<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 23, 1994
-------------------------------------------
Commission file number 1-9699
---------------------------------------------------
BORDEN CHEMICALS AND PLASTICS LIMITED
PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 31-1269627
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 73, Geismar, Louisiana 70734
----------------------------------------------
(Address of principal executive offices)
(504) 673-6121
-----------------------------------------------------------
(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 Common Units outstanding as of the close of business on October 21,
1994: 36,750,000
Page 1 of 17
<PAGE> 2
<TABLE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
--------------
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per Unit data)
<CAPTION>
Three Months Three Months
Ended Ended
September 23, 1994 September 24, 1993
------------------ ------------------
<S> <C> <C>
Revenues
Net trade sales $ 130,940 $ 89,850
Net affiliated sales 38,541 21,151
--------- ---------
Total revenues 169,481 111,001
--------- ---------
Expenses
Cost of goods sold
Trade 83,472 83,838
Affiliated 24,111 19,424
Marketing, general and administrative expenses 5,733 4,793
Interest expense 4,107 4,110
Incentive distribution to General Partner 6,097
Other (income) and expense, including minority interest 5,315 307
--------- ---------
Total expenses 128,835 112,472
--------- ---------
Net income (loss) 40,646 (1,471)
Less 1% General Partner interest (406) 15
--------- ---------
Net income (loss) applicable to Limited Partners' interest $ 40,240 $ (1,456)
========= =========
Net income (loss) per Unit $ 1.09 $ (.04)
========= =========
Average number of Units outstanding during the period 36,750 36,750
========= =========
Cash distributions declared per Unit $ 1.02 $ .12
========= =========
</TABLE>
Page 2 of 17
<PAGE> 3
<TABLE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
--------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per Unit data)
<CAPTION>
Nine Months Nine Months
Ended Ended
September 23, 1994 September 24, 1993
------------------ ------------------
<S> <C> <C>
Revenues
Net trade sales $ 345,422 $ 248,113
Net affiliated sales 92,711 59,463
--------- ---------
Total revenues 438,133 307,576
--------- ---------
Expenses
Cost of goods sold
Trade 258,793 232,024
Affiliated 67,432 54,863
Marketing, general and administrative expenses 15,298 14,153
Interest expense 12,009 12,066
Incentive distribution to General Partner 8,751
Other (income) and expense, including minority interest 6,312 530
--------- ---------
Total expenses 368,595 313,636
--------- ---------
Net income (loss) 69,538 (6,060)
Less 1% General Partner interest (695) 61
--------- ---------
Net income (loss) applicable to Limited Partners' interest $ 68,843 $ (5,999)
========= =========
Net income (loss) per Unit $ 1.87 $ (.16)
========= =========
Average number of Units outstanding during the period 36,750 36,750
========= =========
Cash distributions declared per Unit $ 1.88 $ .60
========= =========
</TABLE>
Page 3 of 17
<PAGE> 4
<TABLE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Nine Months Nine Months
Ended Ended
September 23, 1994 September 24, 1993
------------------ ------------------
<S> <C> <C>
Cash Flows From Operations
Net income (loss) $ 69,538 $ (6,060)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 32,941 32,171
Increase in receivables (34,305) (12,269)
Decrease (increase) in inventories 3,389 (2,581)
Increase in payables 3,348 11,574
Increase in incentive distribution payable 6,097
Increase in accrued interest 3,825 3,870
Other, net 8,524 (1,208)
--------- ---------
93,357 25,497
--------- ---------
Cash Flows From Investing Activities
Capital expenditures (14,215) (7,991)
--------- ---------
Cash Flows From Financing Activities
Cash distributions paid (38,633) (29,326)
--------- ---------
Increase (decrease) in cash and equivalents 40,509 (11,820)
Cash and equivalents at beginning of period 9,054 19,389
--------- ---------
Cash and equivalents at end of period $ 49,563 $ 7,569
========= =========
Supplemental Disclosure of Cash Flow Information
Interest paid during the period $ 8,184 $ 8,196
========= ========
</TABLE>
Page 4 of 17
<PAGE> 5
<TABLE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
----------------
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<CAPTION>
ASSETS
------
September 23, 1994 December 31, 1993
------------------ -----------------
<S> <C> <C>
Cash and equivalents $ 49,563 $ 9,054
Accounts receivable (less allowance for doubtful
accounts of $510 and $768, respectively)
Trade 71,719 48,990
Affiliated 29,843 18,267
Inventories
Finished goods 18,025 21,499
Raw materials 7,843 7,758
Other current assets 2,687 2,182
--------- ---------
Total current assets 179,680 107,750
--------- ---------
Investments in and advances to affiliated companies 3,742 3,623
Other assets 27,781 26,956
--------- ---------
31,523 30,579
--------- ---------
Land 12,051 12,051
Buildings 36,418 35,955
Machinery and equipment 517,530 505,236
--------- ---------
565,999 553,242
Less accumulated depreciation (279,364) (247,267)
--------- ---------
286,635 305,975
--------- ---------
$ 497,838 $ 444,304
========= =========
LIABILITIES AND
PARTNERS' CAPITAL
-----------------
Accounts and drafts payable $ 47,756 $ 44,408
Cash distributions payable 37,925 6,682
Incentive distribution payable to General Partner 6,097
Accrued interest 5,670 1,845
Other accrued liabilities 13,595 8,515
--------- ---------
Total current liabilities 111,043 61,450
--------- ---------
Long-term debt 150,000 150,000
Minority interest in consolidated subsidiary 1,791 1,795
Other liabilities 5,137 854
--------- ---------
156,928 152,649
--------- ---------
Partners' capital
Common Unitholders 228,615 228,862
General Partner 1,252 1,343
--------- ---------
