UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                    FORM 10-Q



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

For  the  quarterly  period  ended               June  30,  2000
                                                 ---------------


Commission  file  number                          I-71
                                                 ---------------


                                  BORDEN, INC.



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


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

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

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


Indicate  by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports)  and  (2)  has  been  subject  to such filing
requirements  for  the  past  90  days.
Yes  X  No
    --    --

Number  of  shares of common stock, $0.01 par value, outstanding as of the close
of  business  on  August  14,  2000:
198,974,994














                                        1

BORDEN, INC. INTRODUCTION The following filing with the Securities and Exchange Commission ("SEC") by Borden, Inc. ("the Company") presents four separate financial statements: Borden, Inc. Condensed Consolidated Financial Statements, Borden, Inc. and Affiliates Condensed Combined Financial Statements, the Condensed Financial Statements of Wise Holdings, Inc. ("Wise Holdings") and the Condensed Financial Statements of Borden Foods Holdings Corporation ("Foods Holdings"). The consolidated statements present the Company after the effect of the sales of (i) the Company's former salty snacks business ("Wise") to Wise Holdings and its subsidiaries and (ii) the Company's former domestic and international foods business ("Foods") to Foods Holdings and its subsidiaries, as explained in Note 1 to the consolidated and combined financial statements. The Company, Wise Holdings, and Foods Holdings are controlled by BW Holdings, LLC ("BWHLLC"). The consolidated financial statements are those of the Company, which is the SEC Registrant. The Borden, Inc. and Affiliates ("the Combined Companies") Condensed Combined Financial Statements are included herein to present the Company on a combined historical basis, including the financial position, results of operations and cash flows of Wise and Foods. The Combined Companies' financial statements are included, supplementally, to present financial information on a basis consistent with that on which credit was originally extended to the Company (prior to push down accounting) and because management of the Company will continue to control significant financial and managerial decisions with respect to Wise Holdings and Foods Holdings. Also, in accordance with rule 3-10 of Regulation S-X, the Condensed Financial Statements of Wise Holdings and Foods Holdings are included in Part II of this Quarterly Report on Form 10-Q because Wise Holdings and Foods Holdings are guarantors of the Company's credit facility and all of the Company's outstanding publicly held debt. 2

BORDEN, INC. INDEX PART I - FINANCIAL INFORMATION ITEM 1. BORDEN, INC. ("BORDEN") CONDENSED CONSOLIDATED AND BORDEN, INC. AND AFFILIATES CONDENSED COMBINED FINANCIAL STATEMENTS Condensed Consolidated Statements of Operations and Comprehensive Income, three months ended June 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 six months ended June 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Condensed Consolidated Balance Sheets, June 30, 2000 and December 31, 1999. . . . . . . . . . . . . 8 Condensed Consolidated Statements of Cash Flows, six months ended June 30, 2000 and 1999. . . . . . 10 Condensed Consolidated Statement of Shareholders' Equity, six months ended June 30, 2000. . . . . . 12 Condensed Combined Statements of Operations and Comprehensive Income, three months ended June 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 six months ended June 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Condensed Combined Balance Sheets, June 30, 2000 and December 31, 1999. . . . . . . . . . . . . . . 15 Condensed Combined Statements of Cash Flows, six months ended June 30, 2000 and 1999. . . . . . . . 17 Condensed Combined Statement of Shareholders' Equity, six months ended June 30, 2000. . . . . . . . 19 Notes to Condensed Consolidated and Condensed Combined Financial Statements . . . . . . . . . . . . 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . 24 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ITEM 6. EXHIBITS, GUARANTOR FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. . . . . . . . . . 34 3

- ------------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) BORDEN, INC. Three months ended June 30, (In millions) 2000 1999 - ------------------------------------------------------------------------------------------------------ Net sales $384.5 $343.9 Cost of goods sold 268.0 229.9 ------- ------- Gross margin 116.5 114.0 ------- ------- Distribution expense 15.6 14.1 Marketing expense 24.5 19.9 General & administrative expense 37.9 25.5 Gain on sale of assets (10.4) (1.6) Business realignment 9.0 10.0 ------- ------- Operating income 39.9 46.1 ------- ------- Interest expense 14.6 15.7 Affiliated interest expense, net of affiliated interest income of $0.1 in 2000 and $0.2 in 1999 4.2 5.2 Interest income and other (4.6) (8.9) Equity in net income of unconsolidated subsidiaries (0.5) (1.4) ------- ------- Income from continuing operations before income tax 26.2 35.5 Income tax expense 13.8 12.9 ------- ------- Income from continuing operations 12.4 22.6 ------- ------- Gain on disposal of discontinued operations, net of tax 93.0 0.6 ------- ------- Net income 105.4 23.2 Preferred stock dividends (18.5) (18.5) ------- ------- Net income applicable to common stock $ 86.9 $ 4.7 ======= ======= Comprehensive income (see Note 4) $ 99.9 $ 33.5 ======= ======= - ------------------------------------------------------------------------------------------------------ See Notes to Condensed Consolidated and Condensed Combined Financial Statements 4

- ------------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (CONTINUED) BORDEN, INC. Three months ended June 30, (In millions, except per share data) 2000 1999 - ------------------------------------------------------------------------------------------------------ Basic and Diluted Per Share Data - ----------------------------------- Income from continuing operations $ 0.06 $ 0.12 Gain on disposal of discontinued operations, net of tax 0.47 - ------- ------- Net income 0.53 0.12 Preferred stock dividends (0.09) (0.09) ------- ------- Net income applicable to common stock $ 0.44 $ 0.03 ======= ======= Dividends per common share $ 0.06 $ 0.06 Dividends per preferred share $ 0.75 $ 0.75 Average number of common shares outstanding during the period 199.0 199.0 - ----------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 5

- ----------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) BORDEN, INC. Six months ended June 30, (In millions) 2000 1999 - ----------------------------------------------------------------------------------------------------- Net sales $737.2 $650.8 Cost of goods sold 514.6 441.7 ------- ------- Gross margin 222.6 209.1 ------- ------- Distribution expense 31.2 26.1 Marketing expense 42.6 35.7 General & administrative expense 75.5 56.8 Gain on sale of assets (10.3) (1.8) Business realignment 11.8 10.0 ------- ------- Operating income 71.8 82.3 ------- ------- Interest expense 29.3 31.0 Affiliated interest expense, net of affiliated interest income of $0.2 in 2000 and 1999 8.3 10.0 Interest income and other (10.8) (17.6) Equity in net (income) loss of unconsolidated subsidiaries (0.9) 3.9 ------- ------- Income from continuing operations before income tax 45.9 55.0 Income tax expense 21.2 19.1 ------- ------- Income from continuing operations 24.7 35.9 ------- ------- Gain on disposal of discontinued operations,net of tax 93.0 0.6 ------- ------- Net income 117.7 36.5 Preferred stock dividends (36.9) (36.9) ------- ------- Net income (loss) applicable to common stock $ 80.8 $ (0.4) ======= ======= Comprehensive income (see Note 4) $109.8 $ 29.1 ======= ======= - ----------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 6

- --------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (CONTINUED) BORDEN, INC. Six months ended June 30, (In millions, except per share data) 2000 1999 - --------------------------------------------------------------------------------------------------- Basic and Diluted Per Share Data - ----------------------------------- Income from continuing operations $ 0.12 $ 0.18 Gain on disposal of discontinued operations, net of tax 0.47 - ------- ------- Net income 0.59 0.18 Preferred stock dividends (0.18) (0.18) ------- ------- Net income applicable to common stock $ 0.41 $ - ======= ======= Dividends per common share $ 0.19 $ 0.12 Dividends per preferred share $ 1.50 $ 1.50 Average number of common shares outstanding during the period 199.0 199.0 - --------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 7

- ------------------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) BORDEN, INC. (In millions) June 30, December 31, ASSETS 2000 1999 - ------------------------------------------------------------------------------------------------------------ CURRENT ASSETS Cash and equivalents $ 32.0 $ 195.2 Accounts receivable (less allowance for doubtful accounts of $10.8 in 2000 and $11.8 in 1999) 303.0 215.0 Loan receivable from affiliate 58.4 56.2 Inventories: Finished and in-process goods 72.3 62.8 Raw materials and supplies 49.8 50.4 Deferred income taxes 46.2 42.4 Other current assets 14.3 15.3 ---------- ----------- 576.0 637.3 ---------- ----------- INVESTMENTS AND OTHER ASSETS Investments 64.0 64.0 Investment in affiliate 55.7 51.5 Deferred income taxes 27.0 109.5 Prepaid pension assets 125.3 129.7 Other assets 44.0 36.3 Assets sold under contractual arrangement (net of allowance of $62.6 in 2000 and 1999) 46.0 48.2 ---------- ----------- 362.0 439.2 ---------- ----------- PROPERTY AND EQUIPMENT Land 25.6 25.6 Buildings 103.5 97.9 Machinery and equipment 728.3 739.1 ---------- ----------- 857.4 862.6 Less accumulated depreciation (319.2) (323.8) ---------- ----------- 538.2 538.8 INTANGIBLES 186.2 112.1 ---------- ----------- TOTAL ASSETS $ 1,662.4 $ 1,727.4 ========== =========== - ------------------------------------------------------------------------------------------------------------ See Notes to Condensed Consolidated and Condensed Combined Financial Statements 8

- --------------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) BORDEN, INC. (In millions, except share data) June 30, December 31, LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 - --------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts and drafts payable $ 153.3 $ 137.4 Debt payable within one year 20.6 17.7 Income taxes payable 87.2 244.1 Loans payable to affiliates 237.1 246.6 Other current liabilities 182.7 178.6 --------- --------- 680.9 824.4 --------- --------- OTHER LIABILITIES Liabilities sold under contractual arrangement 41.6 41.6 Long-term debt 588.7 541.1 Non-pension post-employment benefit obligations 170.0 176.1 Other long-term liabilities 66.7 80.0 --------- --------- 867.0 838.8 --------- --------- COMMITMENTS AND CONTINGENCIES (see Note 6) SHAREHOLDERS' EQUITY Preferred stock - Issued 24,574,751 shares 614.4 614.4 Common stock - $0.01 par value: authorized 300,000,000 shares, Issued 198,974,994 shares 2.0 2.0 Paid in capital 333.1 355.7 Receivable from parent (414.9) (414.9) Accumulated other comprehensive income (60.4) (52.5) Accumulated deficit (359.7) (440.5) --------- --------- 114.5 64.2 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,662.4 $1,727.4 ========= ========= - --------------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 9

- ------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) BORDEN, INC. Six months ended June 30, (In millions) 2000 1999 - ------------------------------------------------------------------------------------ CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net income $ 117.7 $ 36.5 Adjustments to reconcile net income to net cash from (used in) operating activities: Gain on disposal of discontinued operations, net of tax (93.0) (0.6) Gain on sale of assets (10.3) (1.8) Business realignment 11.8 10.0 Deferred tax provision (benefit) 75.2 (7.7) Depreciation and amortization 28.2 24.2 Unrealized gain on interest rate swap (4.0) (6.2) Equity in net (income) loss of unconsolidated subsidiaries (0.9) 3.9 Net change in assets and liabilities: Trade receivables (40.0) (25.4) Inventories (1.7) 4.5 Accounts and drafts payable 17.6 3.8 Income taxes (66.2) 7.1 Other assets 4.2 6.7 Other liabilities (12.0) (25.1) -------- ------- 26.6 29.9 -------- ------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capital expenditures (41.7) (24.1) Proceeds from the sale of assets 7.2 0.3 Purchase of businesses, net of cash acquired (88.0) (40.2) Purchase of affiliate's receivables (50.0) - Net investment from (in) affiliate 2.2 (1.9) -------- ------- (170.3) (65.9) -------- ------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Net short-term debt borrowings (repayments) 13.2 (6.0) Borrowings of long-term debt 48.0 - Repayment of long-term debt (10.7) (0.3) Affiliated repayments (9.8) (12.9) Interest received from parent 24.2 24.6 Common stock dividends paid (37.2) (24.6) Preferred stock dividends paid (36.9) (36.9) Other distributions (10.3) - -------- ------- (19.5) (56.1) -------- ------- - ------------------------------------------------------------------------------------ 10

