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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2001 Commission file number: 1-71
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BORDEN CHEMICAL, INC.
(Formerly Borden, Inc.)
New Jersey 13-0511250
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(State of incorporation) (I.R.S. Employer Identification No.)
180 East Broad St., Columbus, OH 43215 614-225-4000
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(Address of principal executive offices) (Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
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8 3/8% Sinking Fund Debentures New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in any amendment to this Form 10-K. [x].
Aggregate market value in thousands of the voting stock held by nonaffiliates of
the Registrant based upon the average bid and asked prices of such stock on
March 29, 2002: $0.
Number of shares of common stock, par value $0.01 per share, outstanding as of
the close of business on March 29, 2002: 199,114,749
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated
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none none
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The Exhibit Index is Located herein at sequential pages 66 through 68.
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BORDEN CHEMICAL, INC.
INTRODUCTION
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This Annual Report on Form 10-K includes the Consolidated Financial Statements
of Borden Chemical, Inc. ("the Company"), as well as the separate Financial
Statements of Borden Foods Holdings Corporation ("Foods"). The Company and
Foods are controlled by BW Holdings, LLC ("BWHLLC").
Foods' financial statements are included in Part IV of this Annual Report on
Form 10-K in accordance with rule 3-10 of Regulation S-X. Foods is a guarantor
of the Company's credit facility and all of the Company's outstanding publicly
held debt. The financial statements for Foods are prepared on a purchase
accounting basis.
The Company's 2001 quarterly filings on Form 10-Q included Combined Financial
Statements, which were included supplementally to present the Company and Foods
on a combined historical basis. The purpose of the Combined Financial Statements
was to present financial information on a basis consistent with that on which
credit was originally extended to the Company. In the third quarter of 2001,
Foods sold substantially all of its assets. As a result, the Combined Financial
Statements are no longer included.
BORDEN CHEMICAL, INC.
INDEX
PART I
Item 1 - Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2 - Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 10
PART II
Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 11
Item 6 - Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 12
Item 7A- Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . 23
Item 8 - Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . 24
BORDEN CHEMICAL, INC. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations, years ended December 31, 2001, 2000 and 1999 . . . . . 24
Consolidated Balance Sheets, December 31, 2001 and 2000 . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Cash Flows, years ended December 31, 2001, 2000 and 1999 . . . . . 28
Consolidated Statements of Shareholders' Equity, years ended December 31, 2001, 2000 and 1999 30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 32
Independent Auditors' Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . 56
PART III
Item 10 - Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . 57
Item 11 - Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 12 - Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . 63
Item 13 - Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 65
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . . 66
PART I
ITEM 1. BUSINESS
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Current Description Summary
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The Company, Borden Chemical, Inc. (formerly Borden, Inc.) was incorporated on
April 24, 1899. After the third quarter 2001 sale of the Consumer Adhesives
business ("Consumer Adhesives") to an affiliate, the Company's sole remaining
business is the Chemical business. The Chemical business is engaged primarily
in manufacturing, processing, purchasing and distributing forest products and
industrial resins, formaldehyde, coatings and other specialty and industrial
chemicals worldwide. The Company's executive and administrative offices are
located in Columbus, Ohio. Chemical production facilities are located throughout
the United States and in many foreign countries.
In fourth quarter 2001, the Company merged with its subsidiaries, Borden
Chemical Holdings, Inc. and Borden Chemical, Inc., executed certain financial
transactions with its parent and changed its name to Borden Chemical, Inc. (the
"Corporate Reorganization") reflecting the fact that the only remaining business
of the Company is the Chemical business. The Corporate Reorganization simplified
the legal structure, strengthened the capital structure and reduced overhead
costs of the Company. As part of the Corporate Reorganization, certain functions
were downsized, eliminated or transferred to a separate legal entity, Borden
Capital, Inc. ("Capital"), also owned by the Company's parent. Subsequent to the
Corporate Reorganization, Capital provides certain management, consulting and
board services for the Company as well as for other entities owned by Kohlberg,
Kravis, Roberts & Co. (KKR) and will charge fees to the Company and the other
entities for these services.
Historical Perspective
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On March 14, 1995, affiliates of KKR acquired control of the Company. In late
1995, the Company began the process of redesigning its operating structure in
order to maximize value for its owners and determined that certain businesses
did not fit into its long-term strategic plan. At the end of 1995, the Company
consisted of the following business segments: Chemical, Food, Other Consumer
Products, Decorative Products, Dairy and businesses held for sale. A group of
centralized corporate departments located in Columbus, Ohio provided certain
governance and other administrative services to all the Company's operating
business units and businesses held for sale. Following is a brief description of
each of the Company's business segments and the individual business units that
were included in each segment at the end of 1995:
Chemical - businesses included forest products and industrial resins,
formaldehyde, coatings and other specialty and industrial chemicals. This
segment consisted of the "Chemical" business unit.
Food - businesses included pasta and pasta sauces, processed cheese, non-dairy
creamer, sweetened condensed milk, reconstituted lemon and lime juices,
bouillon, confections, dehydrated soups and whole milk powder. This segment
consisted of the "Foods" business unit.
Other Consumer Products - businesses included bakery products, salty snacks and
consumer adhesives and glues. This segment consisted of the "Wilhelm Weber,
GmbH" (bakery products), "Wise" (salty snacks) and "Consumer Adhesives"
(consumer adhesives and glues) business units.
Decorative Products - businesses included residential wallcoverings, flexible
vinyl films and sheeting heat transfer paper. This segment consisted of the
"Decorative Products" business unit.
Dairy - businesses included homogenized milk, ice cream, sherbet, yogurt,
cottage cheese, frozen novelties, low-fat dairy products, milk-based products
for foodservice trade and fruit drinks. This segment consisted of the "BMG
Dairies" business unit.
Businesses held for sale - businesses included the packaging and plastic films
business and various other operations.
Acquisition and Divestiture History
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Since the 1995 acquisition, KKR and management of the Company has continued to
review and realign its structure and to streamline its operations to maximize
operating results and value creation. To this end the Company has made various
acquisitions and divestitures and has also undertaken numerous plant closing and
other business realignment initiatives primarily related to the Chemical
business (discussed below). Following is a summary by year of the Company's
acquisition and divestiture activity since 1995:
In 1996, the Company sold Wise (a component of the Other Consumer Products
segment) to Wise Holdings and sold Foods (the entire Foods segment) to Foods
Holdings. Wise Holdings and Foods Holdings are subsidiaries of BWHLLC. As a
result of these sales, Wise and Foods ceased to be legally part of the Company.
However, management of the Company continued to exercise significant financial
and managerial control over both Wise Holdings and Foods Holdings. In addition,
both Wise Holdings and Foods Holdings remained guarantors of the Company's
obligations under both its credit facility and public debt. Also in 1996, the
Company sold Wilhelm Weber, GmbH (a component of the Other Consumer Products
segment) and the packaging and plastic films business (business held for sale)
to unrelated third parties.
In 1997, the Company sold the BMG Dairies (the entire Dairy segment) to an
unrelated third party. Also that year the Company acquired Melamine Chemicals,
Inc. (Chemical segment), a major producer of melamine crystal, for which a
substantial amount of production was to be used internally to produce forest
products and industrial resins.
In 1998, the Company sold Decorative Products (the entire Decorative Products
segment) to an unrelated third party. Also that year the Company acquired a
melamine resins and compounds business (a component of the Chemical segment)
from Sun Coast Industries, Inc.
In 1999, the Company acquired Blagden Chemicals, LTD. in the United Kingdom and
Spurlock Industries, Inc. in the U.S. (both Chemical segment). Blagden produces
formaldehyde, forest products and industrial resins. Spurlock produces
formaldehyde and forest products resins.
In 2000, the Company acquired the formaldehyde and certain other assets from
Borden Chemicals and Plastics Limited Partnership, an affiliate of the Company,
and East Central Wax, a wax emulsions producer for the forest products business
(both Chemical segment). In 2000, the Company also acquired certain assets and
liabilities of a Canadian based business that produces various consumer adhesive
and glue products (included in the Consumer Adhesives segment prior to its
sale).
In August 2001, options, sold to BWHLLC in 1996, to purchase 74% of the common
shares of Consumer Adhesives were exercised. At the same time, a company
controlled by BWHLLC purchased the remaining 26% of Consumer Adhesives common
shares (collectively the "Consumer Adhesives Sale"). At December 31, 2001 the
Company still held a $110.0 million investment in Consumer Adhesives preferred
stock. On March 1, 2002, the Consumer Adhesives preferred stock was redeemed
for a $110.0 million note receivable from Consumer Adhesives. On March 12,
2002, the note receivable was sold to the Company's parent for $110.0 million in
cash plus accrued interest, which the Company used to pay down its outstanding
affiliated debt. Consequently, Consumer Adhesives is reported as a discontinued
operation in the Company's financial statements for all periods presented.
Chemical Realignment and Corporate Reorganization
- -----------------------------------------------------
In addition to acquisitions and divestitures discussed above, the Company has
undertaken numerous plant closing and other business realignment initiatives
primarily related to the Chemical business. These initiatives were designed to
improve the effectiveness and efficiency of the Chemical business and to focus
the Company's resources on its core strengths. Such business realignment
charges have consisted primarily of employee severance, plant closure and
environmental remediation costs and asset write-offs. The Company has also
recently completed a reorganization of its corporate headquarters function and
its capital structure. Following is a brief overview by year of business
realignment activities since 1995 as well as the Company's recent Corporate
Reorganization:
In 1997 and 1998, the Company recorded $18.5 million of business realignment
charges related to the cost to close a European Chemical plant.
