<PAGE>
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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 March 31, 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 May
10, 1995: 36,750,000.
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<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per Unit data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 25,
1995 1994
--------- ---------
<S> <C> <C>
Revenues
Net trade sales .......................... $162,488 $ 94,821
Net affiliated sales ..................... 52,318 24,160
-------- --------
Total Revenues ................ 214,806 118,981
-------- --------
Expenses
Cost of goods sold
Trade ................................ 82,168 86,490
Affiliated ........................... 26,323 20,415
Marketing, general & administrative
expense .............................. 5,531 4,506
Interest expense.......................... 4,085 3,794
General Partner incentive ................ 13,075 0
Other (income) and expense, including
minority interest .................... 137 148
-------- --------
Total expenses ................ 131,319 115,353
-------- --------
Net income ............................... 83,487 3,628
Less 1% General Partner interest ..... (835) (36)
-------- --------
Net income applicable to Limited Partners'
interest ............................. $ 82,652 $ 3,592
======== ========
Net income per Unit ...................... $ 2.25 $ 0.10
======== ========
Average number of Units outstanding during
the year ............................. 36,750 36,750
======== ========
Cash distribution declared per Unit ...... $ 1.77 $ 0.21
======== ========
</TABLE>
<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months
---------------------------
March 31, March 25,
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows From Operations
Net income...................................... $ 83,487 $ 3,628
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................. 11,163 10,887
(Increase) in receivables.................... (1,649) (10,022)
(Decrease) increase in inventories........... ( 45) 3,007
(Decrease) increase in payables.............. (13,024) 3,675
Increase in incentive distribution payable... 1,210 0
Increase in accrued interest................. 4,073 3,780
Other, net.................................. (4,088) 237
-------- --------
81,127 15,192
-------- --------
Cash Flows From Investing Activities
Capital expenditures............................ (2,874) (6,458)
-------- --------
Cash Flows From Financing Activities
Cash distribution paid.......................... (60,999) (6,682)
-------- --------
Increase in cash and equivalents................. 17,254 2,052
Cash and equivalent at beginning of period....... 74,126 9,054
-------- --------
Cash and equivalents at end of period............ $ 91,380 $ 11,106
======== ========
Supplement Disclosures of Cash Flow
Information
Interest paid during the period................. $ 12 $ 14
======== ========
</TABLE>
<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
ASSETS March 31, 1995 December 31, 1994
------ -------------- -----------------
<S> <C> <C>
Cash and equivalents .................................. $ 91,380 $ 74,126
Accounts receivable (less allowance for doubtful
accounts of $620 and $627 respectively) ..............
Trade ................................................. 87,329 84,330
Affiliated ............................................ 35,951 37,301
Inventories
Finished and in process goods ........................ 19,883 19,591
Raw materials and supplies ........................... 8,293 8,540
Other current assets .................................. 2,709 2,831
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Total current assets ................................. 245,545 226,719
--------- ---------
Investments in and advances to affiliated companies ... 3,966 3,772
Other assets .......................................... 30,407 29,094
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34,373 32,866
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Land .................................................. 12,051 12,051
Buildings ............................................. 37,931 37,931
Machinery and equipment ............................... 526,391 523,517
--------- ---------
576,373 573,499
Less accumulated depreciation ......................... (301,343) (290,180)
--------- ---------
275,030 283,319
--------- ---------
$ 554,948 $ 542,904
========= =========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C> <C>
Accounts and drafts payable ........................... $ 37,682 $ 50,706
Cash distributions payable ............................ 65,836 60,999
Current portion of long-term debt ..................... 30,000 30,000
Incentive distribution payable to General Partner ..... 13,075 11,865
Accrued interest ...................................... 5,918 1,845
Other accrued liabilities ............................. 11,374 14,330
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Total current liabilities ............................ 163,885 169,745
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Long-term debt ........................................ 120,000 120,000
Other liabilities ..................................... 5,544 5,471
Minority interest in consolidated subsidiary .......... 2,133 1,953
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127,677 127,424
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Partners' capital
Limited Partners ..................................... 262,048 244,443
General Partner ...................................... 1,338 1,292
--------- ---------
263,386 245,735
--------- ---------
$ 554,948 $ 542,904
========= =========
</TABLE>
<PAGE>
BORDEN CHEMICASL AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -------
<S> <C> <C> <C>
Balances at December 31, 1993 .... $228,862 $1,343 $230,205
Net income ....................... 3,592 36 3,628
Cash distributions declared ...... (7,718) (78) (7,796)
-------- ------ --------
Balances at March 25, 1994 ....... $224,736 $1,301 $226,037
======== ====== ========
Balance at December 31, 1994 ..... $244,443 $1,292 $245,735
Net income ....................... 82,652 835 83,487
Cash distributions declared ...... (65,047) (789) (65,836)
-------- ------ --------
Balances at March 31, 1995 ....... $262,048 $1,338 $263,386
======== ====== ========
</TABLE>
<PAGE>
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.
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. 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 $104,300, subject to certain customary
post closing adjustments.
On May 1, 1995 the Operating Partnership issued $200,000 aggregate amount of
senior unsecured notes (the Senior Notes). The net proceeds from this offering
were used to prepay the previously outstanding $150,000 aggregate principal
amount of existing notes plus related premium and accrued interest. The
remaining proceeds were used to fund a portion of the purchase price of the
Addis Facility.
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 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
remedation 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 Illinois 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
<PAGE>
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 $2,700 through
March 31, 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>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
Results of Operations
Quarter Ended March 31, 1995 Compared to Quarter Ended March 25, 1994
Total Revenues
Total revenues during the first quarter of 1995 increased $95.8 million or
80.5% to $214.8 million from $119.0 million in the first quarter of 1994. This
increase was the result of a $34.8 million increase in PVC Polymers Products
revenues, a $46.1 million increase in Methanol and Derivatives revenues and a
$14.9 million increase in Nitrogen Products revenues.
Total revenues for PVC Polymers Products increased 50.3% as a result of a 28%
increase in selling prices and a 17% increase in sales volumes. These increases
were due to 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 126.1% as a result of a
117% increase in selling prices and a 4% increase in sales volumes. These
increases 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 MTBB and adhesives.
Total revenues for Nitrogen Products increased 112.5% as a result of a 66%
increase in selling prices and a 28% increase in sales volumes. Ammonia selling
prices increased significantly fueled primarily by strong domestic demand and
the worldwide tightness in the ammonia market. Urea volumes and selling prices
also showed significant improvements.
