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
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
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Commission file number I-71
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BORDEN, INC.
New Jersey 13-0511250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East Broad Street, Columbus, OH 43215
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(Address of principal executive offices)
(614) 225-4000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ----
Number of shares of common stock, $0.01 par value, outstanding as of the close
of business on May 15, 2000:
198,974,994
<PAGE>
BORDEN, INC.
INTRODUCTION
The following filing with the Securities and Exchange Commission ("SEC") by
Borden, Inc. ("the Company") presents four separate financial statements:
Borden, Inc. Condensed Consolidated Financial Statements, Borden, Inc. and
Affiliates Condensed Combined Financial Statements, the Condensed Financial
Statements of Wise Holdings, Inc. ("Wise Holdings") and the Condensed Financial
Statements of Borden Foods Holdings Corporation ("Foods Holdings"). The
consolidated statements present the Company after the effect of the sale of (i)
the Company's former salty snacks business ("Wise") to Wise Holdings and its
subsidiaries and (ii) the Company's former domestic and international foods
business ("Foods") to Foods Holdings and its subsidiaries, as explained in Note
1 to the consolidated and combined financial statements. The Company, Wise
Holdings and Foods Holdings are controlled by BW Holdings, LLC ("BWHLLC"). The
consolidated financial statements are those of the Company, which is the SEC
Registrant.
The Borden, Inc. and Affiliates ("the Combined Companies") Condensed Combined
Financial Statements are included herein to present the Company on a combined
historical basis, including the financial position, results of operations and
cash flows of Wise and Foods. The Combined Companies' financial statements are
included, supplementally, to present financial information on a basis consistent
with that on which credit was originally extended to the Company (prior to push
down accounting) and because management of the Company will continue to control
significant financial and managerial decisions with respect to Wise Holdings and
Foods Holdings. Also, in accordance with rule 3-10 of Regulation S-X, the
Condensed Financial Statements of Wise Holdings and Foods Holdings are included
in Part II of this Quarterly Report on Form 10-Q because Wise Holdings and Foods
Holdings are guarantors of the Company's credit facility and all of the
Company's outstanding publicly held debt.
2
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BORDEN, INC.
INDEX
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PART I - FINANCIAL INFORMATION
ITEM 1. BORDEN, INC. ("BORDEN") CONDENSED CONSOLIDATED AND BORDEN, INC. AND AFFILIATES CONDENSED
COMBINED FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations and Comprehensive Income,
three months ended March 31, 2000 and 1999. . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Balance Sheets, March 31, 2000, and December 31, 1999. . . . . . . . 6
Condensed Consolidated Statements of Cash Flows,
three months ended March 31, 2000 and 1999 . . . . . . . . . . . . . . . 8
Condensed Consolidated Statement of Shareholders' Equity,
three months ended March 31, 2000 . . . . . . . . . . . . . . . . . . . . . 10
Condensed Combined Statements of Operations and Comprehensive Income,
three months ended March 31, 2000 and 1999. . . . . . . . . . . . . . . . . . 11
Condensed Combined Balance Sheets, March 31, 2000, and December 31, 1999. . . . . . . . . . 12
Condensed Combined Statements of Cash Flows, three months ended March 31, 2000 and 1999 . . 14
Condensed Combined Statement of Shareholders' Equity, three months ended March 31, 2000 . . 16
Notes to Condensed Consolidated and Condensed Combined Financial Statements . . . . . . . . 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 6. EXHIBITS, GUARANTOR FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . 25
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3
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<CAPTION>
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
BORDEN, INC.
Three months ended March 31,
(In millions) 2000 1999
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<S> <C> <C>
Net sales $352.7 $306.9
Cost of goods sold 246.6 211.8
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Gross margin 106.1 95.1
------- -------
Distribution expense 15.6 12.0
Marketing expense 18.1 15.8
General & administrative expense 37.7 31.1
Business realignment 2.8 -
------- -------
Operating income 31.9 36.2
------- -------
Interest expense 14.7 15.3
Affiliated interest expense, net of affiliated
interest income of $0.1 in 2000 4.1 4.8
Interest income and other (6.2) (8.7)
Equity in net (income) loss of unconsolidated subsidiaries (0.4) 5.3
------- -------
Income from continuing operations
before income tax 19.7 19.5
Income tax expense 7.4 6.2
------- -------
Net income 12.3 13.3
Preferred stock dividends (18.4) (18.4)
------- -------
Net loss applicable to common stock $ (6.1) $ (5.1)
======= =======
Comprehensive income (see Note 3) $ 9.9 $ (4.4)
======= =======
- --------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
4
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED) (CONTINUED)
BORDEN, INC.
Three months ended March 31,
(In millions, except per share data) 2000 1999
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Basic and Diluted Per Share Data
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<S> <C> <C>
Net income $ 0.06 $ 0.07
Preferred stock dividends (0.09) (0.09)
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Net loss applicable to common stock $(0.03) $(0.02)
======= =======
Dividends per common share $ 0.13 $ 0.06
Dividends per preferred share $ 0.75 $ 0.75
Average number of common shares outstanding
during the period 199.0 199.0
- -------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
5
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
BORDEN, INC.
(In millions)
March 31, December 31,
ASSETS 2000 1999
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<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 151.1 $ 195.2
Accounts receivable (less allowance for doubtful
accounts of $10.7 in 2000 and $11.8 in 1999) 218.5 215.0
Loan receivable from affiliate 59.5 56.2
Inventories:
Finished and in-process goods 62.8 62.8
Raw materials and supplies 47.5 50.4
Deferred income taxes 41.4 42.4
Other current assets 16.7 15.3
----------- -----------
597.5 637.3
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INVESTMENTS AND OTHER ASSETS
Investments 63.5 64.0
Investment in affiliate 53.6 51.5
Deferred income taxes 101.0 109.5
Prepaid pension assets 127.9 129.7
Other assets 36.8 36.3
Assets sold under contractual arrangement (net of allowance
of $62.6 in 2000 and 1999) 49.7 48.2
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432.5 439.2
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PROPERTY AND EQUIPMENT
Land 25.9 25.6
Buildings 107.7 97.9
Machinery and equipment 721.8 739.1
----------- -----------
855.4 862.6
Less accumulated depreciation (323.1) (323.8)
----------- -----------
532.3 538.8
INTANGIBLES 110.7 112.1
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TOTAL ASSETS $ 1,673.0 $ 1,727.4
=========== ===========
- ----------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
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6
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
BORDEN, INC.
(In millions, except share data)
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts and drafts payable $ 131.0 $ 137.4
Debt payable within one year 21.1 17.7
Income taxes payable 240.1 244.1
Loans payable with affiliates 264.0 246.6
Other current liabilities 161.8 178.6
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818.0 824.4
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OTHER LIABILITIES
Liabilities sold under contractual arrangement 41.6 41.6
Long-term debt 540.9 541.1
Non-pension post-employment benefit obligations 173.1 176.1
Other long-term liabilities 69.8 80.0
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825.4 838.8
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COMMITMENTS AND CONTINGENCIES (See Note 5)
SHAREHOLDERS' EQUITY
Preferred stock - Issued 24,574,751 shares 614.4 614.4
Common stock - $0.01 par value: authorized 300,000,000 shares,
Issued 198,974,994 shares 2.0 2.0
Paid in capital 329.6 355.7
Receivable from parent (414.9) (414.9)
Accumulated other comprehensive income (54.9) (52.5)
Accumulated deficit (446.6) (440.5)
--------- ---------
29.6 64.2
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,673.0 $1,727.4
========= =========
- ------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
7
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<CAPTION>
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
BORDEN, INC.
