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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, 1996
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 614-225-4482
(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,
1996: 36,750,000.
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31,
1996 1995
-------- --------
<S> <C> <C>
REVENUES
Net trade sales...................................... $144,973 $162,488
Net affiliated sales................................. 25,612 52,318
-------- --------
Total revenues............................. 170,585 214,806
-------- --------
EXPENSES
Cost of goods sold
Trade.......................................... 139,580 82,168
Affiliated..................................... 25,239 26,323
Marketing, general & administrative expense.......... 5,635 5,531
Interest expense..................................... 5,350 4,085
General Partner incentive............................ 0 13,075
Other expense, including minority
interest......................................... 878 137
-------- --------
Total expenses........................... 176,682 131,319
-------- --------
Net (loss) income.................................... (6,097) 83,487
Less 1% General Partner interest................. 61 (835)
Net (loss) income applicable to Limited Partners' -------- --------
interest......................................... $( 6,036) $ 82,652
======== ========
PER UNIT DATA, NET OF 1% GENERAL PARTNER INTEREST:
Net (loss) income per Unit........................... $ ( 0.16) $ 2.25
======== ========
Average number of Units outstanding during the year.. 36,750 36,750
======== ========
Cash distribution declared per Unit.................. $ 0.10 $ 1.77
======== ========
</TABLE>
2
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
------------------------
MARCH 31, MARCH 31,
1996 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net (loss) income..................................... ($6,097) $ 83,487
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation....................................... 12,192 11,163
(Increase) in receivables.......................... ( 2,888) (1,649)
Increase (decrease) in inventories................ 8,527 (45)
(Decrease) in payables............................. (15,168) (13,024)
(Decrease) increase in incentive distribution
payable................................... (1,910) 1,210
Increase in accrued interest....................... 4,744 4,073
Other, net............................................ (8,425) (4,088)
----------- --------
(9,025) 81,127
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................... (3,115) (2,874)
----------- --------
(3,115) (2,874)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings, (net)....... 10,000 0
Cash distributions paid.......................... (21,179) (60,999)
----------- --------
(11,179) (60,999)
(Decrease) increase in cash and equivalents........... (23,319) 17,254
----------- --------
Cash and equivalents at beginning of period........... 32,421 74,126
----------- --------
Cash and equivalents at end of period................. $ 9,102 91,380
========== ========
SUPPLEMENT DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid during the period....................... $ 606 $ 12
========== ========
</TABLE>
3
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1996 DECEMBER 31, 1995
------ --------------- -----------------
<S> <C> <C>
Cash and equivalents................................. $ 9,102 $ 32,421
Accounts receivable (less allowance for doubtful
accounts of $471 and $457 respectively)
Trade............................................. 76,159 75,788
Affiliated........................................ 17,719 15,202
Inventories
Finished and in process goods..................... 26,657 33,418
Raw materials and supplies........................ 7,888 9,654
Other current assets................................. 2,854 3,541
--------- ---------
Total current assets.............................. 140,379 170,024
--------- ---------
Investments in and advances to affiliated companies.. 4,500 4,437
Other assets......................................... 47,215 39,415
--------- ---------
51,715 43,852
--------- ---------
Plant, property and equipment
Land.............................................. 14,586 14,106
Buildings......................................... 44,264 44,216
Machinery and equipment........................... 635,865 633,484
--------- ---------
694,715 691,806
Less accumulated depreciation........................ (349,247) (337,175)
--------- ---------
Net plant, property and equipment 345,468 354,631
--------- ---------
Total assets $ 537,562 $ 568,507
========= =========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts and drafts payable.......................... $ 49,724 $ 64,892
Cash distributions payable........................... 3,712 21,179
Short-term borrowing................................. 50,000 40,000
Incentive distribution payable to General Partner.... 0 1,910
Accrued interest..................................... 8,006 3,262
Other accrued liabilities............................ 12,105 13,468
--------- ---------
Total current liabilities....................... 123,547 144,711
--------- ---------
Long-term debt....................................... 200,000 200,000
Other liabilities.................................... 5,805 5,677
Minority interest in consolidated subsidiary......... 1,555 1,655
--------- ---------
Total liabilities 330,907 352,043
--------- ---------
Partners' capital
Limited Partners.................................. 206,051 215,762
General Partner................................... 604 702
--------- ---------
Total Partners' capital........................ 206,655 216,464
--------- ---------
$ 537,562 $ 568,507
========= =========
</TABLE>
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
-------- ------- --------
<S> <C> <C> <C>
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
======== ====== ========
Balance at December 31, 1995.. $215,762 $ 702 $216,464
Net (loss).................... (6,036) (61) (6,097)
Cash distributions declared... (3,675) (37) (3,712)
-------- ------ --------
Balances at March 31, 1996.... $206,051 $ 604 $206,655
======== ====== ========
</TABLE>
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS EXCEPT UNIT AND PER UNIT DATA)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated condensed financial statements
contain all adjustments, consisting only of normal
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 cash purchase price for the Addis assets was $100,400.
On May 1, 1995 the Operating Partnership issued $200,000 aggregate principal
amount of 9 1/2% senior unsecured notes (the"Senior Notes"). The proceeds from
this offering, net of $9,815 of debt issuance costs, were used to prepay
$150,000 aggregate principal amount of outstanding notes plus related $6,912
prepayment premium 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 was $50,000 at March 31, 1996.
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 each which could be subject to the
Environmental Indemnity Agreement ("EIA") discussed below. 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 $150,000,
management believes that, assuming the Partnership is unsuccessful, based on
information currently available, 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.
