UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2004

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

For the transition period from to

Commission File Number: 333-76055

UNITED INDUSTRIES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	43-1025604
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2150 Schuetz Road St. Louis, Missouri 63146
(Address of principal executive office, including zip code)
(314) 427-0780
(Registrant’s telephone number, including area code)

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

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

As of August 16, 2004, the registrant had 35,954,496 Class A voting and 35,954,496 Class B nonvoting shares of common stock outstanding.

UNITED INDUSTRIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2004
TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		4
Item 1. Financial Statements (Unaudited)		4
Consolidated Balance Sheets as of June 30, 2004 and 2003 and December 31, 2003		4
Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2004 and 2003		5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003		6
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3. Quantitative and Qualitative Disclosures About Market Risk		56
Item 4. Controls and Procedures		57
PART II. OTHER INFORMATION		59
Item 1. Legal Proceedings		59
Item 6. Exhibits and Reports on Form 8-K		59
SIGNATURES		60
EXHIBIT INDEX		61

TRADEMARKS

Spectracide^®, Spectracide Triazicide^®, Spectracide Terminate^®, Spectracide Pro^®, Hot Shot^®, Garden Safe^®, Schultz™, Rid-a-Bug^®, Bag-a-Bug^®, Real-Kill^®, No-Pest^®, Repel^®, Vigoro^®, Sta-Green^®, Bandini^®, Wilson^®, So-Green^®, Greenleaf^®, Green Earth^®, IB Nitrogen^®, Nitroform^®,Nutralene^®, S.C.U.^®and Organiform^® are our trademarks and trade names. We also license certain Cutter^® trademarks from Bayer A.G., Peters^® and Peters Professional^® trademarks from The Scotts Company, CIL^®trademarks from ICI Canada Inc., Plant-Prod^® trademarks from Plant Products Co. Ltd. and Pickseed^® trademarks from Pickseed Canada Inc. Other trademarks and trade names used in this Quarterly Report are the property of their respective owners.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly 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 Quarterly Report, including statements regarding our strategy, future operations or financial position, estimated revenues, projected costs, projections, plans and objectives of management, are forward-looking statements. As may be used in this Quarterly Report, the words “will,” “should,” “believe,” “plan,” “may,” “strategies,” “goals,” “anticipate,” “indicate,” “intend,” “determine,” “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 apply only as of the date they are disclosed and are based on our expectations at that time. 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 any forward-looking statements we make in this Quarterly 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 any forward-looking statements contained in this Quarterly Report. Factors that could cause or contribute to such differences include, without limitation, the following:

· general economic and business conditions;

· the loss or bankruptcy of major customers, suppliers or parties with whom we have a strategic relationship;

· the loss of a significant amount of products purchased by major customers;

· weather conditions and/or historical seasonality;

· our ability to repay our indebtedness or meet other obligations;

· industry trends and competition;

· our ability to manage rapid growth, the integration of acquisitions and the diversification of our businesses;

· our ability to achieve the benefits we expect from acquisitions, including The Nu-Gro Corporation and United Pet Group, Inc. transactions;

· our ability to successfully implement or integrate our information systems;

· public perception regarding the safety of our products;

· governmental regulations;

· terrorist attacks or acts of war;

· cost and availability of raw materials or product components;

· changes in our business strategy or development plans;

· our ability to recruit and retain quality personnel;

· availability, terms and deployment of capital resources; and

· the other risks described in our filings with the SEC, including our Annual Report on Form 10-K.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

	June 30,						December 31,
	2004			2003			2003
ASSETS
Current assets:
Cash and cash equivalents	$	8,502		$	10,823			$	11,413
Accounts receivable, net of reserves of $5,307 and $4,941 at June 30, 2004 and 2003, respectively, and $2,753 at December 31, 2003	161,192			126,026				29,890
Inventories	126,707			77,703				96,795
Prepaid expenses and other current assets	15,323			8,470				15,141
Total current assets	311,724			223,022				153,239
Equipment and leasehold improvements, net	69,251			32,878				37,153
Deferred tax asset	123,894			84,953				186,562
Goodwill	61,398			8,839				6,221
Intangible assets, net	157,621			87,038				86,872
Other assets, net	17,598			11,863				9,897
Total assets	$	741,486		$	448,593			$	479,944
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt and capital lease obligations	$	4,151		$	1,434			$	1,349
Accounts payable	57,754			41,092				29,774
Accrued expenses	54,923			56,984				39,574
Total current liabilities	116,828			99,510				70,697
Long-term debt, net of current maturities	613,591			408,071				387,657
Capital lease obligations, net of current maturities	3,324			3,483				3,191
Other liabilities	4,055			3,231				3,256
Total liabilities	737,798			514,295				464,801
Commitments and contingencies (see Note 11)
Stockholders’ equity (deficit):
Preferred stock (no shares of $0.01 par value Class A issued and outstanding at June 30, 2004, 40,000 authorized; 37,600 shares issued and outstanding at June 30, 2003 and December 31, 2003, 40,000 authorized)	—			—				—
Common stock (33.2 million shares each of $0.01 par value Class A and Class B issued, 30.1 million shares of each outstanding and 43.6 million shares of each authorized at June 30, 2004; 33.2 million shares each of $0.01 par value Class A and Class B issued and outstanding, 43.6 million shares of each authorized at June 30, 2003 and December 31, 2003)	665			665				665
Treasury stock (3.1 million shares each of $0.01 par value Class A and Class B, at cost at June 30, 2004; 9,569 shares of each, at cost at June 30, 2003 and December 31, 2003)	(24,469		)	(96		)		(96		)
Warrants and options	11,745			11,745				11,745
Additional paid-in capital	170,672			210,806				210,908
Accumulated deficit	(152,865		)	(258,848		)		(179,738		)
Common stock subscription receivable	—			(24,177		)		(22,534		)
Common stock repurchase option.	—			(2,636		)		(2,636		)
Common stock held in grantor trusts	(2,847		)	(2,847		)		(2,847		)
Loans to executive officer	(215		)	(324		)		(324		)
Accumulated other comprehensive income	1,002			10				—
Total stockholders’ equity (deficit)	3,688			(65,702		)		15,143
Total liabilities and stockholders’ equity (deficit)	$	741,486		$	448,593			$	479,944

See accompanying notes to consolidated financial statements.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004		2003
									(As Restated)
CONSOLIDATED STATEMENTS OF OPERATIONS:
Net sales	$	239,835		$	206,003		$	422,538		$	384,815
Operating costs and expenses:
Cost of goods sold	155,857			123,797			269,265			232,552
Selling, general and administrative expenses	49,784			37,905			89,765			79,304
Total operating costs and expenses	205,641			161,702			359,030			311,856
Operating income	34,194			44,301			63,508			72,959
Interest expense	11,908			10,271			21,528			19,974
Interest income	86			455			371			954
Income before income tax expense	22,372			34,485			42,351			53,939
Income tax expense	5,039			13,123			12,631			21,525
Net income	17,333			21,362			29,720			32,414
Preferred stock dividends	585			1,863			2,781			3,670
Net income available to common stockholders	$	16,748		$	19,499		$	26,939		$	28,744
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME:
Net income	$	17,333		$	21,362		$	29,720		$	32,414
Other comprehensive income:
Gain (loss) on derivative hedging instruments, net of tax of $110, $11, $0 and $481, respectively	(179		)	(18		)	—			784
Foreign currency translation gain, net of tax of $614, $0, $614 and $0, respectively	1,002			—			1,002			—
Comprehensive income	$	18,156		$	21,344		$	30,722		$	33,198

See accompanying notes to consolidated financial statements.

