® brand name; Central Garden & Pet Company, which markets insecticide and garden products under the AMDRO® and IMAGE® brand names; The Clorox Company, which markets products under the Combat® and Black Flag® brand names; and The Servicemaster Company, which markets lawn care, tree and shrub services under the TruGreen^SM, ChemLawn^SM and Barefoot^SM service marks. In our Contract segment, we compete against a diverse group of companies. Some of our competitors in each segment have substantially greater financial resources and research departments than we do.

Intellectual Property

        We own and operate using a substantial number of trademarks and trade names including the following: Spectracide, Spectracide Triazicide, Spectracide Terminate, Hot Shot, Garden Safe, Schultz, Rid-a-Bug, Bag-a-Bug, Real-Kill, No-Pest, Repel, Gro Best, Vigoro, Sta-Green and Bandini, as well as the licensing rights to the Best line of fertilizer products. We also license certain Cutter trademarks from Bayer A.G. and certain Peters and Peters Professional trademarks from The Scotts Company. These licenses are royalty-free, perpetual and exclusive.

Employees

        As of December 31, 2002, we had approximately 725 full-time employees. Approximately 300 of our employees are covered by a collective bargaining agreement with the Finishers, Maintenance Painters, Industrial and Allied Workers Local Union 980, AFL-CIO which expires in August 2005. We consider our current relationship with our employees, both unionized and non-unionized, to be good.

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Environmental and Regulatory Considerations

        We are subject to federal, state, local and foreign laws and regulations governing environmental matters. Our manufacturing operations are subject to requirements to regulate air emissions, wastewater discharge, waste management and cleanup of contamination. Based on assessments conducted by independent environmental consultants, we believe we are generally and materially in compliance with these requirements and have no material environmental liabilities. We may be subject to fines or penalties if we fail to comply with these environmental laws and regulations. We do not anticipate any material capital expenditures for environmental controls in 2003 and 2004.

        Our pesticide products must be reviewed and registered by the U.S. EPA and similar state agencies or, in foreign jurisdictions, by foreign agencies, before they can be marketed. We devote substantial resources to maintaining compliance with these registration requirements. However, if we fail to comply with the regulatory requirements, registration of the affected pesticide could be suspended or canceled, and we could be subject to fines or penalties. Additionally, under the Food Quality Protection Act of 1996, the U.S. EPA is in the process of re-registering all pesticides and is requiring active ingredient suppliers and formulators to supply the U.S. EPA with additional data regarding their pesticides. Where possible, we are coordinating with trade associations and suppliers to reduce the costs of developing this data. While we can not estimate the ultimate costs of these activities nor can we control the scope of information that may be required by the U.S. EPA, we currently estimate that the costs associated with these activities could total approximately $0.2 million annually for the next several years.

        Our fertilizer products must be reviewed and registered by each state prior to sale. Each state typically reviews the weight of the product and the accuracy of the analysis statement on the packaging. Other consumer products we market are subject to the safety requirements of the Consumer Product Safety Commission. If we fail to comply with any of these requirements, we could be suspended or prohibited from marketing the related product.

        Our healthcare products and packaging materials are subject to regulations administered by the Food and Drug Administration (FDA). Among other things, the FDA enforces statutory prohibitions against misbranded and adulterated products, establishes ingredients and manufacturing procedures for certain products, establishes standards of identity for certain products, determines the safety of products and establishes labeling standards and requirements. In addition, various states regulate these products by enforcing federal and state standards of identity for selected products, grading products, inspecting production facilities, and imposing their own labeling requirements.

        As of December 31, 2002, we believe we were substantially in compliance with applicable environmental and regulatory requirements.

Financial Information about Segments

        For information concerning our operating results by segment, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 18 of the Notes to Consolidated Financial Statements, included elsewhere in this Annual Report.

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ITEM 2.    PROPERTIES.

        Our primary facilities are as follows:

(1)

During December 2002 and January 2003, we moved corporate personnel from three local locations into our new corporate headquarters.

(2)

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

(3)

During December 2001, we finalized the consolidation of three local warehouses into this location. We recorded a $3.5 million charge during the fourth quarter of 2001 related to the warehouse consolidation project, primarily attributable to facility exit costs and resultant duplicate rent payments in 2002.

        We believe our current facilities are generally well maintained and provide adequate production and distribution capacity for future operations. Our facilities primarily manufacture five types of product categories: aerosols, liquids, baits, water-soluble fertilizers, and granular fertilizers. Our typical manufacturing process consists of four stages: batch, fill, label and pack. We currently operate aerosol, liquid, bait, water-soluble fertilizer and granular fertilizer production lines. Our production lines are flexible and can operate at a variety of filling speeds and produce multiple shipping configurations. We also selectively outsource the manufacturing of certain of our products to contract manufacturers. Periodically, we evaluate the need to reposition our portfolio of products and facilities to meet the needs of the changing markets we serve.

ITEM 3.    LEGAL PROCEEDINGS.

        We are involved from time to time in routine legal matters and other claims incidental to the business. When it appears probable in management's judgment that we will incur monetary damages or

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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 recorded 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 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        There were no matters submitted to a vote of the security holders during the fourth quarter of 2002.

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS.

        We do not have publicly traded common stock. In addition, we have not historically paid dividends on common stock, nor do we presently intend to pay dividends in the foreseeable future. It is presently anticipated that earnings will be retained and reinvested to support the growth of our business. The payment of future dividends, if any, on common shares will be determined by the Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors. As of February 28, 2003, there were 47 stockholders of record.

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ITEM 6.    SELECTED FINANCIAL DATA.

        The selected historical financial data as of December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and 2000 have been prepared from our audited consolidated financial statements included elsewhere in this Annual Report. The historical financial data as of December 31, 2000, 1999 and 1998 and for the years ended December 31, 1999 and 1998 have been derived from audited financial statements which do not appear herein. When reading this selected historical financial data, it is important that you read along with it the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are included elsewhere in this Annual Report.

(1)

Our historical operating results for the year ended December 31, 2002 include the operating results of Schultz from May 9, 2002, the date of the merger, and WPC Brands from December 6, 2002, the date of acquisition.

(2)

Cost of goods sold for the year ended December 31, 2002 includes a $1.5 million inventory write-up for inventory recorded at fair value in connection with the Schultz merger in May 2002.

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(3)

During the year ended December 31, 2001, we recorded an $8.5 million charge, of which $5.6 million was recorded in facilities and organizational rationalization, $2.7 million was recorded in cost of goods sold, and $0.2 million was recorded in selling, general and administrative expenses.

(4)

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

(5)

During the year ended December 31, 1999, we recorded $31.3 million in fees and expenses associated with the recapitalization. Fees and expenses that were specifically identified as relating to the issuance of debt were capitalized and are being amortized over the remaining term of the debt as interest expense. The fees and expenses relating to the equity transactions were charged directly to equity. Other transaction fees were allocated between debt and recapitalization transaction fees expense based on our estimate of the related activities.

(6)

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

(7)

During the year ended December 31, 1999, we recorded $1.5 million of litigation charges to primarily reserve for the expected cost of an adverse judgment on a counterclaim filed by defendants in the case of United Industries Corporation vs. John Allman, Craig Jackman et al. This case was settled in July 1999. In 1998, we recorded litigation charges of $2.3 million related to two separate lawsuits. In March 1998, a judgment was entered against us in a lawsuit filed by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy. We recorded a charge of $1.2 million for this case in the first quarter of 1998 and an additional $0.1 million in the fourth quarter of 1999. We also incurred costs pertaining to certain litigation concerning the advertising of our Spectracide Terminate product for which a settlement was negotiated. Costs related to this case amounted to $1.1 million.

(8)

Does not reflect the elimination of stockholder salaries and certain fringe benefits that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure that was implemented with the recapitalization. During the year ended December 31, 1998, we reported discontinued operations and an extraordinary item.

(9)

During the year ended December 31, 1999, we incurred an extraordinary loss from early extinguishment of debt, net of a $1.4 million income tax benefit, in the amount of $2.3 million. During the year ended December 31, 1998, we had income from a discontinued operation, net of tax, of $1.7 million.

(10)

EBITDA represents income from continuing operations before interest expense, net, income tax expense, depreciation and amortization. We have included information concerning EBITDA as a measure of liquidity because we believe certain investors use it as one measure of historical ability to fund operations and meet financial obligations. However, EBITDA is not presented to represent cash flow from operations as defined by accounting principles generally accepted in the United States, nor does management recommend that it be used as an alternative to, or superior measure of, operating income or income from continuing operations as an indicator of our operating performance, cash flow as a measure of liquidity or our ability to repay our debt obligations. We have provided below a reconciliation of EBITDA to cash flows from operating activities since we deem that it is the most directly comparable measure under generally accepted accounting

15

principles. In addition, our definition of EBITDA may not be comparable to that reported by other companies. EBITDA and the reconciliation to operating cash flows is as follows:

(11)

Depreciation and amortization for the year ended December 31, 2002 does not include amortization of goodwill in accordance with current accounting standards. Each of the years in the four-year period ended December 31, 2001 includes amortization expense related to goodwill of less than $0.1 million.

