<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
Commission File No. 1-9699
BORDEN CHEMICALS AND PLASTICS
LIMITED PARTNERSHIP
Delaware 31-1269627
(State of organization) (I.R.S. Employer Identification No.)
Highway 73, Geismar, Louisiana 70734 504-673-6121
(Address of principal executive offices) (Registrant's telephone number)
--------------------
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
November 10, 1995: 36,750,000.
================================================================================
<PAGE>
-2-
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
(In thousands except per Unit data) Sept. 30, 1995 Sept. 23, 1994
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Net trade sales $161,005 $130,940
Net affiliated sales 25,667 38,541
-------------- --------------
Total revenues 186,672 169,481
-------------- --------------
Expenses
Cost of goods sold
Trade 124,028 83,472
Affiliated 22,745 24,111
Marketing, general and administrative expenses 5,663 5,733
Interest expense 5,105 4,107
Incentive distribution to General Partner 4,980 6,097
Other (income) and expenses, including
minority interest 340 5,315
-------------- --------------
Total expenses 162,861 128,835
-------------- --------------
Net income $23,811 $40,646
============== ==============
Per Unit Data, net of 1% General Partner interest:
Net income per Unit $0.64 $1.09
============== ==============
Average # of Units outstanding during the period 36,750 36,750
============== ==============
Cash distributions declared per Unit $0.90 $1.02
============== ==============
</TABLE>
<PAGE>
-3-
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
(In thousands except per Unit data) Sept. 30, 1995 Sept. 23, 1994
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Net trade sales $480,536 $345,422
Net affiliated sales 108,605 92,711
-------------- --------------
Total revenues 589,141 438,133
-------------- --------------
Expenses
Cost of goods sold
Trade 313,063 258,793
Affiliated 71,680 67,432
Marketing, general and administrative expenses 16,782 15,298
Interest expense 13,906 12,009
Incentive distributions to General Partner 27,873 8,751
Other (income) and expenses, including
minority interest 1,785 6,312
-------------- --------------
Total expenses 445,089 368,595
-------------- --------------
Income before extraordinary item 144,052 69,538
Extraordinary loss on early extinguishment of debt (6,912) 0
-------------- --------------
Net income $137,140 $69,538
============== ==============
Per Unit Data, net of 1% General Partner interest:
Income per Unit before extraordinary loss $3.88 $1.87
Extraordinary loss per Unit (0.19) 0.00
-------------- --------------
Net income per Unit $3.69 $1.87
============== ==============
Average # of Units outstanding during the period 36,750 36,750
============== ==============
Cash distributions per Unit $4.09 $1.88
============== ==============
</TABLE>
<PAGE>
-4-
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
(In thousands) Sept. 30, 1995 Sept. 23, 1994
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operations
Net Income $137,140 $69,538
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt 6,912 0
Depreciation 36,378 32,941
Decrease (increase) in receivables 15,004 (34,305)
(Increase) decrease in inventories, net of effect from acquired business (7,916) 3,389
(Decrease) increase in payables (6,193) 3,348
(Decrease) increase in incentive distribution payable (6,885) 6,097
Increase in accrued interest 6,127 3,825
Other, net 437 8,524
--------------- ---------------
181,004 93,357
--------------- ---------------
Cash Flows From Investing Activities
Cash paid for acquisition (100,376) 0
Capital expenditures (10,382) (14,215)
--------------- ---------------
(110,758) (14,215)
--------------- ---------------
Cash Flows From Financing Activities
Net proceeds from issuance of long-term debt 200,000 0
Proceeds from short-term borrowings 65,000 0
Payment of debt issuance costs (7,466) 0
Repayment of long-term debt, including prepayment penalty (156,912) 0
Cash distributions paid (179,646) (38,633)
--------------- ---------------
(79,024) (38,633)
--------------- ---------------
(Decrease) increase in cash and equivalents (8,778) 40,509
