10-K405

 
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                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549

                                   FORM 10-K


[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934


For the fiscal year ended: December 31, 1998  Commission file number:  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)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class                                         Name of each exchange on which registered
- -------------------                                         -----------------------------------------
Depositary Units Representing Common Units                           New York Stock Exchange
 
 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                     NONE

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         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  .
                                              ---    --

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III and this Form 10-K or any
amendment to this Form 10-K. [x]

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         Aggregate market value in thousands of the Common Units held by non-
affiliates of the Registrant based upon the average sale price of such Units on
March 12, 1999 was approximately $238 million.

Number of Common Units outstanding as of the close of business on March 12,
1999: 36,750,000.


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                                       1

 
                                    PART I
Item I. Business
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General

     Borden Chemicals and Plastics Limited Partnership (the "Company" or
"Partnership") is a limited partnership formed in 1987 to acquire, own and
operate polyvinyl chloride resins ("PVC"), methanol and other chemical plants
located in Geismar, Louisiana, and Illiopolis, Illinois, that were previously
owned and operated by Borden, Inc. ("Borden"). On May 2, 1995, the Company,
through its subsidiary operating partnership Borden Chemicals and Plastics
Operating Limited Partnership (the "Operating Partnership"), completed the
purchase of Occidental Chemical Corporation's ("OxyChem") Addis, Louisiana PVC
manufacturing facility and related assets ("Addis Facility"). The Company's
three principal product groups are (i) PVC Polymers Products, which consist of
PVC resins and feedstocks (such as vinyl chloride monomer ("VCM") and
acetylene), (ii) Methanol and Derivatives, which consist of methanol and
formaldehyde, and (iii) Nitrogen Products, which consist of ammonia and urea.
During 1998, PVC Polymers Products, Methanol and Derivatives and Nitrogen
Products accounted for 69%, 21% and 10%, respectively, of the Company's
revenues.

     The Company seeks to increase its productive capacity through selective
expansions of its existing facilities and "debottlenecking" of production
facilities at its plants. From 1988 to 1998, the Company increased overall
capacity of its facilities by 28.3% through various expansions and
"debottlenecking" projects.

     The Company's production complex at Geismar, Louisiana, its plant at
Illiopolis, Illinois, and the Addis Facility produce products for the following
applications:



- --------------------------------------------------------------------------------------------------
Products                                         Location            Principal Applications
- --------------------------------------------------------------------------------------------------
                                                        
PVC POLYMERS PRODUCTS
 PVC                                          Geismar         Water distribution pipe, residential
                                              Illiopolis      siding, wallcoverings, vinyl    
                                              Addis           flooring
 
VCM                                           Geismar         Raw material for the Company's
                                              PVC operations
METHANOL AND DERIVATIVES
 Methanol                                     Geismar         Formaldehyde, MTBE, adhesives
                                                              and fibers or raw materials for the
                                                              Company's formaldehyde operations
 
 Formaldehyde                                 Geismar         Pressed wood products, adhesives,
                                                              fibers
NITROGEN PRODUCTS
 Ammonia                                      Geismar         Fertilizers, fibers, plastics,
                                                              explosives
 
 Urea                                         Geismar         Fertilizers, animal feeds, adhesives
                                                              plastics


     The Company's plants generally can be operated at rates in excess of stated
capacity to take advantage of market opportunities without undue adverse
effects. References to capacity assume normal operating conditions, including
downtime and maintenance. The Company's objective is to operate 

                                       2

 
the Geismar, Illiopolis and Addis plants at or near full capacity because of the
reduced operating costs per unit of output at full operation.

     The integrated design of the Company's plants provides it with a high
degree of flexibility to shift production volumes according to market conditions
and efficiently utilize by-product streams. The Company's products are produced
through the highly integrated lines described below.


PVC Polymers Products

     PVC Resins - PVC is the second largest volume plastic material produced in
the world. The Company produces general purpose and specialty purpose PVC resins
at three plants - one located at the Geismar complex, one at Illiopolis and
another at Addis - with stated annual capacities of 575 million, 400 million and
600 million pounds of PVC resins, respectively. The PVC resin plants operated at
approximately 82% and 90% of combined capacity in 1998 and 1997, respectively.
Although there have been year-to-year fluctuations in product mix, the Company
has over time concentrated on the higher margin grades of PVC resin and reduced
its dependence on commodity pipe grade PVC resins, which have historically
experienced lower margins. Based on data from the Society of the Plastics
Industry, the Company believes its production currently accounts for
approximately 9% of total industry domestic capacity of PVC resins.

     PVC pricing and margins declined substantially in 1998 due to domestic
industry overcapacity closely linked to lower Asian demand. As a result of the
current Asian economic situation, global growth rate expectations have been
significantly scaled back. The impact on margins from falling PVC prices has
been only partially offset by falling ethylene and chlorine raw material costs.

     The PVC industry in both the United States and Europe has entered a
consolidation and rationalization phase, evidenced by the recent announcement of
several joint ventures, acquisitions and capacity closures.

     Production Process. PVC resins are produced through the polymerization of
VCM, an ethylene and chlorine intermediate material internally produced by the
Company. The Company's production of certain specialty PVC resin grades also
involves the consumption of purchased vinyl acetate monomer. The Company
purchases vinyl acetate monomer from unrelated third parties.

     All the VCM used by the Company's Geismar PVC resin plant and most of the
VCM used by the Company's Illiopolis PVC resin plants is obtained from the
Company's two Geismar VCM plants discussed below. Substantially all of the
production of these VCM plants is consumed by the Company's PVC resins plants at
Geismar and Illiopolis. The Geismar PVC resin plants obtain VCM from the
Company's adjacent VCM plants in the Geismar complex and the Illiopolis PVC
resin plant obtains VCM from the Company's Geismar plant via rail. The VCM
requirement at the Addis Facility is currently supplied by OxyChem which has
arranged for physical delivery to the Addis Facility by pipeline via exchange,
but which may also be supplied by rail car from OxyChem's plant in Deer Park,
Texas or from OxyChem's joint venture facility ("OxyMar") in Corpus Christi,
Texas.

     VCM is principally used in the production of PVC resins. The Company
produces VCM by two processes: an ethylene process and an acetylene process. The
finished product of both of these processes is essentially 

                                       3

 
identical but the production costs vary depending on the cost of raw materials
and energy. The ability to produce VCM by either process allows the Company the
flexibility of favoring the process that results in the lower cost at any
particular time.

     Ethylene-Based VCM. Ethylene-based VCM ("VCM-E") is produced by the Company
at a 650 million pound stated annual capacity plant at the Geismar complex. The
plant operated at approximately 91% and 94% of capacity during 1998 and 1997,
respectively. Substantially all of the production of the VCM-E plant is consumed
by the Company's PVC resin plants at the Geismar complex and Illiopolis.

     Ethylene and chlorine constitute the principal feedstocks used in the
production of VCM-E. Both feedstocks are purchased by the Geismar plant from
outside sources.

     Acetylene-Based VCM. Acetylene-based VCM ("VCM-A") is produced at a 320
million pound stated annual capacity plant at the Geismar complex. During 1998
and 1997, the plant operated at approximately 62% and 76% of capacity
respectively. All of the VCM-A produced at the Geismar complex is consumed by
the PVC resin plants at Geismar and Illiopolis.

     The Geismar complex contains the only VCM-A plant in the United States. The
integration of the VCM-A plant with the other plants on site provides stability,
cost and efficiency benefits to the plants located at the Geismar complex.
Although ethylene has generally been regarded as a lower cost feedstock for the
production of VCM, the VCM-A plant reduces the overall processing costs of the
Geismar complex because the acetylene plant produces as a by-product acetylene
off-gas, which is used as a feedstock in the production of methanol. In
addition, hydrochloric acid, a feedstock used in the production of VCM-A, is
produced as a by-product by the adjacent VCM-E plant. Furthermore, certain
industrial plants located near the Geismar complex have excess supplies of
hydrochloric acid that the Company is generally able to purchase at relatively
low cost.

     In addition to hydrochloric acid, acetylene is a primary feedstock used in
the production of VCM-A.

     Acetylene. Acetylene is primarily used as a feedstock for VCM-A and for
other chemical intermediates. The Company has a 50% interest in a 200 million
pound stated annual capacity acetylene plant at the Geismar complex, with the
remaining 50% interest held by BASF Corporation ("BASF"). The Company has agreed
to purchase BASF's interest in the acetylene plant. See Financial Statements
Note 9 "Purchase Commitments". During 1998 and 1997, the plant operated at
approximately 89% and 90%, respectively, of capacity, with all production being
consumed by either the Company or BASF.

     During 1998, approximately 48% of the total production of the acetylene
plant was used internally as a principal feedstock of the Geismar VCM-A plant.
Acetylene not required by BASF is available to the Company at cost.

     The principal feedstocks used in the production of acetylene are natural
gas and oxygen. Oxygen is obtained from certain air separation units and related
air compression systems, which are jointly owned by the Company, BASF and Air
Liquide America Corporation pursuant to joint venture arrangements. For a
description of the Company's arrangements for the purchase of natural gas, see
"Raw Materials".
 -------------

                                       4

 
     As long as a subsidiary of Borden is the general partner of the Company,
the acetylene plant will be operated and managed by employees of such general
partner pursuant to an operating agreement with BASF. The agreement provides
that, if a Borden subsidiary ceases to be the general partner, BASF will have
the exclusive right to become the operator of the plant and the personnel
necessary to operate the plant will be encouraged to accept employment with
BASF. The Company's interest in the acetylene plant and the air separation
systems is subject to certain rights of first refusal and limitations on
transfer. In addition, the Company and the third parties who hold the other
interests in such assets have mutual rights under certain circumstances, to
require the other party to purchase its interests.

     The Company's principal competitors in the sale of PVC include Shintech,
Formosa Plastics, OxyChem and Geon.

Methanol and Derivatives

     Methanol - Methanol is used primarily as a feedstock in the production of
other chemicals. Such chemicals include formaldehyde, which is used in the
manufacture of wood building products and adhesives, and MTBE, which is used as
a gasoline additive. The Company's stated annual capacity is 330 million gallons
per year. During 1998, and 1997, the plant operated at approximately 85% and
96%, respectively, of capacity.

     Supply disruptions in the industry served to improve methanol pricing
during 1997, with contract prices ending the year at $0.58 per gallon. At the
end of the first quarter of 1998, as additional production capacity was brought
on-line, methanol prices started a decline that continued for the balance of the
year.

     The Company believes its stated annual capacity represents approximately
13% of total domestic capacity. The Company's main competitors in the sale of
methanol include Methanex, Terra Industries, Hoechst Celanese and Lyondell.

     In 1998, Borden Chemical Inc., a subsidiary of Borden ("BCI"), purchased
approximately 42% of the Company's methanol production for its downstream
formaldehyde production. Approximately 20% of production was used internally in
the production of formaldehyde and approximately 2% was used primarily to
satisfy tolling and exchange arrangements. The remaining 36% of volume was sold
to third parties (other than BCI).

     The primary raw material feedstock used in the production of methanol is
natural gas. The efficiency of the Geismar methanol plant has been enhanced by
using the by-product of the Geismar acetylene plant, acetylene off-gas, as a
partial substitute feedstock for purchased natural gas. Natural gas represented
approximately 67% of the Company's total cost of producing methanol during 1998.

     Formaldehyde. Formaldehyde is a chemical intermediate used primarily in the
production of plywood and other pressed wood products. The Company produces
50%-concentration formaldehyde (which is 50% formaldehyde and 50% water) at
three units at the Geismar complex. The formaldehyde plants have annual
capacities of 280, 190 and 180 million pounds per year, respectively, for the
50%-concentration formaldehyde. During 1998 and 1997, the three plants operated
at approximately 98% and 91%, respectively, 

                                       5

 
of combined capacity. The smaller plant also is capable of producing urea-
formaldehyde concentrate for the fertilizer industry. If operated for production
of urea-formaldehyde, the smaller plant's stated annual capacity would be 125
million pounds.

     Formaldehyde demand generally is influenced by the construction industry
and housing starts. Total United States production capacity of 50%-concentration
formaldehyde in 1998 was approximately 7.8 billion pounds, with the formaldehyde
units at the Geismar complex representing 650 million pounds, approximately 9%,
of such total. Major competitors of the Company include Georgia Pacific and
Neste.

     During 1998, approximately 74% of the Company's formaldehyde production was
purchased by an unaffiliated third party pursuant to a long-term contract
expiring in 2002. Such third party consumes formaldehyde in its manufacture of
MDI and 1,4 Butanediol (both of which are chemical intermediaries used in a wide
variety of applications). The contract requires the Company to supply up to 78%
of its annual capacity to the third party to the extent necessary to satisfy
that party's formaldehyde requirements.

     Of the Company's remaining formaldehyde production, 25% was sold to BCI and
approximately 1% was utilized by the Company in the production of
urea-formaldehyde concentrate for the fertilizer industry. The formaldehyde sold
to BCI is primarily consumed in adhesive resins used in the production of
plywood and other pressed wood products. As a result, such formaldehyde demand
is influenced by construction activity and housing starts.

     The principal feedstock used in the production of formaldehyde is methanol.
The Geismar formaldehyde plants obtain all such feedstock from the adjacent
methanol plant.

     BCI produces formaldehyde and urea-formaldehyde concentrate at other
facilities located in the United States and facilities outside the United
States. The Company does not have any interest in such other facilities and,
accordingly, BCI may be a competitor of the Company with respect to formaldehyde
and urea-formaldehyde concentrate. The Partnership Agreement provides that the
Company may not significantly expand the capacity of the Geismar formaldehyde
plants without special approval. The Company is intended to be a limited purpose
partnership and the Partnership Agreement provides that the General Partner
shall have no duty to propose or approve, and in its sole discretion may decline
to propose or approve, any such expansion.



Nitrogen Products

     Ammonia. Ammonia is a commodity chemical used primarily for fertilizer
applications and as an intermediate for other agricultural chemicals such as
pesticides and herbicides. Approximately 85% of domestic ammonia production is
consumed directly or indirectly in fertilizer applications. The Company produces
ammonia at a 400,000 ton stated annual capacity plant located at the Geismar
complex. During 1998 and 1997, the Company operated at approximately 87% and
95%, respectively, of capacity.

     During 1996, the worldwide supply of ammonia experienced a series of

                                       6

 
disruptions and reductions due to plant shutdowns, operating problems and
interruptions in the supply of natural gas, the primary feedstock in the
production of ammonia. At the same time, demand for ammonia, particularly in
Asia (China, India and Pakistan), increased for both industrial and fertilizer
applications. These factors combined to cause occasional shortages of ammonia in
the United States, which is a net importer of nitrogen products, and to increase
selling prices for ammonia. However, an increase in the worldwide production
capacity of ammonia, along with more aggressive pricing by producers in the
former Soviet Union, put downward pressure on ammonia prices during 1997 and
1998. Selling prices for ammonia decreased from $225 per ton in December 1996 to
$140 per ton in December 1997 and to as low as $100 per ton in December 1998.

     Demand for ammonia is seasonal, with prices tending to be higher in the
spring and fall months than during the remainder of the year. In addition,
fertilizer demand is sharply affected by swings in crop acreage.

     During 1998, approximately 65% of ammonia production was sold to third
parties (other than BCI), approximately 33% of production was used by the
Company's adjacent urea plant, and approximately 2% of production was sold to
BCI.

     The Company believes its stated annual capacity represents just under 2% of
total North American capacity. The Company's major competitors include PCS,
Farmland and Terra Industries.

     Urea. Urea is a commodity chemical which is used primarily in fertilizer
applications. Approximately 80% of domestic production of urea is consumed in
fertilizer applications. Urea's high nitrogen content (46%) makes it an
effective and popular dry nitrogen fertilizer. In addition, urea is used in the
production of urea-formaldehyde resins used in the wood building products
industry.

     The Company produces granular urea at a 270,000 ton stated annual capacity
plant at the Geismar complex. During 1998 and 1997, the plant operated at
approximately 73% and 75% respectively, of capacity.

     Because of the importance of the agricultural chemical industry as a market
for urea, demand is affected sharply by swings in crop acreage. In addition,
like ammonia, demand for urea is seasonal, with prices tending to be higher in
the spring and fall months than during the remainder of the year. Worldwide urea
production has expanded rapidly over the past 20 years, particularly in
countries with abundant supplies of low cost natural gas. Like ammonia, urea
demand has suffered during recent years from reduced United States fertilizer
demand. It also has been affected even more severely than ammonia by imports
from third world countries because storage and shipping of urea is easier and
less costly than is the case with ammonia.

     Urea prices remained relatively stable in 1996 due to many of the same
factors which influenced the price of ammonia. However, increases in production
capacity and a decrease in imports of urea into China have caused selling prices
to significantly decline during 1997. Selling prices for urea decreased from
$185 per ton in December 1996 to $105 per ton in December 1997 and to as low as
$90 per ton in December 1998.

     During 1998, approximately 45% of the Company's urea sales were to third
parties and approximately 55% were to BCI. A small portion of the 

                                       7

 
Company's urea production was used internally by the Company in the production
of urea-formaldehyde concentrate.

     The Company believes its stated annual capacity represents approximately 3%
of total North American capacity. The Company's major competitors include PCS,
Unocal and CF Industries.

     The principal feedstocks used in the production of urea are ammonia and
carbon dioxide, which the Company obtains from its adjacent ammonia plant.

Raw Materials

     The principal purchased raw material used in the Company's operations is
natural gas. In 1998, the Company purchased over 57.8 million MMBTUs of natural
gas for feedstock and as an energy source. Currently, the Company is one of the
largest industrial purchasers of natural gas in the state of Louisiana. Natural
gas is supplied by pipeline to the Geismar complex by six major natural gas
suppliers. In 1998, natural gas represented 35%, 58% and 67% of total production
costs for acetylene, ammonia and methanol, respectively, and 27% of the
Company's total production costs. The Company purchases the majority of its
natural gas under fixed-term, market sensitive supply contracts. The cost of
purchasing natural gas is, in general, greater in winter months, reflecting
increased demand for natural gas by consumers and industry during such months.
During 1996, the Company experienced unprecendented natural gas costs as the
cash price and NYMEX prices, which normally determine the Company's natural gas
purchase prices, reached record highs. In 1997, gas prices decreased slightly
while 1998 saw a 15% reduction from the previous year. Although the Company has
diversified its suppliers and does not currently anticipate any difficulty in
obtaining adequate natural gas supplies, there can be no assurance that the
Company will in the future be able to purchase adequate supplies of natural gas
at acceptable price levels.

     The Company purchases other raw materials for its operations, principally
ethylene and chlorine. Ethylene is currently supplied by pipeline to the Geismar
facility by several suppliers. Chlorine is supplied by rail car to the Geismar
complex by various suppliers. The major raw material for the Illiopolis PVC
plant, VCM, is supplied by rail car from the Geismar facility. In addition, in
connection with the production of certain specialty grades of PVC resins, the
Company purchases certain quantities of vinyl acetate monomer. See "-PVC
Polymers Products-Production Process". The Company purchases its VCM
requirements for the Addis Facility under a VCM supply agreement entered into
with OxyChem. The Company does not believe that the loss of any present supplier
would have a material adverse effect on the production of any particular product
because of numerous, competitive alternate suppliers.