(12)

Capital expenditures presented for 2000 exclude the execution of a capital lease for $5.3 million. The execution of such capital lease is considered a capital expenditure but is reflected in the supplemental noncash financing activities section in the accompanying consolidated statements of cash flows presented elsewhere in this Annual Report.

(13)

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

(14)

Working capital is defined as current assets, excluding cash and cash equivalents, less current liabilities, excluding short-term borrowings and current maturities of long-term debt.

ITEM 7.    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 financial statements and the related notes thereto elsewhere in this Annual Report. Future results could differ materially from those discussed below for many reasons, including the risks discussed in Exhibit 99.1 to this Annual Report and elsewhere in this Annual Report.

Overview

        Doing business as Spectrum Brands, we are majority owned by UIC Holdings, L.L.C. and are the leading manufacturer and marketer of value-oriented products for the consumer lawn and garden care and insect control markets in the United States. Under a variety of brand names, we manufacture and market one of the broadest lines in the industry. Our operations are divided into three business

16

segments: Lawn and Garden, Household and Contract. We believe that the key growth factors for the $2.8 billion consumer lawn and garden and pesticide retail markets include:

•

the aging of the United States population because consumers over the age of forty-five represent the largest segment of lawn and garden care product users and typically enjoy more leisure time and higher levels of discretionary income than the general population;



•

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



•

shifting consumer preferences toward value-oriented products.

        We do not believe that our historical financial condition and results of operations are accurate indicators of future results because of certain significant past events. Those events include mergers, acquisitions, strategic transactions and equity and debt financing transactions over the last several years. Furthermore, our sales are seasonal in nature and are susceptible to weather conditions that vary from year to year.

Critical Accounting Policies

        Our significant accounting policies are described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report. While all of the significant accounting policies are important to our consolidated financial statements, some of these policies may be viewed as being critical. Such policies are those that are both most important to the portrayal of our financial condition and require our most difficult, subjective or complex estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and assumptions on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates and assumptions. We believe our most critical accounting policies are as follows:

        Revenue Recognition.    Net sales represent gross sales less any applicable customer discounts from list price, customer returns and promotion expense through cooperative programs with retailers. The provision for customer returns is based on historical sales returns and analysis of credit memo and other relevant information. If the historical or other data used to develop these estimates do not properly reflect future returns, net sales may need to be adjusted. Sales reductions related to returns were $7.4 million in 2002, $6.5 million in 2001 and $7.6 million in 2000. Amounts included in the allowance for doubtful accounts were $2.0 million as of December 31, 2002 and $0.4 million as of December 31, 2001.

        Inventories.    Inventories are reported at the lower of cost or market. Cost is determined using a standard costing system that approximates the first-in, first-out method and includes raw materials, direct labor and overhead. An allowance for potentially obsolete or slow-moving inventory is recorded based on our analysis of inventory levels and future sales forecasts. In the event that our estimates of future usage and sales differ from actual results, the allowance for obsolete or slow-moving inventory may be adjusted. Amounts recorded for potentially obsolete or slow-moving inventory were $5.4 million in 2002, $2.7 million in 2001 and $0.3 million in 2000. The allowance for potentially obsolete or slow-moving inventory was $5.8 million as of December 31, 2002 and $2.7 million as of December 31, 2001.

        Promotion Expense.    We advertise and promote our products through national and regional media. 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 develops an estimate of the amount of costs that have been incurred by the retailers under our cooperative programs based on an analysis of

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specific programs offered to retailers and historical information. Actual costs incurred may differ significantly from our estimates if factors such as the level of participation and success of the retailers' programs or other conditions differ from our expectations. Promotion expense, including cooperative programs with customers, is recorded as a reduction of sales and was $41.3 million in 2002, $24.4 million in 2001 and $22.8 million in 2000. Accrued advertising and promotion expense was $16.4 million as of December 31, 2002 and $12.1 million as of December 31, 2001. In addition, advertising costs are incurred irrespective of promotions. Such costs are included in selling, general and administrative expenses in our consolidated statements of operations and were $3.3 million in 2002, $1.3 million in 2001 and $2.4 million in 2000.

        Income Taxes.    Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are recovered or settled. The judgment of management is required to determine income tax expense, deferred tax assets and any related valuation allowance and deferred tax liabilities. We have recorded a valuation allowance of $104.1 million as of December 31, 2002 due to uncertainties related to the ability to utilize some of the deferred tax assets, primarily consisting of certain net operating loss carryforwards that were generated in 1999 through 2002 and deductible goodwill recorded in connection with our recapitalization in 1999. The valuation allowance is based on our estimates of future taxable income by jurisdiction in which the deferred tax assets will be recoverable.

        As previously noted, we generated net operating losses for tax purposes for each of the years 1999 through 2002. Our current estimates indicate that we will generate taxable income for 2003. If we achieve such results, 2003 would be the first year that taxable income would be generated since our recapitalization in 1999. In addition, as our budgets for future years indicate that we will continue to generate taxable income, it is possible the valuation allowance will need to be reduced. Any adjustment to the valuation allowance could materially impact our consolidated financial position and results of operations. In addition, we currently anticipate that our effective tax rate beginning in 2003 will be 38%, absent any reduction of the valuation allowance previously described.

        Goodwill and Other Intangible Assets.    We have acquired intangible assets or made acquisitions in the past that resulted in the recording of goodwill or intangible assets, including our acquisition of certain fertilizer brands in December 2001, our merger with Schultz in May 2002 and our acquisition of WPC Brands in December 2002. Under generally accepted accounting principles previously in effect, goodwill and intangibles were amortized over their estimated useful lives, and were tested periodically to determine if they were recoverable from their cash flows on an undiscounted basis over their useful lives.

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

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Recent Acquisitions

        Schultz Company.    On May 9, 2002, one of our wholly owned subsidiaries completed a merger with and into Schultz, a manufacturer of horticultural products and specialty items and a distributor of potting soil, soil conditioners and charcoal. Schultz products are distributed primarily to retail outlets throughout the United States and Canada. The merger was executed to achieve economies of scale and synergistic efficiencies. As a result of the merger, Schultz became a wholly owned subsidiary. The total purchase price included cash payments of $38.3 million, including related acquisition costs of $5.0 million, issuance of 600,000 shares of Class A voting common stock valued at $3.0 million and issuance of 600,000 shares of Class B nonvoting common stock valued at $3.0 million and the assumption of $20.6 million of outstanding debt which was repaid at closing. In exchange for cash, common stock and the assumption of debt, we received all of the outstanding shares of Schultz. We have preliminarily allocated 50% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($19.7 million) and 50% to goodwill ($19.7 million), which is not deductible for tax purposes. The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, we were required to write-up the value of inventory acquired from Schultz by $1.5 million to properly reflect its fair value.

        This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, we believe that finalization of the allocation will not have a material impact on the consolidated results of operations or our financial position. Completion of the purchase price allocation is expected by the second quarter of 2003.

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition (dollars in thousands):

        Our funding sources for the Schultz merger included an additional $35.0 million add-on to the Term Loan B of our senior credit facility, an additional $10.0 million add-on to the revolving credit facility, the issuance of 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and the issuance of 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million. The issuance of shares to UIC Holdings, L.L.C. was a condition precedent to

19

the amendment of the senior credit facility. The value of the shares issued was determined using $5 per share, the fair value of our common stock ascribed by an independent third party valuation.

        WPC Brands, Inc.    On December 6, 2002, one of our wholly owned subsidiaries completed the acquisition of WPC Brands, a manufacturer and distributor of various leisure-time consumer products, including a full line of insect repellents, institutional healthcare products and other proprietary and private label products. The acquisition was executed to enhance our insect repellent product lines and to strengthen our presence at major customers. The total purchase price was $19.5 million in cash in exchange for all of the outstanding shares of WPC Brands. We have preliminarily allocated 75% of the purchase price in excess of the fair value of net assets acquired to intangible assets ($9.7 million) and 25% to goodwill ($3.2 million). The acquired intangible assets consist of trade names and other intellectual property which are being amortized over 25 to 40 years. In addition, we were required to write-up the value of inventory acquired from WPC Brands by $2.0 million to properly reflect its fair value.

        This transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining complete valuation information. While the final purchase price allocation may differ significantly from the preliminary allocation included in this report, we believe that finalization of the allocation will not have a material impact on the consolidated results of operations or our financial position. Completion of the purchase price allocation is expected by the third quarter of 2003.

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition (dollars in thousands):

        Our funding source for the WPC Brands acquisition was a portion of the proceeds received from an additional $25.0 million add-on to the Term Loan B of our senior credit facility.