In 1999, the Company recorded $41.6 million of business realignment charges
related to the closure of Chemical plants in Brazil, Uruguay and the Philippines
and to discontinue a domestic Chemical plant construction project.
In 2000, the Company recorded $38.1 million of business realignment charges
related to the closure of two forest products plants in the U.S., a formaldehyde
and resins plant in the U.K. as a result of the Blagden acquisition, and a
formaldehyde and resins plant in Argentina.
In 2001, the Company recorded $126.4 million of business realignment charges
related primarily to the closures of its melamine crystal plant and two
additional forest products plants in the U.S., realignment of its North American
workforce organization, reorganization of its corporate headquarters and to
discontinue a plant construction project. The largest component of the 2001
charge is a $98.2 million impairment of melamine crystal fixed assets, spare
parts and goodwill that
was the result of the Company's strategic decision late in 2001 to sell or close
this plant and to enter into a long-term contractual arrangement with a major
supplier for a substantial portion of the Company's future melamine crystal
needs.
In 2001, the Company also completed a significant capital restructuring, which
consisted primarily of a capital contribution of $614.4 million of preferred
stock held by the Company's parent. The significant impact of this transaction
was to eliminate future required annual preferred dividend payments of $73.7
million. Also as part of the capital restructuring, the Company's parent made a
cash capital contribution and purchased certain financial assets from the
Company for cash in amounts that approximated fair value. The cash contribution
and the cash received from sale of assets allowed the Company to substantially
repay its affiliated debt as of December 31, 2001.
In March 2002, the Company further paid down its affiliated debt with proceeds
received from sale, to its parent, of its remaining financial investment in
Consumer Adhesives. In addition, to further simplify its capital structure,
during 2002 the Company intends to cancel a $404.8 million note receivable from
its parent which has been accounted for as a reduction from equity.
PRODUCTS
The Company's products include primarily forest products and industrial resins,
formaldehyde, coatings and other specialty and industrial chemicals.
MARKETING AND DISTRIBUTION
Domestic products are sold throughout the United States primarily by in-house
sales forces to industrial users. To the extent practicable, international
distribution techniques parallel those used in the United States. However, raw
materials, production considerations, pricing competition, government policy
toward industry and foreign investment, and other factors may vary substantially
from country to country.
COMPETITION
The Company is the leading global producer of thermosetting resins for the
forest products industry and a leading producer of thermosetting resins for
industrial and foundry applications. These resins are used to bind or coat other
materials during the manufacturing process. The Company is also the world's
largest producer of formaldehyde. Much of the formaldehyde is consumed
internally to produce thermosetting resins, with the remainder sold to third
parties. UV Coatings are produced for fiber optics coating applications. The
Company manufactures and distributes its products worldwide with the most
significant markets being North America, Western Europe, Latin America,
Australia, and Malaysia and, generally, holds a leading market position in the
areas in which it competes. Resins are provided to a wide variety of customers
for use in the manufacture of, among other products, structured panels, medium
density fiberboard, particle board, laminate veneers, insulation binders,
automotive brakes, and to coat cores and molds in the metal casting process. The
major competitors are Ashland Specialty Chemical Company, Georgia Pacific
Corporation, Dynea, and several regional domestic and international competitors.
Price, customer service and product performance are the primary areas in which
the Company competes.
MANUFACTURING AND RAW MATERIALS
The primary raw materials used by the Company are methanol, phenol and urea. Raw
materials are generally available from numerous sources in sufficient quantities
but are subject to price fluctuations that cannot always be passed on to
customers.
The Company uses long-term purchase agreements for its primary and other raw
materials in certain circumstances to assure availability of adequate supplies
at specified prices.
In connection with the shutdown of its melamine crystal plant, the Company has
entered into a long-term contractual arrangement with the leading global
melamine crystal producer to supply a minimum of 70% of the Company's worldwide
melamine crystal requirements. The melamine crystal to be purchased under the
agreement will be sourced from several supplier production sites and the
temporary or permanent loss of any individual site would not likely have a
material adverse impact on the Company's ability to satisfy its melamine crystal
needs.
CUSTOMERS
The Company does not depend on any single customer and business is not limited
to any particular group of customers, the loss of which would have a material
adverse effect on the business. The primary customers consist of manufacturers,
and business is generally not seasonal.
PATENTS AND TRADEMARKS
The Company owns various patents, trademark registrations and patent and
trademark applications around the world which are held for use or currently used
in its operations. A majority of the patents relate to the development of new
products and processes for manufacturing and use thereof and will expire at
various times between 2002 and 2013. No individual patent is considered to be
material.
RESEARCH AND DEVELOPMENT
Research and development expenditures were $22.7 million, $22.2 million and
$22.7 million in 2001, 2000 and 1999, respectively. Development and marketing
of new products are carried out at the business unit level and integrated with
quality control for existing product lines.
WORKING CAPITAL
Working capital is generally funded through operations and borrowings from
affiliates and under the Company's credit facility.
EMPLOYEES
At December 31, 2001, the Company had approximately 2,800 employees.
Relationships with union and non-union employees are generally good.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
The Company presents its segment information in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information". The Company's operating segments are
defined as those business units for which operating results are regularly
reported internally to evaluate performance and allocate resources. The
Company's North American business units are substantially defined according to
the primary markets in which the Company's customers operate, while its
international business units are defined geographically. The Company believes
its operating segments have similar economic characteristics as well as a high
degree of similarity between manufacturing processes, chemical properties of its
end products, product distribution methods and the ways that the Company's
customers use its products in their manufacturing processes. Consequently, the
Company's operating segments meet the aggregation criteria of SFAS No. 131 and
the Company presents one reportable operating segment and reports its corporate
and other functions separately.
Prior year information has been reclassified to include the corporate and other
costs previously reported within the Chemical segment as part of the Corporate
and Other classification.
In the consolidated financial information that follows, the businesses sold or
distributed classification includes the Company's printing inks business through
the date of its sale in 2000 and the infrastructure management services business
prior to its distribution to the Company's parent in 2000.
Adjusted Operating EBITDA information is presented with the Company's segment
disclosures because it is a primary measure used by the Company to evaluate
operating results. See footnote (1) on page 11 for definition of Adjusted
Operating EBITDA.
OPERATING SEGMENTS:
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SALES TO UNAFFILIATED CUSTOMERS:
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(Dollars in millions) 2001 2000 1999
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Chemical $1,372.1 $1,336.4 $1,223.6
Businesses sold or distributed - 40.2 50.6
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$1,372.1 $1,376.6 $1,274.2
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TOTAL ASSETS AT YEAR END:
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(Dollars in millions) 2001 2000 1999
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Chemical $ 892.2 $ 974.9 $ 911.2
Corporate and other 237.1 398.9 720.1
Business sold or distributed - - 38.0
Discontinued Operations - 128.7 29.5
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$1,129.3 $1,502.5 $1,698.8
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ADJUSTED OPERATING EBITDA:
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(Dollars in millions) 2001 2000 1999
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Chemical $ 204.1 $220.7 $243.7
Corporate and other (68.0) (53.3) (40.5)
Businesses sold or distributed - 0.7 (5.2)
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ADJUSTED OPERATING EBITDA (1) 136.1 168.1 198.0
Significant and Unusual items (2) (147.7) (64.3) (34.2)
Depreciation and amortization (59.4) (55.7) (52.3)
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OPERATING (LOSS) INCOME $ (71.0) $ 48.1 $111.5
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(1)See footnote (1) on page 11 for definition of Adjusted Operating EBITDA.
(2)Includes Significant and Unusual items shown below and on page 15 of
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
SIGNIFICANT AND UNUSUAL
ITEMS AFFECTING COMPARABILITY OF ADJUSTED OPERATING EBITDA: (3)
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(Dollars in millions) 2001 2000 1999
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Chemical $(144.2) $(66.9) $(41.6)
Corporate and other (3.5) 2.6 7.4
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$(147.7) $(64.3) $(34.2)
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(3)See page 15 of the Management's Discussion and Analysis of Financial
Condition and Results of Operations for further information concerning these
items.
DEPRECIATION AND AMORTIZATION EXPENSE:
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(Dollars in millions) 2001 2000 1999
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Chemical $50.4 $51.0 $43.9
Corporate and other 9.0 3.9 4.2
Businesses sold or distributed - 0.8 4.2
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$59.4 $55.7 $52.3
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CAPITAL EXPENDITURES:
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(Dollars in millions) 2001 2000 1999
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Chemical $37.5 $ 89.2 $ 57.5
Corporate and other 5.0 9.9 14.0
Businesses sold or distributed - 0.1 1.2
Discontinued operations 4.8 5.3 2.1
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$47.3 $104.5 $74.8
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GEOGRAPHIC INFORMATION:
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SALES TO UNAFFILIATED CUSTOMERS: (1)
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(Dollars in millions) 2001 2000 1999
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United States $ 908.5 $ 909.2 $ 830.3
Canada 181.1 152.3 144.2
Other International 282.5 315.1 299.7
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Total $1,372.1 $1,376.6 $1,274.2
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(1) For purposes of geographic disclosures, sales are attributed to the country
in which individual business locations reside.