Cost of Goods Sold
Total cost of goods sold increased 1.5% to $108.5 million in the current
period from $106.9 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 8% comprised of unit cost decreases for
chlorine and natural gas offset by increased ethylene costs. Expressed as a
percentage of total revenues, cost of goods sold decreased to 51% of total
revenues in 1995 from 90% in 1994, resulting in greatly improved gross margins
and net income for the Partnership.
Gross margins for PVC Polymers Products increased over 10 fold 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 492% as a result of the
increased volumes and significantly higher selling prices discussed above,
combined with reduced natural gas costs.
Gross margins for Nitrogen Products improved from a slightly negative
position in 1994 to a profitable position in 1995 on the strength of
significantly improved urea and ammonia selling prices, improved volumes and
reduced natural gas costs.
Incentive Distribution to General Partner
An incentive distribution to the General Partner of $13.1 million was
generated in the first quarter of 1995 as a result of cash distributions to
Unitholders of $1.77 per Unit exceeding $0.3647 per Unit ("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.
<PAGE>
Net Income (Loss)
Net income was $83.5 million compared to $3.6 million in 1994. 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 resins and nitrogen products, and a net decrease in raw material costs.
Liquidity and Capital Resources
Cash Flows from Operations. Cash provided by operations increased to $81.1
million for the first quarter 1995, as compared to $15.2 million for the first
quarter 1994. The increase was primarily attributable to an increase in net
income, offset by a decrease in accounts payable.
Cash Flows from Investing Activities. First quarter 1995 capital
expenditures totalled $2.9 million. Capital expenditures for the first quarter
1994 were $6.5 million, which reflects 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 $61.0 million were made during the first quarter
1995 compared to $6.7 million in the year-ago period. These amounts reflect the
payment of cash distributions declared for the immediately preceeding 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 to 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, 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 is $104,300,
subject to certain customary post closing adjustments.
On May 1, 1995 the Operating Partnership issued $200,000 aggregate principal
amount of senior unsecured notes (the Senior Notes). The net proceeds from this
offering were used to prepay the previously outstanding $150,000 aggregate
principal amount of existing notes plus related premium and accrued interest.
The remaining proceeds were used to fund a portion of the purchase price of the
Addis Facility.
<PAGE>
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. 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>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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Louisiana Groundwater Remediation 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 believes that it already has sufficiently
identified the extent of the groundwater plume. Nevertheless, the Partnership
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
remedation 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 groundwater wells. 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.
Moreover, the Partnership and the DOJ are currently engaged in settlement
discussions.
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
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
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 hazardous waste. However,
because of a belief by the EPA that the partially depleted catalyst could be a
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>
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.
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 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.
<PAGE>
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
approximately 2,600 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 approximately 7,400 drums of other materials at the Thor facility
which the Partnership had not sent there.
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 the Partnership to Thor when the catalyst reached South Africa. The
Partnership does not believe that it is liable for disposing of the
approximately 2,600 drums of partially depleted catalyst remaining at the Thor
facility. Nonetheless, in the event that the Partnership should be required to
dispose of the approximately 2,600 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 Illinois
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>
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 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 Environmental Indemnity Agreement after November
30, 2002, and no claim can, with certain exceptions, be made with respect to the
first $500,000 of liabilities with 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 $2.7 million through March 31, 1994.
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, cost 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>
Item 5. Other Information:
- --------------------------
Acquisition or Disposition of Assets*
- -------------------------------------
Overview
- --------
The Operating Partnership and OxyChem, a New York corporation, are parties to
an Asset Transfer Agreement dated as of August 12, 1994, as amended as of
January 10, 1995, March 16, 1995 and May 2, 1995 (as amended, the "Asset
Transfer Agreement") relating to the acquisition (the "Acquisition") by the
Operating Partnership from OxyChem of a PVC resin production facility located in
Addis, Louisiana (the "Addis Facility") and certain related assets
(collectively, the "Addis Assets").
On March 22, 1995 approval for the Acquisition was granted by the United
States Federal Trade Commission. On May 2, 1995 the Operating Partnership
completed the Acquisition and acquired the Addis Assets and assumed certain
related obligations. The cash purchase price (the "Purchase Price") for the
Addis Assets was $104.3 million, which Purchase Price is subject to certain
customary post-closing adjustments.
The Acquisition provides the Operating Partnership the opportunity to increase
its PVC resin capacity at a time of increased demand for PVC resin. Management
believes that purchasing an existing plant, which has a proven operating
capacity, is substantially more cost effective than increasing capacity through
the construction of a new grass-roots facility. In addition, a new grass-roots
facility would require two or three years to complete.
Purchase Price Determination
- ----------------------------
The Purchase Price for the Acquisition was obtained through an arms-length
negotiation between the Operating Partnership and OxyChem with respect to the
value of the plant and equipment, inventory, real estate interests, contracts
and other assets included within the Addis Assets and the obligations assumed by
the Operating Partnership. In connection with the Acquisition, the Operating
Partnership obtained the opinion of a nationally recognized investment banking
firm that the Purchase Price is fair from a financial point of view.
Sources of Funds for the Acquisition
- ------------------------------------
The Operating Partnership's sources of funds for the Purchase Price were: (i)
approximately $30.0 million from the proceeds of 9.5% senior unsecured notes due
2005 issued by the Operating Partnership on May 1, 1995, and (ii) approximately
$74.0 million from the Operating Partnership's cash on hand. The Operating
Partnership may replenish some or all of the cash on hand that was used to fund
the Acquisition, by borrowing funds under a Credit Agreement dated as of May 2,
1995 among the Operating Partnership and a syndicate of lenders.
Addis Facility
- --------------
The Addis Facility, which is located in Addis, Louisiana, produces general
purpose PVC resins. The Addis Facility began operations in 1979 and is located
on approximately 40 acres of a 220 acre site. Approximately 140 employees work
at the Addis Facility, including approximately 55 contract personnel. The
current governmental permitted annual capacity of the Addis Facility is 600
million pounds, although proven annual capacity is 450 million pounds.
Production during the years 1990 through 1994 has ranged from 407 million to 450
million pounds per year depending on product mix and timing of maintenance
turnarounds.
Certain Terms of the Asset Transfer Agreement
- ---------------------------------------------
On May 2, 1995, pursuant to the Asset Transfer Agreement, the Partnership
purchased the Addis Assets, which includes the Addis Facility, and assumed
certain obligations relating to the current operations of the Addis Assets such
as executory obligations under existing leases, licenses, permits and contracts.