- ---------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) BORDEN, INC. Six months ended June 30, (In millions) 2000 1999 - ---------------------------------------------------------------------------------------------------- Decrease in cash and equivalents $(163.2) $(92.1) Cash and equivalents at beginning of period 195.2 672.1 -------- ------- Cash and equivalents at end of period $ 32.0 $580.0 ======== ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid: Interest, net $ 29.6 $ 24.8 Taxes 12.2 19.4 Non-cash activity: Accrued dividends on investment in affiliate 4.2 - Capital contribution by parent 15.4 16.8 Distribution of net assets of infrastructure management services business to the Company's parent 6.0 - - ---------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 11

- ------------------------------------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) BORDEN, INC. (In millions) - ------------------------------------------------------------------------------------------------------------------------------- Accumulated Receivable Other Preferred Common Paid-in from Comprehensive Accumulated Stock Stock Capital Parent Income Deficit Total - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 $614.4 $2.0 $355.7 $(414.9) $(52.5) $(440.5) $64.2 - ------------------------------------------------------------------------------------------------------------------------------- Net income 117.7 117.7 Translation adjustments (7.9) (7.9) Preferred stock dividends (36.9) (36.9) Common stock dividends (37.2) (37.2) Other distributions (16.3) (16.3) Interest accrued on notes from parent (net of $8.8 tax) 15.5 15.5 Capital contribution from parent 15.4 15.4 - ------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2000 $614.4 $2.0 $333.1 $(414.9) $(60.4) $(359.7) $114.5 - ------------------------------------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 12

- ----------------------------------------------------------------------------------------------------- CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) BORDEN, INC. AND AFFILIATES Three months ended June 30, (In millions) 2000 1999 - ----------------------------------------------------------------------------------------------------- Net sales $572.6 $519.1 Cost of goods sold 373.9 326.1 ------- ------- Gross margin 198.7 193.0 ------- ------- Distribution expense 34.6 30.6 Marketing expense 87.7 62.6 General & administrative expense 57.2 51.4 Gain on divestiture of businesses - (10.4) Gain on sale of assets (10.4) (1.4) Business realignment 9.0 10.0 ------- ------- Operating income 20.6 50.2 ------- ------- Interest expense 14.6 15.8 Affiliated interest expense 0.4 1.8 Interest income and other (4.6) (7.9) Equity in net income of unconsolidated subsidiaries (0.5) (1.4) ------- ------- Income from continuing operations before income tax 10.7 41.9 Income tax (benefit) expense (59.4) 26.3 ------- ------- Income from continuing operations 70.1 15.6 ------- ------- Gain on disposal of discontinued operations, net of tax 37.0 0.6 ------- ------- Net income 107.1 16.2 Affiliate's share of loss - 0.6 Preferred stock dividends (18.5) (18.5) ------- ------- Net income (loss) applicable to common stock $88.6 $ (1.7) ======= ======= Comprehensive income (see Note 4) $98.5 $ 30.5 ======= ======= - ----------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 13

- --------------------------------------------------------------------------------------------------------- CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) BORDEN, INC. AND AFFILIATES Six months ended June 30, (In millions) 2000 1999 - --------------------------------------------------------------------------------------------------------- Net sales $1,125.0 $1,015.6 Cost of goods sold 727.9 639.2 --------- --------- Gross margin 397.1 376.4 --------- --------- Distribution expense 69.5 59.0 Marketing expense 180.4 142.0 General & administrative expense 114.7 95.9 Gain on divestiture of businesses - (14.8) Gain on sale of assets (10.3) (1.3) Business realignment 11.8 10.0 --------- --------- Operating income 31.0 85.6 --------- --------- Interest expense 29.3 31.4 Affiliated interest expense 0.7 3.5 Interest income and other (10.8) (17.7) Equity in net (income) loss of unconsolidated subsidiaries (0.9) 3.9 --------- --------- Income from continuing operations before income tax 12.7 64.5 Income tax (benefit) expense (57.5) 33.9 --------- --------- Income from continuing operations 70.2 30.6 --------- --------- Gain on disposal of discontinued operations, net of tax 37.0 0.6 --------- --------- Income before cumulative effect of change in accounting principle 107.2 31.2 Cumulative effect of change in accounting principle - (2.8) --------- --------- Net income 107.2 28.4 Affiliate's share of income (loss) 0.1 (0.3) Preferred stock dividends (36.9) (36.9) --------- --------- Net income (loss) applicable to common stock $ 70.4 $ (8.8) ========= ========= Comprehensive income (see Note 4) $ 95.0 $ 23.5 ========= ========= - --------------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 14

- ------------------------------------------------------------------------------------------------------- CONDENSED COMBINED BALANCE SHEETS (UNAUDITED) BORDEN, INC. AND AFFILIATES (In millions) June 30, December 31, ASSETS 2000 1999 - ------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and equivalents $ 58.4 $ 228.4 Accounts receivable (less allowance for doubtful accounts of $14.8 in 2000 and $15.4 in 1999) 365.7 296.9 Loan receivable from affiliate 58.4 56.2 Inventories: Finished and in-process goods 129.8 114.8 Raw materials and supplies 69.9 84.3 Deferred income taxes 62.3 60.8 Other current assets 23.6 24.0 --------- --------- 768.1 865.4 --------- --------- INVESTMENTS AND OTHER ASSETS Investments 64.0 64.0 Investment in affiliate 55.7 51.5 Deferred income taxes 28.5 109.8 Prepaid pension assets 136.4 140.8 Other assets 39.0 32.7 --------- --------- 323.6 398.8 --------- --------- PROPERTY AND EQUIPMENT Land 38.9 38.8 Buildings 197.7 192.6 Machinery and equipment 1,096.5 1,088.1 --------- --------- 1,333.1 1,319.5 Less accumulated depreciation (554.6) (548.2) --------- --------- 778.5 771.3 INTANGIBLES 489.7 423.5 --------- --------- TOTAL ASSETS $2,359.9 $2,459.0 ========= ========= - ------------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 15

- ------------------------------------------------------------------------------------------------------- CONDENSED COMBINED BALANCE SHEETS (UNAUDITED) BORDEN, INC. AND AFFILIATES (In millions) June 30, December 31, LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 - ------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts and drafts payable $ 205.4 $ 197.3 Debt payable within one year 21.1 18.1 Income taxes payable 99.8 255.8 Loans payable to affiliates 20.9 14.5 Other current liabilities 254.5 257.7 --------- --------- 601.7 743.4 --------- --------- OTHER LIABILITIES Long-term debt 591.6 544.1 Non-pension post-employment benefit obligations 187.4 193.9 Other long-term liabilities 80.9 114.8 --------- --------- 859.9 852.8 --------- --------- COMMITMENTS AND CONTINGENCIES (See Note 6) SHAREHOLDERS' EQUITY Preferred stock 614.4 614.4 Common stock 2.0 2.0 Paid in capital 641.8 664.4 Receivable from parent (414.9) (414.9) Affiliate's interest in subsidiary 66.1 66.2 Accumulated other comprehensive income (96.3) (84.1) Retained earnings 85.2 14.8 --------- --------- 898.3 862.8 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,359.9 $2,459.0 ========= ========= - ------------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 16

- ------------------------------------------------------------------------------------- CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) BORDEN, INC. AND AFFILIATES Six months ended June 30, (In millions) 2000 1999 - ------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net income $ 107.2 $ 28.4 Adjustments to reconcile net income to net cash from (used in) operating activities: Gain on disposal of discontinued operations, net of tax (37.0) (0.6) Gain on divestiture of businesses - (14.8) Gain on sale of assets (10.3) (1.3) Business realignment 11.8 10.0 Deferred tax provision 55.0 0.3 Depreciation and amortization 50.2 41.6 Unrealized gain on interest rate swap (4.0) (6.2) Equity in net (income) loss of unconsolidated subsidiaries (0.9) 3.9 Net change in assets and liabilities: Trade receivables (23.9) (29.3) Inventories 6.0 15.4 Accounts and drafts payable 10.8 (6.3) Income taxes (119.9) 28.0 Other assets 5.6 21.8 Other liabilities (15.2) (66.1) -------- ------- 35.4 24.8 -------- ------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capital expenditures (68.9) (52.4) Proceeds from the divestiture of businesses - 16.5 Proceeds from the sale of assets 7.2 4.9 Purchase of business, net of cash acquired (88.0) (40.2) Purchase of affiliate's receivables (50.0) - -------- ------- (199.7) (71.2) -------- ------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Net short-term debt borrowings (repayments) 13.4 (11.6) Borrowings of long-term debt 48.0 - Repayment of long-term debt (10.9) - Affiliated borrowings 4.0 2.9 Interest received from parent 24.2 24.6 Common stock dividends paid (37.2) (24.6) Preferred stock dividends paid (36.9) (36.9) Other distributions (10.3) - -------- ------- (5.7) (45.6) -------- ------- - ------------------------------------------------------------------------------------- 17

- ----------------------------------------------------------------------------------------------------- CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) BORDEN, INC. AND AFFILIATES Six months ended June 30, (In millions) 2000 1999 - ----------------------------------------------------------------------------------------------------- Decrease in cash and equivalents $(170.0) $(92.0) Cash and equivalents at beginning of period 228.4 695.5 -------- ------- Cash and equivalents at end of period $ 58.4 $603.5 ======== ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid: Interest, net $ 19.8 $ 18.1 Taxes 7.4 4.6 Non-cash activity: Accrued dividends on investment in affiliate 4.2 - Capital contribution by parent 15.4 16.8 Affiliate's share of (income) loss (0.1) 0.3 Distribution of net assets of infrastructure management services business to the Company's parent 6.0 - - ----------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 18

- ---------------------------------------------------------------------------------------------------------------------------------- CONDENSED COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) BORDEN, INC. AND AFFILIATES (In millions) - ---------------------------------------------------------------------------------------------------------------------------------- Accumulated Receivable Affiliate's Other Preferred Common Paid-in from Interest in Comprehensive Retained Stock Stock Capital Parent Subsidiary Income Earnings Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 $614.4 $2.0 $664.4 $(414.9) $66.2 $(84.1) $14.8 $862.8 - ---------------------------------------------------------------------------------------------------------------------------------- Net income 107.2 107.2 Translation adjustments (12.2) (12.2) Preferred stock dividends (36.9) (36.9) Common stock dividends (37.2) (37.2) Other distributions (16.3) (16.3) Interest accrued on notes from parent (net of $8.8 tax) 15.5 15.5 Capital contribution from parent 15.4 15.4 Affiliate's interest in subsidiary (0.1) 0.1 - - ---------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2000 $614.4 $2.0 $641.8 $(414.9) $66.1 $(96.3) $85.2 $898.3 - ---------------------------------------------------------------------------------------------------------------------------------- See Notes to Condensed Consolidated and Condensed Combined Financial Statements 19