LONG-LIVED ASSETS: (2)
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(Dollars in millions) 2001 2000 1999
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United States $276.2 $356.4 $363.9
Canada 53.9 60.8 41.9
Other International 127.5 139.0 122.7
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Total $457.6 $556.2 $528.5
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(2) Long-lived assets include property, plant and equipment, net of accumulated depreciation.
ITEM 2. PROPERTIES
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As of December 31, 2001, the Company operated 28 domestic production and
manufacturing facilities in 16 states, the most significant being a plant in
Louisville, Kentucky. In addition, the Company operated 21 foreign production
and manufacturing facilities primarily in Canada, South America, Europe,
Australia and Malaysia.
The Company's manufacturing and processing facilities are generally well
maintained and effectively utilized. Substantially all facilities are owned.
The Company is actively engaged in complying with environmental protection laws,
as well as various federal, state and foreign statutes and regulations relating
to manufacturing, processing and distributing its many products. In connection
with this, the Company incurred capital expenditures of $1.2 million in 2001,
$0.8 million in 2000 and $2.4 million in 1999. The Company estimates $2.7
million will be spent in 2002 for environmental control facilities.
ITEM 3. LEGAL PROCEEDINGS
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Environmental Proceedings
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The Company has been notified that it is or may be a potentially responsible
party with respect to the cleanup of approximately 50 waste sites in proceedings
brought under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or similar state environmental laws. The Company's
ultimate liability will depend on many factors including its volumetric share of
waste, the financial viability of other responsible parties, the remediation
methods and technology used, the amount of time necessary to accomplish
remediation and the availability of insurance coverage. While the Company cannot
predict with certainty the total cost of such cleanup, the Company has recorded
liabilities of approximately $41 million and $20 million at December 31, 2001
and 2000, respectively, for environmental remediation costs for these and other
sites in amounts that it believes are probable and reasonably estimable. Based
on currently available information and analysis, the Company believes that it is
reasonably possible that costs associated with such sites may exceed current
reserves by amounts ranging from insignificant to, in the aggregate,
approximately $30 million. This estimate of the range of reasonably possible
additional costs is less certain than the estimates upon which reserves are
based, and in order to establish the upper limit of such range, assumptions
least favorable to the Company among the range of reasonably possible outcomes
were used. In estimating both its current reserves for environmental
remediation and the possible range of additional costs, the Company has not
assumed that it will bear the entire cost of remediation of every site to the
exclusion of other known potentially
responsible parties who may be jointly and severally liable. The ability of
other potentially responsible parties to participate has been taken into
account, based generally on the parties' probable contribution on a per site
basis.
Private actions against the Company and numerous other defendants are pending in
U.S. District Court in Baton Rouge, Louisiana, alleging personal injuries and
property damage in connection with a waste disposal site in Louisiana.
Affiliate Bankruptcy Proceedings
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BCP Management, Inc. ("BCPM"), a wholly owned subsidiary of the Company that
serves as the general partner of Borden Chemicals and Plastic Limited
Partnership ("BCP"), has certain fiduciary responsibilities to BCP and its
operating subsidiary, Borden Chemical and Plastics Operating Limited Partnership
("BCPOLP"). BCP and BCPOLP were created in November 1987, as separate and
distinct entities from the Company and BCP is 99% owned by the public. On April
3, 2001, BCPOLP and its subsidiary, BCP Finance Corporation, filed voluntary
petitions for protection under Chapter 11 of the United States Bankruptcy Code,
Title 11 of the United States Code, in the United States Bankruptcy Court for
the District of Delaware. On March 22, 2002, BCPM also filed a voluntary
petition for protection under Chapter 11 of the Bankruptcy Code in United States
Bankruptcy Court for the District of Delaware. In addition to a $20.0 million
liability recorded in the fourth quarter of 2000, $10.0 million was accrued by
the Company in the second quarter of 2001 for potential BCPOLP liabilities.
Imperial Home Decor Group
- -----------------------------
In 1998, pursuant to a merger and recapitalization transaction sponsored by The
Blackstone Group ("Blackstone") and financed by Chase Manhattan Bank ("Chase"),
Borden Decorative Products Holdings, Inc. ("BDPH"), a wholly owned subsidiary of
the Company, was merged with an acquisition vehicle created by Blackstone, which
subsequently merged with Imperial Wallcoverings to create Imperial Home Decor
Group ("IHDG"). Blackstone provided $84.5 million in equity and Chase provided
$295 million in senior financing. Borden received approximately $314 million in
cash and 11% of IHDG common stock for its interest in BDPH. On January 5, 2000,
IHDG filed for reorganization under Chapter 11 of the U. S. Bankruptcy Code.
IHDG emerged from bankruptcy in April 2001.The IHDG Litigation Trust (the
"Trust") was created pursuant to the plan of reorganization in the IHDG
bankruptcy to pursue preference and other avoidance claims on behalf of the
unsecured creditors of IHDG. In November 2001, the Trust filed a law suit
against the Company and certain of its affiliates seeking to have the IHDG
recapitalization transaction avoided as a fraudulent conveyance and asking for a
judgment to be entered against the Company for $314.4 million, plus interest,
costs and attorney fees. The Company believes it has strong defenses to the
Trust' s allegations and intends to defend the case vigorously.
Other Legal Proceedings
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The Company is involved in other litigation throughout the United States, which
is considered to be in the ordinary course of business.
Anticipated Impact
- -------------------
Management believes, based upon the information it currently possesses, and
taking into account its established reserves for estimated liability, that the
ultimate outcome of the foregoing environmental and legal proceedings and
actions is unlikely to have a material adverse effect on the financial
statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------- -----------------------------------------------------------
The Company's sole shareholder took action by written consent November 16, 2001
approving the amendment of the Company's Restated Certificate of Incorporation
to change its name.
The Company's Annual Shareholder Meeting for the election of directors was held
November 20, 2001. The five existing directors were reelected and seven new
directors were elected, each by unanimous vote of 198,974,994 shares of the
Company's common stock outstanding.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
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AND RELATED STOCKHOLDER MATTERS
- ----------------------------------
The Company's authorized common stock consists of 300,000,000 shares with a par
value of $0.01 per share, 199,121,749 as of December 31, 2001, of which are
issued and outstanding and of which 99.9% are controlled by affiliates of KKR
with the remainder held by management. No shares of such common stock trade on
any exchange. The Company declared dividends on common stock of $36.4 million,
$61.6 million and $64.1 million in 2001, 2000 and 1999, respectively. The
Company's ability to pay dividends on its common stock is restricted by its
Credit Agreement with certain banks (see Notes 10 and 14 to the Consolidated
Financial Statements).
ITEM 6. SELECTED FINANCIAL DATA
- -------- -------------------------
- --------------------------------------------------------------------------------
FIVE YEAR SELECTED FINANCIAL DATA
(All dollar and share amounts in millions, except per share data)
The following represents five year selected financial data for the Company,
restated for the discontinued operations of Consumer Adhesives. See pages 8 and
15 for items impacting comparability between 2001, 2000 and 1999.
CONSOLIDATED FOR THE YEARS 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
SUMMARY OF EARNINGS
Net sales 1,372.1 1,376.6 1,274.2 1,320.5 1,409.6
(Loss) income from continuing operations (136.6) (72.3) 44.5 9.1 6.6
(Loss) income applicable to common stock (186.6) (39.7) (20.8) (11.1) 147.6
- ------------------------------------------------------------------------------------------------------------------
Basic and diluted (loss) income per common share
from continuing operations $ (0.69) $ (0.36) $ 0.23 $ 0.05 $ 0.03
Basic and diluted (loss) income per common share (0.94) (0.20) (0.10) (0.06) 0.74
- ------------------------------------------------------------------------------------------------------------------
Dividends per share
Common share $ 0.18 $ 0.31 $ 0.32 $ 0.30 $ 0.26
Preferred series A 2.52 3.00 3.00 3.00 3.00
- -------------------------------------------------------------------------------------------------------------------
Average number of common shares
outstanding during the year 199.0 199.0 199.0 199.0 199.0
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL STATISTICS
Total Assets $ 1,129.3 $ 1,502.5 $ 1,698.8 $ 1,981.2 $2,122.6
Long-term debt 532.5 530.5 541.1 552.0 788.3
- -------------------------------------------------------------------------------------------------------------------
Operating EBITDA (1) $ (11.6) $ 103.8 $ 163.8 $ 177.7 $ 128.6
Adjusted Operating EBITDA (1) 136.1 168.1 198.0 171.9 144.6
- -------------------------------------------------------------------------------------------------------------------
(1) Operating EBITDA, as defined by the Company, represents net income (loss), excluding discontinued
operations, cumulative effect of change in accounting principle, non-operating income and expense,
interest, taxes, depreciation and amortization. Adjusted Operating EBITDA, as defined by the Company,
is composed of Operating EBITDA excluding the effects of Significant and Unusual Items (see pages 8 and
15). EBITDA information is presented because it is a primary measure used by the chief operating
decision maker to evaluate operating results and because such information is conceptually consistent
with measurements of operating results used by various investors as a basis for evaluating a Company's
ability to meet debt and interest obligations. EBITDA should not be considered an alternative to
measures of operating performance required by generally accepted accounting principles, including net
income, as a measure of the Company's operating results and cash flows or as a measure of the Company's
liquidity. Because EBITDA is not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- -------- ------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
---------------------------------------
CRITICAL ACCOUNTING POLICIES:
- -------------------------------
The Company's significant accounting policies are more fully described in Note 3
to the Consolidated Financial Statements. As disclosed in Note 3 to the
Consolidated Financial Statements, preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions about future events that affect the amounts of
assets, liabilities, revenues and expenses reported in the financial statements
and accompanying notes. Estimating and predicting future events requires the
exercise of judgment and cannot be done with absolute certainty; consequently,
there can be no assurance that actual results will not differ significantly from
estimated results.