In addition, Borden
- -----------
* The information under Item 5 hereof is being reported in this Form 10-Q, in
lieu of being separately reported as Item 2 of a report on Form 8-K.
<PAGE>
extended offers of employment, on terms determined by it, to all
the hourly employees and certain salaried employees employed at the Addis
Facility, and will provide certain employee benefits to such employees.
The Asset Transfer Agreement contains certain customary representations and
warranties of the Operating Partnership and OxyChem, as well as customary
closing conditions.
OxyChem has agreed to indemnify the Operating Partnership and affiliated
persons for any actions, losses and expenses arising out of the operating of the
Addis Facility prior to the closing and any pre-closing liabilities imposed
under environmental laws in effect prior to the closing. The Operating
Partnership has agreed to indemnify OxyChem and affiliated persons for any
actions, losses and expenses arising out of similar actions or liabilities
arising after the closing. In addition, OxyChem and the Operating Partnership
have agreed to indemnify each other for claims, damages, liabilities, losses or
other expenses arising out of certain other matters, including (i) breaches of
representations, warranties and covenants, (ii) products liability for products
shipped by OxyChem or the Operating Partnership before or after the closing of
the Acquisition, as the case may be, and (iii) liabilities or obligations of
OxyChem which are or are not assumed by the Operating Partnership, as the case
may be. Certain of such indemnities are subject to limitations in terms of
indemnified amounts and indemnification periods.
VCM Supply Agreement and PVC Tolling Agreement
- ----------------------------------------------
Concurrently with the closing of the Acquisition on May 2, 1995, the
Operating Partnership and OxyChem entered into a VCM supply agreement (the "VCM
Supply Agreement"), that obligates the Operating Partnership to purchase from
OxyChem its requirements for vinyl chloride monomer ("VCM") at the Addis
Facility up to a specified annual base requirements. The VCM Supply Agreement is
a multi-year agreement under which OxyChem will sell VCM to the Partnership at
competitive rates.
Concurrently with the closing of the Acquisition on May 2, 1995, the
Operating Partnership and OxyChem entered into a PVC Tolling Agreement, under
which OxyChem will supply VCM to the Operating Partnership for conversion into a
specified annual base quantity of PVC at the Addis Facility for OxyChem. The PVC
Tolling Agreement is a multi-year agreement under which the Partnership will
manufacture PVC for a competitive fee.
Special Approval
- ----------------
As required by the Operating Partnership's Amended and Restated Agreement
of Limited Partnership (the "Partnership Agreement"), the Operating Partnership
received Special Approval (defined below) to acquire, own and operate the Addis
Assets. "Special Approval" means approval by a majority of the Board of
Directors of BCP Management, Inc., the general partner of the Partnership and
the Operating Partnership (the "General Partner"), that includes a majority of
the members of a committee of the Board of Directors of the General Partner
comprised of all directors who are neither officers, employees or directors of
Borden or any of its Affiliates (as such term is defined in the Partnership
Agreement) other than the General Partner, nor officers or employees of the
General Partner.
Accounting Treatment
- --------------------
The Acquisition will be treated as a purchase for accounting purposes.
Accordingly, the results of operations of the Addis Facility will be included in
the Partnership's consolidated results of operations from and after the closing
of the Acquisition. Based on internal engineering evaluations, which indicate
that the fair market value of the Addis Assets will exceed the acquisition
price, management anticipates that no goodwill will be recognized from the
Acquisition for accounting purchases.
<PAGE>
Financial Statements*
- ---------------------
(a) Financial Statements of the Addis Plant:
Balance sheets of the Addis Plant at December 31, 1994 and 1993, and
the related statements of operations and changes in owner's investment
and cash flows for the three years ended December 31, 1994 including
the notes thereto and related auditors' report included on pages 18
through 29.
(b) Pro Forma Financial Information:
Unaudited Pro Forma Combined Balance Sheet of the Partnership and the
Addis Plant at December 31, 1994 and the Unaudited Pro Forma Combined
Statements of Income of the Partnership and the Addis Plant for the
year ended December 31, 1994 including the notes thereto and related
introductory description included on pages 30 through 33.
- -----------------
* The information under Item 5 hereof is being reported in the Form 10-Q, in
lieu of being separately reported as Item 7 of a report on Form 8-K.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Borden Chemicals and Plastics Limited Partnership:
We have audited the accompanying balance sheets of the Addis Plant (as defined
in Note 1) of Occidental Chemical Corporation, an indirect wholly-owned
subsidiary of Occidental Petroleum Corporation, as of December 31, 1994 and
1993, and the related statements of operations and changes in owner's
investment and cash flows for the three years ended December 31, 1994. These
financial statements are the responsibility of Occidental Chemical Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Addis Plant of Occidental
Chemical Corporation as of December 31, 1994 and 1993, and the results of its
operations and changes in owner's investment and its cash flows for the three
years ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the financial statements, effective January 1, 1992,
the Addis Plant changed its method of accounting for postretirement benefits
other than pensions.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 30, 1995
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
BALANCE SHEETS
December 31, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash......................................... $ 2 $ 2
Inventories.................................. 6,123 11,144
Deferred income taxes........................ 107 -
Other current assets......................... 123 159
------- -------
Total current assets...................... 6,355 11,305
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $47,678 in 1994
and $43,219 in 1993.......................... 45,156 47,518
OTHER ASSETS................................... 1,593 1,702
------- -------
TOTAL ASSETS.............................. $53,104 $60,525
======= =======
CURRENT LIABILITIES:
Accounts payable............................. $ 1,709 $ 1,511
Accrued liabilities.......................... 570 322
Note payable to affiliate.................... 7,000 -
------- -------
Total current liabilities................. 9,279 1,833
DEFERRED INCOME TAXES.......................... 11,676 11,808
OTHER LIABILITIES.............................. 1,391 1,147
NOTE PAYABLE TO AFFILIATE...................... _ 7,000
------- -------
Total liabilities......................... 22,346 21,788
COMMITMENTS AND CONTINGENCIES
OWNER'S INVESTMENT............................. 30,758 38,737
------- -------
TOTAL LIABILITIES AND OWNER'S INVESTMENT....... $53,104 $60,525
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT
For the years ended December 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
EXTERNAL SALES, net ................... $ 98,665 $ 68,176 $ 65,452
SALES TO OWNER AT MARKET VALUE ........ 38,658 27,986 25,335
--------- --------- ---------
TOTAL SALES, net ..................... 137,323 96,162 90,787
OPERATING COSTS AND EXPENSES:
Cost of sales ...................... 126,238 92,397 89,682
