<PAGE> 1
UNITED STATES
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 September 30, 1996
Commission file number 1-71
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
(Address of principal executive offices)
(614) 225-4000
(Registrant's telephone number, including area code)
Not Applicable
(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, $0.01 par value, outstanding as of the close
of business on November 14, 1996: 198,974,994
<PAGE> 2
BORDEN, INC.
INTRODUCTION
The following filing with the Securities and Exchange Commission ("SEC") by
Borden, Inc. ("the Company") presents three separate financial statements:
Borden, Inc. Condensed Consolidated Financial Statements, Borden, Inc. and
Affiliates Condensed Combined Financial Statements, and the Summary Financial
Statements of Wise Holdings, Inc. ("Wise"). The condensed consolidated
statements present the Company after the effect of the Wise and BFC transactions
with affiliates of BW Holdings, LLC, an affiliate of the Company's principal
stockholder ("BWHLLC"), as explained in Note 1 to the Company's condensed
consolidated financial statements. The Company's condensed combined financial
statements are also included herein to present the Company on a combined
historical basis which included the financial position and results of operations
of Wise and BFC. The Company's condensed combined financial statements are
included because the Company indirectly has a controlling financial interest as
well as operating control of both Wise and BFC. The condensed combined financial
statements include all of the assets, liabilities and cash flows available to
creditors and are consistent with the financial information upon which credit
was originally granted and continually provided since issuance. Also, in
accordance with rule 3-10 of Regulation S-X, the summary financial statements of
Wise are included because Wise is a guarantor of the Company's credit facility
and all outstanding publicly held debt.
2
<PAGE> 3
Borden, INC.
INDEX
PART I - FINANCIAL INFORMATION
BORDEN, INC. ("BORDEN") CONDENSED CONSOLIDATED AND BORDEN, INC. AND AFFILIATES
CONDENSED COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Condensed Consolidated Statements of Operations, three months ended September 30, 1996 and 1995....................... 4
Nine months ended September 30, 1996 and 1995..................................................................... 6
Condensed Consolidated Balance Sheets, September 30, 1996 and December 31, 1995....................................... 8
Condensed Consolidated Statements of Cash Flows, nine months ended September 30, 1996 and 1995........................ 10
Condensed Combined Statements of Operations, three months ended September 30, 1996 and 1995........................... 12
Nine months ended September 30, 1996 and 1995..................................................................... 13
Condensed Combined Balance Sheets, September 30, 1996 and December 31, 1995........................................... 14
Condensed Combined Statements of Cash Flows, nine months ended September 30, 1996 and 1995............................ 16
Notes to Condensed Consolidated and Condensed Combined Financial Statements........................................... 18
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Borden Condensed Consolidated and Borden, Inc. and Affiliates Combined ............................................... 23
GUARANTOR SUMMARY FINANCIAL STATEMENTS
WISE
Summary Statements of Operations, three months ended September 30, 1996 and 1995...................................... 28
Nine months ended September 30, 1996 and 1995..................................................................... 29
Summary Balance Sheets, September 30, 1996 and December 31, 1995...................................................... 30
Summary Statements of Cash Flows, nine months ended September 30, 1996 and 1995....................................... 32
Notes to Wise Summary Financial Statements............................................................................ 33
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................................ 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................................. 38
</TABLE>
3
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
BORDEN, INC.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
(In millions, except per share data) 1996 1995
-------- --------
<S> <C> <C>
Net sales $ 911.5 $1,005.7
Cost of goods sold 669.3 744.0
-------- --------
Gross margin 242.2 261.7
Distribution expense 55.5 66.1
Marketing expense 95.8 119.3
General & adminstrative expense 41.3 59.7
Loss on divestiture 5.0 20.0
-------- --------
Operating income (loss) 44.6 (3.4)
-------- --------
Interest expense 29.3 30.1
Minority interest 1.6 1.2
Other (income) expense 0.9 (8.3)
-------- --------
Income (loss) from continuing operations
before income taxes 12.8 (26.4)
Income tax expense (benefit) 7.3 (13.6)
-------- --------
Income (loss) from continuing operations 5.5 (12.8)
-------- --------
Discontinued operations:
Income (loss) from operations 2.0 (10.4)
Income (loss) from disposal (330.7) 29.7
-------- --------
Net income (loss) (323.2) 6.5
Preferred stock dividends (18.4) (18.4)
-------- --------
Net loss applicable to common stock $ (341.6) $ (11.9)
======== ========
</TABLE>
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (continued)
BORDEN, INC.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
(In millions, except per share data) 1996 1995
-------- --------
<S> <C> <C>
Per Share Data
Income (loss) from continuing operations $ 0.02 $ (0.07)
Discontinued operations:
Income (loss) from operations 0.01 (0.05)
Income (loss) from disposal (1.66) 0.15
-------- --------
Net income (loss) (1.63) 0.03
Preferred stock dividends (0.09) (0.09)
-------- --------
Net loss per common share $ (1.72) $ (0.06)
======== ========
Dividends per preferred share $ 0.75 $ 0.75
Average number of common shares outstanding 199.0 199.0
during the period
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
5
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
BORDEN, INC.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
(In millions, except per share data) 1996 1995
-------- --------
<S> <C> <C>
Net sales $2,885.8 $3,138.7
Cost of goods sold 2,082.1 2,322.8
-------- --------
Gross margin 803.7 815.9
Distribution expense 183.3 205.2
Marketing expense 330.0 347.9
General & administrative expense 149.3 229.1
(Gain) Loss on divestiture (61.2) 40.0
-------- --------
Operating income (loss) 202.3 (6.3)
-------- --------
Interest expense 84.7 103.3
Minority interest 4.5 13.9
Other (income) expense (9.9) 25.5
-------- --------
Income (loss) from continuing operations
before income taxes 123.0 (149.0)
Income tax expense (benefit) 67.5 (52.0)
-------- --------
Income (loss) from continuing operations 55.5 (97.0)
Discontinued operations:
Income (loss) from operations (9.1) 7.3
Income (loss) from disposal (330.7) 67.6
-------- --------
Net loss (284.3) (22.1)
Preferred stock dividends (55.3) (40.5)
-------- --------
Net loss applicable to common stock $ (339.6) $ (62.6)
======== ========
</TABLE>
6
<PAGE> 7
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (continued)
BORDEN, INC.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
(In millions, except per share data) 1996 1995
-------- --------
<S> <C> <C>
Per Share Data
Income (loss) from continuing operations $ 0.28 $ (0.51)
Discontinued operations:
Income (loss) from operations (0.05) 0.04
Income (loss) from disposal (1.66) 0.35
-------- --------
Net loss (1.43) (0.12)
Preferred stock dividends (0.28) (0.21)
-------- --------
Net loss per common share $ (1.71) $ (0.33)
======== ========
Dividends per preferred share $ 2.25 $ 1.77
Average number of common shares outstanding
during the period 199.0 190.3
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
7
<PAGE> 8
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
BORDEN, INC.
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
--------- ---------
<S> <C> <C> <C>
CURRENT Cash and equivalents $ 134.1 $ 146.2
ASSETS Accounts receivable (less allowance
for doubtful accounts of $15.2 and $24.8,
respectively) 511.7 660.1
Inventories:
Finished and in-process goods 198.8 336.2
Raw materials and supplies 110.9 184.1
Deferred income taxes 135.6 45.3
Other current assets 57.8 149.3
Net assets of discontinued operations 603.6
--------- ---------
1,752.5 1,521.2
--------- ---------
INVESTMENTS Investments in and advances to
AND OTHER affiliated companies 32.3 36.7
ASSETS Deferred income taxes 178.4 344.1
Other assets 85.8 110.2
Wise assets sold under contractual arrangement,
net of allowance of $50.9 54.1
--------- ---------
350.6 491.0
--------- ---------
PROPERTY Land 69.1 93.6
AND Buildings 383.1 562.4
EQUIPMENT Machinery and equipment 1,460.0 1,968.7
--------- ---------
1,912.2 2,624.7
Less accumulated depreciation (1,051.0) (1,465.8)
--------- ---------
861.2 1,158.9
--------- ---------
INTANGIBLES Intangibles resulting from
business acquisitions 209.0 616.4
--------- ---------
TOTAL ASSETS $ 3,173.3 $ 3,787.5
========= =========
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
8
<PAGE> 9
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
BORDEN, INC.