The most significant accounting estimates reflected in the Company's
Consolidated Financial Statements include estimates supporting recognition of
asset impairments, business realignment liabilities, environmental remediation
liabilities, deferred income tax assets and liabilities and related valuation
allowances, and pension and post-retirement assets and liabilities. The Company
bases its estimates and assumptions on historical experience and business
trends, current and expected economic conditions, and various other relevant
criteria that the Company believes to be appropriate and reasonable under the
circumstances.
RESULTS OF OPERATIONS BY SEGMENT:
- ------------------------------------
Following is a comparison of net sales and Adjusted Operating EBITDA by
reportable business segment for the Company:
NET SALES TO UNAFFILIATED CUSTOMERS:
- ----------------------------------------------------------------------------------
(Dollars in millions) 2001 2000 1999
- ----------------------------------------------------------------------------------
Chemical $1,372.1 $1,336.4 $1,223.6
Businesses sold or distributed - 40.2 50.6
--------- ------- -------
$1,372.1 $1,376.6 $1,274.2
- ----------------------------------------------------------------------------------
OPERATING INCOME:
- ----------------------------------------------------------------------------
(Dollars in millions) 2001 2000 1999
- ----------------------------------------------------------------------------
Adjusted Operating EBITDA
--------------------------
Chemical $ 204.1 $220.7 $243.7
Corporate and other (68.0) (53.3) (40.5)
Businesses sold or distributed - 0.7 (5.2)
-------- ------- -------
TOTAL ADJUSTED OPERATING EBITDA (1) 136.1 168.1 198.0
Significant and unusual items (2) (147.7) (64.3) (34.2)
Depreciation and amortization (59.4) (55.7) (52.3)
-------- ------- -------
OPERATING INCOME $ (71.0) $ 48.1 $111.5
- ---------------------------------------------------------------------------
(1) See footnote (1) on page 11 for definition of Adjusted Operating EBITDA.
(2) Includes Significant and Unusual items shown on pages 8 and 15 of
Management's Discussion and Analysis of Financial Condition and Results of Operations
2001 VS. 2000
Chemical
- --------
Sales in 2001 increased $35.7 million, or approximately 3%, to $1,372.1 million
for the year ended December 31, 2001 compared to $1,336.4 million for the same
period in 2000. The improvement is due primarily to generally higher selling
prices, two acquisitions in the U.S. in the second half of 2000 and an
acquisition at the beginning of the second quarter of 2001. The most
significant items that negatively impacted sales were an overall volume decline
and unfavorable currency exchange rates for all international business units.
Higher average selling prices had an approximate $109 million positive impact on
2001 sales. The higher average selling prices reflect significantly higher raw
material costs during the first half of the year. A substantial portion of the
Company's sales volumes, especially for North American forest products, is sold
under contracts that provide for monthly or quarterly selling price adjustments
based on published cost indices for the Company's primary raw materials (i.e.,
methanol, phenol and urea).
Lower overall sales volume in 2001 reflects generally weaker economic conditions
in North America as well as international regions in which the Company operates.
Excluding the effect of acquisitions and divestitures, sales volume was down in
all business units, except oilfield products. The overall lower sales volume had
an approximate $77 million negative impact on sales versus the prior year. The
increase in oilfield products volume is due to increased drilling activity
reflecting significantly higher natural gas and oil prices in the first quarter
of the year. Lower sales volume in forest products resins reflects difficult
market conditions and aggressive competitor pricing in 2001. Lower volume in
foundry and industrial resins reflects declines in auto production and generally
weaker industrial construction and electronics market conditions. Lower UV
coatings volume was negatively impacted by the slowing of the U.S. economy in
the second half of the year.
The acquisition of the formaldehyde plant and certain other assets of Borden
Chemicals and Plastic Limited Partnership ("BCP") in third quarter 2000, the
acquisition of East Central Wax in fourth quarter 2000 and the acquisition of a
foundry resin business at the beginning of second quarter 2001 provided
incremental 2001 sales of approximately $48 million.
Unfavorable currency exchange rates for all international operations had a total
unfavorable impact on 2001 sales of approximately $40 million, with the most
significant impacts coming from Latin America, Canada and the United Kingdom.
Adjusted Operating EBITDA of $204.1 million for the year ended December 31, 2001
was $16.6 million, or approximately 8%, lower than prior year adjusted operating
EBITDA of $220.7 million. The main reasons for the decline are the overall
lower sales volume discussed above and significantly higher energy costs,
partially offset by margin improvement, EBITDA contributed by the acquisitions
discussed above and reduced general and administrative expenses. Improved
margins in the last three quarters of 2001 are a result of the downward trend in
major raw material costs versus the prior year.
Corporate and Other
- ---------------------
Adjusted Operating EBITDA, which is composed primarily of general and
administrative expenses and income and expenses related to previously sold
businesses of the Company, declined $14.7 million from a loss of $53.3 million
in 2000 to a loss of $68.0 million in 2001. The decline reflects settlement and
curtailment charges of $16.3 million in 2001 related to the sale of Foods and
the absence of a 2000 gain of $10.5 million on the sale of certain rights to
harvest shellfish, which were partially offset by the absence of 2000 pension
settlement and curtailment charges of $8.9 million related to the sale of Wise
and a 2001 gain of $4.4 million on the sale of a common stock equity investment
held by the Company.
Businesses Sold or Distributed
- -------------------------------
The businesses sold or distributed classification represents the Company's
infrastructure management services business and printing inks business. The
distribution of the infrastructure management services business occurred in
first quarter 2000 and the sale of the printing inks business occurred in fourth
quarter 2000.
2000 VS. 1999
Chemical
- --------
Sales of $1,336.4 million in 2000 increased $112.8 million, or approximately 9%,
from $1,223.6 million in 1999. The most significant items that positively
impacted 2000 sales were improved volumes of higher-priced specialty products,
higher selling prices for forest products resins, primarily in North America,
two acquisitions in the United States, and one acquisition in Europe. The most
significant items that negatively impacted sales were lower selling prices for
melamine products, unfavorable currency exchange rates, and the exit from
certain non-core businesses in the United States, Latin America and the
Philippines.
Overall volume, excluding the effect of acquisitions and strategic realignment
activities, was only 1.2% ahead of prior year, but still had an approximate $71
million positive impact on 2000 sales. The positive impact was driven primarily
by substantial volume improvements in UV coatings and oilfield products, which
had significantly higher per unit selling prices (as measured in metric tons)
compared to all other products. Higher volumes of melamine crystal and melamine
based resins
also had a positive impact on 2000 sales. The improvement in UV coatings
primarily reflects an increase in the Company's share of the market and market
growth in demand for optical fiber. Oilfield products volume benefited from
increased drilling activity, which reflects substantially higher natural gas and
oil prices. Melamine products volume reflects increased export sales of melamine
crystal, due to tightening global supply, and increased market share of
high-pressure laminates. North America forest products volume was essentially
flat compared to the prior year and reflects aggressive competitor pricing and a
downturn in housing starts throughout the second half of the year, particularly
in the fourth quarter that offset strong housing and construction activity in
the first half of the year.
In 2000, the Company acquired the formaldehyde and certain other assets from
BCP. In second quarter 1999 the Company acquired Spurlock Industries, Inc. in
the United States and in third quarter 1999 acquired Blagden Chemicals, Ltd. in
Europe. These acquisitions contributed incremental 2000 sales of approximately
$57 million.
Overall higher selling prices in 2000 had an approximate $33 million net
positive impact on sales. The increase reflects generally higher selling prices
globally for forest products resins and formaldehyde, partially offset by lower
pricing for melamine crystal and melamine based resins, as well as the impact of
downward pressure on selling prices due to very competitive market conditions
across all businesses. The generally higher selling prices for forest products
resins and formaldehyde reflect the partial pass-through of substantially higher
raw material costs. The lower pricing for melamine products reflects the global
market imbalance for melamine crystal that worsened throughout 1999 and has
persisted throughout most of 2000. A substantial portion of the Company's sales
volume, especially for North America forest products, is sold under contracts
that provide for monthly or quarterly selling price adjustments based on
published cost indices for the Company's primary raw materials (i.e,. methanol,
phenol and urea). During the first quarter of 2000, the costs of these raw
materials were generally lower than prior year, therefore selling prices were
generally lower; however, the cost of all three primary raw materials escalated
significantly over the last three quarters, which resulted in upward adjustments
in selling prices.
Unfavorable currency exchange rates, primarily in the United Kingdom, had an
unfavorable impact on 2000 sales of approximately $28 million. The unfavorable
exchange rate for Ecuador reflects significant currency devaluation throughout
1999 and through May 2000 when the local currency exchange rate was fixed to the
United States dollar.