Three months ended March 31,
(In millions) 2000 1999
- -----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net income $ 12.3 $ 13.3
Adjustments to reconcile net income to net
cash from (used in) operating activities:
Business realignment 2.8 -
Deferred tax provision (benefit) 8.6 (2.9)
Depreciation and amortization 14.2 12.0
Unrealized gain on interest rate swap (2.1) (2.9)
Equity in net (income) loss of unconsolidated subsidiaries (0.4) 5.3
Net change in assets and liabilities:
Trade receivables (11.2) (11.5)
Inventories 2.5 2.5
Trade payables (1.4) 1.3
Income taxes (9.5) (6.1)
Other assets 6.6 (2.3)
Other liabilities (20.9) (29.6)
------- -------
1.5 (20.9)
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures (19.8) (9.2)
Investment in affiliate (1.4) (1.8)
------- -------
(21.2) (11.0)
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CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Net short-term debt borrowings (repayments) 3.4 (5.6)
Repayment of long-term debt (0.2) (0.1)
Affiliated borrowings 14.1 1.0
Interest received from parent 12.1 12.4
Common stock dividends paid (25.1) (12.4)
Preferred stock dividends paid (18.4) (18.4)
Other distributions (10.3) -
------- -------
(24.4) (23.1)
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8
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
BORDEN, INC.
Three months ended March 31,
(In millions) 2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in cash and equivalents $(44.1) $(55.0)
Cash and equivalents at beginning
of period 195.2 672.1
------- -------
Cash and equivalents at end
of period $151.1 $617.1
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid:
Interest, net $ 21.9 $ 20.4
Taxes 9.1 15.3
Non-cash activity:
Accrued dividends on investment in affiliate 2.1 -
Capital contribution by parent 7.5 8.4
Distribution of net assets of infrastructure management
services business to the Company's parent 6.0 -
- -------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
9
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<CAPTION>
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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
BORDEN, INC.
(In millions)
- --------------------------------------------------------------------------------------------------------------------
Accumulated
Receivable Other
Preferred Common Paid-in from Comprehensive Accumulated
Stock Stock Capital Parent Income Deficit Total
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $614.4 $2.0 $355.7 $(414.9) $(52.5) $(440.5) $64.2
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income 12.3 12.3
Translation adjustments (2.4) (2.4)
Preferred stock dividends (18.4) (18.4)
Common stock dividends (25.1) (25.1)
Other distributions (16.3) (16.3)
Interest accrued on notes from parent (net of $4.3 tax) 7.8 7.8
Capital contribution from parent 7.5 7.5
- ---------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $614.4 $2.0 $329.6 $(414.9) $(54.9) $(446.6) $29.6
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
10
<TABLE>
<CAPTION>
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CONDENSED COMBINED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
BORDEN, INC. AND AFFILIATES
Three months ended March 31,
(In millions) 2000 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $552.4 $496.5
Cost of goods sold 354.0 313.2
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Gross margin 198.4 183.3
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Distribution expense 34.9 28.4
Marketing expense 92.7 79.4
General & administrative expense 57.6 44.5
Business realignment 2.8 -
Gain on divestiture of businesses - (4.4)
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Operating income 10.4 35.4
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Interest expense 14.7 15.5
Affiliated interest expense 0.3 1.7
Interest income and other (6.2) (9.7)
Equity in net (income) loss of unconsolidated subsidiaries (0.4) 5.3
------- -------
Income from continuing operations
before income tax 2.0 22.6
Income tax expense 1.9 7.6
------- -------
Income before cumulative effect of change
in accounting principle 0.1 15.0
Cumulative effect of change in accounting principle - (2.8)
------- -------
Net income 0.1 12.2
Affiliate's share of income 0.1 (0.9)
Preferred stock dividends (18.4) (18.4)
------- -------
Net loss applicable to common stock $(18.2) $ (7.1)
======= =======
Comprehensive income (see Note 3) $ (3.6) $ (7.0)
======= =======
- ----------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
11
<TABLE>
<CAPTION>
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CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
BORDEN, INC. AND AFFILIATES
(In millions)
March 31, December 31,
ASSETS 2000 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 179.1 $ 228.4
Accounts receivable (less allowance for doubtful accounts of $14.6
in 2000 and $15.4 in 1999) 284.2 296.9
Loan receivable from affiliate 59.5 56.2
Inventories:
Finished and in-process goods 118.1 114.8
Raw materials and supplies 73.8 84.3
Deferred income taxes 59.0 60.8
Other current assets 27.3 24.0
----------- -----------
801.0 865.4
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INVESTMENTS AND OTHER ASSETS
Investments 63.5 64.0
Investment in affiliate 53.6 51.5
Deferred income taxes 101.3 109.8
Prepaid pension assets 139.1 140.8
Other assets 32.4 32.7
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389.9 398.8
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PROPERTY AND EQUIPMENT
Land 39.2 38.8
Buildings 202.3 192.6
Machinery and equipment 1,080.8 1,088.1
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1,322.3 1,319.5
Less accumulated depreciation (553.1) (548.2)
----------- -----------
769.2 771.3
INTANGIBLES 418.7 423.5
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TOTAL ASSETS $ 2,378.8 $ 2,459.0
=========== ===========
- ----------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
12
<TABLE>
<CAPTION>
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CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
BORDEN, INC. AND AFFILIATES
(In millions)
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts and drafts payable $ 186.6 $ 197.3
Debt payable within one year 21.7 18.1
Income taxes payable 251.2 255.8
Loans payable with affiliates 26.3 14.5
Other current liabilities 238.7 257.7
--------- ---------
724.5 743.4
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OTHER LIABILITIES
Long-term debt 543.9 544.1
Non-pension post-employment benefit obligations 190.6 193.9
Other long-term liabilities 105.1 114.8
--------- ---------
839.6 852.8
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COMMITMENTS AND CONTINGENCIES (SEE NOTE 5)
SHAREHOLDERS' EQUITY
Preferred stock 614.4 614.4
Common stock 2.0 2.0
Paid in capital 638.3 664.4
Receivable from parent (414.9) (414.9)
Affiliate's interest in subsidiary 66.1 66.2
Accumulated other comprehensive income (87.8) (84.1)
(Accumulated deficit) retained earnings (3.4) 14.8
--------- ---------
814.7 862.8
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,378.8 $2,459.0
========= =========
- ------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
13
<TABLE>
<CAPTION>
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CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
BORDEN, INC. AND AFFILIATES
Three months ended March 31,
(In millions) 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net income $ 0.1 $ 12.2
Adjustments to reconcile net income to net
cash from (used in) operating activities:
Gain on divestiture of businesses - (4.4)
Business realignment 2.8 -
Deferred tax provision (benefit) 9.1 (1.1)
Depreciation and amortization 24.9 20.1
Unrealized gain on interest rate swap (2.1) (2.9)
Equity in net (income) loss of unconsolidated subsidiaries (0.4) 5.3
Net change in assets and liabilities:
Trade receivables 2.3 (2.2)
Inventories 6.6 13.1
Trade payables (5.6) (7.3)
Income taxes (9.3) (8.5)
Other assets 5.4 3.6
Other liabilities (19.0) (57.4)
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14.8 (29.5)
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CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures (33.3) (18.4)
Proceeds from the divestiture of businesses - 9.5
Proceeds from the sale of fixed assets - 2.4
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(33.3) (6.5)
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CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Net short-term debt borrowings (repayments) 3.5 (5.7)
Repayment of long-term debt (0.4) (0.1)
Affiliated borrowings 7.8 -
Interest received from parent 12.1 12.4
Common stock dividends paid (25.1) (12.4)
Preferred stock dividends paid (18.4) (18.4)
Other distributions (10.3) -
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(30.8) (24.2)
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14
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CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
BORDEN, INC. AND AFFILIATES
Three months ended March 31,
(In millions) 2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in cash and equivalents $(49.3) $(60.2)
Cash and equivalents at beginning
of period 228.4 695.5
------- -------
Cash and equivalents at end
of period $179.1 $635.3
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid:
Interest, net $ 17.0 $ 17.0
Taxes 2.1 15.4
Non-cash activity:
Accrued dividends on investment in affiliate 2.1 -
Capital contribution by parent 7.5 8.4
Affiliate's share of income (0.1) 0.9
Distribution of net assets of infrastructure management
services business to the Company's parent 6.0 -
- -------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
15
<TABLE>
<CAPTION>
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CONDENSED COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
BORDEN, INC. AND AFFILIATES
(In millions)
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated Retained
Receivable Affiliate's Other Earnings
Preferred Common Paid-in from Interest in Comprehensive (Accumulated
Stock Stock Capital Parent Subsidiary Income Deficit) Total
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $614.4 $2.0 $664.4 $(414.9) $66.2 $(84.1) $14.8 $862.8
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income 0.1 0.1
Translation adjustments (3.7) (3.7)
Preferred stock dividends (18.4) (18.4)
Common stock dividends (25.1) (25.1)
Other distributions (16.3) (16.3)
Interest accrued on notes from parent (net of $4.3 tax) 7.8 7.8
Capital contribution from parent 7.5 7.5
Affiliate's interest in subsidiary (0.1) 0.1 -
- ------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $614.4 $2.0 $638.3 $(414.9) $66.1 $(87.8) $(3.4) $814.7
- ------------------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated and Condensed Combined Financial Statements
</TABLE>
16
<PAGE>
NOTES TO CONDENSED CONSOLIDATED
AND CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollars in millions except per share amounts and as otherwise indicated)
1. BASIS OF PRESENTATION
The Registrant, Borden, Inc. (the "Company") is engaged primarily in
manufacturing, processing, purchasing and distributing primarily forest products
and industrial resins, formaldehyde, melamine crystal and other specialty and
industrial chemicals worldwide as well as consumer glues and adhesives in North
America.