Total partners' capital 229,867 230,205
--------- ---------
$ 497,838 $ 444,304
========= =========
</TABLE>
Page 5 of 17
<PAGE> 6
<TABLE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(In thousands)
<CAPTION>
PREFERENCE COMMON GENERAL
UNITHOLDERS UNITHOLDERS PARTNER TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 $ 210,923 $ 48,025 $ 1,647 $ 260,595
Combination of preference and
common Units (210,923) 210,923
Net loss (5,999) (61) (6,060)
Cash distributions declared (22,050) (223) (22,273)
------------ ------------ ------------ ------------
Balances at September 24, 1993 $ -0- $ 230,899 $ 1,363 $ 232,262
============ ============ ============ ============
Balances at December 31, 1993 $ 228,862 $ 1,343 $ 230,205
Net income 68,843 695 69,538
Cash distributions declared (69,090) (786) (69,876)
------------ ------------ ------------
Balances at September 23, 1994 $ 228,615 $ 1,252 $ 229,867
============ ============ ============
</TABLE>
Page 6 of 17
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
1. Acquisition
-----------
On August 12, 1994, Borden Chemicals and Plastics Operating Limited
Partnership (the "Operating Partnership") entered into an agreement with
Occidental Chemical Corporation to purchase its Addis, Louisiana PVC
manufacturing facility. The Addis facility has an annual proven
production capacity of 450 million pounds per year, which will increase
the Operating Partnership's stated annual capacity for the production of
PVC resins by over 50 percent. The cash purchase price for the Addis
assets is $104.3 million, subject to certain customary post-closing
adjustments. The acquisition is subject to certain conditions,
including approval by the U.S. Federal Trade Commission, an
environmental assessment of the real estate upon which the Addis
facility is located and the financing of the acquisition.
2. New Offering of Units and Notes
-------------------------------
On October 7, 1994, Borden Chemicals and Plastics Limited Partnership
(the "Partnership") filed a registration statement on Form S-3 (File No.
33-55863) with the Securities and Exchange Commission ("SEC") relating
to the offering of up to 4.0 million Depositary Units (excluding an
over-allotment option for 600,000 additional Units) representing common
limited partner interests in the Partnership. The net proceeds of this
offering will be used to fund a portion of the purchase price of the
Addis facility.
On October 14, 1994 the Operating Partnership filed a registration
statement on Form S-1 (File No. 33-85186) with the SEC relating to the
offering of $200 million of Senior Notes. The Senior Notes offering is
contingent upon negotiation by the Operating Partnership of a right of
prepayment with holders of the Operating Partnership's existing Notes,
due November 30, 1997 and November 30, 1999. Management expects that
the prepayment price will involve payment by the Operating Partnership
of a prepayment premium. The Operating Partnership intends to use the
net proceeds from the sale of the Senior Notes first to prepay the
currently outstanding $150.0 million principal amount of existing Notes.
The remaining proceeds would be used to provide funds for the remaining
purchase price of the Addis facility and other permitted partnership
purposes.
3. Interim Financial Statements
----------------------------
The accompanying unaudited interim consolidated financial statements
contain all adjustments, consisting only of normal recurring
adjustments, which in the opinion of Borden Chemicals and Plastics
Management, Inc. (the "General Partner") are necessary for a fair
statement of the results for the interim periods. Results for the
interim periods are not necessarily indicative of the results for the
full year.
Page 7 of 17
<PAGE> 8
4. Combination of Preference and Common Units
------------------------------------------
With the payment of the 1992 fourth quarter distribution on February 12,
1993, all differences between the Preference and Common Units ceased and
all units became Common Units.
5. Contingencies
-------------
As a result of a Complaint filed on October 27, 1994 by the U.S.
Department of Justice ("DOJ") on behalf of the Environmental Protection
Agency ("EPA") against the Partnership, significant penalties and costs
for obtaining permits and performing environmental cleanup and
investigation at the Geismar, La. facility, may be incurred (depending
on the outcome of the litigation), portions of which could
be subject to the Environmental Indemnity Agreement ("EIA")
discussed below (see "Legal Proceedings").
Under the EIA, Borden has agreed, subject to certain specified
limitations, to indemnify the Partnership in respect of environmental
liabilities arising from facts or circumstances that existed and
requirements in effect prior to November 30, 1987, the date of the
initial sale of the Geismar and Illiopolis plants to the Partnership.
The Partnership is responsible for environmental liabilities arising
from facts or circumstances that existed and requirements that become
effective on or after such date. With respect to certain environmental
liabilities that may arise from facts or circumstances that existed and
requirements in effect both prior to and after such date, Borden and the
Partnership will share liabilities on an equitable basis considering all
of the facts and circumstances including, but not limited to, the
relative contribution of each to the matter and the amount of time each
has operated the assets in question (to the extent relevant). No claims
can be made under the EIA after November 30, 2002, and no claim can,
with certain exceptions, be made with respect to the first $500,000 of
liabilities which Borden would otherwise be responsible for thereunder
in any year, but such excluded amounts shall not exceed $3.5 million in
the aggregate. Excluded amounts under the EIA have aggregated
approximately $2.0 million through September 30, 1994.