The 1999 sale of the non-strategic United States molding compounds business and
closures or sales of non-strategic businesses in Latin America and the
Philippines caused 2000 sales to be approximately $23 million lower compared to
the prior year.
Adjusted Operating EBITDA of $220.7 million in 2000 was $23.0 million, or
approximately 9%, lower than prior year Adjusted Operating EBITDA of $243.7
million. The decline reflects a very difficult business environment, especially
over the second half of the year. A slowing economy, escalating raw material
costs, intense competitor pricing activity, and unprecedented natural gas costs
in the latter part of the year all combined to have a significant negative
impact on 2000 operating results. Substantial margin erosion and generally
higher plant operating and distribution costs were partially offset by improved
volume of higher-priced specialty products, more favorable purchasing contracts
for certain raw materials and the impact of acquisitions. Profit margins in
North America forest products were significantly impacted by the inability to
fully recover rapidly escalating costs of methanol, phenol and urea. Effective
recovery of these rising costs was curtailed by delayed pricing adjustments
allowed under supply contracts and competitive pressures to keep prices down. A
substantial amount of North America forest products sales are based on supply
contracts that provide only monthly or quarterly pricing adjustments, which
cause price increases to lag raw material cost increases during times of rising
raw material costs. Profit margins for melamine crystal and melamine based
resins were also negatively impacted by both the high cost of urea and high
natural gas cost since the melamine crystal production process consumes
significant energy. Higher plant operating costs reflect higher energy costs,
while higher distribution costs reflect increased export sales of melamine
crystal and generally higher fuel costs.
Corporate and Other
- ---------------------
Adjusted Operating EBITDA, which consists primarily of general and
administrative expenses and income and expense related to previously sold
businesses of the Company, declined $12.8 million to a loss of $53.3 million in
2000 from a loss of $40.5 million in 1999. The decline is primarily due to the
incurrence and settlement of various corporate liabilities and expenses of $15.0
million and a $7.6 million charge for certain benefit plan settlements,
partially offset by a $10.5 million gain on the sale of certain rights to
harvest shellfish.
Businesses Sold or Distributed
- ---------------------------------
The businesses sold or distributed classification represents the Company's
infrastructure management services business and printing inks business. The
distribution of the infrastructure management services business occurred in
first quarter 2000 and sale of the printing inks business occurred in fourth
quarter 2000.
SIGNIFICANT AND UNUSUAL ITEMS EXCLUDED FROM ADJUSTED OPERATING EBITDA:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Dollars in millions) 2001 2000 1999
- -------------------------------------------------------------------------------
(Loss) gain on disposal of
businesses, net $ (2.3) $ (0.9) $ 7.4
Business realignment, impairments
and other (145.4) (63.4) (41.6)
----- ----- -------
$ (147.7) $ (64.3) $ (34.2)
- -------------------------------------------------------------------------------
2001
Loss on disposal of businesses primarily relates to the sale of a Chemical
business in Ecuador.
Business realignment, impairments and other consists of business realignment
costs of $25.3 million, impairment charges of $101.1 million and other charges
of $19.0 million. The business realignment costs include plant closure costs of
$12.7 million and severance and other employee costs of $12.6 million. Included
in plant closure costs are pre-tax gains of $13.5 million ($8.3 million after
tax) from the sale of land and other assets associated with closed plants. The
impairment charges reflect the write-down of the melamine crystal fixed assets,
spare parts and goodwill of $98.2 million and the cost to cancel construction of
a new plant of $2.9 million. Additionally, the Company recorded a $19.0 million
charge that reflects management's estimate of probable environmental remediation
costs that the Company has incurred related to fourth quarter 2001 activity for
a previously owned business.
2000
Loss on disposal of businesses primarily relates to the sale of the printing
inks business partially offset by lower than expected costs related to the sale
of the commercial and industrial wallcoverings business.
Business realignment, impairments and other represents costs of $38.1 million
related to plant closures in the United States, Argentina and the United
Kingdom. Also included is $25.3 million to exit certain raw material purchase
contracts, which extended through 2002, in order to take advantage of
opportunities that have arisen to obtain more favorable pricing.
1999
Gain on disposal of businesses primarily relates to gains on the sale of the
commercial and industrial wallcoverings business due to lower than expected exit
costs.
Business realignment, impairments and other of $41.6 million includes the cost
to cancel a plant expansion project, consisting of the write-off of engineering,
equipment and other costs of $25.0 million. In addition, certain Chemical
operations in the Philippines, Brazil, and Uruguay were closed as part of an
effort to consolidate operations, resulting in a total charge of $16.6 million.
NON-OPERATING EXPENSES AND INCOME TAX EXPENSE:
- ---------------------------------------------------
NON-OPERATING EXPENSES
- -------------------------------------------------------------------
(Dollars in millions) 2001 2000 1999
- -------------------------------------------------------------------
Interest expense $56.0 $ 62.7 $ 63.1
Affiliated interest expense, net 9.4 15.5 18.8
Other non-operating expense (income) 4.0 (13.4) (32.5)
Investment write-downs and other
charges 27.0 68.0 3.0
------ ------ -----
$ 96.4 $ 132.8 $ 52.4
- -------------------------------------------------------------------
2001 vs. 2000
- ---------------
Non-operating expenses decreased $36.4 million for the year ended December 31,
2001 compared to the year ended December 31, 2000. The decrease is primarily
due to a $31.0 million reduction in investment and other asset write-downs from
2000 and a $10.0 million reduction from 2000 of charges recorded for the
financial decline of a limited partnership for which a wholly owned subsidiary
of the Company serves as general partner (see Note 20 to the Consolidated
Financial Statements). Other decreases include a reduction in interest expense
and affiliated interest expense of $6.7 million and $4.9 million, respectively,
and an increase in affiliated interest income of $1.2 million. These declines
were partially offset by a $9.4 million reduction in interest income due to
lower average cash balances in 2001 compared to 2000, the absence of unrealized
gains on an interest rate swap that matured in September 2000 of $6.7 million
and reduced affiliated dividend income of $2.8 million.
2000 vs. 1999
- ---------------
Non-operating expenses increased $80.4 million for the year ended December 31,
2000 compared to the year ended December 31, 1999. The increase is primarily
attributable to increased investment write-downs from $3.0 million in 1999 to
$48.0 million in 2000 (see Note 9 to the Consolidated Financial Statements) and
recording a liability of $20.0 million for potential costs related to the
financial decline of a limited partnership for which a wholly owned subsidiary
of the Company serves as general partner (see Note 20 to the Consolidated
Financial Statements). Other changes include a reduction in interest income of
approximately $15 million due to lower average cash balances in 2000 compared to
1999 and reduced unrealized gains on an interest rate swap of approximately $6
million, which terminated in September 2000. These decreases were partially
offset by higher dividend income of approximately $5 million from an affiliate
and reduced affiliated interest expense due to lower average loan balances
outstanding in 2000 compared to 1999.
INCOME TAX EXPENSE
- --------------------------------------------------------------------------------
(Dollars in millions) 2001 2000 1999
- --------------------------------------------------------------------------------
Income tax (benefit) expense $ (30.8) $ (12.4) $ 14.6
Effective tax rate 18% 15% 25%
- --------------------------------------------------------------------------------
2001
- ----
The 2001 effective tax rate reflects the impact of earnings related to the
expected sale of a foreign business that are not expected to be permanently
reinvested in foreign locations and the inability to utilize the foreign tax
credits associated with those earnings due to usage limitations. In addition,
the rate reflects the write-down of the fixed assets and related non-deductible
goodwill of a melamine plant due to its indefinite shut-down.
2000
- ----
The 2000 income tax benefit primarily reflects a settlement with the Internal
Revenue Service ("IRS") and the impact of usage limitations on foreign tax
credits. As a result of a settlement reached with the IRS in the second quarter
of 2000, the Company recorded net tax expense of $5 million consisting of
valuation reserves recorded on foreign tax credits of $30 million that are no
longer likely to be utilized, substantially offset by a $25 million reduction of
amounts established for tax issues related to the divestiture of certain
segments of the Company's business that are no longer considered necessary. In
addition, approximately $10 million of income tax expense was recorded on
foreign source income because related foreign tax credits are not expected to be
utilized within the expiration period.
1999
- ----
The 1999 consolidated effective rate reflects a higher portion of net income
derived from foreign operations and the effect of lower tax rates in foreign
jurisdictions.
CASH FLOWS:
- ------------
OPERATING
2001 vs. 2000
- ---------------
Operating activities provided cash of $95.3 million in 2001 compared to $22.9
million of cash provided in 2000, an improvement of $72.4 million. The most
significant components of this improvement are cash taxes received of $36.2
million in 2001 compared to cash taxes paid of $19.2 million in 2000, increased
cash flows in accounts receivable of $59.4 million due to improved collection
efforts and collection of higher raw material costs passed through to customers
in the first half of the year, the absence of a 2000 payment of $25.3 million to
exit certain raw material supply contracts and improved cash flows in inventory
of $27.2 million due to lower raw material costs and a $12.3 million cash
receipt from Foods to assume the liability for claims under certain employee
benefit plans. Partially offsetting these improvements were a $49.3 million
increase in outflows in trade payables due to reduced payment terms with new raw
material suppliers and lower raw material costs, a reduction in adjusted
operating EBITDA of $32.0 million, increased cash restructuring payments in 2001
of $15.9 million, increased net interest paid of $6.3 million and the absence of
2000 cash receipts from CCPC Acquisition Corp. and Wise (see below).