The Company's principal lines of business formerly included its international
and domestic foods operations ("Foods") and salty snacks business ("Wise").
Subsidiaries of BWHLLC, an affiliate of the Company's parent, together with
subsidiaries of Wise Holdings, Inc. ("Wise Holdings") and subsidiaries of Borden
Foods Holdings Corporation ("Foods Holdings") purchased Wise and Foods on July
2, 1996 and October 1, 1996, respectively. As a result of these sales, Wise and
Foods, as of their respective sale dates, are no longer legally part of the
Company on a consolidated basis. However, management of the Company continues to
exercise significant operating and financial control over Wise and Foods. In
addition, Wise Holdings and Foods Holdings provide financial guarantees to
obligations under the Company's credit facility and all of the Company's
outstanding publicly held debt. Because of the aforementioned control and
guarantees, the Company has included, supplementally in this filing, Condensed
Combined Financial Statements of Borden, Inc. and Affiliates (the "Combined
Companies") which present the financial condition and results of operations and
cash flows of the Company, Wise and Foods. The Combined Companies' financial
statements do not reflect push-down accounting and therefore present financial
information on a basis consistent with that upon which credit was originally
extended to the Company.
The accompanying unaudited interim Condensed Consolidated and Condensed 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 period. Results for the interim period
are not necessarily indicative of results for the full year.
Information about the Company's operating segments is provided in Item 2 on page
20 and is an integral part of the Condensed Consolidated and Condensed Combined
Financial Statements.
The 1999 Condensed Combined Statement of Operations and Comprehensive Income has
been restated to reflect the cumulative effect of a change in accounting
principle recorded in the 1999 Form 10-K, related to the adoption of Statement
of Position 98-5.
Certain prior year amounts have been reclassified to conform with the 2000
presentation.
2. BUSINESS REALIGNMENT
In the first quarter of 2000, the Company recorded $2.8 related to the closure
of Chemical resins operations primarily in Argentina and California. These
amounts are classified as business realignment on the Condensed Consolidated and
Condensed Combined Statements of Operations.
17
<PAGE>
3. COMPREHENSIVE INCOME
Comprehensive income was computed as follows:
<TABLE>
<CAPTION>
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THREE MONTHS ENDED MARCH 31,
-------------------------------------------
CONSOLIDATED COMBINED
------------------ ----------------
<BTB> 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $12.3 $ 13.3 $ 0.1 $ 12.2
Foreign currency translation adjustments (2.4) (17.7) (3.7) (19.2)
------ ------- ------ -------
$ 9.9 $ (4.4) $(3.6) $ (7.0)
- ----------------------------------------------------------------------------------------------
</TABLE>
The foreign currency translation adjustments relate primarily to Latin American
Chemical businesses.
4. RELATED PARTY TRANSACTIONS
In February 2000, the Company and Combined Companies distributed 100% of their
ownership in the infrastructure management services business to the Company's
parent. The distribution was recorded at net book value of $16.3, including $8.6
owed by the Company to the infrastructure management services business in
accordance with a tax sharing agreement. Subsequent to the distribution,
substantially all of the assets of the infrastructure management services
business were sold to a subsidiary of Interliant, Inc. in exchange for $2.5
in cash and 1,041,179 shares of Interliant, Inc. stock.
Foods, BWHLLC, an affiliate of the Company's parent, and the Company's parent
invest cash not used in operations with the Company. At March 31, 2000, Foods
had $240.9 invested with the Company, BWHLLC had $10.5 invested with the Company
and Combined Companies and the Company's parent had $12.6 invested with the
Company and Combined Companies. Loans payable to unconsolidated affiliates for
the Combined Companies at March 31, 2000 also includes $3.2 from an affiliate of
the Combined Companies. These balances are reflected as a net loan payable to an
unconsolidated affiliate in the consolidated and combined balance sheets.
Prior to the distribution of its infrastructure management services business in
February 2000, the Company provided services to Foods and Wise. Fees received
for these services are offset against the Company's general and administrative
expenses and approximated $1.5 and $2.4 for the three months ended March 31,
2000 and 1999, respectively. Subsequent to the distribution, certain limited
services continue to be provided to Foods and Wise by the infrastructure
management services business.
At March 31, 2000, the Company and Combined Companies had loaned $59.5 in the
form of demand notes and accrued interest to CCPC Acquisition Corp., an
affiliate of the Company's parent, to provide temporary financing to complete
the acquisition of EKCO Group, Inc. ("EKCO"). The loan bears variable interest
at the monthly prime rate as quoted by The Wall Street Journal and matures on
December 31, 2000. The Company and Combined Companies anticipate repayment of
the loan and interest upon the sale of a business unit acquired with EKCO that
is held for sale by CCPC Acquisition Corp.
In the fourth quarter of 1999, the Company and Combined Companies made a $50.0
investment in World Kitchen, Inc., an affiliate of the Company's parent, in the
form of 16% cumulative junior preferred stock. The Company and Combined
Companies have accrued cumulative dividends of $3.6 on the investment at March
31, 2000.
18
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS - The Company and Combined Companies, like others in
similar businesses, are subject to extensive federal, state and local
environmental laws and regulations. Although environmental policies and
practices are designed to ensure compliance with these laws and regulations,
future developments and increasingly stringent regulation could require the
Company and Combined Companies to make additional unforeseen environmental
expenditures.
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated. Environmental accruals are routinely reviewed on an interim basis as
events and developments warrant. The Company and the Combined Companies have
each accrued approximately $22 at March 31, 2000 and December 31, 1999 for
probable environmental remediation and restoration liabilities. This is
management's best estimate of these liabilities, based on currently available
information and analysis. The Company and Combined Companies believe that it is
reasonably possible that costs associated with such liabilities may exceed
current reserves by amounts that may prove insignificant, or by amounts, in the
aggregate, of up to approximately $17.
LEGAL MATTERS - The Company and Combined Companies have recorded $4.6 and $8.0,
respectively, in liabilities at March 31, 2000, for legal costs in amounts that
they believe are probable and reasonably estimable.These liabilities at December
31, 1999, totaled $5.1 for the Company and $8.5 for the Combined Companies.
Actual costs are not expected to exceed these amounts. In addition, the Company
and Combined Companies may be held responsible for certain environmental
liabilities incurred at Borden Chemicals and Plastics Limited Partnership
("BCP") facilities, which were previously owned by the Company. Management
believes, based upon the information it currently possesses, and taking into
account its established reserves for estimated liability and its insurance
coverage, that the ultimate outcome of proceedings and actions is unlikely to
have a material adverse effect on the Company's and/or Combined Companies'
financial position or operating results.