Selling, general and
administrative expenses ........... 2,164 1,825 2,198
Other operating expense ............ 165 644 115
--------- --------- ---------
OPERATING INCOME (LOSS) ............... 8,756 1,296 (1,208)
INTEREST AND OTHER EXPENSE:
Interest expense, affiliates ....... 788 788 788
Other .............................. 139 132 132
--------- --------- ---------
INCOME (LOSS) BEFORE TAXES ............ 7,829 376 (2,128)
Income tax expense (benefit) ....... 2,975 462 (765)
--------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE ............................ 4,854 (86) (1,363)
Cumulative effect of change in
accounting principle, net ........... - - (543)
--------- --------- ---------
NET INCOME (LOSS) ..................... 4,854 (86) (1,906)
INCREASE (DECREASE) IN OWNER'S
INVESTMENT ........................... (12,833) 1,679 1,577
OWNER'S INVESTMENT, beginning
of period ............................ 38,737 37,144 37,473
--------- --------- ---------
OWNER'S INVESTMENT, end of period ..... $ 30,758 $ 38,737 $ 37,144
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ 4,854 $ (86) $(1,906)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cumulative effect of change in
accounting principle, net......... - - 543
Depreciation and amortization....... 4,592 4,071 4,006
Deferred income taxes............... (239) 354 (443)
Changes in operating assets
and liabilities:
Decrease (increase) in
inventories....................... 5,021 (3,636) 745
Decrease (increase) in other
current assets.................... 36 (135) 136
Increase (decrease) in accounts
payable and accrued liabilities... 446 87 (1,347)
Other, net.......................... 223 576 (179)
-------- ------- -------
Net cash provided by operating activities.. 14,933 1,231 1,555
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures..................... (2,100) (2,910) (3,132)
-------- ------- -------
Net cash used by investing activities...... (2,100) (2,910) (3,132)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in owner's
investment............................. (12,833) 1,679 1,577
-------- ------- -------
Net cash provided (used) by financing
activities............................... (12,833) 1,679 1,577
-------- ------- -------
Change in cash............................. - - -
Cash - beginning of period................. 2 2 2
-------- ------- -------
Cash - end of period....................... $ 2 $ 2 $ 2
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-
Organization, business and basis of presentation -
------------------------------------------------
The accompanying financial statements present the financial position,
results of operations and cash flows of the Addis Plant of Occidental Chemical
Corporation (OCC), a New York corporation. All of the outstanding common shares
of OCC are owned indirectly by Occidental Petroleum Corporation (Occidental).
The financial statements are prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
a Form 8-K and registration statement of Borden Chemicals & Plastics Operating
LP (Borden) in connection with its acquisition of the Addis Plant (see Note 10).
Certain amounts in the accompanying financial statements have been allocated in
a reasonable and consistent manner in order to depict the financial position,
results of operations and cash flows of the Addis Plant on a stand-alone basis.
The Addis Plant, located in Addis, Louisiana, manufactures and sells
commodity grade PVC suspension resins from raw materials purchased primarily
from OCC. Additionally, the Addis Plant participates in a variety of operating
and sales contracts administered by OCC. These include national sales agreements
as well as purchase and energy agreements.
Occidental utilizes a centralized cash management system for its
operations, including the Addis Plant. Cash distributed to or advanced from
Occidental has been reflected in Owner's investment in the accompanying balance
sheets. In addition, settlements of transactions with other Occidental
affiliates are recorded through Owner's investments.
Supplemental cash flow information -
----------------------------------
For the years ended December 31, 1994, 1993 and 1992, all cash payments
for income taxes were made by Occidental. For the same periods, there were no
cash payments for interest.
As of December 31, 1994 and 1993, trade receivables of $11,709,000 and
$7,749,000, respectively, were transferred to an affiliate (see Note 2).
Property, plant and equipment -
-----------------------------
Property additions, major renewals and improvements are capitalized at
cost. Maintenance and repair costs are charged to expense as incurred. The cost
and related accumulated depreciation, depletion and amortization of properties
sold or retired are removed from the property accounts and any resulting gain or
loss is recorded. Depreciation of plant and equipment has been provided using
units-of-production method.
-4-
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(continued)
Other assets-
------------
Goodwill with a basis of $3,296,000 represents the excess of cost over
fair value of net assets at acquisition date and is amortized on the
straight-line basis over 25 years. The accumulated amortization was $1,857,000
and $1,725,000 at December 31, 1994 and 1993, respectively.
Environmental costs-
--------------------
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to existing conditions
caused by past operations, and that do not contribute to current or future
revenue generation, are expensed. No costs relating to existing conditions
caused by past operations were incurred at the Addis Plant during 1994, 1993 or
1992. Reserves for estimated costs are recorded when environmental remedial
efforts are probable and the costs can be reasonably estimated. In determining
the reserves, OCC uses the most current information available, including similar
past experiences, available technology, regulations in effect, the timing of
remediation and cost-sharing arrangements.
The Addis Plant's estimated operating expenses relating to compliance with
environmental laws and regulations governing ongoing operations were
approximately $3,700,000, $3,400,000 and $3,300,000 in 1994, 1993 and 1992,
respectively. In addition, estimated capital expenditures for environmental
compliance in 1993 and 1992 were approximately $200,000 and $100,000,
respectively. There were no capital expenditures for environmental compliance in
1994. Management has not identified any material environmental matter, nor has
the Addis Plant been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act (Superfund)
and corresponding state acts, in connection with any such matter. At December
31, 1994 and 1993, there are no environmental reserves related to the Addis
Plant.
Income taxes-
-------------
The Addis Plant uses the asset and liability method required by Statement
of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes"
(see Note 7). Deferred income taxes are recorded at enacted rates to recognize
the future effects of temporary differences which arise between financial
statement assets and liabilities and their basis for income tax reporting
purposes. Income tax expense and deferred income tax liabilities are determined
as though the Addis Plant filed separate U.S. federal and state corporate income
tax returns. Current income tax liabilities determined on a separate return
basis are included in Owner's investment in the accompanying financial
statements.
OCC includes the Addis Plant's operations in determining its taxable
income, and joins with Occidental in filing a consolidated U.S. federal income
tax return.
Significant customers-
----------------------
Sales to the top three customers accounted for 16%, 12% and 10% of
external sales in 1994; 19%, 12% and 11% in 1993; and 17%, 14% and 12% in 1992.