In connection with potential environmental matters, a $4.0 million
provision has been included in the Partnership's third quarter financial
statements.
Page 8 of 17
<PAGE> 9
PART I. FINANCIAL INFORMATION
------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Acquisition and New Offering of Units and Notes
- -----------------------------------------------
On August 12, 1994, the Operating Partnership entered into an agreement
with Occidental Chemical Corporation to purchase its Addis, Louisiana PVC
manufacturing facility. The Addis facility has an annual proven production
capacity of 450 million pounds per year, which will increase the Operating
Partnership's stated annual capacity for the production of PVC resins by over
50 percent. The cash purchase price for the Addis assets is $104.3 million,
subject to certain customary post-closing adjustments. The acquisition is
subject to certain conditions, including approval by the United States Federal
Trade Commission, an environmental assessment of the real estate upon which the
Addis facility is located and the financing of the acquisition.
On October 7, 1994, the Partnership filed a registration statement on
Form S-3 (File No. 33-55863) with the SEC relating to the offering of up to 4.0
million Depositary Units (excluding an over-allotment option for 600,000
additional Units) representing common limited partner interests in the
Partnership. The net proceeds of this offering will be used to fund a portion
of the purchase price of the Addis facility.
On October 14, 1994 the Operating Partnership filed a registration
statement on Form S-1 (File No. 33-85186) with the SEC relating to the offering
of $200 million of Senior Notes. The Senior Notes offering is contingent upon
negotiation by the Partnership of a right of prepayment with holders of the
Operating Partnership's existing Notes, due November 30, 1997 and November 30,
1999. Management expects that the prepayment price will involve payment by the
Operating Partnership of a prepayment premium. The Operating Partnership
intends to use the net proceeds from the sale of the Senior Notes first to
prepay the currently outstanding $150.0 million principal amount of existing
Notes. The remaining proceeds would be used to provide funds for the remaining
purchase price of the Addis facility and other permitted partnership purposes.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 23, 1994 COMPARED TO QUARTER ENDED SEPTEMBER 24, 1993
Total Revenues
- --------------
Total revenues for the third quarter of 1994 increased 52.7% to $169.5
million compared to $111.0 million in the third quarter 1993.
Total revenues for PVC Polymers Products increased 29.1% to $88.7 million
from $68.7 million in 1993. The improvement was due to strong increases in
volume and selling prices for PVC resins as industry demand continues to exceed
product availability.
Page 9 of 17
<PAGE> 10
Total revenues for Methanol and Derivatives increased 95.7% to $62.7
million in 1994 from $32.1 million in 1993. Selling prices approximately
doubled from the 1993 period due to the worldwide tightness in the methanol
market resulting from limited growth in methanol supply and industry
consolidations in recent years and increased demand for methanol and
formaldehyde in downstream applications such as methyl tertiary butyl ether
("MTBE") and adhesives.
Total revenues for Nitrogen Products increased 76.5% to $18.1 million in
1994 from $10.2 million in 1993. Ammonia selling prices and volumes increased
significantly due to strong demand for industrial applications and the
worldwide tightness in the ammonia market. Urea selling prices improved
moderately on comparable volumes.
Cost of Goods Sold
- ------------------
Total cost of goods sold increased 4.2% to $107.6 million in 1994 from
$103.3 million in 1993. The increase was primarily a result of the increased
PVC and ammonia volumes discussed above. Aggregate raw material costs were
comparable to 1993 with reduced unit costs for natural gas offsetting increased
unit costs for ethylene and chlorine. Expressed as a percentage of total
revenues, cost of goods sold decreased to 63% of revenues in 1994 from 93% in
1993, resulting in greatly improved gross margins and net income for the
Partnership.
Gross margins for PVC Polymers Products more than tripled as a result of
improved selling prices and volumes, partially offset by the increase in raw
material ethylene and chlorine costs.
Gross margins for Methanol and Derivatives increased over 700% as a
result of the higher selling prices combined with reduced natural gas costs.
Gross margins for Nitrogen Products improved from a slightly negative
position in 1993 to a moderately profitable position in 1994 on the strength of
increased ammonia selling prices and reduced natural gas costs.
Incentive Distribution to GeneraL Partner
- -----------------------------------------
An incentive distribution to the General Partner of $6.1 million was
generated in 1994 as a result of the third quarter cash distribution of $1.02
per Unit exceeding the target distribution of $.3647 per Unit (the "Target
Distribution") due to improved operating performance. The quarterly
distribution for the third quarter of 1993 did not exceed the Target
Distribution, resulting in no incentive distribution to the General Partner.
Other (Income) and Expense, Including Minority Interest
- -------------------------------------------------------
The net expense for the third quarter 1994 was $5.3 million compared to
$0.3 million in third quarter 1993. This increase was primarily due to a $4.0
million provision established in the third quarter 1994 for potential expenses
related to environmental matters.
Page 10 of 17
<PAGE> 11
Net Income (Loss)
- -----------------
Net income was $40.6 million compared to net loss of $1.5 million in the
third quarter 1993. As discussed above, the primary reasons for the improved
operating performance were significant selling price increases in all product
lines, volume improvements in PVC and ammonia, and stable aggregate raw
material costs.
NINE MONTHS ENDED SEPTEMBER 23, 1994 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 24, 1993
Total Revenues
- --------------
Total revenues for the first nine months of 1994 increased 42.4% to
$438.1 million compared to $307.6 million in 1993.