        In addition, we are currently considering selling certain or all of the non-core product lines received in the acquisition of WPC Brands. Total assets represented by these product lines are approximately $1.6 million with annual net sales in 2002 of approximately $6.1 million.

Recent Strategic Transactions

        Acquisition of Brands.    On December 17, 2001, we advanced our strategic plan for growth in the consumer lawn and garden category by acquiring leading consumer fertilizer brands Vigoro, Sta-Green

20

and Bandini, as well as acquiring licensing rights to the Best® line of fertilizer products, for a cash purchase price of $37.5 million. The brands, which were formerly owned by or licensed to Pursell, complement our consumer lawn, garden and insect control products. In connection with financing this transaction, we issued 22,600 shares of preferred stock for $1,000 per share, the fair value as determined by the Board of Directors using a multiple of cash flows method, and warrants to purchase 6,300,000 shares of common stock initially to UIC Holdings, L.L.C. for net cash proceeds of $22.0 million.

        Strategic Relationship with Bayer.    On June 14, 2002, we and Bayer consummated a strategic transaction. The strategic transaction allows us to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. In connection with the strategic transaction, Bayer acquired a minority ownership interest, approximately 9.3% of the issued and outstanding shares of our common stock, under the terms of an Exchange Agreement in exchange for promissory notes due to Bayer from Pursell and the execution of the Supply and In-Store Service Agreements.

        We have the right to terminate the In-Store Service Agreement at any time without cause upon 60 days advance notice to Bayer. Following any such termination, we would have 365 days to exercise an option to repurchase all of our stock issued to Bayer. We could repurchase the stock at a price based on equations contained in the Exchange Agreement designed to represent in part the fair market value of the shares at the time such repurchase option is exercised and in part the original cost of such stock. In the event we exercise this repurchase option, Bayer would have the right to terminate the Supply Agreement. Because Bayer is both a competitor and a supplier, we are constantly reevaluating our relationship with Bayer and the value of this relationship to us, and may decide to terminate the In-Store Service Agreement and exercise our repurchase option at any time.

        In consideration for the Supply and In-Store Service Agreements, and in exchange for the promissory notes of Pursell, we issued to Bayer 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs. We reserved for the entire face value of the promissory notes due to Bayer from Pursell as we did not believe they were collectible and an independent third party valuation did not ascribe any value to them.

        Based on the independent third party valuation, we assigned a fair value of $30.7 million on June 14, 2002 to the transaction components recorded relative to the common stock issued to Bayer as follows:

        Under the requirements of the agreements, Bayer will make payments to us which total $5.0 million annually through June 15, 2009, the present value of which equals the value assigned to the common stock subscription receivable, which is reflected in the equity section in our accompanying consolidated balance sheet as of December 31, 2002. The common stock subscription receivable will be repaid in 28 quarterly installments of $1.25 million, the first of which was received at closing on June 17, 2002. The difference between the value ascribed to the common stock subscription receivable and the installment payments will be reflected as interest income in our consolidated statements of operations through June 15, 2009.

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        Bayer has the right to put the shares received back to us under the terms of the Exchange Agreement. Bayer can terminate the Exchange Agreement within the first 36 months if we fail to meet certain performance guidelines as established in the In-Store Service Agreement. In conjunction with the termination, Bayer can put the shares received back to us within 30 days of the termination of the Exchange Agreement at a price provided for in the Exchange Agreement. We believe that the put price per share would represent in part the fair market value of the shares at the time such put option is exercised and in part the original cost of such shares.

        The value of the Supply Agreement and the liability associated with the In-Store Service Agreement are being amortized over the period in which economic benefits under the Supply Agreement are utilized and the obligations under the In-Store Service Agreement are fulfilled. We are amortizing the asset associated with the Supply Agreement to cost of goods sold and currently anticipate the benefit will be recognized over a three to five-year period. We are amortizing the obligation associated with the In-Store Service Agreement to revenues over the seven-year life of the agreement. In December 2002, we and Bayer amended the In-Store Service Agreement to reduce the scope of services provided by approximately 80%. As a result, we reduced our obligation under the agreement accordingly and reclassified $3.6 million to additional paid-in capital to reflect the increase in value of the original agreement.

        The independent third party valuation obtained by us also indicated that value should be ascribed to the repurchase option we have under the agreements. The repurchase option is reflected as a reduction of equity in the accompanying consolidated balance sheet as of December 31, 2002. This amount will be recorded as a component of additional paid-in capital upon exercise or expiration of the option.

        Pursell Transaction.    In October 2002, we purchased certain assets from Pursell, which renamed itself U.S. Fertilizer subsequent to the agreement, for a cash purchase price of $12.1 million and forgiveness of the Pursell promissory notes previously obtained from Bayer, as described above. The assets acquired included certain inventory, equipment at two of Pursell's facilities and real estate at one of the two facilities. These facilities, located in Orrville, Ohio and Sylacauga, Alabama, previously fulfilled, and are expected to continue to fulfill, over half of our fertilizer manufacturing requirements.

        Also in October 2002, we signed a tolling agreement with Pursell, whereby Pursell will supply us with fertilizer. The tolling agreement requires us to be responsible for all raw materials, certain capital expenditures and other related costs for Pursell to manufacture and supply us with fertilizer products. The agreement does not require a minimum volume purchase from Pursell, but does provide for a fixed monthly payment of $0.7 million through the term of the tolling agreement, which expires on September 30, 2007. The fixed monthly payment of $0.7 million through the term of the tolling agreement is included in our standard inventory costs and is not expensed monthly as a period cost. In addition, beginning on March 1, 2004 and on each anniversary thereafter, the fixed payment is subject to certain increases for labor, materials, inflation and other reasonable costs as outlined in the tolling agreement. The agreement provides us with certain termination rights without penalty upon a breach of the agreement by Pursell or upon our payment of certain amounts as set forth therein. As a result of our purchase of the Ohio plant and lease of the Sylacauga facility, we expect to be able to produce over one half of our fertilizer requirements. We expect that as a result of manufacturing our fertilizer our cost of goods sold will decrease although the decrease will be partially offset by an increase in selling, general and administrative expenses resulting from operation of these facilities.

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Results of Operations

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

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

        Net Sales.    Net sales represent gross sales less any applicable customer discounts from list price, customer returns and promotion expense through cooperative programs with retailers. Net sales increased $206.7 million, or 75.6%, to $480.0 million for the year ended December 31, 2002 from $273.3 million for the year ended December 31, 2001. The increase, primarily in our Lawn and Garden segment, as well as the change in our sales mix by segment, were due mainly to our expanded product lines resulting from our acquisition of various fertilizer brands and our merger with Schultz in May 2002, coupled with an increase in sales of specific product lines described further below. This increase was partially offset by an increase in promotion expense and retailers maintaining lower inventory levels.

        Net sales in the Lawn and Garden segment increased $183.0 million, or 108.0%, to $352.3 million for the year ended December 31, 2002 from $169.3 million for the year ended December 31, 2001. Net sales of this segment increased $137.4 million as a result of our acquisition of various fertilizer brands and $28.7 million as a result of our merger with Schultz. These increases were partially offset by lower sales volume of various other products in the Lawn and Garden segment. Net sales in the Household segment increased $7.6 million, or 7.5%, to $108.8 million for the year ended December 31, 2002 from $101.2 million for the year ended December 31, 2001. Net sales of this segment increased primarily due to increases in sales of our repellents and insecticides and in our private label products. Net sales in

23

the Contract segment increased $16.1 million to $19.0 million for the year ended December 31, 2002 from $2.9 million for the year ended December 31, 2001. Net sales of this segment increased primarily due to our merger with Schultz.

        Gross Profit.    Gross profit increased $49.3 million, or 39.4%, to $174.3 million for the year ended December 31, 2002 from $125.0 million for the year ended December 31, 2001. The increase in gross profit was primarily due to our acquisition of various fertilizer brands and our merger with Schultz, coupled with favorable materials costs of key ingredients. The increase in gross profit was partially offset by the recognition of a $1.5 million purchase accounting inventory write-up in cost of goods sold related to the merger with Schultz. As a percentage of net sales, gross profit decreased to 36.3% for the year ended December 31, 2002 from 45.7% for the year ended December 31, 2001. The decrease in gross profit as a percentage of net sales was primarily due to our acquisition of various fertilizer brands and our merger with Schultz, which both have lower margins than our other products. Gross profit as a percentage of sales is expected to improve in 2003 as we continue to achieve operational and financial efficiencies resulting from our acquisitions and other strategic transactions in 2002.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses include all costs associated with the selling and distribution of product, product registrations and administrative functions such as finance, information systems and human resources. Selling, general and administrative expenses increased $38.5 million, or 51.5%, to $113.2 million for the year ended December 31, 2002 from $74.7 million for the year ended December 31, 2001. The increase was primarily due to our acquisition of various fertilizer brands and our merger with Schultz. As a percentage of net sales, selling, general and administrative expenses decreased to 23.6% for the year ended December 31, 2002 from 27.3% for the year ended December 31, 2001. The decrease was primarily due to additional sales related to our acquisition of various fertilizer brands and our merger with Schultz, with a lesser corresponding increase in selling, general and administrative expenses.

