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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- - ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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Commission file number 1-71
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BORDEN, INC.
New Jersey 13-0511250
- - -------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East Broad Street, Columbus, OH 43215
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(Address of principal executive offices)
(614) 225-4000
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(Registrant's telephone number, including area code)
277 Park Avenue, New York, New York 10172
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(Former name, former address and former fiscal year,
if changed since last report.)
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
---- ----
Number of shares of common stock, $0.625 par value, outstanding as of the close
of business on April 22, 1994: 141,419,814
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<TABLE>
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
BORDEN, INC.
<CAPTION>
Three Months Ended
March 31
---------------------------
(In millions except per share data) 1994 1993
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE Net sales $1,272.7 $1,297.6
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COSTS AND Cost of goods sold 954.7 946.5
EXPENSES Marketing, general and administrative
expenses 257.3 239.9
Interest expense 27.8 30.5
Equity in income of affiliates (2.3) (3.8)
Minority interest 9.2 10.2
Other (income) and expense, net 16.3 8.6
Income taxes 3.9 22.0
-------- --------
1,266.9 1,253.9
-------- --------
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EARNINGS Income from continuing operations 5.8 43.7
Loss from discontinued operations (16.5)
-------- --------
Income before cumulative effect of
accounting changes 5.8 27.2
Cumulative effect of change in
accounting for postemployment
benefits (18.0)
-------- --------
Net income $ 5.8 $ 9.2
======== ========
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SHARE DATA Income from continuing operations $ 0.04 $ 0.31
Loss from discontinued operations (0.11)
-------- --------
Income before cumulative effect of
accounting changes 0.04 0.20
Cumulative effect of change in
accounting for postemployment
benefits (0.13)
-------- --------
Net income per common share $ 0.04 $ 0.07
======== ========
Cash dividends paid per common share $ 0.075 $ 0.300
Average number of common shares
outstanding during the period 141.5 140.8
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</TABLE>
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<TABLE>
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
BORDEN, INC.
<CAPTION>
Three Months Ended
March 31
--------------------
(In millions) 1994 1993
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<S> <C> <C> <C>
CASH FLOWS
FROM OPERATING Cash flows from operations $ (1.3) $ (64.6)
ACTIVITIES ------- -------
- - -----------------------------------------------------------------------------------------
CASH FLOWS Capital expenditures (26.7) (38.8)
FROM Divestiture of businesses 4.8
INVESTING ------- -------
ACTIVITIES (21.9) (38.8)
------- -------
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CASH Increase (decrease) in short-term debt 143.1 (126.0)
FROM Reduction in long-term debt (28.5) (27.5)
FINANCING Long-term debt financing 2.1 257.9
ACTIVITIES Repurchase of receivables (70.0)
Dividends paid (10.6) (42.2)
Other 0.8 0.3
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36.9 62.5
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Increase (decrease) in cash and equivalents 13.7 (40.9)
Cash and equivalents at beginning
of period 100.3 186.0
------- -------
Cash and equivalents at end
of period $ 114.0 $ 145.1
======= =======
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SUPPLEMENTAL Interest paid $ 31.5 $ 36.7
DISCLOSURES Income taxes paid 7.2 13.3
OF CASH FLOW
INFORMATION
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</TABLE>
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<TABLE>
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
BORDEN, INC.
<CAPTION>
(In millions)
March 31 December 31
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ASSETS 1994 1993
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<S> <C> <C> <C>
CURRENT Cash and equivalents $ 114.0 $ 100.3
ASSETS Accounts receivable (less allowance
for doubtful accounts of $10.1 and
$8.9 respectively) 423.8 334.7
Inventories:
Finished and in-process goods 340.7 319.4
Raw materials and supplies 162.8 171.0
Other current assets 162.8 142.6
Net assets of discontinued operations 229.9 222.2
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1,434.0 1,290.2
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INVESTMENTS Investments in and advances to
AND OTHER affiliated companies 89.5 91.3
ASSETS Deferred income taxes 222.6 225.4
Other assets 134.0 126.6
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446.1 443.3
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PROPERTY Land 104.2 105.5
AND Buildings 600.9 609.6
EQUIPMENT Machinery and equipment 1,922.8 1,949.3
-------- --------
2,627.9 2,664.4
Less accumulated depreciation (1,297.5) (1,327.7)
-------- ----------
1,330.4 1,336.7
-------- ----------
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INTANGIBLES Intangibles resulting from
business acquisitions 792.4 801.5
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$4,002.9 $3,871.7
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</TABLE>
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<TABLE>
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
BORDEN, INC.