Total revenues for PVC Polymers Products increased 30.2% to $241.6
million from $185.5 million in 1993. The improvement was due to strong
increases in volume and selling prices for PVC resins resulting from strength
in the construction and automotive industries, as well as other applications.
Total revenues for Methanol and Derivatives increased 73.7% to $146.5
million in 1994 from $84.4 million in 1993. Increased volumes and significant
increases in selling prices were due to the worldwide tightness in the methanol
market resulting from limited growth in methanol supply and industry
consolidations in recent years and increased demand for methanol and
formaldehyde in downstream applications such as MTBE and adhesives.
Total revenues for Nitrogen Products increased 32.6% to $50.0 million in
1994 from $37.7 million in 1993. Ammonia selling prices increased
significantly fueled primarily by strong demand from industrial users and the
worldwide tightness in the ammonia market. Volumes were comparable to the same
period in 1993. Urea volumes and selling prices showed modest improvements.
Cost of Goods Sold
- ------------------
Total costs of goods sold increased 13.7% to $326.2 million in 1994 from
$286.9 million in 1993. The increase was a result of the increased volumes
discussed above and an aggregate raw material cost increase of approximately 7%
comprised of significant unit cost increases for chlorine offset by reduced
natural gas costs. Ethylene costs were comparable. Expressed as a percentage
of total revenues, cost of goods sold decreased to 74% of revenues in 1994 from
93% in 1993, resulting in greatly improved gross margins and net income for the
Partnership.
Gross margins for PVC Polymers Products more than doubled as a result of
improved selling prices and volumes, offset by substantially higher raw
material chlorine costs.
Gross margins for Methanol and Derivatives increased over 500% as a
result of increased volumes and significantly higher selling prices combined
with reduced natural gas costs.
Page 11 of 17
<PAGE> 12
Gross margins for Nitrogen Products improved from a slightly negative
position in 1993 to a profitable position in 1994 on the strength of the
ammonia selling price increases and reduced natural gas costs.
Incentive Distribution to General Partner
- -----------------------------------------
An incentive distribution to the General Partner of $8.8 million has been
generated in 1994 as a result of the second and third quarter cash
distributions of $0.65 and $1.02 per Unit, respectively, exceeding the Target
Distribution due to improved operating performance. The distributions
generated in the first three quarters of 1993 did not exceed the Target
Distribution, resulting in no incentive distribution to the General Partner.
Other (Income) and Expense, Including Minority Interest
- -------------------------------------------------------
The net expense for 1994 was $6.3 million compared to $0.5 million in
1993. This increase was primarily due to a $4.0 million provision established
in the third quarter 1994 for potential expenses related to environmental
matters. The increase was also partially due to the increase in the minority
interest in consolidated subsidiary due to the subsidiary's improved operating
performance.
Net Income (Loss)
- -----------------
Net income was $69.5 million compared to a net loss of $6.1 million in
1993. As discussed above, the primary reasons for the improved operating
performance were significant selling price increases in all product lines and
volume improvements in PVC and methanol, partially offset by increased raw
material costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operations
- --------------------------
Cash provided by operations increased to $93.4 million in 1994 from $25.5
million for the first nine months of 1993. The increase was primarily
attributable to the increase in net income and increased accruals for the
incentive distribution payable and other liabilities, offset by an increase of
$22.0 million in receivables.
Cash Flows From Investing Activities
- ------------------------------------
Capital expenditures for the first nine months of 1994 totaled $14.2
million, $4.6 million of which related to completion of the urea granulation
and expansion project and other discretionary capital projects and $9.6 million
of which related to non-discretionary projects, and environmental and safety
related projects. Non-discretionary capital expenditures vary with normal
equipment renovation requirements.
Cash Flows From Financing Activities
- ------------------------------------
Cash distributions of $38.6 million were paid during the first nine
months of 1994 compared to $29.3 million in the 1993 period. Distributions
paid in 1994 were for distributions declared for the fourth quarter 1993 and
first and
Page 12 of 17
<PAGE> 13
second quarters of 1994. The 1993 payments were for distributions declared for
the fourth quarter 1992 and first and second quarters of 1993.
On October 18, 1994, a cash distribution of $1.02 per Unit was declared
for the third quarter, payable November 7, 1994 to Unitholders of record
October 28, 1994. A cash distribution a $0.12 per Unit was declared for third
quarter 1993.
Cash distributions with respect to interim periods are not necessarily
indicative of distributions with respect to a full year. Moreover, due to the
cyclical nature of the Partnership's business, past distributions are not
necessarily indicative of future distributions.
The markets for and profitability of the Partnership's products have
been, and are likely to continue to be, cyclical. Periods of high demand, high
capacity utilization and increasing operating margins tend to result in new
plant investment and increased production until supply exceeds demand, followed
by periods of declining prices and declining capacity utilization until the
cycle is repeated. In addition, markets for the Partnership's products are
affected by the general economic conditions and a downturn in the economy could
materially adversely affect the Partnership. The principal raw material
feedstock for the Partnership's products is natural gas, the price of which has
been volatile in recent years. The other principal feedstocks are ethylene and
chlorine. Prices for these raw materials may change significantly from year to
year.
The Partnership expects to maintain a strong performance into 1995, based
on continuing positive trends within its product categories.