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

	Six Months Ended June 30,
	2004			2003
				(As Restated)
Cash flows from operating activities:
Net income	$	29,720			$	32,414
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	15,498				8,336
Amortization and write-off of deferred financing fees	2,960				3,663
Deferred income tax expense	12,631				20,188
Gain on sale of aircraft	(1,497		)		—
Changes in operating assets and liabilities, net of effects from acquisition:
Accounts receivable	(76,752		)		(104,296		)
Inventories	12,736				7,488
Prepaid expenses	949				2,878
Other assets	(3,151		)		(3,353		)
Accounts payable	(3,925		)		14,413
Accrued expenses	27,726				3,270
Other operating activities, net	799				1,082
Net cash flows provided by (used in) operating activities	17,694				(13,917		)
Cash flows from investing activities:
Purchases of equipment and leasehold improvements	(6,826		)		(3,425		)
Payment for acquisition of the Nu-Gro Corporation	(146,448		)		—
Proceeds from sale of aircraft	2,780				—
Proceeds from sale of WPC product lines	—				4,204
Net cash flows provided by (used in) investing activities	(150,494		)		779
Cash flows from financing activities:
Proceeds from issuance of senior subordinated notes	—				86,275
Proceeds from borrowings on new senior credit facility	385,000				—
Proceeds from issuance of common stock	—				84
Payments received for common stock subscription receivable	—				2,049
Payments received on loans to executive officer	109				80
Payment for repurchase of senior subordinated notes	(3,100		)		—
Repayment of borrowings on term debt	(179,986		)		(78,059		)
Payments for capital lease obligations	(3,841		)		(295		)
Payments for debt issuance costs	(9,954		)		(2,924		)
Payments for repurchase of preferred stock and accrued dividends	(57,557		)		—
Payment for Bayer transactions for treasury stock	(1,500		)		—
Change in book cash overdraft	4,079				6,433
Net cash flows provided by financing activities	133,250				13,643
Effect of exchange rates on cash and cash equivalents	(3,361		)		—
Net increase (decrease) in cash and cash equivalents	(2,911		)		505
Cash and cash equivalents, beginning of period	11,413				10,318
Cash and cash equivalents, end of period	$	8,502			$	10,823
Noncash financing activities:
Debt assumed in Nu-Gro acquisition	$	26,654			$	—
Bayer transactions for treasury stock (see Note 13)	$	22,873			$	—
Execution of capital lease for transportation equipment	$	3,525			$	—
Preferred stock dividends accrued	$	585			$	3,670
Retirement of preferred stock	$	37,665			$	—

See accompanying notes to consolidated financial statements.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where indicated)
(Unaudited)

Note 1—Description of Business and Basis of Presentation

Under a variety of brand names, and operating as Spectrum Brands and Nu-Gro, United Industries Corporation (the Company) manufactures and markets one of the broadest lines of products in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents, fertilizers, growing media and soils. The Company’s 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 its opening price point brands are designed for cost-conscious consumers who want quality products. The Company’s products are marketed to mass merchandisers, home improvement centers, hardware, grocery and drug chains, nurseries and garden centers throughout North America.

The Company’s operations are divided into three business segments: Consumer Lawn and Garden, Consumer Household and Fertilizer Technology and Other. The Company’s lawn and garden brands include, among others, Spectracide^®, Garden Safe^® and Real-Kill^® in the controls category, as well as Sta-Green^®, Vigoro^®, Schultz™ and Bandini^® brands in the lawn and garden fertilizer and growing media categories. The Company’s household brands include, among others, Hot Shot^®, Cutter^® and Repel^®. The Fertilizer Technology and Other segment includes a variety of controlled-release nitrogen products and technology, as well as a variety of compounds and chemicals, such as cleaning solutions and other consumer products. The Company’s fertilizer technology brands include, among others, Nutralene^® and Nitroform^®. As described in more detail in Note 15, the basis of the Company’s segmentation has been modified since March 31, 2004 to accommodate the acquisition of The Nu-Gro Corporation (Nu-Gro) (see Note 3).

The accompanying consolidated financial statements include the accounts and balances of the Company and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures typically included in the Company’s Annual Report on Form 10-K have been condensed or omitted for this report. As such, this report should be read in conjunction with the consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Certain amounts in the 2003 consolidated financial statements included herein have been reclassified to conform to the 2004 presentation.

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

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 2—Definitive Agreement to Acquire United Pet Group, Inc.

On June 14, 2004, the Company and a wholly-owned subsidiary entered into a definitive agreement to complete a merger of the subsidiary with and into United Pet Group, Inc. (UPG), a privately owned manufacturer and marketer of premium branded pet supplies. UPG’s stockholders approved the transaction on June 16, 2004 and the Company completed the merger on July 30, 2004 for cash consideration of $360.0 million. The transaction was financed with $250.0 million of proceeds from the Company’s New Senior Credit Facility, as amended (see Note 10), including $75.0 million under a second lien facility, $70.0 million of proceeds from the issuance of 5.8 million shares each of the Company’s Class A and Class B common stock to affiliates of Thomas H. Lee Partners, the Company’s largest stockholder, Banc of America Securities LLC and certain UPG selling stockholders and the remainder from the Company’s cash balances. The transaction will be accounted for as an acquisition and, accordingly, the results of operations of UPG will be included in the Company’s results of operations from July 30, 2004, the date of acquisition. The Company is currently in the process of obtaining an independent third-party valuation of assets acquired and liabilities assumed for purchase price allocation purposes and expects the valuation to be completed during the fourth quarter of 2004.

Note 3—Acquisition of The Nu-Gro Corporation

On April 30, 2004, the Company completed the acquisition of all of the outstanding common shares of Nu-Gro, a lawn and garden products company then incorporated under the laws of Ontario, Canada. As a result of the acquisition, Nu-Gro and its subsidiaries became wholly-owned subsidiaries of the Company. The total purchase price included cash consideration of $146.4 million, including $5.0 million of related acquisition costs, and the assumption of $26.7 million of outstanding debt, which was immediately repaid by the Company at closing. The transaction was financed with proceeds from the Company’s New Senior Credit Facility (see Note 10). The acquisition was executed to expand the Company’s reach throughout North America, broaden its product offerings and customer base, vertically integrate certain of its operations, including gaining access to advanced fertilizer technologies, and to achieve economies of scale and synergistic efficiencies.

The transaction was accounted for using the purchase method of accounting and, accordingly, the results of operations have been included in the consolidated financial statements from April 30, 2004, the date of acquisition. The purchase price was allocated to assets acquired and liabilities assumed based on estimated fair values. The Company preliminarily allocated $66.4 million of the purchase price to intangible assets and $40.5 million to goodwill for consideration paid in excess of the fair value of net assets acquired, which is not deductible for tax purposes. The acquired intangible assets consist primarily of trade names, which are currently being amortized using the straight-line method over periods ranging from fifteen to thirty years, and to customer relationships, which are currently being amortized using the straight-line method over periods ranging from five to ten years. In addition, the Company increased the value of inventory acquired from Nu-Gro by $6.1 million to reflect estimated fair value on the date of acquisition, which is currently being recorded as cost of goods sold commensurate with related subsequent sales activity during 2004. For the three months ended June 30, 2004, amortization expense associated with such write-up of inventory to estimated fair value of $5.2 million was recorded in cost of goods sold.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 3—Acquisition of The Nu-Gro Corporation (Continued)

The purchase price allocation is based on preliminary information, which is subject to adjustment upon obtaining the final report of an independent third-party valuation firm. The Company is currently in the process of obtaining such report and expects the final purchase price allocation to be completed during the third quarter of 2004. While the final purchase price allocation may differ significantly from the preliminary allocation provided herein, management believes any adjustments resulting from the final allocation will not have a material impact on the consolidated results of operations or financial position of the Company.

The following table summarizes the preliminary purchase price calculation and the preliminary estimated fair values of assets acquired and liabilities assumed as of April 30, 2004, the date of acquisition:

	April 30, 2004
Purchase price:
Cash		$	141,402
Transaction costs		5,046
Total purchase price		$	146,448
Allocation of purchase price:
Assets:
Accounts receivable		$	53,617
Inventories		41,856
Other current assets		1,158
Equipment and leasehold improvements		27,991
Goodwill		40,492
Trade names		47,750
Customer relationships		18,600
Other assets		1,058
Liabilities:
Accounts payable and accrued expenses		(33,109		)
Short-term borrowings and currentmaturities of long-term debt		(20,951		)
Long-term debt, net of current maturities		(5,703		)
Deferred income taxes		(26,311		)
Total purchase price		$	146,448

The following table presents the Company’s unaudited consolidated results of operations on a pro forma basis, as if the Nu-Gro acquisition had occurred on January 1, 2004 and 2003, as applicable:

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Net sales	$	265,124	$	269,452	$	489,772	$	496,484
Net income	24,114		25,465		37,874		39,137

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 3—Acquisition of The Nu-Gro Corporation (Continued)

The unaudited pro forma consolidated financial information presented herein is not necessarily indicative of the consolidated results of operations or financial position that would have resulted had the acquisition been completed at the beginning of or as of the periods presented, nor is it indicative of the results of operations in future periods or the future financial position of the combined companies.