-5-
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(2) RECEIVABLES-
As of December 31, 1994 and 1993, OCC transferred to an Occidental
affiliate trade receivables of the Addis Plant under a revolving sale program
amounting to $11,709,000 and $7,749,000, respectively, with recourse, in
connection with the ultimate sale for cash of such receivables. OCC transferred
the receivables to the affiliate in a noncash transaction that was reflected as
a reduction in the Addis Plant's Owner's investment. OCC has retained the
collection responsibility with respect to the receivables sold. An interest in
new receivables is transferred monthly representing the net difference between
newly created receivables and collections made from customers.
(3) ACCOUNTING CHANGES-
Effective January 1, 1992, the Addis Plant adopted SFAS No. 106
"Employer's Accounting for Postretirement Benefits Other Than Pensions" on the
immediate recognition basis. This statement required that the cost of these
benefits, which are primarily health care related, be recognized in the
financial statements during the employees' active working careers. The Addis
Plant recorded a charge of $543,000, which is net of a $350,000 income tax
benefit, as of January 1, 1992 to reflect the cumulative effect of the change in
accounting principle (see Note 8).
In December 1992, the Financial Accounting Standards Board issued SFAS No.
112 "Employers' Accounting for Postemployment Benefits," which substantially
changed the existing method of accounting for employer benefits provided to
inactive or former employees after employment but before retirement. This
statement requires that the cost of postemployment benefits be recognized in the
financial statements during employees' active working careers. OCC adopted SFAS
No. 112, effective January 1, 1994, but the adoption did not have a material
impact on the Addis Plant's financial position or results of operations.
(4) INVENTORIES-
Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) cost method was used in determining the costs of raw materials
and finished goods. Materials and supplies inventories were determined using the
weighted average cost method. Inventories consisted of the following as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Raw materials $ 1,114 $ 1,461
Materials and supplies 1,428 1,165
Finished goods 4,604 8,990
-------- -------
7,146 11,616
LIFO/lower of cost
or market reserve (1,023) (472)
-------- -------
Inventory at lower of cost
or market $ 6,123 $11,144
======== =======
</TABLE>
During 1994 and 1992, certain inventory quantities carried at LIFO were
reduced. These reductions resulted in a liquidation of LIFO inventory
quantities, the effect of which did not have a material impact on cost of sales.
-6-
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(5) PROPERTY, PLANT AND EQUIPMENT -
Property, plant and equipment at December 31 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Land and land improvements $ 4,115 $ 4,115
Buildings 7,498 7,445
Machinery and equipment 80,338 77,023
Construction in progress 883 2,154
-------- --------
92,834 90,737
Accumulated depreciation (47,678) (43,219)
-------- --------
$ 45,156 $ 47,518
======== ========
</TABLE>
(6) LEASE COMMITMENTS -
At December 31, 1994, future minimum lease payments under noncancelable
operating leases were as follows (in thousands):
<TABLE>
<S> <C>
1995........................... $1,239
1996........................... 1,043
1997........................... 993
1998........................... 737
1999........................... 431
Thereafter..................... -
------
Total minimum lease payments... $4,443
======
</TABLE>
Rental expense totaled approximately $1,570,000, $1,474,000 and $1,712,000
for the years ended December 31, 1994, 1993 and 1992, respectively.
-7-
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(7) INCOME TAXES -
Income tax expense (benefit) for the years ended December 31, 1994, 1993
and 1992 consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Current U.S. federal $2,753 $ 92 $(279)
Current state 461 16 (43)
Deferred U.S. federal (191) 69 (353)
Deferred tax charge due to
federal income tax rate change - 268 -
Deferred state (48) 17 (90)
------ ---- -----
$2,975 $462 $(765)
====== ==== =====
</TABLE>
The following table reconciles the maximum statutory U.S. federal income
tax rate multiplied by the Addis Plant's income (loss) before taxes to the
recorded income tax expense (benefit) (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
U.S. federal income tax at 35%
(34% at December 31, 1992) $2,740 $132 $(724)
State income tax expense,
net of U.S. federal benefit 268 21 (88)
Goodwill amortization and other
nondeductible expenses 48 47 47
Current benefit from graduated
U.S. federal rates (81) (6) -
Deferred U.S. federal income tax
expense resulting from rate
increase on August 10, 1993 - 268 -
------ ---- -----
$2,975 $462 $(765)
====== ==== =====
</TABLE>
As discussed in Note 1, the Addis Plant accounts for income taxes on a
separate return basis under SFAS No. 109. Temporary differences are associated
with the financial statement assets and liabilities shown in the table below.
Deferred income tax assets and liabilities have been recorded in the following
amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------------- --------------------------
Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Property, plant and
equipment $ - $(13,021) $ - $(13,068)
Other assets - (66) - (56)
Accrued liabilities 114 - - -
Other liabilities 598 - 493 -
Deferred state
income tax 806 - 823 -
------ -------- ------ --------
$1,518 $(13,087) $1,316 $(13,124)
====== ======== ====== ========
</TABLE>
-8-
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS-
The Addis Plant participates in defined contribution retirement plans
sponsored by Occidental for all of its salaried employees that provide for
periodic contributions by OCC based on the base salary and age level of the
eligible employees. Such contributions are invested in guaranteed-investment
contracts with insurance companies and in other high-quality fixed-income
investments. The Addis Plant expensed $237,000, $245,000 and $236,000 under the
provisions of these plans during the years ended December 31, 1994, 1993 and
1992, respectively.
OCC provides medical, dental and life insurance for certain active,
retired, and disabled employees and their eligible dependents. Beginning in
1993, certain salaried participants pay for all medical cost increases in excess
of increases in the Consumer Price Index (CPI). The benefits generally are
funded by OCC as the benefits are paid during the year. The cost of providing
these benefits is based on claims filed and insurance premiums paid for the
period.
The 1994, 1993 and 1992 postretirement benefits costs of $112,000,
$134,000 and $129,000, as discussed in the table below, are based on an
allocation of the OCC actuarial study using participant counts as of January 1,
1994.
As discussed in Note 3, effective January 1, 1992, OCC adopted SFAS No.
106. This statement required that the cost of postretirement benefits other than
pensions, which are primarily for health care, be accrued as a form of deferred
compensation earned during the period that employees render service, rather than
the previously permitted practice of accounting for such costs as claims were
paid. OCC elected immediate recognition of the net obligation at January 1,
1992. The related charge for the Addis Plant included an allocation of OCC's
previously unrecognized accumulated postretirement benefit obligation of
$543,000, which is net of a $350,000 income tax benefit. These allocations are
also based on participant counts as of January 1, 1994.