     Because raw materials have accounted for a high percentage of the Company's
total production costs, and are expected to continue to represent a high
percentage of such costs for the Company, the Company's ability to pass on
increases in costs of these raw material feedstocks will have a significant
impact on operating results. The ability to pass on increases in feedstock and
fuel costs is, to a large extent, dependent on the then existing market
conditions. Because of the large volume of purchases of natural gas, any
increase in the price of natural gas or a shortage in its availability could
materially adversely affect the Company's income and cash flow from operations
and its ability to service its debt obligations.

                                       8

 
Insurance

     The Company maintains property, business interruption and casualty
insurance which it believes is in accordance with customary industry practices,
but it is not fully insured against all potential hazards incident to its
business. The Company also maintains pollution legal liability insurance
coverage. However, 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 its pollution legal
liability insurance, or any other insurance that the Company has, may cover
environmental claims against the Company. Insurance, however, generally does not
cover penalties or the costs of obtaining permits. See "Legal Proceedings".

     The Company is included in Borden's master insurance program, which
includes property damage and liability insurance. Under its risk retention
program, Borden maintains deductibles of $2.5 million, $1.0 million and $1.0
million per occurrence for property and related damages at the Geismar,
Illiopolis and Addis facilities, respectively, and deductibles range from $0.1
million to $2.0 million per event for liability insurance.

Marketing

     The marketing activities on behalf of the Company are performed by two main
groups, PVC marketing and basic chemical marketing.

     The PVC group is comprised of 15 people, including a Director of Sales,
Director of Marketing & Customer Applications, 3 Product Managers, 7 Regional
Sales personnel, and 3 Service managers, along with a small office support
staff.

     Similarly, basic chemicals marketing is headed by a Director of Sales and
Marketing, 2 Product Managers, and 3 Regional Sales personnel.

     Both groups are headquartered in Baton Rouge, LA with professional sales
personnel positioned in other parts of the United States.

     The Company's sales activities are based on frequent customer contact to
secure and maintain long-term supply relationships. A substantial portion of the
Company's sales are made under contracts with annual re-negotiation provisions.
The majority of the Company's sales are made in the United States, and a small
portion in Canada. The Company has not historically participated in the export
market, but retains access to these markets through third party specialists. In
1998 and 1997, 12% and 15%, respectively, of the Company's sales were made to
BCI with the remainder being sold to other third parties.

Utilities

     The Geismar complex operates three high thermal efficiency co-generation
units providing the site with low cost electricity, steam and high temperature
reformer combustion air. Each unit is composed of a natural gas burning
turbine/generator unit combined with a steam producing heat recovery system
(i.e., the "co-generation" of electricity and steam).

                                       9

 
     The co-generation units are designed to provide a significant portion of
the electricity and steam, and a portion of the reformer combustion air
requirements of the Geismar complex at full production levels. These units have
electrical outputs of 20, 35 and 35 megawatts, respectively. The electricity is
supplied by the units through a substation owned by Monochem, Inc. ("Monochem"),
a corporation of which the Partnership owns 50% of the capital stock. The
Company's interest in Monochem is subject to certain rights of first refusal and
limitations on transfer.

     Water requirements at the Geismar complex are obtained through Monochem
from the Mississippi River. At Illiopolis, a municipal water company supplies
the facility with its water requirements. Because the Illiopolis facility
represents a significant portion of the demand for water supply from the
municipal water company, the Company manages the operations of the water company
on a cost-reimbursed basis. The Addis Facility obtains its electricity and water
requirements from local public utilities. Natural gas is purchased by pipeline
from various intrastate suppliers.

Purchase and Processing Agreements

     In connection with the formation of the Company in 1987, Borden entered
into certain purchase agreements ("Purchase Agreements") and processing
agreements ("Processing Agreements") with the Company covering the following
products: PVC resins, methanol, ammonia, urea, formaldehyde and
urea-formaldehyde concentrate. These agreements were transferred to BCI in 1997
and the agreement to purchase PVC resins was assigned to and renegotiated with a
third party in connection with the sale of certain businesses by Borden in 1996
and 1997.

     The Purchase and Processing Agreements expire in November 2002, subject to
termination by BCI in the event BCPM ceases to be the general partner of the
Company, other than by reason of (i) the withdrawal of BCPM as general partner
under circumstances where such withdrawal violates the Partnership Agreement,
(ii) removal of BCPM as general partner by the Unitholders under circumstances
where cause exists or (iii) any other event except (x) voluntary withdrawal by
BCPM as general partner of the Company under circumstances where such withdrawal
does not violate the Partnership Agreement and such withdrawal is approved by a
Majority Interest or (y) the removal of BCPM as general partner of the Company
by action of the Unitholders under circumstances where cause does not exist. In
December 1998, in connection with the renegotiation of Credit Agreement, the
Company granted BCI an option to extend the term of its Methanol Purchase
Agreement for one additional year (i.e., until November 2003), in exchange for
Borden's agreement with the Company's bank group not to exercise any rights of
set-off with respect to accounts receivable.

     The Purchase Agreements require BCI to purchase from the Company and the
Company to supply to BCI, subject to certain monthly quantity limits, at least
85% (and at the option of BCI up to 100%) of the quantities of methanol, ammonia
and urea required by BCI for use in its plants in the continental United States.
Under the Purchase Agreements, the price for ammonia, urea and methanol
generally will be an amount equal to the monthly weighted average price per unit
that the Company charges its lowest-priced major customer (other than BCI). If
the Company does not make any sales to any major customers other than BCI, then
the price to BCI will be the lowest prevailing price in the relevant geographic
area. The Purchase Agreements also provide that the Company is required to meet
competitive 

                                       10

 
third-party offers or let BCI purchase the lower-priced product from such third
parties in lieu of purchases under the Purchase Agreements.

     The Processing Agreements for formaldehyde and urea-formaldehyde
concentrate essentially require BCI to utilize the processing capacity of the
formaldehyde plants so that the formaldehyde plants operate at no less than 90%
of capacity, after taking into account the purchases of formaldehyde by an
unaffiliated third party under a long-term requirements contract. Although such
third party's current requirements for formaldehyde exceed 200 million pounds
per year, in the event that such third party's annual requirements are less than
such amount, BCI has the option of reducing or terminating its obligation to
utilize such processing capacity. Under the Processing Agreements, BCI is
required to pay the Company a fee for each pound of formaldehyde and
urea-formaldehyde concentrate processed equal to the Company's processing costs
plus a per pound charge. The per-pound charge is subject to increase or decrease
based on changes in the Consumer Price Index from October 1987. The Processing
Agreements also require the Company to meet competitive third party offers
covering formaldehyde unless meeting such offer would impose a significant
economic penalty on the Company, in which case BCI will be permitted to accept
such offer and reduce its obligations under the Processing Agreements by a
corresponding amount.

     The Company believes that the pricing formulas set forth in the Purchase
and Processing Agreements have in the past provided aggregate prices and
processing charges that BCI would have been able to obtain from unaffiliated
suppliers, considering the magnitude of Borden's or BCI's purchases, the
long-term nature of such agreements and other factors. The Company believes that
this will continue to be the case in the future. There may be conditions
prevailing in the market at various times, however, under which the prices and
processing charges set under the Purchase and Processing Agreements could be
higher or lower than those obtainable from unaffiliated third parties.

     The Company is free to sell or otherwise dispose of, as it deems
appropriate, any quantities of PVC resins, ammonia, urea, methanol or
formaldehyde which BCI is not required to purchase. In addition, the Purchase
and Processing Agreements do not cover acetylene, VCM or industrial gases, which
are either consumed internally by the Company or have not been historically
purchased by Borden or BCI.

     Because the foregoing Purchase and Processing Agreements are requirements
contracts, sales of products thereunder are dependent on Borden's requirements
for such products. Such requirements could be affected by a variety of factors,
including a sale or other disposition by BCI of all or certain of its
manufacturing plants to unaffiliated purchasers (in which event such agreements
shall not apply to such purchasers unless otherwise agreed to by such
purchasers). In the event that, whether as a result of the change of control of
Borden or otherwise, BCI were to sell or otherwise dispose of all or certain of
its plants or otherwise reorient its businesses, BCI's requirements for products
sold or processed by the Company under the Purchase and Processing Agreements
could be diminished or eliminated. The Company anticipates that if Borden were
to sell all or certain of its chemical manufacturing facilities, a purchaser may
be interested in negotiating the continuation of all or certain of the Purchase
and Processing Agreements.

                                       11

 
Competition

     The business in which the Company operates is highly competitive. The
Company competes with major chemical manufacturers and diversified companies, a
number of which have revenues and capital resources exceeding those of the
Company. Because of the commodity nature of the Company's products, the Company
is not in a position to protect its position by product differentiation and is
not able to pass on cost increases to its customers to the extent its
competitors do not pass on such costs. In addition to price, other significant
factors in the marketing of the products are delivery, quality and, in the case
of PVC resins, technical service. The Company believes that the overall
efficiency, integration and optimization of product mix of the facilities at
Geismar, Illiopolis, and Addis make the Company well positioned to compete in
the markets it serves.

     Borden has agreed that, so long as BCP Management, Inc. ("BCPM") is the
general partner of the Company, Borden will not engage in the manufacture or
sale in the United States of methanol, ammonia, urea, acetylene, VCM or PVC
resins. However, if BCPM (i) is removed as general partner by the Unitholders
under circumstances where cause exists or (ii) withdraws as general partner
under circumstances where such withdrawal violates the existing partnership
agreements ("Partnership Agreements"), Borden shall not engage in such
manufacture or sale for a period of two years from the date of such removal or
withdrawal. If Borden were to sell any of its manufacturing facilities to an
unaffiliated purchaser that is not a successor to Borden, the purchasers of such
facilities would be free to compete with the Company.

Trademarks

     The Company entered into a Use of Name and Trademark License Agreement
("Use of Name and Trademark License Agreement") with Borden pursuant to which
the Company is permitted to use in its name the Borden name and logo. The Use of
Name and Trademark License Agreement and the right to use the Borden name and
logo shall terminate in the event that BCPM ceases to be the General Partner.

Management

     The General Partner, BCPM, manages and controls the activities of the
Company and the Holding Company and the General Partner's activities are limited
to such management and control. Neither the Holding Company nor the Unitholders
participate in the management or control of the Company. The General Partner has
fiduciary duties to Unitholders, subject to the provisions of the Partnership
Agreements. Notwithstanding any limitation on obligations or duties, the General
Partner will be liable, as general partner, for all the debts of the Company (to
the extent not paid by the Company) other than any debt incurred by the Company
that is made specifically nonrecourse to the General Partner.

     The Company does not directly employ any of the persons responsible for
managing or operating the business of the Company, but instead relies on the
officers of the General Partner and employees of Borden who provide support to
or perform services for the General Partner and reimburses Borden (on its own or
on the General Partner's behalf) for their services.

                                       12

 
Environmental and Safety Regulations

   General. The Company's operations are subject to federal, state and local
environmental, health and safety laws and regulations, including laws relating
to air quality, hazardous and solid wastes, chemical management and water
quality. The Company has expended substantial resources, both financial and
managerial, to comply with environmental regulations and permitting
requirements, and anticipates that it will continue to do so in the future.
Although the Company believes that its operations are in material compliance
with these requirements, there can be no assurance that significant costs, civil
and criminal penalties, and liabilities will not be incurred. The Company holds
various environmental permits for operations at each of its plants. In the event
a governmental agency were to deny a permit application or permit renewal, or
revoke or substantially modify an existing permit, such agency action could have
a material adverse effect on the Company's ability to continue the affected
plant operations. Plant expansions are subject to securing necessary
environmental permits. Environmental laws and regulations have changed in the
past, and the Company anticipates continuing changes. Increasingly strict
environmental regulations have resulted in increased operating costs for the
Company, and it is possible that the costs of compliance with environmental,
health and safety laws and regulations will continue to increase.

     The Company maintains an environmental and industrial safety and health
compliance program and conducts regulatory audits at its Geismar, Illiopolis and
Addis plants. The Company's plants have had a history of involvement in
regulatory, enforcement and variance proceedings in connection with safety,
health and environmental matters. Risks of substantial costs and liabilities are
inherent in plant operations and products found at and produced by the plants,
as they are with other enterprises engaged in the chemical business, and there
can be no assurance that significant costs and liabilities will not be incurred.

     Air Quality. The Geismar, Illiopolis and Addis plants emit air contaminants
and are subject to the requirements of the Clean Air Act and comparable state
statutes. Many of the existing requirements under these laws are embodied in
permits issued to the plants by state environmental agencies. The Company
believes that the Geismar, Illiopolis and Addis plants generally are in material
compliance with these requirements.

     The 1990 Amendments to the Clean Air Act (the "1990 Clean Air Act
Amendments") require stringent controls on volatile organic compounds ("VOC")
emissions in ozone non-attainment areas and also require, subject to certain
exceptions, the control of nitrogen oxide ("NOx") emissions in such areas. The
Geismar and Addis plants are located in a "nonattainment area" for ozone under
the 1990 Clean Air Act Amendments. Additional capital expenditures may be
required at the Geismar and Addis plants in order to upgrade existing pollution
control equipment and/or install additional control equipment to comply with the
stringent regulations for VOC and NOx.

     The 1990 Clean Air Act Amendments and state laws and regulations also
require certain sources to control emissions of hazardous air pollutants,
including vinyl chloride. Additional capital expenditures may be necessary to
comply with these control standards.

     The 1990 Clean Air Act Amendments further require "enhanced monitoring" of
the emissions from certain pieces of equipment. Although monitoring 

                                       13

 
systems are in place at the Geismar, Illiopolis and Addis plants, capital
expenditures may be necessary to comply with the "enhanced monitoring"
requirement.

     In late 1996 the Illiopolis plant discovered through emission stack testing
that the actual emissions from a specific dryer were higher than calculated
using emission factors and engineering estimates. These new emission numbers
were reported to the Illinois Environmental Protection Agency, and an air
pollution control device known as a baghouse was installed on the unit in 1998
at a cost of $1.3 million.

     Based on the information currently available to the Company, the Company
does not believe that the capital expenditures that may be required at the
Geismar, Illiopolis and Addis plants to comply with the 1990 Clean Air Act
Amendments and corresponding state regulations will be material. However,
because the Company is continuing to evaluate the impact of such amendments on
it, there can be no assurance that the actual costs will not exceed the
Company's estimates.

     In March 1998, the United States Department of Justice ("DOJ") and the
Company signed a consent decree (the "Consent Decree") to resolve an enforcement
proceeding brought against the Company and BCPM, for alleged violations of the
Clean Air Act and other environmental statutes at the Geismar facility. In June
1998, the U.S. District Court for the Middle District of Louisiana accepted the
Consent Decree into record, and the proceedings were closed. See "Legal
Proceedings".

     OSHA and Community Right to Know. The Geismar, Illiopolis and Addis plants
are subject to the requirements of the federal Occupational Safety and Health
Act ("OSHA") and comparable state statutes. The Company believes that the
Geismar, Illiopolis, and Addis plants are in material compliance with OSHA
requirements, including general industry standards, vinyl chloride exposure
requirements, recordkeeping requirements and chemical process safety standards.
It is possible that changes in safety and health regulations, or a finding of
noncompliance with current regulations, could result in additional capital
expenditures or operating expenses for the Geismar, Illiopolis and Addis plants.

     The OSHA hazard communication standard and the EPA community right-to-know
regulations under the Emergency Planning and Community Right-to-Know Act
("EPCRA") require the Company to organize information about the hazardous
materials in the plants and to communicate that information to employees and
certain governmental authorities. The Company has a hazard communication program
in place, and will continue this program as a part of its industrial safety and
health compliance program. The Company is a member of the Community Awareness
and Emergency Response ("CAER") program of the Chemical Manufacturers
Association, as well as the Association's Responsible Care initiative. At
Geismar, membership in such programs includes participation in the Geismar Area
Mutual Aid organization, which maintains a community warning system for
notification of chemical releases through the local sheriff's department. The
Company believes that it is in material compliance with EPCRA.

     Solid and Hazardous Waste. The Geismar, Illiopolis and Addis plants
generate hazardous and nonhazardous solid waste and are subject to the
requirements of the Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes. The Company believes that the Geismar, 

                                       14

 
Illiopolis and Addis plants are in material compliance with RCRA. See "Legal
Proceedings".

     A primary trigger for RCRA requirements is the designation of a substance
as a "hazardous waste". It is anticipated that additional substances will in the
future be designated as "hazardous waste", which likely would result in
additional capital expenditures or operating expenses for the Company.

     In accordance with the Consent Decree, the Company has applied for a RCRA
permit for its valorization of chlorinated residuals ("VCR") unit. In addition,
the settlement provides guidelines for future investigation and possible
remediation of groundwater contamination. See "Legal Proceedings".

     During the early 1990s, the Company 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 Louisiana
Department of Environmental Quality ("LDEQ") determined that the partially
depleted catalyst was not a hazardous waste, although LDEQ reversed this
position in 1994. The federal grand jury investigation of these shipments in the
U.S. District Court in New Jersey was closed in February 1999, when DOJ declined
to prosecute the Company or its agents for these shipments. See "Legal
Proceedings."

     Superfund. The Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on classes of
persons that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and the companies that
disposed, or arranged for the disposal of, the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances and for damages to natural resources. In
the ordinary course of the Company's operations, substances are generated that
fall within the CERCLA definition of "hazardous substance". If such wastes have
been disposed of at sites which are targeted for cleanup by federal or state
regulatory authorities, the Company may be among those responsible under CERCLA
or analogous state laws for all or part of the costs of such cleanup. The
Geismar, Illiopolis and Addis plants have in the past and are expected to
continue to generate hazardous substances and dispose of such hazardous
substances at various offsite disposal sites.

     The Consent Decree signed by DOJ and the Company in March 1998 resolved an
enforcement proceeding against the Company and BCPM for alleged violation of
CERCLA's reporting and other environmental requirements at the Geismar facility.
See "Legal Proceedings".

     Toxic Substances Control Act. The Company is subject to the Toxic
Substances Control Act ("TSCA"), which regulates the development, manufacture,
processing, distribution, importation, use, and disposal of thousands of
chemicals. Among other requirements, TSCA provides that a chemical cannot be
manufactured, processed, imported or distributed in the United States until it
has been included on the TSCA Chemical Inventory. Other important TSCA
requirements govern recordkeeping and reporting. For example, TSCA requires a
company to maintain records of allegations of 

                                       15

 
significant adverse reactions to health or the environment caused by chemicals
or chemical processes. The Company believes that it generally is in material
compliance with TSCA. Violations of TSCA can result in significant penalties.