With the acquisition of Nu-Gro, the Company has become subject to foreign currency translation gains and losses, as the Canadian dollar is the functional currency of Nu-Gro’s Canadian subsidiaries. For translation of the Canadian subsidiaries’ financial statements, assets and liabilities are translated at the period-end exchange rate, while statement of operations accounts are translated at average exchange rates monthly. The resulting translation adjustments are recorded in accumulated other comprehensive income, a component of stockholders’ equity (deficit). Transaction gains or losses on intercompany balances with Nu-Gro that are designated as foreign currency transactions are recorded monthly in selling, general and administrative expenses in the consolidated statement of operations. Foreign currency transactions are recorded at the prevailing exchange rate on the transaction date.

Note 4—Stock-Based Compensation

The Company accounts for stock options issued to employees in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and applies the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123.” Under APB No. 25 and related interpretations, compensation expense is recognized using the intrinsic value method for the difference between the exercise price of the options and the estimated fair value of the Company’s common stock on the date of grant.

SFAS No. 123 requires pro forma disclosure of the impact on earnings as if the Company determined stock-based compensation expense using the fair value method. The following table presents net income, as reported, stock-based compensation expense that would have been recorded using the fair value method and pro forma net income that would have been reported had the fair value method been applied:

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
										(As Restated)
Net income, as reported	$	17,333		$	21,362		$	29,720			$	32,414
Stock-based compensation expense using the fair value method, net of tax	(289		)	(368		)	(467		)		(720		)
Pro forma net income	$	17,044		$	20,994		$	29,253			$	31,694

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 5—Inventories

Inventories consist of the following:

	June 30,						December 31,
	2004			2003			2003
Components and packaging	$	42,514		$	29,554			$	34,619
Finished goods	90,784			54,546				67,794
Allowance for obsolete and slow-moving inventory	(6,591		)	(6,397		)		(5,618		)
Total inventories	$	126,707		$	77,703			$	96,795

Note 6—Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:

	June 30,						December 31,
	2004			2003			2003
Machinery and equipment	$	49,588		$	37,886			$	39,024
Office furniture, equipment and capitalized software	32,605			24,015				30,183
Transportation equipment	4,441			5,998				6,418
Leasehold improvements	3,716			2,815				3,157
Land and buildings	15,941			—				114
	106,291			70,714				78,896
Accumulated depreciation and amortization	(37,040		)	(37,836		)		(41,743		)
Total equipment and leasehold improvements, net	$	69,251		$	32,878			$	37,153

For the three months ended June 30, 2004 and 2003, depreciation and amortization expense was $4.1 million and $1.6 million, respectively. For the six months ended June 30, 2004 and 2003, depreciation and amortization expense was $6.6 million and $3.4 million, respectively. In February 2004, the Company executed a capital lease agreement for the use of an aircraft for $3.5 million. In April 2004, the Company closed an agreement that was executed in March 2004 to sell the aircraft it replaced in February 2004. The carrying value of the aircraft sold was $1.2 million and proceeds from the sale were $2.8 million. Accordingly, after related expenses of $0.1 million, the Company recorded a $1.5 million gain on sale which is included in operating income in the accompanying consolidated statement of operations. As of June 30, 2004 and 2003 and December 31, 2003, the cost of the aircraft held under capital lease was $3.8 million, $5.3 million and $5.3 million, respectively, and related accumulated amortization was $0.1 million, $3.8 million and $4.4 million, respectively.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 7—Goodwill and Intangible Assets

Intangible assets consist of the following:

			June 30, 2004					June 30, 2003							December 31, 2003
	Amortization		Gross				Net	Gross					Net		Gross					Net
	Period		Carrying	Accumulated			Carrying	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	in Years		Value	Amortization			Value	Value		Amortization			Value		Value		Amortization			Value
										(As Restated)
Intangible assets:
Trade names		5-40	$115,534		$ (6,235	)	$109,299		$64,351		$(2,494	)		$61,857		$61,548		$ (2,958	)		$58,590
Customer relationships		5-10	54,428		(13,922	)	40,506		24,897		(4,895	)		20,002		31,196		(8,566	)		22,630
Supply agreements		3-10	8,601		(991	)	7,610		5,694		(1,033	)		4,661		5,694		(380	)		5,314
Other intangible assets		25	708		(502	)	206		601		(83	)		518		604		(266	)		338
Total intangible assets, net			$179,271		$(21,650	)	$157,621		$95,543		$(8,505	)		$87,038		$99,042		$(12,170	)		$86,872
Goodwill							61,398							8,839							6,221
Total goodwill and intangible assets, net							$219,019							$95,877							$93,093

Intangible assets include trade names, customer relationships, supply agreements and other intangible assets, which are valued upon acquisition through independent third-party appraisals, where material, or using other valuation methods. Intangible assets are amortized using the straight-line method over periods ranging from five to forty years, or in the case of the supply agreements, over the period in which their economic benefits are expected to be utilized, or three to ten years. The table above reflects reclassifications of approximately $4.4 million from trade names to customer relationships and approximately $4.1 million from goodwill to customer relationships recorded during the second and third quarters of 2003 due to the final independent third-party valuation reports received during such quarters and the establishment of related deferred tax liabilities.

Amounts recorded for goodwill in connection with the Nu-Gro acquisition totaled $40.5 million at June 30, 2004 and was allocated based on preliminary information, which is subject to adjustment upon obtaining the final report of an independent third-party valuation firm. Goodwill by segment was $36.6 million for the Consumer Lawn and Garden segment, $6.8 million for the Consumer Household segment and $18.0 million for the Fertilizer Technology and Other segment as of June 30, 2004. Goodwill by segment was $6.2 million for the Consumer Lawn and Garden segment, $2.5 million for the Consumer Household segment and $0.2 million for the Fertilizer Technology and Other segment as of June 30, 2003. Goodwill by segment was $4.2 million for the Consumer Lawn and Garden segment, $1.9 million for the Consumer Household segment and $0.1 million for the Fertilizer Technology and Other segment as of December 31, 2003.

Restatement

The Company had initially reflected the guidance outlined in EITF 02-17, “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination” as of the date it finalized the

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 7—Goodwill and Intangible Assets (Continued)

allocation of the purchase price of Schultz Company, in the first quarter of 2003, and began amortizing the customer relationship intangible asset over its remaining useful life. In March 2004, the Company determined that the effect of the application of EITF 02-17 should have been applied from the date of acquisition and, as such should have resulted in a $2.4 million noncash charge for the additional amortization related to the final valuation of the $24.6 million customer relationship intangible asset. Accordingly, in the fourth quarter of 2003, the Company restated the March 31, 2003 quarterly financial information to include the noncash adjustment which increased first quarter 2003 selling, general and administrative expenses by $2.4 million and decreased income before income tax expense and net income by $2.4 million, as the intangible assets are not deductible for tax purposes. Operating income and net income as originally reported for the three months ended March 31, 2003 of $31,058 and $13,453, respectively, were higher than the respective restated first quarter amounts of $28,658 and $11,053 due to the additional amortization expense described above. In addition, operating income and net income as originally reported for the six months ended June 30, 2003 of $75,359 and $34,814, respectively, were higher than the respective restated amounts of $72,959 and $32,414 due to the additional amortization expense described above.