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
---------- ----------
<S> <C> <C> <C>
CURRENT Debt payable within one year $ 394.3 $ 140.4
LIABILITIES Accounts and drafts payable 332.3 478.7
Income taxes 200.8 181.7
Other current liabilities 579.4 780.3
---------- ----------
1,506.8 1,581.1
---------- ----------
OTHER Wise liabilities sold under contractual arrangement 44.0
LIABILITIES Long-term debt 1,019.4 1,211.8
Deferred income taxes 46.8 45.3
Non-pension postemployment
benefit obligations 293.0 331.8
Other long-term liabilities 65.8 116.0
Minority interest 12.2 33.0
---------- ----------
1,481.2 1,737.9
---------- ----------
Commitments and Contingencies
SHAREHOLDERS' Preferred Stock - Issued 24,574,751 614.4 614.4
EQUITY Common stock - $0.01 par value
Authorized 300,000,000 shares
Issued 198,974,994 2.0 2.0
Paid in capital 358.4 312.7
Receivable from parent (79.9)
Accumulated translation adjustment (39.0) (129.6)
Minimum pension liability and other (107.9) (107.9)
Retained earnings Accumulated deficit (562.7) (223.1)
---------- ----------
185.3 468.5
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,173.3 $ 3,787.5
========= =========
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
9
<PAGE> 10
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
BORDEN, INC.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
(In millions) 1996 1995
-------- --------
<S> <C> <C> <C>
CASH FLOWS Net income (loss) $ (284.3) $ (22.1)
FROM (USED IN) Adjustments to reconcile net income (loss) to net
OPERATING cash from operating activities:
ACTIVITIES Loss on disposal of discontinued operations 263.5 (98.3)
Depreciation and amortization 115.6 115.3
(Gain) loss on divestiture, net (61.2) 40.0
Unrealized (gain) loss on interest rate swap (12.6) 31.1
Loss on sale of investment 22.0
Restructuring (7.1) (27.5)
Net change in assets and liabilities:
Trade receivables 74.5 (9.8)
Inventories 24.5 (40.0)
Trade payables (142.1) (19.8)
Current and deferred taxes 94.1 (67.2)
Other assets 119.7 163.9
Other liabilities (92.0) (124.4)
Discontinued operations, working capital (72.6) 3.3
-------- --------
20.0 (33.5)
-------- --------
CASH FLOWS Proceeds sale of investment in RJR 282.1
FROM (USED IN) Capital expenditures (177.9) (124.3)
INVESTING Proceeds from the divestiture of businesses 137.1 0.8
ACTIVITIES Purchase of businesses (7.0)
-------- --------
(40.8) 151.6
-------- --------
CASH FLOWS Decrease in short-term debt (24.1) (202.4)
(USED IN) FROM Increase (decrease) in long-term debt 107.1 (412.4)
FINANCING Decrease in minority interest (19.0) (471.5)
ACTIVITIES Equity contribution 994.7
Dividends paid (55.3) (25.0)
Issuance of stock under stock options
and benefits and awards plans 3.3
-------- --------
8.7 (113.3)
-------- --------
</TABLE>
10
<PAGE> 11
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
BORDEN, INC.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
(In millions) 1996 1995
-------- -------
<S> <C> <C> <C>
(Decrease) increase in cash and equivalents $ (12.1) $ 4.8
Cash and equivalents at beginning
of period 146.2 125.3
-------- -------
Cash and equivalents at end
of period $ 134.1 $ 130.1
======== =======
SUPPLEMENTAL Cash paid:
DISCLOSURES Interest $ 71.0 $ 87.9
OF CASH FLOW Income taxes 31.0 46.7
INFORMATION Non-cash activity:
Reclassification of note from long-term
to short-term 288.5
Non-cash proceeds relating to the Wise sale 44.3
Non-cash proceeds from the sale of options
recorded in equity 44.0
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
11
<PAGE> 12
CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
BORDEN, INC. AND AFFILIATES
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
(In millions) 1996 1995
-------- --------
<S> <C> <C>
Net sales $1,440.4 $1,458.7
Cost of goods sold 994.3 1,020.1
-------- --------
Gross margin 446.1 438.6
Distribution expense 87.1 90.5
Marketing expense 238.0 264.9
General & administrative expense 70.3 85.6
Loss on divestiture 5.0 20.0
-------- --------
Operating income (loss) 45.7 (22.4)
Interest expense 30.0 30.0
Minority interest 0.1 1.4
Other (income) expense 0.4 (9.1)
-------- --------
Income (loss) from continuing operations
before income taxes 15.2 (44.7)
Income tax expense (benefit) 6.7 (21.1)
-------- --------
Income (loss) from continuing operations 8.5 (23.6)
Discontinued operations:
Income from operations 0.4
Income from disposal 29.7
-------- --------
Net income 8.5 6.5
Preferred stock dividends (18.4) (18.4)
-------- --------
Net loss applicable to common stock (9.9) (11.9)
======== ========
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
12
<PAGE> 13
CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
BORDEN, INC. AND AFFILIATES
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
(In millions) 1996 1995
-------- --------
<S> <C> <C>
Net sales $4,327.9 $4,438.8
Cost of goods sold 2,977.6 3,108.1
-------- --------
Gross margin 1,350.3 1,330.7
Distribution expense 268.0 276.5
Marketing expense 735.3 734.8
General & administrative expense 225.9 293.2
(Gain) loss on divestitures (77.9) 40.0
-------- --------
Operating income (loss) 199.0 (13.8)
Interest expense 87.2 106.6
Minority interest 4.3 14.8
Other (income) expense (14.2) 20.2
-------- --------
Income (loss) from continuing
operations before income taxes 121.7 (155.4)
Income tax expense (benefit) 57.6 (56.9)
-------- --------
Income (loss) from continuing operations 64.1 (98.5)
Discontinued operations:
Income from operations 8.8
Income from disposal 67.6
-------- --------
Net income (loss) 64.1 (22.1)
Preferred stock dividends (55.3) (40.5)
-------- --------
Net income (loss) applicable to common stock $ 8.8 $ (62.6)
======== ========
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
13
<PAGE> 14
CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
BORDEN, INC. AND AFFILIATES
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
-----------------------------------
<S> <C> <C> <C>
CURRENT Cash and equivalents $ 134.8 $ 146.2
ASSETS Accounts receivable (less allowance
for doubtful accounts of $22.6 and $24.8,
respectively) 714.1 660.1
Inventories:
Finished and in-process goods 374.1 336.2
Raw materials and supplies 182.5 184.1
Deferred income taxes 135.6 45.3
Other current assets 106.0 149.3
--------- ---------
1,647.1 1,521.2
--------- ---------
INVESTMENTS Investments in and advances to
AND OTHER affiliated companies 36.7 36.7
ASSETS Deferred income taxes 245.5 344.1
Other assets 104.6 110.2
--------- ---------
386.8 491.0
--------- ---------
PROPERTY Land 89.8 93.6
AND Buildings 550.5 562.4
EQUIPMENT Machinery and equipment 2,041.5 1,968.7
--------- ---------
2,681.8 2,624.7
Less accumulated depreciation (1,464.7) (1,465.8)
--------- ----------
1,217.1 1,158.9
--------- ---------
INTANGIBLES Intangibles resulting from
business acquisitions 597.9 616.4
--------- ---------
TOTAL ASSETS $ 3,848.9 $ 3,787.5
========= =========
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
14
<PAGE> 15
CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
BORDEN, INC. AND AFFILIATES
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------- ------------
<S> <C> <C> <C>
CURRENT Debt payable within one year $ 408.8 $ 140.4
LIABILITIES Accounts and drafts payable 499.9 478.7
Income taxes 201.5 181.7
Other current liabilities 772.0 780.3
-------- --------
1,882.2 1,581.1
-------- --------
OTHER Long-term debt 1,030.6 1,211.8
LIABILITIES Deferred income taxes 43.7 45.3
Non-pension postemployment
benefit obligations 315.8 331.8
Other long-term liabilities 86.3 116.0
Minority interest 19.3 33.0
-------- --------
1,495.7 1,737.9
-------- --------
Commitments and Contingencies
SHAREHOLDERS' Preferred Stock 614.4 614.4
EQUITY Common stock 2.0 2.0
Paid in capital 392.6 312.7
Receivable from parent (79.9)
Accumulated translation adjustment (135.9) (129.6)
Minimum pension liability and other (107.9) (107.9)
Accumulated deficit (214.3) (223.1)
-------- --------
471.0 468.5
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,848.9 $3,787.5
======== ========
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
15
<PAGE> 16
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
BORDEN, INC. AND AFFILIATES
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
(In millions) 1996 1995
------ ------
<S> <C> <C> <C>
CASH FLOWS Net income (loss) $ 64.1 $(22.1)
FROM (USED IN) Adjustments to reconcile net income (loss) to net
OPERATING cash from operating activities:
ACTIVITIES Reversal of reserve for loss on disposal
of discontinued operations (98.3)
Depreciation and amortization 117.3 115.3
(Gain) loss on divestiture, net (77.9) 40.0
Unrealized (gain) loss on interest rate swap (12.6) 31.1
Loss on sale of investment 22.0
Restructuring (7.1) (27.5)
Net change in assets and liabilities:
Trade receivables (17.7) (9.8)
Inventories (38.2) (40.0)
Trade payables 9.0 (19.8)
Current and deferred taxes 27.3 (67.2)
Other assets 41.3 163.9
Other liabilities (87.6) (124.4)
Discontinued operations, working capital
and non-cash charges 3.3
------ ------
17.9 (33.5)
------ ------
CASH FLOWS Proceeds sale of investment in RJR 282.1
FROM (USED IN) Capital expenditures (179.8) (124.3)
INVESTING Proceeds from the divestiture of businesses 136.5 0.8
ACTIVITIES Purchase of businesses (7.0)
------ ------
(43.3) 151.6
------ ------
CASH FLOWS Decrease in short term debt (24.1) (202.4)
(USED IN) FROM Increase (decrease) in long-term debt 107.1 (412.4)
FINANCING Decrease in minority interest (13.7) (471.5)
ACTIVITIES Equity contribution 994.7
Dividends paid (55.3) (25.0)
Issuance of stock under stock options
and benefits and awards plans 3.3
------ ------
14.0 (113.3)
------ ------
</TABLE>
16
<PAGE> 17
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
BORDEN, INC. AND AFFILIATES
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
(In millions) 1996 1995
------ ------
<S> <C> <C> <C>
(Decrease) increase in cash and equivalents $(11.4) $ 4.8
Cash and equivalents at beginning
of period 146.2 125.3
------ ------
Cash and equivalents at end
of period $134.8 $130.1
====== ======
SUPPLEMENTAL Cash paid:
DISCLOSURES Interest $ 71.0 $ 87.9
OF CASH FLOW Income taxes 31.0 46.7
INFORMATION Non-cash activity:
Reclassification of note from long-term
to short-term 288.5
Non-cash proceeds relating to the Wise sale 44.3
Non-cash proceeds from the sale of options
recorded in equity 44.0
</TABLE>
See Notes to Condensed Consolidated and Combined Financial Statements
17
<PAGE> 18
NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollars in millions except per share amounts and as otherwise indicated)
1. Basis of Presentation
Borden, Inc. ("the Company") conducts operations in the following
businesses: dairy ("BMG Dairies"), European bakery ("Bakeries"), glue
("Elmer's"), decorative products and wallcoverings ("Decorative
Products"), and adhesives and resins ("Chemical"). The Company sold
packaging and plastic films business on October 11, 1996 (see note 3). As
explained in notes 4 and 5, the Company sold the net assets of its salty
snack business ("Wise"), on July 2, 1996 and the net assets of an
affiliate of its domestic and international foods business ("BFC"), on
October 1, 1996 to affiliates of BW Holdings, LLC ("BWHLLC"), the
Company's principal stockholder. Management of the Company will continue
to exercise significant financial and managerial control with respect to
Wise and BFC. In addition Wise and BFC provide guarantees to obligations
under the Company's credit facility and all of the Company's outstanding
publicly held debt on a pari passu basis. As a result of the continuing
control and the financial guarantees the Company has included,
supplementally, condensed combined financial statements in this filing
which present the financial condition and results of operations of the
Company including Wise and BFC, on a historical cost basis.