        Operating Income.    Operating income increased $16.5 million, or 36.9%, to $61.2 million for the year ended December 31, 2002 from $44.7 million for the year ended December 31, 2001. The increase was due to the factors described above. As a percentage of net sales, operating income decreased to 12.7% for the year ended December 31, 2002 from 16.4% for the year ended December 31, 2001. The decrease was primarily in our Lawn and Garden segment due to lower margins on the products we acquired in our merger with Schultz and our acquisition of various fertilizer brands.

        Operating income in the Lawn and Garden segment increased $13.5 million, or 54.9%, to $38.1 million for the year ended December 31, 2002 from $24.6 million for the year ended December 31, 2001. Operating income of this segment increased primarily due to our acquisition of various fertilizer brands and strong growth in our Spectracide brand. These increases were partially offset by lower sales volume and margins of various other products. Operating income in the Household segment increased $2.9 million, or 14.3%, to $23.2 million for the year ended December 31, 2002 from $20.3 million for the year ended December 31, 2001. Operating income of this segment increased primarily due to increases in sales of our Cutter and Hot Shot brands and in our private label products. Operating loss in the Contract segment decreased $0.2 million for the year ended December 31, 2002 from $0.2 million for the year ended December 31, 2001. Operating loss of this segment decreased primarily due to sales of new products acquired in our merger with Schultz.

        Interest Expense, Net.    Interest expense, net, decreased $3.4 million, or 9.5%, to $32.4 million for the year ended December 31, 2002 from $35.8 million for the year ended December 31, 2001. The decrease in net interest expense was due to a decline in our average variable borrowing rate of 1.68 percentage points to 7.71% for the year ended December 31, 2002 from 9.39% for the year ended December 31, 2001, resulting primarily from the effects of two unfavorable interest rate swaps terminated in 2002 and a general decline in variable borrowing rates. This decrease was also due to interest income recognized on payments received on the common stock subscription receivable from

24

Bayer, coupled with an increase in our average cash balances available for investment during 2002. These decreases were partially offset by an increase in our average debt outstanding during 2002, which resulted from additional borrowings under our senior credit facility to increase liquidity in February 2002, finance our merger with Schultz and finance the acquisition of WPC Brands.

        Income Tax Expense.    For the year ended December 31, 2002, our effective income tax rate was 11.9%. This rate is lower than our statutory rate for federal taxes and state taxes, net of federal benefit, of 38.0% because it reflects our estimated utilization of our goodwill deduction in 2002. The goodwill deduction is related to the step up in tax basis that occurred in conjunction with our recapitalization in 1999.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

        Net Sales.    Net sales increased $7.5 million, or 2.8%, to $273.3 million for the year ended December 31, 2001 from $265.8 million for the year ended December 31, 2000. This increase was driven by a combination of offsetting factors including the increase in demand for insect repellent, increased sales of Spectracide Terminate, increased sales in the hardware channel, decreased sales related to the loss of Kgro private label business for 2001 and decreased sales related to products that contain chlorpyrifos.

        Net sales in the Lawn and Garden segment decreased $8.7 million, or 4.9%, to $169.3 million for the year ended December 31, 2001 from $178.0 million for the year ended December 31, 2000. Net sales of this segment decreased primarily due to lost sales of products that contained chlorpyrifos. During 2000, the U.S. EPA and manufacturers of the active ingredient chlorpyrifos, including Dow AgroSciences L.L.C. which sold the chlorphyrifos under the trademark "Dursban," entered into a voluntary agreement that provided for the withdrawal of virtually all residential uses of Dursban. These decreases were partially offset by increased sales of various other products in the Lawn and Garden segment. Net sales in the Household segment increased $19.2 million, or 23.4%, to $101.2 million for the year ended December 31, 2001 from $82.0 million for the year ended December 31, 2000. Net sales of this segment increased primarily due to increased demand for insect repellents by $11.0 million due to weather conditions and the introduction of new products. Net sales in the Contract segment decreased $2.9 million to $2.9 million for the year ended December 31, 2001 from $5.8 million for the year ended December 31, 2000. Net sales of this segment decreased primarily due to changes in sales mix.

        Gross Profit.    Gross profit increased $5.4 million, or 4.5%, to $125.0 million for the year ended December 31, 2001 compared to $119.6 million for the year ended December 31, 2000. As a percentage of net sales, gross profit increased to 45.7% as compared to 45.0% for the year ended December 31, 2000. The increase in gross profit as a percentage of sales was the result of a change in sales mix to value brands, which are higher margin products, and was partially offset by a $2.7 million inventory rationalization charge recorded during the fourth quarter of 2001.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $5.6 million, or 8.1%, to $74.7 million for the year ended December 31, 2001 from $69.1 million for the year ended December 30, 2000. As a percentage of net sales, selling, general and administrative expenses increased to 27.3% for the year ended December 31, 2001 from 26.0% for the year ended December 30, 2000. The increase is attributed to increased advertising spending to support the value brands, along with additional spending for in-store sales and support in home centers. Prior year selling, general and administrative expenses also reflect a cost reduction due to the impact of terminating a capital lease.

        Facilities and Organizational Rationalization.    During the fourth quarter of 2001, we recorded a non-recurring charge of $5.6 million. The components of the charge included severance cost of

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$2.1 million related to an early voluntary retirement program for 85 employees, a $3.5 million charge attributed to facility exit costs for warehouse and office consolidation and a $2.7 million charge for inventory rationalization which was recorded in cost of goods sold. There were no similar charges recorded during 2000.

        Dursban Related Expenses.    During 2000, we recorded a non-recurring charge of $8.0 million, including customer markdowns, inventory write-offs and related disposal costs which primarily affected our Lawn and Garden segment results, as a result of the voluntary agreement between the U.S. EPA and manufacturers of Dursban to discontinue inclusion of the active chemical in our products. There were no similar charges recorded during 2001.

        Operating Income.    Operating income increased $2.2 million, or 5.2%, to $44.7 million for the year ended December 31, 2001 from $42.5 million for the year ended December 31, 2000. As a percentage of net sales, operating income increased to 16.4% for the year ended December 31, 2001 from 16.0% for the year ended December 31, 2000. The increase was due to the factors described above.

        Operating income in the Lawn and Garden segment increased $0.3 million, or 1.2%, to $24.6 million for the year ended December 31, 2001 from $24.3 million for the year ended December 31, 2000. Operating income of this segment increased primarily due to increased sales of Spectracide Terminate and increases in sales of various other products in the Lawn and Garden segment, partially offset by lost sales of products that contained chlorpyrifos. Operating income in the Household segment increased $2.5 million, or 15.3%, to $20.3 million for the year ended December 31, 2001 from $17.8 million for the year ended December 31, 2000. Operating income of this segment increased primarily due to increased sales of insect repellents. Operating income in the Contract segment decreased $0.5 million to an operating loss of $0.2 million for the year ended December 31, 2001 from operating income of $0.3 million for the year ended December 31, 2000. Operating income of this segment decreased primarily due to changes in sales mix.

        Income Tax Expense.    For the year ended December 31, 2001, our effective income tax rate was 24.4%. This rate is lower than our statutory rate for federal taxes and state taxes, net of federal benefit, of 38% because it reflects our estimated utilization of our goodwill deduction in 2001. The goodwill deduction is related to the step up in tax basis that occurred in conjunction with our recapitalization in 1999.

Liquidity and Capital Resources

        Our principal liquidity requirements are for working capital, capital expenditures and debt service under the senior credit facility and the senior subordinated notes.

        Operating Activities.    Operating activities provided cash of $37.9 million during the year ended December 31, 2002 compared to $25.0 million for the year ended December 31, 2001. The increase in cash provided by operations was primarily due to increased profitability, offset by increased inventories of $19.9 million in the year ended December 31, 2002 compared to the year ended December 31, 2001. This increase was partially offset by an increase in our allowance for doubtful accounts of $2.1 million and an increase in our allowance for potentially obsolete and slow-moving inventory of $3.1 million during the year ended December 31, 2002. The seasonal nature of our operations generally requires cash to fund significant increases in working capital, primarily accounts receivable and inventories, during the first half of the year. Accounts receivable and accounts payable also build substantially in the first half of the year in line with increasing sales as the season begins. These balances liquidate over the latter part of the second half of the year as the lawn and garden season winds down. Net of effects from acquisitions, changes in current operating assets resulted in a decline in cash flows from operating activities of $7.2 million compared to 2001. Net of effects from acquisitions, changes in current operating liabilities resulted in a decline in cash flows from operating activities of $20.8 million

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compared to 2001. Operating activities in 2001 provided $14.2 million more cash than in 2000, primarily due to a $13.1 million net increase in current operating liabilities in 2001 over 2000, net of effects from acquisitions.