Customer Agreement

On February 12, 2004, the Company and its largest customer executed a licensing, manufacturing and supply agreement (the Agreement). Under the Agreement, the Company will license certain of its trademarks and be the exclusive manufacturer and supplier for certain products branded with such trademarks from January 1, 2004, the effective date of the Agreement, through December 31, 2008 or such later date as is specified in the Agreement. Provided the customer achieves certain required minimum purchase volumes and other conditions during such period, and the manufacturing and supply portion of the Agreement is extended for an additional three-year period as specified in the Agreement, the Company will assign the trademarks to the customer not earlier than May 1, 2009, but otherwise within thirty days after the date upon which such required minimum purchase volumes are achieved. The carrying value of such trademarks as of February 12, 2004 was approximately $16.0 million. If the customer fails to achieve the required minimum purchase volumes or meet other certain conditions, assignment may occur at a later date, if certain conditions are met. In addition, as a result of executing the Agreement, the Company has modified the trademarks’ initial amortization period of forty years and will record amortization in a manner consistent with projected sales activity over five years, because the Company believes the customer will achieve all required conditions by May 2009. The modification of the amortization period will result in additional annual amortization expense of approximately $2.7 million in the year ended December 31, 2004.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 7—Goodwill and Intangible Assets (Continued)

For the three months ended June 30, 2004 and 2003 and the year ended December 31, 2003, aggregate amortization expense related to intangible assets was $5.2 million, $2.1 million and $9.3 million, respectively. For the six months ended June 30, 2004 and 2003, aggregate amortization expense related to intangible assets was $8.9 million and $4.9 million, respectively. The following table presents estimated amortization expense for intangible assets during each of the next five years:

Year				Amount
Remainder of 2004				$11,069
2005				17,387
2006				17,502
2007				13,343
2008				10,544

Note 8—Other Assets

Other assets consist of the following:

	June 30,						December 31,
	2004			2003			2003
Deferred financing fees	$	22,005		$	23,542			$	23,841
Accumulated amortization	(6,198		)	(13,063		)		(14,948		)
Deferred financing fees, net	15,807			10,479				8,893
Other	1,791			1,384				1,004
Total other assets, net	$	17,598		$	11,863			$	9,897

As described in Note 10, during the three months ended June 30, 2004, the Company recorded deferred financing fees of $10.0 million in connection with its New Senior Credit Facility and wrote-off $1.7 million of deferred financing fees in connection with the repayment of obligations under its Prior Senior Credit Facility.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 9—Accrued Expenses

Accrued expenses consist of the following:

	June 30,				December 31,
	2004		2003		2003
Advertising and promotion	$	25,143	$	26,023		$	9,605
Interest	8,863		6,897			6,219
Cash overdraft	4,079		—			—
Preferred stock dividends	—		13,128			17,111
Salaries and benefits	3,590		4,491			3,644
Commissions	1,440		620			459
Income taxes payable	1,650		346			—
Severance costs	414		545			201
Freight	2,631		1,874			1,152
Acquisition costs	1,478		453			—
Other	5,635		2,607			1,183
Total accrued expenses	$	54,923	$	56,984		$	39,574

Note 10—Long-Term Debt

Long-term debt, excluding capital lease obligations, consists of the following:

	June 30,						December 31,
	2004			2003			2003
New Senior Credit Facility:
Term Loan	$	334,163		$	—			$	—
Canadian Loan	50,380			—				—
Revolving Credit Facility	—			—				—
Prior Senior Credit Facility:
Term Loan B	—			172,767				152,368
Revolving Credit Facility	—			—				—
Senior Subordinated Notes:
97¤8% Series B Senior Subordinated Notes	—			150,000				3,100
97¤8% Series C Senior Subordinated Notes, including unamortizedpremium of $1.2 million	—			86,202				—
97¤8% Series D Senior Subordinated Notes, including unamortizedpremium of $1.0 million and $1.1 million, respectively	232,903			—				232,985
Total long-term debt	617,446			408,969				388,453
Less current maturities	(3,855		)	(898		)		(796		)
Total long-term debt, net of current maturities	$	613,591		$	408,071			$	387,657

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 10—Long-Term Debt (Continued)

Senior Credit Facility in Effect Prior to April 30, 2004

The senior credit facility, as amended as of March 14, 2003, in effect prior to April 30, 2004 (the Prior Senior Credit Facility), with Bank of America, N.A., Morgan Stanley Senior Funding, Inc. and Canadian Imperial Bank of Commerce was terminated and all obligations outstanding thereunder were repaid on April 30, 2004. The Prior Senior Credit Facility consisted of (1) a $90.0 million revolving credit facility; (2) a $75.0 million term loan facility (Term Loan A), which was repaid in full during the year ended December 31, 2003; and (3) a $240.0 million term loan facility (Term Loan B).

The Prior Senior Credit Facility agreement contained affirmative, negative and financial covenants. Affirmative and negative covenants placed restrictions on, among other things, levels of investments, indebtedness, insurance, capital expenditures and dividend payments. The financial covenants required the maintenance of certain financial ratios at defined levels. As of and during the six months ended June 30, 2004 and 2003 and year ended December 31, 2003, as applicable, the Company was in compliance with all covenants. Under the Prior Senior Credit Facility agreement, interest rates on the revolving credit facility and Term Loan B ranged from 1.50% to 4.00% plus LIBOR, or other base rate as provided in the Prior Senior Credit Facility agreement, depending on certain financial ratios. LIBOR was 1.12% as of June 30, 2003 and 1.16% as of December 31, 2003. The interest rate applicable to Term Loan B was 5.32% as of June 30, 2003 and 5.12% as of December 31, 2003. Unused commitments under the revolving credit facility were subject to a 0.5% annual commitment fee.

The Prior Senior Credit Facility agreement allowed the Company to make prepayments in whole or in part at any time without premium or penalty. During the six months ended June 30, 2004, the Company made principal payments of $152.4 million to fully repay Term Loan B, which primarily represented optional principal prepayments. During the six months ended June 30, 2003, the Company made principal payments of $28.3 million to fully repay Term Loan A and $49.2 million on Term Loan B, which primarily represented optional principal prepayments. During the year ended December 31, 2003, the Company made principal payments of $28.3 million to fully repay Term Loan A and $69.6 million on Term Loan B, which primarily represented optional principal prepayments. The optional principal prepayments were made from operating cash flows and proceeds from the New Senior Credit Facility described below and allowed the Company to remain several quarterly payments ahead of the regular payment schedule. In connection with these prepayments, the Company recorded write-offs totaling $1.7 million and $0.3 million in previously deferred financing fees which were included in interest expense in the consolidated statement of operations for the three months ended June 30, 2004 and 2003, respectively, and $1.7 million and $1.6 million for the six months ended June 30, 2004 and 2003, respectively.

The Prior Senior Credit Facility was secured by substantially all of the Company’s properties and assets and by substantially all of the properties and assets of the Company’s current domestic subsidiaries. The carrying amount of the Company’s obligations under the Prior Senior Credit Facility approximated fair value because the interest rates were based on floating interest rates identified by reference to market rates.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 10—Long-Term Debt (Continued)

New Senior Credit Facility in Effect as of April 30, 2004

In conjunction with the closing of the acquisition of Nu-Gro, on April 30, 2004, the Company entered into a new $510.0 million senior credit facility (the New Senior Credit Facility) with Bank of America, N.A., Banc of America Securities LLC, Citigroup Global Markets, Inc., Citicorp North America, Inc. and certain other lenders to retire the indebtedness under its Prior Senior Credit Facility and execute a new senior credit facility at more favorable rates, to provide funds for the Nu-Gro acquisition, to repurchase all of its outstanding preferred stock, along with accrued but unpaid dividends thereon, and for general working capital purposes. The New Senior Credit Facility consists of (1) a $125.0 million U.S. dollar denominated revolving credit facility; (2) a $335.0 million U.S. dollar denominated term loan facility; and (3) a Canadian dollar denominated term loan facility valued at U.S. $50.0 million. Subject to the terms of the New Senior Credit Facility agreement, the revolving loan portion of the New Senior Credit Facility matures on April 30, 2010, and the term loan obligations under the New Senior Credit Facility mature on April 30, 2011. The term loan obligations are to be repaid in 28 consecutive quarterly installments commencing on June 30, 2004, with a final installment due on March 31, 2011. All of the loan obligations are subject to mandatory prepayment upon certain events, including sales of certain assets, issuances of indebtedness or equity or from excess cash flow. The New Senior Credit Facility agreement also allows the Company to make voluntary prepayments, in whole or in part, at any time without premium or penalty.