     Water Quality. The Geismar, Illiopolis and Addis plants maintain wastewater
discharge permits for their facilities pursuant to the Federal Water Pollution
Control Act of 1972 and comparable state laws. Where required, the Company also
applied for and received permits to discharge stormwater. The Company believes
that the Geismar, Illiopolis and Addis plants are in material compliance with
the Federal Water Pollution Act of 1972 and comparable state laws. In cases
where there are excursions from the permit requirements, the Geismar and
Illiopolis plants are taking action to achieve compliance, are working in
cooperation with the appropriate agency to achieve compliance or are in good
faith pursuing their procedural rights in the permitting process.

     The EPA has issued effluent regulations specifying amounts of pollutants
allowable in direct discharges and in discharges to publicly owned treatment
works. The Geismar, Illiopolis and Addis plants manufacture or use as raw
materials a number of chemicals subject to additional regulation. Both federal
and state authorities continue to develop legislation and regulations to control
the discharge of certain toxic water pollutants. Passage of such legislation or
regulations could necessitate additional capital expenditures to reduce
discharges of these substances into the environment either during routine or
episodic events. The Company does not believe that these legislative
developments would have a material adverse impact on the Company's operations.

     Areas of groundwater contamination have been identified at the Company's
plants. It is the Company's policy, where possible and appropriate, to address
and resolve groundwater contamination. The Company believes that environmental
indemnities available to it would cover all, or a substantial portion of, known
groundwater contamination. The Company does not believe that the known
contamination will have a material adverse impact on the Company's operations.
The Company believes that the Geismar, Illiopolis and Addis plants generally are
in material compliance with all laws with respect to known groundwater
contamination. At the Geismar complex, Borden and the Company have complied with
the Settlement Agreement with the state of Louisiana and the Company is
complying with the Consent Decree with DOJ, for groundwater remediation. See
"Legal Proceedings".

     Present and Future Environmental Capital Expenditures. Although it is the
Company's policy to comply with all applicable environmental, health and safety
laws and regulations, all of the implementing regulations have not been
finalized. Even where regulations or standards have been adopted, they are
subject to varying and conflicting interpretations and implementation. In many
cases, compliance with environmental regulations or standards can only be
achieved by capital expenditures, some of which may be significant. Capital
expenditures for environmental control facilities were approximately $14.5
million in 1998 and $7.4 million in 1997. Capital expenditures for environmental
control facilities are expected to total approximately $5.0 million in 1999
(although such estimate could vary substantially depending on the outcome of the
various proceedings and matters discussed herein, and no assurance can be given
that greater expenditures on the part of the Company will not be required as to
matters not covered by the environmental indemnity from Borden).

                                       16

 
Borden Environmental Indemnity

     Under the Environmental Indemnity Agreement, subject to certain conditions,
Borden has agreed to indemnify the Company in respect of environmental
liabilities arising from facts or circumstances that existed and requirements in
effect prior to November 30, 1987, the date of the initial sale by Borden of the
Geismar and Illiopolis plants to the Company (the "Transfer Date"). See "Legal
Proceedings".

Addis Environmental Indemnity

     OxyChem has indemnified the Company for environmental liabilities arising
from the manufacture, generation, treatment, storage, handling, processing,
disposal, discharge, loss, leak, escape or spillage of any product, waste or
substance generated or handled by OxyChem prior to the closing of the
acquisition of the Addis facility from OxyChem in 1995, any condition resulting
therefrom relating to acts, omissions or operations of OxyChem prior to such
date, and any duty, obligation or responsibility imposed on OxyChem prior to
such date under environmental laws in effect prior to such date to address such
condition. However, except with regard to claims arising from OxyChem's disposal
of waste at sites other than the Addis Facility, OxyChem has no indemnification
obligation if the claim for indemnification is the result of a change in
applicable law after the closing of the Acquisition. OxyChem's obligation to
indemnify the Company for environmental liabilities is subject to certain
limitations. There can be no assurance that the indemnification provided by
OxyChem will be sufficient to cover all environmental liabilities existing or
arising at the Addis Facility.

Product Liability and Regulation

     As a result of the Company's manufacture, distribution and use of different
chemicals, the Company is, and in the future may be, subject to various lawsuits
and claims, such as product liability and toxic tort claims, which arise in the
ordinary course of business and which seek compensation for physical injury,
pain and suffering, costs of medical monitoring, property damage, and other
alleged harms. See "Legal Proceedings-Other Legal Proceedings". New or different
types of claims arising from the Company's various chemical operations may be
made in the future.

Employees

     The Partnership does not directly employ any of the persons responsible for
managing and operating the Partnership, but instead reimburses BCPM for their
services. On December 31, 1998 BCPM employed approximately 800 individuals.

Cash Distributions

   The Partnership distributes 100% of its Available Cash as of the end of each
quarter on or about 45 days after the end of such quarter to Unitholders of
record as of the applicable record date and to the General Partner. "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 cash disbursements and net additions to 

                                       17

 
reserves in such quarter. The General Partner has broad discretion in
establishing reserves, and its decisions regarding reserves could have a
significant impact on the amount of Available Cash. The timing and amounts of
additions and reductions to reserves may impact the amount of incentive
distributions payable to the General Partner. As a result, distributions to
Unitholders may over time be reduced from levels which would have been
distributed if the General Partner were not able to control the timing of
additions and reductions to reserves.

   Distributions by the Partnership of Available Cash are generally made 98% to
the Unitholders and 2% to the General Partner, subject to the payment of an
incentive distribution to the General Partner to the extent that a target level
of cash distributions to the Unitholders is achieved for any quarter. The
Amended and Restated Agreement of Limited Partnership of the Partnership dated
as of December 15, 1988, as amended (the "Partnership Agreement") provides that,
after an amount equal to $0.3647 per Unit (the "Target Distribution") has been
distributed for any quarter to Unitholders, the General Partner will receive 20%
of any then remaining Available Cash for such quarter as an incentive
distribution (in addition to its 2% regular distribution).

   In August 1997, legislation was enacted which extends indefinitely the
Company's treatment as a partnership for federal income tax purposes provided
that the Company elects to be subject to a 3.5% tax on taxable gross income
beginning on January 1, 1998 (the treatment as a partnership had been scheduled
to expire on December 31, 1997). The Company has made such an election. The
requirement to pay this tax will reduce the amount of cash available at the end
of each quarter for distribution to unitholders.

         During 1998, adverse business conditions across the Company's three
product groups considerably reduced revenues and operating margins and caused
the Company to incur net losses. Consequently, BCPM, as general partner,
determined that no cash distributions would be declared during 1998. The Company
made one cash distribution of $3.7 million during the first quarter of 1998
which reflected a distribution declared during the fourth quarter of 1997. It is
also highly unlikely that the Company will declare any cash distributions for
1999.

Forward-Looking Statements

         Certain statements in the Form 10-K, in particular, certain statements
under "Item 1. Business", "Item 3. Legal Proceedings" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation", are
forward-looking. These can be identified by the use of forward-looking words or
phrases such as "believe", "expect", "anticipate", "should", "plan", "estimate"
and "potential" among others. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for such forward-looking statements. While these
forward-looking statements are based on the Partnership's reasonable current
expectations, a variety of risks, uncertainties and other factors, including
many which are outside the control of the Partnership, could cause the
Partnership's actual results to differ materially from the anticipated results
or expectations expressed in such forward-looking statements. The risks,
uncertainties and other factors that may affect the operations, performance,
development and results of the Partnership include changes in the demand for and
pricing of its commodity products, changes in industry production capacities,
changes 

                                       18

 
in the supply of and costs of its significant raw materials, and changes in
applicable environmental, health and safety laws and regulations.


Item 2. Properties
- ------------------

     Construction of the Geismar complex began over thirty years ago. Acetylene,
methanol and VCM-A plants were completed in the early 1960s and ammonia and urea
plants were added during the period 1965 to 1967. A VCM-E plant and a
formaldehyde plant were added in the mid 1970s, a second formaldehyde plant was
brought on stream in 1986, and a third formaldehyde plant was brought on stream
in 1991. In 1983 Borden completed construction of a PVC resin plant at the
Geismar complex. During the early 1980s, the methanol, ammonia, and urea plants
were modernized, which reduced energy consumption and expanded capacity. The
urea plant was further modified to produce granular rather than prill product in
1993. The PVC resin facility at Illiopolis became operational in 1962, and was
significantly upgraded in the late 1980s. The Addis Facility began operations in
1979.

     The Geismar complex is located on approximately 490 acres in Ascension
Parish, Louisiana, adjacent to the Mississippi River between Baton Rouge and New
Orleans. The Illiopolis PVC resin facility is located on approximately 45 acres
in central Illinois between Springfield and Decatur. The Addis Facility is
located on approximately 40 acres of a 220 acre site adjacent to the Mississippi
River, approximately 20 miles from the Geismar complex.

     The following table sets forth the approximate annual capacity of each of
the principal manufacturing plants at the Geismar complex and the PVC plants at
Illiopolis and Addis, all of which are owned by the Company except as noted.

 
 
                                                    1988                           1998
                                            Annual Stated Capacity         Annual Stated Capacity    9 Year Capacity
Plants                                       (stated in millions)           (stated in millions)   Percentage Increase
- ------                                      ----------------------         ----------------------  -------------------
                                                                                           
Geismar, LA:
  PVC Polymers Products
    PVC Resins..............                           400 lbs.                     575 lbs.                 43.8%
    Acetylene-based VCM . .                            320 lbs.                     320 lbs.                  --
    Ethylene-based VCM......                           550 lbs.                     650 lbs.                 18.2%
    Acetylene (1)...........                           190 lbs.                     200 lbs.                  5.3%
  Methanol and Derivatives
    Methanol................                           230 gals.                    330 gals.                43.5%
    Formaldehyde I..........                           210 lbs.                     280 lbs.                 33.3%
    Formaldehyde II(2)......                           160 lbs.                     180 lbs.                 12.5%
    Formaldehyde III........                           --                           190 lbs.                 N/M
  Nitrogen Products
    Ammonia.................                           .40 tons                     .40 tons                 --
    Urea....................                           .22 tons                     .27 tons                 22.7%
Illiopolis, IL:
  PVC Resins................                           350 lbs.                     400 lbs.                 14.3%
Addis, LA:
  PVC Resins................                           450 lbs.                     600 lbs.                 33.3%
Total equivalent lbs.(3)....                        5,395                        6,923                       28.3%
 
(1) 50% of the 200 million lbs. of stated capacity is owned by the Company. The
    Company has agreed to purchase the other 50% of the plant on 

                                       19

 
    December 31, 1999.

(2) Also capable of producing urea-formaldehyde concentrate at an annual stated
    capacity of 125 million pounds.
(3) Equivalent pounds is based on 6.63 pounds per gallon of methanol.


Item 3.   Legal Proceedings
- -------   -----------------

Federal Environmental Enforcement Proceeding
- --------------------------------------------

     On March 11, 1998, the Company and the DOJ signed a Consent Decree to
resolve the enforcement action brought by the DOJ against the Company in October
1994. The complaint sought 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. More specifically, the federal government's primary
allegations included claims that (i) the Company's export to South Africa of a
partially depleted mercuric chloride catalyst for recycling violated RCRA (see
"Export of Partially Depleted Mercuric Chloride Catalyst"); (ii) the Company
- --------------------------------------------------------
should have applied for a RCRA permit for operation of its VCR unit and related
tanks before August 1991; and (iii) the Company should have applied for a RCRA
permit for the north trench sump at the Geismar complex because such sump
allegedly stored, or disposed of, hazardous waste. The government's allegations
included 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. In June 1998, the U.S. District Court for the Middle District of
Louisiana accepted the Consent Decree into record, which closed the proceedings.

     The Consent Decree provides for payment of a civil penalty of $3.6 million
and funding of $0.4 million for community based environmental programs, but it
does not include any admission of wrongdoing. The terms of the Consent Decree
also provide for a specific and detailed program of groundwater and other
remediation at the Geismar facility that is consistent with various actions
undertaken previously, currently being undertaken, and planned to be undertaken
in the future, by the Company. Under certain circumstances, the EPA and the LDEQ
may require investigation and remediation beyond the specific terms of the
Consent Decree. The Company, however, believes that the technical information
and knowledge regarding the nature of contamination at the site, and the need
for remediation, make it unlikely that investigation and remediation beyond that
which the Company has already planned for and is contemplated by the Consent
Decree will be required. The Consent Decree also provides that the Company will
undertake a Supplemental Environmental Project to decommission its underground
injection wells and instead subject the waste to innovative source reduction.
The estimated cost of the project to the Company is $3.0 million. The Company
also agreed to apply for a RCRA permit for its VCR unit and related tanks.

     In 1985, the LDEQ and Borden entered into a settlement agreement
("Settlement Agreement") that called for the implementation of a long-term
groundwater and soil remediation program at the Geismar complex to address
contaminants, including ethylene dichloride ("EDC"). Borden has paid
substantially all the costs to date associated with the Settlement Agreement
under the provisions of the Environmental Indemnity Agreement. The Consent
Decree will establish new guidelines for remediation of 

                                       20

 
groundwater and soil contamination that was identified by the Settlement
Agreement; all future remediation of this groundwater and soil contamination
will be performed under the terms of the Consent Decree. Remediation costs
incurred under the Consent Decree, which is expected to be several million
dollars, will continue to be paid by Borden.

     The terms of the Consent Decree also settled all federal and state civil
issues regarding the export of partially depleted mercuric chloride catalyst.

     In May 1995, certain adjoining landowners at the Geismar complex filed a
motion to intervene in the Geismar Enforcement Proceedings claiming rights under
CERCLA and RCRA to protect their property interests. This intervention was
settled when the U.S.
District Court accepted the Consent Decree into record in June 1998.

     In April 1996 and November 1997, adjoining landowners filed separate tort
actions in state court asserting personal injury and property value diminution
as a result of releases of hazardous materials from the Geismar complex. The
Company plans to vigorously defend against these actions.

     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 Company.

Export of Partially Depleted Mercuric Chloride Catalyst
- --------------------------------------------------------

  During the early 1990s, the Company 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.

     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 2,900 drums of partially
depleted catalyst at the facility which had been shipped by the Company to Thor.
In addition, in the spring of 1994 there were approximately 7,400 drums of other
materials at the Thor facility which the Company 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 and 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 for 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, which is
equivalent to approximately $2,700. The Partnership is aware that a case
instituted in the United Kingdom by the relatives of two deceased Thor employees
together with a number of Thor Chemical employees allegedly suffering from
mercury poisoning, has been settled by the Thor Chemicals parent company. The
settlement involved a payment of R9,4 million (approximately $1.9 million) by
the Thor Chemicals parent company 

                                       21

 
to the claimants. The Partnership is further aware that a second group of Thor
Chemicals employees has recently instituted action against the Thor Chemicals
parent company in the British High Court for damages allegedly arising out of
mercury poisoning.

      A Commission of Inquiry, appointed by the President of South Africa,
commenced hearings in February 1996, and released its Report to the public in
late April 1997. The Report places the responsibility for Thor's stockpile of
spent mercury catalyst as well as any environmental damage arising out of the
operations of the Thor Chemicals plant jointly in the hands of various South
African government officials responsible for administration and protection of
the environment and Thor Chemicals itself. The Report considers the return of
the stockpiled catalyst to the senders of the catalyst but concludes that this
would not be a satisfactory option for the disposal of the catalyst. The
Commission found that the only viable option is to treat the mercury waste in an
environmentally friendly manner by recycling it via incineration or roasting, at
the Thor Chemicals plant, once various environmental requirements have been met
by this plant. The commission finds that the cost of this incineration should be
born by Thor Chemicals.

     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 Company.

     The contract between the Company and Thor provides that title to, risk of
loss, and all other incidents of ownership of the partially depleted catalyst
would pass from the Company to Thor when the catalyst reached South Africa. The
Company does not believe that it is liable for disposing of the approximately
2,900 drums of partially depleted catalyst remaining at the Thor facility. This
is confirmed by the findings of the Commission of Inquiry which placed no
liability on the Company. The recommendations of the Commission of Inquiry are,
however, not binding on the South African Government. In the event that the
Company should be required to dispose of the approximately 2,900 drums at the
facility shipped by the Company, the Company estimates that such cost would not
be in excess of $4 million.

     With regard to the environmental condition of the Thor facility, the
Commission of Inquiry has not, thus far, placed any liability on the Company for
any contamination or other conditions at that facility, nor has the Company been
notified by the South African Government of any such liability. The findings of
the Commission of Inquiry are of a non-binding nature and it is impossible to
determine what, if any, allegations any party may make during the course of any
further sittings of the Commission of Inquiry or generally 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 Company, and the Company would vigorously defend against
any such allegations.

     In connection with a federal grand jury investigation in the U.S. District
Court in New Jersey, the Company provided documents and other information with
respect to the partially depleted catalyst matter. On February 12, 1999, the DOJ
declined to bring criminal charges against the Company and its agents as a
result of the grand jury investigation, and the grand jury investigation was
closed. No further activity is expected since the statute of limitation has run
out.

                                       22

 
Emergency Planning and Community Right-to-Know Act Proceeding
- -------------------------------------------------------------

     In February 1993, an EPA Administrative Law Judge held that the Illiopolis
facility had violated CERCLA and EPCRA by failing to report certain relief valve
releases, which occurred between February 1987 and July 1989, that the Company
believed were exempt from CERCLA and EPCRA reporting. EPA's complaint sought an
administrative civil penalty of $1,000,000. On August 4, 1998, the Company and
EPA settled this matter by a Consent Agreement and Consent Order. The Company
agreed to pay $51,000 in cash to purchase equipment for the local fire
department, and to install a tertiary vinyl chlorine monomer recovery system
within 20 months of the effective date of the order. Borden paid its share of
the settlement.

Borden Environmental Indemnity
- ------------------------------

     Under the Environmental Indemnity Agreement ("EIA"), subject to certain
conditions, Borden has agreed to indemnify the Company in respect of
environmental liabilities arising from facts or circumstances that existed and
requirements in effect prior to November 30, 1987, the date of the initial sale
of the Geismar and Illiopolis plants to the Company (the "Transfer Date"). The
Company is responsible for environmental liabilities arising from facts or
circumstances that existed and requirements in effect on or after the Transfer
Date. With respect to certain environmental liabilities that may arise from
facts or circumstances that existed and requirements in effect both prior to and
after the Transfer Date, Borden and the Company will share liabilities on an
equitable basis considering all of the facts and circumstances including, but
not limited to, the relative contribution of each to the matter and the amount
of time each has operated the asset in question (to the extent relevant). No
claims can be made under the EIA after November 30, 2002, and no claim can, with
certain exceptions, be made with respect to the first $500,000 of liabilities
which Borden would otherwise be responsible for thereunder in any year, but such
excluded amounts shall not exceed $3.5 million in the aggregate.
Excluded amounts under the EIA have aggregated $3.5 million through December 31,
1996.

Federal Wastewater Permit
- -------------------------

     The Geismar facility has a permit for each of its two wastewater outfalls.
As previously reported, the Company challenged conditions in one of these
permits. The challenged permit expired and, prior to the expiration, the Company
applied for a new permit. The Company has resolved the permit issues, and the
administrative matter is now closed.