Environmental Litigation
- ------------------------
As a result of a complaint filed on October 27, 1994 by the U.S. DOJ
acting at the request of the U.S. EPA against the Operating Partnership, the
Partnership, and the General Partner, the Partnership could face significant
costs for penalties, obtaining permits and performing environmental cleanup and
investigation at the Geismar facility. The Partnership plans to vigorously
defend against the allegations in the complaint. See "Legal Proceedings."
Page 13 of 17
<PAGE> 14
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- ------- -----------------
Louisiana Groundwater Remediation Settlement Agreement
- ------------------------------------------------------
In 1985 the Louisiana Department of Environmental Quality ("LDEQ") and
Borden, Inc. ("Borden") entered into a Settlement Agreement that called for the
implementation of a long term groundwater and soil remediation program at the
Geismar complex to address contaminants, including ethylene dichloride ("EDC").
Also during this time frame, Borden commenced closure of various units
identified to have been contributors to the EDC contamination underlying the
Geismar complex. Borden and the Chemical Company (meaning herein the Operating
Partnership, and, in the applicable contexts, the Partnership) have implemented
the Settlement Agreement, and have worked in cooperation with the LDEQ to
remediate the groundwater and soil contamination. The Settlement Agreement
contemplated, among other things, that Borden would install a series of
groundwater monitoring and recovery wells, and recovery trench systems. The
Chemical Company believes that it already has sufficiently identified the
extent of the groundwater plume. Nevertheless, the Chemical Company intends to
drill and test some additional groundwater wells for the purpose of addressing
issues raised by LDEQ concerning whether the extent of the groundwater
contamination has been identified. Borden has paid substantially all of the
costs to date of the Settlement Agreement. It is unknown how long the
remediation program will continue.
Federal Environmental Enforcement Proceeding
- --------------------------------------------
On October 27, 1994, the DOJ acting at the request of the EPA filed an
action against the Operating Partnership, the Partnership, and the General
Partner in the United States District Court for the Middle District of
Louisiana ("Geismar enforcement proceeding"). The Complaint seeks civil
penalties for alleged violations of the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") and the Clean Air Act at the Geismar facility, as well as
corrective action at that facility. Prior to the filing of the Complaint, the
Chemical Company and DOJ had engaged in settlement discussions. The press
release issued by the DOJ and EPA and the press releases issued by the
Operating Partnership concerning the Complaint, are provided as Exhibits
hereto.
The federal government's primary allegations for which it seeks penalties
include claims that (i) the Chemical Company's international export of a
partially depleted mercuric chloride catalyst for recycling violated RCRA; (ii)
the Chemical Company should have applied for a RCRA permit for operation of its
valorization of chlorinated residuals ("VCR") unit and related tanks before
August 1991; and (iii) the Chemical Company should have applied for a RCRA
permit for the north trench sump at the Geismar complex because such sump
allegedly contains hazardous waste. The government's allegations include other
claims related to these and other alleged RCRA violations, as well as claims of
alleged violations of immediate release reporting requirements under CERCLA and
requirements governing particulate matter emissions under the Clean Air Act.
The Chemical Company plans to vigorously defend all of the above allegations.
Page 14 of 17
<PAGE> 15
Because of a reversal of LDEQ's position that the partially depleted
mercuric chloride catalyst was not a hazardous waste, and pending the outcome
of the Geismar enforcement proceeding, the Chemical Company has ceased
exporting the partially depleted mercuric chloride catalyst for recycling and
is currently handling it as if it were a hazardous waste. Accordingly, even if
a court should determine that the partially depleted catalyst was a hazardous
waste when it was exported, the Chemical Company does not anticipate that it
would incur material additional expenditures to continue to manage the
partially depleted catalyst as a hazardous waste.
In 1991, as a protective filing, the Chemical Company applied for a
hazardous waste permit for the VCR unit and related tanks. In January 1994, in
response to a petition from the Chemical Company to LDEQ for a determination
that the VCR unit does not require a RCRA permit, LDEQ determined that the VCR
unit is subject to RCRA. The Chemical Company continues to maintain that the
VCR unit is not subject to RCRA and has filed appeals of LDEQ's determination
in Louisiana State Courts.
In May 1994, the Chemical Company filed a Complaint for Declaratory
Judgment in the U.S. District Court in Baton Rouge seeking a determination that
(i) the partially depleted mercuric chloride catalyst was not a hazardous waste
when it was exported for recycling, (ii) the materials entering the VCR unit
and related tanks are not hazardous waste and (iii) the north trench sump does
not require a RCRA permit. The EPA has moved to dismiss this Complaint.
If the Chemical Company is unsuccessful in prosecuting its Declaratory
Judgment Action, or in defending itself against the Geismar enforcement
proceeding, it could be subject to three types of costs: (i) penalties, (ii)
corrective action, and (iii) costs needed to obtain a RCRA permit.
As to penalties, although the maximum statutory penalties that would
apply in a successful enforcement action by the United States would be in
excess of $150.0 million, the Chemical Company believes that, assuming the
Chemical Company is unsuccessful and based on information currently available
to it and an analysis of relevant case law and administrative decisions, the
more likely amount of any liability for civil penalties would not exceed
several million dollars.
