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Momentive Specialty Chemicals Inc. – ‘10-Q’ for 9/30/94

As of: Monday, 11/14/94 · For: 9/30/94 · Accession #: 950152-94-1162 · File #: 1-00071

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/14/94  Momentive Specialty Chemicals Inc 10-Q        9/30/94    3:288K                                   Bowne BCL/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Borden, Inc. 10-Q                                     16     78K 
 2: EX-10       Material Contract                                     99    329K 
 3: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K

10-Q — Borden, Inc. 10-Q
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations
1	1st Page - Filing Submission
9	Item 2:. Management's Discussion and Analysis of Financial Condition and Results of Operations
13	Item 3:. Legal Proceedings
16	Item 6:. Exhibits and Reports on Form 8-K

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C.  20549 

FORM 10-Q 

X     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES    
-----   EXCHANGE  ACT OF 1934                                                   

For the quarterly period ended             September 30, 1994                   
                          ----------------------------------------

Commission file number                              1-71                        
                          ----------------------------------------

BORDEN, INC.

New Jersey                                      13-0511250
-------------------------------                        -------------------      
(State or other jurisdiction of                         (I.R.S. Employer        
incorporation or organization)                         Identification No.)      

180 East Broad Street, Columbus, OH  43215  
----------------------------------------------------  
(Address of principal executive offices)

(614) 225-4000    
----------------------------------------------------  
(Registrant's telephone number, including area code)

Not Applicable  
----------------------------------------------------  
(Former name, former address and former fiscal year,
if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports         
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
registrant was required to file such reports) and (2) has been subject to such  
filing requirements for the past 90 days.                                       

Yes X    No                                                                     
---     ---                                                               

Number of shares of common stock, $0.625 par value, outstanding as of the close 
of business on October 22, 1994: 141,545,838                                    

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---------------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)                                          

BORDEN, INC                                                                            


                                                               Three Months Ended      
                                                                  September 30         
                                                            -------------------------  

(In millions except per share data)                           1994             1993    
---------------------------------------------------------------------------------------
                                                                                       
REVENUE         Net sales                                   $1,440.1         $1,386.4  

---------------------------------------------------------------------------------------

COSTS AND       Cost of goods sold                           1,077.4          1,022.9  
EXPENSES        Marketing, general and administrative                                  
                 expenses                                      332.9            303.3  
                Restructuring                                  (40.3)                  
                Interest expense                                34.3             30.6  
                Equity in income of affiliates                  (4.5)            (3.4) 
                Minority interest                               10.2              9.8  
                Other (income) and expense, net                 86.2             10.6  
                Income taxes                                    15.7              4.1  
                                                            --------         --------  
                                                             1,511.9          1,377.9  
                                                            --------         --------  

---------------------------------------------------------------------------------------

EARNINGS        (Loss) income from continuing operations       (71.8)             8.5  
                Discontinued operations:                                               
                 Loss from operations                                           (17.9) 
                 Loss on disposal                              (58.7)                  
                                                             -------         --------  
                Net loss                                    $ (130.5)        $   (9.4) 
                                                            ========         ========  

---------------------------------------------------------------------------------------

SHARE DATA     (Loss) income from continuing operations    $  (0.51)         $   0.06  
               Discontinued operations:                                                
                 Loss from operations                                           (0.13) 
                 Loss on disposal                              (0.41)                  
                                                            --------         --------  
                Net loss per common share                   $  (0.92)        $  (0.07) 
                                                            ========         ========  

                Cash dividends paid per common share        $  0.075         $  0.150  
                Average number of common shares                                        
                 outstanding during the period                 141.5            141.2  
---------------------------------------------------------------------------------------

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)                                           


BORDEN, INC.                                                                            
                                                                Nine Months Ended       
                                                                  September 30          
                                                          ------------------------------
(In millions except per share data)                           1994             1993     
--------------------------------------------------------------------------------------- 
                                                                                        
REVENUE         Net sales                                  $4,082.1         $4,036.5    
--------------------------------------------------------------------------------------- 

COSTS AND       Cost of goods sold                          3,075.4          2,966.8    
EXPENSES        Marketing, general and administrative                                   
                 expenses                                     858.6            802.6    
                Restructuring                                 (40.3)                    
                Interest expense                               91.9             92.9    
                Equity in income of affiliates                 (9.4)            (9.7)   
                Minority interest                              29.4             30.0    
                Other (income) and expense, net               104.4             28.8    
                Income taxes                                   27.0             42.4    
                                                           --------         --------    
                                                            4,137.0          3,953.8    
                                                           --------         --------    

--------------------------------------------------------------------------------------  

EARNINGS        (Loss) income from continuing operations      (54.9)            82.7    
                Discontinued operations:                                                
                 Loss from operations                                          (46.4)   
                 Loss on disposal                             (58.7)                    
                                                           --------         --------    
                (Loss) income before cumulative effect of                               
                 accounting changes                          (113.6)            36.3    
                Cumulative effect of change in                                          
                 accounting for postemployment                                          
                 benefits                                                      (18.0)   
                                                           --------         --------    
                Net (loss) income                          $ (113.6)        $   18.3    
                                                           ========         ========    

