<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 9,
1997: 36,750,000.
================================================================================
1
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1997 1996
-------- --------
REVENUES
Net trade sales ........................ $162,917 $144,973
Net sales to related parties ........... 31,765 25,612
-------- --------
Total revenues ......................... 194,682 170,585
-------- --------
EXPENSES
Cost of goods sold
Trade ................................ 157,942 139,580
Related Parties ...................... 30,095 25,239
Marketing, general & administrative
expense ............................... 5,441 5,635
Interest expense ....................... 5,250 5,350
Other expense, including minority
interest................................ 361 878
-------- --------
Total expenses .................... 199,089 176,682
-------- --------
Net (loss) ............................. (4,407) (6,097)
Less 1% General Partner
interest............................. 44 61
-------- --------
Net (loss) applicable to Limited
Partners' interest ..................... $( 4,363) $ (6,036)
======== ========
PER UNIT DATA, NET OF 1% GENERAL
PARTNER INTEREST:
Net (loss) per Unit .................... $( 0.12) $(0.16)
======== ========
Average number of Units outstanding
during the year ........................ 36,750 36,750
======== ========
Cash distribution declared per Unit .... $0.10 $0.10
======== ========
</TABLE>
2
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
-------------------------
MARCH 31, MARCH 31,
1997 1996
------------- ----------
CASH FLOWS FROM OPERATIONS
<S> <C> <C>
Net (loss) .............................. ($4,407) ($6,097)
Adjustments to reconcile net (loss) to
net cash provided by operating
activities:
Depreciation ............................ 12,410 12,192
Increase (decrease) in cash from changes
in certain assets and liabilities:
Receivables ........................... (14,449) (2,888)
Inventories ........................... 6,160 8,527
Payables .............................. 1,103 (15,168)
Incentive distribution
payable ............................. 0 (1,910)
Accrued interest ...................... 4,750 4,744
Other, net .............................. (5,806) (8,425)
-------- --------
( 239) (9,025)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................... (1,567) (3,115)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings,
(net)................................. 0 10,000
Cash distributions paid................. (3,712) (21,179)
-------- --------
(3,712) (11,179)
-------- --------
(Decrease) increase in cash and
equivalents............................. (5,518) (23,319)
Cash and equivalents at beginning of
period.................................. 10,867 32,421
-------- --------
Cash and equivalents at end of period..... $ 5,349 $ 9,102
======== ========
SUPPLEMENT DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid during the
period.................................. $ 500 $ 606
======== ========
</TABLE>
3
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1997 DECEMBER 31, 1996
- ---------------------------------------- ---------------- ------------------
<S> <C> <C>
Cash and equivalents.................... $ 5,349 $ 10,867
Accounts receivable (less allowance for
doubtful accounts of $642 an $589
respectively)
Trade.................................. 88,206 72,908
Related Parties ........................ 21,298 22,147
Inventories
Finished and in process goods.......... 30,020 36,174
Raw materials and supplies............. 7,782 7,788
Other current assets.................... 2,152 2,579
--------- ---------
Total current assets................... 154,807 152,463
--------- ---------
Investments in and advances to
affiliated companies.................... 4,410 4,366
Other assets............................ 53,395 49,405
--------- ---------
57,805 53,771
--------- ---------
Plant, property and equipment
Land.................................... 14,970 14,970
Buildings............................... 44,597 44,597
Machinery and equipment................. 646,186 644,619
--------- ---------
705,753 704,186
Less accumulated depreciation............ (397,125) (384,715)
--------- ---------
Net plant, property and equipment 308,628 319,471
--------- ---------
Total assets $ 521,240 $ 525,705
========= =========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts and drafts payable ............. $ 62,915 $ 61,812
Cash distributions payable .............. 3,712 3,712
Short-term borrowings ................... 25,000 25,000
Accrued interest ........................ 7,935 3,185
Other accrued liabilities ............... 14,526 16,516
--------- ---------
Total current liabilities ............. 114,088 110,225
Long-term debt .......................... 200,000 200,000
Other liabilities ....................... 5,483 5,609
Minority interest in consolidated
subsidiary ............................. 1,488 1,571
--------- ---------
Total liabilities 321,059 317,405
--------- ---------
Commitments and contingencies
Partners' capital
Limited Partners ....................... 199,642 207,680
General Partner ........................ 539 620
--------- ---------
Total Partners' capital .............. 200,181 208,300
--------- ---------
Total liabilities and Partners'
capital ....................... $ 521,240 $ 525,705
========= =========
</TABLE>
4
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BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL
PARTNERS PARTNER TOTAL
----------------- ------------ --------------
<S> <C> <C> <C>
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
========== ========== ==========
Balance at December 31, 1996 $ 207,680 $ 620 $ 208,300
Net (loss) ............................ (4,363) (44) (4,407)
Cash distributions declared ........... (3,675) (37) (3,712)
---------- ---------- ----------
Balances at March 31, 1997 ............. $ 199,642 $ 539 $ 200,181
========== ========== ==========
</TABLE>
5
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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 condensed financial statements
contain all adjustments, consisting only of normal recurring adjustments, which
in the opinion of BCP Management, Inc. (the "General Partner") are necessary for
a fair statement of the results for the interim periods. Results for the
interim periods are not necessarily indicative of the results for the
full year.