The accompanying unaudited interim consolidated and combined financial
statements contain all adjustments, consisting only of normal
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. Reclassification
Certain prior year amounts have been reclassified to conform with 1996
presentation.
3. Asset Divestitures
In 1995 the Company began the process of redesigning its operating
structure. As a result of this redesign management determined that certain
businesses did not fit into the Company's long-term strategic plan, and
made the decision to divest these businesses. Businesses included in this
classification, "businesses held for sale," were the packaging and plastic
films business, a dairy plant and the equity interest in a Spanish food
company. Appropriate reserves relating to the sale or divestiture of
these businesses were reflected in the December 31, 1995 financial
statements of the Company.
The dairy plant was closed in June 1996.
During the first quarter of 1996, the Company sold its remaining equity
interest in a Spanish food company for $139.8 resulting in a pretax gain
of $82.9 ($42.1 net of tax).
On October 11, 1996, the Company completed the sale of Borden Global
Packaging ("BGP"), its packaging and plastic films business, to AEP
Industries Inc. ("AEPI"). The purchase price consisted of $280 in cash,
subject to adjustment, and 2,412,818 shares of newly issued AEPI common
stock valued at $80.0 (approximately 34% of AEPI), its value at June 30,
1996, the date of the definitive agreement. The Company will use cash
proceeds from the sale of the business to repay debt and for other general
corporate purposes.
Following are the results of operations and net assets for businesses held
for sale which were owned at September
18
<PAGE> 19
30, 1996. These amounts are included in continuing operations in the
consolidated financial statements.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales:
Quarter ended September 30 $ 174.0 $ 182.0
Year-to-date September 30 524.6 555.2
Operating income (loss):
Quarter ended September 30 8.6 (0.2)
Year-to-date September 30 20.1 16.5
Net assets at September 30, 1996, and
December 31, 1995 347.7 364.5
</TABLE>
4. Wise Divestiture
On July 2, 1996, the Company sold its Wise business unit to an affiliate
of BWHLLC for $45.0. The purchase price of the business was determined
based upon an independent valuation by an investment banking firm. The
proceeds consisted of $34.2 of notes receivable from the Company's parent,
which are recorded as a reduction of equity, a $10.1 note receivable from
Wise and $0.7 in cash. The excess of the book value over the proceeds of
$16.7 has been recorded in the consolidated financial statements.
The combined financial statements continue to report Wise at the
Company's historical values since Wise remains a member of the
controlled group and since management's best estimate of future
operating cash flows from Wise is expected to exceed the historical
carrying value of the business.
Because of the Company's continuing control over Wise, the assets and
liabilities of Wise, at the date of sale, are classified as "sold under
contractual arrangements" in the condensed consolidated financial
statements. In addition, any future losses incurred by Wise will be
recorded in the consolidated financial statements to the extent of the
Company's net investment in Wise. The Company's net investment in Wise as
of September 30, 1996 was $10.1.
5. Discontinued Operations
On October 1, 1996, the Company sold BFC to an affiliate of BWHLLC for
$550.0. Proceeds consisted of $345.9 of receivables from the Company's
parent which will be recorded as a reduction of shareholders' equity, a
note receivable from BFC for $198.8, and cash of $5.3. The purchase price
of the business was determined based upon an independent valuation by an
investment banking firm.
Net assets of $603.6 related to the discontinued operation have been
segregated in the September 30, 1996 Consolidated Balance Sheet. This
amount consists of the assets and liabilities of the business sold less
the estimated loss on disposal plus net advances made to BFC aggregating
to $53.6 from January 1, 1996 to October 1, 1996. The excess of the book
value over the proceeds of $166.6 and, a tax effect of $67.2, and a
reversal of the accumulated translation adjustment of $96.9 has been
recorded as a loss from discontinued operations in the consolidated
financial statements and not recorded in the combined financial statements
since BFC remains a member of the controlled group and because
management's best estimate of future operating cash flows from BFC is
expected to exceed the historical carrying value of the business.
In 1993 the Company announced a program to divest the North American
snacks operations, seafood, jams and jellies, and various other
businesses. During 1995 management made the decision to retain the
remaining businesses classified as discontinued operations and reversed
the remaining reserve for loss on disposal, resulting in a net of tax
($30.7 and $14.0, respectively) income from disposal of $67.6 for the nine
months ended September 30, 1995 and $29.7 for the three months ended
September 30, 1995.
19
<PAGE> 20
The operating losses relating to the businesses in this program which were
retained by the Company and were previously classified as discontinued
operations have been reclassified to continuing operations with an
offsetting net of tax ($5.6 and $0.2, respectively) credit in income from
discontinued operations of $8.8 for the nine months ended and $0.4 for the
three months ended September 30, 1995.
The results indicated below for the business being divested have been
reported separately as discontinued operations in the consolidated
statements of operations.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales:
Quarter ended September 30 $ 463.3 $ 453.0
Year-to-date September 30 1,376.5 1,300.2
Income (loss) before income taxes
Quarter ended September 30 0.9 (17.8)
Year-to-date September 30 (19.5) 8.1
Income tax expense (benefit)
Quarter ended September 30 (1.1) (7.4)
Year-to-date September 30 (10.4) 0.8
Net income(loss) from discontinued operations
Quarter-to-date 2.0 (10.4)
Year-to-date (9.1) 7.3
</TABLE>
20
<PAGE> 21
6. Shareholders' Equity
The following reconciles equity changes for the consolidated and combined
financial statements:
<TABLE>
<CAPTION>
Receivable Accumulated Minimum
Preferred Common Paid In from Translation Pension Retained Total
Stock Stock Capital Parent Adjustment Liability Earnings
------- ----- ------- ------- ----------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated
Balance, December 31, 1995 $ 614.4 $ 2.0 $ 312.7 $ (129.6) $ (107.9) $(223.1) $ 468.5
Net loss (284.3) (284.3)
Preferred stock dividends (55.3) (55.3)
Translation adjustments 90.6 90.6
Note from sale of Wise (Note 4) $ (34.2) (34.2)
Options sold 44.0 (44.0)
Int. accrued on parent's notes 1.7 (1.7)
------- ----- ------- ------- -------- -------- -------- ------
Balance, September 30, 1996 614.4 2.0 358.4 (79.9) (39.0) (107.9) (562.7) 185.3
------- ----- ------- ------- -------- -------- -------- ------
Combining Adjustments
Wise: (Note 4)
Issue common stock 34.2 34.2
Reverse effect of disposal 16.7 16.7
Third quarter income 0.7 0.7
BFC: (Note 5)
Reverse effect of disposal 330.7 330.7
Translation and other (96.9) 0.3 (96.6)
------- ----- ------- ------- -------- -------- -------- ------
Combined balance,
September 30, 1996 $ 614.4 $ 2.0 $ 392.6 $ (79.9) $ (135.9) $ (107.9) $ (214.3) $471.0
------- ----- ------- ------- -------- -------- -------- ------
</TABLE>
On August 16, 1996 the Company sold for $44.0, options to BWHLLC to
purchase all of the common stock of its Elmer's and Decorative Products
businesses for 110% of the August 16, 1996 fair market value of the common
stock. The options were issued at fair value and expire in five years. The
redemption price of the options is $54.1 for Elmer's and $108.4 for
Decorative Products, respectively.
On October 15, 1996 the Company declared and paid a dividend on its
outstanding shares of common stock in an aggregate amount of $3.8 to the
Company's parent and sole stockholder.
21
<PAGE> 22
7. Commitments and Contingencies
ENVIRONMENTAL MATTERS - The Company, like others in similar businesses, is
subject to extensive Federal, state and local environmental laws and
regulations. Although Company environmental policies and practices are
designed to ensure compliance with these laws and regulations, future
developments and increasingly stringent regulation could require the
Company to make additional unforseen environmental expenditures.
Environmental accruals are routinely reviewed on an interim basis as
events and developments warrant and are subjected to a comprehensive
review annually during the fiscal fourth quarter.
OTHER COMMITMENTS - A wholly owned subsidiary as general partner of Borden
Chemicals and Plastics Limited Partnership ("BCP") has certain fiduciary
responsibilities to BCP's unitholders. The Company believes that such
responsibilities will not have a material adverse effect on its financial
statements.
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to
various uncertainties, and some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for
matters that are probable and reasonably estimable. Management believes
that any liability that may ultimately result from the resolution of these
matters in excess of amounts provided will not have a material adverse
effect on the financial position of the Company.