OTHER COMMITMENTS - A wholly owned subsidiary serving as general partner of BCP
has certain fiduciary responsibilities to BCP's unitholders. The Company and
Combined Companies believe that such responsibilities will not have a material
adverse effect on their financial statements.
19
<PAGE>
- ------
PART I. FINANCIAL INFORMATION
- -------- ----------------------
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS BY BUSINESS UNIT:
- ---------------------------------------
Following is a comparison of net sales and adjusted operating EBITDA by
operating segment for both the Company and the Combined Companies:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
------------------------------------------
CONSOLIDATED COMBINED
---------------- ----------------
(Dollars in millions) 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES
Foods ongoing $142.3 $134.0
Foods Unaligned - 5.6
Wise 57.4 50.0
Chemical $328.4 $285.6 328.4 285.6
Corporate and other 24.3 21.3 24.3 21.3
------- ------- ------- -------
$352.7 $306.9 $552.4 $496.5
======= ======= ======= =======
ADJUSTED OPERATING EBITDA
Foods ongoing $(13.4) $ 0.4
Foods Unaligned - 1.7
Wise 2.6 0.8
Chemical $ 55.3 $ 49.6 55.3 49.6
Corporate and other (6.4) (1.4) (6.4) (1.4)
------- ------- ------- -------
TOTAL ADJUSTED OPERATING EBITDA (1) 48.9 48.2 38.1 51.1
Significant or unusual items (2) (2.8) - (2.8) 4.4
Depreciation and amortization (3) (14.2) (12.0) (24.9) (20.1)
------- ------- ------- -------
OPERATING INCOME $ 31.9 $ 36.2 $ 10.4 $ 35.4
======= ======= ======= =======
- ------------------------------------------------------------------------------------------------
<FN>
(1) Adjusted Operating EBITDA represents net income (loss), excluding cumulative effect of
change in accounting principle, non-operating income and expenses, interest, taxes,
depreciation, amortization and significant or unusual items (see below).
(2) The 2000 amount represents Chemical restructuring expenses relating primarily to plant
closures in Argentina and California. The 1999 amount includes gains on the sale of Foods Unaligned
businesses due to additional proceeds and lower than expected exit costs related to the 1998 KLIM
sale.
(3) The increase in Consolidated depreciation and amortization is primarily the result of the
1999 Chemical acquisitions. The Combined increase also reflects the depreciation associated with
Foods 1999 enterprise-wide systems implementation and plant improvements.
</TABLE>
20
<PAGE>
CONSOLIDATED AND COMBINED THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS
ENDED MARCH 31, 1999
Consolidated Summary
- --------------------
Consolidated sales increased $45.8 million, or approximately 15%, to $352.7
million in 2000 from $306.9 million in 1999. The increase in sales is attributed
to improved volumes in the Chemical business and the two Chemical acquisitions
made in 1999. Adjusted operating EBITDA increased $0.7 million, or approximately
1%, to $48.9 million in 2000 from $48.2 million in 1999. The increase is
primarily due to the positive impact of improved Chemical volumes substantially
offset by the settlement and timing variances of corporate liabilities and
expenses.
Combined Summary
- ----------------
Combined sales increased $55.9 million, or approximately 11%, from $496.5
million in 1999 to $552.4 million in 2000. The increase is primarily attributed
to increased volumes for Chemical, Wise and Foods. Combined adjusted operating
EBITDA decreased $13.0 million, or approximately 25%, from $51.1 million in 1999
to $38.1 million in 2000. In addition to the consolidated factors described
above, Foods' comparative results declined primarily due to the favorable
settlement of litigation recorded in 1999.
Chemical
- --------
Chemical sales in 2000 were up $42.8 million, or approximately 15%, from prior
year sales of $285.6 million. The most significant items that positively
impacted 2000 sales were improved volumes for all business units, primarily in
North America, and two acquisitions in the United States and Europe. These
improvements were partially offset by lower pricing, unfavorable currency
exchange rates in Latin America, and the prior year exit from certain non-core
businesses in Latin America and the Philippines.
Overall volume improvement of 14%, excluding the effect of acquisitions and
divestitures, had a positive impact on 2000 sales of approximately $44 million,
with the largest contributors being the North America forest products resins and
UV coatings businesses. The improved volume in North America forest products
resins is driven by continued high demand related to strong housing and
construction activity. The improved volume in UV coatings reflects increasing
demand for optical fiber.
The second quarter 1999 acquisition of Spurlock Industries, Inc. and the third
quarter 1999 acquisition of Blagden Chemicals, Ltd. contributed incremental 2000
sales of $7.8 million and $17.2 million, respectively.
Lower pricing, which negatively impacted 2000 sales by approximately $20
million, reflects competitive market conditions as well as contractual
arrangements, primarily in North America, that require pass-through of lower raw
material costs versus the prior year, primarily for methanol, phenol and urea.
Unfavorable currency exchange rates, due primarily to significant currency
devaluation in Ecuador since the end of 1999, had an unfavorable impact on 2000
sales of $4.2 million.
The 1999 closures of non-strategic businesses in Latin America and the
Philippines caused 2000 sales to be $2.1 million lower versus the prior year.
21
<PAGE>
Adjusted operating EBITDA increased $5.7 million, or approximately 11%, from
1999. The overall improvement reflects the positive impact of increased volume
and the 1999 acquisitions, which were partially offset by gross margin erosion
and selling, general and administrative expenses. The most significant
contributors to the overall gross margin erosion were substantially lower
melamine crystal and resin selling prices, due to depressed global market
conditions, and intensely competitive market conditions in Europe. The Company
mitigated the negative impact of the very competitive market conditions
worldwide through the implementation of specific programs to better control and
reduce manufacturing and other expenses.
Corporate and other
- -------------------
Corporate and other sales increased $3.0 million, or approximately 14%, from
$21.3 million in 1999 to $24.3 million in 2000 primarily due to increased
volumes in the consumer glues and adhesives business, offset slightly by reduced
sales due to the divestiture of the infrastructure management services business
at the end of February 2000. Adjusted operating EBITDA declined $5.0 million
from a loss of $1.4 million in 1999 to a loss of $6.4 million in 2000 due to
settlement and timing of various corporate liabilities and expenses, as well as
higher expenses in the infrastructure management services business prior to its
divestiture.
Foods
- -----
Foods' sales for the three months ended March 31, 2000 increased $2.7 million,
or approximately 2%, to $142.3 million from $139.6 million for the three months
ended March 31, 1999. Excluding sales of $5.6 million related to businesses
divested in 1999, sales from Foods' ongoing businesses increased $8.3 million,
or approximately 6%. The increase was led by growth in sauce volumes due
primarily to new product introductions and expanded distribution. In addition,
Foods improved sales with the introduction of the new product, It's Pasta
Anytime . These improvements were partially offset by modest pricing pressures.
Foods' adjusted operating EBITDA declined $15.5 million from income of $2.1
million in 1999 to a loss of $13.4 million in 2000. Excluding the impact of
Foods Unaligned businesses sold in 1999 and a $7.5 million gain on the favorable
settlement of litigation in 1999, ongoing adjusted operating EBITDA decreased
$6.3 million. The decline in ongoing results was primarily due to higher
marketing costs associated with the introduction of new products. These
additional costs were partially offset by an improvement in gross margin due to
higher volumes and a reduction in general and administrative expenses due
primarily to lower spending on enterprise-wide information technology systems.
Wise
- ----
Net sales for the first quarter of 2000 were $57.4 million, $7.4 million, or
approximately 15%, above 1999 net sales of $50.0 million. The sales increase was
the result of effective trade focused marketing efforts improving volume in both
retail grocery and other channels. Wise recorded sales growth in branded and
private label business and in grocery and small bag accounts.
Adjusted operating EBITDA for the first quarter of 2000 was $2.6 million, $1.8
million above the $0.8 million recorded in the first quarter of 1999. The
increase in adjusted operating EBITDA was driven by increased volume, partially
offset by higher promotional expenses.
