-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Om/degIzK2hnt7qDK1JVlaEfJV6hwF3XJ0WUpir6G41PWYmSEG5/o5BR9mrCYIQi 2WOBM92BNnxV04SXuLobSw== 0000950130-99-006493.txt : 19991117 0000950130-99-006493.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950130-99-006493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BORDEN CHEMICALS & PLASTICS LIMITED PARTNERSHIP /DE/ CENTRAL INDEX KEY: 0000821202 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 311269627 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09699 FILM NUMBER: 99755063 BUSINESS ADDRESS: STREET 1: HIGHWAY 73 CITY: GEISMAR STATE: LA ZIP: 70734 BUSINESS PHONE: 6142254482 MAIL ADDRESS: STREET 1: PO BOX 427 STREET 2: 180 EAST BROAD STREET 25TH FLOOR CITY: GERSMAR STATE: LA ZIP: 70734 FORMER COMPANY: FORMER CONFORMED NAME: BORDEN CHEMICALS & PLASTICS LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19920703 10-Q 1 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 September 30, 1999 - 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 November 12, 1999: 36,750,000. ================================================================================ 1 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per Unit data)
Three Months Ended -------------------------------------- September 30, September 30, 1999 1998 -------- --------- Revenues Net trade sales.................................................. $129,893 $ 100,247 Net sales to related parties..................................... 23,389 18,775 -------- --------- Total revenues............................................. 153,282 119,022 -------- --------- Expenses Cost of goods sold Trade...................................................... 124,035 98,038 Related parties............................................ 23,349 18,655 Marketing, general & administrative expense...................... 6,895 6,466 Interest expense................................................. 5,573 5,981 Tax on gross margin.............................................. 565 644 Equity in loss of affiliate...................................... 157 493 Other expense (income), including minority interest.............. 48 (2,350) -------- --------- Total expenses........................................ 160,622 127,927 -------- --------- Net loss......................................................... (7,340) (8,905) Less 1% General Partner interest............................ 73 89 -------- --------- Net loss applicable to Limited Partners' interest................................................... $(7,267) ($8,816) ======== ========= Per Unit data-basic, net of 1% General Partner interest Net loss per Unit................................................ $ (0.20) $ (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)
Nine Months Ended --------------------------------------- September 30, September 30, 1999 1998 -------- -------- Revenues Net trade sales................................................. $337,966 $354,500 Net sales to related parties.................................... 57,956 64,346 -------- -------- Total revenues............................................ 395,922 418,846 -------- -------- Expenses Cost of goods sold Trade..................................................... 318,554 346,447 Related parties........................................... 60,343 63,487 Marketing, general & administrative expense..................... 19,076 18,835 Interest expense................................................ 17,231 16,373 Tax on gross margin............................................ 1,298 833 Equity in loss of affiliate..................................... 540 588 Other expense (income), including minority interest............. 689 (2,668) -------- -------- Total expenses....................................... 417,731 443,895 -------- -------- Net loss........................................................ (21,809) (25,049) Less 1% General Partner interest........................... 218 250 -------- -------- Net loss applicable to Limited Partners' interest.................................................. $(21,591) ($24,799) ======== ======== Per Unit data-basic, net of 1% General Partner interest Net loss per Unit............................................... $ (0.59) $ (0.67) ======== ======== 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)
Nine Months Ended --------------------------------------- September 30, September 30, 1999 1998 -------- -------- Cash Flows From Operations Net loss.......................................................... $(21,809) $(25,049) Adjustments to reconcile net loss income to net cash provided by operating activities: Depreciation................................................. 27,214 24,297 Increase (decrease) in cash from changes in certain assets and liabilities: Receivables, net.......................................... (16,724) 20,206 Inventories............................................... (3,835) 12,926 Payables.................................................. 13,879 (20,858) Accrued Interest.......................................... 4,742 4,604 Other, net................................................ (708) (7,132) ------- ------ 2,759 8,994 ------- ------ Cash Flows Used In Investing Activities Capital expenditures......................................... (11,154) (26,217) ------- ------ Cash Flows Used In Financing Activities Proceeds from borrowings..................................... 6,600 53,700 Cash distributions paid...................................... 0 (3,712) ------- ------ 6,600 49,988 ------- ------ (Decrease) increase in cash and equivalents....................... ( 1,795) 32,765 Cash and equivalents at beginning of period....................... 8,703 7,528 ------- ------ Cash and equivalents at end of period............................. $6,908 $40,293 ======= ======= Supplemental Disclosures of Cash Flow Information Interest paid during the period, net of capitalization............ $12,489 $12,146 ======= =======
