10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 - Commission File No. 1-9699 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP Delaware 31-1269627 (State of organization) (I.R.S. Employer Identification No.) Highway 73, Geismar, Louisiana 70734 614-225-4482 (Address of principal executive offices) (Registrant's telephone number) ---------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- ---------- Number of Common Units outstanding as of the close of business on August 11, 2000: 36,750,000. BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per Unit data) Three Months Ended ------------------- June 30, June 30, 2000 1999 -------- -------- Revenues Net trade sales $133,526 $ 89,964 Net sales to related parties 6,181 5,147 -------- -------- Total revenues 139,707 95,111 -------- -------- Expenses Cost of goods sold Trade 111,739 81,653 Related parties 4,887 4,124 Marketing, general & administrative expense 6,417 5,686 Interest expense 7,235 5,986 Tax on gross margin 710 313 Equity in loss of affiliate 233 181 Other (income), including minority interest (152) (140) -------- -------- Total expenses 131,069 97,803 -------- -------- Income (loss) from continuing operations 8,638 (2,692) Discontinued operations (Loss) from discontinued operations, net ( 5,589) (6,086) Gain on disposal of discontinued operations, net 5,012 -------- -------- Net income (loss) 8,061 ( 8,778) Less 1% General Partner interest (80) 88 -------- -------- Net income (loss) applicable to Limited Partners' interest $ 7,981 $ (8,690) ======== ======== Per Unit data-basic, net of 1% General Partner interest: Income (loss) from continuing operations per Unit $ 0.23 $ (0.07) (Loss) from discontinued operations per Unit (0.02) (0.17) ------- ------- Net income (loss) per Unit $ 0.21 $ (0.24) ======= ======= Average number of Units outstanding during the period 36,750 36,750 ======= ======= Cash distributions declared per Unit $ 0.00 $ 0.00 ======= ======= See Notes to Consolidated Financial Statements. 2 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per Unit data)
Six Months Ended --------------------------- June 30, June 30, 2000 1999 -------- -------- Revenues Net trade sales $267,931 $168,435 Net sales to related parties 12,254 9,801 -------- -------- Total revenues 280,185 178,236 -------- -------- Expenses Cost of goods sold Trade 226,581 151,616 Related parties 9,923 8,189 Marketing, general & administrative expense 13,559 11,633 Interest expense 14,698 12,372 Tax on gross margin 1,460 733 Equity on loss of affiliate 493 383 Other (income), including minority interest (141) (73) -------- -------- Total expenses 266,573 184,853 -------- -------- Income (loss) from continuing operations 13,612 (6,617) Discontinued operations (Loss) from discontinued operations, net (10,192) (7,852) Gain on disposal of discontinued operations, net 5,012 -------- -------- Net income (loss) 8,432 (14,469) Less 1% General Partner interest (84) 145 -------- -------- Net income (loss) applicable to Limited Partners' interest $ 8,348 $(14,324) ======== ======== Per Unit data-basic, net of 1% General Partner interest: Income (loss) from continuing operations per Unit $ 0.37 $ (0.18) (Loss) from discontinued operations per Unit (0.14) (0.21) -------- -------- Net income (loss) per Unit $ 0.23 $ (0.39) ======== ======== Average number of Units outstanding during the period 36,750 36,750 ======== ======== Cash distributions declared per Unit $ 0.00 $ 0.00 ======== ========
See Notes to Consolidated Financial Statements. 3 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six Months Ended ------------------- June 30, June 30, 2000 1999 -------- -------- Cash Flows From Operations Net income (loss) $ 8,432 $(14,469) (Gain) on disposal of discontinued operations, net (5,012) 0 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 19,311 17,982 Increase (decrease) in cash from changes in certain assets and liabilities: Accounts receivables (7,071) (3,461) Inventories (4,985) (3,217) Accounts and drafts payable (13,221) 4,235 Accrued interest 376 (12) Other, net (3,377) (361) -------- -------- (5,547) 697 -------- -------- Cash Flows From Investing Activities Capital expenditures (4,586) (7,647) Plant acquisition (8,177) 0 -------- -------- (12,763) (7,647) -------- -------- Cash Flows From Financing Activities Proceeds from long-term borrowings 23,051 3,500 Payment of debt issuance costs (1,113) 0 -------- -------- 21,938 3,500 -------- -------- Increase (decrease) in cash and equivalents 3,628 (3,450) Cash and equivalents at beginning of period 5,759 8,703 -------- -------- Cash and equivalents at end of period $ 9,387 $ 5,253 ======== ======== Supplemental Disclosures of Cash Flow Information Interest paid during the period $ 12,880 $ 11,670 ======== ========