NOTES TO CONDENSED CONSOLIDATED AND CONDENSED COMBINED FINANCIAL STATEMENTS (Dollars in millions except per share amounts and as otherwise indicated) 1. BASIS OF PRESENTATION The Registrant, Borden, Inc. (the "Company") is engaged primarily in manufacturing, processing, purchasing and distributing primarily forest products and industrial resins, formaldehyde, melamine crystal and other specialty and industrial chemicals worldwide as well as consumer glues and adhesives in North America. The Company's principal lines of business formerly included its international and domestic foods operations ("Foods") and salty snacks business ("Wise"). Subsidiaries of BWHLLC, an affiliate of the Company, together with subsidiaries of Wise Holdings, Inc. ("Wise Holdings") and subsidiaries of Borden Foods Holdings Corporation ("Foods Holdings") purchased Wise and Foods on July 2, 1996 and October 1, 1996, respectively. As a result of these sales, Wise and Foods, as of their respective sale dates, are no longer legally part of the Company on a consolidated basis. However, management of the Company continues to exercise significant operating and financial control over Wise and Foods. In addition, Wise Holdings and Foods Holdings provide financial guarantees to obligations under the Company's credit facility and all of the Company's outstanding publicly held debt. Because of the aforementioned control and guarantees, the Company has included, supplementally in this filing, Condensed Combined Financial Statements of Borden, Inc. and Affiliates (the "Combined Companies") which present the financial condition and results of operations and cash flows of the Company, Wise and Foods. The Combined Companies' financial statements do not reflect push-down accounting and therefore present financial information on a basis consistent with that upon which credit was originally extended to the Company. The accompanying unaudited interim Condensed Consolidated and Condensed Combined Financial Statements contain all adjustments, consisting only of normal adjustments, which in the opinion of management are necessary for a fair statement of the results for the interim periods. Results for the interim periods are not necessarily indicative of results for the full year. Information about the Company's and Combined Companies' operating segments is provided in Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) and is an integral part of the Condensed Consolidated and Condensed Combined Financial Statements. Due to acquisitions made in the second quarter of 2000 (see Note 2), the Company's consumer glues and adhesives business, ("Consumer Adhesives"), now meets the quantitative thresholds of SFAS 131 and is reflected as a separate operating segment for all periods presented. Total assets reported in the "Corporate and Other" segment in the 1999 Form 10-K included $58.1 related to Consumer Adhesives. At June 30, 2000, Consumer Adhesives' total assets are $186.1, including approximately $95 related to the acquisition. The 1999 Condensed Combined Statement of Operations and Comprehensive Income reflects the cumulative effect of a change in accounting principle recorded in the 1999 Form 10-K, related to the adoption of Statement of Position 98-5 in the fourth quarter of 1999. Certain prior year amounts have been reclassified to conform with the 2000 presentation. 2. BUSINESS ACQUISITIONS, REALIGNMENT AND OTHER CHANGES In the second quarter of 2000, the Company recorded a charge of $9.0 related primarily to the closure of a United Kingdom formaldehyde and resins plant as a result of the acquisition of Blagden Chemicals, Ltd. in 1999. This amount is classified as business realignment in the Condensed Consolidated and Condensed Combined Statements of Operations and Comprehensive Income. 20

In June 2000, the Company sold certain rights to harvest shellfish for $10.5, resulting in a pre-tax gain of $10.5 ($6.8 after tax). This amount is recorded as gain on the sale of assets in the Condensed Consolidated and Condensed Combined Statements of Operations and Comprehensive Income. In May 2000, the Company acquired certain assets and liabilities of a Canadian based business for $88.0 in cash. The business manufactures glue, glue sticks, paints, tapes and craft/stationery products at its manufacturing facility in Ontario, Canada. The acquisition was accounted for using the purchase method of accounting, and as such, the business' results of operations have been included since the acquisition date. The excess purchase price over net tangible and identifiable intangible assets is approximately $38 and will be amortized over a period of 15 years. In the first quarter of 2000, the Company recorded $2.8 related to the closure of Chemicals resins operations primarily in Argentina and California. These amounts are classified as business realignment on the Condensed Consolidated and Condensed Combined Statements of Operations and Comprehensive Income. Subsequent Event - ----------------- On July 28, 2000, the Company acquired the formaldehyde and certain other assets from Borden Chemicals and Plastics Limited Partnership, an affiliate of the Company, for $48.5, comprised of $38.8 cash and a $9.7 interest-bearing note due in six months. 3. DISCONTINUED OPERATIONS As a result of a settlement reached with the Internal Revenue Service, amounts established for tax issues related to the divestiture of certain segments of the Company's business are no longer considered necessary. A portion of these amounts for the Company and Combined Companies is classified as gain on the sale of discontinued operations in the second quarter of 2000, consistent with the classification of these amounts when established. Amounts differ between consolidated and combined because Foods is not reflected as a sale of a discontinued operation in combined. 4. COMPREHENSIVE INCOME Comprehensive income was computed as follows: - -------------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, CONSOLIDATED COMBINED ------------ ------------- 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Net income $105.4 $23.2 $107.1 $16.2 Foreign currency translation adjustments (5.5) 0.3 (8.6) 4.3 Reclassification adjustments - 10.0 - 10.0 ------ ----- ------ ----- $ 99.9 $33.5 $ 98.5 $30.5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, CONSOLIDATED COMBINED ------------- -------------- 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Net income $117.7 $ 36.5 $107.2 $ 28.4 Foreign currency translation adjustments (7.9) (17.4) (12.2) (14.9) Reclassification adjustments - 10.0 - 10.0 ------ ------ ------ ------ $109.8 $ 29.1 $ 95.0 $ 23.5 - -------------------------------------------------------------------------------- The Company's 2000 foreign currency translation adjustments primarily represent amounts recorded in the Chemical business for fluctuations in the British Pound. The Combined Companies' 2000 amount also includes fluctuations in the Canadian Dollar recorded by Foods. 21

The foreign currency translation adjustments in 1999 relate primarily to amounts recorded in the first quarter for the Latin America Chemical businesses. The reclassification adjustment in 1999 represents the accumulated translation adjustment included as part of the charge to close the Chemical Philippines operation. 5. RELATED PARTY TRANSACTIONS In February 2000, the Company distributed 100% of its ownership in the infrastructure management services business to the Company's parent. The distribution was recorded at net book value of $16.3, including $8.6 owed by the Company to the infrastructure management services business in accordance with a tax sharing agreement. Subsequent to the distribution, substantially all of the assets of the infrastructure management services business were sold to a subsidiary of Interliant, Inc. in exchange for $2.5 in cash and 1,041,179 shares of Interliant, Inc. stock. In June 2000, the remaining assets of the infrastructure management services business, with a net book value of approximately $0.3, were distributed back to the Company from the Company's parent. The Company provides administrative services to Foods and Wise. Fees received for these services are offset against the Company's general and administrative expenses and approximated $1.0 and $2.5 for the three months ended June 30, 2000 and 1999, respectively, and $2.5 and $4.9 for the six months ended June 30, 2000 and 1999, respectively. At June 30, 2000, Foods had $219.5 cash invested with the Company and BWHLLC had $17.6 cash invested with the Company and Combined Companies. Loans payable to unconsolidated affiliates for the Combined Companies at June 30, 2000 also includes $3.3 from an affiliate of the Combined Companies. These balances are reflected as loans payable to affiliates in the consolidated and combined balance sheets. In June 2000, the Company purchased $50.0 of accounts receivable from World Kitchen, Inc., an affiliate of the Company, in return for certain fees. Collection of the purchased receivables is expected to occur within 90 days. At June 30, 2000, the Company had loaned $58.4 in the form of demand notes and accrued interest to CCPC Acquisition Corp., an affiliate of the Company, to provide temporary financing to complete its acquisition of EKCO Group, Inc. ("EKCO"). The loan bears interest at the monthly prime rate as quoted by The Wall Street Journal and matures on December 31, 2000. The Company and Combined Companies anticipate repayment of the loan and interest upon the sale of a business unit acquired with EKCO that is held for sale by CCPC Acquisition Corp. In the fourth quarter of 1999, the Company made a $50.0 investment in World Kitchen, Inc. in the form of 16% cumulative junior preferred stock. The Company has accrued cumulative dividends of $5.7 on the investment at June 30, 2000. 6. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL MATTERS - The Company and Combined Companies, like others in similar businesses, are subject to extensive federal, state and local environmental laws and regulations. Although environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent regulation could require the Company and Combined Companies to make additional unforeseen environmental expenditures. Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Environmental accruals are routinely reviewed on an interim basis as events and developments warrant. The Company and Combined Companies have each accrued approximately $22 at June 30, 2000 and December 31, 1999, for probable environmental remediation and restoration liabilities. This is management's best estimate of these liabilities, based on currently available information and analysis. The Company and Combined Companies believe that it is reasonably 22

possible that costs associated with such liabilities may exceed current reserves by amounts that may prove insignificant, or by amounts, in the aggregate, of up to approximately $12. LEGAL MATTERS - The Company and Combined Companies have recorded $4.4 in liabilities at June 30, 2000, for legal costs that they believe are probable and reasonably estimable. These liabilities at December 31, 1999, totaled $5.1 and $8.5 for the Company and Combined Companies, respectively. Actual costs are not expected to exceed these amounts. In addition, the Company may be held responsible for certain environmental liabilities incurred at Borden Chemicals and Plastics Limited Partnership ("BCP") facilities, which were previously owned by the Company. Management believes, based upon the information it currently possesses, and taking into account its established reserves for estimated liability and its insurance coverage, that the ultimate outcome of the foregoing proceedings and actions is unlikely to have a material adverse effect on the Company's or Combined Companies' financial statements. OTHER COMMITMENTS - A wholly owned subsidiary serving as general partner of BCP has certain fiduciary responsibilities to BCP's unitholders. The Company believes that such responsibilities will not have a material adverse effect on its financial statements. 23

PART 1. FINANCIAL INFORMATION Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS BY BUSINESS UNIT: - -------------------------------------------- Following is a comparison of net sales and adjusted operating EBITDA by operating segment for both the Company and Combined Companies. - -------------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, CONSOLIDATED COMBINED ---------------- ------------------- (Dollars in millions) 2000 1999 2000 1999 - -------------------------------------------------------------------------------- NET SALES: Foods ongoing $122.7 $111.7 Foods Unaligned - 4.5 Wise 65.4 59.0 Chemical $334.4 $307.2 334.4 307.2 Consumer Adhesives 50.1 34.1 50.1 34.1 Corporate and other - 2.6 - 2.6 ------- ------- ------- ------- $384.5 $343.9 $572.6 $519.1 ======= ======= ======= ======= ADJUSTED OPERATING EBITDA: Foods ongoing $(12.5) $ 0.1 Foods Unaligned - 0.4 Wise 4.5 2.5 Chemical $ 53.3 $ 56.0 53.3 56.0 Consumer Adhesives 10.6 8.2 10.6 8.2 Corporate and other (1.0) 4.1 (1.0) 4.1 ------- ------- ------- ------- TOTAL ADJUSTED OPERATING EBITDA (1) 62.9 68.3 54.9 71.3 Significant or unusual items (2) (9.0) (10.0) (9.0) 0.4 Depreciation and amortization (3) (14.0) (12.2) (25.3) (21.5) ------- ------- ------- ------- OPERATING INCOME $ 39.9 $ 46.1 $ 20.6 $ 50.2 ======= ======= ======= ======= - -------------------------------------------------------------------------------- (1) Adjusted Operating EBITDA represents net income (loss) excluding discontinued operations, non-operating income and expenses, interest, taxes, depreciation, amortization and significant or unusual items (see below). (2) The 2000 Consolidated and Combined amount represents Chemical realignment expenses relating primarily to the closure of a plant in the United Kingdom. The 1999 Consolidated amount represents costs associated with realignment of a Chemical business of $10.0. The 1999 Combined amount includes the $10.0 Chemical realignment charge offset by gains on the sale of Foods Unaligned businesses due to additional proceeds and lower than expected exit costs related to the 1998 KLIM sale of $10.4. (3) The increase in Consolidated depreciation and amortization is primarily the result of the 1999 Chemical acquisitions. The Combined increase also reflects the depreciation associated with Foods 1999 enterprise-wide systems implementation and plant improvements. 24