Other Legal Proceedings
- -----------------------

     The Company manufactures, distributes and uses many different chemicals in
its business. As a result of its chemical operations the Company is subject to
various lawsuits in the ordinary course of business which seek compensation for
physical injury, pain and suffering, costs of medical monitoring, property
damage and other alleged harm. New or different damage claims arising from the
Company's various chemical operations may be made in the future.

     In addition, the Company is subject to various other legal proceedings and
claims which arise in the ordinary course of business. The management of the
Company believes, based upon the information it presently possesses, that the
realistic range of liability to the Company of these other matters, taking 

                                       23

 
into account the Company's insurance coverage, including its risk retention
program, and the EIA with Borden, would not have a material adverse effect on
the financial position or results of operations of the Company.


Item 4.   Submission of Matters to a Vote of Security Holders
- -------   ---------------------------------------------------

     No matter was submitted during the fourth quarter of 1998 to a vote of
security holders, through the solicitation of proxies or otherwise.



                                    Part II

Item 5   Market for the Registrant's Common Equity and Related
- ------   -----------------------------------------------------
                Stockholder Matters
                -------------------

     The high and low sales prices for the Units on the New York Stock Exchange
(symbol: BCU) on March 12, 1999 were $6.62 and $6.31 respectively. As of
December 31, 1998 there were approximately 26,800 holders of record of Units.

     The following table sets forth 1998 and 1997 quarterly Unit data:

 
 
                                                                               1998 Quarters  
                                                              ------------------------------------------------   
                                                               First       Second       Third          Fourth  
                                                              -------      ------       ------        --------   
                                                                                           
  Cash distributions declared                                 $ 0.00       $ 0.00       $ 0.00        $ 0.00
  Market price range:
    High                                                           9 1/4        8 3/8        6 3/16          4 7/8
    Low                                                            6 9/16       5 9/16       2 5/8           2 11/16

                                                                                 1997 Quarters          
                                                              ------------------------------------------------   
                                                               First       Second       Third          Fourth  
                                                              -------      ------       ------        --------   
                                                                                           
  Cash distribution declared                                  $ 0.10       $ 0.45      $ 0.18         $ 0.10 
                                                                                                         -
  Market price range:
    High                                                          12 1/4       11 5/8      11 13/16        9 15/16
    Low                                                            8 1/4        9 3/4       9              7 9/16
 

Item 6.   Selected Financial Data
- -------   -----------------------

     The following table sets forth selected historical financial information
for the Company for each of the five years ended December 31, 1998.

                                       24

 
 
 
                                      1998         1997            1996             1995         1994
                                      ----         ----            ----             ----         ----
                                                  (in thousands except per Unit data, which is
                                                      net of 1% General Partner interest)
                                                                                 
Net revenues                      $535,527      $737,129       $709,203          $739,587      $657,752
Income (loss) before
 extraordinary item                (40,607)        5,597          4,828           150,926       146,405
Net income (loss)                  (40,607)        5,597          4,828           144,014       146,405
Income (loss) per unit
 before extra-
 ordinary item - basic               (1.09)         0.15           0.13              4.07          3.94

Net income (loss)
per Unit - basic                     (1.09)         0.15           0.13              3.88          3.94

Cash distributions
 declared per Unit                    0.00          0.83           0.35              4.66          3.52
Total assets                       461,696       500,186        525,705           568,507       542,904
Long-term debt                     251,800       225,000        200,000            200,000      120,000
 


Item 7.  Management's Discussion and Analysis of Financial
- -------  -------------------------------------------------
         Condition and Results of Operations
         -----------------------------------

     Overview and Outlook

     The Partnership's revenues are derived from three principal product groups:
(1) PVC Polymers Products, which consist of PVC resins, VCM, the principal
feedstock for PVC resins, and acetylene, (ii) Methanol and Derivatives and (iii)
Nitrogen Products, which consist of ammonia and urea.

     The markets for and profitability of the Partnership's products have been,
and are likely to continue to be, cyclical. Periods of high demand, high
capacity utilization and increasing operating margins tend to result in new
plant investment and increased production until supply exceeds demand, followed
by periods of declining prices and declining capacity utilization until the
cycle is repeated. In addition, markets for the Partnership's products are
affected by general economic conditions and a downturn in the economy could have
a material adverse effect on the Partnership, including, but not limited to, its
ability to service its debt obligations. The demand for the Partnership's PVC
products is primarily dependent on the construction and automotive industries.
Methanol demand is also dependent on the construction industry, as well as the
demand for MTBE. Demand for the Partnership's Nitrogen Products is dependent
primarily on the agricultural and industrial industries.

     The principal raw material feedstock is natural gas, the price of which has
been volatile in recent years. The other principal feedstocks are ethylene and
chlorine. Prices for these raw materials may change significantly from year to
year.

     Prices for PVC improved somewhat during the first half of 1996, but then
declined due to competitive market conditions experienced in the second half of
1996. Published prices for PVC during the fourth quarter of 1996 

                                       25

 
declined to an average of approximately $0.32 per pound. PVC prices repeated
this trend again in 1997, with prices increasing through the second quarter of
1997 but declining in the second half of the year to prices similar to the
fourth quarter of 1996. General competitive conditions and reduced demand for
PVC in the Far East has keep downward pressure on selling prices through 1998
with fourth quarter 1998 price in the $0.24 per pound range.

     The Partnership experienced continued strong demand for methanol products
throughout 1996. Supply disruptions in the industry served to improve methanol
pricing during 1997, with contract prices ending the year at $0.58 per gallon.
As additional production capacity was brought on-line in 1998, selling prices
faced significant downward pressure during the year with methanol prices
declining to $0.30 per gallon by the end of the year.

     Selling prices for ammonia and urea remained strong in 1996 with prices
consistent with 1995 levels. Demand for ammonia and urea in India and China, as
well as worldwide supply disruptions, caused relatively tight markets during the
period. However, in 1997 worldwide production capacity for ammonia and urea
increased and China, a significant importer of urea, significantly reduced urea
imports. These conditions, along with more aggressive pricing by producers in
the former Soviet Union, forced selling prices downward in 1997. These market
conditions continued in 1998 which, along with capacity increases during the
year, put continued downward pressure on selling prices during the year.

     The Company has retained the investment banking firms of Evercore Partners
and Salomon Smith Barney to assist it in exploring strategic alternatives.
Alternatives being considered include joint ventures, mergers or alliances, or
the sale of some or all of the business. These efforts are currently on-going.
However, there can be no assurances that they will result in a transaction.

Results of Operations

     The following table sets forth the dollar amount of revenues and the
percentage of total revenues for each of the principal product groups of the
Partnership (in thousands) See Note 10:

 
 
                                                1998                     1997                   1996    
                                             ----------               ----------             -----------
                                                                                     
PVC Polymers Products                       $372,853   69%           $486,189  66%           $464,496  65%
Methanol and Derivatives                    111,308   21%             177,475  24%           145,982  21%
Nitrogen Products                             51,366   10%             73,465  10%            98,725  14%
                                            --------   ---             ------  ---            ------  ---
Total Revenues                              $535,527  100%           $737,129 100%          $709,203 100%
                                            ========  ====           ======== ====          ======== ====
 

     The following table summarizes indices of relative average selling prices
received per unit of product sold per period for the three principal product
groups of the Partnership and relative average raw material costs per unit for
the principal raw materials (using 1985 = 100 as the base year for all products
sold or purchased per period). The price indices in the table reflect changes in
the mix and volume of individual products sold as well as changes in selling
prices.

                                       26

 
 
 
                                                                    Year Ended December 31,
                                                                 1998         1997        1996
                                                                 ----         ----        ----
                                                                                 
Average price received per
 unit sold
  PVC Polymers Products                                         96             117          111
  Methanol and Derivatives                                      79             126           99
  Nitrogen Products                                             91             119          138
                                                                           
Raw material costs per unit purchased                                      
  Natural Gas                                                   89             105          109
  Ethylene                                                     103             136          151
  Chlorine                                                      70             137           99

Production volumes (1)
(in millions of pounds)
  PVC Polymers Products                                      2,256           2,447        2,490

  Methanol and Derivatives                                   2,503           2,696        2,663

  Nitrogen Products                                          1,085           1,168        1,397
 
 (1) Includes the production of intermediate products.


1998 Compared to 1997

Total Revenues

     Total revenues for 1998 decreased $201.6 million or 27% to $535.5 million
from $737.1 million in 1997. This decrease was the net result of a $113.3
million decrease in revenues from PVC Polymers Products, a $66.2 million decline
in Methanol and Derivatives revenues and a $22.1 million decrease in Nitrogen
Products revenues.

     Total revenues for PVC Polymers Products declined 25% as a result of a 18%
decrease in selling prices with sales volume accounting for the other 7%
decline.

     Total revenues for Methanol and Derivatives decreased 37% as a result of
32% reduction in selling prices and a 5% decline in sales volume.

     Total revenues for Nitrogen Products decreased 30% as a result of a 20%
decrease in selling prices and a 10% decrease in sales volumes. The softening of
the markets for ammonia and urea in 1998 was due to the worldwide changes in
demand and pricing described above.

Cost of Goods Sold

     Total cost of goods sold decreased to $521.1 million in 1998 from $682.0
million in 1997. Expressed as a percentage of total revenues, cost of goods sold
increased in 1998 to 98% compared to 93% in 1997.

     Contributing margin for PVC Polymer Products improved $4 million from 1997
to 1998 with lower raw material prices being able to more than offset 

                                       27

 
decreased selling prices and lower volumes.

     Contributing margin for Methanol and Derivatives in 1998 incurred a $39.4
million decline compared to 1997 due to 32% lower selling prices while natural
gas declined only 15%

     Nitrogen Products contributing margin remained depressed, down $5.3 million
compared to 1997 with the lower natural gas cost unable to completely offset the
20% decline in selling prices.

Interest Expense

     Interest expense during 1998 increased to $23.1 million from $20.9 million
in 1997 due to an increase in the average outstanding amounts borrowed under the
Partnership's credit facility from 1997 to 1998.

Incentive Distribution to General Partner

     There were no incentive distributions to the General Partner declared in
1998. A General Partner incentive of $794 thousand was generated for the second
quarter of 1997.

Tax on Gross Income

     In August, 1997 legislation was enacted which extends indefinitely the
Partnership's ability to be treated as a partnership for federal income tax
purposes provided that the Partnership elected to be subject to a 3.5% tax on
taxable gross income beginning on January 1, 1998 (the ability to be treated as
a partnership had been scheduled to expire on December 31, 1997). The
Partnership has made such an election.

     During fiscal 1998, tax on gross income expense is composed of current tax
expense of $1.0 million and deferred tax expense of $5.8 million. During the
fourth quarter of 1998, the Partnership made a provision of $5.8 million for
deferred taxes resulting from recent IRS guidance governing calculation of the
new 3.5% tax on gross income of electing master limited partnerships, and the
Partnership's assessment of how that guidance may affect it. At December 31,
1998, substantially all of the Partnership's deferred tax liability related to
property and equipment.

Equity in Loss of Affiliate

     The Partnership owns a 51% partner interest in a partnership engaged in
manufacturing and marketing vinyl esters. The Partnership's proportionate share
of the loss in affiliate was $1.7 million and $186 thousand during 1998 and
1997, respectively.

Other (Income) Expense, Including Minority Interest

     The 1998 other expenses was $.9 million income due primarily to interest
income. Other expenses for 1997 were $3.0 million which included a one time
write-off of the cost of the planned conversion to corporate form which was
terminated due to changes in the federal law.

1997 Compared to 1996

                                       28

 
Total Revenues

     Total revenues for 1997 increased $27.9 million or 4% to 737.1 million from
$709.2 million in 1996. This increase was the net result of a $22.7 increase in
revenues from PVC Polymers Products, a $31.5 million increase in Methanol and
Derivatives revenues and a 26.3 million decrease in Nitrogen Products revenues.

     Total revenues for PVC Polymers Products increased 5% as a result of a 5%
increase in selling prices. Sales volume was essentially unchanged from 1996 to
1997.

     Total revenues for Methanol and Derivatives increased 22% as a result of a
25% increase in selling prices, partially offset by a 2% decrease in sales
volumes. The increase in selling prices was due to the circumstances described
above.

     Total revenues for Nitrogen Products decreased 26% as a result of a 14%
decrease in selling prices and a 13% decrease in sales volumes. The softening of
the markets for ammonia and urea in 1997 was due to the worldwide changes in
demand and pricing described above.

Costs of Goods Sold

     Total costs of goods sold increased 4% to $682.0 million in 1997 from
$656.6 million in 1996. Expressed as a percentage of total revenues, cost of
goods sold remained at 93% of total revenues from 1996 to 1997.

     Contributing margin for PVC Polymers Products decreased 54% from 1996 to
1997. The increase in selling prices for PVC in 1997 described above were more
than offset by increases in the cost of raw materials during the year,
particularly vinyl chloride monomer and chlorine. The cost of these raw
materials increased 9% and 36%, respectively, from 1996 to 1997. These cost
increases were partially offset by a 16% decrease in the cost of ethylene year
to year. Contributing margin for Methanol and Derivatives increased 184% from
1996 to 1997 primarily due to the increase in selling prices described above.
Contributing margin for Nitrogen products decreased 98% primarily due to the
decrease in selling prices described above.

Interest Expense

     Interest expense during 1997 decreased $798 thousand to $20.9 million from
$21.7 million in 1996 due to a reduction in the average outstanding amounts
borrowed under the Partnership's credit facility from 1996 to 1997.

Incentive Distribution to General Partner

     The General Partner incentive of $794 thousand reflects the incentive
distribution declared in the second quarter of 1997. No quarterly incentive
distributions were declared during 1996.

Other (Income) Expense, Including Minority Interest

     Other expense increased $1.3 million from 1996 to 1997, primarily due to
the write-off of costs associated with the Partnership's planned conversion to
corporate form which was terminated in the third quarter of 1997 due to a change
in federal tax law regarding master limited partnerships.

                                       29

 
Liquidity and Capital Resources

     Cash Flows from Operations. Cash provided by operations for 1998 totaled
$9.9 million, a reduction of $37 million due primarily to lower income. Cash
provided by operations increased to $46.9 million for 1997 from $38.5 million
for 1996 primarily due to a slight increase in net income and a favorable change
in working capital.

     Cash Flows from Investing Activities. Capital expenditures totaled $31.8
million and $19.4 million for 1998 and 1997, respectively. These expenditures
were primarily for environmental projects and other non-discretionary capital
expenditures with the 1998 increase relating primarily to the implementation of
year 2000 compatible computer software and infrastructure.

     Cash Flows from Financing Activities. Pursuant to its Partnership
Agreement, the Partnership is required to make quarterly distributions to
Unitholders and the General Partner of 100% of its Available Cash, if any.
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 such reserves, as it deems
necessary or appropriate in its reasonable discretion, to provide for the proper
conduct of the business of the Partnership or the Operating Partnership and to
stabilize distributions of cash to Unitholders and the General Partner and such
other reserves as are necessary to comply with the terms of any agreement or
obligation of the Partnership.

A cash distribution of $3.7 million was made during the first quarter of 1998;
cash distributions of $30.8 million were made during 1997, and $30.5 million in
1996. These amounts reflect the payment of cash distributions declared for the
immediately preceding 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.

The cyclical nature of the Partnership's business as well as various seasonality
factors have a significant impact on its results of operations and, therefore,
on its ability to make cash distributions on a quarterly basis. 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 but do 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

                                       30

 
Adverse business conditions across the Partnership's three product groups have
considerably reduced its sales revenues and operating margins and caused the
Partnership to incur net losses over the past several quarters. Unless business
conditions broadly improve, industry overcapacity affecting all of the
Partnership's product groups is likely to cause narrow operating margins to
persist throughout 1999, even if raw material prices continue to decline. These
narrow operating margins, combined with the Partnership's capital expenditure
needs (which are anticipated to be in the range of $3 to $4 million per quarter)
and debt service requirements, along with restrictions in the Credit Agreement
and Indenture as discussed below, make it highly unlikely that the Partnership
will resume making quarterly cash distributions in 1999.

The Operating Partnership and several lending institutions are parties to an
amended and restated Credit Agreement (the "Credit Agreement"), dated as of
December 23, 1998 which provides for a revolving credit facility of up to $90
million (the "Revolving Credit Facility"). The new two-year agreement waived the
Operating Partnership's non-compliance with its financial covenants at the end
of the third quarter and reset coverage ratio covenants through December 31,
2000. The Operating Partnership's obligations under the facility are secured by
its accounts receivable, inventory and a lien against certain fixed assets. As
of December 31, 1998, the Operating Partnership had $51.8 million outstanding
under the Revolving Credit Facility. A change of control of the General Partner,
the Partnership or the Operating Partnership is an event of default under the
Credit Agreement.

On May 1, 1995, the Operating Partnership issued $200 million aggregate
principal amount of 9.5% Notes due 2005 (the "Notes") pursuant to an Indenture
dated as of May 1, 1995 (the "Indenture"). The Notes are senior unsecured
obligations of the Operating Partnership.

The Notes include restrictions on the Operating Partnership's ability to make
cash distributions, incur additional indebtedness, sell assets, engage in
sale/leasebacks and to take certain other actions. Upon a Change in Control, the
holders of the Notes may require the Operating Partnership to repurchase their
Notes at a purchase price equal to 101% of the aggregate principal amount plus
accrued and unpaid interest to the date of repurchase.

Capital Expenditures

The Partnership currently believes that the level of annual base capital
expenditures over the next two years will be in the range of $15 to $20 million
per year. Total capital expenditures for 1999 are anticipated to be
approximately $15 million with a large portion relating to a new software system
which will improve the computer systems infrastructure and assist the Company in
preparing for the year 2000.

Year 2000 Readiness:

Similar to other business entities, the Partnership will be impacted by the
inability of its computer application software programs, as well as certain
date-sensitive devices, to properly identify the year 2000 due to a commonly
used programming convention of using only two digits to identify a year. Unless
modified or replaced these programs and devices could fail or create erroneous
results when referencing the year 2000. 

                                       31

 
The Partnership's company-wide Year 2000 Project (Project) to mitigate the
effects year 2000 issues is proceeding on schedule. All facets of the business
have been divided into two primary categories and a Y2K Manager has been
assigned to each. Category 1 is the Enterprise Resource Planning ("ERP") or
Business Systems functions which encompasses Business Applications (software),
End-User (PC's), Technical Infrastructure (hardware), and Communications.
Category 2 consists of those applications which support our Manufacturing, lab,
and R&D functions.

The Project has three phases:   (I)  Risk Assessment
                                (II) Detailed Assessment Remediation Planning
                                (III)Remediation and Resolution

As of October 31, 1998 the Partnership has completed Phase I having completed
detailed inventories of related equipment and resources and has assigned a
relative risk to each application based on the potential impact to the business
and the specific effects of a material Y2K failure. Material failures are those
which would negatively impact the safety of individuals, property, or
environment or the Partnership's ability to conduct business in a normal
fashion.