The postretirement benefit obligation as of December 31, 1994 and 1993 was
determined by application of the terms of medical, dental, and life insurance
plans, including the effect of established maximums on covered costs, together
with relevant actuarial assumptions and health-care cost trend rates projected
at a CPI increase of 4 percent. Because salaried participants pay for all
medical cost increases in excess of increases in the CPI, there is no effect of
a 1 percent annual increase in these assumed cost trend rates on the accumulated
postretirement benefit obligation or the annual service and interest costs in
1994. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1994 and 1993 was 7.5
percent. The plans are unfunded.
-9-
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS-(continued)
The following table sets forth the accrued postretirement benefit costs at
December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 75 $ 137
Fully eligible active plan participants 397 482
Other active plan participants 586 857
------- ------
Total accumulated postretirement benefit
obligation 1,058 1,476
Unrecognized net gain (loss) 193 (329)
------- -------
Accrued postretirement benefit cost $ 1,251 $1,147
======= =======
</TABLE>
Net periodic postretirement benefit cost included the following components
for the years ended December 31, 1994, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits attributed to
service during the period $ 41 $ 49 $ 53
Interest cost on accumulated
postretirement benefit obligation 71 85 76
------ ----- ------
Net periodic postretirement benefit
cost $112 $134 $129
====== ===== ======
</TABLE>
(9) RELATED PARTY TRANSACTIONS-
Transactions with other plants and affiliates of OCC included purchases of
feedstocks of $93,241,000 in 1994, $67,932,000 in 1993 and $58,885,000 in 1992.
These purchases are recorded at market value.
The Addis Plant has been charged for certain financial and operational
support services provided by OCC. Charges for such support services included in
cost of sales and selling, general and administrative costs in the accompanying
statements of operations totaled $4,424,000, $3,564,000 and $3,636,000 in 1994,
1993 and 1992, respectively. These charges were allocated based on ratios
including such factors as revenues, operating income, fixed assets, and working
capital in a reasonable and consistent manner.
Included in the above allocations are research and development costs,
which are charged to operations by OCC as incurred, and were $389,000, $226,000
and $408,000 in 1994, 1993 and 1992, respectively. These charges are included
in selling, general and administrative costs in the accompanying financial
statements.
The Addis Plant incurred interest expense of $788,000 in 1994, 1993 and
1992 on a note payable to an affiliate due on November 30, 1995 with an
outstanding balance of $7 million and an interest rate of 11.25 percent. Other
net advances from owner and affiliates included in Owner's investment in the
accompanying Balance Sheets bear no interest.
-10-
<PAGE>
OCCIDENTAL CHEMICAL CORPORATION
ADDIS PLANT
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(10) SALE OF ADDIS PLANT-
In 1986, the Federal Trade Commission (FTC) initiated an administrative
proceeding against OCC alleging that its acquisition of facilities from Tenneco
Polymers, Inc. in Pasadena, Texas and Burlington, New Jersey, violated antitrust
laws. The administrative complaint sought rescission of the acquisition
agreement and divestiture of the acquired assets. In 1993, the FTC issued an
opinion and final order of divestiture. OCC petitioned for review to the U.S.
Court of Appeals for the Second Circuit (Second Circuit). A settlement was
subsequently reached under which OCC agreed to divest its facilities in
Burlington and, in lieu of Pasadena, Addis, Louisiana, and refrain from
acquiring polyvinyl chloride assets for a period of 10 years without FTC
approval. The Second Circuit approved the settlement in January 1994.
Borden has agreed to purchase selected assets and liabilities of the Addis
Plant, primarily including, but not limited to, property, plant and equipment
and inventories. The assets and liabilities included in these financial
statements are those required to present the Addis Plant as a stand-alone entity
and include certain assets and liabilities that are not included in the sale to
Borden.
-11-
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
On May 2, 1995, the Partnership through the Operating Partnership completed
the acquisition of Occidental Chemical Corporation's (OxyChem) Addis, Louisiana
PVC resin production facility and certain related assets (the Addis Assets) and
assumption of certain obligations relating to the Addis Assets. The purchase
price for the Addis Assets was $104.3 million, subject to certain customary
post-closing adjustments.
The following pro forma financial statements assume the acquisition of the
Addis Assets, the issuance of $200.0 million of senior unsecured notes ("the
Senior Notes") at a 9.5% interest rate, borrowings of $65.0 million under the
revolving credit facility at 7.4% (current 6 month LIBOR rate plus 1%), and the
retirement of the existing $150.0 million of notes (Notes) of the Operating
Partnership (collectively, the Transactions).
The following pro forma combined financial statements give effect to the
acquisition of the Addis Assets under the purchase method of accounting. The pro
forma combined financial statements are based on the historical financial
statements of the Partnership and of the Addis Plant of OxyChem (Addis Plant)
and the estimates and assumptions set forth herein and on page 33. The data
presented herein is not necessarily indicative of the results of operations or
financial position that the Partnership would have obtained had such events
occurred at the beginning of the period, as assumed, or of the future results of
the Partnership.
The pro forma combined balance sheet as of December 31, 1994 combines the
Addis Plant December 31, 1994 balance sheet with the Partnership's December 31,
1994 balance sheet, assuming the Transactions occurred as of December 31, 1994,
which was the end of the Partnership's latest fiscal period. The pro forma
combined statements of income combine the historical statements of operations
for the Addis Plant and the Partnership for the year ended December 31, 1994
assuming the Transactions occurred as of January 1, 1994.
