The Borden intangibles, consisting of trademarks and brand names are also deemed to have an indefinite life. All intangibles will be subject to periodic impairment testing and will be adjusted to fair value. This statement is effective for fiscal years beginning after December 15, 2001, and is not expected to have a material impact.

Other Matters
None.

Effect of Inflation
During the last three fiscal periods, inflation has not had a material effect on our business. We have experienced increases in our cost of borrowing and raw materials, though generally not related to inflation. In general, we have increased the majority of customer sales prices to recover significant raw material cost increases. However, these changes in prices have historically lagged price increases in our raw material costs.

Quantitative and Qualitative Disclosures about Market Risk
Our principal exposure to market risk associated with financial instruments relates to interest rate risk associated with variable rate borrowings and foreign currency exchange rate risk associated with borrowings denominated in foreign currency. We occasionally utilize simple derivative instruments such as interest rate swaps to manage our mix of fixed and floating rate debt. We had various fixed interest rate swap agreements with notional amounts of $80 million

outstanding at September 30, 2001. The estimated fair value of the interest rate swap agreements of $(429,000) is the amount we would be required to pay to terminate the swap agreements at September 30, 2001. If interest rates for our long-term debt under our credit facility had averaged 10% more and the full amount available under our credit facility had been outstanding for the entire year, our interest expense would have increased, and income before taxes would have decreased by $1.1 million for the year ended September 30, 2001. We hedge our net investment in our foreign subsidiaries with euro borrowings under our credit facility. Changes in the U.S. dollar equivalent of euro-based borrowings is recorded as a component of the net translation adjustment in the consolidated statement of stockholder’s equity.
The functional currency for our Italy operation is the Euro. At September 30, 2001, long-term debt includes obligations of 63.3 million Euros ($54.0 million) under a credit facility which bears interest at a variable rate based upon the Euribor rate.