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, Inc. ("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
6
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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 $3,500 through March 31, 1996.
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.
The Partnership is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of the management of the
Partnership, the amount of the ultimate liability, taking into account its risk
retention program and EIA with Borden, would not materially affect the financial
position or results of operations of the Partnership.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995
Revenues
Total revenues during the first quarter of 1996 decreased $44.2 million or 21%
to $170.6 million from $214.8 million in the first quarter of 1995. This
decrease was the result of a $48.0 million decrease in Methanol and Derivatives
revenues and a $2.0 million decrease in Nitrogen Products revenues, partially
offset by a $5.7 million increase in PVC Polymers Products revenues.
Total revenues for PVC Polymers Products increased $5.7 million as a result of a
49% increase in sales volumes partially offset by a 29% decrease in selling
prices. The increase in sales volumes was attributable to the additional
production from the Addis acquisition. Pricing for PVC continues to be well
below the year-ago period and on average, declined from the fourth quarter of
1995.
Total revenues for Methanol and Derivatives decreased $48.0 million as a result
of a 61% decrease in selling prices, partially offset by an 8% increase in sales
volumes. Methanol sales prices began to decline during early 1995, and the
outlook for Methanol continues to be uncertain, but the Partnership believes
that its Methanol sales prices during 1996 are likely to remain at current
levels.
Total revenues for Nitrogen Products decreased $2.0 million as a result of a 6%
decrease in selling prices along with a 1% decrease in sales volumes. Demand and
pricing for ammonia and urea were steady during the quarter and comparable to
the first quarter of 1995, despite drought in the western wheat belt and
continued cold in the Midwest, which slowed plantings.
Cost of Goods Sold
Total cost of goods sold increased 52% to $164.8 million in the current period
from $108.5 million in the year-ago period. The increase was primarily a result
of increased raw material costs due to natural gas price increases, partially
offset by decreased ethylene and chlorine costs. Expressed as a percentage of
total revenues, cost of goods sold increased to 97% of total revenues in 1996
from 51% in 1995, resulting in greatly reduced gross margins and net income for
the Partnership.
Gross margins for PVC Polymers Products decreased to a slight negative position
as a result of the reduced selling prices discussed above.
Gross margins for Methanol and Derivatives also decreased to a slight negative
position as a result of the decreased selling prices combined with the increased
natural gas costs discussed above.
Gross margins for Nitrogen Products decreased nearly 50% as a result of the
increase in natural gas costs.
Incentive Distribution to General Partner
There was no incentive distribution to the General Partner generated in the
first quarter of 1996 as cash generated was less than $0.3647 (the "Target
Distribution").
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 the Target Distribution.
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Interest Expense
The increase in interest expense during the first quarter of 1996 compared to
the year-ago period was predominantly due to debt incurred associated with the
Addis acquisition.
Net (Loss) Income
Net (loss) income was a loss of $6.1 million compared to $83.5 million in 1995.
As discussed above, the primary reasons for the decrease in operating
performance were significant selling price decreases in PVC and methanol along
with a significant natural gas cost increase.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operations. Cash flows from operations decreased $90.2 million
for the first quarter 1996 from the comparable period a year ago. The decrease
was primarily attributable to the decrease in net income from the first quarter
of 1995. Cash flows (used in) provided by operations were also negatively
affected by an approximate $9.2 million prepayment for a long-term raw material
supply contract made during the first quarter of 1996.
Cash Flows from Investing Activities. First quarter 1996 capital expenditures
totalled $3.1 million. Capital expenditures for the first quarter 1995 were
$2.9 million.
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 $21.2 million were made during the first quarter 1996
compared to $61.0 million in the year-ago period. These amounts reflect the
payment of cash distributions declared for the 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, 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.
Liquidity
The Partnership expects to satisfy its cash requirements through internally
generated cash and borrowings. During 1995, the Partnership entered into a
Revolving Credit Facility which provided a $100.0 million line of credit for
capital expenditures, working capital and general partnership purposes. The
amount available under the facility reduced to $75.0 million on January 1, 1996,
reduces to $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.
Borrowing under this facility was $50 million at March 31, 1996. The $10.0
million increase in the amount outstanding under the Revolving Credit Facility
during the first
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quarter of 1996 was principally for the $9.2 million raw material contract
prepayment discussed above.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
There is incorporated by reference herein the information regarding legal
proceedings in Item 3 of Part I of the Partnership's 1995 Annual Report on Form
10-K and Note 3 to the consolidated condensed financial statements in Part I
hereof.
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SIGNATURE
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/ JOHN R. BEAVER
-----------------------------
JOHN R. BEAVER
Controller and Principal
Accounting Officer
May 10, 1996
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9102
<SECURITIES> 0
<RECEIVABLES> 76630
<ALLOWANCES> 471
<INVENTORY> 34545
<CURRENT-ASSETS> 140379
<PP&E> 694715
<DEPRECIATION> 349247
<TOTAL-ASSETS> 537562
<CURRENT-LIABILITIES> 123547
<BONDS> 200000
0
0
<COMMON> 0
<OTHER-SE> 206655
<TOTAL-LIABILITY-AND-EQUITY> 537562
<SALES> 170585
<TOTAL-REVENUES> 170585
<CGS> 164819
<TOTAL-COSTS> 164819
<OTHER-EXPENSES> 6513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5350
<INCOME-PRETAX> (6097)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6097)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6097)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> 0
</TABLE>