--------------------------------------------------------------------------------------- 

SHARE DATA     (Loss) income from continuing operations    $  (0.39)        $   0.59    
               Discontinued operations:                                                 
                Loss from operations                                           (0.33)   
                Loss on disposal                              (0.41)                    
                                                           --------         --------    
               (Loss) income before cumulative effect of                                
                accounting changes                            (0.80)            0.26    
               Cumulative effect of change in                                           
                accounting for postemployment                                           
                benefits                                                       (0.13)   
                                                           --------         --------    
                Net (loss) income per common share         $  (0.80)        $   0.13    
                                                           ========         ========    

                Cash dividends paid per common share       $  0.225         $  0.750    
                Average number of common shares                                         
                 outstanding during the period                141.5            140.9    
--------------------------------------------------------------------------------------- 

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)                                                                 


BORDEN, INC.                                                                                                      
                                                                                          Nine Months Ended       
                                                                                            September 30          
                                                                                     --------------------------   
(In millions)                                                                           1994         1993         
------------------------------------------------------------------------------------------------------------------
                                                                                                                  
CASH FLOWS                                                                                                        
FROM OPERATING        Cash used in operations                                        $ (49.3)           $  (4.9)  
ACTIVITIES                                                                           -------            -------   
------------------------------------------------------------------------------------------------------------------

CASH FLOWS            Capital expenditures                                            (102.0)            (123.7)  
FROM                  Divestiture of businesses                                        191.8               18.9   
INVESTING                                                                            -------            -------   
ACTIVITIES                                                                              89.8             (104.8)  
                                                                                     -------            -------   
------------------------------------------------------------------------------------------------------------------
CASH FLOWS            Increase (decrease) in short-term debt                            44.4              (58.3)  
FROM                  Reduction in long-term debt                                     (115.1)             (71.7)  
FINANCING             Long-term debt financing                                         220.9              268.9   
ACTIVITIES            Decrease in receivables sold                                    (140.0)                     
                      Dividends paid                                                   (31.8)            (105.6)  
                      Other                                                              1.1                6.8   
                                                                                     -------            -------   
                                                                                       (20.5)              40.1   
                                                                                     -------            -------   
------------------------------------------------------------------------------------------------------------------
                      Increase (decrease) in cash and equivalents                       20.0              (69.6)  
                      Cash and equivalents at beginning                                                           
                       of period                                                       100.3              186.0   
                                                                                     -------            -------   
                      Cash and equivalents at end                                                                 
                       of period                                                     $ 120.3            $ 116.4   
                                                                                     =======            =======   
------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL          Interest paid                                                  $ 109.2            $  94.3   
DISCLOSURES           Income taxes paid                                                 (6.1)              27.3   
OF CASH FLOW                                                                                                      
INFORMATION                                                                                                       
------------------------------------------------------------------------------------------------------------------

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CONSOLIDATED BALANCE SHEETS (UNAUDITED)                                                           

BORDEN, INC.                                                                                      

(In millions)                                                                                     


                                                          September 30             December 31    
                                                         ---------------          -------------   
ASSETS                                                        1994                    1993        
--------------------------------------------------------------------------------------------------
                                                                                                  
CURRENT       Cash and equivalents                          $  120.3                  $  100.3    

ASSETS        Accounts receivable (less allowance                                                 
               for doubtful accounts of $12.5 and                                                 
               $8.9 respectively)                              477.0                     334.7    
              Inventories:                                                                        
               Finished and in-process goods                   359.0                     319.4    
               Raw materials and supplies                      180.5                     171.0    
              Other current assets                             163.5                     142.6    
              Net assets of discontinued operations             70.0                     222.2    
                                                            --------                  --------    
                                                             1,370.3                   1,290.2    
                                                            --------                  --------    
--------------------------------------------------------------------------------------------------

INVESTMENTS   Investments in and advances to                                                      
AND OTHER      affiliated companies                             89.3                      91.3    
ASSETS        Deferred income taxes                            346.7                     225.4    
              Other assets                                     124.7                     126.6    
                                                            --------                  --------    
                                                               560.7                     443.3    
                                                            --------                  --------    
--------------------------------------------------------------------------------------------------

PROPERTY      Land                                             101.4                     105.5    
AND           Buildings                                        595.4                     609.6    
EQUIPMENT     Machinery and equipment                        1,962.9                   1,949.3    
                                                            --------                  --------    
                                                             2,659.7                   2,664.4    
              Less accumulated depreciation                 (1,338.4)                 (1,327.7)   
                                                            --------                ----------    
                                                             1,321.3                   1,336.7    
                                                            --------                ----------    
--------------------------------------------------------------------------------------------------

INTANGIBLES   Intangibles resulting from                                                          
               business acquisitions                           761.8                     801.5    
                                                            --------                  --------    
--------------------------------------------------------------------------------------------------
                                                            $4,014.1                  $3,871.7    
                                                            --------                  --------    