- -------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, CONSOLIDATED COMBINED ------------- ---------------- (DOLLARS IN MILLIONS) 2000 1999 2000 1999 - -------------------------------------------------------------------------------- NET SALES: Foods ongoing $265.0 $245.7 Foods Unaligned - 10.1 Wise 122.8 109.0 Chemical $662.8 $592.8 662.8 592.8 Consumer Adhesives 72.7 53.3 72.7 53.3 Corporate and other 1.7 4.7 1.7 4.7 ------- ------- --------- --------- $737.2 $650.8 $1,125.0 $1,015.6 ======= ======= ======== ========= ADJUSTED OPERATING EBITDA: Foods ongoing $(25.9) $ 0.6 Foods Unaligned - 2.1 Wise 7.1 3.2 Chemical $108.6 $105.7 108.6 105.7 Consumer Adhesives 13.3 11.0 13.3 11.0 Corporate and other (10.1) (0.2) (10.1) (0.2) ------- ------- -------- --------- TOTAL ADJUSTED OPERATING EBITDA (1) 111.8 116.5 93.0 122.4 Significant or unusual items (2) (11.8) (10.0) (11.8) 4.8 Depreciation and amortization (3) (28.2) (24.2) (50.2) (41.6) ------- ------- -------- --------- OPERATING INCOME $ 71.8 $ 82.3 $ 31.0 $ 85.6 ======= ======= ======== ========= - -------------------------------------------------------------------------------- (1) Adjusted Operating EBITDA represents net income (loss) excluding discontinued operations, cumulative effect of change in accounting principle, non-operating income and expenses, interest, taxes, depreciation, amortization and significant or unusual items (see below). (2) The 2000 Consolidated and Combined amount represents Chemical realignment expenses relating primarily to plant closures in the United Kingdom, Argentina and California. The 1999 Consolidated amount represents costs associated with realignment of a Chemical business of $10.0. The 1999 Combined amount includes the $10.0 Chemical realignment charge and gains on the sale of Foods Unaligned businesses due to additional proceeds and lower than expected exit costs related to the 1998 KLIM sale of $14.8. (3) The increase in Consolidated depreciation and amortization is primarily the result of the 1999 Chemical acquisitions. The Combined increase also reflects the depreciation associated with Foods 1999 enterprise-wide systems implementation and plant improvements. 25

CONSOLIDATED AND COMBINED THREE MONTHS ENDED JUNE 30, 2000 VERSUS THREE MONTHS ENDED JUNE 30, 1999 Consolidated Summary - --------------------- Consolidated sales increased $40.6 million, or approximately 12%, to $384.5 million in 2000 from $343.9 million in 1999. The increase in sales is attributed primarily to improved volumes in the Chemical and Consumer Adhesives businesses and the two Chemical acquisitions made in 1999. Adjusted operating EBITDA decreased $5.4 million, or approximately 8%, to $62.9 million in 2000 from $68.3 million in 1999. The decrease is primarily due to the settlement and timing of various corporate liabilities and expenses, with the impact of increases in raw materials and selling, general and administrative costs in the Chemical business that more than offset the impact of improved volumes. Combined Summary - ----------------- Combined sales increased $53.5 million, or approximately 10%, from $519.1 million in 1999 to $572.6 million in 2000. The increase is primarily attributed to increased volumes for Chemical and Consumer Adhesives. Combined adjusted operating EBITDA decreased $16.4 million, or approximately 23%, from $71.3 million in 1999 to $54.9 million in 2000. In addition to the consolidated factors described above, Foods' comparative results declined primarily due to higher marketing costs associated with the introduction of new products. Chemical - -------- Chemical sales in second quarter 2000 were up $27.2 million, or approximately 9%, from prior year sales of $307.2 million. The most significant items that positively impacted 2000 sales were improved volumes for all business units, primarily in North America, and two acquisitions in the United States and Europe. The most significant items that negatively impacted sales were generally lower pricing, unfavorable currency exchange rates in Latin America, and the prior year exit from certain non-core businesses in the United States, Latin America and the Philippines. Overall volume improvement of 5%, excluding the effect of acquisitions and strategic realignment activities, had a positive impact on 2000 sales of approximately $28 million, with the largest contributors being the UV coatings, melamine crystal and oil field proppant businesses. The improvement in UV coatings reflects continuing growth in demand for optical fiber. The improvement in melamine crystal reflects increased export sales due to tightening global supply, while the improvement for oil field proppants is due to increased drilling activity that reflects the escalating cost of natural gas. The second quarter 1999 acquisition of Spurlock Industries, Inc. in the United States and the third quarter 1999 acquisition of Blagden Chemicals, Ltd. in Europe contributed incremental 2000 sales of $5.0 million and $12.8 million, respectively. Lower pricing in second quarter 2000 negatively impacted sales by approximately $4 million, and is due to substantially reduced selling prices for melamine crystal and melamine-based resins as well as downward pressure on prices from very competitive market conditions across all businesses. The lower pricing for melamine products reflects the global market imbalance for melamine crystal that worsened throughout 1999 and has persisted through the first half of 2000. A substantial portion of the 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 primary raw materials (i.e. methanol, phenol and urea). Although the costs of these raw materials escalated during second quarter 2000 to a level significantly higher than the prior year quarter, selling prices did not increase appreciably due to the lag time required for published indices to recognize the increases as well as the contractual requirements that generally provide only for monthly or quarterly price adjustments. Unfavorable currency exchange rates, due primarily to significant currency devaluation in Ecuador since the end of 1999, had an unfavorable impact on 2000 sales of approximately $7 million. 26

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 $7.7 million lower compared to the prior year. Second quarter adjusted operating EBITDA was $2.7 million, or approximately 5%, lower than the prior year. The overall decrease reflects substantial margin erosion and higher selling, general and administrative expenses that more than offset the positive impact of increased volume and 1999 acquisitions. The most significant contributors to the overall gross margin erosion were the significant second quarter increase in cost of all three primary raw materials, substantially lower melamine crystal and resin selling prices due to depressed global market conditions, and intensely competitive market conditions in Europe. The higher selling, general and administrative expenses were due primarily to systems implementation costs in Latin America and investments in e-commerce. Consumer Adhesives - ------------------- Consumer Adhesives' net sales for the three months ended June 30, 2000 were $50.1 million, an increase of $16.0 million, or approximately 47%, compared to 1999 net sales of $34.1 million for the same period. The increase is attributable to significantly higher volumes from both existing and new products and the May acquisition (See Note 2 to the Condensed Consolidated and Condensed Combined Financial Statements). Consumer Adhesives' adjusted operating EBITDA for the three months ended June 30, 2000 was $10.6 million, a $2.4 million, or approximately 29%, increase over 1999 adjusted operating EBITDA of $8.2 million for the same period. The increase is primarily due to higher volumes, which were partially offset by higher raw material and distribution costs resulting primarily from higher natural gas and oil costs. Foods - ----- Foods' sales for the three months ended June 30, 2000 increased $6.5 million, or approximately 6%, to $122.7 million from $116.2 million for the three months ended June 30, 1999. Excluding sales of $4.5 million from divested businesses in 1999, sales from Foods' ongoing businesses increased $11.0, or approximately 10%. The increase was led by growth in sauce volumes due primarily to new product introductions and expanded distribution. In addition, Foods improved sales with the introduction of the new product, It's Pasta Anytime(TM). Foods' adjusted operating EBITDA declined $13.0 million from $0.5 million in 1999 to a loss of $12.5 million in 2000. The decline in ongoing results was primarily due to significantly higher marketing costs associated with the introduction of new products. These additional costs were partially offset by improved volumes and a reduction in general and administrative expenses due to the absence of implementation costs associated with enterprise-wide information technology systems. Wise - ---- Wise net sales in the second quarter increased $6.4 million, or approximately 11%, to $65.4 million from $59.0 million in the second quarter of 1999. The second quarter net sales increase continues the positive momentum of increased volumes of previous quarters. Adjusted operating EBITDA in the second quarter increased $2.0 million to $4.5 million from $2.5 million in 1999. This improvement was primarily the result of higher volume and lower administrative expenses compared to the same period last year. Corporate and other - --------------------- Corporate and other sales declined $2.6 million for the three months ended June 30, 2000 compared to the prior year due to the divestiture of the infrastructure management services business at the end of February 2000. Adjusted operating EBITDA declined $5.1 million to a loss of $1.0 million in the second quarter of 2000 versus income of $4.1 million in the second quarter of 1999 primarily due to the timing and settlement of various corporate liabilities and expenses. 27

CONSOLIDATED AND COMBINED SIX MONTHS ENDED JUNE 30, 2000 VERSUS SIX MONTHS ENDED JUNE 30, 1999 Consolidated Summary - --------------------- Consolidated sales increased $86.4 million, or approximately 13%, to $737.2 million in 2000 from $650.8 million in 1999. The increase in sales is attributed primarily to improved volumes in the Chemical and Consumer Adhesives businesses and the two Chemical acquisitions made in 1999. Adjusted operating EBITDA decreased $4.7 million, or approximately 4%, to $111.8 million in 2000 from $116.5 million in 1999. The decrease is primarily due to the settlement and timing of various corporate liabilities. Combined Summary - ----------------- Combined sales increased $109.4 million, or approximately 11%, from $1,015.6 million in 1999 to $1,125.0 million in 2000. The increase is primarily attributed to increased volumes in the Chemical, Consumer Adhesives and Wise businesses. Combined adjusted operating EBITDA decreased $29.4 million, or approximately 24%, from $122.4 million in 1999 to $93.0 million in 2000. In addition to the consolidated factors described above, Foods' comparative results declined primarily due to higher marketing costs associated with the introduction of new products. Chemical - -------- Chemical sales in 2000 were up $70.0 million, or approximately 12%, from prior year sales of $592.8 million. The most significant items that positively impacted 2000 sales were improved volumes for all business units, primarily in North America, and two acquisitions in the United States and Europe. The most significant items that negatively impacted sales were generally lower pricing, unfavorable currency exchange rates in Latin America, and the prior year exit from certain non-core businesses in the United States, Latin America and the Philippines. Overall volume improvement of 9%, excluding the effect of acquisitions and strategic realignment activities, had a positive impact on 2000 sales of approximately $75 million, with the largest contributors being the North America forest products resins, UV coatings and melamine crystal businesses. The improved volume in North America forest products resins is driven by continued high demand related to strong housing and construction activity. The improvement in UV coatings reflects continuing growth in demand for optical fiber, while the improvement in melamine crystal reflects increased export sales due to tightening global supply. The second quarter 1999 acquisition of Spurlock Industries, Inc. in the United States and the third quarter 1999 acquisition of Blagden Chemicals, Ltd. in Europe contributed incremental 2000 sales of $12.8 million and $30.0 million, respectively. Generally lower pricing over the first six months negatively impacted 2000 sales by approximately $23 million, and is due primarily to substantially reduced selling prices for melamine crystal and melamine-based resins as well as downward pressure on prices from very competitive market conditions across all businesses. The lower pricing for melamine products reflects the global market imbalance for melamine crystal that worsened throughout 1999 and has persisted through the first half of 2000. A substantial portion of the 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 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, and therefore selling prices were generally lower. Although the costs of all three primary raw materials escalated significantly during the second quarter, selling prices did not increase appreciably due to the lag time required for published indices to recognize the increases as well as the contractual requirements that generally provide only for monthly or quarterly price adjustments. Unfavorable currency exchange rates, due primarily to significant currency devaluation in Ecuador since the end of 1999, had an unfavorable impact on 2000 sales of approximately $11 million. 28