22
<PAGE> 23
PART I FINANCIAL INFORMATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Following is a comparison of sales and operating income (loss) by business unit
on a consolidated and combined basis:
(Dollars in millions)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
SALES 1996 1995 1996 1995
- ----- ------ ------ ------ -----
<S> <C> <C> <C> <C>
BMG Dairies $ 227.1 $ 211.1 $ 679.3 $ 627.6
Bakeries 98.1 98.6 295.0 291.0
Elmer's 24.9 21.5 68.3 63.1
Decorative Products 89.6 98.0 280.3 276.1
Chemical 296.3 263.6 866.5 874.0
Other 0.6 1.8
-------- ---------- ---------- ----------
Subtotal 736.6 692.8 2,191.2 2,131.8
Businesses held for sale 174.9 312.9 694.6(1) 1,006.9(1)
-------- ---------- ---------- ----------
CONSOLIDATED NET SALES 911.5 1,005.7 2,885.8 3,138.7
-------- ---------- ---------- ----------
BFC 463.3 453.0 1,376.5 1,300.1
Wise (2) 65.6 67.1 209.7 213.3
Combining adjustments (3) (67.1) (144.1) (213.3)
-------- ---------- ---------- ----------
COMBINED NET SALES $1,440.4 $ 1,458.7 $ 4,327.9 $ 4,438.8
======== ========== ========== ==========
<CAPTION>
Three months ended September 30, Nine months ended September 30,
OPERATING INCOME (LOSS) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
BMG Dairies $ 5.5 $ 5.5 $ 16.4 $ 13.6
Bakeries 2.4 0.3 7.6 6.0
Elmer's 3.2 3.7 10.1 9.9
Decorative Products 5.1 7.2 23.0 21.8
Chemical 29.9 32.9 98.6 106.3
Gain (loss) on divestiture (5.0) (20.0) 61.2 (40.0)
Corporate (5.2) (19.4) (26.4) (109.0)
-------- ---------- ---------- ----------
Subtotal 35.9 10.2 190.5 8.6
Businesses held for sale 8.7 (13.6)(1) 11.8(1) (14.9)(1)
-------- ---------- ---------- ----------
CONSOLIDATED OPERATING INCOME (LOSS) 44.6 (3.4) 202.3 (6.3)
-------- ---------- ---------- ----------
BFC (0.1) (19.0) (21.2) (7.5)
Wise (2) 1.2 (0.7) (4.9) (10.2)
Combining adjustments (3) 0.7 22.8 10.2
-------- ---------- ---------- ----------
COMBINED OPERATING INCOME (LOSS) $ 45.7 $ (22.4) $ 199.0 $ (13.8)
======== ========== ========== ==========
</TABLE>
1. Includes Wise results prior to sale to affiliate on July 2, 1996.
2. Represents 100% of Wise results for the applicable period presented.
3. Represents an adjustment to exclude the Wise results included with
consolidated results as well as loss on the sale of Wise, which is not
included in the combined results.
23
<PAGE> 24
CONSOLIDATED AND COMBINED QUARTER ENDED SEPTEMBER 30, 1996 VERSUS QUARTER
ENDED SEPTEMBER 30, 1995
Consolidated net sales from continuing operations for the quarter ended
September 30, 1996 decreased $94.2 million or 9.4% to $911.5 million from
$1,005.7 million in 1995 primarily as a result of businesses sold late in 1995.
Consolidated operating income totaled $44.6 million, up $48.0 million from a
$3.4 million loss in 1995. The Company reported a consolidated net loss
applicable to common stock for the third quarter 1996 of $341.6 million, or
$1.72 per share, after the effect of a $330.7 million ($1.66 per share) charge
for discontinued operations related to the sale of BFC on October 1, 1996,
compared to a net loss applicable to common stock for the third quarter of 1995
of $11.9 million, or $0.06 per share. The loss on discontinued operations from
the BFC sale to an affiliate of KKR will not be reflected in the combined
financial statements since BFC remains a member of the controlled group and
because management's best estimate of future operating cash flows from BFC is
expected to exceed the historical carrying value of the business.
BMG Dairies sales of $227.1 million increased $16.0 million or 7.6% from 1995.
The increase is attributable to higher raw milk costs during the quarter which
were passed on to customers and which were generally reflected in product
pricing. Operating income remained flat from period to period.
Bakeries sales decreased 0.5% to $98.1 million in 1996. The decline is due
mainly to unfavorable foreign currency fluctuations as the U.S. dollar has
strengthened from the third quarter of the prior year. Operating income
increased $2.1 million to $2.4 million as a result of better productivity in
both the industrial and retail business sectors.
Sales for Elmer's increased $3.4 million or 15.8% to $24.9 million in 1996. The
change is as a result of increases in School Glue Gel, a newly introduced no
run product and stronger sales in the glue stick category segment. In addition,
wood glues and wood fillers sales have increased as a result of the
introduction of the "Pro-Bond" brand. Operating income declined 13.5%, from
$3.7 million in 1995 to $3.2 million in 1996. The decline reflects the impact
of increased advertising spending to support new product introductions.
Decorative Products sales for 1996 were $89.6 million, down from $98.0 million
in 1995. Sales in the North American wallcoverings operation were much lower
than prior year because sales to mass merchants in 1995 benefitted from a very
large initial order made during September 1995. The lower sales in North America
were partially offset by the continuing strong export sales from the UK to
Eastern Europe. Sales for the flexible vinyl films and sheeting business were up
in 1996 compared to 1995 because of an improvement in the pool and industrial
laminates industry. Operating income decreased $2.1 million to $5.1 million in
1996 as a result of the lower sales in North America, offset partly by an
increase in the UK operation.
Chemical sales increased 12.4% in 1996 to $296.3 million. The increase is
primarily as a result of an increase in volume in North American Forest and
Industrial Products. Increases in Forest Products resulted from increased
formaldehyde and wood fiber resins volume from the opening of two new plants
late in 1995, increased housing starts, and additional demand for plywood and
oriented fiber board created by hurricane damage in the Southeast. Volume
improvement for Industrial Products reflect increased oil field demand. Chemical
operating income decreased $3.0 million or 9.1% to $29.9 million in 1996. The
decline is as a result of price competition in Latin America and Spain, and
a one-time charge related to inventories taken during the third quarter of 1996.
Loss on divestiture in the third quarter of 1995 reflects a charge for the
loss associated with the planned disposal of a wallcovering operation and the
loss in the third quarter of 1996 reflects a change in estimate of the loss to
be incurred on the sale of Packaging.
Corporate operating expenses decreased $14.2 million to $5.2 million in 1996.
The decrease is due mainly to the absence of non-recurring charges recorded in
1995 for legal and accounting fees associated with the company's redesign, and
litigation accruals.
Sales for BFC increased $10.3 million or 2.3% due to volume increases in BFC's
International Foods and
24
<PAGE> 25
FunCheese business units. The increase in International Foods is primarily
attributable to volume increases for non-dairy creamer, and milk powder.
FunCheese increases are primarily attributable to sales of new "Big Cheese"
products which were introduced during the year. In addition, selling prices were
increased to offset higher bulk cheese costs.
The BFC operating loss decreased $18.9 million to $0.1 million as a result of
the absence of non-recurring charges and lower trade spending.
Wise sales of $65.6 million is a decrease of $1.5 million or 2.2% from 1995 as a
result of decreased delivery route volume during the quarter. Operating results
improved from a loss of $0.7 million to income of $1.2 million as a result of
lower promotional expenses.
CONSOLIDATED AND COMBINED NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE
MONTHS ENDED SEPTEMBER 30, 1995
Consolidated net sales from continuing operations for the nine months ended
September 30, 1996 decreased $252.9 million or 8.1% to $2,885.8 million from
$3,138.7 million in 1995 as a result of businesses sold late in 1995.
Consolidated operating income totaled $202.3 million, up $208.6 million from
the 1995 loss of $6.3 million, as a result of a gain on divestitures of $61.2
million in 1996 compared to losses on divestitures amounting to $40.0 million
in 1995 and non-recurring charges in 1995. The Company reported a consolidated
net loss applicable to common stock for the first nine months of 1996 of $339.6
million, or $1.71 per share, after a $330.7 million ($1.66 per share) charge
for discontinued operations, compared to a loss applicable to common stock for
1995 of $62.6 million, or $0.33 per share. The loss on discontinued operations
from the BFC sale to an affiliate of KKR will not be reflected in the combined
financial statements since BFC remains a member of the controlled group and
because management's best estimate of future operating cash flows from BFC is
expected to exceed the historical carrying value of the business.
BMG Dairies sales of $679.3 million increased $51.7 million or 8.2% from 1995.
The increase is attributable to higher raw milk costs during the 1996 period
which were passed on to customers and reflected in product pricing.
Operating income increased $2.8 million to $16.4 million due to the increase in
sales and a decrease in administrative costs as a result of operating
efficiencies.
Bakeries sales increased 1.4% to $295.0 million in 1996. The improvement is
primarily attributable to increased market share in both the retail and
industrial bakery businesses. Operating income increased $1.6 million to $7.6
million as a result of better productivity in both business sectors.
Sales for Elmer's increased 8.2% to $68.3 million as a result of increases in
School Glue Gel, a newly introduced no run product, a stronger glue stick
category segment, and July 1995 price increases. In addition wood glues and wood
fillers sales have increased as a result of the introduction of the "Pro-Bond"
brand. Operating income remained flat from period to period.
Decorative Products sales for 1996 were $280.3 million, up from $276.1 million
in 1995. The increase is mainly attributable to the expansion of export sales to
Eastern Europe from the UK operations. Operating income increased $1.2 million
to $23.0 million in 1996 as a result of reduced marketing spending in 1996.