22
NON-OPERATING EXPENSES AND INCOME TAXES
- ---------------------------------------
Following is a comparison of non-operating expenses for the three months ended
March 31, 2000 and 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
-------------------------------------
CONSOLIDATED COMBINED
-------------- ---------------
(Dollars in millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $14.7 $15.3 $14.7 $15.5
Affiliated interest expense, net 4.1 4.8 0.3 1.7
Interest income and other (6.2) (8.7) (6.2) (9.7)
Equity in net (income) loss
of unconsolidated subsidiaries (0.4) 5.3 (0.4) 5.3
------ ------ ------- -------
$12.2 $16.7 $ 8.4 $12.8
- ------------------------------------------------------------------------------------
</TABLE>
Consolidated non-operating expenses decreased $4.5 million from $16.7 million in
1999 to $12.2 million in 2000. This decrease is primarily attributed to equity
in net income of unconsolidated subsidiaries in 2000 compared to losses in 1999,
partially offset by a decrease in interest income as a result of lower average
cash balances in 2000 than 1999.
Combined non-operating expenses decreased $4.4 million from $12.8 million in
1999 to $8.4 million in 2000. The decrease relates primarily to the consolidated
factors described above.
Following is a comparison of income taxes for the three months ended March 31,
2000 and 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
------------------------------------
CONSOLIDATED COMBINED
--------------- ----------------
(Dollars in millions) 2000 1999 2000 1999
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense $ 7.4 $ 6.2 $ 1.9 $ 7.6
Effective tax rate 37% 32% 95% 34%
- ---------------------------------------------------------------------------
</TABLE>
The 2000 consolidated effective tax rate reflects the effect of lower tax rates
in foreign jurisdictions. The difference between the 2000 consolidated and
combined effective tax rates reflects the impact of permanent tax differences
on Foods net loss.
The 1999 consolidated and combined effective tax rates reflect the effect of
lower tax rates in foreign jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
OPERATING ACTIVITIES
- --------------------
Consolidated cash provided by operating activities was $1.5 million for the
three months ended March 31, 2000, compared to cash used in operating activities
of $20.9 million in 1999. The $22.4 million improvement is primarily due to
lower net interest and tax payments in 2000 of $4.7 million and the absence of a
1999 payment of approximately $13.0 million to settle certain long-term
disability claims.
Combined cash provided by operating activities was $14.8 million for the three
months ended March 31, 2000, compared to cash used in operating activities of
$29.5 million in 1999. The $44.3 million improvement primarily reflects the
consolidated factors above as well as additional reductions in cash paid for
taxes of $7.1 million, the absence of a $6.7 million payment made by Foods in
1999 to settle litigation and improved cash flows of $6.0 million due to timing
of payments. These improvements were partially offset by a reduction in adjusted
23
operating EBITDA of $5.5 million, excluding a Foods 1999 $7.5 million
favorable litigation settlement.
INVESTING ACTIVITIES
- --------------------
Consolidated investing activities in the first quarter of 2000 used $21.2
million versus $11.0 million used in the first quarter of 1999. The $10.2
million increase represents increased capital expenditures primarily in the
Chemical business related to plant expansion projects to increase capacity.
Combined investing activities used $33.3 million in 2000 versus $6.5 million in
1999. In addition to the above, the $26.8 million increase includes increased
Foods capital expenditures of $3.9 million related primarily to new product
manufacturing lines as well as the absence of proceeds from the divestiture of
businesses and from the sale of fixed assets, which provided cash of $9.5
million and $2.4 million, respectively, in 1999.
FINANCING ACTIVITIES
- --------------------
Consolidated financing activities used $24.4 million in 2000 versus $23.1
million in 1999. The increase of $1.3 million primarily relates to higher common
stock dividends paid of $12.7 million and the distribution of $10.3 million in
cash temporarily held by the infrastructure management services business for the
benefit of its customers. These outflows were substantially offset by short-term
debt borrowings of $3.4 million versus 1999 repayments of $5.6 million, and
higher affiliated borrowings of $13.1 million. The $10.3 million represents
payroll related withholdings for which the infrastructure management services
business was liable when the business was distributed to the Company's parent
(See Note 4).
Combined financing activities primarily reflect the above with the exception of
the Foods affiliated borrowings of $6.3 million, which is eliminated.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires all derivatives be
measured at fair value and recorded on a company's balance sheet as an asset or
liability, depending upon the company's underlying rights or obligations
associated with the derivative instrument. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." This statement defers
the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company and Combined Companies continue to
investigate the impact of this pronouncement.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
-----------------------------------------
The Company, Combined Companies and its officers may, from time to time, make
written or oral statements regarding the future performance of the Company or
Combined Companies, including statements contained in the filings with the
Securities and Exchange Commission. Investors should be aware that these
statements are based on currently available financial, economic, and competitive
data and on current business plans. Such statements are inherently uncertain and
investors should recognize that events could cause the Company's and/or Combined
Companies' actual results to differ materially from those projected in
forward-looking statements made by or on behalf of the Company and/or Combined
Companies. Such risks and uncertainties are primarily in the areas of results of
operations by business unit, liquidity, legal and environmental liabilities.
24
<PAGE>
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 year ended
December 31, 1999.
The Company is involved in various litigation throughout the United States,
which is considered to be in the ordinary course of the Company's business.
The Company believes, based on the information it presently possesses, and
taking into account its established reserves for estimated liability and its
insurance coverages, that the ultimate outcome of the foregoing proceedings is
unlikely to have a materially adverse effect on the Company's financial position
or operating results.
Item 6: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. Exhibits
(27) Financial Data Schedule
b. Financial Statement Schedules
Included are the separate financial statements of Foods Holdings and Wise
Holdings filed in accordance with rule 3-10 of Regulation S-X. Foods Holdings
and Wise Holdings are guarantors of the Company's credit facility and all of the
Company's outstanding publicly held debt.
c. Reports on Form 8-K
There were no reports on Form 8-K issued during the first quarter of 2000.
25
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BORDEN, INC.
Date May 15, 2000 By /s/ William H. Carter
-----------------------------
William H. Carter
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
26
BORDEN FOODS HOLDINGS CORPORATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
BFH1
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
BORDEN FOODS HOLDINGS CORPORATION
Three Months Ended
March 31,
(In thousands except per share and share amounts) 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 142,321 $139,621
Cost of goods sold 71,335 68,995
---------- ---------
Gross margin 70,986 70,626
---------- ---------
Distribution expense 11,561 9,584
Marketing expense 65,511 55,458
General & administrative expense 14,538 8,739
Gain on divestiture of businesses - (3,088)
---------- ---------
Operating loss (20,624) (67)
---------- ---------
Interest expense 51 210
Interest income (4,387) (3,448)
Other income, net - (195)
---------- ---------
Income before income tax (16,288) 3,366
Income tax (benefit) expense (6,100) 986
---------- ---------
Income before cumulative effect of accounting change (10,188) 2,380
Cumulative effect of accounting change, net of tax - (2,806)
---------- ---------
Net income (10,188) (426)
Affiliate's share of income 114 (811)
---------- ---------
Net income applicable to common stock $ (10,074) $ (1,237)
========== =========
Comprehensive income (Note 5) $ (12,041) $ (3,213)
========== =========
Basic and diluted loss per common share $(100,740) $(12,370)
Average number of common shares outstanding
during the period 100 100
- --------------------------------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements.
</TABLE>
BFH2
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
BORDEN FOODS HOLDINGS CORPORATION
(In thousands)
March 31, December 31,
ASSETS 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 267,558 $266,825
Accounts receivable (less allowance for doubtful
accounts of $1,310 and $1,317, respectively) 42,067 55,201
Other receivables 1,987 3,947
Inventories:
Finished and in-process goods 51,294 48,066
Raw materials and supplies 23,489 30,089
Deferred income taxes 14,559 15,383
Amounts due from affiliates 2,042 2,833
Other current assets 6,245 5,013
---------- ---------
409,241 427,357
OTHER ASSETS 10,282 10,819
PROPERTY AND EQUIPMENT
Land 9,651 9,542
Buildings 40,544 40,763
Machinery and equipment 197,983 190,679
---------- ---------
248,178 240,984
Less accumulated depreciation (67,543) (64,462)
---------- ---------
180,635 176,522
INTANGIBLES
Goodwill 10,928 11,006
Trademarks and other intangibles 107,791 108,496
---------- ---------
118,719 119,502
---------- ---------
TOTAL ASSETS $ 718,877 $734,200
========== =========
- --------------------------------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements.