The New Senior Credit Facility agreement contains affirmative, negative and financial covenants that are more favorable than those of the Prior Senior Credit Facility. The negative covenants place restrictions on, among other things, levels of investments, indebtedness, capital expenditures and dividend payments that the Company may make or incur. The financial covenants require the maintenance of certain financial ratios at defined levels. Under the New Senior Credit Facility agreement, interest rates on the new revolving credit facility can range from 1.75% to 2.50% plus LIBOR, or from 0.75% to 1.50% plus a base rate, subject to adjustment and depending on certain financial ratios. As of June 30, 2004, the term loans were subject to interest rates equal to 2.50% plus LIBOR or 1.50% plus a base rate, as provided in the New Senior Credit Facility agreement. The interest rate applicable to the Company’s outstanding borrowings was 3.84% as of June 30, 2004, 5.32% as of June 30, 2003 and 5.12% as of December 31, 2003. Unused commitments under the new revolving credit facility are subject to a 0.5% annual commitment fee. Unused availability under the new revolving credit facility was $121.1 million as of June 30, 2004 which is reflective of $3.9 million of standby letters of credit pledged as collateral (see Note 11). The New Senior Credit Facility is secured by substantially all of the Company’s properties and assets and substantially all of the properties and assets of the Company’s current and future domestic subsidiaries.

In connection with the closing of the Nu-Gro acquisition, Bank of America, N.A., Canada Branch, separately loaned the Company Cdn $110.0 million for structuring purposes, which loan was repaid on April 30, 2004.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 10—Long-Term Debt (Continued)

Amendment to New Senior Credit Facility in Effect as of July 30, 2004

On July 30, 2004, in connection with the closing of and to partially fund its merger with UPG, the Company amended and restated the credit agreement related to the New Senior Credit Facility to increase the revolving credit facility from $125.0 million to $130.0 million, increase the U.S. term loan from $335.0 million to $510.0 million, add a $75.0 million second lien term loan and leave the Canadian term loan of U.S. $50 million unchanged for a total New Senior Credit Facility, as amended, of $765.0 million. Subject to the terms of the New Senior Credit Facility agreement, as amended, the second lien term loan is to be repaid in 29 consecutive quarterly installments commencing on September 30, 2004, with a final installment due on September 30, 2011, and matures on October 31, 2011. Interest on the second lien term loan accrues at 4.50% plus LIBOR or 3.5% plus a base rate, subject to adjustment and depending on certain financial ratios. The second lien term loan is subject to affirmative, negative and financial covenants. The Company incurred $5.0 million in costs related to the amendment, which were recorded as deferred financing fees and are being amortized over the remaining term of the New Senior Credit Facility. The amendment did not change any other key terms or existing covenants of the New Senior Credit Facility.

Senior Subordinated Notes

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

In March 2003, the Company issued $85.0 million in aggregate principal amount of 97¤8% Series C senior subordinated notes (the Series C Notes) due April 1, 2009. Interest accrued at a rate of 97¤8% per annum, payable semi-annually on April 1 and October 1. As described in more detail below, as of June 30, 2004, there were no Series C Notes outstanding.

In May 2003, the Company registered $235.0 million in aggregate principal amount of 97¤8% Series D senior subordinated notes (the Series D Notes and collectively with the Series B Notes and Series C Notes, the Senior Subordinated Notes), with terms substantially similar to the Series B Notes and Series C Notes, with the U.S. Securities and Exchange Commission and offered to exchange the Series D Notes for up to 100% of the Series B Notes and Series C Notes. The exchange offering closed in July 2003, resulting in $85.0 million, or 100%, of the Series C Notes being exchanged and $146.9 million, or 98%, of the Series B Notes being exchanged. On April 14, 2004, the Company repurchased all of the remaining Series B Notes outstanding, together with accrued interest and repurchase premium of 4.938%, for $3.3 million. As of June 30, 2004, $232.9 million of the Series D Notes were outstanding and no Series B Notes or Series C Notes were outstanding.

The fair value of the Senior Subordinated Notes was $241.1 million, $246.8 million and $242.1 million as of June 30, 2004 and 2003 and December 31, 2003, respectively, based on their quoted market price on such dates. The fair value at June 30, 2004 reflects the repurchase of all outstanding Series B Notes in April 2004, as previously described. In accordance with the indentures that govern them, the Senior

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 10—Long-Term Debt (Continued)

Subordinated Notes are unconditionally and jointly and severally guaranteed by the Company’s wholly-owned domestic subsidiaries (see Note 16).

The Company’s agreements that govern the New Senior Credit Facility and the Senior Subordinated Notes contain a number of significant covenants that could restrict or limit the Company’s ability to:

· incur more debt;

· pay dividends, subject to financial ratios and other conditions;

· make other distributions;

· issue stock of subsidiaries;

· make investments;

· repurchase stock;

· create subsidiaries;

· create liens;

· enter into transactions with affiliates;

· merge or consolidate; and

· transfer and sell assets.

The ability to comply with these provisions may be affected by events beyond the Company’s control. The breach of any of these covenants will result in a default under the applicable debt agreement or instrument and could trigger acceleration of repayment under the applicable agreements. Any default under such agreements might adversely affect the Company’s growth, financial condition, results of operations and the ability to make payments on indebtedness or meet other obligations. As of and during the six months ended June 30, 2004 and 2003 and year ended December 31, 2003, the Company was in compliance with all covenants under the Prior Senior Credit Facility, the New Senior Credit Facility and the Senior Subordinated Notes in effect as of such dates.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 10—Long-Term Debt (Continued)

As of July 30, 2004, after giving effect to the financing activities previously described, aggregate future principal payments of long-term debt, excluding capital lease obligation, are as follows:

Year	Amount
Remainder of 2004	$	3,175
2005	6,351
2006	6,351
2007	6,351
2008	6,351
Thereafter	606,374
	634,953
Unamortized premium on Senior Subordinated Notes	1,003
	$	635,956

Note 11—Contingencies

In the normal course of business, the Company is 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. As of June 30, 2004 and 2003 and December 31, 2003, the Company had $3.9 million, $1.7 million and $2.7 million, respectively, in standby letters of credit pledged as collateral to support the lease of its primary distribution facility in St. Louis, a U.S. customs bond, certain product purchases, various workers’ compensation obligations and transportation equipment. These agreements mature at various dates through May 2005 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 the Company’s past experience, no claims have been made against these financial instruments nor does management expect the exposure to material losses resulting therefrom to be anything other than remote. As a result, the Company determined such agreements do not have significant value and has not recorded any related amounts in its accompanying consolidated financial statements.

The Company is the lessee under a number of equipment and property leases. It is common in such commercial lease agreements for the Company to agree to indemnify the lessor for the value of the property or equipment leased should it be damaged during the course of the Company’s operations. The Company expects that any losses that may occur with respect to the leased property would be covered by insurance, subject to deductible amounts. As a result, the Company determined such indemnifications do not have significant value and has not recorded any related amounts in its accompanying consolidated financial statements for such remote loss exposure.

The Company is involved from time to time in routine legal matters and other claims incidental to its business. When it appears probable in management’s judgment that the Company will incur monetary damages or other costs in connection with such claims and proceedings, and such costs can be reasonably estimated, liabilities are recorded in the consolidated financial statements and charges are recorded to results of operations. Management believes that it is remote the resolution of such routine matters and

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 11—Contingencies (Continued)

other incidental claims, taking into account established reserves and insurance, will have a material adverse impact on the Company’s consolidated financial position, results of operations or liquidity.