Chemical sales decreased 0.9% in 1996 to $866.5 million, as a substantial volume
improvement was more than offset by a steep decline in formaldehyde prices from
1995 levels. Volume increases were primarily in the North American Forest and
Industrial Products business, where demand led to the opening of two additional
plants late in 1995. Operating income decreased 7.2% to a 1996 level of $98.6
million as a result of price competition in Latin America and a one-time
charge related to inventories.
Gain (loss) on divestiture reflects the sale of the remaining equity interest in
a Spanish food company in the first quarter of 1996 partially offset by the
$16.7 million charge in the second quarter for the July 2, 1996 sale of Wise.
25
<PAGE> 26
The loss on the sale of Wise will only be reflected in the consolidated
financial statements and does not affect the third quarter 1996 combined
financial statements. In addition, during the first nine months of 1995, $40.0
million was charged for the loss associated with the planned disposal of certain
dairy and wallcovering operations.
Corporate operating expenses decreased $82.6 million to $26.4 million in 1996.
The decrease is due mainly to the absence of non-recurring charges recorded in
1995 for severance, general insurance, legal and accounting fees associated with
the Company's redesign, litigation and environmental accruals.
Sales for BFC increased $76.4 million or 5.9% due to increases in product lines
within the International Foods, FunCheese, and Italian Foods business units. The
increase in International Foods is primarily attributable to volume increases
for non-dairy creamer and milk powder, as well as increased selling prices in
the Latin America region. FunCheese increases are primarily attributable to
sales volume and improved private label selling prices. The increase in Italian
Foods is due to volume increases in dry pasta.
The BFC operating loss of $21.2 million in 1996 increased $13.7 million from the
1995 operating loss of $7.5 million. The increase is primarily attributable to
the Italian Foods product line where the gross margin percentage decreased as a
result of increased raw material and packaging costs which were not recovered in
selling price. Warehousing and distribution costs also increased due to higher
inventory levels.
1996 sales for Wise decreased 1.7% to $209.7 million from $213.3 million in 1995
as a result of lower delivery route volume. Operating loss for 1996 improved
$5.3 million to a $4.9 million loss as a result of the absence of 1995 charges
of $13.3 million which related to asset writedowns partially offset by higher
advertising and consumer focused promotional expenses to support new product
roll-outs.
CONDENSED CONSOLIDATED NON-OPERATING EXPENSE FOR THE THREE MONTHS AND NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other expense $ 31.8 $ 23.0 $ 79.3 $ 142.7
Income tax expense (benefit) 7.3 (13.6) 67.5 (52.0)
</TABLE>
Non-operating expenses for the three months ended September 30, 1996 totaled
$31.8 million, up $8.8 million from the 1995 total of $23.0 million. The
increase is attributable to a decrease in income from an equity investment in
Borden Chemicals and Plastics Limited Partnership
Non-operating expenses for the nine months ended September 30, 1996 totaled
$79.3 million, down $63.4 million from the 1995 total of $142.7 million. The
decrease is attributable to a reduction of $43.7 million in costs associated
with interest rate swaps, and a $18.6 million reduction in interest expense
attributable to lower debt levels. In addition, minority interest expense
decreased $9.4 million primarily as a result of the reduction in the limited
partner's interest in the TMI Associates Limited Partnership, amortization of
deferred costs declined $8.5 million, and a loss on the sale of RJR Nabisco
Holdings shares of $22.0 million recorded in 1995. These favorable variances
were partially offset by a $31.0 million decrease in income from an equity
investment in Borden Chemicals and Plastics Limited Partnership.
The effective tax rate of 57% in the third quarter of 1996 is primarily due to
the $16.7 million loss incurred for the Wise sale, which was primarily composed
of non-deductible goodwill. The effective tax rate, benefit, of 52% in the
third quarter of 1995 is higher than the statutory rate due primarily to
changes in the tax deductibility of certain expenses.
The effective tax rate of 54% in the nine months of 1996 is primarily due to
the $16.7 million loss incurred for the Wise sale, which was primarily composed
of non-deductible goodwill. The effective tax rate, benefit, of 35% in the nine
months of 1995 approximated the statutory rate for the Company.
26
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
- --------------------
Consolidated operating activities generated cash of $20.0 million in 1996
compared to a $33.5 million use of cash in 1995. The majority of the increase in
operating cash flow was due to increases in income before discontinued
operations and favorable changes in assets and liabilities.
Combined operating activities generated cash of $17.9 million in 1996, compared
to a $33.5 million use in 1995. The combined operating activities reflect
changes relating to the divestiture of Wise.
Investing Activities
- --------------------
Consolidated cash expenditures for new facilities and improvements were $177.9
million in 1996 compared to $124.3 million in 1995. Proceeds from divestitures
generated $137.1 million through the first nine months of 1996, $125.5 million
of which related to the sale of the remaining interest in a Spanish food
company.
Combined cash expenditures for new facilities and improvements were $179.8
million in 1996 compared to $124.3 million in 1995. The combined proceeds from
divestitures generated $136.5 million.
Financing Activities
- --------------------
Consolidated financing cash flows reflect a net use of cash of $8.7 million as
compared to a net use of $113.3 million in 1995. Proceeds from divestitures were
used to reduce short-term bank borrowings and to reinvest in the business.
Total usage under the Company's $1.2 billion long-term revolving line of
credit increased from $339.3 million at December 31, 1995 to $471.5 million
at September 30, 1996, of which $84.3 million and $96.5 million were letters of
credit. Proceeds from the sale of Packaging on October 11, 1996 were used
primarily to reduce borrowings under the revolving line of credit. Financing
cash flows through the third quarter of 1995 reflect the capital contribution
of $994.7 million, which, when coupled with the sale of the RJR investment for
$282.1 million, allowed for the resulting reduction in long-term debt and
minority interest.
Combined financing cash flows reflect a net use of cash of $14.0 million as
compared to a net use of $113.3 million in 1995. The combined statements
include the minority interest relating to BFC.
Non-cash financing flows include the reclassification of a $288.5 million zero
coupon note due 2002 from long-term to short-term as the Company expects the
noteholders to exercise their May 1997 put option, and the receipt of notes
receivable from the parent relating to the Wise transaction and the sale of
options. The Company currently plans to refinance debt maturing in 1997 using
its long-term revolving line of credit.
27
<PAGE> 28
SUMMARY STATEMENTS OF OPERATIONS (UNAUDITED)
WISE
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
(In thousands, except per share data) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Net sales $65,596 $ 67,092
Cost of goods sold 37,388 38,620
------- --------
Gross margin 28,208 28,472
Distribution expense 5,997 7,405
Marketing expense 16,809 19,026
General & administrative expense 4,221 3,018
------- --------
Operating income (loss) 1,181 (977)
Interest expense 329
Minority interest income 110
Income (loss) before income taxes 962 (977)
Income tax expense (benefit) 359 (258)
------- --------
Net income (loss) $ 603 $ (719)
======= ========
Pro Forma Share Data
- --------------------
Net income (loss) $ 6.03 $ (7.19)
Average number of common shares outstanding
during the period 100 100
</TABLE>
See Notes to Summary Financial Statements
28
<PAGE> 29
SUMMARY STATEMENTS OF OPERATIONS (UNAUDITED)
WISE
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
(In thousands, except per share data) 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Net sales $ 209,666 $213,989
Cost of goods sold 122,750 121,009
--------- --------
Gross margin 86,916 92,980
Distribution expense 18,939 22,912
Marketing expense 61,481 57,933
General & administrative expense 12,132 9,831
--------- --------
Operating income (loss) (5,636) 2,304
Interest expense 976
Minority interest income 110
--------- --------
Income (loss) before income taxes (6,502) 2,304
Income tax (benefit) expense (2,307) 1,266
Net (loss) income $ (4,195) $ 1,038
========= ========
Pro Forma Share Data
- --------------------
Net loss $ (41.95) $ 10.38
Average number of common shares outstanding
during the period 100 100
</TABLE>
See Notes to Summary Financial Statements
29
<PAGE> 30
SUMMARY BALANCE SHEETS (UNAUDITED)
WISE
<TABLE>
<CAPTION>
(In thousands)
September 30, December 31,
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT Cash and equivalents $ 705 $ 601
ASSETS Accounts receivable (less allowance
for doubtful accounts of $1,218 and $757,
respectively) 23,370 22,049
Affiliated receivables 1,403
Inventories:
Finished and in-process goods 4,161 3,806
Raw materials and supplies 4,574 6,803
Other current assets 4,262 5,371
------- -------
38,475 38,630
------- -------
OTHER Other assets 2,061 2,159
ASSETS ------- -------
2,061 2,159
------- -------
PROPERTY Land 1,291 1,291
AND Buildings 5,306 4,499
EQUIPMENT Machinery and equipment 35,873 34,033
------- -------
42,470 39,823
Less accumulated depreciation (10,777) (6,373)
------- -------
31,693 33,450
-------- -------
INTANGIBLES Trademarks 17,855 18,589
------- -------
17,855 18,589
------- -------
TOTAL ASSETS $90,084 $92,828
======= =======
</TABLE>
See Notes to Summary Financial Statements
30
<PAGE> 31
SUMMARY BALANCE SHEETS (UNAUDITED)
WISE
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT Accounts and drafts payable $ 15,063 $14,086
LIABILITIES Affiliated payables 1,174
Other current liabilities 15,945 14,747
--------- -------
32,182 28,833
--------- -------
OTHER Affiliated long-term debt 10,145
Non-pension postemployment
benefit obligations 10,052 10,155
Other long-term liabilities 2,357 1,983
Minority interest 545
--------- -------
23,099 12,138
--------- -------
Commitments and Contingencies
SHAREHOLDERS' Common stock - ($0.01 par value
EQUITY Authorized 100 shares
Issued 100)
Paid in capital 34,200
Owners investment 51,857
Retained earnings,
(from incorporation, July 2, 1996) 603
--------- -------
34,803 51,857
--------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 90,084 $92,828
========= =======
</TABLE>
See Notes to Summary Financial Statements
31
<PAGE> 32
SUMMARY STATEMENTS OF CASH FLOWS (UNAUDITED)
WISE
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS Net income (loss) $ (4,195) $ 1,038
FROM (USED IN) Adjustments to reconcile net income (loss) to net
OPERATING cash from operating activities:
ACTIVITIES Depreciation and amortization 5,138 5,514
Net change in assets and liabilities:
Trade receivables (1,321) 2,396
Inventories 1,874 35
Trade payables 977 204
Other assets 196 (1,547)
Other liabilities 650 (6,283)
--------- ---------
3,319 1,357
--------- ---------
CASH FLOWS Capital expenditures (3,215) (1,591)
FROM Acquisition of business (655)
INVESTING --------- ---------
ACTIVITIES (3,870) (1,591)
--------- ---------
CASH FLOWS
(USED IN) FROM
FINANCING
ACTIVITIES Equity contribution from management 655
--------- ---------
655
--------- ---------
Increase (decrease) in cash and equivalents $ 104 $ (234)
Cash and equivalents at beginning
of period 601 871
------ ------
Cash and equivalents at end
of period $ 705 $ 637
======= ========
SUPPLEMENTAL Cash paid:
DISCLOSURES Interest $ 27
OF CASH FLOW Noncash activity:
INFORMATION Acquisition of Wise net assets (44,345)
Issuance of stock in exchange
for notes from principal stockholder 34,200
Issuance of notes payable to finance
acquisition of Wise net assets 10,145
</TABLE>
See Notes to Summary Financial Statements
32
<PAGE> 33
NOTES TO WISE
SUMMARY FINANCIAL STATEMENTS
(in thousands)
1. BACKGROUND
In September 1994, Borden, Inc. ("Borden") entered into a merger agreement,
culminating in December 1994, providing for the acquisition of all of
Borden's outstanding common stock by an affiliates of Kohlberg Kravis
Roberts & Co. ("KKR"). Borden, a public reporting registrant as a result of
public debt that was outstanding prior to the acquisition, elected not to
apply push down accounting in its consolidated financial statements and as
such Borden's financial statements (including the Wise operations) are
reported on Borden's historical cost basis. As discussed in the basis of
presentation, these financial statements have been prepared on a purchase
accounting basis from the date of KKR's acquisition of Borden.