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CONSOLIDATED BALANCE SHEETS (UNAUDITED)                                                     

BORDEN, INC.                                                                                

(In millions except share and per share data)                                               


                                                          September 30          December 31 
                                                        ----------------        ----------- 
LIABILITIES AND SHAREHOLDERS' EQUITY                         1994                  1993     
------------------------------------------------------------------------------------------- 
                                                                                            
CURRENT        Debt payable within one year                $  397.0               $  410.6  
LIABILITIES    Accounts and drafts payable                    507.2                  433.3  
               Restructuring reserve                           63.5                  145.9  
               Income taxes                                    79.0                   56.5  
               Other current liabilities                      371.1                  325.2  
                                                           --------               --------  
                                                            1,417.8                1,371.5  
                                                           --------               --------  

------------------------------------------------------------------------------------------- 

OTHER          Long-term debt                               1,415.5                1,240.8  
               Deferred income taxes                           52.1                   47.1  
               Postretirement benefit obligations             349.1                  353.8  
               Other long-term liabilities                    133.3                  103.8  
               Minority interest                              506.6                  508.8  
                                                           --------               --------  
                                                            2,456.6                2,254.3  
                                                           --------               --------  
------------------------------------------------------------------------------------------- 

SHAREHOLDERS'  Common stock - $0.625 par value                                              
EQUITY          Authorized 480,000,000 shares                                               
                Issued 194,983,374 shares                     121.9                  121.9  
               Paid in capital                                 88.4                   88.1  
               Accumulated translation adjustment            (132.9)                (171.1) 
               Minimum pension liability                      (95.5)                 (95.5) 
               Retained earnings                              689.6                  835.1  
                                                           --------               --------  
                                                              671.5                  778.5  
               Less common stock in treasury (at                                            
                cost) - 53,442,636 shares and                                               
                53,625,339 shares, respectively              (531.8)                (532.6) 
                                                           --------               --------  
                                                              139.7                  245.9  
                                                           --------               --------  
--------------------------------------------------------------------------------------------
                                                           $4,014.1               $3,871.7  
                                                           ========               ========  


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(dollars in millions except per share amounts)

1.   INTERIM FINANCIAL STATEMENTS                                               

The accompanying unaudited interim consolidated financial statements  
  contain all adjustments, consisting only of normal adjustments, which in
the opinion of management are necessary for a fair statement of the   
   results for the interim periods.  Results for the interim periods are not
necessarily indicative of results for the full years.                 

Third quarter 1994 results include a net pretax charge of $181.2.  The
    charges include an addition of $104.5 ($64.8 after tax) to the reserve for
loss on disposal of discontinued operations (primarily related to     
less-than-estimated divestiture proceeds); $3.7 for loss on two other 
  business disposals; $52.2 for transaction fees and expenses with respect
   to Borden's pending merger with an affiliate of Kohlberg Kravis Roberts &
Co. (KKR); $54.4 for the writedown of two partnerships and of goodwill
related to the Fisher cheese brand; and $16.5 for additions to        
   environmental, litigation and idle property reserves.  In arriving at the
  net charge of $181.2, these charges were partially offset by a credit of
$50.1 for the reversal of prior restructuring charges, of which $40.3 
applied to continuing operations and $9.8 applied to discontinued     
operations.                                                           

The net pretax charge of $181.2 is recorded in the income statement as
follows: $28.9 is in marketing, general and administrative expenses; a
    credit of $40.3 is in restructuring; $97.9 is included in other income and
expense; and $94.7 is included in discontinued operations.            

2.   ACQUISITION AND MERGER                                                     

    On September 23, 1994 the Company entered into a merger agreement ("Merger
    Agreement") providing for the acquisition of all of the outstanding common
stock of the Company by an affiliate of Kohlberg Kravis Roberts & Co. 
(together with its affiliates, unless the context otherwise requires, 
    "KKR") in exchange for RJR Nabisco Holdings Corp. (RJR) common stock owned
by KKR and its affiliates.                                            

The Merger Agreement provides for an exchange offer by KKR in which   
holders of the Company's common stock would have the right to exchange
   their shares for RJR common stock valued at $14.25 per Borden share.  The
  exact number of RJR shares to be exchanged for each Borden share will be
based on the average price of RJR common stock during a 10-day trading
period.  However, in no event will the Company's stockholders receive 
  greater than 2.375 RJR shares, or fewer than 1.78125 RJR shares for each
Borden share.                                                         

   On September 23, 1994 the Company and KKR also entered into a Conditional
Purchase/Stock Option Agreement under which KKR was granted a right to
 purchase from the Company at $11.00 per share, newly issued or treasury
shares of the Company equal to 19.9% of the Company's currently       
    outstanding shares payable in RJR stock.  If the option is exercised prior
   to the close of the exchange offer, KKR must purchase at least 41% of the
 Company's outstanding common stock in the exchange offer if it acquires
   any shares in the exchange offer.  If KKR acquires at least 41%, but less

                                                            Page 7 of 16

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    than or equal to 50%, of the Company's common stock in the exchange offer,
 the option must be exercised by KKR, to the extent necessary for KKR to
own more than 50% of the Company's outstanding common stock.  If KKR  
    purchases at least 41% of the outstanding shares in the exchange offer, it
must pursue subject to any required shareholder approval, a merger in 
    which all remaining shares of the Company's common stock will be converted
into the same number of RJR shares as were paid in the exchange offer.