Note 12—Accounting for Derivative Instruments and Hedging Activities

In the normal course of business, the Company is exposed to fluctuations in interest rates and raw materials prices. The Company has established policies and procedures that govern the management of these exposures through the use of derivative hedging instruments, including swap agreements. The Company’s objective in managing its 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, the Company periodically enters 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 results of operations.

The Company formally documents, designates and assesses the effectiveness of any transactions that receive hedge accounting treatment. The cash flows of derivative hedging instruments the Company enters into are generally 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 June 30, 2004, the Company had no outstanding derivative hedging instruments. As of June 30, 2003, the Company had one derivative hedging instrument, with a maturity date in July 2003, designated as a hedge against the purchase of granular urea for a contract value upon the date of execution of $0.4 million. Such derivative hedging instrument had an unrealized gain of less than $0.1 million as of June 30, 2003 which is included in accumulated other comprehensive income in the accompanying consolidated balance sheet as of such date. Although derivative hedging instruments were used throughout 2004 and 2003, no such instruments were outstanding as of June 30, 2004 or December 31, 2003. The amounts recorded in accumulated other comprehensive income were subsequently reclassified into cost of goods sold in the same period in which the underlying hedged transactions affected earnings. Such amounts reclassified into cost of goods sold included a net loss of $0.2 million for the three and six months ended June 30, 2004, a net gain of $1.2 million for the three months ended June 30, 2003 and a net gain of $1.4 million for the six months ended June 30, 2003.

If it becomes probable that a forecasted transaction will not occur, any gains or losses in accumulated other comprehensive income will be recognized in results of operations. The Company has not incurred any gains or losses for hedge ineffectiveness or due to excluding a portion of the value from measuring effectiveness. The Company has not generally entered into derivatives or other hedging arrangements for trading or speculative purposes but may consider doing so in the future if strategic circumstances warrant, and its bank covenants and bond indentures permit, such transactions. While management expects its

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 12—Accounting for Derivative Instruments and Hedging Activities (Continued)

derivative hedging instruments to manage the Company’s exposure to such price fluctuations, no assurance can be provided that such instruments will be effective in fully mitigating exposure to these risks, nor can assurance be provided that the Company will be successful in passing on pricing increases to its customers.

Note 13—Stockholders’ Equity

Bayer Transactions

On June 14, 2002, the Company consummated a transaction with Bayer Corporation and Bayer Advanced, L.L.C. (together referred to herein as Bayer) which allows the Company to gain access to certain Bayer active ingredient technologies through a Supply Agreement and to perform certain merchandising services for Bayer through an In-Store Service Agreement. In consideration for the Supply and In-Store Service Agreements, and in exchange for the promissory notes previously issued to Bayer by U.S. Fertilizer, the Company issued to Bayer 3,072,000 shares of Class A voting common stock valued at $15.4 million and 3,072,000 shares of Class B nonvoting common stock valued at $15.4 million (collectively representing approximately 9.3% of the Company’s fully-diluted common stock) and recorded $0.4 million of related issuance costs. The Company reserved for the entire face value of the promissory notes due from U.S. Fertilizer, as the Company did not believe the notes were collectible and an independent third party valuation did not ascribe any significant value to them. The independent third party valuation also indicated that value should be ascribed to the repurchase option which is reflected in stockholders’ equity (deficit) in the accompanying consolidated balance sheets as of June 30, 2003 and December 31, 2003.

Under the terms of the agreements, Bayer was required to make payments to the Company which total $5.0 million annually through June 15, 2009, the present value of which equaled the value assigned to the common stock subscription receivable as of June 14, 2002, which has been reflected in stockholders’ equity (deficit) in the accompanying consolidated balance sheets as of June 30, 2003 and December 31, 2003. The common stock subscription receivable was to be repaid by Bayer 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 received has been recorded as interest income in the accompanying consolidated statements of operations for the six months ended June 30, 2004 and 2003 and year ended December 31, 2003.

The value of the Supply Agreement has been and is being amortized to cost of goods sold over the period in which its economic benefits are expected to be utilized which was initially anticipated to be over a three to five-year period. The Company has been amortizing the obligation associated with the In-Store Service Agreement to revenues over the seven-year life of the agreement, the period in which its obligations were originally expected to be fulfilled. However, in December 2002, the Company and Bayer amended the In-Store Service Agreement to reduce the scope of services provided by approximately 80%. As a result, the Company reduced its obligation under the In-Store Service Agreement accordingly and reclassified $3.6 million to additional paid-in capital to reflect the increase in value of the In-Store Service Agreement.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 13—Stockholders’ Equity (Continued)

On October 22, 2003, the Company gave notice to Bayer regarding the termination of the In-Store Service Agreement, as amended. Upon termination, which became effective on December 21, 2003, the Company was relieved of its obligation to perform merchandising services for Bayer. Accordingly, the remaining liability of $0.7 million on the date of termination was fully written off and recorded in selling, general and administrative expenses in the accompanying consolidated statement of operations for the year ended December 31, 2003.

Following the termination of the In-Store Service Agreement, on December 22, 2003, the Company exercised its option to repurchase all outstanding common stock previously issued to Bayer. Bayer disputed the Company’s interpretation of a related agreement (the Exchange Agreement) as to the calculation of the repurchase price. As a result, the Company and Bayer entered negotiations to determine an agreed upon repurchase price based on equations included in the Exchange Agreement and other factors. The Company commenced an arbitration proceeding against Bayer to resolve the dispute on January 30, 2004. However, the Company and Bayer reached a negotiated settlement of the dispute on February 23, 2004, pursuant to which Bayer agreed to deliver all of its shares of the Company’s common stock to the Company in exchange for a cash payment of $1.5 million, cancellation of $22.5 million in remaining payments required to be made in connection with the common stock subscription receivable and forgiveness of interest related to such payments of $0.3 million.

The Company recorded treasury stock of $24.4 million, based on the consideration given to Bayer, reduced the common stock subscription receivable by $22.5 million, the remaining balance on the date of repurchase, and reversed the common stock repurchase option of $2.6 million as a result of its exercise and recorded a corresponding amount to additional paid-in capital. As a result of this transaction, both parties agreed that the Exchange Agreement and In-Store Service Agreement are fully terminated, with the exception of certain provisions contained therein that expressly survive termination, and that the Supply Agreement shall remain in full force and effect according to its terms. Under the terms of the Supply Agreement, any remaining balance at January 30, 2009 is unconditionally and immediately payable to the Company by Bayer regardless of whether or not the Company purchases ingredients under the Supply Agreement. As of June 30, 2004, the remaining balance of the Supply Agreement, net of amortization and excluding accrued interest, was $4.7 million.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 13—Stockholders’ Equity (Continued)

Based on the independent third party valuation as of June 14, 2002, the original transaction date, the Company assigned a fair value of $30.7 million to the transaction components recorded in connection with the common stock issued to Bayer. The following table presents the values of these components as of June 30, 2004 and 2003 and December 31, 2003 based on such valuation and as a result of the activities and transactions previously described, net of amortization and excluding accrued interest:

	June 30,					December 31,
Description	2004		2003			2003
Common stock subscription receivable	$	—	$	24,177			$	22,534
Supply Agreement	4,710		5,694				5,314
Repurchase option	—		2,636				2,636
In-Store Service Agreement	—		(729		)		—
	$	4,710	$	31,778			$	30,484

Bayer recently sent notice to the Company purporting to terminate the Supply Agreement, effective August 17, 2004. The Company responded by notifying Bayer that it did not have a right to terminate. The Company therefore returned to Bayer the payment due upon termination, which Bayer had tendered to the Company. The parties are in agreement that the amount due in the event of termination was $5.2 million, including $0.5 million of accrued interest. The outcome of the Company’s disagreement with Bayer concerning termination of the Supply Agreement is not expected to have a material adverse impact on the Company’s consolidated financial position, results of operations or cash flows.

Issuance of Common Stock

In conjunction with its acquisition of UPG (see Note 2) on July 30, 2004, the Company issued 5.8 million shares each of Class A and Class B common stock for proceeds of $70.0 million.