        Charge for Facilities, Product Line and Organizational Rationalization.    During the fourth quarter of 2001, we recorded an $8.5 million charge related to facilities, product line and organizational rationalization, which primarily affected our Lawn and Garden segment results. The components of the charge included $2.7 million for obsolete inventory primarily related to the discontinuance of our Spectracide Pro® product line and damaged product from the warehouse consolidation and move, which was recorded in costs of goods sold, $2.1 million for severance costs associated with an early voluntary retirement program that was offered to 85 employees during December 2001, a $3.5 million charge during the fourth quarter of 2001 related to the warehouse consolidation project, primarily attributable to facility exit costs and resultant duplicate rent payments in 2002 and $0.2 million was recorded in selling, general and administrative expenses. Approximately $3.1 million of this charge affected cash flows from operating activities during 2001 and $3.5 million affected cash flows from operating activities during 2002. The consolidation resulted in cost savings of approximately $1.8 million in 2002 with a return on investment expected by 2004.

        Dursban Agreement.    During the year ended December 31, 2000, the U.S. EPA and manufacturers of the active ingredient chlorpyrifos, including Dow AgroSciences L.L.C. which sold the chlorphyrifos under the trademark "Dursban," entered into a voluntary agreement that provided for withdrawal of virtually all residential uses of Dursban in pesticide products. Formulation of Dursban products intended for residential use ceased by December 1, 2000 and formulators discontinued the sale of such products to retailers after February 1, 2001. Retailers were not allowed to sell Dursban products after December 31, 2001. Accordingly, a charge of $8.0 million was recorded in September 2000 for costs associated with this agreement, including customer markdowns, inventory write-offs and related disposal costs, which primarily affected our Lawn and Garden segment results. All of our costs associated with this agreement were incurred by December 31, 2002. Approximately $1.9 million of this charge affected cash flows from operating activities during 2000, $6.0 million affected cash flows from operating activities during 2001, and $0.1 million affected cash flows from operating activities during 2002.

        Investing Activities.    Investing activities used cash of $68.3 million during the year ended December 31, 2002 compared to $45.4 million for the year ended December 31, 2001. The increase in cash used in investing activities was primarily the result of an increase in strategic transactions during 2002 compared to 2001. Cash flows associated with these transactions included the merger with Schultz for $38.3 million in May 2002 and the acquisition of WPC Brands for $19.5 million in December 2002. The purchase of fertilizer brands for $37.5 million was the only significant strategic transaction completed during 2001. Also contributing to the increase in cash used for investing activities was an increase of $2.5 million in purchases of equipment and leasehold improvements during the year ended December 31, 2002 compared to the year ended December 31, 2001. Investing activities in 2001 used $41.4 million more cash than in 2000, primarily due to payments for the purchase of fertilizer brands for $37.5 million in 2001 and an increase in purchases of equipment and leasehold improvements of $3.9 million in 2001 over 2000.

        Financing Activities.    Financing activities provided cash of $40.7 million during the year ended December 31, 2002 compared to $20.4 million for the year ended December 31, 2001. The increase in cash from financing activities was primarily due to borrowings of $90.0 million under Term Loan B of our senior credit facility during 2002 and proceeds from the issuance of common stock of $17.5 million, partially offset by repayments on borrowings of $59.0 million exclusive of cash overdrafts. A portion of the borrowings and the net proceeds of the issuance of common stock were used to finance a portion of the merger with Schultz and the acquisition of WPC Brands. Financing activities in 2001 provided $27.2 million more cash than in 2000, primarily due to an increase in the proceeds from the issuance of

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preferred stock of $7.0 million in 2001 over 2000, the decrease of repayments on borrowings exclusive of cash overdrafts of $15.9 million in 2001 over 2000 and the absence of treasury stock redemption costs in 2001 which were $12.2 million in 2000.

        Historically, we have utilized internally generated funds and borrowings under credit facilities to meet ongoing working capital and capital expenditure requirements. As a result of our recapitalization in 1999 and increased borrowings, we have significantly increased cash requirements for debt service relating to our senior subordinated notes and senior credit facility. We had total long-term debt and capital lease obligations outstanding of $404.9 million as of December 31, 2002 and $351.8 million as of December 31, 2001. We will rely on internally generated funds and, to the extent necessary, borrowings under our revolving credit facility to meet liquidity needs. As of December 31, 2002, we had unused availability of $90.0 million under our revolving credit facility.

        We believe that cash flows from operations, together with available borrowings under our revolving credit facility, will be adequate to meet the anticipated requirements for working capital, capital expenditures and scheduled principal and interest payments for at least the next two years. We are regularly engaged in acquisition discussions with a number of companies, although we have no definitive agreements at this time. We cannot guarantee that any acquisitions will be consummated. If we do consummate any acquisitions it could be material to our business and require us to incur additional debt under our revolving credit facility or otherwise.

        We cannot ensure that sufficient cash flow will be generated from operations to repay the notes and amounts outstanding under the senior credit facility at maturity without requiring additional financing. Our ability to meet debt service and clean-down obligations and reduce debt will be dependent on our future performance, which in turn, will be subject to general economic and weather conditions and to financial, business and other factors, including factors beyond our control. Because a portion of our debt bears interest at floating rates, our financial condition is and will continue to be affected by changes in prevailing interest rates.

Capital Expenditures

        Capital expenditures relate primarily to the enhancement of our existing facilities and the construction of additional capacity for production and distribution, as well as the implementation of our enterprise resource planning, or ERP, system. Cash used for capital expenditures was $10.5 million in 2002, $7.9 million in 2001 and $4.0 million in 2000. The increase in 2002 capital expenditures from 2001 is primarily related to our purchase of fertilizer manufacturing equipment from Pursell in October 2002, coupled with expenditures related to our ERP system. We expect to spend approximately $4.0 million in 2003 on our ERP system. No costs were incurred for the ERP system during 2000. During the year ended December 31, 2000, we executed a capital lease agreement for the lease of our corporate aircraft for $5.3 million.

Financing Activities

        Senior Credit Facility.    Our senior credit facility, as amended as of December 6, 2002, was provided by Bank of America, N.A. (formerly known as NationsBank, N.A.), Morgan Stanley Senior Funding, Inc. and Canadian Imperial Bank of Commerce and consists of (1) a $90.0 million revolving credit facility; (2) a $75.0 million term loan facility (Term Loan A); and (3) a $240.0 million term loan facility (Term Loan B). The 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. As of December 31, 2002, the clean-down period had been completed and no

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amounts were outstanding under the revolving credit facility, nor were there any compensating balance requirements.

        On February 13, 2002, the senior credit facility was amended to increase Term Loan B from $150.0 million to $180.0 million and provide additional liquidity and flexibility for capital expenditures subsequent to our purchase of various fertilizer brands in December 2001. We incurred $1.1 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the senior credit facility. The amendment did not change any other existing covenants of the senior credit facility.

        On May 8, 2002, in connection with our merger with Schultz, the senior credit facility was amended to increase Term Loan B from $180.0 million to $215.0 million, increase the revolving credit facility from $80.0 million to $90.0 million and provide additional flexibility for capital expenditures. We incurred $2.2 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the senior credit facility. The amendment did not change any other existing covenants of the senior credit facility.

        On December 6, 2002, in connection with our acquisition of WPC Brands, the senior credit facility was amended to increase Term Loan B from $215.0 million to $240.0 million and provide additional flexibility for capital expenditures. We incurred $1.1 million in fees related to the amendment which were recorded as deferred financing fees and are being amortized over the remaining term of the senior credit facility. The amendment did not change any other existing covenants of the senior credit facility.

        On March 19, 2003, the senior credit facility was amended to permit a possible offering of 9⁷/8% Series C Senior Subordinated Notes.

        The principal amount of Term Loan A is to be repaid in 24 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 28 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 place restrictions on, among other things, levels of investments, indebtedness, insurance, capital expenditures and dividend payments. The financial covenants require the maintenance of certain financial ratios at defined levels. As of and during the years ended December 31, 2002 and 2001, we were in compliance with all covenants. While we do not anticipate an event of non-compliance in the foreseeable future, the effect of non-compliance would require us to request a waiver or an amendment to the senior credit facility. Amending the senior credit facility could result in changes to our borrowing capacity or our effective interest rates. Under the agreements, interest rates on the revolving credit facility, Term Loan A and Term Loan B range from 1.50% to 4.00% above LIBOR, depending on certain financial ratios. LIBOR was 1.38% as of December 31, 2002 and 1.88% as of December 31, 2001. Unused commitments under the revolving credit facility are subject to a 0.5% annual commitment fee. The interest rate of Term Loan A was 4.67% and 5.43% as of December 31, 2002 and 2001, respectively. The interest rate of Term Loan B was 5.42% and 5.93% as of December 31, 2002 and 2001, respectively.