On September 29, 1994, the Company filed with the Federal Trade       
  Commission ("FTC") and the U.S. Department of Justice Antitrust Division
(the "Antitrust Division") a Premerger Notification and Report Form in
 connection with the proposed KKR transaction.  On October 19, 1994, the
Company and KKR each received a request from the FTC for additional   
  information and documentary material, this matter having been cleared to
 the FTC by the Antitrust Division, and KKR responded to such request on
November 4, 1994. Accordingly, the exchange of Borden common stock    
    pursuant to the exchange offer may not be consummated until the expiration
of a 20-calendar day waiting period following the date of substantial 
  compliance by KKR with such request, unless the waiting period is sooner
 terminated by the FTC. Thereafter, the waiting period could be extended
 only by court order. Borden is currently engaged in complying with this
request. While the Company has a duty substantially to comply with the
    request within a reasonable period of time, its compliance does not affect
the waiting period.                                                   

In the Merger Agreement, the Company has agreed to make any and all   
   divestitures or undertakings required by the FTC, or any other applicable
    governmental entity in connection with the proposed KKR transaction, which
divestitures in each case shall be reasonably acceptable to KKR.      

3.   DISCONTINUED OPERATIONS                                                    

 In December 1993 the Company recorded a pretax charge of $637.4, $490.0
    after tax, to accrue the estimated cost of a business divestiture program.
   The estimated cost of the program included operating losses from December
    31, 1993 to date of disposal of $78.1.  An additional charge of $104.5 was
recorded in third quarter 1994.                                       

    Businesses divested as of September 30, 1994 include seafood, foodservice,
  jams and jellies, sauces, mashed potatoes, model kits, hobby paints, and
various snack businesses.  Year to date proceeds for discontinued     
  operations and other divestitures total $191.8, including $146.4 million
 from discontinued operations and $45.4 million from other divestitures.
   Pretax losses on disposal of $328.1 and pretax operating losses of $61.8,
  severance and other costs of $9.2 have been charged to the reserve as of
 September 30, 1994, which are in line with estimates as adjusted in the
    third quarter.  The remaining reserve at September 30, 1994 includes $16.2
for future operating losses until disposal of discontinued operations.

Management believes that the sale or closure of the discontinued      
operations will be substantially complete by late 1994 or early 1995. 

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PART I FINANCIAL INFORMATION
----------------------------

Item 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND        
RESULTS OF OPERATIONS                                         

ACQUISITION AND MERGER                                                          

On September 23, 1994 the Company entered into a merger agreement providing for 
the acquisition of all of the outstanding common stock of the Company by a      
Kohlberg Kravis Roberts & Co. affiliate in exchange for RJR Nabisco Holdings    
Corp. common stock owned by KKR and its affiliates.  See Note 2 to the          
Consolidated Financial Statements.                                              

RESULTS OF OPERATIONS                                                           

QUARTER ENDED SEPTEMBER 30, 1994 VERSUS QUARTER ENDED SEPTEMBER 30, 1993        

Net sales from continuing operations for the quarter ended September 30, 1994   
increased 3.9% to 1.44 billion from $1.39 billion in 1993.  The Company         
reported a net loss for third quarter 1994 of $130.5 million, or $0.92 per      
share, compared with a restated net loss of $9.4 million, or $0.07 per share,   
in 1993 primarily as a result of net pretax charges of $181.2 million.  These   
charges include an addition of $104.5 million ($64.8 million after tax) to the  
reserve for loss on disposal of discontinued operations (primarily related to   
less-than-estimated divestiture proceeds); $3.7 million for loss on two other   
business disposals; $52.2 million for transaction fees and expenses with        
respect to Borden's pending merger with an affiliate of KKR; $54.4 million for  
the writedown of two partnerships and of goodwill related to the Fisher cheese  
brand; and $16.5 million for additions to environmental, litigation and idle    
property reserves.  These charges were partly offset by a credit of $50.1       
million for the reversal of prior restructuring charges.  Management reviewed   
the prior restructuring programs in light of recent events and determined that  
portions of the reserves for these programs would not be utilized.              

The loss from continuing operations for third quarter 1994 was $71.8 million    
compared to income from continuing operations of $8.5 million in 1993.          
Division operating income in third quarter 1994 increased 21.3% to $75.3        
million from $62.0 million in 1993.  The 1994 amount includes a $23.9 million   
credit for the reversal of prior restructuring charges and a $28.9 million      
charge for the write-off of cheese goodwill.                                    