Repurchase of Preferred Stock

In conjunction with the financing activities described in Note 10, on April 30, 2004, the Company repurchased all 37,600 shares of its outstanding Class A nonvoting preferred stock for $57.6 million, including $19.9 million for all accrued dividends thereon. Such repurchase resulted in a decline in additional paid-in capital of $37.7 million.

Note 14—Fair Value of Financial Instruments

The Company has estimated the fair value of its financial instruments as of June 30, 2004 and 2003 and December 31, 2003 using available market information or other appropriate valuation methods. Considerable judgment, however, is required in interpreting data to develop estimates of fair value. Accordingly, the estimates presented in the accompanying consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 14—Fair Value of Financial Instruments (Continued)

The carrying amounts of cash, accounts receivable, accounts payable and other current assets and liabilities approximate fair value because of the short maturity of such instruments. The Company’s Senior Credit Facility bears interest at current market rates and, thus, carrying value approximates fair value as of June 30, 2004 and 2003 and December 31, 2003. The Company is exposed to interest rate volatility with respect to the variable interest rates of the New Senior Credit Facility. The estimated fair values of the Company’s Senior Subordinated Notes of $241.1 million, $246.8 million, and $242.1 million, respectively, as of June 30, 2004 and 2003 and December 31, 2003 are based on quoted market prices.

Note 15—Segment Information

As of June 30, 2004, the Company reported its operating results using three reportable segments: Consumer Lawn and Garden, Consumer Household and Fertilizer Technology and Other. The basis of the Company’s segmentation has been modified since March 31, 2004 to accommodate the acquisition of Nu-Gro. Changes to segments previously reported include the addition of Nu-Gro’s consumer lawn and garden brands and products to the Company’s existing Lawn and Garden segment to form the new Consumer Lawn and Garden segment, as well as the addition of Nu-Gro’s fertilizer technology brands and other products to the Company’s existing Contract segment to form the new Fertilizer Technology and Other segment. No changes were made to the Company’s existing Household segment but the name was changed to Consumer Household. No reclassification of the 2003 segment information was necessary for comparability between the periods presented herein.

Segments were established primarily by brand and product type, which represents the basis upon which management, including the Chief Executive Officer who is the chief operating decision-maker of the Company, reviews and assesses the Company’s financial performance. The Consumer Lawn and Garden segment primarily consists of dry, granular lawn fertilizers, lawn fertilizer combination and 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. Products are marketed to mass merchandisers, home improvement centers, hardware, grocery and drug chains, nurseries and garden centers. This segment includes, among others, the Company’s Spectracide, Garden Safe, Schultz, Vigoro, Sta-Green, Real-Kill, Wilson, So-Green, Greenleaf and Green Earth brands.

The Consumer Household segment represents household insecticides and insect repellents that allow consumers to maintain a pest-free household and repel insects. The Consumer Household segment includes the Company’s Hot Shot, Cutter and Repel brands, as well as a number of private label and other products.

The Fertilizer Technology and Other segment consists of a variety of controlled-release nitrogen products and technology, as well as a variety of compounds and chemicals, such as cleaning solutions and other consumer products. The Fertilizer Technology and Other segment includes the Company’s Nutralene and Nitroform brands.

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 15—Segment Information (Continued)

The table below presents selected financial segment information in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” for the three and six months ended June 30, 2004 and 2003. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as applicable. The segment financial information presented includes comparative periods prepared on a basis consistent with the current year presentation.

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
										(As Restated)
Net sales:
Consumer Lawn and Garden	$	152,467		$	142,256		$	302,974			$	287,870
Consumer Household	71,095			61,021			102,320				88,588
Fertilizer Technology and Other	16,273			2,726			17,244				8,357
Total net sales	239,835			206,003			422,538				384,815
Operating costs and expenses:
Cost of goods sold	155,857			123,797			269,265				232,552
Selling, general and administrative expenses	49,784			37,905			89,765				79,304
Total operating costs and expenses	205,641			161,702			359,030				311,856
Operating income (loss) by segment:
Consumer Lawn and Garden	14,947			26,119			35,395				48,192
Consumer Household	19,432			17,795			28,480				24,421
Fertilizer Technology and Other	(185		)	387			(367		)		346
Total operating income	34,194			44,301			63,508				72,959
Interest expense	11,908			10,271			21,528				19,974
Interest income	86			455			371				954
Income before income tax expense	22,372			34,485			42,351				53,939
Income tax expense	5,039			13,123			12,631				21,525
Net income	$	17,333		$	21,362		$	29,720			$	32,414
Operating margin:
Consumer Lawn and Garden	9.8		%	18.4		%	11.7		%		16.7		%
Consumer Household	27.3		%	29.2		%	27.8		%		27.6		%
Fertilizer Technology and Other	-1.1		%	14.2		%	-2.1		%		4.1		%
Total operating margin	14.3		%	21.5		%	15.0		%		19.0		%

Sales between segments totaled $1.8 million during the three and six months ended June 30, 2004 and represented raw materials sold from the Fertilizer Technology and Other segment to the Consumer Lawn and Garden segment. Operating income represents earnings before interest expense, interest income and income tax expense. Operating income is one measure of profitability used by management to assess the

UNITED INDUSTRIES CORPORATION AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except where indicated)
(Unaudited)

Note 15—Segment Information (Continued)

Company’s financial performance. Operating margin represents operating income as a percentage of net sales.

The majority of the Company’s sales are conducted with customers in the United States. As a percentage of total net sales, for the three months ended June 30, 2004, the Company’s net sales in the United States were 91%, net sales in Canada were 7%, and remaining international sales were less than 2%. For the three and six months ended June 30, 2003, the Company’s international sales comprised less than 2% of total annual net sales. In addition, no single item comprised more than 10% of the Company’s net sales. For the three months ended June 30, 2004, the Company’s three largest customers were responsible for 25%, 31% and 20% of net sales. For the six months ended June 30, 2003, the Company’s three largest customers were responsible for 28%, 20% and 18% of net sales.

As the Company’s assets support production across all segments, they are managed on an entity-wide basis at the corporate level and are not recorded or analyzed by segment. As of June 30, 2004, approximately 62% of the Company’s assets were located in the United States while approximately 38% were located in Canada.

Note 16—Financial Information for Guarantor Subsidiaries

The Company’s Senior Subordinated Notes are unconditionally and jointly and severally guaranteed by all of the Company’s existing domestic subsidiaries. The Company’s subsidiaries are 100% owned by the Company. The consolidating financial information which follows has been prepared in accordance with the requirements for presentation of such information. The Company believes that separate financial statements concerning each guarantor subsidiary would not be material to investors and that the information presented herein provides sufficient detail to determine the nature of the aggregate financial position, results of operations and cash flows of the guarantor subsidiaries. The guarantor subsidiaries’ information presented herein represents the Company’s domestic subsidiaries, including the U.S. subsidiaries of Nu-Gro, while the non-guarantor subsidiaries’ financial information represents the Company’s foreign subsidiaries which are comprised only of the Canadian subsidiaries of Nu-Gro.

The Company’s investment in subsidiaries is accounted for using the equity method of accounting. Earnings of the subsidiaries are reflected in the respective investment accounts of the parent company accordingly. The investments in subsidiaries and all intercompany balances and transactions have been eliminated. Various assumptions and estimates were used to establish the financial statements of such subsidiaries for the information presented herein.