See Notes to Consolidated Financial Statements 4 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
ASSETS June 30, 2000 December 31, 1999 ------ -------------- ----------------- Cash and equivalents $ 9,387 $ 5,759 Accounts receivable (less allowance for doubtful accounts of $491 and $456, respectively) Trade 77,499 75,794 Related parties 20,228 14,862 Inventories Finished and in process goods 44,751 36,041 Raw materials and supplies 11,767 15,492 Other current assets 54,705 4,443 --------- --------- Total current assets 218,337 152,391 --------- --------- Investments in and advances to affiliated companies 8,220 8,521 Other assets 43,512 50,679 --------- --------- 51,732 59,200 --------- --------- Plant, property and equipment Land 16,385 16,308 Buildings 45,881 45,625 Machinery and equipment 515,280 704,252 --------- --------- 577,546 766,185 Less accumulated depreciation (337,117) (496,925) --------- --------- 240,429 269,260 --------- --------- Total assets $ 510,498 $ 480,851 ========= ========= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Accounts and drafts payable $ 53,296 $ 66,517 Accrued interest 3,785 3,409 Other accrued liabilities 23,840 17,084 --------- --------- Total current liabilities 80,921 87,010 Long-term debt 286,251 263,200 Deferred tax on gross margin 6,640 6,640 Other liabilities 9,033 4,866 Minority interest in consolidated subsidiary 741 655 --------- --------- Total liabilities 383,586 362,371 --------- --------- Partners' capital Limited Partners 127,114 118,766 General Partner (202) (286) --------- --------- Total partners' capital 126,912 118,480 --------- --------- Total liabilities and partners' capital $ 510,498 $ 480,851 ========= =========
See Notes to Consolidated Financial Statements. 5 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (Unaudited) (In thousands)
Limited General Partners Partner Total -------- ------- ----- Balance at December 31, 1998 $ 142,517 $ ( 46) $ 142,471 Net (loss) ( 14,324) ( 145) (14,469) Cash distribution declared 0 0 0 --------- --------- --------- Balance at June 30, 1999 $ 128,193 $ ( 191) $ 128,002 ========= ========= ========= Balance at December 31, 1999 $ 118,766 $ ( 286) $ 118,480 Net income 8,348 84 8,432 Cash distribution declared 0 0 0 --------- --------- --------- Balance at June 30, 2000 $ 127,114 $ ( 202) $ 126,912 ========= ========= =========
See Notes to Consolidated Financial Statements. 6 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands except Unit and per Unit data) 1. Interim Financial Statements The accompanying unaudited interim consolidated condensed financial statements of Borden Chemicals and Plastics Limited Partnership (the "Partnership"), and its subsidiary operating partnership Borden Chemicals and Plastics Operating Limited Partnership (the "Operating Partnership") contain all adjustments, consisting only of normal recurring adjustments, which in the opinion of BCP Management, Inc. (the "General Partner") are necessary for a fair statement of the results for the interim periods. Results for the interim periods are not necessarily indicative of the results for the full year. 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. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective in 2001 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. 2. Environmental and Legal Proceedings Under an Environmental Indemnity Agreement (the "EIA") with Borden, Inc. ("Borden"), 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. 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 may 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, is unlikely to have a material adverse effect on the financial position or results of operations of the Partnership. 7 3. Discontinued Operations On June 28, 2000, the Partnership announced its decision to exit the methanol and derivatives and nitrogen products business segments, as part of a process that included the sale of its formaldehyde and certain other assets for $48.5 million. The sale of those assets was completed on July 28, 2000. As part of the sales agreement, the acquiring entity has the option to acquire the Operating Partnership's methanol assets for $3 million at year-end. The Operating Partnership will own and operate the methanol assets through 2000, with the intent of exiting the business at that time. The nitrogen products facilities were closed in July 2000. In connection with the discontinuance of the methanol and derivatives and nitrogen products business segments, a gain of $5.0 million (net of taxes) was recognized in the second quarter of 2000. The gain was based on the sales proceeds less associated transaction costs, book value of assets sold, charges for the write-down of methanol and nitrogen products asset to estimated net realizable value, and an accrual for estimated losses from these operations during the phase-out period. Results of these operations, previously reported as separate business segments, have been classified as discontinued and prior periods have been restated. Continuing operations are now comprised of the PVC Polymers Products business segment. Net revenues and losses from the discontinued operations are as follows:
Three Months Ended Six Months Ended ------------------ ------------------ In Thousands 2000 1999 2000 1999 ------------ ------------------ ------------------ Net sales $46,730 $32,095 $ 88,694 $64,404 ------- ------- -------- ------- (Loss) from discontinued operations $(5,589) $(6,086) $(10,192) $(7,852) Gain on disposal of discontinued operations 5,012 - 5,012 - ------- ------- -------- ------- Net (loss) income from discontinued operation $ (577) $(6,086) $ (5,180) $(7,852) ======= ======= ======== =======
4. Debt The Operating Partnership entered into a new four-year Credit Agreement (the "Year 2000 Revolving Credit Facility") with Fleet Capital Corporation ("Fleet"), effective March 31, 2000, which provides for a revolving credit facility of up to $100 million subject to borrowing base limitations. The Operating Partnership's obligations under the facility are secured by its accounts receivable, inventory and a lien against certain fixed assets. The Year 2000 Revolving Credit Facility replaced the existing facility and all amounts outstanding under that facility were repaid with borrowings under the Year 2000 Revolving Credit Facility. In addition, the change in control of the General Partner, the Partnership or the Operating Partnership are events of default under the Year 2000 Revolving Credit Facility. 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 price equal to 101% of the aggregate principal amount plus accrued and unpaid interest to the date of repurchase. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results -------------------------------------------------------------------------------- of Operations ------------- Results of Operations Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999 Revenues Total revenues during the second quarter of 2000 increased $44.6 million or 47% to $139.7 million from $95.1 million in the second quarter of 1999. The increase in revenues is attributable to a 45% increase in selling prices in PVC resins, and a 5% increase in sales volumes for this business line. Continued favorable domestic economic conditions and continued strong demand for PVC resins enabled PVC producers to raise selling prices from the depressed levels which existed during the second quarter of 1999. Cost of Goods Sold Total cost of goods sold increased $30.8 million to $116.6 million in the current period from $85.8 million in the same period last year. The increase was due to increased costs of all major raw materials along with increased sales volumes. Expressed as a percent of revenue, cost of goods sold was 83% in the current period versus 90% in the prior period. The unit costs of the major raw materials for PVC resin production - chlorine, ethylene, and vinyl chloride monomer (VCM) - increased significantly when compared to the second quarter of 1999. The average cost of chlorine and ethylene increased 400% and 40%, respectively, compared with the second quarter of 1999. The cost of purchased VCM increased 63%. These increases were in large part a result of the very strong PVC market, driving increased demand for these products and resulting in significantly higher pricing to PVC producers for these raw materials. As a result of the changes in revenues and cost of goods sold, the contributing margin from continuing operations improved to $23.1 million in the second quarter of 2000 from $9.3 million for the same quarter of 1999. This improvement was a result of increases in unit selling prices of PVC resins in excess of the increased unit costs of raw materials, as well as increased sales volumes. Interest Expense Interest expense for the quarter increased $1.2 million over the 1999 quarter, which is directly attributable to increased borrowing levels under the Revolving Credit Facility. Total long-term debt was $286 million at June 30, 2000 vs. $255 million at June 30, 1999, the increased levels being driven by poor operating performance of the business segments now classified as discontinued operations. Discontinued Operations