Cash and equivalents at beginning of period 74,126 9,054
--------------- ---------------
Cash and equivalents at end of period $65,348 $49,563
=============== ===============
Supplemental Disclosures of Cash Flow Information
Interest paid during the period $7,779 $8,184
=============== ===============
</TABLE>
<PAGE>
-5-
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1995 1994
- - --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and equivalents $65,348 $74,126
Accounts receivable
Trade 88,448 84,330
Affiliated 18,179 37,301
Inventories
Finished goods 31,422 19,591
Raw materials 8,954 8,540
Other current assets 1,877 2,831
--------- ---------
Total current assets 214,228 226,719
--------- ---------
Investments in and advances to affiliated companies 4,301 3,772
Other assets 38,691 29,094
--------- ---------
42,992 32,866
--------- ---------
Land 14,086 12,051
Buildings 44,228 37,931
Machinery and equipment 617,211 523,517
--------- ---------
675,525 573,499
Less accumulated depreciation (324,625) (290,180)
--------- ---------
350,900 283,319
--------- ---------
$608,120 $542,904
========= =========
LIABILITIES AND
PARTNERS' CAPITAL
Accounts and drafts payable $44,513 $50,706
Cash distributions payable 33,459 60,999
Short-term borrowing 65,000 0
Current portion of long-term debt 0 30,000
Incentive distribution payable to General Partner 4,980 11,865
Accrued interest 7,972 1,845
Other accrued liabilities 14,021 14,330
--------- ---------
Total current liabilities 169,945 169,745
--------- ---------
Long-term debt 200,000 120,000
Minority interest in consolidated subsidiary 1,800 1,953
Other long-term liabilities 5,606 5,471
--------- ---------
207,406 127,424
--------- ---------
Partners' capital
Common Unitholders 229,905 244,443
General Partner 864 1,292
--------- ---------
Total partner's capital 230,769 245,735
--------- ---------
$608,120 $542,904
========= =========
</TABLE>
<PAGE>
-6-
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
- - --------------------------------------------------------------------------------
Limited General
Partners Partner Total
------------ ----------- ------------
<S> <C> <C> <C>
Balances 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 September 23, 1994 $228,615 $1,252 $229,867
========= ======== =========
Balances December 31, 1994 $244,443 $1,292 $245,735
Net income 135,769 1,371 137,140
Cash distributions declared (150,307) (1,799) (152,106)
--------- -------- ---------
Balances September 30, 1995 $229,905 $ 864 $230,769
========= ======== =========
</TABLE>
<PAGE>
-7-
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except Unit and per Unit data)
1. 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.
Per Unit data in the accompanying financial statements is derived by
subtracting the General Partner's 1% interest from the income captions and
dividing the results by the Average Units Outstanding.
2. Acquisition and Financing
On May 2, 1995, the Partnership, through its subsidiary operating
partnership ("the Operating Partnership"), completed the purchase of Occidental
Chemical Corporation's ("OxyChem") Addis, Louisiana PVC manufacturing facility
and related assets ("Addis 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 PVC resin production by
approximately 50%. The cash purchase price for the Addis assets was $100,376.
On May 1, 1995 the Operating Partnership issued $200,000 aggregate
principal amount of senior unsecured notes (at a 9 1/2% rate). The net proceeds
from this offering were used to prepay the previously outstanding $150,000
aggregate principal amount of existing notes plus related prepayment premium of
$6,912 reflected as an extraordinary loss in 1995, and accrued interest. The
remaining proceeds were used to fund a portion of the purchase price of the
Addis Facility.
A $100,000 revolving credit facility was obtained during the second quarter
of 1995. Borrowings under this facility were $65,000 at September 30, 1995.
The following pro forma financial information gives effect to the
transactions discussed above on the results of operations for the nine months
ended September 30, 1995 and September 23, 1994 as if the transactions occurred
on January 1, 1994.