</TABLE>
BFH3
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
BORDEN FOODS HOLDINGS CORPORATION
(In thousands except per share and share amounts)
March 31, December 31,
LIABILITIES AND SHAREHOLDER'S EQUITY 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Debt payable within one year $ 500 $ 346
Loans due to affiliates 3,278 2,513
Accounts and drafts payable 42,577 46,858
Accrued customer allowances 18,366 17,781
Income tax payable 20,149 20,594
Other amounts due to affiliates 807 789
Other current liabilities 49,543 50,596
---------- ---------
135,220 139,477
OTHER LIABILITIES
Long-term debt 3,007 3,033
Deferred income taxes 34,826 34,585
Other long-term liabilities 23,580 22,820
---------- ---------
61,413 60,438
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDER'S EQUITY
Common stock - $0.01 par value; 100 shares
authorized, issued, and outstanding - -
Paid in capital 405,817 405,817
Shareholder's investment in affiliates 66,158 66,272
Retained earnings 55,250 65,324
Accumulated translation adjustments (4,981) (3,128)
---------- ---------
522,244 534,285
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 718,877 $734,200
========== =========
- --------------------------------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements.
</TABLE>
BFH4
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
BORDEN FOODS HOLDINGS CORPORATION
Three Months Ended
(In thousands) March 31,
2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net income $(10,188) $ (426)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 6,299 3,969
Deferred tax provision 1,068 849
Gain on divestiture of businesses - (3,088)
Net change in assets and liabilities:
Accounts receivable 13,134 8,186
Other receivables 1,960 2,164
Inventories 3,372 5,995
Accounts and drafts payable (4,281) (12,526)
Accrued customer allowances 585 (1,862)
Income taxes (445) (1,655)
Other amounts due to/from affiliates 809 266
Other current assets and liabilities (828) (7,874)
Other assets and liabilities (624) (3,367)
--------- ---------
10,861 (9,369)
--------- ---------
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES
Capital expenditures (11,047) (7,105)
Proceeds from the sale of fixed assets - 2,424
Proceeds from the sale of businesses - 9,476
--------- ---------
(11,047) 4,795
--------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Net short-term debt borrowings/(payments) 154 (50)
Proceeds from loans with affiliates 765 -
--------- ---------
919 (50)
--------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 733 (4,624)
CASH AND EQUIVALENTS AT BEGINNING
OF PERIOD 266,825 300,104
--------- ---------
CASH AND EQUIVALENTS AT END
OF PERIOD $267,558 $295,480
========= =========
- --------------------------------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements.
</TABLE>
BFH5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
BORDEN FOODS HOLDINGS CORPORATION
Three Months Ended
(In thousands) March 31,
2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid:
Interest $ 232 $ 253
Taxes, net of refunds (7,533) 112
Non-cash activity:
Shareholder's investment in affiliates (Note 4) $ 114 $(811)
Affiliate's share of income (Note 4) (114) 811
- --------------------------------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements.
</TABLE>
BFH6
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (UNAUDITED)
BORDEN FOODS HOLDINGS CORPORATION
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Shareholder's Accumulated
Paid in Investment Retained Translation
Capital in Affiliate Earnings Adjustments Total
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $405,817 $66,272 $65,324 $(3,128) $534,285
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss (10,188) (10,188)
Foreign currency translation adjustments (1,853) (1,853)
Affiliate's share of income (114) 114 -
- -----------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 $405,817 $66,158 $55,250 $(4,981) $522,244
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to the Condensed Consolidated Financial Statements.
</TABLE>
BFH7
BORDEN FOODS HOLDINGS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. NATURE OF OPERATIONS
Borden Foods Holdings Corporation ("Foods Holdings"), a wholly owned subsidiary
of Borden Foods Holdings, LLC ("LLC"), owns approximately 98% of Borden Foods
Corporation ("BFC"). The remaining interest in BFC is owned directly by LLC.
BFC is a manufacturer and distributor of a variety of food products worldwide,
including pasta, pasta sauce, soups and bouillon. At March 31, 2000, BFC's
operations included 8 production facilities, 4 of which are located in the
United States. The remaining facilities are located in Canada and Italy.
2. BASIS OF PRESENTATION
Foods Holdings has fully and unconditionally guaranteed obligations under
Borden, Inc.'s ("Borden") Credit Facility and all of Borden's publicly held debt
on a pari passu basis. As a result of the financial guarantee and in accordance
with Regulation S-X rule 3-10, Borden is required to include in its filings with
the Securities and Exchange Commission separate financial statements for Foods
Holdings as if it were a registrant. Foods Holdings' financial statements are
prepared on a purchase accounting basis. Borden elected not to apply push down
accounting in its consolidated or combined financial statements and, as such,
Borden's financial statements are reported on a historical cost basis.
The accompanying unaudited condensed consolidated financial statements include
all adjustments (consisting only of normal recurring adjustments) which
management believes to be necessary for the fair presentation of operating
results for the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The results
for the interim period are subject to seasonal variations and are not
necessarily indicative of results for the full year. The interim financial
statements should be read in conjunction with Foods Holdings' audited financial
statements for the year ended December 31, 1999.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
SOP 98-5 requires the costs of opening a new facility, introducing a new product
or service, conducting business in a new market, or similar start-up activities
be expensed as incurred. Amounts previously capitalized are to be expensed and
reported as a cumulative effect of a change in accounting principle in the year
of adoption. Accordingly, BFC adopted SOP 98-5 in 1999 and reported a charge of
$2,806 (net of tax benefit of $1,794) to write-off amounts previously
capitalized.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
3. DIVESTED BUSINESSES
During the first quarter of 1999, BFC received proceeds of $9,476 for working
capital settlements on the sale of KLIM, and reduced current liabilities by
$2,012, as costs were lower than previously estimated.
BFH8
Activities related to the divestiture reserves during the three months ended
March 31, 2000, which were recorded in other current liabilities, were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Business & Selling,
Work-Force Contractual Legal &
Reductions(1) Obligations(2) Other(3) TOTAL
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 1,351 $8,270 $1,337 $10,958
Utilized (1,105) (672) (420) (2,197)
----------------------------------------------------
Balance at March 31, 2000 $ 246 $7,598 $917 $8,761
----------------------------------------------------
<FN>
- -------------------------------------------------------------------------------
(1) Includes severance and other employee related benefits.
(2) Includes charges related to the termination of leases, distributor
arrangements, and other contractual agreements.
(3) Includes selling and legal fees, facility closings, and other miscellaneous
costs.
- --------------------------------------------------------------------------------
</TABLE>
4. AFFILIATE'S SHARE OF INCOME
In accordance with BFC Investment LP's limited partnership agreement with BFC
and LLC, LLC was allocated an affiliate's share of income (see accompanying
condensed consolidated statements of operations) of ($114) and $811 during the
first quarter of 2000 and 1999, respectively.
5. COMPREHENSIVE INCOME
Comprehensive income was computed as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Three months ended March 31,
2000 1999
--------- ---------
<S> <C> <C>
Net income $(10,188) $ (426)
Foreign currency translation adjustments (1,853) (2,787)
--------- ---------
$(12,041) $(3,213)
========= ========
- ----------------------------------------------------------------------------------
</TABLE>
6. RELATED PARTIES
Borden and a subsidiary of Borden provide certain administrative services to BFC
at negotiated fees. These services include processing of payroll, active and
retiree group insurance claims, securing insurance coverage for catastrophic
claims, and information systems support. BFC also reimburses the Borden
subsidiary for payments for general disbursements and post-employment benefit
claims. The amount owed by BFC for reimbursement of payments, services, and
other liabilities was $645 at March 31, 2000 and $777 at of December 31, 1999.