The reversal of prior restructuring charges is allocated by division as         
follows:                                                                        

North American Foods        $   8.6   
International Foods             1.7   
Packaging                      13.6   
Corporate                      16.4   
                            ----
Continuing Operations          40.3   
Discontinued Operations         9.8   
                            ----
TOTAL                     $  50.1 
                            ====
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North American Foods sales decreased 1.3% to $680.2 million from $689.1 million 
in 1993 primarily as a result of 1993 divestitures and decreased sales for most 
niche grocery products, partially offset by slightly higher sales for pasta and 
dairy products.  Including the write-off of cheese goodwill and a credit of     
$8.6 million for the reversal of prior restructuring charges, the 1994          
operating loss was $7.4 million compared to an operating loss of $2.9 million   
in 1993.  The increased operating loss was primarily due to substantial losses  
in dairy, and income declines in pasta products as a result of continued high   
durum wheat costs.  Income was down slightly in niche grocery products as a     
result of higher marketing costs associated with the introduction of an Eagle   
Brand sweetened milk line extension, partially offset by improvements in        
Cremora non-dairy creamer, Cracker Jack products, ReaLemon juice and Wyler's    
and Steero bouillon.                                                            

International Foods sales increased 0.4% to $232.4 million from $231.4 million  
in 1993.  The increase is due to higher sales in the European bakery, grocery   
and pasta businesses, partially offset by decreases in international milk       
powder sales.  Including a credit of $1.7 million for the reversal of prior     
restructuring charges, operating income declined 14.7% to $19.0 million from    
$22.2 million in 1993 as a result of declines in the European bakery and Latin  
American food businesses, partially offset by improvements in the KLIM milk     
powder export business.                                                         

Packaging and Industrial Products sales increased 13.2% to $527.5 million from  
$466.0 million in 1993.  The increase is primarily the result of higher sales   
in worldwide resins, Latin American operations and plastic film and packaging   
products.  Including a credit of $13.6 million for the reversal of prior        
restructuring charges, operating income increased 49.4% to $63.7 million from   
$42.7 million in 1993 as a result of increased income contributions from Borden 
Chemicals and Plastics Limited Partnership and improvements in Latin American   
operations and worldwide resins, partially offset by slight declines in         
non-food consumer products and plastic film and packaging products.             

Net sales of discontinued operations decreased 34.3% to $196.9 million from     
$299.8 million in 1993 primarily as a result of the divestitures of the         
foodservice, clam products, and jam and jellies businesses.  The net loss from  
discontinued operations was $7.4 million compared to $17.9 million in 1993.     
The net loss has been charged against the reserve for loss on discontinued      
operations.  The 1994 loss is in line with the estimates made to establish the  
reserve.                                                                        

In November 1994, the Company announced a reorganization which will result in a 
reduction of staff by approximately 200 positions.  As a result, a charge to    
income will be recorded in the fourth quarter for an as yet undetermined        
amount.                                                                         

NINE MONTHS ENDED SEPTEMBER 30, 1994 VERSUS NINE MONTHS ENDED SEPTEMBER 30,     
1993                                                                            

Net sales from continuing operations for the nine months ended September 30,    
1994 increased 1.1% to $4.08 billion from $4.04 billion in 1993.  As a result   
of the previously mentioned charges, the Company recorded a net loss for the    
first nine months of 1994 of $113.6 million, or $0.80 per share, compared to    
restated net income of $18.3 million, or $0.13 per share, in 1993.  Results for 
1994 include a $58.7 million loss on disposal of discontinued operations while  
the 1993 results include a $46.4 million loss from discontinued operations and  
an $18.0 million charge for the cumulative effect of an accounting change.  The 
loss from continuing operations for the first nine months of 1994 was $54.9     
million compared to income from continuing operations of $82.7 million in 1993. 
Including                                                                       

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the reversal of prior restructuring charges, division operating income          
decreased 28.3% to $195.2 million from $272.0 million in 1993.                  

Generally the explanations previously discussed for the quarter ended September 
30, 1994 also apply to the nine month period ended September 30, 1994.          

LIQUIDITY AND CAPITAL RESOURCES                                                 

Cash used in operating activities during the first nine months of 1994 was      
$49.3 million compared to $4.9 million for the first nine months of 1993.  The  
decrease in operating cash flows primarily reflects the decline in operating    
results, partially offset by reduced working capital requirements.              