In the second quarter, the decision was made to exit the methanol and derivatives and nitrogen products business segments to become a focused PVC producer; therefore, the results for these former business segments are now classified as discontinued operations. For the quarter, the net loss from discontinued operations was $5.6 million compared to a loss of $6.1 million in the second quarter of 1999. The cost of natural gas, the primary feedstock for these operations, increased substantially in 2000. Increased selling prices mitigated the effect of the raw material increases, but the net performance of these operations continued to result in significant negative operating margins. During the second quarter of 2000, the Partnership recognized a net gain on disposal of discontinued operations of $5.0 million. On June 27, 2000, a definitive agreement was signed to sell the formaldehyde unit and certain other assets for $48.5 million. The sale closed on July 28, 2000. The net gain of $5.0 million is based on the sales price less transaction costs and the net book value of assets sold, as well as all estimated costs associated with exiting the methanol and derivatives and nitrogen products business segments. These costs include charges to write-down the methanol and nitrogen assets to net realizable value, closure costs, and an accrual for estimated losses from these operations during the phase-out period. 9 Net Income Net income for the second quarter of 2000 was $8.1 million compared to an $8.8 million loss for the second quarter of 1999. As discussed above, the primary reasons for the improvement was the return to profitability in continuing operations, and the gain from the disposal of discontinued operations. Results of Operations Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Revenues Total revenues during the first six months of 2000 increased $102.0 million or 57% to $280.2 million from $178.2 million in 1999. The increase in revenues is attributable to a 50% increase in selling prices of PVC resins, and an 8% increase in sales volumes for this business line. The increase in selling prices and volumes reflect the improvement in market conditions for the PVC industry over 1999 that are a result of strong demand in the PVC resins market fueled by the construction industry and the generally strong domestic economic environment. Cost of Goods Sold Total cost of goods sold increased $76.7 million to $236.5 million from $159.8 million when comparing year-to-date 2000 to 1999. Expressed as a percent of revenue, cost of goods sold was 84% in the current period versus 90% in the prior year. The increase in cost of goods sold was partially due to the increased volume but was largely driven by increased unit costs of major raw materials. When compared to 1999, the average cost of chlorine increased 400%, ethylene increased 50%, and purchased VCM increased 65%. As a result of the changes in revenues and cost of goods sold, the contributing margin from continuing operations improved to $43.7 million in the first six months of 2000 from $18.4 million for 1999. This improvement was a result of increases in unit selling prices of PVC resins in excess of the increased unit costs of raw materials, as well as increased sales volumes. Interest Expense Interest expense increased $2.3 million over 1999, a direct result of increased borrowing levels under the Revolving Credit Facility. Total long-term debt was $286 million at June 30, 2000 vs. $255 million at June 30, 1999, the increased levels being driven by poor operating performance of the business segments now classified as discontinued operations. Discontinued Operations For the first six months, the net loss from discontinued operations was $10.2 million compared to a loss of $7.9 million in 1999. The cost of natural gas, the primary feedstock for these operations, increased by almost 50% over 1999. Selling prices for methanol, ammonia and urea increased somewhat to mitigate the increased natural gas costs, but not enough to avoid higher losses than what was incurred in 1999. During the second quarter of 2000, the Partnership recognized a net gain on disposal of discontinued operations of $5.0 million. On June 27, 2000, a definitive agreement was signed to sell the formaldehyde unit and certain other assets for $48.5 million. The sale closed on July 28, 2000. The net gain of $5.0 million is based on the sales price less transaction costs and the net book value of assets sold, as well as all estimated costs associated with exiting the methanol and derivatives and nitrogen products business segments. These costs include charges to write-down the methanol and nitrogen assets to net realizable value, closure costs, and an accrual for estimated losses from these operations during the phase-out period. 