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 $13.5 million lower compared to the prior year. Year-to-date adjusted operating EBITDA increased $2.9 million or approximately 3%, from 1999. The overall improvement reflects the positive impact of increased volume and the 1999 acquisitions, which were substantially offset by gross margin erosion and higher selling, general and administrative expenses. The most significant contributors to the overall gross margin erosion were substantially lower melamine crystal and resin selling prices due to depressed global market conditions, intensely competitive market conditions in Europe, and the substantial second quarter increase in cost of all three primary raw materials. The higher selling, general and administrative expenses were due primarily to systems implementation costs in Latin America and investments in e-commerce. Consumer Adhesives - ------------------- Consumer Adhesives' net sales for the six months ended June 30, 2000 were $72.7 million, an increase of $19.4 million or approximately 36% compared to 1999 net sales of $53.3 million for the same period. The increase is attributable to significantly higher volumes from both existing and new products and the May acquisition (See Note 2 to the Condensed Consolidated and Condensed Combined Financial Statements). Consumer Adhesives' adjusted operating EBITDA for the six months ended June 30, 2000 was $13.3 million, a $2.3 million or approximately 21% increase over 1999 adjusted operating EBITDA of $11.0 million for the same period. The increase is primarily due to higher volumes, which were partially offset by higher raw material and distribution costs resulting primarily from higher natural gas and oil costs. Foods - ----- Foods' sales for the six months ended June 30, 2000 were $265.0 million, an increase of $9.2 million or approximately 4%, compared to $255.8 million for the six months ended June 30, 1999. Excluding sales of $10.1 million from divested businesses in 1999, sales from Foods' ongoing businesses increased $19.3 million or approximately 8%. The increase was led by growth in sauce volumes due primarily to new product introductions and expanded distribution. In addition, Foods improved sales with the introduction of the new product, It's Pasta Anytime(TM). These improvements were slightly offset by modest pasta category declines. Foods' adjusted operating EBITDA declined $28.6 million from income of $2.7 million in 1999 to a loss of $25.9 million in 2000. Excluding the impact of Foods Unaligned businesses sold in 1999 and a $7.5 million gain on the favorable settlement of litigation in 1999, ongoing adjusted operating EBITDA decreased $19.0 million. The decline in ongoing results was primarily due to significantly higher marketing costs associated with the introduction of new products and increased distribution expenses primarily as a result of issues related to the 1999 enterprise-wide systems implementation. These additional costs were partially offset by improved volumes and a reduction in general and administrative expenses due to the absence of enterprise-wide information technology system implementation costs. Wise - ---- Wise year-to-date net sales increased $13.8 million, or approximately 13%, to $122.8 million from $109.0 million in 1999. The net sales increase results from successful, targeted marketing programs against most major classes of trade. Adjusted operating EBITDA in the first half of 2000 improved $3.9 million, to $7.1 million from $3.2 million in 1999. The improvement in operating performance is primarily the result of increased volume and reduced administrative expenses. Corporate and other - --------------------- Corporate and other sales decreased $3.0 million, or approximately 64%, to $1.7 million for the first two quarters of 2000 compared with $4.7 million for the first two quarters of 1999 due to the divestiture of the infrastructure management services business at the end of February 2000. Adjusted operating EBITDA decreased $9.9 million to a loss of $10.1 million in 2000 from a loss of 29

$0.2 million in 1999. The decline is primarily due to the timing and settlement of various corporate liabilities and expenses. NON-OPERATING EXPENSES AND INCOME TAXES - ------------------------------------------- Following is a comparison of non-operating expenses for the three months ended June 30, 2000 and 1999: - ---------------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, CONSOLIDATED COMBINED ------------ ------------- (Dollars in millions) 2000 1999 2000 1999 - ---------------------------------------------------------------------------------- Interest expense $14.6 $15.7 $14.6 $15.8 Affiliated interest expense, net 4.2 5.2 0.4 1.8 Interest income and other (4.6) (8.9) (4.6) (7.9) Equity in net income of unconsolidated subsidiaries (0.5) (1.4) (0.5) (1.4) ----- ------ ------ ----- $13.7 $10.6 $ 9.9 $ 8.3 - ---------------------------------------------------------------------------------- Consolidated non-operating expense increased $3.1 million for the three months ended June 30, 2000 compared with the three months ended June 30, 1999. The increase was primarily attributable to decreased interest income as a result of lower average cash balances in 2000 compared to 1999. Combined non-operating expense increased by $1.6 million for the three months ended June 30, 2000 compared with the three months ended June 30, 1999. The increase was primarily attributable to decreased interest income due to lower average cash balances in 2000 versus 1999. Following is a comparison of non-operating expenses for the six months ended June 30, 2000 and 1999. - --------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, CONSOLIDATED COMBINED ------------ --------------- (Dollars in millions) 2000 1999 2000 1999 - --------------------------------------------------------------------------------- Interest expense $ 29.3 $ 31.0 $ 29.3 $ 31.4 Affiliated interest expense, net 8.3 10.0 0.7 3.5 Interest income and other (10.8) (17.6) (10.8) (17.7) Equity in net (income) loss of unconsolidated subsidiaries (0.9) 3.9 (0.9) 3.9 ------ ------ ------ ------ $ 25.9 $ 27.3 $ 18.3 $ 21.1 - --------------------------------------------------------------------------------- For the six months ended June 30, 2000, consolidated non-operating expense decreased by $1.4 million compared with the corresponding period in the previous year. The decrease was primarily attributable to equity in net income of unconsolidated subsidiaries in 2000 compared with losses in 1999 and a reduction in total interest expense due to credit line arrangement fees being fully amortized at December 31, 1999, substantially offset by decreased interest income as a result of lower average cash balances in 2000 compared to 1999. For the six months ended June 30, 2000, combined non-operating expense decreased by $2.8 million compared with the corresponding period in the prior year. The decrease was primarily attributable to equity in net income of unconsolidated subsidiaries compared with losses in 1999 and a reduction in total interest expense due to credit line arrangement fees being fully amortized at December 31, 1999, substantially offset by decreased interest income and other as a result of lower average cash balances in 2000 compared to 1999. 30

Following is a comparison of income taxes for the three and six months ended June 30, 2000 and 1999: - -------------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, CONSOLIDATED COMBINED ----------------- --------------------- (Dollars in millions) 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Income tax expense $13.8 $12.9 $(59.4) $26.3 Effective tax rate 53% 36% N/M 63% - -------------------------------------------------------------------------------- The 2000 consolidated effective tax rate reflects the establishment of a valuation reserve on foreign tax credits generated in 1999 and 1998. These credits are no longer likely to be utilized by the Company as a consequence of a settlement resolving federal examination issues for the years 1996 and 1997. See also Note 3 to the Condensed Consolidated and Condensed Combined Financial Statements. The 2000 combined effective tax rate includes the above for consolidated and, as a result of a settlement reached with the Internal Revenue Service, the 2000 combined tax rate reflects amounts related to the divestiture of certain businesses of the Combined Companies that are no longer considered necessary. These amounts are included in combined but not in consolidated tax expense because combined does not reflect the sale of Foods as a discontinued operation. (See also Note 3 to the Condensed Consolidated and Condensed Combined Financial Statements). The combined effective tax rate for 1999 reflects the tax effect of the disposal of Foods' Chinese subsidiary, which had substantial differences in its net book value and tax basis. - -------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, CONSOLIDATED COMBINED ---------------- -------------------- (Dollars in millions) 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Income tax expense $21.2 $19.1 $(57.5) $33.9 Effective tax rate 46% 35% N/M 53% - -------------------------------------------------------------------------------- The 2000 consolidated effective tax rate reflects the establishment of a valuation reserve on foreign tax credits generated in 1999 and 1998. These credits are no longer likely to be utilized by the Company as a consequence of a settlement resolving federal examination issues for the years 1996 and 1997. See also Note 3 to the Condensed Consolidated and Condensed Combined Financial Statements. The 2000 combined effective tax rate includes the above for consolidated, and as a result of a settlement reached with the Internal Revenue Service, the 2000 combined tax rate reflects amounts related to the divestiture of certain businesses of the Combined Companies that are no longer considered necessary. These amounts are included in combined but not in consolidated tax expense because combined does not reflect the sale of Foods as a discontinued operation. (See also Note 3 to the Condensed Consolidated and Condensed Combined Financial Statements). The combined effective tax rate for 1999 reflects the tax effect of the disposal of Foods' Chinese subsidiary, which had substantial differences in its net book value and tax basis. LIQUIDITY AND CAPITAL RESOURCES - ---------------------------------- Operating Activities - --------------------- Consolidated cash provided by operating activities of $26.6 million for the six months ended June 30, 2000 was $3.3 million less than the $29.9 million in 1999. Significant fluctuations from prior year include lower adjusted operating EBITDA in 2000 of $4.7 million, a $14.6 million increase in accounts receivable primarily for Consumer Adhesives due to higher sales volumes, and higher inventory balances of $6.2 million primarily in the Chemical business as a result of an increase in raw material prices. These increased outflows were substantially offset by a $11.5 million increase in the Company's trade payables primarily due to the timing of payments, decreased net interest and tax payments of $2.4 million and the absence of a 1999 payment of approximately $13.0 million to settle certain long-term disability claims. Combined operating activities provided cash of $35.4 million for the six months ended June 30, 2000 compared to $24.8 million in 1999, an improvement of $10.6 31