During the first quarter of 2000, the subsidiary of Borden was sold to a third
party. The third party continues to provide services that include processing of
payroll, active and retiree group insurance claims, and securing insurance
BFH9
coverage for catastrophic claims. Subsequent to the sale of the subsidiary,
fees for these services were no longer considered affiliate charges.
Eligible U.S. employees are provided employee pension benefits under the Borden
domestic pension plan to which BFC contributes, and can participate in the
Borden retirement savings plan. BFC has recognized expenses associated with
these benefits, certain of which are determined by Borden's actuary. The
liabilities for these obligations are included in BFC's financial statements.
The following summarizes the affiliate charges for the three months ended March
31, 2000 and 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three months ended March 31,
----------------------------
2000 1999
------ ------
<S> <C> <C>
Employee benefits $ 907 $ 685
Group and general insurance 626 1,250
Administrative services 1,483 3,329
------ ------
$3,016 $5,264
====== ======
- --------------------------------------------------------------------------------
</TABLE>
BFC performs certain administrative services on behalf of other Borden
affiliates. These services include customer service, purchasing and quality
assurance. BFC charged affiliates $122 and $237 for such services for the three
months ended March 31, 2000 and 1999, respectively. The receivable for these
services was $745 at March 31, 2000 and $972 at December 31, 1999.
BFC invests cash not used in operations with Borden. BFC's investment balance
was $240,900 at March 31, 2000 and $234,550 at December 31, 1999. The funds are
invested overnight earning a rate set by Borden that generally approximates
money market rates. BFC earned interest income of $3,978 and $3,257 on these
funds for the three months ended March 31, 2000 and 1999, respectively. Amounts
receivable for interest were $1,297 and $1,861 as of March 31, 2000 and December
31, 1999, respectively.
Borden continues to provide executive, financial and strategic management to BFC
for which it charges a quarterly fee of $250.
7. UNIT INCENTIVE PLAN
During the first quarter of 2000, LLC sold 99,492 Class D units to certain BFC
management employees. The Class D units are generally restricted as to transfer
and allow for LLC, at its discretion, to repurchase the units, upon certain
conditions including termination of the unitholders' employment, prior to full
vesting after five years.
Under the Unit Incentive Plan, BFC issued four UAR's with an exercise price of
$8.50 per unit for each Class D unit purchased. The UAR entitles the unitholder
to receive an amount in cash equal to the excess of the market price (as defined
in the UAR agreement) of the unit over the exercise price of the UAR. The UAR's
vest ratably over five years and expire upon certain events, including
termination of the unitholders' employment, but in no case to exceed ten years.
BFH10
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Legal Matters
- --------------
BFC is involved in certain legal proceedings arising through the normal course
of business. Management is of the opinion that the final outcomes of such
proceedings should not have a material impact on BFC's results of operations or
financial position.
BFH11
WISE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
WH1
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
WISE HOLDINGS, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31,
(In thousands except per share amounts) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $57,201 $49,956
Cost of goods sold 35,302 31,415
-------- --------
Gross margin 21,899 18,541
Distribution expense 7,808 6,765
Marketing expense 9,104 8,136
General & administrative expense 4,187 4,375
-------- --------
Operating income (loss) 800 (735)
Interest expense 116 119
Other (income) expense (3) 42
-------- --------
Income (loss) before income taxes 687 (896)
Income tax expense (benefit) 269 (335)
-------- --------
Net income (loss) $ 418 $ (561)
======== ========
Per Share Data
- --------------
Basic and diluted income (loss) per common share $ 5.97 $ (8.01)
Average number of common shares outstanding
during the period 70 70
- --------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
</TABLE>
WH2
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
WISE HOLDINGS, INC. AND SUBSIDIARIES
(In thousands)
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 1,367 $ 2,072
Accounts receivable (less allowance for doubtful accounts
of $2,570 and $2,261, respectively) 21,611 22,690
Affiliated receivables 57 1
Inventories:
Finished goods 3,986 3,942
Raw materials and supplies 2,765 3,883
Deferred income taxes, net 1,860 1,923
Prepaid and other current assets 4,444 3,668
---------- -----------
36,090 38,179
---------- -----------
PROPERTY AND EQUIPMENT
Land 1,438 1,412
Buildings and improvements 6,261 6,103
Machinery and equipment 53,325 51,185
---------- -----------
61,024 58,700
Less accumulated depreciation 26,554 24,949
---------- -----------
34,470 33,751
---------- -----------
INTANGIBLES AND OTHER ASSETS
Trademarks (net of accumulated
amortization of $2,468 and $2,350, respectively) 16,343 16,461
Other assets 946 836
---------- -----------
17,289 17,297
---------- -----------
TOTAL ASSETS $ 87,849 $ 89,227
========== ===========
- ---------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
</TABLE>
WH3
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
WISE HOLDINGS, INC. AND SUBSIDIARIES
(In thousands)
MARCH 31, DECEMBER 31,
LIABILITIES AND SHAREHOLDER'S EQUITY 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Debt payable within one year $ 6,647 $ 6,566
Accounts and drafts payable 13,032 12,996
Affiliated payables 105 238
Accrued liabilities 11,727 13,662
------- -------
31,511 33,462
------- -------
OTHER LIABILITIES
Deferred income taxes, net 1,351 1,539
Non-pension postemployment
benefit obligations 10,141 10,101
Affiliated employee benefit obligation 3,046 2,818
Other long-term liabilities 400 333
Minority interest 1,133 1,125
------- -------
16,071 15,916
------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDER'S EQUITY
Common stock - $0.01 par value
70 shares authorized,
issued and outstanding - -
Preferred stock - $0.01 par value
30 shares authorized,
none issued and outstanding - -
Paid in capital 34,980 34,980
Retained earnings 5,287 4,869
------- -------
40,267 39,849
------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $87,849 $89,227
======= =======
- -------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
</TABLE>
WH4
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
WISE HOLDINGS, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31,
(In thousands) 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net income (loss) $ 418 $ (561)
Adjustments to reconcile net income (loss) to net cash
from operating activities
Minority interest's share in income (loss) 8 (3)
Depreciation 1,709 1,429
Amortization 118 119
Other non-cash 323 123
Net change in assets and liabilities:
Accounts receivable 770 2,182
Affiliated receivables (56) (42)
Inventories 1,074 603
Prepaid and other current assets (713) (25)
Other assets (110) 151
Accounts and drafts payable 36 (2,249)
Affiliated payables (133) 37
Accrued liabilities (1,935) (1,447)
Post-employment benefits other than pensions 40 (38)
Affiliated employee benefit obligation 228 197
Other long-term liabilities (121) (205)
-------- --------
1,656 271
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures (2,466) (2,065)
Proceeds from sales of equipment 24 3
-------- --------
(2,442) (2,062)
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Short-term borrowings 150 184
Long-term borrowings - 2,450
Repayment of short-term borrowings (69) (182)
-------- --------
81 2,452
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (705) 661
Cash and equivalents at beginning of period 2,072 2,610
-------- --------
Cash and equivalents at end of period $ 1,367 $ 3,271
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest: $ 118 $ 175
Cash paid for taxes: 456 92
- -------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
</TABLE>
WH5
<PAGE>
WISE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share information)
1. BACKGROUND
In September 1994, Borden, Inc. ("Borden") entered into a merger agreement that
provided for the acquisition (the "Acquisition") of all of Borden's outstanding
common stock by affiliates of Kohlberg Kravis Roberts & Co. ("KKR"). Borden
elected not to apply push down accounting in its consolidated financial
statements as a result of public debt that was outstanding prior to the
acquisition, and as such Borden's financial statements, including Wise Holdings,
Inc. ("Wise"), are reported on Borden's historical cost basis. As discussed in
the "Basis of Presentation," the accompanying financial statements of Wise have
been prepared on a purchase accounting basis from the date of KKR's acquisition
of Borden. The effective date of the merger agreement was January 1, 1995 for
accounting and financial statement presentation purposes.