If the Chemical Company is unsuccessful in either the Declaratory
Judgment Action or the Geismar enforcement proceedings, it could be subject to
costs for corrective action. The federal government can require corrective
action for a facility that applies for a RCRA permit. Corrective action could
require the Chemical Company to conduct investigatory and remedial activities
at the Geismar complex concurrently with the groundwater monitoring and
remedial program that the Chemical Company is currently conducting under the
Settlement Agreement with LDEQ. The DOJ has advised the Chemical Company that
it intends to seek facility-wide corrective action to address the contamination
at the Geismar complex. EPA has indicated that it intends to evaluate the
adequacy of the existing groundwater remediation project performed under the
Settlement Agreement with LDEQ, and to determine the potential for other areas
of contamination on or near the Geismar complex. The cost of any corrective
action could be material, depending on the scope of such corrective action.
However, the actual cost of a facility-wide corrective action cannot be
identified until the EPA provides substantially more information to the
Chemical Company.
Page 15 of 17
<PAGE> 16
As to permitting costs, the Chemical Company estimates that its costs to
complete the permitting process for the VCR unit and related tanks would be
approximately $1.0 million. The Chemical Company believes that the costs for
amending its pending RCRA permit application to include the north trench sump
would not be material.
Emergency Planning and Community Right-to-Know Act Proceeding
- -------------------------------------------------------------
In February 1993, an EPA Administrative Law Judge held that the
Illiopolis facility had violated CERCLA and the Emergency Planning and
Community Right to Know Act ("EPCRA") by failing to report certain relief valve
releases, which occurred between February 1987 and July 1989, that the Chemical
Company believes are exempt from CERCLA and EPCRA reporting. The Chemical
Company's petition for reconsideration was denied, a penalty hearing will be
scheduled, and further appeals are possible. Management does not believe that
any ultimate penalty arising from this proceeding would have a material adverse
effect on it.
Borden Environmental Indemnity
- ------------------------------
Under the EIA, subject to certain conditions, Borden has agreed to
indemnify the Chemical Company in respect of environmental liabilities arising
from facts or circumstances that existed and requirements in effect prior to
November 30, 1987, the date of the initial sale of the Geismar and Illiopolis
plants to the Chemical Company (the "Transfer Date"). The Chemical Company is
responsible for environmental liabilities arising from facts or circumstances
that existed and requirements in effect on or after the Transfer Date. With
respect to certain environmental liabilities that may arise from facts or
circumstances that existed and requirements in effect both prior to and after
the Transfer Date, Borden and the Chemical Company will share liabilities on an
equitable basis considering all of the facts and circumstances including, but
not limited to, the relative contribution of each to the matter and the amount
of time each has operated the asset in question (to the extent relevant). No
claims can be made under the EIA after November 30, 2002, and no claim can,
with certain exceptions, be made with respect to the first $500,000 of
liabilities which Borden would otherwise be responsible for thereunder in any
year, but such excluded amounts shall not exceed $3.5 million in the aggregate.
Excluded amounts under the EIA have aggregated approximately $2.0 million
through September 30, 1994.
If the United States is successful in the Geismar enforcement proceeding
and the Chemical Company is required to perform corrective action as a result
thereof, the Chemical Company anticipates that a portion of its corrective
action costs may be covered by the EIA. The Chemical Company's costs of
managing the partially depleted mercuric chloride catalyst would not appear to
be subject to the EIA. The extent to which any penalties or permit costs that
the Chemical Company may incur as a result of any of the above described
environmental proceedings will be subject to the EIA will depend, in large
part, on whether such penalties or costs are attributable to facts or
circumstances that existed and requirements in effect prior to the Transfer
Date.
Page 16 of 17
<PAGE> 17
General Proceedings
- -------------------
The Partnership is subject to various other legal proceedings and claims
which arise in the ordinary course of business. The management of BCPM
believes, based upon the information it presently possesses, that the realistic
range of liability to the Partnership of these other matters, taking into
account the Partnership's insurance coverage, including its risk retention
program, and the EIA with Borden, would not have a material adverse effect on
the financial position and results of operations of the Partnership.
Item 5. Other Events
- ------- ------------
On October 27, 1994, the EPA and DOJ issued a joint press release
(attached as Exhibit 99.1) announcing that the U.S. government filed a civil
action against the Partnership, the Operating Partnership, and the General
Partner alleging various environmental violations. See "Legal Proceedings."
Also on October 27, 1994, the Operating Partnership issued two press releases
(attached as Exhibit 99.2) regarding the government action.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
27. Financial Data Schedule
99.1 Press Release of the United States Department of Justice
and United States Environmental Protection Agency.
99.2 Two Press Releases of Borden Chemicals and Plastics
Operating Limited Partnership.
(b) Reports on Form 8-K
On July 19, 1994 the Registrant filed a Form 8-K announcing the
Partnership's results of operations for second quarter 1994.