10 Net Income Net income for the first six months of 2000 was $8.4 million compared to a loss of $14.5 million for the first six months of 1999. As discussed above, the primary reasons for the improvement was the return to profitability in continuing operations and the gain from the disposal of discontinued operations, offset by the increased losses from discontinued operations. Liquidity and Capital Resources Cash Flows from Operations. Cash provided by operations for the first six months of 2000 totaled ($5.5) million, a reduction of $6.2 million from June 30, 1999, primarily due to unfavorable changes in accounts receivables, inventories and payables that offset by a return to profitability during 2000. Cash Flows from Investing Activities. First half capital expenditures totaled $4.6 million and $7.6 million for 2000 and 1999, respectively. In January 2000, the Partnership purchased BASF's 50% interest in the jointly owned acetylene plant at the Geismar complex for $15.9 million, $8.2 million of which was paid in the first quarter 2000 and the remaining balance of which is payable equally over the succeeding thirty-six months. Cash Flows from Financing Activities. Proceeds from net long-term borrowings were $23.1 million in the first half of 2000 compared to proceeds of $3.5 million in the first half of 1999. The increased borrowing levels were required to offset the use of funds for investing activities and the increased working capital requirements during the first half of 2000. Liquidity Adverse business conditions for the Partnership's methanol and derivatives and nitrogen products operations over the past several quarters resulted in the Partnership evaluating various alternatives for the businesses, resulting in the sale of the formaldehyde assets and certain other assets for $48.5 million, and the decision to exit the methanol and nitrogen product businesses. The deal closed on July 28, 2000, with the Partnership receiving gross proceeds of $38.8 million on that date and an interest bearing six-month note for $9.7 million. The proceeds were used to reduce borrowings under its $100 million revolving credit facility, which was secured by the assets sold, as well as other assets. As of June 30, the $48.5 million was included in other current assets on the balance sheet of the Partnership. The Partnership closed the nitrogen products facilities in July 2000 and intends to operate its methanol assets through the end of 2000, with the intent of exiting the methanol business at that time. By reducing its debt level with the proceeds from the sale and avoiding the recent operating losses from the exited businesses that have been incurred over the recent quarters, the Partnership has improved its liquidity and is better positioned to invest in its core PVC Polymers Products operations. The Operating Partnership entered into a new four-year Credit Agreement (the "Year 2000 Revolving Credit Facility") with Fleet Capital Corporation ("Fleet"), effective March 31, 2000, which provides for a revolving credit facility of up to $100 million subject to borrowing base limitations. The Operating Partnership's obligations under the facility are secured by its accounts receivable, inventory and a lien against certain fixed assets. The Year 2000 Revolving Credit Facility replaced the existing facility and all amounts outstanding under that facility were repaid with borrowings under the Year 2000 Revolving Credit Facility. As of June 30, 2000, the Operating Partnership had $86.3 million outstanding under the Year 2000 Revolving Credit Facility. Under the Year 2000 Revolving Credit Facility, the company, at its option, may make either LIBOR based or Base Rate borrowings. The applicable margin for such borrowings is reset quarterly, beginning fourth quarter 2000, based on the ratio of EBITDA to interest expense for the previous twelve months. For LIBOR based borrowings the applicable margin can range from LIBOR plus 1.25% to 2.50%, and for Base Rate borrowings, the margin can range from Base Rate flat to Base Rate plus 0.5%. In addition, the Operating Partnership pays a commitment fee between 0.375% and 0.50% on the unused portion of the facility based on the same EBITDA to interest expense ratio. The applicable margin, through the quarter ended September 30, 2000, is 2.25% for LIBOR loans and 0.25% for Base Rate loans and the commitment fee is 0.50% for the same period. The Credit Agreement contains covenants that place significant restrictions on, among other things, the ability to incur additional indebtedness, make distributions, 11 engage in certain transactions with affiliates, create liens or other encumbrances, merge or consolidate with other entities, make acquisitions, make capital expenditures, and sell or otherwise dispose of assets. In addition, a change in control of the General Partner, the Partnership or the Operating Partnership are events of default under the Year 2000 Revolving Credit Facility. 