Capital expenditures for new facilities and improvements to existing facilities 
were $102.0 million in 1994 compared to $123.7 million in 1993.  The reduced    
capital spending in 1994 reflects efforts at cash conservation and the effect   
of discontinued operations.                                                     

Cash provided by the divestiture of businesses was $191.8 million in 1994 and   
$18.9 million in 1993.  The 1994 proceeds include the sale of the seafood,      
foodservice, jams and jellies, sauces, mashed potatoes, model kits, hobby       
paints and various snack businesses.  Divestitures in 1993 consisted of two     
snack and one candy businesses.                                                 

Short term debt increased $44.4 million in 1994 compared to a decrease of $58.3 
million in 1993.  A portion of the 1994 increase is due to lower sales of       
accounts receivable.  Sales of accounts receivable are made without recourse    
and there is no provision in the sales agreement for repurchasing sold          
receivables.  The decrease in 1993 reflects repayment of commercial paper with  
proceeds from long-term debt financing.                                         

In August 1994 the Company entered into a $1.4 billion, 2-1/2 year              
credit facility arranged by Citibank and Credit Suisse.  The facility provides  
for direct borrowings, sale of up to $300 million of accounts receivable, and   
back up for commercial paper borrowings.  This facility replaces a revolving    
facility that expired in September and other backup credit facilities,          
consolidates other financings in place and provides for the normal financing    
requirements of the businesses.  Also included in the $1.4 billion facility was 
a separate agreement for the  refinancing of the credit agreement of T.M.       
Investors Limited Partnership.                                                  

The 1994 long-term debt financing includes borrowings under the $1.4 billion    
credit facility.  The 1993 long-term debt financing includes proceeds from a    
$250.0 million issuance of 30-year, 7 7/8% debentures.                          

At September 30, 1994 the Company's current maturities of long-term debt        
totaled $40.5 million, while short term obligations relating to agreements      
which must be settled within one year were $156.6 million.  The Company expects 
to satisfy its debt repayment obligations over the next twelve months using     
cash flows from operations, net proceeds in excess of $200 million from several 
pending dispositions where the Company has either signed contracts or oral      
agreements, and amounts borrowed under its credit agreements.  At October 22,   
1994 the Company had available $50.7 million under the $1.4 billion credit      
facility, and $259.8 million under various advised foreign bank lines of        
credit.                                                                         

The Company's new credit facility contains certain restrictive covenants that,  
among other things, limit the ability of the Company to incur indebtedness, pay 

                                                             Page 11 of 16

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dividends, create liens, engage in mergers and consolidations and sell          
or transfer assets.  The Company anticipates that either a new financing        
facility will be put in place before the consummation of the transaction with   
KKR or, in connection with a commitment for a facility to be put in place after 
the consummation of the transaction with KKR, the Company will obtain a waiver  
of these covenants.                                                             

Upon the occurrence of both a change of control and a downgrade of the          
Company's long term debt rating, the Company may be required to purchase all or 
part of its approximately $48.7 million of outstanding 9 1/4% sinking fund      
debentures.  Also upon a change of control, the Company is obligated to offer   
to purchase $150 million of outstanding senior notes of Borden Chemicals and    
Plastics Limited Partnership.  The Company anticipates entering into an         
arrangement with the holders of the securities under which a premium would be   
paid but the Company would not be required to purchase the notes.               

Under the Merger Agreement, KKR's obligation to consummate the exchange offer   
is conditioned upon, among other matters, (i) the obtaining of all consents and 
waivers on terms satisfactory to KKR necessary in order that the consummation   
of the transactions contemplated by the Merger Agreement and the Conditional    
Purchase/Stock Option Agreement not constitute (A) an event of default or an    
event which with or without notice or the passage of time would constitute an   
event of default under any indebtedness, partnership agreement or               
equityholders' agreement of the Company or any subsidiary (or Borden Chemicals  
and Plastics Limited Partnership, Borden Chemicals and Plastics Operating       
Limited Partnership and T.M. Investors Limited Partnership) ("Indebtedness"),   
including, without limitation, the Company's $1.4 billion credit facility, or   
(B) an event which would individually or in combination with other events give  
rise to an obligation on the part of the Company to repay or repurchase any     
Indebtedness, partnership interest or equity interest, which event of default   
or other event described in clause (A) or (B) above would give rise to, with or 
without notice or the passage of time and taking into account any               
cross-acceleration or cross-default provisions, the obligation to repay prior   
to maturity or the acceleration of an aggregate of at least $25 million of      
Indebtedness or other obligations; and (ii) the Company having refinanced, or   
received commitments for refinancing or indications satisfactory to KKR from    
lenders that it will be able to refinance, in each case on market terms         
reasonably acceptable to KKR, the principal bank credit facilities of the       
Company and T.M.  Investors Limited Partnership, provided that such refinancing 
shall not be required to increase the available lines of credit under such      
facilities except to meet the working capital and other reasonable needs of the 
Company and its subsidiaries and shall principally be related to extending      
maturities and renegotiating repayment schedules under such facilities as       
appropriate to meet the business plan as determined by KKR and the Company.     

The Merger Agreement also contains covenants restricting the conduct of the     
business of the Company.  Under the Merger Agreement, the Company has agreed,   
among other things, to (i) redeem all outstanding Preferred Share Purchase      
Rights at a redemption price of one and two-thirds cents per Right effective    
immediately prior to the acceptance of exchange of any shares pursuant to the   
exchange offer so long as certain conditions to the offer are met; (ii) redeem  
all outstanding shares of Series B Preferred Stock at a redemption price of $39 
per share plus accrued interest prior to any record date in connection with the 
merger provided that certain conditions to the offer are met; and (iii) not     
declare or pay quarterly dividends on common stock in excess of $0.01 per share.
On October 26, 1994 the Company announced that its Board of Directors had       
declared a quarterly dividend on the common stock of $0.01 per share, reduced   
from $0.075 per share for the prior quarter of 1994.                            