<CAPTION>
(In millions except share and per share data)
March 31 December 31
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
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<S> <C> <C>
CURRENT Debt payable within one year $ 536.3 $ 410.6
LIABILITIES Accounts and drafts payable 436.0 433.3
Restructuring reserve 136.9 145.9
Income taxes 59.8 56.5
Other current liabilities 344.2 325.2
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1,513.2 1,371.5
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OTHER Long-term debt 1,235.3 1,240.8
Deferred income taxes 51.8 47.1
Postretirement benefit obligations 353.8 353.8
Other long-term liabilities 103.5 103.8
Minority interest 508.2 508.8
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2,252.6 2,254.3
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SHAREHOLDERS' Common stock - $0.625 par value
EQUITY Authorized 480,000,000 shares
Issued 194,983,374 shares 121.9 121.9
Paid in capital 88.3 88.1
Accumulated translation adjustment (175.9) (171.1)
Minimum pension liability (95.5) (95.5)
Retained earnings 830.3 835.1
-------- --------
769.1 778.5
Less common stock in treasury (at
cost) - 53,566,588 shares and
53,625,339 shares, respectively (532.0) (532.6)
-------- --------
237.1 245.9
-------- --------
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$4,002.9 $3,871.7
======== ========
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions except per share amounts)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments,
which in the opinion of management are necessary for a fair statement of
the results for the interim periods. Results for the interim periods are
not necessarily indicative of results for the full years.
2. DISCONTINUED OPERATIONS
In January 1994 the Company announced a comprehensive divestiture and
restructuring program which includes the divestment of North American
snacks, seafood, jams and jellies, foodservice and other businesses.
The Company anticipates the sale or closure of all the operations will be
completed by the end of 1994. The Company intends to use net proceeds
from the sale of the operations primarily to reduce debt.
The net loss from discontinued operations of $21.5 for the first quarter
of 1994 has been charged against the 1993 reserve for loss on disposal of
discontinued operations. The actual loss for the 1994 first quarter is in
line with the estimates made in December 1993.
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PART I FINANCIAL INFORMATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1994 VERSUS QUARTER ENDED MARCH 31, 1993
Net sales from continuing operations for the quarter ended March 31, 1994
decreased 1.9% to $1.27 billion from $1.30 billion in 1993. The 1994 first
quarter net income of $5.8 million, or $0.04 per share, which includes only
continuing operations, compares with restated income from continuing operations
of $43.7 million, or $0.31 per share, in 1993. Restated net income for the
first quarter of 1993 was $9.2 million, or $0.07 per share, which includes a
$16.5 million loss from discontinued operations and an $18.0 million charge for
the cumulative effect of an accounting change. Division operating income in
1994 decreased 50.5% to $55.9 million from $112.9 million in 1993.
North American Foods sales decreased 4.7% to $592.8 million from $622.1 million
in 1993 primarily as a result of the 1993 divestitures as well as volume
declines in dairy and pasta. Operating income declined 96.0% to $2.3 million
from $57.6 million in 1993 primarily as a result of the volume declines and
higher raw milk and durum wheat costs.
International Foods sales decreased 0.8% to $218.9 million from $220.7 million
as a result of adverse foreign exchange rate fluctuations, decreases in Latin
American dairy and European bakery products, partially offset by increases in
international milk powder. Operating income declined 16.2% to $15.8 million
from $18.8 million due primarily to declines in Latin American dairy and lower
income from the Gallina Blanca soup and bouillon joint venture in Spain,
partially offset by improvements in KLIM milk powder and several European niche
grocery and pasta products.
Packaging and Industrial Products sales increased 1.3% to $461.0 million from
$454.8 million in 1993 as a result of increases in North American forest
products adhesives, plastic film and packaging, and worldwide wallcoverings,
partially offset by the 1993 divestiture of a European packaging operation and
decreases in European operations. Operating income increased 3.6% to $37.8
million from $36.5 million in 1993 reflecting improvements in most North
American operations, partially offset by declines in European operations.
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Net sales of discontinued operations decreased 4.5% to $255.5 million from
$267.7 million in 1993 primarily as a result of decreases in North American
snacks and seafood products. The net loss from discontinued operations was
$21.5 million in 1994 compared to a net loss of $16.5 million in 1993. The
increase in the net loss is primarily the result of declines in seafood
products. The net loss for first quarter 1994 has been charged against the
1993 reserve for loss on discontinued operations. The 1994 loss is in line
with the estimates made in 1993 to establish the reserve.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities during the first three months of 1994 was
$1.3 million compared to cash used in operating activities of $64.6 million for
the first three months of 1993. The decrease in cash used by operating
activities is due primarily to reduced working capital requirements.
Capital expenditures for new facilities and improvements to existing facilities
during 1994 were $26.6 million compared to $38.8 million for the prior year
period.
Cash provided in 1994 from the divestiture of a seafood business was $4.8
million.
Short term debt increased $143.1 million in 1994 compared to a decrease of
$126.0 million in 1993. A portion of the 1994 increase is due to the
repurchase of $70.0 million of accounts receivables. The decrease in 1993
reflects repayment of commercial paper with the proceeds of long-term debt
financing discussed below.