2000 vs. 1999
- ---------------
Operating activities provided cash of $22.9 million in 2000 compared to $71.8
million cash provided in 1999, a decline of $48.9 million. Significant outflows
compared to prior year included a decline in adjusted operating EBITDA of $29.9
million, a decrease in accounts receivable and inventory cash flows of $32.2
million and $15.4 million, respectively, due to higher raw material costs passed
through to customers and included in inventory, a $25.3 million payment in 2000
to exit certain raw material supply contracts and increased interest paid of
$7.1 million. These increased outflows were partially offset by a $16.7 million
increase in trade payables due to higher raw material costs, lower tax payments
of $26.9 million, a $3.6 million repayment received from CCPC Acquisition Corp.
for interest accrued on the loan that was repaid in 2000, a $3.7 million payment
received from Wise, upon its sale, related to its retirement benefit plans, the
absence of a 1999 payment of approximately $13.0 million to settle certain
long-term disability claims and the absence of 1999 settlement payments of $6.4
million related to divested businesses.
INVESTING
2001 vs. 2000
- ---------------
Investing activities provided cash of $211.1 million in 2001 compared to cash
used of $195.7 million in 2000. The $406.8 million improvement is primarily due
to increased proceeds from the sale of assets of $151.0 million, the absence of
2000 acquisitions for $118.1 million, increased proceeds from the divestiture of
businesses of $86.1 million and reduced capital expenditures of $57.2 million.
The increased proceeds from the sale of assets were due to the sale of loans
receivable from affiliates for their fair value of $75.8 million, the sale of a
common stock equity investment held by the Company for the market value of $64.1
million and the sale of land and other assets associated with closed plants of
$14 million. The loans to affiliates and $55.2 million of the common stock
equity investment held by the Company were sold to the Company's parent. The
absence of acquisitions made by Consumer Adhesives and Chemical in 2000 improved
cash flows by $118.1 million in 2001. Divestiture proceeds of $97.0 million,
primarily from the sale of Consumer Adhesives, were ahead of 2000 proceeds of
$10.9 million, primarily from the sale of the printing inks business. Further
contributing to the improvement was a reduction in capital expenditures of $57.2
million primarily due to reduced plant expansion projects.
2000 vs. 1999
- ---------------
Investing activities used $195.7 million cash in 2000 compared to $229.5 million
cash used in 1999, a decrease of $33.8 million. The decrease primarily
represents the absence of a 1999 $50.0 million investment in junior preferred
stock of WKI and an $8.9 million collection of outstanding debt in 2000 which
eliminated the Company's financial interest in Wise, partially offset by
increased capital expenditures of $29.7 million primarily for plant expansions.
Divestiture proceeds of $10.9 million in 2000, primarily from the sale of the
printing inks business, were ahead of 1999 proceeds of $7.6 million from the
sale of the molding compounds business. Acquisitions in 2000 of $118.1 million
consist of a Consumer Adhesives business and the BCP and East Central Wax
businesses (see Note 5 to the Consolidated Financial Statements) while 1999
acquisitions of $119.6 million consist of Spurlock, Blagden and the resins
manufacturing plant in Minnesota.
FINANCING ACTIVITIES
2001 vs. 2000
- ---------------
Financing activities used cash of $307.6 million in 2001 compared to cash
provided of $5.0 million in 2000. The $312.6 million increase in cash used is
primarily due to net repayments of affiliate loans of $212.5 million in 2001
compared to net borrowings of $86.7 million in 2000, 2001 net short-term debt
repayments of $41.8 million compared to 2000 net short-term debt borrowings of
$33.3 million and a reduction in 2001 long-term debt borrowings of $64.6
million. Affiliate activity in 2001 is comprised primarily of repayments to
Foods of $125.0 million and BWHLLC of $73.4 million and additional loans to WKI
of $19.0 million. These increased uses were partially offset by reduced
long-term debt repayments of $86.0 million, lower 2001 common stock dividends
paid of $13.0 million, the absence of a $10.3 million distribution to the
Company's parent made in 2000 (see below) and a 2001 cash capital contribution
from the Company's parent of $17.0 million.
2000 vs. 1999
- ---------------
Financing activities generated cash of $5.0 million in 2000 compared to cash
used of $319.0 million in 1999. The $324.0 million difference is primarily due
to 2000 affiliated borrowings and receipts of $86.7 million, compared to 1999
net affiliated repayments and loans of $225.5 million. Affiliated activity in
2000 is comprised primarily of borrowings from BWHLLC of $61.4 million and
receipts from CCPC Acquisition Corp., an affiliate of the Company's parent, of
$56.2 million, partially offset by repayments to Foods of $31.0 million. The
1999 affiliated activity includes repayments to BWHLLC and Foods of $169.3
million and a short-term loan to CCPC Acquisition Corp. In addition, 2000
included short-term debt borrowings of $33.3 million compared to 1999 repayments
of $3.7 million. Partially offsetting these net improved inflows are $17.6
million of increased net long-term debt repayments (primarily Industrial Bonds)
and the distribution of $10.3 million in cash temporarily held by the
infrastructure management services business for the benefit of its customers.
The $10.3 million distribution 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 19 to the Consolidated Financial
Statements).
LIQUIDITY AND CAPITAL RESOURCES:
- -----------------------------------
The Corporate Reorganization was undertaken to simplify the legal structure and
strengthen the capital structure of the Company and to reduce overhead costs
(see Note 4 to the Consolidated Financial Statements).
As part of the Corporate Reorganization, in the fourth quarter 2001, the Company
sold a common stock equity investment, notes receivable from Consumer Adhesives
and a loan receivable from WKI to its parent (see Note 4 to the Consolidated
Financial Statements). On March 1, 2002, the Company's investment in Consumer
Adhesives preferred stock was redeemed for a $110.0 million note receivable from
Consumer Adhesives. On March 12, 2002, the note receivable was sold to the
Company's parent for cash of $110.0 million plus accrued interest. Proceeds from
these sales were used to repay affiliated debt.
In fourth quarter 2001, the Company's parent contributed $614.4 million of
outstanding Series A Cumulative Preferred Stock ("Preferred Stock") plus
accumulated dividends of $6.6 million to the Company as a capital contribution.
Prior to this, the Company had 24,574,751 shares of Preferred Stock outstanding
with a total of 100,000,000 shares authorized. Each share had a liquidation
preference of $25 and was entitled to cumulative dividends at an annual rate of
12% payable quarterly in arrears. The significant impact of this transaction was
to eliminate required future annual preferred dividend payments of $73.7
million.
In third quarter 2001, the Company's $809.0 million Credit Agreement was reduced
to $250.0 million. Of the reduction, $95.8 million was in accordance with the
Credit Agreement due to the sale of substantially all of the Foods' operations.
The remaining reduction was made at the election of the Company. As of December
31, 2001, the Company had $161.0 million (net of $89.0 million in letters of
credit) available under the Credit Agreement. At December 31, 2001, the Company
also had $0.9 million outstanding under a separate cash collateralized letter of
credit agreement. The cash held by the Company of $25.7 million, less the $0.9
cash collateral, as of December 31, 2001 and the cash available under the credit
agreement may be used for acquisitions and to fund working capital needs and
capital expenditures. This credit agreement expires on July 13, 2002. The
Company intends to either replace the existing facility with a new credit
facility or to continue to rely on borrowings from affiliates to meet future
working capital requirements.
During first quarter 2002, the Company finalized an uncommitted letter of credit
facility totaling $45.0 million, and is currently in the process of negotiating
an increase. The company is required to provide cash collateral equivalent to
101% of the letters of credit outstanding under this facility. The fees under
the facility are 1/2% per annum on the amount of letters of credit outstanding.
In addition, a 1/8% per annum issuance fee is in effect for all new letters of
credit not transferred from the existing $250.0 million Credit Agreement.
Additional credit agreements are executed by the Company's international
locations. As of December 31, 2001, these locations had credit facilities
totaling $10.7 million. Of this amount $8.7 million (net of a $1.5 million term
loan and $0.5 million of other draws on the line of credit) was available to
fund working capital needs and capital expenditures.
As part of the common control exercised over the Company, procedures are
established to enter into borrowings between affiliates at market interest
rates.
The Company's planned 2002 capital expenditures are approximately $45.5 million
and includes plans to continue to increase plant production capacity as
necessary. Capital expenditures will be financed through operations and, if
necessary, available lines of credit or borrowings from affiliates.
The Company expects to have enough liquidity to fund working capital
requirements and support capital expenditures during 2002 and in future years
due to cash from operations and amounts available under the credit agreement and
from affiliates.
In third quarter 2000, the Company entered into a $40.0 million credit facility
with WKI maturing December 31, 2000. This facility was extended through a series
of amendments through April 16, 2001. Effective April 12, 2001, this facility
was amended and restated extending the maturity date to March 31, 2004. The
facility was further amended effective July 2, 2001 to increase the amount
available to $50.0 million. In accordance with the terms of the restated and
amended agreement, the facility was reduced to $25.0 million on August 16, 2001
with the perfection of certain pledged collateral. The Company received a second
priority lien on that same collateral. On September 25, 2001, the Company
extended an additional $3.0 million unsecured credit facility to WKI maturing
October 25, 2001. That facility was increased to $13.0 million effective October
26, 2001 maturing on December 28, 2001. No borrowings occurred under those
unsecured facilities and the facility was transferred to the Company's parent in
conjunction with the Corporate Reorganization.
