Prior to Year 14, Borden, Inc. derived approximately 75 percent of its revenues from branded food products and 25 percent from packaging and industrial products. The geographical sales mix comprised approximately 67 percent in the United States and 33 percent from other countries, although, interestingly, the firm's manufacturing and processing facilities were equally split between the United States and other countries. In Year 14 and Year 15, Borden was acquired by a firm that specialized in takeovers and buyouts of established firms. As a result, the firm experienced substantial business realignments and financial restructuring during this period. Exhibit 6.16 presents an income statement and Exhibit 6.17 presents a.

statement of cash flows for Borden for Year 14, Year 15, and Year 16. The notes to the financial statements reveal the following additional information.
1. Restructuring charges and discontinued operations. For years, Borden reported continually increasing sales while maintaining a profit margin of approximately 4 percent. Borden regularly purchased branded food products companies and other businesses with the cash flows generated by its mature food products business. Sales and earnings started declining in Year 10, however, brought on by deteriorating market positions in certain branded food products segments and difficulties in managing the diverse set of businesses in which Borden competed. As a result, Borden embarked on a major restructuring program in Year 10. The restructuring program involved both organizational changes and divestiture of its North American snacks, seafood, jams and jellies, and other businesses. Four years later, Borden embarked on another restructuring brought on by factors similar to those identified in Year 10. (The firm reported no restructuring charges in Year 11, Year 12, or Year 13.) The restructuring charges/credits in Year 14, Year 15, and Year 16 related to streamlining operations and the charges involved employee severances and relocations and plant closings, part of which Borden included in continuing operations and part of which it included in income from discontinued operations. The loss on disposal recognized in Year 14 represented a pretax charge of $637 million ($490 million after taxes) to provide for the expected future disposal of the North American businesses described previously. The charges and credits in Year 15 and Year 16 were related to these businesses as well.
2. Loss/gain on divestitures. In Year 16, the firm redesigned its operating structure and decided to divest additional businesses. The firm recorded a $245 million
charge related to the estimated losses on the disposal or consolidation of these businesses. The firm indicated that a large portion of the charge was related to the excess of net book values over expected proceeds. 3. Impairment losses. In Year 15, Borden wrote down goodwill, plant, and equipment totaling $293 million. The firm concluded that ongoing and projected operating losses reported by the businesses represented by these assets indicated that the carrying values of the assets were not expected to be recovered by their future cash flows. The firm stated that the future cash flow projections were measured at the business level, which is the level at which the business is managed. A similar write-down of $8 million was recorded in Year 16.
Required
a. Why do the amounts for restructuring charges in the income statement in Exhibit 6.16 differ from the amounts for restructuring charges reported in the operations section of the statement of cash flows in Exhibit 6.17?

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b. Why does the amount for loss on disposal of discontinued operations in the income statement in Exhibit 6.16 in Year 14 differ from the amount reported in the operations section of the statement of cash flows in Exhibit 6.17?
c. Discuss whether you would eliminate each of the following items when using earnings to forecast the future profitability of Borden: (1) restructuring charges,
(2) discontinued operations, (3) loss or gain on divestitures, and (4) impairment losses.
d. Assume for this part that you have decided to eliminate each of the four items in part c plus the adjustment for the accounting change. Indicate the change in net income as a result of such eliminations. The income tax rate is 35 percent for Year 14, Year 15, and Year 16.
e. Prepare a common-size income statement for Borden after eliminating the items in part d. Set sales equal to 100 percent.
f. Assess the changes in the profitability of Borden during the three-year period.

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EXHIBIT 6.15 Wyeth Corporation Income Statement (amount in thousands) (Problem 6.13) Year 3 Year 2 Year 1 $15,850,632 4,377,086 Selling, General, and Administrative Expenses .5,468,174 2,093,533 103,140 (332,264) (860,554) 2,000,000 639,905 $14,584,035 $13,983,745 3,388,776 5,034,516 1,869,679 146,358 (274,331) Net Revenue 3,918,387 5,010,507 2,080,191 Interest Expense, net r Other Income, net . 202,052 (382,931) (4,082,216) 1,400,000 2,361,6126,097,245 2,868,747 4,447,205 950,000 Special Charges Income before Federal and Foreign Taxes....... Provision for Federal and Foreign Taxes........ 340,800 310420 1650,040583,453 2,285,294 EXHIBIT 6.16 Borden, Inc. Income Statement (amounts in millions) (Problem 6.14) Year 16 Year 15 Year 14 Continuing Operations Sales $5,944 $6,261 $6,226 35 (4,136) (4,240) 4,083) Other Income (Expense), net (18) (138) 1 (115) (15) 59 (293) (143) (41) (Loss) Gain on Divestitures Interest Income Taxes Income (Loss) from Continuing Operations.(442) (566) (97) Discontinued Operations, net of tax effects Gain (Loss) on Disposal. (245) (140) (15) (140) (41) S 927 (26) 67 (59) (490) 76 (32) 516) )from Discontinued Operation Accounting Changes, net of taxes Postretirement Benefits Other than Pensions Net Income (Loss) -(18) ...$(366) (598) $(631) EXHIBIT 6.17 Borden, Inc. Statement of Cash Flows (amounts in millions) Problem 6.14) Year 16 Year 15 Year 14 Operations Net Income (Loss) x.. 157 245 (53) 224 637 53 Loss on Disposal- Discontinued Operations. Restructuring.. Impairment Losses... (Increase) Decrease in Accounts Receivable (Increase) Decrease in Inventories Inicrease (Decrease) in Accounts Payable Increase (Decrease) in Current and Deferred Taxes....... Other Changes in Working Capital Accounts 95 (57) 293 (41) (44) 50 24 (7) (92) 10 30 (27) (242) 92 Cash Flow from Operations....$ 82 152 Investing Capital Expenditures .. Divestiture of Businesses and Sale of Securities... 2 50) (17) 53 289 6 409 So 259 $133) Cash Flow from Investing.80 25 Financing Increase in Long-Term Debt.. 33) 192) (85) $(536) 275 12 616 (436) (493)(129) 36) (127) (472)150)400 (43) Dividends Other S(142) 042) S005) Change in Cash Cash Beginning of Year. Cash-End of Year 20 S25 (86) 125100186 125 100 …………………….