Effective July 2, 1996 Borden, in a taxable transaction, sold its salty
snacks business ("Wise Operations") to BWHLLC, for $45 million, which
approximated net book value. The purchase price was based on an independent
valuation of the business. There is no change in the book basis of the
assets and liabilities as of July 2, 1996 because it is a sale between
related parties and Borden's principal stockholders will continue to
control Wise. Borden will continue to exercise significant financial
control over Wise and Wise will fully and unconditionally guarantee
obligations under Borden's credit facility and all of Borden's publicly
held debt on a pari passu basis.
The accompanying unaudited interim summary financial statements of
Wise contain all adjustments, consisting only of normal 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. BASIS OF PRESENTATION, NATURE OF OPERATIONS, ESTIMATES AND SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION - As a result of the financial guarantee and in
accordance with Regulation S-X rule 3- 10, Borden is required to include
separate financial statements for Wise as if it were a registrant in its
filings with the SEC. Based on discussions with the SEC these financial
statements were prepared on a purchase accounting basis which allocates
approximately $52 million of the December 1994 KKR purchase price to the
salty snack business of Borden. The purchase price has been allocated to
tangible and intangible assets and liabilities of Wise based on preliminary
estimates of their fair values. Accordingly, the allocation of the purchase
price may be adjusted when the initial allocation is finalized. While the
final asset and liability values may differ from those set forth in the
balance sheet, the changes are not expected to have a material effect on
the financial condition or results of operations of Wise. Wise is included
in Borden's consolidated financial statements through the date of sale on
Borden's historical basis and continues to be reported in the combined
financial statements included elsewhere herein on a historical cost basis.
Prior to the July 2, 1996 sale, Wise foods operated as a profit center of
Borden, which was included in Borden's December 31, 1995 financial
statements. Under this structure Borden incurred various costs in
connection with the operation of the Wise foods business which included
corporate controlled expenses, such as general and group insurance,
employee benefits, and administrative overhead, such as accounting, legal,
tax, credit and informational services departments and executive
management. Management believes these amounts in the accompanying financial
statements have been allocated in a reasonable and consistent manner in
order to depict balance sheets, statements of income and cash flows of Wise
on a stand alone basis. As a profit center of Borden essentially all
treasury functions including financing of working capital and other cash
needs were performed by Borden. Allocation of interest expense associated
with this financing is not practical and therefore is not included in
these financial statements.
During 1996 Wise sold equity interests in its business to key management
personnel for consideration of $655, resulting in an ownership percentage
of 1.87%. In addition, options issued at fair value which vest over five
years, allow management to purchase additional shares resulting in an
ownership of up to 10%. Management's ownership interest in Wise is recorded
in the financial statements as minority interest.
33
<PAGE> 34
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles 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. The most significant estimates in
Wise's financial statements are the allowance for doubtful accounts,
accrual for general and group insurance and the corporate allocations.
Actual results could differ from those estimates.
REVENUE RECOGNITION - Trade revenues are recognized when products are
shipped.
ADVERTISING AND PROMOTION EXPENSE - Production costs of future media
advertising are expensed on the first airdate or print release date of the
advertising. All other advertising is expensed as incurred. Promotional
costs are allocated ratably in interim periods based upon their
relationship to estimated annual sales.
CASH AND CASH EQUIVALENTS - Wise considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVENTORIES - Finished goods and raw materials inventories are stated at
the lower of cost or market with cost being determined using the average
cost method.
IMPAIRMENT - The carrying value of buildings, machinery and equipment, and
intangibles is evaluated periodically in relation to the expected future
undiscounted cash flows of the underlying business.
PROPERTY, PLANT & EQUIPMENT - Property, plant and equipment are stated at
cost and where appropriate includes capitalized interest during
construction. Depreciation is recorded on the straight-line basis over
useful lives ranging from 3 to 40 years. Major renewals and betterments are
capitalized. Maintenance, repairs and minor renewals are expensed as
incurred. When properties are retired or otherwise disposed of, related
cost and accumulated depreciation are removed from the accounts and any
related gain or loss is recorded in the statement of income.
INTANGIBLES - Intangible assets consist primarily of trademarks that are
amortized on a straight-line basis over not more than twenty years.
GENERAL INSURANCE - Wise is generally self-insured for losses and
liabilities relating to workers' compensation, health and welfare claims,
physical damage to property, business interruption and comprehensive
general, product and vehicle liability. Losses are accrued for the
estimated aggregate liability for claims incurred using certain actuarial
assumptions followed in the insurance industry and Wise experience.
INCOME TAXES - Income taxes are accounted for using the liability method in
accordance with Statements of Financial Accounting Standard No. 109
"Accounting for Income Taxes." Subsequent to July 2, 1996 deferred income
taxes are recorded to recognize the future effects of temporary differences
which arise between financial statement assets and liabilities and their
basis for income tax reporting purposes. Prior to July 2, 1996 Wise was
included in Borden's consolidated tax return, and accordingly, income tax
liabilities and
34
<PAGE> 35
assets determined on a separate return basis are included in owners
investment in the accompanying financial statements. The tax basis of Wise
was changed in conjunction with the July 2, 1996 related party purchase.
PENSION AND RETIREMENT SAVINGS PLANS - Most of the employees of Wise are
covered under one of Borden's pension plans or one of the union-sponsored
plans to which Borden contributes. Substantially all domestic employees
participate in Borden's retirement savings plans. Borden's cost of
providing the retirement savings plans represents its matching of eligible
contributions made by participating employees and is recognized as a charge
to income in the year the cost is incurred.
NON-PENSION POSTEMPLOYMENT BENEFITS - Wise provides certain health and life
insurance benefits for eligible retirees and their dependents. The cost of
providing these benefits is recognized as a charge to income in the period
the benefits were earned. Wise provides certain postemployment benefits to
qualified former or inactive employees. Wise accrues the cost of benefits
provided to former or inactive employees after employment, but before
retirement, when it is probable that a benefit will be provided. The cost
of providing these benefits is recognized as a charge to income in the
period the benefits were earned.
3. RELATED PARTIES
Wise is engaged in various transactions with Borden and its affiliated
companies in the ordinary course of business. Such transactions include,
among other things, the sharing of certain general and administrative costs
which are allocated to Wise and totaled $1,517 and $2,475 for the three
months ended September 30, 1996 and 1995, respectively. Affiliated expenses
for the first nine months of 1996 and 1995 were $4,485 and $7,428,
respectively.
During the third quarter 1996 Wise entered into a loan agreement (the "Loan
Agreement") to borrow funds from Borden. The Loan Agreement provides for a
revolving loan facility of up to $10,000 at a variable interest rate equal
to prime, and term loans with the amounts and terms to be determined by
Borden. Wise has no outstanding borrowings on the revolving loan facility
as of September 30, 1996. In conjunction with the July 2, 1996 transaction
Wise issued $10,145 in long-term notes to Borden at a fixed 12% interest
rate due on December 31, 1999. The Note Agreement contains customary
conditions to borrowings, representations and warranties, and affirmative
covenants similar to those contained in Borden's credit facility.
4. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS - Wise, like others in similar businesses, is subject
to extensive Federal, state and local environmental laws and regulations.