        The senior credit facility may be prepaid in whole or in part at any time without premium or penalty. During the year ended December 31, 2002, we made principal payments of $11.0 million on Term Loan A and $2.0 million on Term Loan B, which included optional principal prepayments of $6.3 million on Term Loan A and $1.1 million on Term Loan B. During the year ended December 31, 2001, we made principal payments of $9.2 million on Term Loan A and $1.4 million on Term Loan B, which included optional principal prepayments of $4.1 million on Term Loan A and $0.7 million on Term Loan B. The optional payments were made to remain two quarterly payments ahead of the

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regular payment schedule. According to the senior credit facility agreement, each prepayment on Term Loan A and Term Loan B can be applied to the next principal repayment installments.

        Substantially all of the properties and assets of our current or future domestic subsidiaries collateralize obligations of the senior credit facility.

        9 ⁷/₈% Series B Senior Subordinated Notes.    In November 1999, we issued $150.0 million in aggregate principal amount of 9⁷/8% Series B senior subordinated notes due April 1, 2009. Interest accrues at a rate of 9⁷/8% per annum, payable semi-annually on April 1 and October 1. The indenture governing the Series B senior subordinated notes, among other things, (1) restricts our ability and the ability of our subsidiaries to incur indebtedness, create liens, repurchase stock, pay dividends and make distributions or enter into transactions with affiliates and (2) places restrictions on our ability and the ability of our subsidiaries to merge or consolidate all of our assets.

        The carrying amount of our obligations under the senior credit facility approximates fair value because the interest rates are based on floating interest rates identified by reference to market rates. The fair value of the senior subordinated notes was $151.5 million as of December 31, 2002 and $141.0 million as of December 31, 2001, based on their quoted market price on such dates.

        Stock Issuances.    In connection with our merger with Schultz, the Board of Directors adopted resolutions, which were approved by our stockholders, to amend our Certificate of Incorporation to increase the number of shares of authorized Class A voting common stock from 37,600,000 shares to 43,600,000 shares and increase the number of shares of authorized Class B nonvoting common stock from 37,600,000 shares to 43,600,000 shares. In addition, as part of the purchase price, we issued 600,000 shares of Class A voting common stock valued at $3.0 million and 600,000 shares of Class B nonvoting common stock valued at $3.0 million. In addition, to raise equity to partially fund the merger, we issued 1,690,000 shares of Class A voting common stock to UIC Holdings, L.L.C. for $8.5 million and 1,690,000 shares of Class B nonvoting common stock to UIC Holdings, L.L.C. for $8.5 million.

        In connection with our transaction with Bayer in June 2002, we issued 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million and recorded $0.4 million of related issuance costs.

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        Contractual Cash Obligations.    The following table presents the aggregate amount of future cash outflows of our contractual cash obligations as of December 31, 2002, excluding amounts due for interest on outstanding indebtedness:

(1)

Represents fixed monthly payments of $0.7 million through September 30, 2007 for the purchase of fertilizer products from Pursell.

(2)

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

(3)

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

(4)

Includes monthly payments of $62,500 for management and other consulting services provided by affiliates of Thomas H. Lee Partners, L.P., which owns UIC Holdings, L.L.C., our majority owner. The associated professional services agreement automatically extends for successive one-year periods beginning January 20 of each year, unless notice is given as provided in the agreement. Also includes $1.8 million due in 2003 and $0.4 million due in 2004 pursuant to a consulting agreement.

        We lease several of our operating facilities from Rex Realty, Inc., a company owned by our stockholders and operated by a former executive and past member of our Board of Directors. The operating leases expire at various dates through December 31, 2010. We have options to terminate the leases on an annual basis by giving advance notice of at least one year. As of December 31, 2002, notice had been given on two such leases. We lease a portion of our operating facilities from the same company under a sublease agreement expiring on December 31, 2005 with minimum annual rentals of $0.7 million. We have two five-year options to renew this lease, beginning January 1, 2006. Management believes that the terms of these leases are arms length. Rent expense under these leases was $2.3 million in 2002, $2.3 million in 2001 and $2.2 million in 2000.

        We are obligated under additional operating leases for other operations and the use of warehouse space. The leases expire at various dates through December 31, 2015. Five of the leases provide for as many as five options to renew for five years each. During the years ended December 31, 2002, 2001 and 2000, aggregate rent expense under these leases was $3.8 million, $5.1 million and $5.0 million, respectively.

        In March 2000, we entered into a capital lease agreement for $5.3 million for our aircraft. We are obligated to make monthly payments of $0.1 million, with a balloon payment of $3.2 million in February 2005. We have the option of purchasing the aircraft following the expiration of the lease agreement for a nominal amount.

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        Guarantees and Off-Balance Sheet Risk.    In the normal course of business, we are a party to certain guarantees and financial instruments with off-balance sheet risk, such as standby letters of credit and indemnifications, which are not reflected in the accompanying consolidated balance sheets. At December 31, 2002, we had $1.9 million in standby letters of credit pledged as collateral to support the lease of our primary distribution facility in St. Louis, a United States customs bond, certain product purchases and various workers' compensation obligations. These agreements mature at varying dates through October 2003 and may be renewed as circumstances warrant. Such financial instruments are valued based on the amount of exposure under the instruments and the likelihood of performance being required. In our past experience, no claims have been made against these financial instruments nor do we expect any losses to result from them. As a result, we determined the fair value of such instruments to be zero and have not recorded any related amounts in our consolidated financial statements.

        We are the lessee under a number of equipment and property leases, as described in Note 13 of the notes to our consolidated financial statements included elsewhere in this Annual Report. It is common in such commercial lease transactions for us to agree to indemnify the lessor for the value of the property or equipment leased should it be damaged during the course of our operations. We expect that any losses that may occur with respect to the leased property would be covered by insurance, subject to deductible amounts. As a result, we determined the fair value of such instruments to be zero and have not recorded any related amounts in our consolidated financial statements.

Related Party Transactions

        See "Certain Relationships and Related Transactions" for information regarding related party relationships and transactions.

Recently Issued Accounting Standards

        The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements. We are required to adopt SFAS No. 145 during the first quarter of 2003. Adoption will not have a material impact on our consolidated financial statements. However, SFAS No. 145 could affect how we record certain expenses after December 31, 2002.

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

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of

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accounting for stock-based employee compensation and the effect of the method used on reported results. Certain provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and other provisions are effective for fiscal years beginning after December 15, 2002. Unless we elect in the future to change from the intrinsic value method to the fair value method of accounting for stock-based employee compensation, SFAS No. 148 will not have a material impact on our consolidated financial statements.

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). The disclosure requirements of FIN 45 are effective for our consolidated financial statements for the year ended December 31, 2002. For applicable guarantees issued after January 1, 2003, FIN 45 requires that a guarantor recognize a liability for the fair value of obligations undertaken in issuing guarantees.

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to financial statements to be issued after 2002; however, disclosures are required currently if any variable interest entities are expected to be consolidated. The adoption of FIN 46 will not have a material effect on our consolidated financial statements as we do not have any variable interest entities that will be consolidated as a result of FIN 46.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rates and Raw Materials Prices

        In the normal course of business, we are exposed to fluctuations in interest rates and raw materials prices. We have established policies and procedures that govern the management of these exposures through the use of derivative hedging instruments, including swap agreements. Our objective in managing our exposure to such fluctuations is to decrease the volatility of earnings and cash flows associated with changes in interest rates and certain raw materials prices. To achieve this objective, we periodically enter into swap agreements with values that change in the opposite direction of anticipated cash flows. Derivative instruments related to forecasted transactions are considered to hedge future cash flows, and the effective portion of any gains or losses is included in accumulated other comprehensive income until earnings are affected by the variability of cash flows. Any remaining gain or loss is recognized currently in earnings.

        We have formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting treatment. The cash flows of the derivative instruments are expected to be highly effective in achieving offsetting cash flows attributable to fluctuations in the cash flows of the hedged risk. Changes in the fair value of agreements designated as derivative hedging instruments are reported as either an asset or liability in the accompanying consolidated balance sheets with the associated unrealized gains or losses reflected in accumulated other comprehensive income. As of December 31, 2002 and 2001, unrealized losses of $32,000 and $0.5 million, respectively, related to derivative instruments designated as cash flow hedges were recorded in accumulated other comprehensive income. Such instruments at December 31, 2002 represent hedges on forecasted purchases of raw materials during the first half of 2003 and are scheduled to mature by May 2003. The amounts are subsequently reclassified into cost of goods sold in the same period in which the underlying hedged transactions affect earnings.