million. Consolidated activity discussed above was more than offset by improved accounts receivable cash flows of $20.0 million due primarily to the absence of 1999 collection issues associated with Foods' systems implementations, improved cash flows of $5.6 million primarily due to Wise's timing of trade payments, the absence of a $6.7 million payment made by Foods in 1999 to settle litigation, and the absence of 1999 payments of $3.7 million related to the divestiture of Foods' Unaligned businesses. These improvements were partially offset by a reduction in adjusted operating EBITDA of $17.2 million, excluding a Foods 1999 $7.5 million favorable litigation settlement, and increased net interest and tax payments of $6.9 million. Investing Activities - --------------------- Consolidated investing activities used $170.3 million in the first two quarters of 2000 versus $65.9 million in the first two quarters of 1999. The increase of $104.4 million primarily represents the $50.0 million purchase of receivables from World Kitchen, Inc., an affiliate of the Company, the acquisition made by Consumer Adhesives for $88.0 million (see Note 2 to the Condensed Consolidated and Condensed Combined Financial Statements), compared to the 1999 Spurlock acquisition for $40.2 million, and increased capital expenditures in 2000 of $17.6 million primarily for Chemical plant expansions. These outflows were partially offset by additional proceeds from the sale of assets of $6.9 million (see Note 2 to the Condensed Consolidated and Condensed Combined Financial Statements). Combined cash used by investing activities in the first two quarters of 2000 was $199.7 million versus $71.2 million in 1999. In addition to the above, the $128.5 million increase includes the absence of $16.5 million of proceeds from the 1999 sale of Foods Unaligned businesses. Financing Activities - --------------------- Consolidated financing activities used $19.5 million in 2000 compared to $56.1 million in 1999. The $36.6 million improvement is primarily due to long-term debt borrowings of $48.0 million and short-term debt borrowings of $13.2 million versus 1999 repayments of $6.0 million. These inflows were partially offset by a $10.3 million repayment of Industrial Bonds, higher common stock dividends paid of $12.6 million 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 5 to the Condensed Consolidated and Condensed Combined Financial Statements). Combined financing activities used $5.7 million in 2000 compared to $45.6 million in 1999. The improvement of $39.9 million primarily reflects the Consolidated factors discussed above. RECENT ACCOUNTING PRONOUNCEMENTS - ---------------------------------- In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard requires all derivatives be measured at fair value and recorded on a company's balance sheet as an asset or a liability, depending on the company's underlying rights or obligations associated with the derivative instrument. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instrument and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133." This statement defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. In June 2000, the FASB issues SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", which is an amendment of SFAS No. 133. SFAS No. 138 addresses a limited number of implementation issues resulting from the application of SFAS No. 133. The Company and Combined Companies continue to investigate the impact of these pronouncements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101 - Revenue Recognition, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Registrants must comply with the SAB no later than the fourth quarter of 2000. Application of the guidance in this SAB will not have a material impact on the financial statements of the Company or Combined Companies. 32

In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives", which addresses the recognition, measurement and income statement classification for sales incentives offered to customers. All provisions of the EITF are required to be reflected no later than the fourth quarter of 2000. The Company and Combined Companies are in the process of accumulating and evaluating the information required to comply with this EITF issue, but do not expect reported financial results will be significantly impacted. 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 Company's 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 results of operations by business unit, liquidity, legal and environmental liabilities. 33

PART II Item 1: LEGAL PROCEEDINGS A private action against the Company and numerous other defendants, which was pending in Los Angeles, California state court in connection with a landfill site in Monterey Park, California, was settled in April 2000 with the Company paying less than $0.1 million. There have been no material developments in the other ongoing legal proceedings that are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The Company is involved in other litigation throughout the United States, which is considered to be in the ordinary course of the Company's business. The Company believes, based on the information it presently possesses, and taking into account its established reserves for estimated liability and its insurance coverages, that the ultimate outcome of the foregoing proceedings is unlikely to have a materially adverse effect on the Company's financial statements. Item 6: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a. Exhibits (27) Financial Data Schedule b. Financial Statement Schedules Included are the separate condensed financial statements of Foods Holdings and Wise Holdings filed in accordance with rule 3-10 of Regulation S-X. Foods Holdings and Wise Holdings are guarantors of the Company's credit facility and all of the Company's outstanding publicly held debt. c. Reports on Form 8-K There were no reports on Form 8-K issued during the second quarter of 2000. 34