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
Sept. 30, 1995 Sept. 23, 1994
-------------- --------------
<S> <C> <C>
Total Revenues $643,947 $537,799
Income before extraordinary item:
Income $148,413 $ 70,719
Income per Unit $ 4.00 $ 1.91
</TABLE>
3. Environmental and Legal Proceedings
On October 27, 1994, the U.S. Department of Justice (DOJ), at the request
of the U.S. Environmental Protection Agency (the EPA), filed an action against
the Partnership and the General Partner in the U.S. District Court for the
Middle District of Louisiana. The complaint seeks facility-wide corrective
action and civil penalties for alleged violations of the federal Resource,
Conservation and Recovery Act (RCRA), the federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), and The Clean Air Act at the
Geismar
<PAGE>
-8-
complex. If the Partnership is unsuccessful in this proceeding, or otherwise
subject to RCRA permit requirements, it may be subject to three types of costs:
(i) corrective action: (ii) penalties; and (iii) costs needed to obtain a RCRA
permit. Portions of such costs could be subject to the Environmental Indemnity
Agreement (EIA) discussed below.
The Partnership is subject to extensive federal, state and local
environmental laws and regulations which impose limitations on the discharge of
pollutants into the air and water, establish standards for the treatment,
storage, transportation and disposal of solid and hazardous wastes, and impose
obligations to investigate and remediate contamination in certain circumstances.
The Partnership has expended substantial resources, both financial and
managerial, and it anticipates that it will continue to do so in the future.
Failure to comply with the extensive federal, state and local environmental laws
and regulations could result in significant civil or criminal penalties, and
remediation costs.
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 of liabilities which Borden would otherwise be
responsible for thereunder in any year, but such excluded amounts shall not
exceed $3,500 in the aggregate. Excluded amounts under the EIA have aggregated
approximately $3,000 through September 30, 1995.
In connection with potential environmental matters, a $4,000 provision was
included in the Partnership's third quarter 1994 operating results. Because of
various factors (including the nature of any settlement with appropriate
regulatory authorities or the outcome of any proceeding, actual environmental
conditions, the scope of the application of the EIA and the timing of actions,
if any, required to be taken by the Partnership), the Partnership cannot
reasonably estimate the full range of costs it might incur with respect to the
environmental matters discussed herein. The costs incurred in any quarter or
year could be material to the Partnership's results of operations for such
quarter or year, although, on the basis of the relevant facts and circumstances,
management believes this to be unlikely. However, management believes that such
costs should not have a material adverse effect on the Partnership's financial
position.
In addition, the Partnership is subject to various other legal proceedings
and claims which arise in the ordinary course of business. In the opinion of the
management of the Partnership, based upon the information it presently
possesses, the amount of the ultimate liability for these proceedings and claims
taking into account its insurance coverage, including its risk retention program
and the EIA with Borden, would not materially affect the financial position or
results of operations of the Partnership.
<PAGE>
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- - -------------------------------------------------------------------------------
of Operations
- - -------------
Results of Operations
Quarter Ended September 30, 1995 Compared to Quarter Ended September 23, 1994
Total Revenues
Total revenues during the third quarter of 1995 increased $17.1 million or
10.0% to $186.7 million from $169.5 million in the third quarter of 1994. This
increase was the net result of a $35.9 million increase in PVC Polymers Products
revenues, a $26.4 million decrease in Methanol and Derivatives revenues and a
$7.8 million increase in Nitrogen Products revenues.
Total revenues for PVC Polymers Products increased 40.5% as a result of a
5% increase in selling prices and a 29% increase in sales volumes. The increased
volume is attributable to the purchase of the Addis facility.
Total revenues for Methanol and Derivatives decreased 42.3% as a result of
a 43% decrease in selling prices with constant sales volumes. The reduction in
selling price from record 1994 levels reflects the change from a global shortage
of methanol in 1994 to an oversupply in 1995, creating significant pricing
reductions from methanol producers.
Total revenues for Nitrogen Products increased 43.3% as a result of a 8%
increase in selling prices and a 33% increase in sales volumes. Volumes
and selling prices reflect the continued worldwide tightness in the ammonia
market and significant improvement in urea selling prices over low 1994 levels.
Cost of Goods Sold
Total cost of goods sold increased 36.4% to $146.8 million in the current
period from $107.6 million in the year-ago period. The increase was a result of
the increased volumes discussed above and an aggregate 4% increase in raw
materials costs as unit cost decreases for chlorine and natural gas were more
than offset by increased ethylene costs. Expressed as a percentage of total
revenues, cost of goods sold increased to 79% of total revenues in 1995 from 63%
in 1994, resulting in reduced gross margins and net income for the Partnership.