Phase II consists of the development of a detailed plan for remediation of all
those applications identified in the initial inventory and the assignment of
specific responsibilities for implementing the required changes. The Category 1
Phase II plan was completed in November 1998. Management believes that the most
significant Year 2000 business risk to the Partnership relates to the current
financial system applications. Accordingly, an enterprise-wide implementation of
Year 2000 compliant software and hardware has been initiated. The anticipated
cost associated with the enterprise-wide implementation is approximately $16.2
million. In early 1998 the Partnership began converting its business
applications over to a Windows NT based system utilizing Microsoft SQL Servers
and the latest version of Year 2000 compliant J.D. Edwards software. This
conversion will continue into 1999 and is expected to be fully operational by
September 1, 1999 with the completion of Phase III.

The Category 2 Phase II including detailed test plans was completed during
December 1998. Estimated costs associated with the remediation of our
manufacturing, lab, and R&D company-wide is approximately $1 million. The plan
consists of repair, replacement, upgrades, and workarounds based on the ability
of the hardware and software to respond to a specified battery of Year 2000 date
testing and the relative impact to the business as specified above. The target
date for completion of Phase III is June 30, 1999.

The Company has also initiated a program to determine the effects of third-party
suppliers and customers on the business with respect to Y2K issues. Over 2000
suppliers were mailed a self-assessment questionnaire with the intent of
identification and, to the extent possible, timely resolution of potential Year
2000 issues. While it is expected that the Company will be able to resolve any
significant issues identified in this process, the Partnership has limited or no
control over the actions of third-party suppliers. As such we can provide no
assurance that these suppliers will resolve their Year 2000 issues before the
occurrence of a disruption to the business of the Partnership or any of its
customers. Material failure on the part of one of these third parties could have
an adverse affect on the partnership's business and results of operations.

                                       32

 
During all three phases of the Project, management has been considering the need
to develop contingency plans for any of the applications which could have a
critical impact on the business. The major focus on contingency planning will be
in the second quarter of 1999 with the expectation of having any required plans
detailed by the end of the third quarter. The Partnership expects to fully
explore any contingency requirements with its major suppliers and customers and
include possible resolution in its detailed plan. Based on the Partnership's
current plans and efforts to date, the Partnership does not anticipate that Year
2000 issues will have any material effects on its results of operations.

The estimates and conclusions herein contain forward-looking statements and are
based on BCPM's best estimates of future events based on the information
available at this time. However, there can be no guarantee that these results
will be achieved and actual results could differ from the plan. Specific factors
that might cause differences from our estimates include, but are not limited to,
availability of resources, the ability to identify and correct all potential
Year 2000 inconsistencies, the ability of suppliers to correct Year 2000 issues
in a timely manner, and unanticipated problems identified in our ongoing Year
2000 project quality assurance review.

Item 7-A Market Risk
- --------------------

The Company's Credit Agreement provides up to $90 million under a revolving
credit agreement with a group of banks. The amended Revolving Credit Facility
expires on December 31, 2000, at which time all amounts outstanding must be
repaid. Interest on borrowings under the Revolving Credit Facility are
determined, at the Operating Partnership's option, based on the applicable
Eurodollar rate (one, two, three, six or a nine or twelve month period) plus a
margin (4.00% at December 31, 1998) or the ABR rate plus a margin (2.75% at
December 31, 1998). The ABR rate is the greater of (a) the prime rate (b) the
Base CD rate plus 1.00% or (c) the Federal Funds Effective rate plus .5%. The
margins for the Eurodollar rate and the ABR rate are based on the Operating
Partnership's public debt rating and the Partnership's consolidated debt to
consolidated earnings before income taxes, depreciation and amortization
(EBITDA) ration. An annual commitment fee is payable on the unused portion of
the amended facility. At December 31, 1998 borrowings under the Facility were
$51.8 million and bore interest at 9.00% while the commitment fee on the unused
portion of the facility was .5%.

Interest Rate Risk - The Company is exposed to swings in the Eurodollar or ABR
rates. A margin change of 1.00% in the applicable rate would change the
Company's interest cost by $518 thousand based on the borrowings at December 31,
1998.

Forward-Looking Statements

Certain statements in this section are forward-looking. These can be identified
by the use of forward-looking words or phrases such as "believe", "expect",
"may" and "potential", among others and include statements regarding the
business outlook for the Operating Partnership and its ability to fund its cash
needs. The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for such forward-looking statements. While these forward-looking
statements are based on the Partnership's reasonable current expectations, a
variety of risks uncertainties and other factors, including many which are
outside the control of the Partnership, could cause 

                                       33

 
the Partnership's actual results to differ materially from the anticipated
results or expectations expressed in such forward-looking statements. The risks,
uncertainties and other factors that may affect the operations, performance,
development and results of the Partnership include changes in the demand for and
pricing of its commodity products, changes in industry production capacity,
changes in the supply of and costs of its significant raw materials, and changes
in applicable environmental, health and safety laws and regulations.

Item 8.   Financial Statements and Supplementary Data
- -------   -------------------------------------------

                                                                Sequential
Index to Financial Statements                                     Page   
- -----------------------------                                   ----------
  Report of Independent Accountants                                 52
  Consolidated Statements of Operations for the years               
    ended December 31 1998, 1997 and 1996                           53
  Consolidated Statements of Cash Flows for the years               
    ended December 31, 1998, 1997 and 1996                          54
  Consolidated Balance Sheets as of December 31, 1998               
    and 1997                                                        55
  Consolidated Statements of Changes in Partners'                   
    Capital for the years ended December 31, 1998,                  
    1997 and 1996                                                   56
                                                                    
  Notes to Consolidated Financial Statements                        57


Selected Quarterly Financial Data (Unaudited)
- ---------------------------------------------
     (in thousands except per Unit data, which is net of 1% General Partner
interest)

 
 
                                                              1998 Quarters                 
                                         ---------------------------------------------------------------
                                          First            Second            Third               Fourth 
                                         --------         --------          --------            --------
                                                                                     
Revenues                                 $153,511         $146,312          $119,022            $116,681
Gross Profit                                3,715            4,367             3,329               3,038
Net Income (loss)                          (8,324)          (7,821)           (8,905)            (15,558)
Net Income (loss)
   per Unit - basic                         (0.22)           (0.21)            (0.24)              (0.42)

 
                                                              1997 Quarters                      
                                         ---------------------------------------------------------------
                                          First            Second            Third               Fourth 
                                         --------         --------          --------            --------
                                                                                     
Revenues                                 $194,682         $189,776          $180,890            $171,781
Gross Profit                                6,645           34,146            12,434               1,920
Net Income (loss)                          (4,407)          21,246            (1,062)            (10,180)
Net Income (loss)
 per Unit - basic                           (0.12)            0.57             (0.03)              (0.27)
 

Item 9.Changes in and Disagreements with Accountants on Accounting      
- ------------------------------------------------------------------

                                       34

 
and Financial Disclosure
- ------------------------

    None.

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant
- --------  --------------------------------------------------

    The Partnership is a limited partnership (of which BCPM is the General
Partner) and has no directors or officers. The directors, officers and employees
of the General Partner perform management and non-supervisory functions for the
Partnership.

    Management  Organization - Joseph M. Saggese is Chairman, President and
Chief Executive Officer of BCPM. Wayne P. Leonard, as Executive Vice President
and Chief Operating Officer of BCPM, reports directly to Mr. Saggese, and is
responsible for the Partnership's marketing and manufacturing operations.

    Independent Committee - BCPM is required to maintain an Independent
Committee of its Board of Directors, which shall be composed of at least three
directors, each of whom is neither an officer, employee or director of Borden
nor an officer or employee of BCPM. Certain actions require special approval
from the Independent Committee. Such actions include an expansion of the scope
of business of the Partnership, the making of material capital expenditures, the
material curtailment of operations of any plant, the material expansion of
capacity of any plant, and the amendment of or entry into by the Partnership of
any agreement with Borden. The members of the Independent Committee are Edward
H. Jennings, George W. Koch, and E. Linn Draper, Jr.

    Mr. Koch is Of Counsel in Kirkpatrick & Lockhart, a law firm which
represents the Partnership and its affiliates, Borden and BCI, in connection

with environmental, insurance, and other matters. The Partnership believes that
the terms of such services are on terms no less favorable to the Partnership and
its affiliates than if such services were procured from any other law firm
competent to handle the same matters.

    As sole stockholder of BCPM, Borden elects directors of BCPM on an annual
basis. Set forth below is certain information concerning the directors and
officers of BCPM.

    Section 16 of the Securities Exchange Act of 1934 requires directors,
certain officers and owners of more than ten percent of a registered class of
Company's equity securities to report their holdings and transactions in BCP
units. Previously, certain rights payable only in cash were excluded from these
reporting requirements; however, that exclusion was rescinded as of August 15,
1996.

                                                                   Served in
                                                         Age on    Present    
                        Position and Office              Dec. 31,  Position  

                                       35

 
 
 
        Name                           with General Partner                        1998         Since  
  -----------------                 ---------------------------                   -------      --------
                                                                                       
   Joseph M. Saggese                 Director, Chairman, President
                                     and Chief Executive Officer                      67          1990
   George W. Koch                    Director                                         72          1987
   Edward H. Jennings                Director                                         61          1989
   E. Linn Draper, Jr.               Director                                         56          1996
   William H. Carter                 Director                                         45          1995
   Ronald P. Starkman                Director                                         44          1998
   William F. Stoll,Jr.              Director                                         50          1996
   Wayne P. Leonard                  Executive Vice President,
                                     Chief Operating Officer                          57          1987
   Ronald B. Wiles                   Chief Financial Officer and
                                     Treasurer                                        60          1998
   Marshall D. Owens,Jr.             Vice President - Manufacturing                   55          1997
   Lawrence L. Dieker                Vice President, Secretary,
                                     and General Counsel                              60          1987
 

    Joseph M. Saggese has been Chairman of the Board of Directors, President and
Chief Executive Officer of BCPM since July 1990. In July 1990, he was named Vice
President of Borden and President of the former Chemicals Division of Borden. In
January 1996 he was named President and Chief Executive Officer of Borden
Chemical, Inc., the successor to a major portion of the former Chemicals
Division of Borden, and in January 1999 he retired from that position.

    George W. Koch is a director of BCPM. He has been Of Counsel in the law firm
of Kirkpatrick & Lockhart since January 1992. Prior to that he was a partner of
Kirkpatrick & Lockhart since April 1990.

    Edward H.  Jennings  is a  director  of BCPM.  He is also a professor and
President Emeritus of The Ohio State University. He served as president of The
Ohio State University from 1981 to 1990. Mr. Jennings is also a director of
Lancaster Colony, Inc., a manufacturer and marketer of food, automotive and
glass products.

    E. Linn Draper, Jr. is a director of BCPM. He is also Chairman, President
and Chief Executive Officer of American Electric Power Company, Inc. and
American Electric Power Service Corporation, positions he has held since 1992.
From 1987 to 1992, he was Chairman, President and Chief Executive Officer of
Gulf States Utility Company. Dr. Draper is currently a director of CellNet Data
Systems, Inc.

    William H. Carter is a director of BCPM. He is also Executive Vice President
and Chief Financial Officer of Borden, a position he has held since April 1995.
Prior to joining Borden, he was a partner of Price Waterhouse LLP, a position he
held since 1986.

    Ronald P. Starkman is a director of BCPM. He is also Senior Vice President
and Treasurer of Borden, Inc., a position he has held since November 1995. Prior
to joining Borden, he was Senior Managing Director of Claremont Capital Group,
Inc. from 

                                       36

 
December 1994 to November 1995. He was Senior Vice President of Lehman Brothers
from May 1993 to November 1994.

    William F. Stoll, Jr. is a director of BCPM. He is also Senior Vice
President and General Counsel of Borden, Inc., a position he has held since July
1996. Prior to joining Borden, he was Vice President and Deputy General Counsel
of Westinghouse Electric Corporation, a position he held since January 1993.
From January 1985 to January 1993, he was Deputy General Counsel of Westinghouse
Electric Corporation.

    Wayne P. Leonard has been Executive Vice President of BCPM since 1995 and
was named Chief Operating Officer of BCPM in July 1997. During 1993 and 1994,
Mr. Leonard served as Vice President of Manufacturing of BCPM.

    Ronald B. Wiles is Chief Financial Officer and Treasurer of BCPM, positions
he has held since September 1998. From August 1995 to September 1998 he was
Special Project Director for Borden, Inc. From June 1990 to August 1995 he was
Controller of Borden Chemical Division and director of BCPM.

    Marshall D. Owens, Jr. is Vice President of Manufacturing for BCPM, a
position he has held since October 1997. Prior thereto, he served as Director of
Manufacturing since 1993.
    Lawrence L. Dieker is Vice President, General Counsel and Secretary of BCPM.
He is also Vice President and General Counsel of BCI a position he has held
since January 1996. He was previously Assistant General Counsel of Borden, a
position he held from 1982 to January 1996.

Item 11.  Executive Compensation
- --------  ----------------------

   The Partnership has no directors or officers. The directors and officers of
BCPM receive no direct compensation from the Partnership for services to the
Partnership. The Partnership reimburses BCPM for all direct and indirect costs
incurred in managing the Partnership.

    During 1998 the three independent directors of BCPM received a retainer of
$15,000 per year plus a fee of $1,000 for each BCPM Board meeting attended. The
Board functions in part through its Independent and Audit Committees. The three
non-employee members of each of these committees are paid a meeting fee of $700
for each committee meeting attended. The committee chairman is also paid an
additional $100 for each committee meeting attended in that capacity. During
1998, the Board met six times, and the Independent and Audit Committees met
jointly four times.

    The following table sets forth all cash compensation paid and accrued by
Borden or BCPM and reimbursed by the Partnership for services rendered during
the three years ended December 31, 1998 by each of the Chief Executive Officer
and the three other executive officers of BCPM whose remuneration exceeded
$100,000 (the "Named Executives"). As indicated in the footnotes to the table,
certain of the executive officers included in the table received compensation in
excess of the amounts indicated from 

                                       37

 
Borden in consideration for services provided by such individual to Borden for
which the Partnership did not reimburse Borden. The Partnership only reimburses
Borden for a portion of the total compensation paid by Borden to Joseph M.
Saggese in consideration for his services as President and Chief Executive
Officer of BCPM, and to Lawrence L. Dieker in consideration for his services as
Vice President, Secretary and General Counsel. Had the Partnership been
obligated to reimburse Borden for the total compensation paid by Borden to Mr.
Dieker, he would have been one of the four most highly compensated executive
officers of BCPM (other than the chief executive officer) in addition to Messrs.
Leonard, Wiles and Owens, Jr.

                          Summary Compensation Table

 
 
                                                             Annual Compensation                        Long Term   
                                               ----------------------------------------------          Compensation 
                                                                                                          Awards 
      Securities                                                                                       ------------
                                                                                Other Annual            Underlying
                                               Salary           Bonus           Compensation            Options/SARs
Name and Principal Position         Year         ($)             ($)                ($)(a)                  (#)     
- --------------------------------------------------------------------------------------------------------------------
                                                                                          
Joseph M. Saggese                   1996       127,677(b)
Chairman, President and             1997       123,750(b)                                                 6,500
  Chief Executive Officer           1998       100,000(b)                                                 7,000

Wayne P. Leonard
Executive Vice President,           1996       185,711          174,930              8,039                5,500
  Chief Operating Officer           1997       200,666                0                  0                6,000
                                    1998       227,108           52,272             10,155                6,500

Ronald B. Wiles                     1998        48,000(d)             0                                       0
  Chief Financial Officer
  and Treasurer

Marshall D. Owens, Jr.              1996       136,863           92,740              6,175                2,500
  Vice President -                  1997       142,320                0                  0                3,000
  Manufacturing                     1998       165,285           25,728                640                4,000
 

   (a) Represents miscellaneous compensation such as executive perquisites and
relocation allowances/reimbursements.

    (b) Represents approximate amount of reimbursement paid to Borden by the
Partnership in consideration for services provided by Mr. Saggese to the
Partnership. Mr. Saggese received aggregate salary from Borden of $496,461,
$476,667 and $450,000 for the years 1998, 1997 and 1996, respectively.
Additionally Mr. Saggese received certain bonuses and other compensation in
consideration for his services rendered to Borden for which the Partnership did
not have any reimbursement obligations.

    (c) Represents securities of Borden underlying Options/SARs.

    (d) Mr. Wiles served as an officer of BCPM for a portion of 1998. Had he
served in his current capacity for the entire year, his annual compensation
would have exceeded $100,000.

                                       38

 
    The Board of Directors of BCPM has approved a long-term incentive plan for
management and employees of BCPM (and employees of Borden who provide support to
or perform services for BCPM). The plan is intended to provide incentives to the
management and employees of BCPM (and such employees of Borden) to enhance the
market value of the Units. Under the plan, awards of "phantom" appreciation
rights in the Company are made to selected BCPM or Borden officers or employees
on the basis of or in relation to services performed, directly or indirectly,
for the benefit of the Company. Subject to certain restrictions, such grantees
would be entitled to exercise all or any portion of the phantom appreciation
rights granted to them. Upon exercise of any such rights, the grantee would be
entitled to receive from BCPM or Borden, an amount in cash calculated to award
the grantee for any actual appreciation in the market value of the Units in the
Company and actual cash distributions made by the Company in respect of the
Units. The benefits under the plan may be in addition to, and not in lieu of,
the benefits provided to management and employees of BCPM (and such employees of
Borden) under existing plans or employee benefit arrangements. BCPM (or Borden,
on behalf of BCPM) will be reimbursed by the Company for all payments made or
expenses incurred by BCPM (or Borden, on behalf of BCPM) under the plan. Under
the plan, an initial grant of approximately 61,500 phantom appreciation rights
was made during 1995; additional grants of 83,500, 89,000 and 96,500 phantom
appreciation rights were made during 1996, 1997, and 1998 respectively.

    The following table sets forth information concerning individual grants of
stock options and free standing unit appreciation rights ("UARs") made during
1997 to each of the Named Executives.