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 CHEMICALS AND PLASTICS
LIMITED PARTNERSHIP
By BCP Management, Inc.,
General Partner
Date: November 7, 1994 By /s/ D. A. Kelly
----------------------------
D. A. Kelly
Treasurer
(Principal Financial Officer and
duly authorized signing officer)
Page 17 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-23-1994
<CASH> $49,563
<SECURITIES> 0
<RECEIVABLES> 101,562
<ALLOWANCES> 510
<INVENTORY> 25,868
<CURRENT-ASSETS> 179,680
<PP&E> 565,999
<DEPRECIATION> 279,364
<TOTAL-ASSETS> 497,838
<CURRENT-LIABILITIES> 111,043
<BONDS> 150,000
<COMMON> 0
0
0
<OTHER-SE> 229,867
<TOTAL-LIABILITY-AND-EQUITY> 497,838
<SALES> 438,133
<TOTAL-REVENUES> 438,133
<CGS> 326,225
<TOTAL-COSTS> 326,225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 170
<INTEREST-EXPENSE> 12,009
<INCOME-PRETAX> 69,538
<INCOME-TAX> 0
<INCOME-CONTINUING> 69,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $69,538
<EPS-PRIMARY> 1.87
<EPS-DILUTED> $1.87
</TABLE>
<PAGE> 1
Exhibit 99.1
ENFORCEMENT NEWS
UNITED STATES UNITED STATES
[SEAL] DEPARTMENT OF [SEAL] ENVIRONMENTALPROTECTION
JUSTICE AGENCY
- ----------------------------------------------------------------------------
FOR RELEASE: THURSDAY, OCTOBER 27, 1994
U. S. FILES MULTI-MILLION DOLLAR ACTION
AGAINST BORDEN CHEMICALS AND PLASTICS FOR
ILLEGAL HAZARDOUS WASTE MANAGEMENT PRACTICES
AND FOR CLEANUP OF CONTAMINATED GROUNDWATER
EPA/GWENDOLYN BROWN 202-260-1384
DOJ/BERT BRANDENBURG 202-616-0189
The U.S. government today filed a civil action against Borden
Chemicals and Plastics Operating Limited Partnership and two related Borden
entities to compel Borden to clean up a release of cancer-causing and other
hazardous contaminants into the groundwater at its Geismar, La., facility. The
action also seeks a multi-million dollar penalty for the illegal shipment of
hundreds of thousands of pounds of hazardous waste to South Africa and the
operation of unpermitted hazardous waste facilities, including an incinerator.
The lawsuit, brought under federal hazardous waste and clean air laws, will
also force Borden Chemicals to comply fully with all environmental statutes.
The Geismar facility manufacturers chemicals, including vinyl chloride,
ammonia, and polyvinyl chloride (PVC), which is used for production of plastic
pipes and other plastic products. The facility is located on the Mississippi
River, in a highly industrialized area, with a predominantly African-American
population.
"The Clinton Administration is committed to making sure that no company
will realize unfair profits from polluting anywhere in the U.S., but
particularly in minority and low-income communities that already face
disproportionate risks," said EPA Administrator Carol M. Browner.
R-263
(more)
<PAGE> 2
-2-
"This case will send the message that those who attempt to circumvent the
hazardous waste laws do so at their peril," said U.S. Atorney General Janet
Reno. "For years, Borden stored and disposed of large quantities of hazardous
wastes in violation of the law. Such practices can only be stopped with
vigorous enforcement"
The complaint against Borden Chemical and Plastics includes a claim for
"corective action" under the Resource Conservation and Recovery Act (RCRA),
under which the U.S. will be seeking to force Borden to evaluate the extent of,
and clean up, contamination of the groundwater. EPA has already determined that
the contaminants that have been released to the groundwater at the Geismar
facility include vinyl chloride, a know carcinogen, and ethylene dichloride, a
probable carcinogen. In addition, the lawsuit alleges that Borden operated a
hazaradous waste incinerator and other hazardous waste units without RCRA
permits.
The United States also alleges that Borden shipped over 300,000 pounds of
hazaradous waste to a Thor Chemicals facility located in South Africa without
notifying EPA as required by RCRA. These violations prevented EPA from properly
verifying that the shipments were identified as hazaradous waste and whether or
not South Africa consented to accept the hazaradous waste. The Borden shipments
went to the Thor chemicals facility purportedly for recycling, but little or
none of the waste was actually recycled. Borden has already publicly
acknowledged that approximately 2,500 barrels containing mercury and vinyl
chloride wastes were found at the Thor facility with Borden labels.
"Environmental pollution does not stop at U.S. borders, and we will use all
of our enforcement authorities against those who engage in the illegal
international hazardous waste trade. By doing so, we will protect people from
mismanaged wastes generated in the United States, and eliminate any competitive
advantgage illegal exporters gain at the expense of U.S. companies that comply
with our environmental laws," Browner said.
The complaint also alleges that Borden failed to meet Louisiana's standards
for controlling the emission into the air of urea particulates, or dust-like
particles. Particulate emissions can interfere with breathing and aggravate
exisiting respiratory and cardiovascular disease. In addition, the lawsuit
alleges that Borden violated the federal Comprehensive Environmental Response,
Compensation, and Liability Act by failing to immediately notify authorities
following the 1990-91 release of thousands of pounds of hazardous chemicals
(including vinyl chloride and ammonia).
R-263
<PAGE> 1
EXHIBIT 99.2
BCP A DELAWARE LIMITED PARTNERSHIP
BORDEN CHEMICALS and PLASTICS
OPERATING LIMITED PARTNERSHIP
BCP Management, Inc., General Partner NEWS
CONTACT: Marshall Owens FOR IMMEDIATE RELEASE
(504) 673-0671 October 27, 1994
BCP CHALLENGES EPA FINDINGS
GEISMAR, Louisiana -- Borden Chemicals and Plastics Operating Limited
Partnership (BCP) today charged the Environmental Protection Agency (EPA) with
making "retroactive changes" in hazardous waste regulations that violate the
"basic concepts of fairness and due process."
"It is simply wrong to allow a federal agency to retroactively change
the rules on what constitutes hazardous waste and then attempt to punish a
business because it was not in compliance before the rules were changed," said
Wayne Leonard, BCP's vice president and general manager.