Gross margins for PVC Polymers Products decreased 14% as the net increase
in raw material ethylene costs exceeded the effect of decreased chlorine costs
and improved selling prices and volumes.
Gross margins for Methanol and Derivatives decreased 62% as a result of the
decreased selling prices discussed above, partially offset by reduced natural
gas costs.
Gross margins for Nitrogen Products increased 149% on the strength of
significantly improved urea and ammonia selling prices and volumes and reduced
natural gas costs.
Incentive Distribution to General Partner
An incentive distribution to the General Partner of $5.0 million was
generated in the third quarter of 1995 as a result of cash distributions to
Unitholders of $0.90 per Unit exceeding $0.3647 per Unit ("the Target
Distribution"). The distributions generated in the third quarter of 1994 of
$1.02 per Unit resulted in an incentive distribution of $6.1 million to the
General Partner.
Other (Income) and Expense, Including Minority Interest
The net expense for the third quarter 1995 was $0.3 million compared to
$5.3 million in third quarter 1994. This decrease was primarily due to the
non-recurring $4.0 million provision established in the third quarter 1994 for
potential expenses related to environmental matters.
<PAGE>
-10-
Net Income
Net income for the third quarter 1995 was $23.8 million compared to $40.6
million in 1994. As discussed above, the primary reasons for the decline in
operating performance were the reduced margins in PVC Products and Methanol and
Derivatives from extremely profitable results in 1994, offset by improved
margins in Nitrogen Products and reductions in the Incentive Distribution to
General Partner and Other (Income) and Expense, net.
Results of Operations
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 23,
1994
Total Revenues
Total revenues during the first nine months of 1995 increased $151.0
million or 34.5% to $589.1 million from $438.1 million in the first nine months
of 1994. This increase was the result of a $112.3 million increase in PVC
Polymers Products revenues, an $11.2 million increase in Methanol and
Derivatives revenues and a $27.5 million increase in Nitrogen Products revenues.
Total revenues for PVC Polymers Products increased 46.5% as a result of an
18% increase in selling prices and a 24% increase in sales volumes. These
increases were due to the purchase of the Addis Facility and the increased
demand for PVC resins resulting from strength in the construction and automotive
industries, as well as other industries.
Total revenues for Methanol and Derivatives increased 7.7% as a net result
of a 9% increase in selling prices and a 1% decline in sales volumes. These
results reflect the historically high selling prices of the first quarter of
1995 that decreased dramatically during the second and third quarters.
Total revenues for Nitrogen Products increased 55.0% as a result of a 34%
increase in selling prices and a 16% increase in sales volumes. Ammonia selling
prices increased significantly fueled primarily by strong domestic demand and
the worldwide tightness in the ammonia market. Urea selling prices also showed
significant improvements.
Cost of Goods Sold
Total cost of goods sold increased 17.9% to $384.7 million in the current
period from $326.2 million in the year-ago period. The increase was a result of
the increased volumes discussed above substantially offset by an aggregate raw
material cost decrease of approximately 5% comprised of unit cost decreases for
chlorine and natural gas, partially offset by increased ethylene costs.
Expressed as a percentage of total revenues, cost of goods sold decreased to 65%
of total revenues in 1995 from 74% in 1994, resulting in improved gross margins
and net income for the Partnership.
Gross margins for PVC Polymers Products increased 111% as a result of the
improved selling prices and volumes discussed above, partially offset by a net
increase in raw material costs.
Gross margins for Methanol and Derivatives increased 38% as a result of the
higher selling prices discussed above, combined with reduced natural gas costs.
Gross margins for Nitrogen Products increased 312% on the strength of
significantly improved urea and ammonia selling prices, improved volumes and
reduced natural gas costs.