Per Unit data in the accompanying financial statements is derived by
subtracting the General Partner 1% interest from the income captions and
dividing the results by the Average Units Outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 establishes new standards for computing and presenting earnings per share.
The Partnership is required to adopt the provisions of SFAS No. 128 for its
consolidated financial statements for the year ended December 31, 1997 and
subsequent interim periods. Upon adoption, the standard also requires the
restatement of all prior period earnings per Unit information presented. The
adoption of SFAS No. 128 is not expected to have a material effect on the
Partnership's earnings per Unit computations or disclosures.
2. 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 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, 1997.
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
6
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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, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Revenues
Total revenues during the first quarter of 1997 increased $24.1 million or 14%
to $194.7 million from $170.6 million in the first quarter of 1996. This
increase was the result of a $19.6 million increase in PVC Polymers Products
revenues and a $9.7 million increase in Methanol and Derivatives revenues,
partially offset by a $5.2 million decrease in Nitrogen Products revenues.
Total revenues for PVC Polymers Products increased $19.6 million as a result of
a 5% increase in sales volumes and a 12% increase in selling prices. The selling
price increase was due to strong PVC resin demand and partially successful
efforts to pass through raw material cost increases.
Total revenues for Methanol and Derivatives increased $9.7 million as a result
of a 32% increase in selling prices, partially offset by a 3% decrease in sales
volumes. The high raw material natural gas costs of 1996 that continued into
1997 have caused industry pricing to increase significantly, as have several
recent production disruptions other producers have experienced.
Total revenues for Nitrogen Products decreased $5.2 million as a result of a 6%
decrease in selling prices along with a 15% decrease in sales volumes. Prices
and volumes in 1997 have been negatively affected by reduced demand, in part
caused by the flooding of the midwestern United States river systems.
Cost of Goods Sold
Total cost of goods sold increased 14% to $188.0 million in the current period
from $164.8 million in the year-ago period. Raw material costs are a significant
component of cost of goods sold. Natural gas, the Partnership's largest raw
material, increased slightly from last year's very high costs, further
depressing margins. The Partnership's other major raw materials - ethylene,
chlorine and VCM - all posted significant increases from the 1996 period. The
increase was also the result of the increased PVC volume discussed above,
partially offset by decreased volumes in Methanol and Derivatives and Nitrogen
Products. Expressed as a percentage of total revenues, cost of goods sold
remained constant at 97% of total revenues in 1997, a depressed gross margin
level, and was the primary factor in the Partnership's net loss for the
quarter.
Gross margins for PVC Polymers Products remained in a slight negative position
as raw material ethylene, chlorine and VCM cost increases offset improved
selling prices and volumes. Gross margins for Methanol and Deriv atives improved
to moderate profitability from a slight negative position as a result of the
improved selling prices discussed above. Margins continued to be depressed due
to very high raw material natural gas costs.
Gross margins for Nitrogen Products declined significantly to near breakeven due
to the selling price and volume declines discussed above. As with Methanol and
Derivatives, the raw material natural gas costs depressed margins for the first
quarter of 1997 and the year-ago period.
Net (Loss)
Net (loss) was $4.4 million compared to $6.1 million in 1996. As discussed
above, the primary reasons for the depressed operating performance were high raw
material costs and declines in Nitrogen Products selling prices and volumes,
offset by improved Methanol and Derivatives and PVC selling prices.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operations. Cash flows from operations remained slightly
- --------------------------
negative in 1997, primarily due to the net (loss) and the increase in
receivables, partially offset by non-cash depreciation expense and reduced
inventory levels.
Cash Flows from Investing Activities. First quarter 1997 capital expenditures
- ------------------------------------
totaled $1.6 million. Capital expenditures for the first quarter 1996 were $3.1
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 $3.7 million were made during the first quarter 1997
compared to $21.2 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,
and 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 $25 million at March 31, 1997.
9
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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 1996 Annual Report on Form
10-K and Note 2 to the consolidated condensed financial statements in Part I
hereof.
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------
On April 8, 1997, the Partnership filed a Form 8-K under Item 5 to disclose its
Agreement and Plan of Conversion to corporate status and the Partnership's newly
adopted Rights Agreement.
10
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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/ James O. Stevning
---------------------------------------
James O. Stevning
Vice President, Chief Financial Officer and
Treasurer
Principal Accounting Officer
May 12, 1997
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,349
<SECURITIES> 0
<RECEIVABLES> 109,504
<ALLOWANCES> 642
<INVENTORY> 37,802
<CURRENT-ASSETS> 154,807
<PP&E> 705,753
<DEPRECIATION> 397,125
<TOTAL-ASSETS> 521,240
<CURRENT-LIABILITIES> 114,088
<BONDS> 200,000
0
0
<COMMON> 0
<OTHER-SE> 200,181
<TOTAL-LIABILITY-AND-EQUITY> 521,240
<SALES> 194,682
<TOTAL-REVENUES> 194,682
<CGS> 188,037
<TOTAL-COSTS> 188,037
<OTHER-EXPENSES> 5,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,250
<INCOME-PRETAX> (4,407)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,407)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,407)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