Although Wise environmental policies and practices are designed to ensure
compliance with these laws and regulations, future developments and
increasingly stringent regulation could require Wise to make additional
unforseen environmental expenditures.
Environmental accruals are routinely reviewed on an interim basis as events
and developments warrant and are subjected to a comprehenvive review
annually during the fiscal fourth quarter.
Wise is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities. Each of these matters is subject to various
uncertainties, and some of these matters may be resolved unfavorably to
Wise. Wise has established accruals for matters that are probable and
reasonably estimable. Management believes that any liability that may
ultimately result from the resolution of these matters in excess of amounts
provided will not have a material adverse effect on the financial position
of Wise.
35
<PAGE> 36
GUARANTEE - Wise guarantees obligations under Borden's credit facility and
all of Borden's outstanding publicly held debt on a pari passu basis.
36
<PAGE> 37
PART II
Item 1: LEGAL PROCEEDINGS
There have been no material developments in the ongoing legal proceedings that
are discussed in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 or the Forms 10-Q for the periods ended March 31, 1996
and June 30, 1996.
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 reserves for estimated liability and its
insurance coverage, that the ultimate outcome of the foregoing proceedings and
actions is unlikely to have a materially adverse effect on the Company's
financial position or operating results.
37
<PAGE> 38
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
No. 2.1 Conveyance and Transfer Agreement, dated
October 1, 1996 among Borden, Inc., BDH One,
Inc., BDH Two, Inc., Borden Foods Investments
Corporation, Borden Foods Holdings, LLC, Borden
Foods Holdings Corporation, Borden Foods
Corporation, BFC Investments L.P., and BDS Two,
Inc., incorporated herein by reference to Exhibit
2.1 to Form 8K, dated October 16, 1996, File No.
001-00071.
3(ii) By-Laws of Borden, Inc., as of August 14, 1996.
27 Financial Data Schedule
b. Reports on Form 8-K.
On October 16, 1996 Borden, Inc., filed a Form 8-K announcing
the sale of its pasta and foods business to an affiliate of the
Company's principal stockholder, and the completion of the sale
of the Company's packaging and plastic films business to AEP
Industries, Inc. Unaudited pro forma condensed consolidated
financial statements were filed to reflect the effects of the
above transactions.
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: November 14, 1996 By /s/ William H. Carter
---------------------
William H. Carter
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
38
<PAGE> 1
Exhibit 2.1
As of August 14, 1996
BY-LAWS
OF
BORDEN, INC.
ARTICLE I
OFFICES
Places of business or offices may be established at any time by the
board of directors (the Board) at any place or places where the Corporation is
qualified to do business or where qualification is not required.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. An annual meeting of the shareholders for the election of
directors and for the transaction of such other business as may properly come
before the meeting shall be held upon not less than the ten nor more than sixty
days written notice of the time, place and purposes of the meeting. The meeting
shall be held at such time and place as shall be designated by the Board and
specified in the notice of the meeting.
SECTION 2. Special meetings of shareholders shall be held at such place
and at such time as shall be fixed by resolution of the Board with respect to
each such meeting and may be called at any time by the Chairman of the Board,
Chief Executive Officer or President or a majority of the directors. Any special
meeting of shareholders shall be held upon not less than ten nor more than sixty
days written notice of the time, place, and purpose of the meeting.
SECTION 3. Except as otherwise provided by law or the Restated
Certificate of Incorporation of the Company, at all meetings of the
shareholders, in order to constitute a quorum, there shall be present, either in
person or by proxy, shareholders entitled to cast a majority of the votes at
such meeting.
SECTION 4. At all meetings of the shareholders, each shareholder shall
be entitled to one vote for each share of the capital stock standing in his name
on the books of the Company, except as otherwise provided by the Restated
Certificate of Incorporation of the Company.
SECTION 5. At all meetings of the shareholders any
shareholder shall be entitled to vote by proxy. Every proxy shall
<PAGE> 2
be executed in writing by the shareholder or his agent except that a proxy may
be given by a shareholder or his agent by telegram or cable or by any means of
electronic communication which results in a writing.
SECTION 6. For the purpose of determining the shareholders entitled to
(a) notice of or to vote at any meeting of shareholders or any adjournment
thereof, (b) give a written consent to any action without a meeting, or (c)
receive payment of any dividend or allotment of any right, or for the purpose of
any other corporate action or event, the Board may fix, in advance, a date as
the record date for any such determination of shareholders. Such dates shall not
be more than sixty nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. The record date to determine
shareholders entitled to give a written consent may not be more than 60 days
before the date fixed for tabulation of the consents or, if no date has been
fixed for tabulation, more than 60 days before the last day on which consents
received may be counted.
If no record date is so fixed by the Board, (a) the record date for a
meeting of shareholders shall be the close of business on the day next preceding
the day on which notice is given, or, if no notice is given, the day next
preceding the day on which the meeting is held, and (b) the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the resolution of the Board relating thereto is adopted.
When a determination of shareholders of record entitled to notice of or
to vote at any meeting of shareholders has been made as provided in this
Section , such determination shall apply to any adjournment thereof, unless the
Board fixes a new record date under this Section for the adjourned meeting.
SECTION 7. The affirmative vote of a majority of votes cast by the
shareholders shall be required to authorize or approve any action or matter to
be voted upon by the shareholders, except that directors shall be elected as
provided by law.
SECTION 8. Unless otherwise determined by resolution of the
Board,
(a) the Chairman of the Board shall, or shall designate an
appropriate officer of the Company to, call any annual or
special meeting of shareholders to order, act as Chairman of
any such meeting of the shareholders, determine the order of
business of any such meeting, and determine the rules of order
and procedure to be followed in the conduct of any such
meeting; and
(b) the Secretary or an Assistant Secretary of the Company
shall act as Secretary of the meeting.
<PAGE> 3
Nothing in this section shall prohibit the Chairman of the meeting from
changing the order in which business shall be presented to the meeting.
SECTION 9. The shareholders may act without a meeting by
written consent or consents pursuant to N.J.S. 14A:5-6. The
written consent or consents shall be filed in the minute book.
ARTICLE III
DIRECTORS
SECTION 1. The business and affairs of the Company shall be managed by
or under the direction of a Board of Directors consisting of not less than one
nor more than fifteen directors. Subject to the provisions of the Restated
Certificate of Incorporation of the Company, the members of the Board shall be
elected at each annual meeting of shareholders of the Company to hold office
until the next annual meeting, and the term of each director shall be from the
time of his election and qualification until the annual meeting of shareholders
next succeeding his election and until his successor shall have been elected and
shall have qualified. The Chairman of the Board shall be elected by the Board
from time to time and shall serve as Chairman of the Board until his successor
shall have been elected and shall have qualified. The Chairman of the Board
shall be a director, and may serve as an officer or otherwise be an employee.
SECTION 2. If the office of any director is not filled at an annual
meeting or becomes vacant, or if new directorships resulting from an increase in
the authorized number of directors are created, the remaining directors (even
though less than a quorum) by a majority vote, or the sole remaining director,
may fill such directorship. A director so elected shall hold office until the
next annual meeting of shareholders and until his successor is elected and
qualified in his stead. Any directorship not filled by the Board may be filled
by the shareholders at an annual meeting or at a special meeting called for that
purpose.
SECTION 3. The Board shall have the power to remove a director for
cause and to suspend a director pending a final determination that cause exists
for removal.
SECTION 4. There shall be an annual meeting of the Board for the
election of officers and for such other business as may be brought before the
meeting, immediately after the annual meeting of shareholders.
SECTION 5. Regular meetings of the Board may be held without notice at
such time and place as shall from time to time be determined by the Board.
SECTION 6. Special meetings of the Board may be called by the
Chairman of the Board, Chief Executive Officer, President or by any
<PAGE> 4
two directors at such time and place as specified in a notice delivered
personally or by telephone to each director, or mailed, telegraphed or sent by
facsimile transmission to his address upon the books of the Company, at least
two days prior to the time of holding the meeting. The notice of meeting need
not, but may, specify the purpose of the meeting.
SECTION 7. A majority of directors shall constitute a quorum for the
transaction of business. Any action approved by a majority of the votes of
directors present at a meeting at which a quorum is present, shall be the act of
the Board.
SECTION 8. The Board may act without a meeting if, prior or subsequent
to the action, each member of the Board consents in writing to the action. The
written consent or consents shall be filed in the minute book.
SECTION 9. Any director may participate in a meeting of the Board by
means of conference telephone or any other means of communication by which all
persons participating in the meeting are able to hear each other.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Company may consist of a Chief Executive
Officer, a President, one or more Vice Presidents, a Secretary, a Treasurer, and
a General Controller and one or more Assistant Secretaries, Assistant Treasurers
and Assistant General Controllers. The said officers shall be elected at the
annual meeting of the Board by a majority vote of the Board and shall serve at
the pleasure of the Board and shall be subject to removal at any time, with or
without cause, provided, however, that the Board may at its pleasure omit the
election of any of the foregoing officers not required by law. One person may
hold more than one office.
SECTION 2. The said officers shall have the powers and shall perform
all the duties incident to their said respective offices and shall perform such
other duties as shall from time to time be assigned to them by the Board.
SECTION 3. The Chairman or, in his absence, a director selected by a
majority of the Directors, shall preside at meetings of the Board. Each Vice
President or other officer shall have general charge of such departments or
divisions of the Company's business, or shall perform such duties, as may from
time to time be determined by the Chief Executive Officer and they shall be
responsible for the proper administration of their respective departments or
divisions to the Chief Executive Officer. Departmental managers shall be
responsible for the proper administration of their departments to the officer in
charge thereof.