<PAGE>
-11-
Incentive Distribution to General Partner
The incentive distribution to the General Partner of $27.9 million was
generated in the first three quarters of 1995 as a result of the respective
quarters cash distributions to Unitholders exceeding the Target Distribution.
The distributions generated in the first quarter of 1994 did not exceed the
Target Distribution, resulting in no incentive distribution to the General
Partner; however, the second and third quarter distributions did exceed the
Target Distribution, resulting in an incentive distribution of $8.8 million.
Other (Income) and Expense, Including Minority Interest
The net expense declined to $1.8 million from $6.3 million primarily as a
result of a $4.0 million provision established in 1994 for potential expenses
related to environmental matters that were not incurred in 1995.
Extraordinary Loss on Early Extinguishment of Debt
The Partnership incurred a loss of $6.9 million, or 19 cents per Unit, as a
result of a prepayment premium on $150 million in debt retired in the second
quarter of 1995. See Acquisition and Financing.
Net Income
Net income was $137.1 million compared to $69.5 million in 1994. As
discussed above, the primary reasons for the improved operating performance were
significant selling price increases in all products lines and volume
improvements in PVC resins and nitrogen products, a net decrease in raw material
costs and a decrease in other expenses. Partially offsetting these improvements
were the significant increase in the incentive distribution to the General
Partner and the extraordinary loss incurred in the second quarter of 1995.
Liquidity and Capital Resources
Cash Flows from Operations. Cash provided by operations increased to $181.0
million for the first three quarters of 1995, as compared to $93.4 million in
1994. The increase was primarily attributable to the improved operating
performance discussed above.
Cash Flows from Investing Activities. The Partnership paid $100.4 million
for the acquisition of a PVC manufacturing facility in the second quarter of
1995. See Acquisition and Financing. 1994 capital expenditures reflect the
completion of the urea granulation and expansion project.
Cash Flows from Financing Activities. The partnership makes quarterly
distributions to Unitholders and the General Partner of 100% of its Available
Cash. Available Cash means generally, with respect to any quarter, the sum of
all cash receipts of the Partnership plus net reductions to reserves established
in prior quarters, less all of its cash disbursements and net additions to
reserves in such quarter. The General Partner may establish reserves to provide
for the proper conduct of the Partnership's business, to stabilize distributions
of cash to Unitholders and the General Partner and as necessary to comply with
the terms of any agreement or obligation of the Partnership.
Cash distributions of $179.6 million were made during the first three
quarters of 1995 compared to $38.6 million in the year-ago period. These amounts
reflect the payment of cash distributions declared for the three immediately
proceeding quarters. Cash distributions with respect to interim periods are not
necessarily indicative of cash distributions with respect to a full year.
Moreover, due to the cyclical nature of the Partnership's business, past cash
distributions are not necessarily indicative of future cash distributions.
There are various seasonality factors affecting results of operations and,
therefore, cash distributions. In addition, the amount of Available Cash
constituting Cash from Operations for any period does not necessarily correlate
directly with net income for such period because various items and transactions
affect net income and Available Cash constituting Cash from Operations
differently. For example, depreciation reduces net income but does not affect
Available Cash constituting Cash from Operations, while changes in working
capital items (including receivables,
<PAGE>
-12-
inventories, accounts payable and other items) generally do not affect net
income but do affect such Available Cash. Moreover, as provided for in the
Partnership Agreements with respect to the Partnership and the Operating
Partnership, certain reserves may be established which affect Available Cash
constituting Cash from Operations but do not affect cash balances in financial
statements. Such reserves have generally been used to set cash aside for debt
service, capital expenditures and other accrued items.
Acquisition and Financing
On May 2, 1995, the Partnership, through the Operating Partnership,
completed the purchase of Occidental Chemical Corporation's Addis, Louisiana PVC
manufacturing facility and related assets. 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 PVC resin production by
approximately 50%. The cash purchase price for the Addis assets was $100.4
million.
On May 1, 1995, the Operating Partnership issued $200.0 million aggregate
principal amount of senior unsecured notes (at a 9 1/2% rate). The proceeds from
this offering, net of $7.5 million of debt issuance costs, were used to prepay
the previously outstanding $150.0 million aggregate principal amount of existing
notes plus a related $6.9 million prepayment premium. The remaining proceeds
were used to fund a portion of the purchase price of the Addis Facility.