        If it becomes probable that a forecasted transaction will no longer occur, any gains or losses in accumulated other comprehensive income will be recognized in earnings. We have not incurred any gains or losses for hedge ineffectiveness or due to excluding a portion of the value from measuring

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effectiveness. We do not enter into derivatives or other hedging arrangements for trading or speculative purposes.

        The following table summarizes our derivative hedging contracts as of December 31, 2002:

        In April 2001, we entered into two interest rate swaps that fixed the interest rate as of April 30, 2001 for $75.0 million in variable rate debt under our senior credit facility. The interest rate swaps settled on April 30, 2002 and a derivative hedging loss of $0.5 million was reclassified from accumulated other comprehensive income into interest expense.

        The following table summarizes information about our debt instruments that are sensitive to changes in interest rates as of December 31, 2002. The table presents future principal cash flows and related weighted-average interest rates by expected maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 2002 (dollars in thousands):

Exchange Rates

        International sales during the years 2000 through 2002 comprised less than 1% of total net sales. We do not use derivative instruments to hedge foreign currency exposures as substantially all of our foreign currency transactions are denominated in U.S. dollars.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The financial statements and supplementary data included in this Annual Report are listed in the Index to Financial Statements and Financial Statement Schedule on page F-1.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE.

        None.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors

        The following table presents the members of the Board of Directors of United Industries Corporation. All directors are elected annually.

*

Member of the Audit Committee.

        The following presents biographical information with respect to each of the directors listed above as of December 31, 2002.

        Robert L. Caulk,    51, joined United Industries in November 1999 as President and Chief Executive Officer. He was elected as Chairman of the Board of Directors during 2001. Prior to joining United Industries, Mr. Caulk spent over four years from 1995 to 1999 as the President and Executive Vice President of Clopay Building Products Company, Inc., a marketer and manufacturer of residential and commercial garage doors. Between 1989 and 1994, Mr. Caulk was President-North America, Vice President/General Manager and Director of Corporate Acquisitions and Planning at Johnson Worldwide Associates, a manufacturer of outdoor recreational products. From 1979 to 1989, Mr. Caulk held various management positions at S.C. Johnson & Son, Inc. Mr. Caulk is also a director of Sligh Furniture Company. Mr. Caulk received a Bachelor of Arts degree from the University of Delaware and an M.B.A. from the Harvard Graduate School of Business Administration.

        Daniel J. Johnston,    44, became a director in January 1999. He was promoted to Executive Vice President in 2001 and has served as Chief Financial Officer with responsibility over information systems and administration as a Senior Vice President since 1997. Mr. Johnston joined United Industries as Controller in 1994 and has also held various other positions with responsibility over manufacturing, distribution and product supply during his tenure. Prior to joining United Industries, Mr. Johnston spent five years from 1990 to 1994 at Cooper Industries, Inc. in various financial positions at its corporate office and Bussmann Division. Before joining Cooper Industries, Inc., he worked for nine years at Price Waterhouse, LLP from 1982 to 1990. Mr. Johnston received a B.S. in Accountancy from the University of Missouri-Columbia.

        C. Hunter Boll,    47, became a director in January 1999 in connection with our recapitalization. Mr. Boll is a Managing Director of Thomas H. Lee Partners, L.P., a private equity investment firm, which he joined in 1986. In addition, Mr. Boll is a Principal Managing Director and Member of Thomas H. Lee Advisors, L.L.C., the general partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, L.P. and Thomas H. Lee Equity Fund V, L.P. He is Vice President of T. H. Lee Mezzanine II, the investment advisor to ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P. Mr. Boll also serves as a director of Cott Corporation, Metris Companies, Inc., and TransWestern Publishing, L.P. Mr. Boll received a

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B.A. in Economics from Middlebury College and an M.B.A. from Stanford Graduate School of Business.

        Charles A. Brizius,    34, became a director in January 1999 in connection with our recapitalization. Mr. Brizius is a Vice President of Thomas H. Lee Partners, L.P. a private equity investment firm, where he was employed from 1993 to 1995, and which he rejoined in 1997. Mr. Brizius is also a Member of Thomas H. Lee Advisors, L.L.C., the general partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, L.P. and Thomas H. Lee Equity Fund V, L.P. From 1991 to 1993, Mr. Brizius worked at Morgan Stanley & Co. Incorporated in the Corporate Finance Department. He is also a director of Eye Care Centers of America, Inc., Houghton Mifflin Company and TransWestern Publishing, L.P. Mr. Brizius received a B.B.A. in Finance and Accounting from Southern Methodist University and an M.B.A. from the Harvard Graduate School of Business Administration.

        John W. Froman,    48, became a director in November 2002. Mr. Froman has been with Circuit City Stores, a specialty retailer, since 1986 and currently serves as its Executive Vice President and Chief Operating Officer. Prior to joining Circuit City, Mr. Froman was President of The Contempos Division of Craddock-Terry Shoe Corporation and, prior to that, Manager of U.S. Merchandising for Avon Products, Inc.

        David A. Jones,    53, became a director in January 1999 and served as Chairman of the Board of Directors from June 1999 until 2001. Mr. Jones has been the President, Chief Executive Officer and Chairman of the Board of Directors of Rayovac Corporation, a consumer battery and lighting device company, since March 1996. Between February 1995 and March 1996, Mr. Jones was Chief Operating Officer, Chief Executive Officer and Chairman of the Board of Directors of Thermoscan, Inc. From 1989 to 1994, he served as President and Chief Executive Officer of The Regina Company, a manufacturer of vacuum cleaners and other floor care equipment. Mr. Jones is also a director of Tyson Foods.

        Gary M. Rodkin,    50, became a director in February 2002. He has served as the Chairman and CEO of PepsiCo Beverages and Foods, a newly created $10 billion division of PepsiCo, Inc. which combines the Pepsi-Cola, Gatorade, Tropicana and Quaker Foods business units in the United States and Canada, since June 2002. Prior positions at PepsiCo include President and CEO Pepsi-Cola North America and President and CEO Tropicana. Before joining Tropicana in 1995, Mr. Rodkin held positions of increasing responsibility at General Mills, Inc. from 1979 to 1995, including President of Yoplait-Colombo.

        Scott A. Schoen,    44, became a director in January 1999 in connection with our recapitalization. Mr. Schoen is a Managing Director of Thomas H. Lee Partners, L.P., a private equity investment firm, which he joined in 1986. In addition, Mr. Schoen is a Principal Managing Director and Member of Thomas H. Lee Advisors, L.L.C., the general partner of Thomas H. Lee Partners, L.P., which controls the general partner of Thomas H. Lee Equity Fund IV, L.P. and Thomas H. Lee Equity Fund V, L.P. He is Vice President of T. H. Lee Mezzanine II, the investment advisor to ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P. He is also a director of Affordable Residential Communities, Syratech Corporation, TransWestern Publishing, L.P., Wyndham International Inc., Axis Capital Holdings and several private corporations. Mr. Schoen received a B.A. in History from Yale University, a J.D. from Harvard Law School and an M.B.A. from the Harvard Graduate School of Business Administration.

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Executive Officers

        The following table presents the executive officers of United Industries Corporation:

        The following presents biographical information as of December 31, 2002 with respect to each of the executive officers listed above who do not also serve as directors.

        Kent J. Davies,    39, has served as the Senior Vice President, Marketing since April 2001 and assumed additional responsibilities for the Research & Development and Regulatory Affairs groups in March 2002. Prior to joining United Industries, Mr. Davies spent seven years with Kimberly-Clark Corporation serving in various marketing and general management capacities including General Manager, Global Strategic Marketing from 2000 to 2001, General Manager, Global Surgical Products Business from 1999 to 2000, and General Manager, Professional Heath Care—Europe, while based in Brussels, Belgium, from 1998 to 1999. Prior to joining Kimberly-Clark, Mr. Davies held marketing positions with the 3M Company and various field sales roles with General Mills, Inc. Mr. Davies received a B.A. in History from the University of California at Berkeley and an M.B.A. from the University of Minnesota.

        Louis N. Laderman,    51, has served as the Vice President, Secretary and General Counsel since 2001. Prior to joining United Industries, from 1996 through 2000, Mr. Laderman was Vice President and General Counsel of Service Experts, Inc., an operator and consolidator of heating, air conditioning and ventilating contractors. Between 1976 and 1996, Mr. Laderman was engaged in the private practice of law in St. Louis, Missouri. Mr. Laderman received a B.S. in Industrial Management, with a minor in Industrial Engineering, from Purdue University and a J.D., cum laude, from St. Louis University.