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PART II OTHER INFORMATION 
------------------------- 

Item 3:  LEGAL PROCEEDINGS                                                      

ENVIRONMENTAL PROCEEDINGS                                                       
-------------------------                                                       
The Company has been notified that it is or may be a potentially responsible    
party with respect to the cleanup of certain waste sites (currently             
approximately 50 in number) in proceedings brought under the Comprehensive      
Environmental Response, Compensation and Liability Act ("CERCLA") or similar    
state environmental laws.  While the Company cannot predict with certainty the  
total cost of such cleanup, 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.                                                             

The Company has established reserves for environmental remediation costs        
for these and other sites in amounts which 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 that may prove insignificant  
or by amounts, in the aggregate, up to approximately $40 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.  No attempt has been made to discount the estimated amounts to net       
present value, and no amounts have been recorded for potential recoveries from  
insurance carriers.  Based upon previous experience and the information         
presently available, however, management believes that, as of the date hereof,  
future costs incurred will not have a material adverse effect on the financial  
condition of the Company.                                                       

Private actions against the Company and numerous other defendants  are          
currently 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. Similar actions are pending in state court in Camden, New Jersey  
in connection with a waste disposal site in New Jersey and in state court in    
Los Angeles, California in connection with a landfill site in Monterey Park,    
California (September 1994).                                                    

The U.S. Environmental Protection Agency ("EPA") has issued a notice of         
violation alleging the violation of air pollution regulations by a plant in     
Massachusetts (September 1988).                                                 

A notice of violation has been issued by the Maine Department of Environmental  
Protection (April 1991) alleging the violation of certain solid waste and       
wetlands regulations at a Scarborough, Maine facility.                          

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A notice of violation has been issued by the Puerto Rican sewer and water       
authority (July 1994) alleging violations of wastewater regulations by an ice   
cream plant in Mantecados Nevada, Puerto Rico.                                  

Borden Chemicals and Plastics Limited Partnership                               

In 1987, the Company's basic chemical and PVC resin businesses located at       
Geismar, Louisiana and Illiopolis, Illinois were acquired by the Borden         
Chemicals and Plastics Limited Partnership ("BCP").  Under an Environmental     
Indemnity Agreement ("EIA"), the Company has agreed, subject to certain         
conditions and limitations, to indemnify BCP from certain environmental         
liabilities arising from facts or circumstances that existed and requirements   
in effect prior to November 30, 1987, and share on an equitable basis those     
arising from facts or circumstances existing and requirements in effect both    
prior to and after such date.  No claim can be made by BCP under the EIA after  
November 30, 2002 and no claim can, with certain exceptions, be made with       
respect to the first $500,000 of liabilities which Borden would otherwise be    
responsible for thereunder in any year, but such excluded amounts may not       
exceed $3.5 million in the aggregate.  Excluded amounts under the EIA have      
aggregated approximately $2.0 million through September 30, 1994.  Accordingly, 
certain BCP legal proceedings are discussed below.                              

In February 1993, an EPA Administrative Law Judge held that the Illiopolis,     
Illinois facility had violated CERCLA and the Emergency Planning and Community  
Right to Know Act ("EPCRA") by failing to report certain relief valve releases  
which occurred between February 1987 and July 1989, that BCP and the Company    
believe are exempt from CERCLA and EPCRA reporting.  BCP's petition for         
reconsideration was denied, a penalty hearing will be scheduled and further     
appeals are possible if the parties cannot reach an agreement.  Management does 
not believe that any ultimate penalty arising from this proceeding would have a 
material adverse effect on the Company.                                         

On October 27, 1994, the U.S. Department of Justice ("DOJ") acting on behalf of 
the EPA, filed an action against BCP and its General Partner, BCP Management,   
Inc., a wholly owned subsidiary of the Company, in U.S. District Court for the  
Middle District of Louisiana.  The Complaint seeks civil penalties for alleged  
violations of the Resource Conservation and Recovery Act ("RCRA"), CERCLA and   
the Clean Air Act as well as corrective action, at the Geismar facility.  BCP   
plans to vigorously defend against all the allegations.  If BCP is unsuccessful 
in defending itself against the allegations, it could be subject to penalties,  
costs for corrective action and costs needed to obtain a RCRA permit.           

As to penalties, although the maximum statutory penalties that would apply in a 
successful enforcement action by the government could be in excess of $150.0    
million, BCP believes, assuming it is unsuccessful and based on information     
currently available to it, that the more likely amount of any liability for     
civil penalties would not exceed several million dollars.                       

If unsuccessful, BCP could also be subject to costs for facility-wide           
corrective action to address the contamination at the Geismar complex.  The     
cost of any corrective action could be significant, depending on the scope of   
such corrective action which cannot be determined at this time.                 