Liquidity
The Partnership expects to satisfy its cash requirements, including the
requirements of the Addis Facility, through internally generated cash and
borrowings. In connection with the acquisition of the Addis Facility, the
Partnership entered into a Revolving Credit Facility which provides a $100.0
million line of credit for capital expenditures (including the acquisition),
working capital and general partnership purposes. Borrowings under the Revolving
Credit Facility were $65.0 million at September 30, 1995. The amount available
under the facility reduces to $75.0 million on January 1, 1996, $50.0 million on
January 1, 1997 and terminates December 31, 1997. The facility may be extended
for one year with the consent of the lenders. The Partnership has terminated its
previous $20.0 million credit facility.
<PAGE>
-13-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - -------------------------
Louisiana Groundwater Remedation Settlement Agreement
-----------------------------------------------------
In 1985, LDEQ and Borden, Inc. ("Borden") entered into a settlement
agreement (the "Settlement Agreement") that called for the implementation of a
long-term groundwater and soil remedation 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 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 Partnership intends to do additional drilling and testing
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 or whether the LDEQ will
require the Partnership to incur costs to take further remedial measures in
response to data generated by the planned additional testing. If the LDEQ
requires the Partnership to take further remedial measures, the Partnership
anticipates that a portion of such costs would be covered by an Environmental
Indemnity Agreement. The extent to which any costs for further remedial measures
required by LDEQ will be covered by the Environmental Indemnity Agreement will
depend, in large part, on whether such remedial measures respond to facts or
circumstances that existed and requirements in effect prior to November 30,
1987, the date of the initial sale by Borden of the Geismar and Illiopolis
plants to the Partnership.
Federal Environmental Enforcement Proceeding
--------------------------------------------
On October 27, 1994, the U.S. 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 RCRA, 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 Partnership and DOJ had engaged in settlement discussions,
and the Partnership expects that such discussions will continue.
The federal government's primary allegations for which it seeks penalties
include claims that (i) the Partnership's export to South Africa of a partially
depleted mercuric chloride catalyst for recycling violated RCRA; (ii) the
Partnership 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 Partnership should have applied for a RCRA permit for
the north trench sump at the Geismar complex because such sump allegedly stored,
or disposed of, 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
Partnership plans to vigorously defend all of the above allegations.
During the early 1990's, the Partnership sent partially depleted mercuric
chloride catalyst to a facility in South Africa for recovery of the mercury. See
the following "Export of Partially Depleted Mercuric Chloride Catalyst." In
--------------------------------------------------------
1993, LDEQ had determined that the catalyst was not a hazardous waste. However,
because of a belief by the EPA that the partially depleted catalyst could be
hazardous waste and a reversal of LDEQ's 1993 determination, and pending the
outcome of the Geismar enforcement proceeding, the Partnership 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 Partnership does not anticipate that it would
incur material additional expenditures to continue to
<PAGE>
-14-
manage the partially depleted catalyst as a hazardous waste.
In 1991, as a protective filing, the Partnership applied for a hazardous
waste permit for the VCR unit and related tanks. In January 1994, in response
to a petition from the Partnership 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 Partnership 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 Partnership 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.
In May 1995, certain adjoining landowners at the Geismar complex filed a
motion to intervene in the Geismar enforcement proceedings claiming rights under
CERCLA and RCRA to protect their property interests. The Partnership plans to
vigorously defend against this intervention.
If the Partnership 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 Partnership believes that, assuming the Partnership 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 Partnership is unsuccessful in either the Declaratory Judgement
Action or the Geismar enforcement proceedings, it may also be subject to costs
for corrective action. The federal government also can require corrective
action for a facility subject to RCRA permit requirements. Corrective action
could require the Partnership to conduct investigatory and remedial activities
at the Geismar complex concurrently with the groundwater monitoring and remedial
program that the Partnership is currently conducting under the Settlement
Agreement with LDEQ. The DOJ has advised the Partnership that it intends to
seek facility-wide corrective action to address potential contamination at the
Geismar complex. EPA has indicated that it intends to evaluate the adequacy of
the existing groundwater remedation 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 Partnership.