-30-
<PAGE>
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
AS OF DECEMBER 31, 1994
(In thousands)
<TABLE>
<CAPTION>
Addis Pro Forma Pro Forma
ASSETS Partnership Plant Adjustments Combined
------ ----------- ----- ----------- ---------
<S> <C> <C> <C> <C>
Cash......................... $ 74,126 $ 2 $ (2)(a) $ 73,708
(418)(b)
Accounts receivable.......... 121,631 121,631
Inventories.................. 28,131 6,123 34,254
Other current assets......... 2,831 230 (230)(a) 2,831
-------- ------- -------- --------
Total current assets....... 226,719 6,355 (650) 232,424
Property and equipment, net.. 283,319 45,156 94,600 (b) 377,919
(45,156)(c)
Other assets................. 32,866 1,593 (1,593)(a) 40,199
7,850 (b)
(517)(d)
-------- ------- -------- --------
Total assets............... $542,904 $53,104 $ 54,534 $650,542
======== ======= ======== ========
LIABILITIES AND OWNER'S EQUITY
- ------------------------------
Accounts and drafts payable.. $ 50,706 $ 1,709 $ (1,709)(a) $ 50,706
Current portion of long-term
debt....................... 30,000 7,000 (7,000)(a) 0
(30,000)(b)
Other current liabilities.... 89,039 570 (570)(a) 87,194
(1,845)(b)
-------- ------- -------- --------
Total current liabilities.... 169,745 9,279 (41,124) 137,900
-------- ------- -------- --------
Long-term debt............... 120,000 145,000 (b) 265,000
Other liabilities............ 7,424 13,067 (13,067)(a) 7,368
(5)(d)
(51)(c)
-------- ------- -------- --------
Total Other Liabilities.... 127,424 13,067 131,877 272,368
-------- ------- -------- --------
Owner's Investment - Addis... 30,758 (30,758)(a)
Partners' Capital:
Common Unitholders......... 244,443 (507)(d) 239,036
(4,900)(e)
General partner............ 1,292 (5)(d) 1,238
(49)(e)
-------- ------- -------- --------
Total partners' capital.... 245,735 0 (5,461) 240,274
-------- ------- -------- --------
Total liabilities & owners'
equity................... $542,904 $53,104 $ 54,534 $650,542
======== ======= ======== ========
</TABLE>
31
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands, except per unit data)
<TABLE>
<CAPTION>
Addis Pro Forma Pro Forma
Partnership Plant Adjustments Combined
----------- ----- ----------- ---------
<S> <C> <C> <C> <C>
Net trade sales ........ $657,752 $137,323 $795,075
-------- -------- --------
Expenses:
Cost of goods sold .. 446,216 126,238 (2,260)(f) 571,367
1,173 (g)
Marketing, general
& administrative
expense ............ 21,092 2,164 (1,914)(f) 21,342
General Partner
incentive .......... 20,616 20,616
Interest expense .... 16,342 788 (788)(f) 23,941
7,599 (h)
Other expenses ...... 7,081 304 786 (i) 8,204
33 (j)
-------- -------- -------- --------
Total expense ...... 511,347 129,494 4,629 645,470
-------- -------- -------- --------
Income before taxes ....... 146,405 7,829 (4,629) 149,605
Income tax expense ........ 0 2,975 (2,975)(f) 0
-------- -------- -------- --------
Net income ................ $146,405 $ 4,854 $ (1,654) $149,605
======== ========
Less 1% General Partner
Interest ............ (1,464) (1,496)
-------- --------
Net income applicable to
Limited Partners'
interest ............... $144,941 $148,109
======== ========
Net income per Unit ....... $ 3.94 $ 4.03
======== ========
Average number of Units
outstanding during the
period ................ 36,750 36,750
======== ========
</TABLE>
-32-
<PAGE>
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Reflects the elimination of certain historical assets and liabilities of the
Addis Plant excluded from the acquisition transaction, as well as of
OxyChem's historical investment.
(b) Reflects the acquisition of the Addis Assets and the effects of the
financing as follows:
<TABLE>
<S> <C>
Proceeds from issuance of $200.0 million of Senior Notes net of repayments of Notes.................... $ 50,000
Proceeds from borrowings under the revolving credit facility........................................... 65,000
Payment of debt issuance costs of the Senior Notes of $7.25 million, arrangement and
commitment fees for the revolving credit facility of $0.6 million payment of accrued
interest as of December 31, 1994 on the Notes of $1.845 million, and payment of
the premium on the prepayment of the Notes of $5.0 million.......................................... (14,695)
--------
100,305
Cash acquisition price of $104.3 million net of purchase price adjustment of $3.6 million
based on December 31, 1994 inventory values......................................................... 100,723
--------
Acquisition price in excess of net proceeds (such excess assumed to be funded from cash
on hand)............................................................................................ $ (418)
========
The cash acquisition price has been allocated for pro forma purposes based upon the
General Partner's preliminary estimate of the fair market value of the assets acquired:
Inventories.................................................................................... $ 6,123
Property, plant and equipment.................................................................. 94,600
--------
$100,723
========
</TABLE>
(c) Reflects the elimination of historical basis in fixed assets acquired.
(d) Reflects the write-off of the remaining debt issuance costs related to the
Notes.
(e) Reflects the effect of the payment of a premium related to the prepayment of
the Notes. The prepayment premium would be accounted for as an extraordinary
loss on early extinguishment of debt; as such, it is reflected as a
reduction of Partners' Capital in the pro forma balance sheet as of December
31, 1994. The prepayment premium is not reflected in the pro forma
statements of income due to its nonrecurring nature. The prepayment premium
amount ($5.0 million) represents an approximate amount calculated as of
March 31, 1995 on the assumption that the premium will be the excess of (i)
estimated fair value of the Notes over (ii) the outstanding principal of the
accrued interest on the Notes after certain other adjustments.
(f) Reflects the elimination of certain OxyChem costs (interest, taxes and
certain corporate expenses allocated to depict the Addis Plant on a stand-
alone basis and which are considered to substantially duplicate existing
Operating Partnership functions) that would not have been incurred under
ownership by the Operating Partnership, net of anticipated corporate costs
of $0.25 million annually that are estimated to be allocated from the
General Partner based on customary methods for the expected incremental
activity related to the Addis Assets.
(g) Reflects the net increase in depreciation over historical Addis Plant
depreciation using the increased basis in fixed assets and depreciable lives
of 30 years and 15 years for buildings and equipment, respectively.
(h) Reflects the net additional interest from the issuance of $200.0 million of
Senior Notes (at a 9.5% rate) and from borrowings under the revolving credit
facility (at 7.4%) over the interest on the $150.0 million of Notes assumed
to be retired in the pro forma financial statements. A one-half percent rate
change on the borrowings under the revolving credit facility would result in
a $0.325 million change to the pro forma interest expense and net income.
(i) Reflects the straight-line amortization of debt issuance costs related to
the Senior Notes over 10 years and of costs related to the revolving credit
facility over 3 years, net of the elimination of the amortization of debt
issuance costs related to the Notes.
(j) Reflects effect of the Addis Plant and pro forma adjustments on Minority
Interest in Consolidated Subsidiary.