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 August 14, 2000 By /s/ William H. Carter ---------------------- William H. Carter Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 35 BORDEN FOODS HOLDINGS CORPORATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 BFH 1 - ------------------------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) BORDEN FOODS HOLDINGS CORPORATION Three Months Ended Six Months Ended (In thousands except per share and share amounts) June 30, June 30, 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Net sales $122,636 $116,202 $ 264,957 $255,823 Cost of goods sold 64,675 58,767 136,010 127,762 --------- --------- ---------- --------- Gross margin 57,961 57,435 128,947 128,061 --------- --------- ---------- --------- Distribution expense 11,073 9,270 22,634 18,854 Marketing expense 52,902 34,028 118,413 89,486 General & administrative expense 14,227 19,496 28,765 28,235 Gain on divestiture of businesses - (10,383) - (13,471) --------- --------- ---------- --------- Operating (loss) income (20,241) 5,024 (40,865) 4,957 --------- --------- ---------- --------- Interest income, net (4,289) (3,436) (8,625) (6,674) Other income, net - (128) - (323) --------- --------- ---------- --------- (Loss) income before income tax (15,952) 8,588 (32,240) 11,954 Income tax (benefit) expense (6,038) 13,885 (12,138) 14,871 --------- --------- ---------- --------- Loss before cumulative effect of accounting change (9,914) (5,297) (20,102) (2,917) Cumulative effect of accounting change, net of tax - - - (2,806) --------- --------- ---------- --------- Net loss (9,914) (5,297) (20,102) (5,723) Affiliate's share of income 9 656 123 (174) --------- --------- ---------- --------- Net loss applicable to common stock $ (9,905) $ (4,641) $ (19,979) $ (5,897) ========= ========= ========== ========= Comprehensive loss (Note 5) $ (9,810) $ (4,225) $ (21,851) $ (7,438) ========= ========= ========== ========= Basic and diluted loss per common share $(99,050) $(46,410) $(199,790) $(58,970) Average number of common shares outstanding during the period 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------ See accompanying Notes to the Condensed Consolidated Financial Statements. BFH 2 - ------------------------------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) BORDEN FOODS HOLDINGS CORPORATION (In thousands) June 30, December 31, ASSETS 2000 1999 - ------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and equivalents $ 244,466 $ 266,825 Accounts receivable (less allowance for doubtful accounts of $1,478 and $1,317, respectively) 36,446 55,201 Other receivables 2,109 3,947 Inventories: Finished and in-process goods 52,681 48,066 Raw materials and supplies 16,610 30,089 Deferred income taxes 13,840 15,383 Amounts due from affiliates 1,513 2,833 Other current assets 4,280 5,013 ---------- --------- 371,945 427,357 OTHER ASSETS 10,191 10,819 PROPERTY AND EQUIPMENT Land 9,600 9,542 Buildings 39,404 40,763 Machinery and equipment 207,823 190,679 ---------- --------- 256,827 240,984 Less accumulated depreciation (71,762) (64,462) ---------- --------- 185,065 176,522 INTANGIBLES Goodwill 10,849 11,006 Trademarks and other intangibles 107,142 108,496 ---------- --------- 117,991 119,502 ---------- --------- TOTAL ASSETS $ 685,192 $ 734,200 ========== ========== - ------------------------------------------------------------------------------------------------------- See accompanying Notes to the Condensed Consolidated Financial Statements. BFH 3 - ------------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) BORDEN FOODS HOLDINGS CORPORATION (In thousands except per share and share amounts) June 30, December 31, LIABILITIES AND SHAREHOLDER'S EQUITY 2000 1999 - ------------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Accounts and drafts payable $ 34,109 46,858 Accrued customer allowances 18,901 17,781 Debt payable within one year 564 346 Loans due to affiliates 3,263 2,513 Income tax payable 10,378 20,594 Other amounts due to affiliates 825 789 Other current liabilities 42,381 50,596 ------------- --------- 110,421 139,477 OTHER LIABILITIES Long-term debt 2,927 3,033 Deferred income taxes 14,017 34,585 Other long-term liabilities 24,008 22,820 ------------- --------- 40,952 60,438 COMMITMENTS AND CONTINGENCIES (NOTE 8) SHAREHOLDER'S EQUITY Common stock - $0.01 par value; 100 shares authorized, issued, and outstanding - - Paid in capital 427,202 405,817 Shareholder's investment in affiliates 66,149 66,272 Accumulated translation adjustments (4,877) (3,128) Retained earnings 45,345 65,324 -------------- --------- 533,819 534,285 -------------- --------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 685,192 $734,200 ============== ========= - ------------------------------------------------------------------------------------------------------ See accompanying Notes to the Condensed Consolidated Financial Statements. BFH 4 - ------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) BORDEN FOODS HOLDINGS CORPORATION Six Months Ended (In thousands) June 30, 2000 1999 - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net loss $(20,102) $ (5,723) Adjustments to reconcile net loss to net cash from (used in) operating activities: Depreciation and amortization 13,224 9,138 Deferred tax provision 2,360 6,159 Gain on divestiture of businesses - (13,471) Net change in assets and liabilities: Accounts receivable 18,755 (2,857) Other receivables 1,838 3,331 Inventories 8,864 9,749 Accounts and drafts payable (12,749) (10,705) Accrued customer allowances 1,120 (4,662) Income taxes (9,356) 21,097 Other amounts due to/from affiliates 1,356 (1,905) Other current assets and liabilities (5,555) (13,235) Other assets and liabilities 423 (5,229) --------- --------- 178 (8,313) --------- --------- CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures (23,505) (23,112) Proceeds from the sale of fixed assets - 4,627 Proceeds from the sale of businesses - 16,588 --------- --------- (23,505) (1,897) --------- --------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Net short-term debt payments 218 (5,169) Proceeds from loans payable to affiliate 750 2,968 --------- --------- 968 (2,201) --------- --------- DECREASE IN CASH AND EQUIVALENTS (22,359) (12,411) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 266,825 300,104 --------- --------- CASH AND EQUIVALENTS AT END OF PERIOD $244,466 $287,693 ========= ========= - ------------------------------------------------------------------------------------------------ See accompanying Notes to the Condensed Consolidated Financial Statements. BFH 5 - ------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) BORDEN FOODS HOLDINGS CORPORATION Six Months Ended (In thousands) June 30, 2000 1999 - ------------------------------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid (received): Interest $ (24) $ 340 Taxes, net of refunds (6,210) (14,888) ------------------------------------------------------------------------------------------------ See accompanying Notes to the Condensed Consolidated Financial Statements. BFH 6 - ------------------------------------------------------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (UNAUDITED) BORDEN FOODS HOLDINGS CORPORATION (In thousands) - ------------------------------------------------------------------------------------------------------------------------------ Shareholder's Accumulated Paid in Investment Translation Retained Capital in Affiliate Adjustments Earnings Total - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1999 $405,817 $66,272 $(3,128) $65,324 $534,285 - ------------------------------------------------------------------------------------------------------------------------------ Net loss (20,102) (20,102) Foreign currency translation adjustments (1,749) (1,749) Affiliate's share of income (123) 123 - Increase in tax basis related to finalization of purchase price allocation 21,385 21,385 - ------------------------------------------------------------------------------------------------------------------------------ Balance at June 30, 2000 $427,202 $66,149 $(4,877) $45,345 $533,819 - ------------------------------------------------------------------------------------------------------------------------------ See accompanying Notes to the Condensed Consolidated Financial Statements. BFH 7 BORDEN FOODS HOLDINGS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 1. NATURE OF OPERATIONS Borden Foods Holdings Corporation ("Foods Holdings"), a wholly owned subsidiary of Borden Foods Holdings, LLC ("LLC"), owns approximately 98% of Borden Foods Corporation ("BFC"). The remaining interest in BFC is owned directly by LLC. BFC is a manufacturer and distributor of a variety of food products worldwide, including pasta, pasta sauce, soups and bouillon. At June 30, 2000, BFC's operations included 8 production facilities, 4 of which are located in the United States. The remaining facilities are located in Canada and Italy. 2. BASIS OF PRESENTATION Foods Holdings has fully and unconditionally guaranteed obligations under Borden, Inc.'s ("Borden") Credit Facility and all of Borden's publicly held debt on a pari passu basis. As a result of the financial guarantee and in accordance with Regulation S-X rule 3-10, Borden is required to include in its filings with the Securities and Exchange Commission separate financial statements for Foods Holdings as if it were a registrant. Foods Holdings' financial statements are prepared on a purchase accounting basis. Borden elected not to apply push down accounting in its consolidated or combined financial statements and, as such, Borden's financial statements are reported on a historical cost basis. The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) which management believes to be necessary for the fair presentation of operating results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results for the interim period are subject to seasonal variations and are not necessarily indicative of results for the full year. The interim financial statements should be read in conjunction with Foods Holdings' audited financial statements for the year ended December 31, 1999. During 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5 requires the costs of opening a new facility, introducing a new product or service, conducting business in a new market, or similar start-up activities be expensed as incurred. Amounts previously capitalized are to be expensed and reported as a cumulative effect of a change in accounting principle in the year of adoption. Accordingly, BFC adopted SOP 98-5 in 1999 and reported a charge of $2,806 (net of tax benefit of $1,794) to write-off amounts previously capitalized. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition", which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Registrants must comply with the SAB no later than the fourth quarter of 2000. Application of the guidance in this SAB will not have a material impact on the financial statements of BFC. BFH 8 In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives", which addresses the recognition, measurement and income statement classification for sales incentives offered to customers. All provisions of the EITF are required to be reflected no later than the fourth quarter of 2000. BFC is in the process of accumulating and evaluating the information required to comply with this EITF issue, but does not expect reported financial results to be significantly impacted. Certain prior year amounts have been reclassified to conform to the 2000 presentation. 3. DIVESTED BUSINESSES During the first quarter of 1999, BFC received proceeds of $9,476 for working capital settlements on the sale of KLIM, and reduced current liabilities by $2,012, as costs were lower than previously estimated. During the second quarter of 1999, BFC sold the milk powder business located in China to Royal Numico. The sale generated proceeds of $7,112, resulting in a pre-tax gain of $10,838 and an after tax gain of $3,528. BFC had previously elected to exit the milk powder business and sold significant operations, excluding China, to Nestle, S.A. in 1998. At that time, BFC established divestiture reserves of $4,289 for costs to close operations in China, and recorded $12,794 to write-down assets to estimated net realizable value. As a result of the sale, certain remaining liabilities for closure costs of $3,112 were no longer required. Activities related to the divestiture reserves during the three and six months ended June 30, 2000, which were recorded in other current liabilities, were as follows: - ------------------------------------------------------------------------------ Business & Selling, Work-Force Contractual Legal & Reductions(1) Obligations(2) Other(3) TOTAL - ------------------------------------------------------------------------------ Balance at December 31, 1999 $ 1,351 $8,270 $1,337 $10,958 Utilized (1,105) (672) (420) (2,197) ------------------------------------------------- Balance at March 31, 2000 $ 246 $7,598 $917 $8,761 Utilized (193) (40) - (233) ------------------------------------------------- Balance at June 30, 2000 $ 53 $7,558 $917 $8,528 ================================================= - ------------------------------------------------------------------------------ (1) Includes severance and other employee related benefits. (2) Includes charges related to the termination of leases, distributor arrangements, and other contractual agreements. (3) Includes selling and legal fees, facility closings, and other miscellaneous costs. - ------------------------------------------------------------------------------ 4. AFFILIATE'S SHARE OF INCOME In accordance with BFC Investment LP's limited partnership agreement with BFC and LLC, LLC was allocated an affiliate's share of income (see accompanying condensed consolidated statements of operations) of $123 and ($174) during the first six months of 2000 and 1999, respectively. BFH 9 5. COMPREHENSIVE INCOME Comprehensive income was computed as follows: - --------------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, 2000 1999 2000 1999 -------- -------- --------- -------- Net income $(9,914) $(5,297) $(20,102) $(5,723) Foreign currency translation adjustments 104 1,072 (1,749) (1,715) -------- -------- --------- -------- $(9,810) $(4,225) $(21,851) $(7,438) ======== ======== ========= ======== - --------------------------------------------------------------------------------- 6. RELATED PARTIES Borden and a subsidiary of Borden provide certain administrative services to BFC at negotiated fees. These services include processing of payroll, active and retiree group insurance claims, securing insurance coverage for catastrophic claims, and information systems support. BFC also reimburses the Borden subsidiary for payments for general disbursements and post-employment benefit claims. The amount owed by BFC for reimbursement of payments, services, and other liabilities was $606 at June 30, 2000 and $777 at December 31, 1999. During the first quarter of 2000, the subsidiary of Borden was sold to a third party. The third party continues to provide services that include processing of payroll, active and retiree group insurance claims, and securing insurance coverage for catastrophic claims. Subsequent to the sale of the subsidiary, fees for these services were no longer considered affiliate charges. Eligible U.S. employees are provided employee pension benefits under the Borden domestic pension plan to which BFC contributes, and can participate in the Borden retirement savings plan. BFC has recognized expenses associated with these benefits, certain of which are determined by Borden's actuary. The liabilities for these obligations are included in BFC's financial statements. The following summarizes the affiliate charges for the three and six months ended June 30, 2000 and 1999: - -------------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, 2000 1999 2000 1999 ------ ------ ------ ------- Employee benefits $1,115 $ 678 $2,022 $ 1,363 Group and general insurance - 841 626 2,091 Administrative services 1,022 4,078 2,505 7,407 ------ ------ ------ ------- $2,137 $5,597 $5,153 $10,861 ====== ====== ====== ======= - -------------------------------------------------------------------------------- BFC performs certain administrative services on behalf of other Borden affiliates. These services include customer service, purchasing and quality assurance. BFC charged affiliates $250 and $168 for such services for the three months ended June 30, 2000 and 1999, respectively, and $372 and $405 for such services for the six months ended June 30, 2000 and 1999, respectively. The receivable for these services was $938 at June 30, 2000 and $972 at December 31, 1999. BFH 10 BFC invests cash not used in operations with Borden. BFC's investment balance was $219,450 at June 30, 2000 and $234,550 at December 31, 1999. The funds are invested overnight earning a rate set by Borden that generally approximates money market rates. BFC earned interest income of $4,014 and $3,402 on these funds for the three months ended June 30, 2000 and 1999, respectively, and $7,992 and $6,659 for the six months ended June 30, 2000 and 1999, respectively. Amounts receivable for interest were $575 and $1,861 at June 30, 2000 and December 31, 1999, respectively. Borden continues to provide executive, financial and strategic management to BFC for which it charges a quarterly fee of $250. BFC has borrowed funds from LLC for use in operations at a variable interest rate of approximately 5.7%. Loans payable to LLC were $3,263 and $2,513 as of June 30, 2000 and December 31, 1999, respectively. 7. UNIT INCENTIVE PLAN During the first quarter of 2000, LLC sold 99,492 Class D units to certain BFC management employees. The Class D units are generally restricted as to transfer and allow for LLC, at its discretion, to repurchase the units, upon certain conditions including termination of the unitholders' employment, prior to full vesting after five years. Under the Unit Incentive Plan, BFC issued four UAR's with an exercise price of $8.50 per unit for each Class D unit purchased. The UAR entitles the unitholder to receive an amount in cash equal to the excess of the market price (as defined in the UAR agreement) of the unit over the exercise price of the UAR. The UAR's vest ratably over five years and expire upon certain events, including termination of the unitholders' employment, but in no case to exceed ten years. 8. COMMITMENTS AND CONTINGENCIES Legal Matters - -------------- BFC is involved in certain legal proceedings arising through the normal course of business. Management is of the opinion that the final outcomes of such proceedings should not have a material impact on BFC's results of operations or financial position. BFH 11 WISE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 WH 1 - --------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) WISE HOLDINGS, INC. AND SUBSIDIARIES THREE MONTHS ENDED JUNE 30, (In thousands except per share amounts) 2000 1999 - --------------------------------------------------------------------------- Net sales $65,476 $59,016 Cost of goods sold 40,565 36,572 ------- ------- Gross margin 24,911 22,444 Distribution expense 7,879 7,260 Marketing expense 10,235 8,661 General & administrative expense 4,092 5,488 ------- ------- Operating income 2,705 1,035 Interest expense 155 166 Other expense 21 133 ------- ------- Income before income taxes 2,529 736 Income tax expense 963 311 ------- ------- Net income $ 1,566 $ 425 ======= ======= Per Share Data - -------------- Basic and diluted income per common share $ 22.37 $ 6.07 Average number of common shares outstanding during the period 70 70 - --------------------------------------------------------------------------- See Notes to Condensed Consolidated Financial Statements WH 2 - ------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) WISE HOLDINGS, INC. AND SUBSIDIARIES SIX MONTHS ENDED JUNE 30, (In thousands except per share amounts) 2000 1999 - ------------------------------------------------------------------------------ Net sales $122,677 $108,972 Cost of goods sold 75,867 67,987 -------- --------- Gross margin 46,810 40,985 Distribution expense 15,687 14,025 Marketing expense 19,339 16,797 General & administrative expense 8,279 9,863 -------- --------- Operating income 3,505 300 Interest expense 271 285 Other expense 18 175 -------- --------- Income (loss) before income taxes 3,216 (160) Income tax expense (benefit) 1,232 (24) -------- --------- Net income (loss) $ 1,984 $ (136) ======== ========= Per Share Data - -------------- Basic and diluted income (loss) per common share $ 28.34 $ (1.94) Average number of common shares outstanding during the period 70 70 - ------------------------------------------------------------------------------ See Notes to Condensed Consolidated Financial Statements WH 3 - ----------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) WISE HOLDINGS, INC. AND SUBSIDIARIES (In thousands) JUNE 30, DECEMBER 31, ASSETS 2000 1999 - ----------------------------------------------------------------------------------- CURRENT ASSETS Cash and equivalents $ 2,613 $ 2,072 Accounts receivable (less allowance for doubtful accounts of $2,444 and $2,261, respectively) 24,199 22,690 Affiliated receivables 106 1 Inventories: Finished goods 4,862 3,942 Raw materials and supplies 3,532 3,883 Deferred income taxes, net 1,598 1,923 Prepaid and other current assets 4,805 3,668 --------- ---------- 41,715 38,179 --------- ---------- PROPERTY AND EQUIPMENT Land 1,434 1,412 Buildings and improvements 6,513 6,103 Machinery and equipment 54,072 51,185 --------- ---------- 62,019 58,700 Less accumulated depreciation 28,145 24,949 --------- ---------- 33,874 33,751 --------- ---------- INTANGIBLES AND OTHER ASSETS Trademarks (net of accumulated amortization of $2,585 and $2,350, respectively) 16,226 16,461 Other assets 930 836 --------- ---------- 17,156 17,297 --------- ---------- TOTAL ASSETS $ 92,745 $ 89,227 ========= ========== - ----------------------------------------------------------------------------------- See Notes to Condensed Consolidated Financial Statements WH 4 - --------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) WISE HOLDINGS, INC. AND SUBSIDIARIES (In thousands) JUNE 30, DECEMBER 31, LIABILITIES AND SHAREHOLDER'S EQUITY 2000 1999 - --------------------------------------------------------------------------------- CURRENT LIABILITIES Debt payable within one year $ 3,900 $ 6,566 Accounts and drafts payable 18,030 12,996 Affiliated payables 131 238 Accrued liabilities 13,102 13,662 ------- ------- 35,163 33,462 ------- ------- OTHER LIABILITIES Deferred income taxes, net 582 1,539 Non-pension postemployment benefit obligations 10,210 10,101 Affiliated employee benefit obligation 3,351 2,818 Other long-term liabilities 442 333 Minority interest 1,164 1,125 ------- ------- 15,749 15,916 ------- ------- COMMITMENTS AND CONTINGENCIES (NOTE 6) SHAREHOLDER'S EQUITY Common stock - $0.01 par value 70 shares authorized, issued and outstanding - - Preferred stock - $0.01 par value 30 shares authorized, none issued and outstanding - - Paid in capital 34,980 34,980 Retained earnings 6,853 4,869 ------- ------- 41,833 39,849 ------- ------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $92,745 $89,227 ======= ======= - --------------------------------------------------------------------------------- See Notes to Condensed Consolidated Financial Statements WH 5 - ------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) WISE HOLDINGS, INC. AND SUBSIDIARIES SIX MONTHS ENDED JUNE 30, (In thousands) 2000 1999 - ------------------------------------------------------------------------------ CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net income (loss) $ 1,984 $ (136) Adjustments to reconcile net income (loss) to net cash from operating activities Minority interest's share in income (loss) 39 (1) Depreciation 3,421 2,903 Amortization 235 235 Other non-cash 128 160 Net change in assets and liabilities: Accounts receivable (1,692) 366 Affiliated receivables (105) (89) Inventories (569) 790 Prepaid and other current assets (812) (27) Other assets (94) 42 Accounts and drafts payable 5,034 652 Affiliated payables (107) (107) Accrued liabilities (560) (1,977) Post-employment benefits other than pensions 109 16 Affiliated employee benefit obligation 533 394 Other long-term liabilities (848) (186) -------- -------- 6,696 3,035 -------- -------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capital expenditures (3,697) (5,250) Proceeds from sales of equipment 208 18 -------- -------- (3,489) (5,232) -------- -------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Long-term borrowings - 2,450 Repayment of short-term borrowings (2,666) (61) -------- -------- (2,666) 2,389 -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 541 192 Cash and equivalents at beginning of period 2,072 2,610 -------- -------- Cash and equivalents at end of period $ 2,613 $ 2,802 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest: $ 228 $ 345 Cash paid for taxes: 956 101 - ------------------------------------------------------------------------------ See Notes to Condensed Consolidated Financial Statements WH 6 WISE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except for per share information) 1. BACKGROUND In September 1994, Borden, Inc. ("Borden") entered into a merger agreement that provided for the acquisition (the "Acquisition") of all of Borden's outstanding common stock by affiliates of Kohlberg Kravis Roberts & Co. ("KKR"). Borden elected not to apply push down accounting in its consolidated financial statements as a result of public debt that was outstanding prior to the acquisition, and as such Borden's financial statements, including Wise Holdings, Inc. ("Wise"), are reported on Borden's historical cost basis. As discussed in the "Basis of Presentation," the accompanying financial statements of Wise have been prepared on a purchase accounting basis from the date of KKR's acquisition of Borden. The effective date of the merger agreement was January 1, 1995 for accounting and financial statement presentation purposes. Effective July 2, 1996, in a taxable transaction (the "Incorporation"), Borden sold its salty snacks business ("Wise operations") to BW Holdings LLC ("BWHLLC"), a KKR affiliate, for $45 million. The purchase price was based on an independent valuation of the business. There was no change in the financial reporting basis of the assets and liabilities as of July 2, 1996 from that described below under "Basis of Presentation" because Borden's principal stockholders will continue to exercise significant financial control over Wise. Wise fully and unconditionally guarantees obligations under Borden's credit facility and all of Borden's publicly held debt on a pari passu basis. In connection with this guarantee, Wise receives an annual fee of $210. 2. NATURE OF OPERATIONS Wise is a producer and distributor of salty snacks in the eastern United States. Wise's product line includes potato chips, cheese flavored baked and fried corn snacks, pretzels, tortilla chips, corn chips, onion rings, pork rinds and other assorted snacks. Wise markets its products under the brand names of WISE(R), CHEEZ DOODLE(R), QUINLAN(R), NEW YORK DELI(R), KRUNCHERS!(R), BRAVO(R), MOORE'S(R) AND WISE CHOICE(TM). Wise manufactures and distributes primarily in the eastern United States. Wise's products are distributed through both independent and company-owned distribution networks. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - ----------------------- As a result of the financial guarantee and in accordance with Regulation S-X rule 3-10, Borden is required to include in its filings with the Securities and Exchange Commission separate financial statements for Wise as if it were a registrant. The accompanying financial statements were prepared on a purchase accounting basis that allocates approximately $51 million of the original KKR purchase price of Borden to the Wise operations. The purchase price has been allocated to tangible and intangible assets and liabilities of Wise based on independent appraisals and management estimates. The consolidated financial statements include the accounts of Wise and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Wise remains a wholly owned subsidiary of BWHLLC. WH 7 The condensed consolidated financial statements of Wise collectively include the financial position of Wise Holdings, Inc. and subsidiaries as of June 30, 2000 and December 31, 1999. These financial statements also include the statements of operations of Wise for the three and six months ended June 30, 2000 and 1999 and cash flows of Wise for the six months ended June 30, 2000 and 1999. These unaudited interim condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results for the interim periods presented. Per Share Information - ----------------------- Basic and diluted earnings (loss) per common share at June 30, 2000 and 1999 is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period ended June 30, 2000 and 1999, respectively. Use of Estimates - ------------------ The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates in Wise's financial statements are related to allowance for doubtful accounts, accruals for trade promotions, general and group insurance, income taxes, postemployment benefits and asset lives. Actual results could differ from those estimates. Reclassifications - ----------------- Certain prior year amounts have been reclassified to conform with the 2000 presentation. Recently Issued Accounting Statements - ---------------------------------------- In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 1999, the FASB issued SFAS 137, which deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000, and requires all derivatives be measured at fair value and recorded on a company's balance sheet as an asset or liability, depending upon the company's underlying rights or obligations associated with the derivative instrument. Wise is investigating the impact of this pronouncement. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101 - Revenue Recognition, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Registrants must comply with the SAB no later than the fourth quarter of 2000. Application of the guidelines in this SAB will not have material impact on the financial statements of Wise. In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives", which addresses the recognition, measurement and income statement classification for sales incentives offered to customers. All provisions of the EITF are required to be reflected no later than the fourth quarter of 2000. Wise is in the process of accumulating and evaluating the information required to comply with this EITF issue, which is not expected to have a material impact on reported net income, however may result in an income statement reclassification of previously reported amounts. WH8