If the Partnership is unsuccessful in either proceeding concerning its
challenge to the applicability of the RCRA permit requirements to the VCR unit
and related tanks, or the north trench sump, it will have to incur additional
permitting costs.
The Partnership estimates that its costs to complete the permitting process
for the VCR unit and related tanks would be approximately $1.0 million. The
Partnership believes that the costs for amending its pending RCRA permit
application to include the north trench sump would not be material.
Because of the complex nature of environmental insurance coverage and the
rapidly developing case law concerning such coverage, no assurance can be given
concerning the extent to which insurance may cover environmental claims against
the Partnership. However, insurance generally does not cover penalties or the
costs of obtaining permits.
Export of Partially Depleted Mercuric Chloride Catalyst
-------------------------------------------------------
During the early 1990's, the Partnership shipped partially depleted
mercuric chloride catalyst to the facility of Thor Chemicals S.A. (PTY) Limited
("Thor") in Cato Ridge, South Africa for recovery of mercury. In 1993, the
<PAGE>
-15-
LDEQ determined that the partially depleted catalyst was not a hazardous waste,
although LDEQ reversed this position in 1994. The Partnership disagrees with
this reversal. The Partnership did not send mercury-containing sludge to the
Thor facility.
The Partnership believes that Thor's operations have included the
production of mercuric chloride catalyst and the recovery of mercury from
partially depleted catalyst. Recovery of mercury at Thor's facility was
discontinued in March 1994 when the Department of Health in South Africa refused
to renew a temporary license that had been granted to Thor. At such time, there
were drums of partially depleted catalyst at the facility which had been shipped
by the Partnership to Thor. In addition, in the spring of 1994 there were drums
of other materials at the Thor facility which the Partnership had not sent
there. According to Thor, less than 25% of the drums of material at the Thor
facility had been shipped by the Partnership to Thor.
In February 1995, Thor and three of its management personnel were tried by
South Africa for the common law crime of culpable homicide and a number of
alleged violations of the Machinery Occupational Safety Act of 1983 ("MOSA"),
because of the deaths of two Thor employees. The prosecution alleged that the
deaths were the result of mercury poisoning. In exchange of a plea by Thor that
it had violated provisions of MOSA, the prosecution dropped the homicide charges
against Thor and all the charges against Thor's management personnel. The court
has sentenced Thor to a fine of R13,500.00, which is equivalent to approximately
$3,800. The Partnership is aware that relatives of two deceased Thor employees,
and a Thor employee allegedly suffering from mercury poisoning, have filed suit
in the United Kingdom against Thor's parent company for negligence.
On March 24, 1995, the President of South Africa appointed a Commission of
Inquiry and published the following terms of reference for the Commission: (1)
to investigate the history and background of the acquisition of mercury catalyst
stockpiled by Thor as well as additional mercury-containing sludge on the
premises and to report on the further utilization or disposal thereof; (2) to
recommend the best practical environmental option to address the problem of
mercury-containing catalyst and/or waste currently on Thor's premises; and (3)
to report the results of the Commission's inquiry to the President of the
Republic of South Africa as soon as conveniently possible. In addition, the
Minister of Water Affairs and Forestry has instructed his department's regional
office to investigate alleged water pollution at and near the Thor facility.
The Government of South Africa has not made any allegations or asserted any
claims against the Partnership.
The contract between the Partnership and Thor provides that title to, risk
of loss, and all other incidents of ownership of the partially depleted catalyst
would pass from the Partnership to Thor when the catalyst reached South Africa.
The Partnership does not believe that it is liable for disposing of the drums of
partially depleted catalyst remaining at the Thor facility that were shipped by
the Partnership. Nonetheless, in the event that the Partnership should be
required to dispose of the remaining drums at the facility shipped by the
Partnership, the Partnership estimates that such cost would not be in excess of
$4 million.