The extent to which any costs that may be incurred by BCP in any of the above   
described legal proceedings will be subject to the EIA will depend, in large    

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part, on whether such costs or penalties are attributable to facts or           
circumstances that existed and requirements in effect prior to November 30,     
1987.                                                                           

OTHER LEGAL PROCEEDINGS                                                         
-----------------------                                                         
The States of West Virginia, Ohio and Louisiana have filed suits (12/93, 8/93   
and 10/94) alleging antitrust violations in connection with the sale of milk to 
schools in certain of their school districts.  A private antitrust suit filed   
in Federal Court in Oklahoma (4/93) on behalf of four school districts sought,  
but was denied, class action certification.  Although Federal Grand Jury        
investigations are pending in Oklahoma (8/92), Ohio (2/93) and the Plains       
States (9/93), only the Plains States investigation is continuing.  Private     
antitrust suits alleging price fixing of wholesale/retail accounts have been    
filed in Florida (7/93) and W. Virginia (9/93).                                 

The Company is a defendant in litigation in Montreal, Canada involving          
allegations of personal injury or property damage arising from the              
misapplication of, or defects in, a urea-formaldehyde foam insulation product   
which the Company manufactured from 1973 through 1980.  The litigation, which   
was tried from September 1983 through December 1989, was dismissed by the trial 
court in December 1991.  An Appeal filed by plaintiffs will be heard in the     
second half of 1995.                                                            

The Company and its Directors have been sued in Federal District Court in New   
York (December 1993) for alleged violations of the Securities Exchange Act of   
1934 in connection with certain 1993 financial projections.                     

Twelve class actions have been filed by purported Company shareholders in the   
New Jersey and Ohio state courts against the Company, members of the Board and, 
in five of the New Jersey cases, KKR.  These actions allege, among other        
things, that the Company is being sold at too low a price, and that the         
Company's directors have breached their fiduciary duties by failing to          
"auction" the Company and by "locking up" a transaction that is not in the best 
interests of shareholders. KKR is alleged to have aided and abetted these       
breaches of fiduciary duty.  The complaints seek preliminary and permanent      
relief, including a preliminary injunction, damages in an unspecified amount    
and attorneys' fees. The parties have agreed to consolidate all pending New     
Jersey actions into one action in Mercer County.  The Ohio cases have been      
stayed pursuant to a court order pending resolution of the New Jersey           
consolidated action.                                                            

The Company has also been named as a defendant in a shareholder derivative      
action filed against RJR in the Court of Chancery of the State of Delaware.     
That action alleges that the proposed acquisition by RJR of a stake in the      
Company constitutes a breach of the fiduciary duty of loyalty of RJR's Board of 
Directors because the transaction is unfair to the public shareholders of RJR.  
The complaint seeks to enjoin RJR's purchase of Company shares and damages in   
an unspecified amount.                                                          

The Company is involved in other litigation throughout the United States which  
is considered to be in the ordinary course of the Company's business.           

The Company believes, based upon the information it presently possesses, and    
taking into account its established reserves for estimated liability and its    
insurance coverage, that the ultimate outcome of the foregoing proceedings and  
actions is unlikely to have a materially adverse effect on the Company's        
financial position or operating results.                                        

                                                             Page 15 of 16

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Item 6:  EXHIBITS AND REPORTS ON FORM 8-K                                       

a.   Exhibits                                                 

            10.   Amended and Restated Credit Agreement of the Company dated
as of August 16, 1994.                  

27.   Financial Data Schedule                       

b.   Reports on Form 8-K                                      

 On September 12, 1994 the Registrant filed a Form 8-K
      announcing that a letter of intent had been signed for the
             acquisition of the  Registrant by a Kohlberg Kravis Roberts & Co.
(KKR) affiliate.                                    

            On September 27, 1994 the Registrant filed a Form 8-K announcing
     the signing of a formal agreement and plan of merger with
Whitehall Associates, L.P., a KKR affiliate.        

SIGNATURE 

Pursuant to the requirements of the Securities Exchange Act of 1934, the        
Registrant has duly caused this report to be signed on its behalf by the        
undersigned thereunto duly authorized.                                          

                    BORDEN, INC.

Date:  November 14, 1994                    By /s/ James C. Van Meter           
                                          ----------------------------
                                James C. Van Meter
                                          Executive Vice President and
                                         Chief Financial Officer
                                              (Principal Financial Officer and
                                              duly authorized signing officer)

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	11/30/02	14
Filed on:	11/14/94	16
	11/4/94	8
	10/27/94	14
	10/26/94	12
	10/22/94	1	11
	10/19/94	8
For Period End:	9/30/94	1	14	10-Q/A
	9/29/94	8
	9/27/94	16		8-K
	9/23/94	7	9
	9/12/94	16		8-K
	8/16/94	16
	12/31/93	8		10-K
	9/30/93	9	10
				List all Filings

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Momentive Specialty Chemicals Inc. – ‘10-Q’ for 9/30/94

As of: Monday, 11/14/94 · For: 9/30/94 · Accession #: 950152-94-1162 · File #: 1-00071

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