                   Option/UAR(a) Grants in Last Fiscal Year
                   ---------------------------------------
 
 
                                                                               Potential Realizable
                                                                               Value at Assumed
                                                                               Annual Rates of Stock
                                                                               Price Appreciation
                                       Individual Grants                       For Option Term
                       -----------------------------------------------------
                        Number Of     Percent Of
                        Securities    Total Option
                        Underlying    SARs Granted    Exercise Or                                  Cumulative
                        Option/SARs   To Employees     Base price  Expiration                       Phantom
       Name             Granted (#)   In Fiscal Year   ($/Sh)        Date       5%($)    10%($)     Units(b)
- --------------------   ------------  --------------   -------     ----------  ------    ------     --------
                                                                               
Saggese, Joseph M.       7,000 (c)        7.3           7.22       22-Apr-05  $20,571   $47,940     1,337.6
                                                                                                 
Leonard, Wayne P.        6,500 (c)        6.7           7.22       22-Apr-05  $19,102   $44,516      3,817.5
                                                                                                 
Owens, Jr. Marshall D.   4,000 (C)        4.1           7.22       22-Apr-05  $11,755   $27,394      1,518.1
 


    (a) UARs are unit appreciation rights which, (i) in the event the Fair
Market Value of one Unit equals or exceeds the Base Price of such UAR at the
time of exercise of such UAR, entitles the holder thereof to 

                                       39

 
receive, upon exercise of such UAR, cash in an amount equal to the excess of the
Fair Market Value of one Unit on the date of exercise over the exercise price of
such UAR and (ii) in the event the Fair Market Value of one Unit is less than
the exercise price of such UAR, upon exercise of such UAR, reduces the cash
payable due to the exercise of Phantom Units (as defined in note (b)) in
connection with the exercise of such UAR by an amount equal to the difference
between such Fair Market Value and such exercise price; the "Fair Market Value"
means the average of the high and low transaction prices of a Unit as reported
on the NYSE Composite Transactions on such date.

    (b) Phantom Units are the right to receive, upon exercise thereof, cash in
an amount equal to the Fair Market Value of one Unit on the date of exercise. On
the date a cash distribution is made by the Partnership to the Unit Holders, a
credit of Phantom Units is made to each holder of UARs. The number of Phantom
Units credited to each holder's account equals the number determined by dividing
(i) the product of (A)the aggregate number of UARs and Phantom Units held in
such holder's account immediately prior to such cash distribution multiplied by
(B) the amount of the cash distribution per Unit by (ii) the Fair Market Value
of a Unit on the date of the cash distribution. Upon an exercise of any UARs,
Phantom Units which are derived from such UARs are automatically exercised in
connection therewith.

    (c) The grants vest 50% after two years, with the balance vesting after
three years.

                       Fiscal Year-end Option/UAR Values
                       ---------------------------------
 
 
                                         Number of Securities
                                        Underlying Unexercised                    Value of Unexercised
                                           Options/UARs At                      In-the-Money Options/UARs
                                          Fiscal Year-end (#)                      At Fiscal Year-End ($)
Name                                   Exercisable/Unexercisable                 Exercisable/Unxercisable
- ----                                   -------------------------                 ------------------------
                                                                           
Joseph M. Saggese                             3,250/13,000                                 *
                                                                                        
Wayne P. Leonard                              8,250/15,250                                 *
                                                                                        
Marshall D. Owens, Jr.                        3,250/ 8,250                                 *
 
*  None of the UARs were in-the-money

Pension Plan

    The executive officers named above are employees of Borden and participate
in Borden's pension plans. The Borden Employees Retirement Income Plan ("ERIP")
for salaried employees was amended as of January 1, 1987, to provide benefit
credits of 3% of earnings which are less than the Social Security wage base for
the year plus 6% of earnings in excess of the wage base and an additional 1.5%
and 3% respectively for certain older employees. Earnings include annual
incentive awards paid currently but exclude any long-term incentive awards.
Benefits for service through December 31, 1986 are based on the plan formula
then effect and have been converted to opening balances under the plan. Both
opening balances and benefit credits receive interest credits at one-year
Treasury bill rates until the participant commences receiving benefit payments.
For the 

                                       40

 
year 1998, the interest rate was 5.46%.

    Borden's supplemental pension plan provides for a grandfathering of benefits
for certain key employees as of January 1, 1983, including certain executive
officers, that, generally speaking, provide for the payment of any shortfall if
the sum of (a) the pension actually payable on retirement under the ERIP (and
any excess of supplemental plans), together with (b) the amount (converted to a
pension equivalent) attributable to Borden contributions that would be standing
to the employee's credit at retirement under Borden's Retirement Savings Plan if
the employee had contributed at the maximum permitted rate eligible for Borden
matching from December 31, 1983 until retirement, does not equal or exceed the
sum of (c) the retirement income calculated on the basis of the December 31,
1982, ERIP pension formula (with certain adjustments), and (d) the amount
(converted to a pension equivalent) attributable to company contributions (equal
to 3.3% of compensation) that would be standing to the employee's credit at
retirement had the Borden's Retirement Savings Plan as in effect on January 1,
1983, been in effect continuously to retirement. The projected pension figure
for J.M. Saggese appearing at the end of this section includes the effect of the
foregoing grandfathering.

    The ERIP contains additional transitional provisions for employees who met
certain age and service requirements on January 1, 1987 . The transitional
minimum benefit is a final average pay benefit for service prior to 1988 plus a
career average pay benefit based on each year's earning for year 1988 through
1997 (1% of each year's earnings up to the Social Security wage base plus 1-1/2%
of excess).

    Benefits vest on a graded five-year schedule for employees hired prior to
July 1, 1990. Benefits vest after completion of five years of employment for
employees hired on or after July 1, 1990.

    Borden has supplemental plans which will provide those benefits which are
otherwise produced by application of the ERIP formula, but which, under Section
415 or Section 401(a)(17) of the Internal Revenue Code, are not permitted to be
paid through a qualified plan and its related trust.

    The supplemental plan also provides a pension benefit using the ERIP formula
based on deferred incentive compensation awards and certain other deferred
compensation, which are not considered as part of compensation under the ERIP.

    The total projected annual benefits payable under the formulas of the ERIP
at age 65 without regard to the Section 415 or 401(a)(17) limits and recognizing
supplemental pensions as described above, are as follows for the above named
executive officers: Joseph M. Saggese - $343,026, Wayne P. Leonard - $53,020,
and Marshall D. Owens, Jr. - $32,816.

Compensation Committee Interlocks and Insider Participation

    Joseph M. Saggese, Chairman, President and Chief Executive 

                                       41

 
Officer and Wayne P. Leonard, Executive Vice President and Chief Operating
Officer, participate in compensation decisions affecting executive officers and
employees of BCPM.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
- --------  --------------------------------------------------------------

    Since the Partnership is managed by its General Partner and has no Board of
Directors, there are no "voting securities" of the Partnership outstanding
within the meaning of Item 403(a) of Regulation S-K and Rule 12b-2 under the
Securities Exchange Act of 1934. Based soley on a Form 13-D and amendments
thereto filed with the SEC and delivered to the Partnership (the "Form 13-D),
the Partnership understands that as of December 23, 1998 the following
individuals and entities (collectively, the "Group") were collectively the
beneficial owners of approximately 3,397,100 Units or approximately 8.7% of the
outstanding Units.

 
 
                                                                                              Percentage of
Name                                            Number of Common Units                      Outstanding Units
- ----                                            ----------------------                      -----------------
                                                                                       
Marc H. Kozberg/1/                                     450,000      *                                1.2%
Bruce E. Hendry/1/                                   1,091,000                                       3.0%
Dr. Demtre Nicoloff/1/                                 550,000      *                                1.5%
G. James Spinner/1/                                    450,000      *                                1.2%
Robert H. Paymar/1/                                    500,000      *                                1.4%
Stanley I. Barenbaum/1/                                450,000      *                                1.2%
James A. Potter/1/                                      40,000                                       0.1%
Summit Capital Appreciation                                                                   
     Fund LP/1/                                        400,000                                       1.1%
Curtis L. Carlson Foundation/2/                        135,000                                       0.4%
NAFCO Insurance Company                                                                       
     Ltd. of Bermuda/2/                                135,000                                       0.4%
Revocable Trust of Glen D. Nelson/2/                   100,000                                       0.3%
Curtis L. Carlson Octagon Trust/2/                      80,000                                       0.2%
Scott C. Gage/2/                                        30,000                                       0.1%
Richard C. Gage/2/                                      20,000                                       0.1%
Diana Nelson/2/                                         10,000                        greater than   0.1%
Geoffrey C. Gage/2/                                     10,000                        greater than   0.1%
Wendy M. Nelson/2/                                      20,000                                       0.1%
Jennifer L. Nelson Trust/2/                             15,000                        greater than   0.1%
Juliet A. Nelson Trust/2/                               15,000                        greater than   0.1%
Revocable Trust of Edwin C. Gage/2/                     25,000                                       0.1%
Revocable Trust of Barbara C. Gage/2/                   25,000                                       0.1%
BCU Investments, L.L.C./3/                             795,100                                       2.2%
Nanser J. Kazeminy/3/                                  795,100      #                                2.2%
John K. Ellingboe/3/                                    51,500      +                                0.1%
Catherine A. Cella/3/                                   40,000                                       0.1%
 
*   Includes 400,000 Common Units owned by Summit Capital Appreciation Fund
    LP.
#   Includes 795,000 Common Units owned by BCU Investments, L.L.C.
+   Includes 40,000 Common Units held as joint tenants.

/1/ According to the Form 13-D, the business address for the members of the
    Group is Dougherty Summit Securities LLC, 90 South Seventh Street, Suite
    4000,

                                       42

 
    Minneapolis, MN 55402

/2/ According to the Form 13-D, the business address for these members of the
    Group is 701 Carlson Parkway, Minneapolis, MN 55459-8215.

/3/ According to the Form 13-D, the business address for these members of the
    Group is c/o BCU Investments, L.L.C., 7803 Glenroy Road, Bloomington, MN
    55439.

As of December 31, 1998 the beneficial ownership of Units by all directors and
officers of BCPM as a group was approximately 80,730 Units, which represents
less than one percent of the total Units outstanding.

    The following table shows for (i) each director, (ii) executive officer
named in the Summary Compensation Table and (iii) for all officers and directors
as a group, the beneficial ownership of Units as of December 31, 1998.

 
 
Name of Beneficial Owner                                      Units             Percent of Units Held
- ------------------------                                      -----             ---------------------
                                                                           
Joseph M. Saggese                                             20,000                         *
George W. Koch                                                20,700                         *
Edward H. Jennings                                             1,000                         *
William H. Carter                                              1,000                         *
Ronald P. Starkman                                             6,000                         *
E. Linn Draper, Jr.                                                0                         *
William F. Stoll, Jr.                                              0                         *
Wayne P. Leonard                                              25,000                         *
Marshall D. Owens, Jr.                                            30                         *
Ronald B. Wiles                                                7,000                         *
                                                              ------
All directors and executive officers
as a group                                                    80,730                         *
 

*Represents less than 1% of the outstanding Units

Item 13.  Certain Relationships and Related Transactions
- --------  ----------------------------------------------

    The Partnership is managed by BCPM pursuant to the Partnership Agreement.
Under the Partnership Agreement BCPM is entitled to reimbursement of certain
costs of managing the Partnership. These costs include compensation and benefits
payable to officers and employees of BCPM, payroll taxes, general and
administrative costs and legal and professional fees. Note 3 of Notes to
Consolidated Financial Statements of the Partnership contained on pages 59 to 60
of this Form 10-K Annual Report contains information regarding relationships and
related transactions.

    As described in Item 1, "Purchasing and Processing Agreements", the
Partnership sells various products to BCI under certain purchase agreements and
processing agreements. Messrs. Saggese. Carter, and Stoll, Jr., who are
directors of BCPM, are also directors of BCI.

                                       43

 
                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------  ----------------------------------------------------------------
           

(a)   1.  Financial Statements
          --------------------

                a.  The Consolidated Financial Statements, together with the
                    report thereon of Price Waterhouse LLP dated January 19,
                    1999 are contained on pages 52 through 66 of this Form 10-K
                    Annual Report.

        2.  Financial Statement Schedules
            -----------------------------

                None required.

 
 
      3.  Exhibits
          --------
                          
             2.1(1)         Asset Transfer Agreement dated as of August 12, 1994
                            and amended as of January 10, 1995, and March 16,
                            1995, between the 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

             3.0(2)         Restated Certificate of Incorporation of BCPM

             3.2(3)         By-laws of BCPM

             3.3(4)         Amended and Restated Certificate of Limited
                            Partnership of the Partnership

             3.4(4)         Amended and Restated Certificate of Limited
                            Partnership of the Operating Partnership

             3.5(4)         Amended and Restated Agreement of Limited
                            Partnership of the Partnership dated as of December
                            15, 1988


             3.6(5)         First Amendment to the Amended and Restated
                            Agreement of Limited Partnership of the
                            Partnership dated as of April 9, 1997.

             3.7(6)         Second Amendment to the Amended and Restated
                            Agreement of Limited Partnership of the Partnership
                            dated August 14, 1997.

             3.8(7)         Amended and Restated Agreement of Limited
                            Partnership of the Operating Partnership, dated as
                            of November 30, 1987

             4.1(8)         Form of Depository Receipt for Common Units
 

                                       44

 
             4.2(9)         Indenture dated as of May 1, 1995 of 9.5% Notes due
                            2005 between the Operating Partnership and The Chase
                            Manhattan Bank (National Association), as Trustee


             4.3(5)         Rights Agreement between the Partnership and Harris
                            Trust and Savings Bank, as Rights Agent, dated as of
                            April 8, 1997.

             4.4(6)         First Amendment to Rights Agreement between the
                            Partnership and Harris Trust and Savings Bank, as
                            Rights Agent, dated as of August 14, 1997.

            10.1            Revolving Credit Agreement, dated December 19, 1997,
                            between the Operating Partnership and the Chase
                            Manhattan Bank, as Agent and as a lender, and other
                            lenders.

            10.5(7)         Service Agreement, dated as of November 30, 1987,  
                            between Borden and the Operating Partnership

            10.6(7)         Intercompany Agreement, dated as of November 30,
                            1987, among Borden, BCPM, the Partnership and the
                            Operating Partnership

            10.7(4)         Borden and BCPM Covenant Agreement, dated as of 
                            December 15, 1988, among Borden and the Partnership

            10.9(7)         PVC Purchase Agreement, dated as of November 30,
                            1987, between Borden and the Operating Partnership

            10.10(7)        Ammonia Purchase Agreement, dated as of November 30,
                            1987, between Borden and the Operating Partnership

            10.10.1(4)      Amendment Agreement No. 1 to Ammonia Purchase
                            Agreement, dated as of December 15, 1988, between
                            Borden and the Operating Partnership

            10.11(7)        Urea Purchase Agreement, dated as of November 30,
                            1987, between Borden and the Operating Partnership

            10.11.1(4)      Amendment Agreement No. 1 to Urea Purchase
                            Agreement, dated as of December 15, 1988, between
                            Borden and the Operating Partnership


            10.12(7)        Methanol Purchase Agreement, dated as of 

                                       45

 
                            November 30, 1987, between Borden and the Operating
                            Partnership

            10.12.1(4)      Amendment Agreement No. 1 to Methanol Purchase
                            Agreement, dated as of December 15, 1988, between
                            Borden and the Operating Partnership

            10.13(7)        Formaldehyde Processing Agreement, dated as of
                            November 30, 1987, between Borden and the Operating
                            Partnership

            10.13.1(4)      Amendment Agreement No. 1 to Formaldehyde Processing
                            Agreement, dated as of December 15, 1988 between
                            Borden and the Operating Partnership

            10.14(7)        Urea-Formaldehyde Concentrate Processing Agreement,
                            dated as of November 30, 1987, between Borden and
                            the Operating Partnership

            10.14.1(4)      Amendment Agreement No. 1 to Urea-Formaldehyde
                            Concentrate Processing Agreement, dated as of
                            December 15, 1988, between Borden and the Operating
                            Partnership

            10.15(7)        Use of Name and Trademark License Agreement, dated
                            as of November 30, 1987, among Borden, the
                            Partnership and the Operating Partnership

            10.16(7)        Patent and Know-how Agreement, dated November 30,
                            1987, among Borden, the Partnership and the
                            Operating Partnership

            10.17(7)        Environmental Indemnity Agreement, dated as of
                            November 30, 1987, among the Partnership, the
                            Operating Partnership and Borden

            10.18(7)        Lease Agreement, dated as of November 30, 1987,
                            between the Operating Partnership and Borden

            10.19(3)        Indenture, dated as of June 1, 1962, among Monochem,
                            Inc., Borden and Uniroyal Chemical Company, Inc. (as
                            successor to Uniroyal Inc., which was a successor to
                            United States Rubber Company)

            10.20(3)        Amendment to Indenture, dated as of December 30,
                            1981, among Monochem, Inc., Borden and Uniroyal
                            Chemical Company, Inc. (as successor to Uniroyal,
                            Inc.)

            10.21(3)        Restructuring Agreement, dated as of December 9,
                            1980, among Borden, Uniroyal Chemical Company, Inc.
                            (as successor to Uniroyal, Inc.) and Monochem, Inc.

                                       46

 
            10.22(3)        Amendment to Restructuring Agreement, dated as of
                            December 31, 1981, among Borden, Uniroyal Chemical
                            Company, Inc. (as successor to Uniroyal, Inc.) and
                            Monochem, Inc.

            10.23(3)        Restated Basic Agreement, dated as of January 1,
                            1982, between Borden and Uniroyal Chemical Company,
                            Inc. (as successor to Uniroyal, Inc.)

            10.24(3)        Restated Operating Agreement, dated as of January 1,
                            1982, among Borden, Uniroyal Chemical Company, Inc.
                            (as successor to Uniroyal, Inc.) and Monochem, Inc.

            10.25(3)        Restated Agreement to Amend Operating Agreement,
                            dated as of January 1, 1983, among Borden, Uniroyal
                            Chemical Company, Inc. (as successor to Uniroyal,
                            Inc.) and Monochem, Inc.