With regard to the environmental condition of the Thor facility, the
Partnership has not been notified by the Government of South Africa that the
Partnership would be liable for any contamination or other conditions at that
facility, although it is impossible to determine what, if any, allegations any
party may make in connection with the Thor facility in the future. It is
unclear under current South African environmental law as to whether any such
allegations, if made, would be sustained against the Partnership, and the
Partnership would vigorously defend against any such allegations.
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 Partnership believes are
exempt from CERCLA and EPCRA reporting. The Partnership'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 the
Partnership. The proposed penalty in EPA's administrative complaint initiating
this proceeding in 1991 was $1.0 million.
<PAGE>
-16-
Borden Environmental Indemnity
------------------------------
Under the Environmental Indemnity Agreement, subject to certain conditions,
Borden has agreed 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 "Transfer Date"). The Partnership
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 Partnership will share liabilities on an
equitable basis considering all 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 Environmental Indemnity Agreement after November
30, 2002, and no claim can, with certain exceptions, be made with respect to the
first $0.5 million 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 Environmental Indemnity
Agreement have aggregated approximately $3.0 million through September 30, 1995.
If the United States is successful in requiring the Partnership to perform
corrective action at the Geismar facility or the LDEQ requires the Partnership
to take further remedial measures in connection with the Settlement Agreement,
the Partnership anticipates that a portion of its corrective action costs would
be covered by the Environmental Indemnity Agreement. The extent to which any
penalties or permit costs that the Partnership may incur as a result of pending
environmental proceedings will be subject to the Environmental Indemnity
Agreement 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.
Federal Wastewater Permit
-------------------------
The Geismar facility has a permit for each of its two wastewater outfalls.
The Partnership is challenging conditions in one of those permits. As a result
of the government's delay in responding to this challenge, the challenged permit
has expired and, prior to the expiration, the Partnership applied for a new
permit. Depending on the result of that permit application, the Partnership's
current permit challenge may be irrelevant.
Other Legal Proceedings
-----------------------
The Partnership manufactures, distributes and uses many different chemicals
in its business. As a result of its chemical operations, the Partnership is
subject to various lawsuits and claims, such as product liability and toxic tort
claims, arising in the ordinary course of business and which seek compensation
for physical injury, pain and suffering, costs of medical monitoring, property
damage, and other alleged harm. New or different claims arising from the
Partnership's various chemical operations may be made in the future.
In addition, the Partnership is subject to various other legal proceedings
and claims which arise in the ordinary course of business. The management of the
Partnership believes, based upon the information it presently possesses, that
the realistic range of liability of these other matters, taking into account its
insurance coverage, including its risk retention program and the Environmental
Indemnity Agreement with Borden, would not have a material adverse affect on the
financial position and results of operations of the Partnership.
<PAGE>
-17-
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 PLASTIC LIMITED
PARTNERSHIP
By BCP Management, Inc.,
General Partner
By /s/ JAMES O. STEVNING
-----------------------------------
James O. Stevning
Controller and Principal
Accounting Officer
Date: November 13, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 65,348
<SECURITIES> 0
<RECEIVABLES> 107,163
<ALLOWANCES> 536
<INVENTORY> 40,376
<CURRENT-ASSETS> 214,228
<PP&E> 675,525
<DEPRECIATION> 324,625
<TOTAL-ASSETS> 608,120
<CURRENT-LIABILITIES> 169,945
<BONDS> 200,000
<COMMON> 0
0
0
<OTHER-SE> 230,769
<TOTAL-LIABILITY-AND-EQUITY> 608,120
<SALES> 589,141
<TOTAL-REVENUES> 589,141
<CGS> 384,743
<TOTAL-COSTS> 384,743
<OTHER-EXPENSES> 46,440
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,906
<INCOME-PRETAX> 144,052
<INCOME-TAX> 0
<INCOME-CONTINUING> 144,052
<DISCONTINUED> 0
<EXTRAORDINARY> 6,912
<CHANGES> 0
<NET-INCOME> 137,140
<EPS-PRIMARY> 3.69
<EPS-DILUTED> 0
</TABLE>