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
BALANCE SHEET
AS OF JUNE 30, 2004
(Unaudited)

	Parent			Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	5,451			$	1,241			$	1,810			$	—			$	8,502
Accounts receivable, net	105,108				28,894				27,190				—				161,192
Inventories	61,441				34,684				30,582				—				126,707
Prepaid expenses and other current assets	13,520				611				1,192				—				15,323
Total current assets	185,520				65,430				60,774				—				311,724
Equipment and leasehold improvements, net	35,511				7,532				26,208				—				69,251
Investment in subsidiaries	145,345				3,311				(3,311		)		(145,345		)		—
Intercompany assets	115,022				—				—				(115,022		)		—
Deferred tax asset	154,117				(4,169		)		(26,054		)		—				123,894
Goodwill	5,048				10,706				45,644				—				61,398
Intangible assets, net	44,776				52,773				60,072				—				157,621
Other assets, net	13,438				3,062				1,098				—				17,598
Total assets	$	698,777			$	138,645			$	164,431			$	(260,367	)		$	741,486
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations	$	4,151			$	—			$	—			$	—			$	4,151
Accounts payable	35,623				11,275				10,856				—				57,754
Accrued expenses	34,431				10,522				9,970				—				54,923
Total current liabilities	74,205				21,797				20,826				—				116,828
Long-term debt, net of current maturities	613,591				—				—				—				613,591
Capital lease obligations, net of current maturities	3,324				—				—				—				3,324
Other liabilities	3,539				—				516				—				4,055
Intercompany liabilities	—				44,033				70,989				(115,022		)		—
Total liabilities	694,659				65,830				92,331				(115,022		)		737,798
Commitments and contingencies
Stockholders’ equity:
Common stock	665				—				—				—				665
Treasury stock	(24,469		)		—				—				—				(24,469		)
Warrants and options	11,745				—				—				—				11,745
Investment from parent	—				52,456				72,518				(124,974		)		—
Additional paid-in capital	170,672				—				—				—				170,672
Accumulated deficit	(151,468		)		20,359				(1,385		)		(20,371		)		(152,865		)
Common stock held in grantor trusts	(2,847		)		—				—				—				(2,847		)
Loans to executive officer	(215		)		—				—				—				(215		)
Accumulated other comprehensive income	35				—				967				—				1,002
Total stockholders’ equity	4,118				72,815				72,100				(145,345		)		3,688
Total liabilities and stockholders’ equity	$	698,777			$	138,645			$	164,431			$	(260,367	)		$	741,486

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
BALANCE SHEET
AS OF JUNE 30, 2003
(Unaudited) (As Restated)

				Guarantor
	Parent			Subsidiaries			Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	10,509			$	314		$	—			$	10,823
Accounts receivable, net	118,643				7,383			—				126,026
Inventories	48,444				29,259			—				77,703
Prepaid expenses and other current assets	8,071				399			—				8,470
Total current assets	185,667				37,355			—				223,022
Equipment and leasehold improvements, net	27,750				5,128			—				32,878
Investment in subsidiaries	24,491				—			(24,491		)
Intercompany assets	56,473				—			(56,473		)		—
Deferred tax asset	84,527				426			—				84,953
Goodwill, net	8,839				—			—				8,839
Intangible assets, net	37,950				49,088			87,038
Other assets, net	10,596				1,267			—				11,863
Total assets	$	436,293			$	93,264		$	(80,964	)		$	448,593
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Current maturities of long-term debt and capital lease obligation	$	1,434			$	—		$	—			$	1,434
Accounts payable	30,276				10,816			—				41,092
Accrued expenses	55,500				1,484			—				56,984
Total current liabilities	87,210				12,300			—				99,510
Long-term debt, net of current maturities	408,071				—			—				408,071
Capital lease obligation, net of current maturities	3,483				—			—				3,483
Other liabilities	3,231				—			—				3,231
Intercompany liabilities	—				56,473			(56,473		)		—
Total liabilities	501,995				68,773			(56,473		)		514,295
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock	—				—			—				—
Common stock	665				—			—				665
Treasury stock	(96		)		—			—				(96		)
Warrants and options	11,745				—			—				11,745
Investment from parent	—				23,708			(23,708		)		—
Additional paid-in capital	210,806				—			—				210,806
Accumulated deficit	(258,848		)		783			(783		)		(258,848		)
Common stock subscription receivable	(24,177		)		—			—				(24,177		)
Common stock repurchase option	(2,636		)		—			—				(2,636		)
Common stock held in grantor trust	(2,847		)		—			—				(2,847		)
Loans to executive officer	(324		)		—			—				(324		)
Accumulated other comprehensive income	10				—			—				10
Total stockholders’ equity (deficit)	(65,702		)		24,491			(24,491		)		(65,702		)
Total liabilities and stockholders’ equity (deficit)	$	436,293			$	93,264		$	(80,964	)		$	448,593

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
BALANCE SHEET
AS OF DECEMBER 31, 2003

				Guarantor
	Parent			Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	11,132			$	281			$	—			$	11,413
Accounts receivable, net	25,548				4,342				—				29,890
Inventories	56,677				40,118				—				96,795
Prepaid expenses and other current assets	14,989				152				—				15,141
Total current assets	108,346				44,893				—				153,239
Equipment and leasehold improvements, net	32,641				4,512				—				37,153
Investment in subsidiaries	18,950				—				(18,950		)		—
Intercompany assets	82,982				10,768				(93,750		)		—
Deferred tax asset	186,542				20				—				186,562
Goodwill	—				6,221				—				6,221
Intangible assets, net	46,554				40,318				—				86,872
Other assets, net	5,059				4,838				—				9,897
Total assets	$	481,074			$	111,570			$	(112,700	)		$	479,944
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligation	$	1,349			$	—			$	—			$	1,349
Accounts payable	23,024				6,750				—				29,774
Accrued expenses	36,686				2,888				—				39,574
Total current liabilities	61,059				9,638				—				70,697
Long-term debt, net of current maturities	387,657				—				—				387,657
Capital lease obligation, net of current maturities	3,191				—				—				3,191
Other liabilities	3,256				—				—				3,256
Intercompany liabilities	10,768				82,982				(93,750		)		—
Total liabilities	465,931				92,620				(93,750		)		464,801
Commitments and contingencies
Stockholders’ equity:
Preferred stock	—				—				—				—
Common stock	665				—				—				665
Treasury stock	(96		)		—				—				(96		)
Warrants and options	11,745				—				—				11,745
Investment from parent	—				27,925				(27,925		)		—
Additional paid-in capital	210,908				—				—				210,908
Accumulated deficit	(179,738		)		(8,975		)		8,975				(179,738		)
Common stock subscription receivable	(22,534		)		—				—				(22,534		)
Common stock repurchase option	(2,636		)		—				—				(2,636		)
Common stock held in grantor trusts	(2,847		)		—				—				(2,847		)
Loans to executive officer	(324		)		—				—				(324		)
Total stockholders’ equity	15,143				18,950				(18,950		)		15,143
Total liabilities and stockholders’ equity	$	481,074			$	111,570			$	(112,700	)		$	479,944

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2004
(Unaudited)

	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$171,318			$75,277		$28,767			$(35,527	)		$239,835
Operating costs and expenses:
Cost of goods sold	103,050			55,128		26,455			(28,776	)		155,857
Selling, general and administrative expenses	48,139			4,790		3,606			(6,751	)		49,784
Total operating costs and expenses	151,189			59,918		30,061			(35,527	)		205,641
Operating income (loss)	20,129			15,359		(1,294	)		—			34,194
Interest expense	11,039			—		869			—			11,908
Interest income	(68	)		154		—			—			86
Income (loss) before income tax expense (benefit)	9,022			15,513		(2,163	)		—			22,372
Income tax expense (benefit)	3,495			2,323		(779	)		—			5,039
Equity income in subsidiaries	(11,806	)		—		—			11,806			—
Net income (loss)	$17,333			$13,190		$(1,384	)		$(11,806	)		$17,333

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003
(Unaudited)

	Parent			Guarantor Subsidiaries			Eliminations				Consolidated
Net sales	$	167,184			$	65,435		$	(26,616	)		$	206,003
Operating costs and expenses:
Cost of goods sold	96,922				52,784			(25,909		)		123,797
Selling, general and administrative expenses	34,682				3,930			(707		)		37,905
Total operating costs and expenses	131,604				56,714			(26,616		)		161,702
Operating income	35,580				8,721			—				44,301
Interest expense, net	9,666				150			—				9,816
Income before income tax expense	25,914				8,571			—				34,485
Income tax expense	9,878				3,245			—				13,123
Equity (income) loss in subsidiaries	(5,325		)		—			5,325				—
Net income	$	21,361			$	5,326		$	(5,325	)		$	21,362

UNITED INDUSTRIES CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

Consolidated

UNITED INDUSTRIES CORP 10-Q