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, 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 price equal to 101% of the aggregate principal amount plus accrued and unpaid interest to the date of repurchase. The covenants of the Indenture and the Year 2000 Revolving Credit Facility require certain financial ratios to be met before the Partnership can declare and make quarterly cash distributions to its unitholders. The Partnership does not expect to meets these requirements in 2000, and therefore does not expect to be able to make cash distributions during 2000. 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 2000 are anticipated to be approximately $25 million, including the acquisition of BASF's 50% share of the acetylene plant at the Geismar complex. Item 2-A Market Risk -------------------- Interest Rate Risk - The Year 2000 Credit Facility provides up to $100 million under a revolving credit agreement with Fleet Capital Corporation. The credit facility expires on March 30, 2004, 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 LIBOR rate (one, two, three or six month periods) plus a margin or the Base Rate. The Base Rate borrowing rate is the greater of (a) the prime rate as announced or quoted by Fleet Bank or (b) Federal Funds Effective rate plus .50%. At June 30, 2000, borrowings under the facility were $86.3 million and bore interest at 9.25%. The Partnership is exposed to swings in the LIBOR rate or the Base Rate. A change of 1% in the applicable rate would change the Partnership's annual interest cost by approximately $0.9 million based on the borrowings at June 30, 2000. Commodity Risk - The Partnership generally does not use derivatives or other financial instruments such as futures contracts to manage commodity market risk. However, at certain times of the year the Operating Partnership will enter into contracts whereby it agrees to purchase a specified quantity of natural gas, a principal raw material, at a fixed price. Such contracts are generally not in excess of three months forward, and the Operating Partnership generally limits such forward purchases to 60% of a month's requirements. In addition, the Partnership has entered into a fifteen year supply agreement (commencing in 1997) to provide a long-term supply of ethylene, a raw material, and minimize price volatility. The purchase price for the product varies with the supplier's raw material and variable costs, which are market-driven, as well as its fixed costs. The Partnership evaluates all such contracts on the basis of whether committed costs are expected to be realized in light of current and expected selling prices when the commodities are consumed in manufactured products. Foreign Exchange and Equity Risk - The Partnership is not exposed to significant foreign exchange or equity market risk. 12 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 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. PART II. OTHER INFORMATION Item 1. Legal Proceedings -------------------------- There have been no material development in the ongoing legal proceedings that are discussed in the Partnership's 1999 Annual Report on Form 10-K. The Partnership is subject to legal proceedings and claims that may arise in the ordinary course of business. In the opinion of the management of the Partnership, the amount of ultimate liability, taking into account its insurance coverage, including its risk retention program and Environmental Indemnity Agreement with Borden, is unlikely to have a material adverse effect on the financial position or results of operations of the Partnership. Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibits: --------- 3 (ii) Amended By-Laws 10 Conveyance and Transfer Agreement Dated as of June 27, 2000 by and between Borden Chemicals and Plastics Operating Limited Partnership and Borden Chemical, Inc. (b) Reports on Form 8-K ------------------- Report dated June 28, 2000 under Item 5 regarding sale of assets. 13 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP By BCP Management, Inc., its General Partner By: ---------------------------------- James O. Stevning Chief Financial Officer and Treasurer Principal Accounting Officer August 10, 2000 14