            10.26(3)        Operating Agreement for Oxygen and Acetylene Plants,
                            dated April 1, 1982, between Borden and BASF
                            Wyandotte Corporation (subsequently named BASF
                            Corporation) ("BASF")

            10.27(3)        Amendment to Operating Agreement for Oxygen and
                            Acetylene Plants, dated August 22, 1984, between
                            Borden and BASF

            10.28(3)        Second Amendment to Operating Agreement for Oxygen
                            and Acetylene Plants, dated December 14, 1984,
                            between Borden and BASF

            10.29(3)        Third Amendment to Operating Agreement for Oxygen
                            and Acetylene Plants, dated as of October 2, 1985,
                            between Borden and BASF

            10.30(3)        Fourth Amendment to Operating Agreement, dated
                            August 25, 1987, between Borden and BASF

            10.31(3)        Fifth Amendment to Operating Agreement, dated
                            November 10, 1987, between Borden and BASF

            10.32(4)        Sixth Amendment to Operating Agreement, dated
                            February 11, 1988, between the Operating Partnership
                            and BASF

            10.33(3)        Third Purchase Agreement, dated August 25, 1987,
                            between Borden and BASF 

            10.34(3)        Operating Agreement, dated December 14, 1984 among
                            Borden, BASF, Liquid Air Corporation ("LAC") and LAI
                            Properties, Inc. ("LAI")

                                       47

 
            10.35(3)        Amendment No. 1 to Operating Agreement, dated
                            October 2, 1985, among Borden, BASF, LAC
                            and LAI

            10.36(4)        Amendment No. 2 to the Operating Agreement, dated
                            February 11, 1988, among Borden, the Operating
                            Partnership, BASF, LAC and LAI

            10.37(3)        Second Operating Agreement, dated October 2, 1985,
                            among Borden, BASF, LAC and LAI

            10.38(4)        Restated Second Operating Agreement, dated February
                            11, 1988 among Borden, the Operating Partnership,
                            BASF, LAC and LAI

            10.39(4)        Acetylene Sales Agreement No. 1, dated February 11,
                            1988, between the Operating Partnership and BASF

            10.40(4)        Acetylene Sales Agreement No. 2, dated February 11,
                            1988, between the Operating Partnership and BASF

            10.41(7)        Railroad Car Master Sublease Agreement, dated as of
                            November 30, 1987, between Borden and the Operating
                            Partnership, relating to ACF Industries,
                            Incorporated Master Service Contract

            10.42(7)        Railroad Car Master Sublease Agreement, dated as of
                            November 30, 1987, between Borden and the Operating
                            Partnership, relating to Pullman Leasing Company
                            Lease of Railroad Equipment

            10.43(7)        Railroad Car Master Sublease Agreement, dated as of
                            November 30, 1987, between Borden and the Operating
                            Partnership, relating to Union Tank Car Company
                            Service Agreement

            10.44(7)        Railroad Car Master Sublease Agreement, dated as of
                            November 30, 1987, between Borden and the Operating
                            Partnership, relating to General Electric Railroad
                            Service Corporation Car Leasing Agreement

            10.45(7)        Railroad Car Master Sublease Agreement, dated as of
                            November 30, 1987, between Borden and the Operating
                            Partnership, relating to General American
                            Transportation Corporation Tank Car Service Contract

            10.46(7)        Railroad Car Sublease Agreement, dated as of
                            November 30, 1987, between Borden and the Operating
                            Partnership, relating to EHF Leasing Corporation
                            Railroad Equipment Lease

                                       48

 
            10.47(7)        Railroad Car Sublease Agreement, dated as of
                            November 30, 1987, between Borden and the Operating
                            Partnership, relating to Bank of New York Lease of
                            Railroad Equipment (as amended)

            10.48(3)        Form of Rail Service Agreement between Borden and
                            the Operating Partnership

            10.49(10)       Form of Letter Agreement with Directors

            10.50(7)        Illiopolis Indemnity Agreement

            10.51(7)        1995 Long-Term Incentive Plan

- ------------------

(1) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's
    Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
    Confidential treatment has been granted as to certain provisions.

(2) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's
    Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.

(3) Filed as an exhibit to the Partnership's Registration Statement on Form S-1
    (File No. 33-17057) and is incorporated herein by reference in this Form 10-
    K Annual Report.

(4) Filed as an exhibit to the joint Registration Statement on Form S-1 and Form
    S-3 of the Partnership, Borden, Inc. and Borden Delaware Holdings, Inc.
    (File No. 33-25371) and is incorporated herein by reference in this Form 10-
    K Annual Report.

(5) Filed as exhibit 99.4 to the Registrant's Current Report on Form 8-K dated
    April 8, 1997 (filed April 15, 1997) ( File No. 1-9699) and incorporated
    herein by reference.

(6) Filed as exhibit 99.3 to the Registrant's Current Report on Form 8-K dated
    August 14, 1997 (filed August 18, 1997) (File No. 1-9699) and incorporated
    herein by reference.

(7) Filed as an exhibit to the Partnership's Registration Statement on Form S-1
    (File No. 33-18938) and is incorporated herein by reference in this Form 10-
    K Annual Report.

(8) Filed as an exhibit to the Registrant's 1992 Form 10-K Annual Report and is
    incorporated herein by reference in this Form 10-K Annual Report.

(9) Filed as an exhibit to the Registrant's 1995 Form 10-K Annual Report and is
    incorporated herein by reference in this Form 10-K Annual Report.

(10) Filed as an exhibit to the Registrant's 1989 Form 10-K Annual Report and is
     incorporated herein by reference in this Form 10-

                                       49

 
K Annual Report.

(11) Exhibits 10.8, 10.32, 10.36, 10.37 and 10.38, which were previously filed,
     contain information which has been deleted pursuant to an application for
     confidential treatment pursuant to Rule 406 of the Securities Act of 1933,
     with respect to which an order has been granted by the Commission.

(b)  Reports on Form 8-K
     -------------------

Two Forms 8-K's were filed in 1998 by the Company relating to the Operating
Partnership's revolving credit facility. On July 8, 1998, the Company announced
that the Operating Partnership had reached an agreement with its lending banks
waiving non-compliance with certain covenants and providing for certain
amendments to its credit agreement. On December 28, 1998, the Company announced
the Operating Partnership had reached agreement with its lenders on further
waivers of non-compliance with covenants and that an amended and restated credit
agreement providing for $90 million revolving credit facility had been signed to
replace the $100 million credit facility.

                                       50

 
                                  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/ R.B. Wiles
                                              ----------------------------
                                              Ronald B. Wiles
                                              Chief Financial Officer and
                                              Treasurer


Date:  March 26, 1999

                    Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities (with BCP Management, Inc., General
Partner) indicated, on the date set forth above.

           Signature                                   Title
           ---------                                   -----


/s/ Joseph M. Saggese                      Director, Chairman, President
- -------------------------
    Joseph M. Saggese                      and Chief Executive Officer


/s/ William H. Carter                      Director
- -------------------------
    William H. Carter


/s/ E. Linn Draper, Jr.                    Director
- -------------------------
    E. Linn Draper, Jr.


/s/ Edward H. Jennings                     Director
- -------------------------
    Edward H. Jennings


/s/ George W. Koch                         Director
- -------------------------
    George W. Koch


/s/ Ronald P. Starkman                     Director
    Ronald P. Starkman


/s/ William F. Stoll, Jr.                  Director
- -------------------------
    William F. Stoll, Jr.

                                       51

 
                       REPORT OF INDEPENDENT ACCOUNTANTS





TO THE PARTNERS OF BORDEN CHEMICALS
AND PLASTICS LIMITED PARTNERSHIP



         In our opinion, the consolidated balance sheets and the related
consolidated statements of operations, of changes in partners' capital and of
cash flows appearing on pages - to - present fairly, in all material respects,
the financial position of Borden Chemicals and Plastics Limited Partnership and
its subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.




PricewaterhouseCoopers LLP

Columbus, Ohio
January 19, 1999

                                       52

 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per Unit data)


 
 
                                                                          Year Ended December 31,     
                                                                  --------------------------------------------
                                                                       1998             1997          1996    
                                                                  --------------------------------------------
                                                                                             
Revenues
   Net trade sales                                                    $453,589         $602,907      $593,641
   Net sales to related parties                                         81,938          134,222       115,562      
                                                                      --------         --------      --------
Total revenues                                                         535,527          737,129       709,203
                                                                      --------         --------      --------
Expenses
   Cost of goods sold
     Trade                                                             440,191          562,159       549,315
     Related parties                                                    80,887          119,825       107,245
   Marketing, general & administrative expense  24,341                                   24,622        24,167
   Interest expense                                                     23,084           20,898        21,696
   General Partner incentive                                                                794
   Tax on gross income                                                   6,802
   Equity in loss of affiliate                                           1,683              186
   Other (income) expense, including
     minority interest                                                 (   854)           3,048         1,952
                                                                       --------           -----         -----

  Total expenses                                                       576,134          731,532       704,375
                                                                       -------          -------       -------

Net (loss) income                                                      (40,607)           5,597         4,828
   Less 1% General Partner interest                                       406            (   56)       (   48)
                                                                      --------          -------       -------
Net (loss) income applicable to Limited
  Partners' interest                                                  $(40,201)         $ 5,541       $ 4,780 
                                                                      =========         =======       =======

Net (loss) income per Unit                                            $(  1.09)         $  0.15       $  0.13
                                                                      =========         =======       =======

Average number of Units outstanding
  during the year                                                       36,750           36,750        36,750   
                                                                      ========          =======       =======

Cash distributions declared per Unit                                  $   0.00         $   0.83       $  0.35
                                                                      ========         ========       =======
 


See notes to consolidated financial statements

                                       53

 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)

 
 
                                                                            Year Ended December 31,    
                                                                  -------------------------------------------- 
                                                                        1998            1997          1996  
                                                                  -------------------------------------------- 
                                                                                             
Cash Flows From Operations
   Net income(loss)                                                    $ (40,607)     $   5,597       $   4,828
   Adjustments to reconcile net income
   to net cash provided by operating
   activities:

   Depreciation                                                           33,369         48,569          49,092
   Deferred tax on gross income                                            5,800
   Increase (decrease) in cash from changes 
     in certain assets and liabilities:
   Receivables, net                                                       23,923            596         ( 4,065)
   Inventories                                                            14,449            961         (   890)
   Payables                                                              (15,118)       ( 4,810)        ( 3,080)
   Incentive distribution payable                                                                       ( 1,910)
   Other accrued liabilities                                             ( 7,409)         4,595           3,048
   Other, net                                                            ( 4,532)       ( 8,602)        ( 8,560)
                                                                         --------       --------        --------
                                                                           9,875         46,906          38,463  
                                                                         --------       --------        ---------
Cash Flows From Investing Activities
  Capital expenditures                                                   (31,788)      ( 19,426)       ( 14,558)
                                                                         --------      --------        --------
                                                                         (31,788)      ( 19,426)       ( 14,588)
                                                                         --------      ---------       -------- 
Cash Flows From Financing Activities
   Proceeds from long-term borrowings                                     53,700         25,000
   Repayments of long-term borrowings                                    (26,900)
   Net repayments of short-term borrowings                                             ( 25,000)       ( 15,000)

   Cash distributions paid                                               ( 3,712)      ( 30,819)       ( 30,459)
                                                                         --------      ---------       --------  
                                                                          23,088       ( 30,819)       ( 45,459)
                                                                         --------      ---------       --------  

Increase (decrease) in cash and equivalents                                1,175       (  3,339)       ( 21,554)

Cash and equivalents at beginning of year                                  7,528         10,867          32,421
                                                                        --------       ---------      ---------
                                                                                                 
Cash and equivalents at end of year                                     $  8,703       $  7,528       $  10,867
                                                                        ========       =========      =========

Supplemental Disclosures of Cash Flow
   Information
   Interest paid during the year                                        $ 23,103       $ 20,874       $  21,773
 






See notes to consolidated financial statements

                                       54

 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                          CONSOLIDATED BALANCE SHEETS
                                (In thousands)
 
 
                                                                        December 31,      December 31,
                                                                             1998           1997 
                                                                          ---------       --------- 
                                                                                     
ASSETS

Cash and equivalents                                                      $   8,703        $ 7,528
Accounts receivable (less allowance for
 doubtful accounts of $672 and $475,
 respectively)
   Trade                                                                     57,909         72,718
   Related parties                                                           12,627         21,741
Inventories                                                                                 
   Finished and in process goods                                             21,978         33,686
   Raw materials and supplies                                                 6,574          9,315
Other current assets                                                          2,694          4,380
                                                                          ---------       --------- 
  Total current assets                                                      110,485        149,368 
                                                                          ---------       ---------

Investments in and advances to
 affiliated companies                                                         8,442          7,834
Other assets                                                                 54,469         52,784 
                                                                          ---------        --------
                                                                             62,911         60,618 
                                                                          ---------        --------

Land                                                                         16,308         15,952
Buildings                                                                    45,604         45,050
Machinery and equipment                                                     690,096        662,050 
                                                                          ---------        --------
                                                                            752,008        723,052
   Less accumulated depreciation                                          ( 463,708)      (432,852)
                                                                          ----------      --------

                                                                            288,300        290,200  
   Total assets                                                           $ 461,696       $500,186 
                                                                          ==========      =========

LIABILITIES AND
PARTNERS' CAPITAL

Accounts and drafts payable                                               $  41,884       $ 57,002
Cash distributions payable                                                                   3,712
Accrued interest                                                              3,190          3,209
Other accrued liabilities                                                    13,702         21,111 
                                                                          ----------       --------
  Total current liabilities                                                  58,776         85,034

Long-term debt                                                              251,800        225,000
Deferred tax on gross income                                                  5,800
Other liabilities                                                             1,949          5,760
Minority interest in consolidated subsidiary                                    900          1,314  
                                                                          ----------      ---------
   Total liabilities                                                        319,225        317,108 
                                                                          ----------      --------- 

Commitments and contingencies (See Note 9)

Partners' capital
   Limited Partners                                                         142,517        182,718
   General Partner                                                              (46)           360
                                                                          ----------      --------- 
Total partners' capital                                                     142,471        183,078 
                                                                          ----------      ---------
   Total liabilities and partners' capital                                $ 461,696       $500,186
                                                                          ==========      =========
 


See notes to consolidated financial statements

                                       55

 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

            CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                                (In thousands)



 
 

                                                         Limited        General
                                                         Partners       Partner        Total  
                                                        ---------       -------      ---------
                                                                             
Balances at December 31, 1995                           $ 215,762       $  702       $ 216,464
   Net income                                               4,780           48           4,828
   Cash distributions declared                            (12,862)        (130)        (12,992)
                                                         --------       ------         -------    
                                              
Balances at December 31, 1996                             207,680          620         208,300
   Net income                                               5,541           56           5,597
   Cash distributions declared                            (30,503)        (316)        (30,819)
                                                         --------       ------         -------    
                                              
Balances at December 31, 1997                             182,718          360         183,078
    Net loss                                              (40,201)        (406)        (40,607)
   Cash distributions declared                               -              -             -   
                                                         --------       ------         -------    
                                              
Balances at December 31, 1998                            $142,517       $  (46)       $142,471
                                                         ========       ======        ========
 



See notes to consolidated financial statements.

                                       56

 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
               -------------------------------------------------

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ------------------------------------------
                 (In thousands except Unit and per Unit data)


1.  Organization and Business

     Borden Chemicals and Plastics Limited Partnership (the "Partnership") is a
Delaware limited partnership which owns a 98.9899% limited partner interest as
sole limited partner in Borden Chemicals and Plastics Operating Limited
Partnership (the "Operating Partnership"). BCP Management, Inc. ("BCPM"), a
wholly-owned subsidiary of Borden, Inc. ("Borden"), owns a 1% interest as the
sole general partner in the Partnership and a 1.0101% interest as the sole
general partner ("General Partner") in the Operating Partnership, resulting in
an aggregate 2% ownership interest in the partnerships. The General Partner's
interest in the Operating Partnership is reflected as minority interest in the
accompanying consolidated financial statements.

     The Operating Partnership operates a highly integrated plant in Geismar,
Louisiana, which produces basic petrochemical products, PVC resins and
industrial gases; a PVC resins plant located in Illiopolis, Illinois; and a PVC
resins plant in Addis, Louisiana. The Partnership markets its commodity products
to the manufacturing, chemical and fertilizer industries primarily in the United
States. See Note 10 for a discussion of business segments.


2.  Summary of Significant Accounting Policies

     The significant accounting policies summarized below are in conformity with
generally accepted accounting principles; however, this is not the basis for
reporting taxable income to Unitholders.

     Principles of Consolidation - The consolidated financial statements include
the accounts of the Partnership and the Operating Partnership after elimination
of interpartnership accounts and transactions.

     Revenues - Sales and related cost of sales are recognized upon shipment of
products. Net trade and net related party sales are net of sales discounts and
product returns and allowances.

     Cash and Equivalents - The Partnership considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Included in cash and equivalents are time deposits of $2,000
and $6,950 at December 31, 1998 and 1997, respectively.

     Inventories - Inventories are stated at the lower of cost or market. Cost
is determined using the average cost and first-in, first-out methods.

     Investments in and Advances to Affiliated Companies - The Partnership owns
a 51% interest in a partnership engaged in manufacturing and marketing vinyl
esters. Due to the significance of the rights held by the minority partner, the
Partnership's interest in this partnership is accounted for using the equity
method.

     The Partnership owns 50% of a utility station and of an acetylene plant
(Note 

                                       57

 
9) located at the Geismar complex. Utilities provided and acetylene consumed are
allocated to the owners at cost. The Partnership's proportionate share is
included in cost of goods sold.

     Other Assets and Liabilities - Debt issuance costs are capitalized and are
amortized over the term of the associated debt or credit agreement. Included in
other assets are spare parts totaling $22,811 and $23,400 at December 31, 1998
and 1997, respectively. Included in other accrued liabilities are accrued sales
discounts of $5,505 and $8,604 at December 31, 1998 and 1997, respectively.

     Property and Equipment - The amount of the purchase price originally
allocated by the Partnership at its formation to land, buildings, and machinery
and equipment was based upon their relative fair values. Expenditures made
subsequent to the formation of the Partnership have been capitalized at cost
except that the purchase price for the Addis, Louisiana plant acquired in 1995
has been allocated to properties based upon their relative fair values.
Depreciation is recorded on the straight-line basis by charges to costs and
expenses at rates based on the estimated useful lives of the properties (average
rates for buildings - 4%; machinery and equipment - 8%). Major renewals and
betterments are capitalized. Maintenance, repairs and minor renewals totaling
$34,766 in 1998; $38,937 in 1997 and $37,091 in 1996 were expensed as incurred.
When properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts.

     Environmental Expenditures - Environmental-related expenditures associated
with current operations are generally expensed as incurred. Expenditures for the
assessment and/or remediation of environmental conditions related to past
operations are charged to expense; in this connection, a liability is recognized
when assessment or remediation effort is probable and the future costs are
estimable. See also Note 9 for discussion of the Environmental Indemnity
Agreement ("EIA") with Borden.

     Income Taxes - Income taxes are accounted for under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". In
accordance with this statement, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
the respective tax bases, as measured by the 3.5% gross income tax rate in the
periods when the deferred tax assets and liabilities are expected to be settled
or realized. See Note 7.

     For federal, state and local income tax purposes, the Partnership's taxable
net income or loss, which may vary substantially from net income or loss
reported under generally accepted accounting principles, is included in the tax
returns of the individual partners.

     Long-Term Incentive Plan - Under the Long-Term Incentive Plan (the Plan),
certain management personnel and employees are awarded phantom appreciation
rights. At the time of exercise, phantom appreciation rights provide the grantee
the opportunity to earn an amount in cash calculated to award the grantee for
appreciation from the base price to the fair market value of the Partnership's
traded units and actual cash distributions on such units. The phantom
appreciation rights vest 50% after two years, with the balance vesting after
three years. Due to declines in the price of the units, there was no
compensation expense recognized for the phantom appreciation rights during 1998,
1997 or 1996. The Plan provides the independent committee of the Board of
Directors of the General Partner the discretion to decrease the base price of
the phantom appreciation rights in certain events, including changes in

                                       58

 
ownership or capitalization.

     Earnings per Unit - Basic income per unit is computed by dividing net
income, after subtracting the General Partner's 1% interest, by the weighted
average number of units outstanding. Currently, there are no potentially
dilutive securities; accordingly, basic income per unit and diluted income per
unit are equivalent.

      Comprehensive Income -SFAS No. 130 "Reporting Comprehensive Income",
establishes standards for reporting of comprehensive income and its components.
However, the Partnership has no elements of "other comprehensive income" and,
accordingly, net income and comprehensive income are equivalent.