        Robert S. Rubin,    36, has served in various capacities since 1995, including Vice President, Corporate Development, responsible for Mergers, Acquisitions and Strategic Alliance efforts; Vice President and General Manager—Strategic Accounts, Retail Sales and Retail Marketing; and Vice President, Marketing, R&D and Regulatory Affairs. Mr. Rubin joined United Industries in 1995 as a Brand Manager. Prior to joining United Industries, Mr. Rubin spent three years from 1992 to 1995 at Ralston Purina in various marketing roles. From 1988 to 1992, Mr. Rubin was employed by the advertising agency DMB&B/St. Louis. Mr. Rubin received a B.S. in Business Administration from Miami University, Oxford, Ohio.

        Steven D. Schultz,    55, has served as the Senior Vice President, Business Development since 2002. Prior to joining United Industries, Mr. Schultz worked at Schultz Company, where he started his career after college and held various management positions until 1982 when he became the President and Chief Executive Officer. Mr. Schultz maintained that position until Schultz merged with a wholly owned subsidiary of United Industries in May 2002. Mr. Schultz received a B.S. in Journalism from the University of Oklahoma.

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        Rick K. Spurlock,    43, has served as the Vice President, Human Resources since 2002. Prior to joining United Industries, Mr. Spurlock was Vice President of Human Resources at Pursell Industries, Inc., a national lawn and garden company, from 2000 to 2002. From 1984 to 2000, Mr. Spurlock had management responsibilities in the areas of human resources, organization development and manufacturing with the Mechanics Tools Division of The Stanley Works, an international manufacturer of hand tools. Prior to joining The Stanley Works, he was employed by Cincinnati Milacron in various roles from 1980 to 1984. Mr. Spurlock received a B.S. in Business Management from Wright State University.

        John F. Timony,    53, has served as the Senior Vice President, Operations since 2001. Prior to joining United Industries, Mr. Timony was Vice President—Operations for Rexam Medical Packaging from 1994 to 2000. From 1981 to 1994, Mr. Timony worked for Sterling Winthrop, Inc. in various engineering, management and executive positions, most recently as Vice President—Operations. Prior to joining Sterling Winthrop, Inc., Mr. Timony was an engineer for Container Corporation of America from 1978 to 1981 and a Lieutenant in the United States Navy from 1972 to 1978. Mr. Timony received a B.S. in Electrical Engineering from the United States Naval Academy, a Master's Degree in Electrical Engineering from the U.S. Naval Postgraduate School and an M.B.A. from Monmouth University.

ITEM 11.    EXECUTIVE COMPENSATION.

Summary Compensation Table

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

(1)

Unless otherwise indicated, represents matching contributions under our 401(k) plan for each year of employment presented and reimbursement for long-term disability premiums in 2002.

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(2)

Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $8,582.

(3)

Includes relocation payments of $96,144.

(4)

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

(5)

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

(6)

Includes relocation payments of $66,705.

(7)

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

(8)

Includes relocation payments of $15,636.

(9)

Includes matching contributions under our 401(k) plan of $5,500 and reimbursement for long-term disability premiums of $404.

Stock Option Grants

        The following table presents individual grants of options to the Named Executive Officers during the year ended December 31, 2002. No stock appreciation rights have been granted or are outstanding under any of our long-term equity plans.

(1)

Of the options granted during 2002, one-third vests over a four-year period at a rate of 25% on each anniversary of the grant date. The remaining two-thirds vest based on performance targets over a three to ten year period from the date of grant.

(2)

The grant date present value is estimated on the date of grant using the Black-Scholes option-pricing model and the following weighted average assumptions for the year ended December 31, 2002: expected volatility of zero, weighted average risk-free interest rate of 4.61%, dividend yield of zero and an expected life of ten years.

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Aggregated Option Exercises and Option Value Table

        The following table presents information concerning stock options held by the Named Executive Officers as of December 31, 2002:

(1)

As of December 31, 2002, no outstanding options had been exercised.

(2)

There was no active trading market for our common stock as of December 31, 2002, thus fair value was determined by our Board of Directors, based primarily on valuations obtained from independent appraisals.

The 2001 Stock Option Plan

        We grant stock options to eligible employees, officers and directors pursuant to the 2001 Stock Option Plan, which is administered by the Compensation Committee of the Board of Directors. The 2001 Stock Option Plan superseded the 1999 Stock Option Plan which was terminated during 2001. Upon termination, all 3,096,000 issued and outstanding options under the 1999 Stock Option Plan were cancelled.

        The 2001 Stock Option Plan provides for an aggregate of 5,800,000 shares of common stock that may be issued in the form of Class A voting common stock, Class B nonvoting common stock or a combination thereof. The options to purchase shares of common stock are subject to time and performance-based vesting schedules which generally range from four to ten years. Options are generally granted with an exercise price equal to or greater than the estimated fair value of common stock on the grant date and expire ten years thereafter. After termination of employment, unvested options are forfeited immediately, within thirty days or within one year, as provided under the plan agreement.

Deferred Compensation Plans

        We sponsor two deferred compensation plans for certain members of our senior management team. The plans are administered by the Compensation Committee of our Board of Directors. The plans provide for the establishment of grantor trusts for the purpose of accumulating funds to purchase shares of our common stock for the benefit of the plan participants. One plan allows participants to contribute an unlimited amount of earnings to the plan while the other provides for contributions of up to 20% of a participant's annual bonus. We do not provide matching contributions to these plans and have the right to repurchase shares held in the grantor trusts under certain circumstances. The common stock held in the grantor trusts was valued at $2.7 million as of December 31, 2002 and 2001.

Compensation of Directors

        Messrs. Caulk and Johnston, who were the only directors that served as employees during 2002, did not receive any additional compensation for serving as a director or attending any meeting of the

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Board of Directors during 2002. During 2002, Mr. Jones received $30,000 in directorship fees and Mr. Rodkin received $25,833 in directorship fees. Messrs. Boll, Brizius and Schoen did not directly receive any directorship fees in 2002, but THL Equity Advisors, IV, LLC, the general partner of Thomas H. Lee Equity Fund IV, L.P., and Thomas H. Lee Capital, L.L.C., entities with whom Messrs. Boll, Brizius and Schoen are affiliated, received fees pursuant to a professional services agreement described below.

Employment Agreements

        Each of the Named Executive Officers is employed under a separate employment agreement. With the exception of Mr. Caulk's agreement, which expires on January 1, 2005, none of the agreements are effective for a specified period of time. The following table presents the position, annual salary and stock options received, as well as the maximum potential annual bonus available, to each of the Named Executive Officers, under his employment agreement, as amended:

        Each agreement provides for base salary and bonus increases at the discretion of the Compensation Committee of the Board of Directors. Annual incentive compensation is determined in accordance with the attainment of certain financial and performance targets. The agreements also provide that the officers are entitled to a monthly automobile allowance and to participate in any disability, pension or other benefit plan generally afforded to employees or executives.

        Of the options issued to Mr. Caulk, 53,360 options vested immediately upon the grant date, 1,013,307 options vest over four years with 25% vesting on each anniversary after the grant date and the remaining 533,333 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options issued to Mr. Johnston, 80,000 options vested immediately upon the grant date, 206,665 options vest over four years with 25% vesting on each anniversary after the grant date and 413,335 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options granted to Messrs. Davies and Timony, one-third of the options vest over four years with 25% vesting on each anniversary after the grant date while the remaining two-thirds vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date. Of the options issued to Mr. Rubin, 4,000 vested immediately upon the grant date, 62,667 vest over four years with 25% vesting on each anniversary after the grant date and 133,333 options vest based on performance targets through December 31, 2004, or otherwise after ten years from the grant date.

        We may terminate an employment agreement at any time with or without cause. If an employment agreement is terminated by us for cause or by the executive without good reason, the terminated executive will be entitled to any unpaid base salary through the date of termination plus any unpaid incentive compensation. If we terminate the employment agreement without cause or if the executive terminates the employment agreement for good reason or the executive dies or becomes disabled, he will be entitled to any unpaid base salary through the date of termination, any unpaid incentive

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

401(k) Plan

        We have a 401(k) savings plan for substantially all of our employees with six months or more of continuous service. The 401(k) plan allows participants to defer a portion of eligible compensation on a tax-deferred basis. Under provisions of the plan, we match 50% of each employee's contributions up to 6% of gross earnings. The matching amount generally increases to 75% of such employee's contributions up to 6% of gross earnings after ten years of service. The aggregate matching contribution made by us was $0.7 million in 2002, $0.6 million in 2001 and $0.6 million in 2000.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Security Ownership of Certain Beneficial Owners and Management

        The following table presents certain information regarding the beneficial ownership of our Class A voting common stock by each of our directors and Named Executive Officers, by all of our directors and executive officers as a group, and by each owner of more than 5% of the outstanding shares of Class A voting common stock as of December 31, 2002. Each director and Named Executive Officer owns a number of shares of Class B nonvoting common stock equal to their number of owned shares of Class A voting common stock. Unless otherwise indicated, the mailing address for each principal stockholder, officer and director is c/o United Industries Corporation, 2150 Schuetz Road, St. Louis, Missouri 63146.