The 1993 long-term debt financing includes proceeds from a $250.0 million
issuance of 30-year, 7 7/8% debentures which were used primarily to repay
short-term commercial paper.
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PART II OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS
The Company is involved in various proceedings relating to the designation of
certain waste sites for cleanup where the Company, along with a large number of
other companies, has potential liability under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") or similar state
environmental laws. While the Company's ultimate liability will depend on many
factors including its volumetric share of waste, the financial viability of the
other companies and the remediation methods and technology used, management has
determined that, as of the date hereof, any costs incurred in connection with
individual sites will not be significant and even in the aggregate, will not
have a material adverse effect on the financial condition of the Company.
Private actions have been filed against the Company and numerous other
defendants beginning in 1986 in the State Court in Livingston Parish, Louisiana
alleging personal injuries and property damage in connection with a waste
disposal site in Louisiana, and beginning in 1987 in state court in Camden, New
Jersey in connection with a waste disposal site in New Jersey.
In February 1993, an Environmental Protection Agency ("EPA") Administrative Law
Judge held that the Borden Chemicals and Plastics Limited Partnership ("BCP")
Illiopolis, Illinois facility violated CERCLA and the Emergency Planning and
Community Right to Know Act ("EPCRA") by failing to report certain relief valve
releases that the Company believes are exempt from CERCLA and EPCRA reporting.
A petition for reconsideration has been filed. In January 1994, the Louisiana
Department of Environmental Quality determined that a production unit at BCP's
Geismar facility should be subject to regulation under Louisiana's hazardous
waste statutes and regulations. That decision has been appealed to the state
courts. In April 1994, the U.S. Department of Justice, at the request of the
U.S. EPA, notified BCP that it intends to bring an action in federal court
against BCP seeking, among other things, corrective action and penalties for
alleged violations of the Resource Conservation and Recovery Act at the Geismar
facility. BCP maintains that the Geismar production unit is not subject to
regulation under federal or state hazardous waste laws. Under an Environmental
Indemnity Agreement, the Company has agreed, subject to certain conditions and
limitations, to indemnify BCP from certain environmental liabilities that
predate the formation of BCP.
The U.S. EPA has issued a notice of violation alleging the violation of air
pollution regulations by a plant in Massachusetts (September 1988).
A notice of violation has been issued by the Maine Department of Environmental
Protection (April 1991) alleging the violation of certain solid waste and
wetlands regulations at a Scarborough, Maine facility.
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OTHER LEGAL PROCEEDINGS
Allegations by the State of Virginia, of antitrust violations in connection
with the sale of milk to schools in Virginia, were settled in March 1994 by an
agreement to pay $325,000 in restitution.
The States of West Virginia and Ohio have also filed suits (12/93, and 8/93)
alleging antitrust violations in connection with the sale of milk to schools in
certain of their school districts. A private antitrust suit containing similar
allegations was filed in Federal Court in Oklahoma (4/93) on behalf of four
school districts and seeks class action certification. Federal Grand Jury
investigations of similar allegations are pending in Michigan, Indiana and
Kentucky (6/91), Oklahoma (8/92), Ohio (2/93) and the Plains States (9/93).
Similar investigations by the state Attorneys General are pending in Illinois
(11/91)and North Carolina (6/93). Two private antitrust suits alleging price
fixing of wholesale/retail accounts were filed in Florida (7/93) and W.
Virginia (9/93).
The Company is a defendant in litigation in Montreal, Canada involving
allegations of personal injury or property damage arising from the
misapplication of, or defects in, the urea-formaldehyde foam insulation. The
litigation, which was tried from September 1983 through December 1989, was
dismissed by the trial court in December 1991. An Appeal filed by plaintiffs
will be heard in 1995.
The Company and its Directors have been sued in Federal District Court in New
York (December 1993) for alleged violations of the Securities Exchange Act of
1934 in connection with certain 1993 financial projections.
In addition, the Company is involved in other litigation throughout the United
States which is considered to be in the ordinary course of the Company's
business.
The Company believes, based upon the information it presently possesses, and
taking into account its established accruals for estimated liability and its
insurance coverage, that the foregoing proceedings and actions are unlikely to
have a materially adverse effect on the Company's financial position or
operating results.
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Item 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
On January 10, 1994 the Registrant filed a Form 8-K
announcing that charges were recorded in fourth quarter 1993
for a restructuring and business divestiture program, and for
the cumulative effect relating to the adoption of a new
accounting standard.
On March 23, 1994 the Registrant filed a Form 8-K announcing
the restatement and reclassification of the 1992 and 1993
financial statements as a result of reversing and
reclassifying certain items that had been included in its
1992 restructuring charge.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BORDEN, INC.
Date: May 13, 1994 By /s/ George P. Morris
----------------------------
George P. Morris
Vice President and
Chief Strategic Officer
(Principal Financial Officer
and duly authorized signing
officer)
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