As of December 31, 2001, the Company had $190.4 million, net of allowances of
$110.4 million, in deferred tax assets that relate to foreign and alternative
minimum tax credits as well as net operating loss carryforwards. These credits
and carryforwards are expected to reduce future tax liabilities.
RISK MANAGEMENT:
- -----------------
The Company enters into various financial instruments, primarily to hedge
interest rate risk and foreign currency exchange risk. The Company also enters
into raw materials purchasing contracts and contracts with customers to mitigate
commodity price risks.
FOREIGN EXCHANGE RISK
In 2001 and 2000, international operations accounted for approximately 34% of
the Company's sales. As a result, there is exposure to foreign exchange risk on
transactions that are denominated in a currency other than the business unit's
functional currency. Such transactions include foreign currency denominated
imports and exports of raw materials and finished goods (both intercompany and
third party), and loan payments (both intercompany and third party). In all
cases, the functional currency is the unit's local currency.
It is the Company's policy to reduce foreign currency cash flow exposure due to
exchange rate fluctuations by hedging firmly committed foreign currency
transactions wherever economically feasible. The use of forward and option
contracts protects cash flows against unfavorable movements in exchange rates,
to the extent of the amount under contract. The Company does not hedge foreign
currency exposure in a manner that would entirely eliminate the effect of
changes in foreign currency exchange rates on net income and cash flow. The
Company does not speculate in foreign currency and does not hedge foreign
currency translation or foreign currency net assets and liabilities. The
counterparties to the forward contracts are financial institutions with
investment grade credit ratings.
Foreign exchange risk is also mitigated because the Company operates in many
foreign countries, reducing the concentration of risk in any one currency. In
addition, foreign operations have limited imports and exports, reducing the
potential impact of foreign currency exchange rate fluctuations. With other
factors being equal, such as the performance of individual foreign economies, an
average 10% foreign exchange increase or decrease in any one country would not
materially impact operating results or cash flow. Although considered unlikely,
an average 10% foreign exchange increase or decrease in all countries may
materially impact operating results of the Company.
In accordance with current accounting standards, the Company recognizes gains
and losses arising from contracts on a quarterly basis through the Statement of
Operations.
A summary of forward currency and option contracts outstanding as of December
31, 2001 and 2000 follows. Fair values are determined from quoted market prices
at December 31, 2001 and 2000.
- --------------------------------------------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE FORWARD FAIR VALUE AVERAGE AVERAGE FORWARD FAIR VALUE
DAYS CONTRACT POSITION LOSS DAYS CONTRACT POSITION LOSS
TO MATURITY RATE (IN MILLIONS) (IN MILLIONS) TO MATURITY RATE (IN MILLIONS) (IN MILLIONS)
---------- ------ -------------- ------------ --------- ------ ----------------------------
CURRENCY TO SELL
FOR U.S. DOLLARS
- -----------------
British Pound 59 1.45 $51.0 $(0.1) 22 1.47 $88.9 $(1.8)
- --------------------------------------------------------------------------------------------------------------------
INTEREST RATE RISK
The Company has utilized interest rate swaps to lower funding costs or to alter
interest rate exposures between fixed and floating rates on long-term debt. The
Company does not enter into speculative swaps or other financial contracts. As
of December 31, 2001 and 2000, one interest rate swap was outstanding with a
notional value of $24.3 million.
Fair values of the swaps are independently provided using estimated mid-market
levels. Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between the fixed rate and
floating rate interest amounts calculated by reference to the agreed notional
principal amount. On average, the Company paid 13.7% and received 4.5% in 2001
and paid 10.5% and received 6.3% on the swaps in 2000. The remaining outstanding
swap as of December 31, 2001 and 2000 matures on December 1, 2002. A 1% increase
or decrease in market interest rates would result in a $0.2 million increase or
decrease, respectively, in the fair value of the interest rate swap agreements
at December 31, 2001 and 2000. The Company is exposed to credit related losses
in the event of nonperformance by the counterparty to the swap, although no such
losses are expected as the counterparty is a financial institution having an
investment grade credit rating.
A summary of the Company's interest rate swap as of December 31, 2001 and 2000
follows:
- ----------------------------------------------------------------------------------------------------------------
2001 2000
----------------------------- ----------------------------
NOTIONAL AVERAGE FAIR AVERAGE FAIR
AMOUNT TRADE TERMINATION FIXED RECEIVE VALUE FIXED RECEIVE VALUE
(IN MILLIONS) DATE DATE PAY RATE RATE (IN MILLIONS) PAY RATE RATE (IN MILLIONS)
- -------------- -------- --------- --------- ------- ------------- -------- -------- ------------
$ 24.3 12/01/92 12/01/02 13.65% 4.5% $ (2.7) 13.65% 6.3% $ (3.4)
- ----------------------------------------------------------------------------------------------------------------
The interest rate on most debt agreements is fixed. A 10% increase or decrease
in the interest rate of the variable debt agreements would have an immaterial
effect on the Company's net income. The fair value of publicly held debt is
based on the price at which the bonds are trading at December 31, 2001 and 2000.
All other debt fair values are determined from quoted market interest rates at
December 31, 2001 and 2000.
A summary of the Company's outstanding debt as of December 31, 2001 and 2000
follows:
- -----------------------------------------------------------------------------------------------------------------
2001 2000
----------------------------------------- ------------------------------------
Weighted Fair Weighted Fair
Debt Average Value Debt Average Value
Year (in millions) Interest Rate (in millions) (in millions) Interest Rate (in millions)
- -----------------------------------------------------------------------------------------------------------------
2002 $ 3.1 8.3% $ 3.1 $ 1.4 5.6% $ 1.4
2003 - - - - - -
2004 - - - - - -
2005 - - - - - -
2006 3.3 13.3% 4.6 - - -
2007 and thereafter 529.2 8.5% 361.3 529.1 8.5% 404.7
-------- ------- ------- ------ -------
$ 535.6 369.0 530.5 406.1
- -----------------------------------------------------------------------------------------------------------------
The Company does not use derivative financial instruments in investment
portfolios. Cash equivalent investments are placed with instruments that meet
credit quality standards. These standards are established within the Company's
investment policies, which also limit the exposure to any one issue. At December
31, 2001, the Company had $6.9 million invested primarily in marketable
securities with average maturity periods of 43 days and average rates of 6.4%.
At December 31, 2000, the Company had $11.1 million invested primarily in time
deposits with average maturity periods of 28 days and average rates of 5.2%. Due
to the short maturity of the Company's cash equivalents, the carrying value on
these investments approximates fair value and the interest rate risk is not
significant. A 10% increase or decrease in interest returns on invested cash
would have an immaterial effect on the Company's net income and cash flow at
December 31, 2001 and 2000.
COMMODITY RISK
The Company is exposed to price risks associated with raw materials purchases,
most significantly with methanol, phenol and urea. For these commodity raw
materials, the Company has purchase contracts, with periodic price adjustment
provisions. The commodity risk also is moderated through use of customer
contracts with selling price provisions that are indexed to publicly available
indices for these commodity raw materials as discussed on pages 13 and 14.
Any commodity futures that the Company may enter into are approved by the Board
of Directors.
The Company has entered into a long-term contractual arrangement with the
leading global melamine crystal producer to supply a minimum of 70% of the
Company's worldwide melamine crystal requirements. The melamine crystal to be
purchased under the agreement will be sourced from numerous supplier production
sites and the temporary or permanent loss of any individual site would not
likely have a material adverse impact on the Company's ability to satisfy its
melamine crystal needs.
In fourth quarter 2000, the Company entered into fixed rate, fixed quantity
contracts to secure a portion of future natural gas usage at certain facilities.
The contracts were entered into to partially hedge the Company's risk associated
with natural gas price fluctuations in peak usage months. Contracts covered the
period from October 2000 through March 2003. Gas purchases under theses
contracts totaled $0.9 million in 2001, with $1.1 million of future commitments
at December 31, 2001. These contracts covered between 75% and 85% of 2001
natural gas usage during the periods of the contracts at those facilities.
Due to a sharp increase in natural gas prices in 2000, the Company expanded its
natural gas hedging activities in June 2001 to hedge a portion of natural gas
purchases for all of North America. The Company entered into futures contracts
for the months of June 2001 through March 2002. The contracts are settled for
cash each month based on the closing market price on the last day the contract
trades on the New York Mercantile Exchange. Approximately 24% of the Company's
2001 North American natural gas usage from June through December was hedged
through futures contracts. Commitments settled under these contracts in 2001
totaled $1.7 million, with $0.5 million of future commitments at December 31,
2001.
Gains and losses on commodity futures contracts are recognized each month as gas
is used. Future commitments are marked to market on a quarterly basis. In
2001, the Company realized losses totaling $0.6 million at the expiration of its
natural gas futures contracts. The Company also recorded a loss of $0.5 million
for the difference between the fair value and carrying value of future natural
gas commitments at December 31, 2001.