BCP claims it is being sued by EPA because it relied on the legal
determination of hazardous waste, as confirmed by the Louisiana Department of
Environmental Quality (DEQ), at the time it began shipping catalyst off-site
for processing and reuse. The central issue in the lawsuit is what
constitutes - or does not constitute - hazardous waste.
-more-
P.O. BOX 427, GEISMAR, LA 70734 * TELEPHONE (504) 673-6121
<PAGE> 2
2-2-2
When BCP began shipping the partially-depleted catalyst back to the
manufacturer for processing, Leonard said it was costing BCP four times as much
as it would have to dispose of it as waste material. "We didn't ship the
material to be processed beause it was cheaper," Leonard said, "we did it
because we felt it was the proper thing to do for the environment."
In 1993, DEQ confirmed that the catalyst was not a hazardous waste.
And even though DEQ is the EPA's delegated agent in Louisiana for administering
the hazardous waste program, EPA disagreed with the state agency.
On May 5, 1994, BCP filed suit in federal court against EPA asking for
a declaratory judgment to uphold DEQ's decision. After the lawsuit was filed
and after BCP ceased shipments to the manufacturer, DEQ abruptly reversed
itself. BCP's lawsuit against the EPA is still pending.
"No industry in America should be asked to comply with regulations that
can be changed retroactively and without notice," Leonard said.
EPA also claims that a more than $20 million program under which BCP
agreed to remediate contaminated shallow groundwater (not used for household
purposes) is inadequate even though the program was approved by DEQ in 1985.
BCP says management is not aware of evidence that the groundwater or hazardous
waste issues addressed by EPA in its lawsuit have resulted in any contamination
or injury in the the neighboring community. In fact, the evidence is to the
contrary based on DEQ and other independendent potable water surveys.
The EPA's lawsuit was filed more than two years after EPA conducted a
"multi-media" inspection of the BCP facility in Geismar and seven years after
EPA made its initial review of the issues.
BCP employs approximately 700 workers in the Geismar area.
# # #
<PAGE> 3
BCP A DELAWARE LIMITED PARTNERSHIP
BORDEN CHEMICALS and PLASTICS
OPERATING LIMITED PARTNERSHIP
BCP Management, Inc., General Partner
MEDIA STATEMENT
BCP CHALLENGES EPA FINDINGS
Wayne Leonard, vice president and general manager of Borden Chemicals and
Plastics, issued the following statement today regarding the lawsuit filed
against BCP by the Department of Justice on behalf of the U.S.
Environmental Protection Agency.
For additional information, please contact Marshall Owens, BCP's
director of manufacturing, at 504-673-0671.
The lawsuit filed against BCP by the Environmental Protection Agency today
constitutes a retroactive change in regulations that violates basic concepts of
fairness and due process.
We are being sued because we relied in good faith on the government's
definition of hazardous waste in effect at the time we took action.
We are being sued after complying with reasonable interpretations of all
applicable regulations and spending more than $20 million on environmental
cleanup programs. And, management is not aware of evidence that the
groundwater or hazardous waste issues addressed by EPA in its lawsuit have
resulted in contamination or injury in the neighboring community. In fact, the
evidence is to the contrary based on DEQ and other independent potable water
surveys.
At issue in the lawsuit is what constitutes - or does not constitute -
hazardous waste.
In 1993, the Louisiana Department of Environmental Quality (DEQ) confirmed that
the partially-depleted mercuric chloride catalyst we were shipping back to the
manufacturer for processing was not a hazardous waste. And even though DEQ is
the EPA's delegated agent in Louisiana for administering the hazardous waste
program, EPA disagreed with the state agency.
P.O. BOX 427, GEISMAR, LA 70734 * TELEPHONE (504) 673-6121
<PAGE> 4
Page two/Leonard
On May 5, 1994, we filed suit in federal court against EPA asking for a
declaratory judgment to uphold DEQ's decision. After the lawsuit was filed and
after BCP ceased shipments to the manufacturer, DEQ abruptly reversed itself.
This reversal was contrary to facts established in the record before DEQ. We
believe penalties are unwarranted here because the EPA's own director of the
Office of Solid Waste has said that "the regulatory language is not as clear as
we would like it to be." BCP's lawsuit against the EPA is still pending.
No industry in America should be asked to comply with regulations that can be
changed retroactively and without notice.
The EPA's charge that our reprocessing activities somehow gave us an unfair
competitive advantage is incorrect. When BCP began shipping catalyst back to
the manufacturer for processing, it was costing us four times as much as it
would have to bury it in a landfilll. We didn't ship the material to be
processed because it was cheaper, we did it because we felt like it was the
proper thing to do for the environment.
The EPA's lawsuit was filed more that two years after EPA conducted a
"multi-media" inspection of the BCP facility in Geismar. And the EPA has been
well aware of many issues addressed in its lawsuit for at least seven years.
Over the past several months, we have negotiated with the EPA in good faith and
we have made every reasonable effort to resolve our differences, but to no
avail.
At this point, we intend to vigorously defend the action and pursue our legal
rights to the ful extent of the law.
If the EPA wants to redefine what it considers to be waste, it should follow
the legal procedures required for all federal agencies and the redefinition
should apply only to future activities.
It is simply wrong to allow a federal agency to retroactively change the rules
on what constitutes hazardous waste and then atempt to punish a business
because it was not in compliance before the rules were changed.
# # #