4. ACCRUED LIABILITIES Accrued liabilities were as follows: - -------------------------------------------------------------------- June 30, December 31, 2000 1999 ------- ------- Compensation $ 1,444 $ 2,670 General insurance 4,445 4,820 Advertising and promotion 3,139 3,800 Other 4,074 2,372 ------- ------- Total $13,102 $13,662 ------- ------- - -------------------------------------------------------------------- 5. DEBT AFFILIATED: Wise entered into a loan agreement (the "Loan Agreement") to borrow funds from Borden. Revolving Loan - --------------- The Revolving Loan Agreement, as amended, provided for a revolving loan facility of up to $5 million maturing in November 1999, at a variable interest rate equal to Borden's cost of funds for 30 day LIBOR borrowings plus 0.25%. A commitment fee of 0.10% is paid on the unused portion of the revolving loan. In December 1999, Wise entered into a new revolving loan agreement, which provided for a revolving facility of up to $15 million maturing in December 2000 at a variable interest rate equal to LIBOR borrowings plus between 75 and 175 basis points calculated using a debt to earnings ratio schedule. Wise had $3,900 and $6,450 of borrowings under this revolving agreement at June 30, 2000 and December 31, 1999, respectively. A commitment fee between 0.15% and 0.35% is paid on the unused portion of the revolving loan based on the same debt to earnings ratio schedule. Long-Term Loan - --------------- The Long Term Loan Agreement, as amended, also provided for a $10.145 million term loan with a fixed interest rate of 11% maturing in November 2000. Wise terminated this agreement in December 1999 and converted the remaining balance to the revolving loan. The Loan Agreement contains certain restrictions on the activities of Wise and its subsidiaries, including restrictions on liens, the incidence of indebtedness, mergers and consolidations, sales of assets, investments, payment of dividends (requires prior approval from Borden, as creditor), changes in nature of business, prepayments of certain indebtedness, transactions with affiliates, capital expenditures, changes in control of the Company, hedging activities and the use of proceeds from asset sales. NON AFFILIATED: Wise enters into unsecured agreements with a third party to finance insurance premiums. Total borrowings under these agreements were $0 and $116 at June 30, 2000 and December 31, 1999, respectively. WH 9 6. COMMITMENTS AND CONTINGENCIES Environmental Contingencies - ---------------------------- Wise, like others in similar businesses, is subject to extensive Federal, state and local environmental laws and regulations. Although Wise's environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments could require Wise to make additional unforeseen environmental expenditures. Environmental accruals are routinely reviewed as events and developments warrant and are subject to an annual comprehensive review. Litigation - ---------- Wise is subject to various investigations, claims and legal proceedings covering a wide range of matters in the ordinary course of its business activities. Each of these matters is subject to various uncertainties and some of these matters may be resolved unfavorably to Wise. Wise has established accruals for matters that are probable and reasonably estimable. Management believes that any liability that may ultimately result from the resolution of these matters in excess of amounts provided will not have a material adverse effect on the financial statements of Wise. 7. RELATED PARTIES In addition to the affiliated debt agreement, Wise is engaged in various transactions with Borden and its affiliated companies in the ordinary course of business. Borden provides certain administrative services to Wise at negotiated fees. These services include: processing of payroll as well as active and retiree group insurance claims and securing insurance coverage for catastrophic claims. Wise reimburses the Borden subsidiary for payments for general disbursements and general and group insurance and retirement benefit claims. The amount owed by Wise for these services is included in affiliated payables and was $131 and $238 at June 30, 2000 and December 31, 1999, respectively. In the first quarter of 2000, a subsidiary of Borden that provided certain affiliated services was sold to a third party. The third party continues to provide these services that include payroll processing and group insurance claims. Subsequent to the sale of the subsidiary, fees for these services were no longer considered affiliate charges. In the second quarter of 2000, Wise began using a third party to provide certain information system services that had previously been provided by a subsidiary of Borden. Subsequent to the change in vendors, fees for these services were no longer considered affiliate charges. WH 10

The following table summarizes the costs to Wise: - --------------------------------------------------------------------------------- Qtr ended June 30, Six months ended June 30, 2000 1999 2000 1999 ----- ----- ------ ------ Employee benefits $326 $ 431 $ 713 $ 843 Group and general insurance 12 219 289 652 Information services 12 152 188 281 Corporate staff departments and overhead 151 136 288 384 ----- ----- ------ ------ $501 $ 938 $1,478 $2,160 ===== ===== ====== ====== - --------------------------------------------------------------------------------- Wise also invests excess cash with Borden in one-day investments that totaled $1,200 and $1,150 at June 30, 2000 and December 31, 1999, respectively, which is included as a component of cash. WH 11

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

  

5 1000000000 6-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 25,400 6,660 303,000 10,800 122,100 576,000 857,400 319,200 1,662,400 680,900 588,700 0 614,400 2,000 (501,900) 1,662,400 737,200 737,200 514,600 514,600 150,800 0 29,300 45,900 21,200 24,700 93,000 0 0 117,700 .12 .12