     Segment Information - Effective for the year ended December 31, 1998, the
Partnership adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." Prior years' disclosures have been conformed to the
new presentation. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the basis for the Partnership's operating segments.
SFAS No. 131 also requires disclosures about geographic areas and major
customers. See Note 10.

     New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which is effective in 2000 for the Partnership. The
statement requires that all derivatives be recorded in the balance sheet as
either assets or liabilities and be measured at fair value. The accounting for
changes in fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Partnership is in the process of
assessing the impact that SFAS No. 133 will have on the consolidated financial
statements.

     The Partnership plans to adopt Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" for its consolidated financial statements for the year ended
December 31, 1999. The adoption of SOP 98-1 is not expected to have a
significant impact on the Partnership's financial position or results of
operations.

     Use of Estimates - The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenditures
during the reporting period. Actual results could differ from those estimates.

     Reclassifications - Certain amounts in the consolidated financial
statements and notes thereto have been reclassified to conform to 1998
presentation.

3. Related Party Transactions

     The Partnership is managed by the General Partner. Under certain
agreements, the General Partner and Borden are entitled to reimbursement of
costs incurred relating to the business activities of the Partnership. The
Partnership is engaged in various transactions with Borden and its affiliates in
the ordinary 

                                       59

 
course of business. Such transactions include, among other things, the sharing
of certain general and administrative costs, sales of products to and purchases
of raw materials from Borden or its related parties, and usage of rail cars
owned or leased by Borden.

     Prior to July 1, 1997 Borden included the Partnership in its general
insurance coverage, including liability and property damage coverage. The
Partnership reimbursed Borden for its share of the costs of the general
insurance coverage based on calculations made by Borden's Risk Management
Department. The Partnership reimbursed Borden $1,252 and $3,634 during 1997 and
1996, respectively. Under its risk retention program, Borden maintained
deductibles of $2,500, $1000 and $1000 per occurrence for property and related
damages at the Geismar, Illiopolis and Addis facilities, respectively, and
deductibles ranging from $100 to $3,000 per event for liability insurance.

     After July 1, 1997, the Partnership participates in general insurance
coverage held in name by a Borden affiliate, however the costs of the coverage
are specifically apportioned to the Partnership by the insurance carriers and
the Partnership pays the premiums for the coverage directly to those carriers.
The deductibles for property and liability coverages are similar to those
maintained under the previous arrangement with Borden.

     The employees of BCPM (together with employees providing support to or
services for BCPM) operate the Partnership and participate in various Borden
benefit plans including pension, retirement savings, post-retirement other than
pensions and health and life insurance. The Partnership has no direct liability
for such benefits since the Partnership does not directly employ any of the
persons responsible for managing and operating the Partnership, but instead
reimburses Borden (on its own or BCPM's behalf) for their services. Charges to
the Partnership for such services are actuarially determined where appropriate.
The Partnership expenses the full amount of such charges but only reimburses
Borden (on its own or BCPM's behalf) for actual benefits paid. The difference
between cash payments to Borden (on its own or BCPM's behalf) and expense is
accrued on the Partnership's books.

     Prior to January 1, 1998, employees were covered by a group medical
insurance plan administered by Borden. Reimbursements made to Borden by the
Partnership during 1997 and 1996 totaled $1,841 and $1,611, respectively.
Premiums now are determined independently for and are paid by the Partnership
directly to the insurance carrier.

     Benefit plan and general insurance expenses, and allocation for usage of
resources such as personnel and data processing equipment were $8,542 in 1998,
$8,940 in 1997, and $9,591 in 1996. Management believes the allocation methods
used are reasonable. Although no specific analysis has been undertaken, if the
Partnership were to directly provide such services and resources at the same
cost as Borden, management believes the allocations would be indicative of costs
that would be incurred on a stand-alone basis.

     The Partnership sells methanol, ammonia, urea and PVC resins to, and
processes formaldehyde and urea-formaldehyde concentrate for, Borden and its
affiliates at prices which approximate market.

     The Partnership entered into long-term agreements with Borden which require
Borden to purchase from the Partnership at least 85% of Borden's requirements
for PVC resins, ammonia, urea and methanol and to utilize specified percentages
of the Partnership's capacity to process formaldehyde and urea-formaldehyde
concentrate.

                                       60

 
     On October 11, 1996, Borden sold its packaging division and as a part of
the transaction obtained a 34% ownership interest in the acquiring entity. The
packaging division had been a significant purchaser of PVC resins. After the
acquisition, sales prices remained substantially the same as sales to Borden.
Included in related party sales are sales of PVC to the acquiring entity of
$18,546 and $25,431 for 1998 and 1997, respectively. Included in related party
receivables are amounts due from the acquiring entity for these sales of $2,831
and $4,445 at December 31, 1998 and 1997, respectively. All other related party
sales and receivables are with Borden.

4. Debt

     On May 1, 1995, the Operating Partnership issued $200,000 aggregate
principal amount of senior unsecured 9.5% notes due 2005. The senior unsecured
notes contain a number of financial and other covenants, including limitations
on liens and sales of assets. Cash distributions are not permitted unless
compliance with certain covenants is maintained. With respect to the senior
unsecured notes and the revolving credit facility discussed below, compliance
with covenant ratios is expected to require several quarters of sufficiently
profitable operations before cash distributions could be resumed.

     The aggregate fair value of the Operating Partnership's outstanding notes
was $160,000 at December 31, 1998 and $212,500 at December 31, 1997, as
determined by the market trading price for the notes at those dates.

     On December 23, 1998, the Operating Partnership amended its December 22,
1997 revolving credit facility to, among other things, obtain waiver of certain
covenant violations and to amend the covenant ratios for December 1998 and
through December 2000. The amended credit facility provides for up to $90,000
under a revolving credit agreement with a group of banks. The amended credit
facility expires on December 31, 2000, at which time all amounts outstanding
must be repaid. Interest on borrowings under the revolving credit facility are
determined, at the Operating Partnership's option, by the selected Eurodollar
rate plus a margin (4.00% at December 31, 1998) or the ABR rate plus a margin
(2.75% at December 31, 1998). The ABR rate is the greater of (a) the prime rate
(b) the Base CD rate plus 1.00% or (c) the Federal Funds Effective rate plus
 .5%. The margins for the Eurodollar rate and the ABR rate are based on the
Operating Partnership's public debt rating and the Operating Partnership's
consolidated debt to consolidated earnings before income taxes, depreciation and
amortization (EBITDA) ratio. An annual commitment fee is payable on the unused
portion of the amended facility. At December 31, 1998 borrowings under the
amended facility were $51,800 and bore interest at 9.00% while the commitment
fee on the unused portion of the facility was .5%.

     The borrowings under the revolving credit facility are to be collateralized
by accounts receivable, inventories and an approximate $17,000 lien against
certain fixed assets. The revolving credit facility contains certain covenants,
including the maintenance of a coverage ratio of EBITDA to interest and other
non-financial covenants. In addition, the Partnership is limited with respect to
additional indebtedness, liens, declaration and payment of Partnership dividends
and distributions, and capital expenditures.

                                       61

 
5. Allocation of Income and Loss

     Income and loss of the Partnership is allocated in proportion to the
partners' percentage interests in the Partnership, provided that at least 1% of
the income or loss of the Partnership and Operating Partnership is allocated to
the General Partner. For income tax purposes, certain items are specially
allocated to account for differences between the tax basis and fair market value
of property contributed to the Partnership by Borden and to facilitate
uniformity of Units. In addition, the Partnership Agreement generally provides
for an allocation of gross income to the Unitholders and the General Partner to
reflect disproportionate cash distributions, on a per Unit basis.

6. Cash Distributions

     The Partnership makes quarterly distributions to Unitholders and the
General Partner of 100% of its Available Cash. Available Cash each quarter
generally consists of cash receipts less cash disbursements (excluding cash
distributions to Unitholders and the General Partner) and reserves.

     Distributions of Available Cash are generally made 98% to the Unitholders
and 2% to the General Partner, subject to the payment of an incentive
distribution to the General Partner after a target level of cash distributions
to the Unitholders is achieved for the quarter. The incentive distribution is
20% of any remaining Available Cash for the quarter (in addition to the General
Partner's 2% regular distribution). Incentive distributions are accounted for as
an expense of the Partnership.

         Cash distributions are limited by the terms of the Partnership's debt
agreements. See Note 4.

7.  Tax on Gross Income

     In August, 1997 legislation was enacted which extends indefinitely the
Partnership's ability to be treated as a partnership for federal income tax
purposes provided that the Partnership elected to be subject to a 3.5% tax on
taxable gross income beginning on January 1, 1998 (the ability to be treated as
a partnership had been scheduled to expire on December 31, 1997). The
Partnership has made such an election.

         During fiscal 1998, tax on gross income expense is composed of current
tax expense of $1,002 and deferred tax expense of $5,800. During the fourth
quarter of 1998, the Partnership made a provision of $5,800 for deferred taxes
resulting from recent IRS guidance governing calculation of the new 3.5% tax on
gross income of electing master limited partnerships, and the Partnership's
assessment of how that guidance may affect it. At December 31, 1998,
substantially all of the Partnership's deferred tax liability related to
property and equipment.

8.  Rights to Purchase Units

     On April 8, 1997, the General Partner declared a distribution of one common
unit purchase right (a "Right") for each outstanding common unit of the
Partnership and the number of Rights most closely approximating 1/99th of the
number of the units outstanding with respect to the General Partner's interest
in the Partnership.

     The Rights are not exercisable until the earlier to occur of: (i) ten days
following a public announcement that a person or affiliated group of persons (an

                                       62

 
"Acquiring Person") have acquired 15% or more of the outstanding units or (ii)
ten days (or such later date as may be determined by the General Partner prior
to someone becoming an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender or exchange offer the
consummation of which would result in a person or affiliated group of persons
acquiring 15% or more of the outstanding units. Until then, the Rights will
trade with the units and a Right will be issued with each additional unit
issued. The number of Rights outstanding at December 31, 1998 was 37,121,212.

     Each Right entitles the holder to purchase from the Partnership one common
unit at a price of $21.00, subject to adjustment in certain circumstances. In
the event an Acquiring Person acquires a 15% or more interest in the
Partnership, each holder of a Right, with the exception of the Acquiring Person,
will have the right to receive upon exercise of the Right at the then exercise
price of the Right, that number of Units having market value of two times such
exercise price. At any time prior to an Acquiring Person becoming such, the
General Partner may redeem the Rights in whole, but not in part, for $0.01 per
Right. The Rights, which do not have voting rights, generally will expire no
later than April 8, 2007.

9. Commitments and Contingencies

Purchase Commitments

     The Partnership has entered into a fifteen year supply agreement commencing
in 1997 for one of its raw materials to provide long-term supply and minimize
price volatility. The purchase price for this product is based on its raw
material and variable costs, as well as fixed costs that will vary based on
economic indices, changes in taxes or regulatory requirements. The aggregate
amount at December 31, 1998 of minimum payments required under the agreement is
$43,572 with $4,753 per year of minimum payments required through 2008.
Purchases under the agreement totaled $19,633 in 1998 and $21,753 in 1997.

     The Partnership has agreed to purchase the unowned balance of its partner's
share of certain acetylene production facilities at the Geismar complex on
December 31, 1999. The purchase price is $10,000 payable over three years plus
the undepreciated value (approximately $8,000 to date) of its partner's share of
capital spent on the facilities from November 1997 to December 31, 1999.

     The Partnership has undertaken actions to replace certain computer
applications or programs. The purchase commitment for costs associated with the
implementation of new software applications, including the associated hardware,
is $14,549, of which $5,451 has not been expended as of December 31, 1998.

Environmental and Legal Proceedings

     On March 11, 1998, the Partnership and the U.S. Department of Justice
("DOJ") reached an agreement to resolve the enforcement action brought by the
DOJ against the Operating Partnership, the Partnership and the General Partner
in October 1994, and the Declaratory Judgement Action brought by the Partnership
against the United States. The settlement provides for payment of a civil
penalty of $3,600 and funding of $400 for community based environment programs,
but it does not include any admission of wrongdoing. The terms of the settlement
also provide for a program of groundwater and other remediation at the Geismar
facility. The agreement also provides that the Partnership will undertake a
Supplemental Environmental Project to decommission its underground injection
wells and instead subject the waste to innovative source reduction. The
estimated cost of the 

                                       63

 
project is $3,000. In light of the $4,000 provision previously established for
this matter and Borden's obligation under the EIA to pay for the remediation
program, the settlement did not have a material effect on the Partnership's
financial position or results of operations.

     Under the EIA, Borden has agreed, subject to certain specified limitations,
to indemnify the Partnership in respect of environmental liabilities arising
from facts or circumstances that existed and requirements in effect prior to
November 30, 1987, the date of the initial sale of the Geismar and Illiopolis
plants to the Partnership. The Partnership is responsible for environmental
liabilities arising from facts or circumstances that existed and requirements
that become effective on or after such date. With respect to certain
environmental liabilities that may arise from facts or circumstances that
existed and requirements in effect both prior to and after such date, Borden and
the Partnership will share liabilities on an equitable basis considering all of
the facts and circumstances including, but not limited to, the relative
contribution of each to the matter and the amount of time each has operated the
assets in question (to the extent relevant). No claims can be made under the EIA
after November 30, 2002, and no claim can, with certain exceptions, be made with
respect to the first $500 of liabilities which Borden would otherwise be
responsible for thereunder in any year, but such excluded amounts shall not
exceed $3,500 in the aggregate. Excluded amounts under the EIA have aggregated
$3,500 through December 31, 1996.

     The Partnership is subject to extensive federal, state and local
environmental laws and regulations which impose limitations on the discharge of
pollutants into the air and water, establish standards for the treatment,
storage, transportation and disposal of solid and hazardous wastes, and impose
obligations to investigate and remediate contamination in certain circumstances.
The Partnership has expended substantial resources, both financial and
managerial, and it anticipates that it will continue to do so in the future.
Failure to comply with the extensive federal, state and local environmental laws
and regulations could result in significant civil or criminal penalties, and
remediation costs.

     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
insurance coverage, including its risk retention program and Environmental
Indemnity Agreement with Borden would not materially affect the financial
position or results of operations of the Partnership.


10. Segment Information

     The Partnership's internal reporting is organized on the basis of products.
Each of the following products is considered to be an operating segment of the
business: polyvinyl chloride ("PVC"), vinyl chloride monomer ("VCM"), acetylene,
methanol, formaldehyde, ammonia and urea. These operating segments have been
aggregated into three reportable segments according to the nature and economic
characteristics of the products, production processes and other similarities.
The segments are (i) PVC Polymers Products, which consist of PVC resins and
feedstocks (VCM and acetylene), (ii) Methanol and Derivatives, which consist of
methanol and formaldehyde, and (iii) Nitrogen Products, which consist of ammonia
and urea.
     The accounting policies of the segments are the same as those described in
the Summary of Significant Accounting Policies (Note 2). The Partnership
evaluates performance of the segments and allocates resources to them based upon
contributing margin, which is gross margin net of distribution expense.

                                       64

 
     Financial information for each of the reportable segments for the years
1998, 1997 and 1996 is provided in the following table.

 
 
- -----------------------------------------------------------------------------------------------------------------------------------
                                             PVC                         
                                           Polymers           Methanol             Nitrogen       Reconciling     Consolidated
                                           Products       and Derivatives          Products        Items (a)         Totals
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
1998
Revenues                                   $ 372,853         $ 111,308            $  51,366        $                 $ 535,527
Contributing Margin                            8,424            10,839           (    4,814)                            14,449
Property and equipment, net                  161,801            24,599               17,664           84,236           288,300
Other assets                                  26,725             6,336                5,151           16,257            54,469
Depreciation expense                          19,783             4,359                2,822            6,405            33,369


1997
Revenues                                   $ 486,189         $ 177,475            $  73,465        $                 $ 737,129
Contributing Margin                            4,398            50,243                  504                             55,145
Property and equipment, net                  163,421            28,593               18,466           79,720           290,200
Other assets                                  23,447             5,151                5,193           18,993            52,784
Depreciation expense                          23,850             9,600                8,105            7,014            48,569


1996
Revenues                                   $ 464,496         $ 145,982            $  98,725        $                 $ 709,203
Contributing Margin                            9,602            17,685               25,356                             52,643
Property and equipment, net                  184,307            38,002               24,754           72,408           319,471
Other assets                                  24,156             4,151                4,335           16,763            49,405
Depreciation expense                          24,095             9,592                8,505            6,900            49,092

- -----------------------------------------------------------------------------------------------------------------------------------
 
(a)  Reconciling items relate primarily to common property and equipment used by
     all three segments and the depreciation expense associated with those
     assets, as well as unallocated spare parts and deferred financing costs.

         A reconciliation of the total segment consolidated contributing margin
to total consolidated income before gross income taxes, for the years ended
December 31, 1998, 1997 and 1996 is as follows:

 
 
                                                         1998                1997                1996
                                                         ----                ----                ----
                                                                                   
Total segment contributing margin                       $ 14,449            $ 55,145          $ 52,643
Marketing, general and                                                  
  Administrative expense                              (   24,341)         (   24,622)       (   24,167)
Interest expense                                      (   23,084)         (   20,898)       (   21,696)
General partner incentive                                                 (      794)   
Other misc. income/expense (net)                                          (    3,234)       (    1,952)
                                                      (      829)       
Consolidated income/loss before                                         
  Tax on gross income(b)                              (   33,805)               5,597             4,828
 


(b) As 1998 was the first year that the Partnership was subject to gross income
    taxes, the amounts for 1997 and 1996 represent net income.

                                       65

 
         Revenues from Borden and affiliates represented $81,938, $134,222 and
$115,562 of the Partnership's consolidated revenues for the years ended December
31, 1998, 1997, and 1996, respectively. Borden and its affiliates are customers
of all three of the reporting segments.

         Revenues from domestic customers represented substantially all of
consolidated revenues for the years ended December 31, 1998, 1997, and 1996,
respectively. All segment assets are domestic.

                                       66

EX-27

 


 
<ARTICLE> 5
<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-START>                             JAN-01-1998
<PERIOD-END>                               DEC-31-1998
<CASH>                                           8,703
<SECURITIES>                                         0
<RECEIVABLES>                                   71,208
<ALLOWANCES>                                       672
<INVENTORY>                                     28,552
<CURRENT-ASSETS>                               110,485
<PP&E>                                         752,008
<DEPRECIATION>                                 463,708
<TOTAL-ASSETS>                                 461,696
<CURRENT-LIABILITIES>                           58,776
<BONDS>                                        251,800
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                     142,471
<TOTAL-LIABILITY-AND-EQUITY>                   461,696
<SALES>                                        535,527
<TOTAL-REVENUES>                               535,527
<CGS>                                          521,078
<TOTAL-COSTS>                                  521,078
<OTHER-EXPENSES>                                31,972
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              23,084
<INCOME-PRETAX>                               (40,607)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                           (40,607)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (40,607)
<EPS-PRIMARY>                                   (1.09)
<EPS-DILUTED>                                   (1.09)