<PAGE>
Item 6. Exhibits and Reports of Form 8-K
- ----------------------------------------
(a) Exhibits
--------
2.1/(1)(2)/ Asset Transfer Agreement dated as of August 12, 1994 as amended as
of January 10, 1995 and March 16, 1995 between Borden Chemicals
and Plastics Operating Limited Partnership (the "Operating
Partnership") and Occidental Chemical Corporation ("OxyChem"),
and the forms of VCM Supply Agreement and PVC Tolling Agreement
annexed thereto
Borden Chemicals and Plastics Limited Partnership hereby agrees to
provide the Commission upon request copies of any omitted
schedules required by Item 601(1)(2) of Regulation S-K.
2.1.1 Third Amendment of Asset Transfer Agreement dated as of May 2,
1995 between the Operating Partnership and OxyChem
23. Consent of Arthur Andersen LLP
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Registrant during the first
quarter 1995.
/1/ Filed as an exhibit to Borden Chemicals and Plastics Operating Limited
Partnership's Registration Statement on Form S-1 (File No. 33-85186) and
incorporated by reference in this Form 10-Q Quarterly Report.
/2/ Confidential treatment granted as to certain provisions.
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 PLASTICS LIMITED
PARTNERSHIP
By BCP Management, Inc.,
General Partner
By /s/ JAMES O. STEVNING
-------------------------------
James O. Stevning
Controller and Principal
Accounting Officer
Date: May 12, 1995
<PAGE>
Exhibit 2.1.1
Third Amendment
of
Asset Transfer Agreement
between
OCCIDENTAL CHEMICAL CORPORATION
as Seller
and
BORDEN CHEMICALS AND PLASTICS
OPERATING LIMITED PARTNERSHIP
as Buyer
This Third Amendment of Asset Transfer Agreement (the "Third Amendment")
dated as of May 2, 1995, is between Occidental Chemical Corporation ("Seller")
and Borden Chemicals and Plastics Operating Limited Partnership ("Buyer"). Terms
not otherwise specifically defined herein shall have the meanings assigned in
the Asset Transfer Agreement between Seller and Buyer dated as of August 12,
1994, as amended by that First Amendment of Asset Transfer Agreement dated as of
January 10, 1995, and as further amended by that Second Amendment of Asset
Transfer Agreement dated as of March 16, 1995 (the "Agreement").
WHEREAS, Seller and Buyer previously entered into the Agreement, and
-------
WHEREAS, Seller and Buyer wish to modify certain provisions of the
------
Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual promises
--------------
hereinafter contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as hereinafter
set forth.
A. Section 9.5(a) of the Agreement is hereby amended to read, in its entirety,
as follows:
SECTION 9.5 Benefit Plans Transfer
-----------
(a) All Transferred Employees shall cease to accrue service credit except
as expressly provided herein, under any and all of Seller's or any of its
affiliate's or subsidiaries' Welfare Plans, or under any and all of Seller's or
any of its affiliate's or subsidiaries' Pension Plans, in which participation
had been available to such Transferred Employees, including, but not limited to,
retirement and profit sharing plans, life, health, dismemberment, vacation
benefits and deferred compensation pay. Expenses incurred and expenses for
continuous periods of disability or hospitalization commencing but not completed
as of the Closing Date shall be responsibility of the Seller. Seller's liability
shall end when the disability or hospitalization ends. Seller shall retain
responsibility for the administration of the account balances of the Transferred
Employees who do not elect to transfer their assets to the Buyer from the
Occidental Petroleum Corporation Savings Plan ("PSA") and the Occidental
Petroleum Corporation Retirement Plan ("PRA"). Effective as of the Closing Date,
Seller agrees to cause Occidental Petroleum Corporation to vest fully the
Transferred Employees in their account balances in the PSA and the PRA. In that
both the Seller, its affiliates and Buyer wish to accommodate Transferred
Employees and provide maximum
<PAGE>
retirement portability, Seller agrees to make distributions to participants
under the PSA in accordance with the provisions of Code section 401(k)(10) and
under the PRA in accordance with the views expressed by the Internal Revenue
Service in GCM39824, and to allow such participants to elect, in accordance with
procedures set forth in Code section 401(a)(31), to make a "direct rollover" of
so much of such distributions as may qualify, to the designated plans of Buyer.
Any participant may elect to leave PSA or PRA plan balances in the PSA or PRA in
lieu of taking a distribution. Any participant who elects to leave a balance in
the PSA shall also be granted the right to continue making loan repayments, if
any, by check, to Seller until such loan may be repaid. All such administrative
actions shall be detailed and completed by Seller and Buyer no later than three
full calendar months following the Closing Date. Buyer agrees to have the Borden
Inc. Consolidated Retirement Savings and Employee Stock Ownership Plan accept
distributions (but not loan amounts) as direct rollovers from the PSA and PRA
and to credit such amounts to each Transferred Employee's respective individual
account, subject to the individual employee promptly executing direct rollover
documentation in a form acceptable to the Buyer.
B. In all other respects, the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused their respective names
to be subscribed to this Third Amendment as of the date and year first above
written.
BORDEN CHEMICALS AND PLASTICS
OPERATING LIMITED PARTNERSHIP
By its General Partner, BCP MANAGEMENT, INC.
By: /s/ Joseph M. Saggese
----------------------------------
Joseph M. Saggese
Title: President
-------------------------------
OCCIDENTAL CHEMICAL CORPORATION
By: /s/ Donald G. Miller
----------------------------------
Donald G. Miller
Title: Vice President - Commercial Development
2
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of
this Form 10-Q.
ARTHUR ANDERSEN LLP
Dallas, Texas
May 11, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 91,380
<SECURITIES> 0
<RECEIVABLES> 123,280
<ALLOWANCES> 620
<INVENTORY> 28,176
<CURRENT-ASSETS> 245,545
<PP&E> 576,373
<DEPRECIATION> 301,343
<TOTAL-ASSETS> 554,948
<CURRENT-LIABILITIES> 163,885
<BONDS> 120,000
<COMMON> 0
0
0
<OTHER-SE> 263,386
<TOTAL-LIABILITY-AND-EQUITY> 554,948
<SALES> 214,806
<TOTAL-REVENUES> 214,806
<CGS> 108,491
<TOTAL-COSTS> 108,491
<OTHER-EXPENSES> 13,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,085
<INCOME-PRETAX> 83,487
<INCOME-TAX> 0
<INCOME-CONTINUING> 83,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,487
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 0
</TABLE>