EQUITY PRICE RISK
At December 31, 2001, the Company held a preferred stock investment of $110.0
million in Consumer Adhesives. Subsequently, on March 1, 2002, the Consumer
Adhesives preferred stock was redeemed for a $110.0 million note receivable from
Consumer Adhesives. On March 12, 2002, the note receivable was sold to the
Company's parent for cash of $110.0 million plus accrued interest. During 2001,
a common stock equity investment of the Company was sold for $64.1 million. Of
the $64.1 million, sales to third-party investors totaling $8.9 million were
made in 2001 resulting in a pre-tax gain of $3.8 million ($2.8 million
after-tax). The remaining $55.2 million of the sale was made to the Company's
parent as part of the Corporate Reorganization (see Note 4 to the Consolidated
Financial Statements). In addition, the remaining $10.0 million investment in
preferred stock of WKI was written-off during the year and transferred to the
Company's parent at its fair value.
At December 31, 2000, investments held by the Company consisted of a common
stock equity investment sold in 2001 (as described above) and an investment in
preferred stock of an affiliate that was written off in 2001 (as described
above). The common stock investment represented approximately 33% of the
outstanding shares and was accounted for using the equity method.
The Company reviews the carrying value of investments in accordance with
existing accounting guidance that requires investments to be adjusted to fair
value if the decline in value is considered to be "other than temporary" based
on certain criteria. The Company recorded investment write downs of $10.0,
$48.0 and $3.0 in 2001, 2000 and 1999, respectively.
A summary of investments as of December 31, 2001 and 2000 follows. Fair value is
based on the market stock price as of December 31, 2001 and 2000 for publicly
traded common stock. Fair value for other investments is based on other similar
financial instruments.
- -----------------------------------------------------------------------------------------------------------------
2001 2000
------------------------------- --------------------------------
CARRYING FAIR CARRYING FAIR
DATE VALUE VALUE VALUE VALUE
DESCRIPTION ACQUIRED (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------
Equity method securities 10/11/96 - - $45.0 $107.8
Cost method securities 8/13/01 $110.0 $110.0 $10.0 $ 10.0
- -------------------------------------------------------------------------------------------------------------------
Readers are cautioned that forward-looking statements contained under the
heading of "Risk Management" should be read in conjunction with the disclosure
under the heading: "Forward-Looking and Cautionary Statements".
RECENTLY ISSUED ACCOUNTING STANDARDS
- ---------------------------------------
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets" which addresses accounting and reporting for acquired goodwill and other
intangibles. The most significant changes made by SFAS No. 142 are: (1)
goodwill and intangible assets with indefinite lives will no longer be
amortized; (2) goodwill and intangible assets with indefinite lives must be
tested for impairment at least annually; and (3) the amortization period for
intangible assets with finite lives will no longer be limited to forty years.
The Company will adopt SFAS No. 142 effective January 1, 2002, as required. At
that time, annual amortization of existing goodwill will cease on the
unamortized portion associated with previous acquisitions. As required, a
transitional impairment test is required for existing goodwill as of the date of
adoption of this Standard. This test must be completed within the first year.
Any impairment loss resulting from applying the goodwill impairment test will be
reported as a cumulative effect of a change in accounting principle. Goodwill
recorded after adoption of this Standard is to be tested for impairment at least
annually and any resulting impairment is not considered part of the change in
accounting principle. The Company is in the process of evaluating goodwill and
may be required to write off amounts under the transitional assessment
provisions of SFAS No. 142.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. Under this Statement, an asset retirement obligation is
recognized at its fair value in the period in which it is incurred. Asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset and a related amortization expense is recognized in future
periods. This Statement is effective for the Company for financial statements
issued for fiscal years beginning after January 1, 2003. The Company is in the
process of determining the impact of adopting this Statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which addresses financial accounting and
reporting for the impairment of long-lived assets. This Statement supercedes
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and establishes a single accounting model
which requires long-lived assets be tested for impairment whenever events or
change in circumstances indicate that their carrying value may not be
recoverable. Under the requirements of SFAS No. 144, discontinued operations
are measured at the lower of their carrying value or fair value less cost to
sell and future operating losses are no longer recognized before they occur.
SFAS No. 144 broadens the presentation of discontinued operations in the income
statement to include a component of an entity (rather than a segment of a
business). A component of an entity must be clearly distinguished,
operationally, and for financial reporting purposes, from the rest of the
entity. The Company will adopt this Standard prospectively effective January 1,
2002.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
- --------------------------------------------
The Company and its officers may, from time to time, make written or oral
statements regarding the future performance of the Company, 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 actual results to differ materially from those
projected in forward-looking statements made by or on behalf of the Company.
Such risks and uncertainties are primarily in the areas of financial information
about operating segments, results of operations by business unit, liquidity,
legal, environmental liabilities and risk management.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------- ----------------------------------------------------------------
Refer to the "Risk Management" section included in Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operation.
- --------------------------------------------------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------- -----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
BORDEN CHEMICAL, INC.
Year ended December 31,
(In millions, except per share data) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Net sales $ 1,372.1 $ 1,376.6 $ 1,274.2
Cost of goods sold 1,060.6 1,055.6 894.4
------- ------- -----
Gross margin 311.5 321.0 379.8
------ ------ -----
Distribution expense 63.9 63.8 61.9
Marketing expense 42.0 46.2 46.8
General & administrative expense 132.7 134.0 126.7
Gain on sale of assets (3.8) (10.1) (1.3)
Loss (gain) on divestiture of businesses 2.3 0.9 (7.4)
Business realignment, impairments and other 145.4 38.1 41.6
------ ------- -----
Operating (loss) income (71.0) 48.1 111.5
------ ------- ------
Interest expense 56.0 62.7 63.1
Affiliated interest expense, net of affiliated interest
income of $3.0, $1.8 and $1.2, respectively 9.4 15.5 18.8
Other non-operating expense (income) 4.0 (13.4) (32.5)
Investment write-downs and other charges 27.0 68.0 3.0
------- ------- ------
(Loss) income from continuing operations
before income tax (167.4) (84.7) 59.1
Income tax (benefit) expense (30.8) (12.4) 14.6
-------- ------ ------
(Loss) income from continuing operations (136.6) (72.3) 44.5
-------- ------- -----
Discontinued operations:
Income from operations, net of tax 11.8 13.3 10.4
Gain (loss) on disposal, net of tax - 93.0 (2.0)
-------- --------- -------
Net (loss) income (124.8) 34.0 52.9
Preferred stock dividends (61.8) (73.7) (73.7)
--------- ------- ---------
Net loss applicable to common stock $ (186.6) $ (39.7) $ (20.8)
========== ========= ========
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
BORDEN CHEMICAL, INC.
Year ended December 31,
(In millions, except per share data) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Basic and Diluted Per Share Data
----------------------------------
(Loss) income from continuing operations $ (0.69) $ (0.36) $ 0.23
Discontinued operations:
Income from operations, net of tax 0.06 0.06 0.05
Gain (loss) on disposal, net of tax - 0.47 (0.01)
------- ------- -------
Net (loss) income (0.63) 0.17 0.27
Preferred stock dividends (0.31) (0.37) (0.37)
------- -------- -------
Net loss applicable to common stock $ (0.94) $ (0.20) $ (0.10)
========= ======== =======
Dividends per common share $ 0.18 $ 0.31 $ 0.32
Dividends per preferred share $ 2.52 $ 3.00 $ 3.00
Average number of common shares outstanding
during the period 199.0 199.0 199.0
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
BORDEN CHEMICAL, INC.
(In millions)
December 31, December 31,
ASSETS 2001 2000
- ------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and equivalents $ 25.7 $ 26.9
Accounts receivable (less allowance for doubtful
accounts of $16.7 in 2001 and $12.7 in 2000) 176.9 229.0
Loan receivable from affiliate - 6.1
Inventories:
Finished and in-process goods 54.2 57.3
Raw materials and supplies 38.1 49.2
Deferred income taxes 63.5 42.4
Other current assets 9.3 13.2
Net assets of discontinued operations - 128.7
------- -------
367.7 552.8
------- -------
INVESTMENTS AND OTHER ASSETS
Investments - 45.0
Investments in affiliates 110.0 10.0
Deferred income taxes 89.7 80.2
Prepaid pension assets - 111.5
Other assets 23.7 41.2
-------- -------
223.4 287.9
-------- -------
PROPERTY AND EQUIPMENT
Land 30.1 27.2
Buildings 98.3 83.7
Machinery and equipment 652.2 747.9
-------- -------
780.6 858.8
Less accumulated depreciation (323.0) (302.6)
--------- -------
457.6 556.2
INTANGIBLES
Net of accumulated amortization of $21.8 in 2001
and $20.2 in 2000 80.6 105.6
------- -------
TOTAL ASSETS $ 1,129.3 $ 1,502.5
========== ========
- ------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
- ---------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
BORDEN CHEMICAL, INC.
(In millions, except share data)
December 31, December 31,
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY 2001 2000
- ---------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts and drafts payable $ 125.5 $ 150.3
Debt payable within one year 3.1 43.5
Loans payable with affiliates 78.6 283.1
Other current liabilities 136.7 174.2
------- ------
343.9 651.1
------- ------
OTHER LIABILITIES
Long-term debt 532.5 530.5
Non-pension post-employment benefit obligations 150.9 153.7
Other long-term liabilities 199.3 152.9
-------- ------
882.7 837.1
-------- ------
COMMITMENTS AND CONTINGENCI