<PAGE> 5
SECTION 4. During the absence of the Chief Executive Officer, the Chief
Executive Officer shall designate, in writing to the Corporate Secretary, the
officer who shall be vested with all the powers of such office in respect of the
signing and execution of any contracts or other papers requiring the signature
of any such absent officer. In the event of any prolonged absence of any officer
of the Company, the Board may delegate his powers or duties to any other
executive officer, or to any director, during such absence, and the person so
delegated shall, for the time being, be the officer whose powers and duties he
so assumes.
SECTION 5. The Board may create such other offices as they may
determine, elect or provide for the election of officers to fill the same,
define their powers and duties and fix their tenures of office. The Board may
also create or provide for the creation of (1) administrative divisions, and (2)
offices and committees for any such divisions and may elect or provide for the
election of officers and committee members to fill the positions so created,
define or make provision for the duties to be performed by such officers and
committees and the powers to be exercised by them and fix or make provision for
their tenures of office. The Board may delegate to the Chief Executive Officer
or to any other officer or any committee of the Company the power to exercise
some, any or all of the powers granted to the Board by the foregoing provisions
of this Section . The Chief Executive Officer in turn may delegate to any other
officer or any committee of the Company the power to exercise some, any or all
of the powers delegated to him by the Board pursuant to the foregoing provisions
of this Section .
ARTICLE V
COMMITTEES
SECTION 1. There shall be an Executive Committee consisting of three or
more directors. The membership of this Committee shall consist of such number of
directors as the Board may, by a resolution adopted by a majority of the entire
Board, elect from time to time and their terms of office shall be for such
periods as the Board may designate. A majority of all the members of the
Committee shall constitute a quorum for the transaction of business. The Board
or Executive Committee members shall elect the Chairman of the Committee. The
Committee shall determine its own procedure and shall meet on call by the
Chairman of the Committee or by any two members of the Committee. In addition to
any general or special duties that may from time to time be delegated to it by
the Board, the Committee shall, subject to the laws of the State of New Jersey,
have and may exercise the powers of the Board during the intervals between the
meetings of the Board, including the periodic review of management organization.
SECTION 2. There shall be an Audit Committee comprised of two
or more directors. The members shall be elected by the Board, or
<PAGE> 6
the Executive Committee, either of which shall also elect the Chairman of the
Committee. A majority of the members shall constitute a quorum of the Committee.
The Committee shall assist the Board in fulfilling its fiduciary
responsibilities relating to accounting policies, auditing and reporting
practices for the Company and shall, through regularly scheduled meetings
provide a direct line of communication between the Board and the Company's
independent accountants, as well as the internal auditor. It shall receive
management's recommendation of the independent auditing firm for the next year
and make its recommendation to be approved by the Board.
It shall review with the independent auditing firm the scope of its
examination, the consolidated financial statements prior to the approval of the
annual report by the Board, the competence and adequacy of financial, accounting
and internal audit management and control procedures of the Company,
recommendations of the independent auditors and management's response thereto,
the internal audit function and such other matters relating to financial reports
as it deems appropriate. It will require that serious differences between the
independent auditors and the management be reported to it.
SECTION 3. There shall be a Committee on Officers' Compensation
comprised of three or more directors. The members shall be elected by the Board
or the Executive Committee, either of which shall also elect the Chairman of the
Committee. A majority of the members shall constitute a quorum of the Committee.
The Committee shall establish salaries for elected officers of the
Company. It shall be responsible for the administration of the Management
Incentive Plan, other incentive compensation plans and related subjects. It
shall also supervise and administer such employee benefits plans as the Chief
Executive Officer or the Board shall, from time to time, direct.
SECTION 4. The Committees created by the preceding sections of this
Article shall each keep a record of their actions and proceedings, and all their
actions shall be reported to the Board at its next ensuing meeting; except that,
when the meeting of the Board is held within 2 days after the committee meeting,
such report shall, if not made at the first meeting, be made to the Board at its
second meeting following such committee meeting.
ARTICLE VI
WAIVERS OF NOTICE
Any notice required by these by-laws, by the Restated Certificate of
Incorporation, or by the New Jersey Business Corporation Act may be waived in
writing by any person entitled to notice. The waiver, or waivers, may be
executed either before or
<PAGE> 7
after the event with respect to which the notice is waived. Each director or
shareholder attending a meeting without protesting, prior to its conclusion, the
lack of proper notice, shall be deemed conclusion, the lack of proper notice
shall be deemed conclusively to have waived notice of the meeting.
ARTICLE VII
DEPOSITORIES, CHECKS AND NOTES
SECTION 1. The Chairman of the Board, Chief Executive Officer,
President, Chief Financial Officer, Treasurer or an Assistant Treasurer of the
Company shall each have the authority to designate banks, trust companies or
other depositories in which funds of the Company shall be deposited to the
credit of the Company. All checks, drafts and orders for the payment of money
shall be signed by any one of the aforesaid officers, or by such other person or
persons as the Board or anyone of the aforesaid officers may from time to time
designate. Subject to such limitations, restrictions and safeguards as any of
the aforesaid officers shall prescribe, signatures in the case of all checks,
drafts and orders for the payment of money may be facsimile signatures.
SECTION 2. The signature of any officer upon any bond, debenture, note
or similar instrument executed on behalf of the Company may be a facsimile
whenever authorized by the Board.
ARTICLE VIII
DIVIDENDS
Subject to the provisions of law and the Restated Certificate of
Incorporation of the Company, the Board shall have the power in its discretion
to declare and pay dividends upon the shares of stock of the Company of any
class in cash, in its own shares, in its bonds or in other property, including
the shares or bonds of other corporations. Anything in the Restated Certificate
of Incorporation or these by-laws to the contrary notwithstanding, no holder of
any share of stock of the Company of any class shall have any right to any
dividend thereon unless such dividend shall have been declared by the Board as
aforesaid.
<PAGE> 8
ARTICLE IX
SEAL
The seal of the Company shall be circular in form with the words
"Borden, Inc." on the circumference, and the figures "1899" in the center.
ARTICLE X
STOCK
SECTION 1. Certificates of stock shall be issued and signed by the
Chairman of the Board, Chief Executive Officer, President or a Vice President
and may be countersigned by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary and may be sealed with the seal of the
Company or a facsimile thereof. Any or all signatures upon a certificate,
including those of a stock transfer agent or a registrar, may be facsimile. In
case any officer or officers or any transfer agent or registrar of the Company
who shall have signed, or whose facsimile signature or signatures shall have
been used on any certificate or certificates shall cease to be such officer or
officers, or such transfer agent or registrar, for whatever cause, before such
certificate or certificates shall have been delivered, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates or whose facsimile signature
or signatures shall have been used thereon had not ceased to be such officer or
officers or such transfer agent or registrar, as the case may be.
SECTION 2. All transfers of stock shall be made upon the books of the
Company upon surrender to the Company of the certificate or certificates for
such stock, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer.
SECTION 3. Every person claiming a stock certificate in lieu of one
lost or destroyed shall give notice to the Company of such loss and destruction,
and shall also file in the office of the Company an affidavit as to his
ownership of the stock represented by the certificate, and of the facts which go
to prove its loss or destruction. He shall, if required by the Board of
Directors, give the Company a bond or agreement of indemnity in a form to be
approved by counsel, with or without sureties and in such amount as may be
determined by the Board or by an officer in whom authority therefor shall have
been duly vested by the Board against all loss, cost and damage which may arise
from issuing such new certificate. The officers of the Company, if satisfied
from the proof that the certificate is lost or destroyed, may then issue to him
a new certificate of the same tenor as the one lost or destroyed.
SECTION 4. The Board shall have the power and authority to
make all such rules and regulations as it may deem expedient
<PAGE> 9
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the Company. The Board may appoint transfer agents and
registrars of transfer, and may require any or all stock certificates to bear
the signature or facsimile signature of any such transfer agent and any such
registrar of transfers.
SECTION 5. Unless the Board by specific resolution provides otherwise,
all shares of the Company, which are reacquired pursuant to the New Jersey
Corporation Act, Section l4A:7-l6 by purchase, by redemption or by their
conversion into other shares of the Company, shall remain authorized and issued
shares and shall be considered treasury shares.
ARTICLE XI
FISCAL YEAR
SECTION 1. The fiscal year of the Company shall commence on the first
day of January in each year and end on the following thirty-first day of
December.
SECTION 2. It shall be the duty of the principal financial officer to
submit a full report of the financial condition of the Company for the preceding
fiscal year at a meeting of the Board preceding the annual meeting of
shareholders.
ARTICLE XII
AMENDMENTS TO BY-LAWS
SECTION 1. These by-laws are subject to the provisions of the New
Jersey Business Corporation Act and the Corporation's Restated Certificate of
Incorporation, as each may be amended from time to time. If any provision in
these by-laws is inconsistent with a provision in that Act or the Restated
Certificate of Incorporation, the provision of that Act or the Restated
Certificate of Incorporation shall govern.
SECTION 2. These by-laws may be altered, amended, or repealed by the
shareholders or the Board. Any by-law adopted or amended by the shareholders may
be amended or repealed by the Board, unless the resolution of the shareholders
adopting the by-law expressly reserves to the shareholders the right to amend or
repeal it.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 134
<SECURITIES> 0
<RECEIVABLES> 512
<ALLOWANCES> 15
<INVENTORY> 310
<CURRENT-ASSETS> 1,753
<PP&E> 1,912
<DEPRECIATION> 1,051
<TOTAL-ASSETS> 3,173
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<BONDS> 1,019
0
614
<COMMON> 2
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<TOTAL-LIABILITY-AND-EQUITY> 3,173
<SALES> 2,886
<TOTAL-REVENUES> 2,886
<CGS> 2,082
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<INCOME-PRETAX> 123
<INCOME-TAX> 67
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<DISCONTINUED> (340)
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<NET-INCOME> (340)
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