Effective July 2, 1996, in a taxable transaction (the "Incorporation"), Borden
sold its salty snacks business ("Wise operations") to BW Holdings LLC
("BWHLLC"), a KKR affiliate, for $45 million. The purchase price was based on an
independent valuation of the business. There was no change in the financial
reporting basis of the assets and liabilities as of July 2, 1996 from that
described below under "Basis of Presentation" because Borden's principal
stockholders will continue to exercise significant financial control over Wise.
Wise fully and unconditionally guarantees obligations under Borden's credit
facility and all of Borden's publicly held debt on a pari passu basis. In
connection with this guarantee, Wise receives an annual fee of $210.
2. NATURE OF OPERATIONS
Wise is a producer and distributor of salty snacks in the eastern United States.
Wise's product line includes potato chips, cheese flavored baked and fried corn
snacks, pretzels, tortilla chips, corn chips, onion rings, pork rinds and other
assorted snacks. Wise markets its products under the brand names of WISER(R),
CHEEZ DOODLE(R), QUINLAN(R), NEW YORK DELI(R), KRUNCHERS!(R), BRAVO(R),
MOORE'S(R) AND WISE CHOICE(TM). Wise manufactures and distributes primarily in
the eastern United States. Wise's products are distributed through both
independent and company-owned distribution networks.
3. SUMMARY OF 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 in its filings with the Securities and
Exchange Commission separate financial statements for Wise as if it were a
registrant. The accompanying financial statements were prepared on a purchase
accounting basis that allocates approximately $51 million of the original KKR
purchase price of Borden to the Wise operations. The purchase price has been
allocated to tangible and intangible assets and liabilities of Wise based on
independent appraisals and management estimates.
The consolidated financial statements include the accounts of Wise and its
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. Wise remains a wholly owned subsidiary of BWHLLC.
WH6
The condensed consolidated financial statements of Wise collectively include the
financial position of Wise Holdings, Inc. and subsidiaries as of March 31, 2000
and December 31, 1999. These financial statements also include the statements of
operations of Wise for the three months ended March 31, 2000 and 1999 and cash
flows of Wise for the three months ended March 31, 2000 and 1999. These
unaudited interim condensed consolidated financial statements reflect all normal
and recurring adjustments that are, in the opinion of management, necessary for
the fair presentation of the results for the interim periods presented.
Per Share Information
- -----------------------
Basic and diluted earnings (loss) per common share at March 31, 2000 and 1999 is
computed by dividing net income or loss by the weighted average number of common
shares outstanding during the period ended March 31, 2000 and 1999,
respectively.
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 periods. The
most significant estimates in Wise's financial statements are related to
allowance for doubtful accounts, accruals for trade promotions, general and
group insurance, income taxes, postemployment benefits and asset lives. Actual
results could differ from those estimates.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform with the 2000
presentation.
Recently Issued Accounting Statements
- ----------------------------------------
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. In June 1999, the FASB issued SFAS 137,
which deferred the effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000, and requires all derivatives be measured at fair value and
recorded on a company's balance sheet as an asset or liability, depending upon
the company's underlying rights or obligations associated with the derivative
instrument. Wise is investigating the impact of this pronouncement.
4. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Accrued liabilities were as follows:
- --------------------------------------------------------------
March 31, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Compensation $ 979 $ 2,670
General insurance 4,776 4,820
Advertising and promotion 2,926 3,800
Other 3,046 2,372
---------- ----------
Total $ 11,727 $ 13,662
========== ===========
- --------------------------------------------------------------
</TABLE>
WH7
5. DEBT
AFFILIATED:
Wise entered into a loan agreement (the "Loan Agreement") to borrow funds from
Borden.
Revolving Loan
- ---------------
The Revolving Loan Agreement, as amended, provided for a revolving loan facility
of up to $5 million maturing in November 1999, at a variable interest rate equal
to Borden's cost of funds for 30 day LIBOR borrowings plus 0.25%. A commitment
fee of 0.10% is paid on the unused portion of the revolving loan.
In December 1999, Wise entered into a new revolving loan agreement, which
provided for a revolving facility of up to $15 million maturing in December 2000
at a variable interest rate equal to LIBOR borrowings plus between 75 and 175
basis points calculated using a debt to earnings ratio schedule. Wise had $6,600
and $6,450 of borrowings under this revolving agreement at March 31, 2000 and
December 31, 1999, respectively. A commitment fee between 0.15% and 0.35% is
paid on the unused portion of the revolving loan based on the same debt to
earnings ratio schedule.
Long-Term Loan
- ---------------
The Long Term Loan Agreement, as amended, also provided for a $10.145 million
term loan with a fixed interest rate of 11% maturing in November 2000. Wise
terminated this agreement in December 1999 and converted the remaining balance
to the revolving loan.
The Loan Agreement contains certain restrictions on the activities of Wise and
its subsidiaries, including restrictions on liens, the incidence of
indebtedness, mergers and consolidations, sales of assets, investments, payment
of dividends (requires prior approval from Borden, as creditor), changes in
nature of business, prepayments of certain indebtedness, transactions with
affiliates, capital expenditures, changes in control of the Company, hedging
activities and the use of proceeds from asset sales.
NON AFFILIATED:
Wise enters into unsecured agreements with a third party to finance insurance
premiums. Total borrowings under these agreements were $47 and $116 at March 31,
2000 and December 31, 1999, respectively.
6. COMMITMENTS AND CONTINGENCIES
Environmental Contingencies
- ----------------------------
Wise, like others in similar businesses, is subject to extensive Federal, state
and local environmental laws and regulations. Although Wise's environmental
policies and practices are designed to ensure compliance with these laws and
regulations, future developments could require Wise to make additional
unforeseen environmental expenditures.
Environmental accruals are routinely reviewed as events and developments warrant
and are subject to an annual comprehensive review.
WH8
Litigation
- ----------
Wise is subject to various investigations, claims and legal proceedings covering
a wide range of matters 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 statements of Wise.
7. RELATED PARTIES
In addition to the affiliated debt agreement, Wise is engaged in various
transactions with Borden and its affiliated companies in the ordinary course of
business.
Borden provides certain administrative services to Wise at negotiated fees.
These services include: processing of payroll as well as active and retiree
group insurance claims and securing insurance coverage for catastrophic claims.
Wise reimburses the Borden subsidiary for payments for general disbursements and
general and group insurance and retirement benefit claims. The amount owed by
Wise for these services is included in affiliated payables and was $105 and $238
at March 31, 2000 and December 31, 1999, respectively.
In the first quarter of 2000, a subsidiary of Borden that provided certain
affiliated services was sold to a third party. The third party continues to
provide these services that include payroll processing and group insurance
claims. Subsequent to the sale of the subsidiary, fees for these services were
no longer considered affiliate charges.
The following table summarizes the costs to Wise:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three months ended
March 31,
2000 1999
-------- ---------
<S> <C> <C>
Employee benefits $ 400 $ 431
Group and general insurance 437 434
Information services 180 136
Corporate staff departments and overhead 152 191
-------- ---------
$1,169 $1,192
======== =========
- -------------------------------------------------------------------------------
</TABLE>
Wise also invests excess cash with Borden in one-day investments that totaled $0
and $1,150 at March 31, 2000 and December 31, 1999, respectively, which is
included as a component of cash.
WH9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 147,100
<SECURITIES> 4,000
<RECEIVABLES> 218,500
<ALLOWANCES> 10,700
<INVENTORY> 110,300
<CURRENT-ASSETS> 597,500
<PP&E> 855,400
<DEPRECIATION> 323,100
<TOTAL-ASSETS> 1,673,000
<CURRENT-LIABILITIES> 818,000
<BONDS> 540,900
0
614,400
<COMMON> 2,000
<OTHER-SE> (586,800)
<TOTAL-LIABILITY-AND-EQUITY> 1,673,000
<SALES> 352,700
<TOTAL-REVENUES> 352,700
<CGS> 246,600
<TOTAL-COSTS> 246,600
<OTHER-EXPENSES> 74,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,700
<INCOME-PRETAX> 19,700
<INCOME-TAX> 7,400
<INCOME-CONTINUING> 12,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,300
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