See Notes to Consolidated Financial Statements 4 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
ASSETS September 30, 1999 December 31, 1998 ------ ------------------ ----------------- Cash and equivalents.............................................. $ 6,908 $ 8,703 Accounts receivable (less allowance for doubtful accounts of $489 and $672, respectively) Trade........................................................ 71,486 57,909 Related parties.............................................. 15,774 12,627 Inventories Finished and in process goods................................ 25,921 21,978 Raw materials and supplies................................... 6,466 6,574 Other current assets.............................................. 5,381 2,694 --------- -------- Total current assets......................................... 131,936 110,485 --------- -------- Investments in and advances to affiliated companies............... 7,649 8,442 Other assets...................................................... 53,208 54,469 --------- -------- 60,857 62,911 --------- -------- Plant, property and equipment Land......................................................... 16,308 16,308 Buildings.................................................... 45,625 45,604 Machinery and equipment...................................... 700,856 690,096 --------- -------- 762,789 752,008 Less accumulated depreciation................................ (490,624) (463,708) --------- -------- Net plant, property and equipment............................ 272,165 288,300 --------- -------- Total assets.............................................. $ 464,958 $461,696 ========= ======== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- Accounts and drafts payable....................................... $ 55,763 $ 41,884 Accrued interest.................................................. 7,932 3,190 Other accrued liabilities......................................... 13,745 13,702 --------- -------- Total current liabilities.................................... 77,440 58,776 Long-term debt.................................................... 258,400 251,800 Deferred tax on gross margin...................................... 5,800 5,800 Other liabilities................................................. 1,979 1,949 Minority interest in consolidated subsidiary...................... 677 900 --------- -------- Total liabilities............................................ 344,296 319,225 --------- -------- Partners' capital Limited Partners............................................. 120,926 142,517 General Partner.............................................. (264) (46) --------- -------- Total partners' capital................................. 120,662 142,471 --------- -------- Total liabilities and partners' capital................... $ 464,958 $461,696 ========= ========
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, 1997....................... $ 182,718 $ 360 $ 183,078 Net loss........................................ (24,799) (250) ( 25,049) Cash distributions declared..................... 0 0 0 --------- -------- --------- Balance at September 30, 1998...................... $ 157,919 $ 110 $ 158,029 ========= ======== ========= Balance at December 31, 1998....................... $ 142,517 $ (46) $ 142,471 Net loss........................................ (21,591) (218) ( 21,809) Cash distributions declared..................... 0 0 0 --------- -------- --------- Balance at September 30, 1999...................... $ 120,926 $ (264) $ 120,662 ========= ======== =========
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") 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. Effective for the quarter ended March 31, 1998, the Partnership adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". There were no items of other comprehensive income for the nine months ended September 30, 1999 and 1998, respectively. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective in 2001 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 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, 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 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 7 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. 3. Segment Information The Partnership's internal reporting is organized on the basis of its 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 Partnership evaluates performance of the segments and allocates resources to them based upon contributing margin, which is gross margin net of distribution expense. Financial information for each of the reportable segments for the third quarter and first nine months of 1999 and 1998 is provided in the following table.
- ---------------------------------------------------------------------------------------------------------- PVC Methanol Polymers and Nitrogen Consolidated Products Derivatives Products Totals - ---------------------------------------------------------------------------------------------------------- Third Quarter - ------------ 1999 Revenues $ 111,474 $ 30,825 $ 10,983 $ 153,282 Contributing Margin 10,628 300 (5,030) 5,898 1998 Revenues $ 82,224 $ 25,753 $ 11,045 $ 119,022 Contributing Margin (418) 1,668 1,080 2,330 First Nine Months - ------------------ 1999 Revenues $ 289,710 $ 73,178 $ 33,034 $ 395,922 Contributing Margin 29,059 (1,920) (10,114) 17,025 1998 Revenues $ 290,114 $ 88,484 $ 40,248 $ 418,846 Contributing Margin 953 9,698 (1,739) 8,912 - ----------------------------------------------------------------------------------------------------------
8 A reconciliation of the total segment consolidated contributing margin to the total consolidated loss before tax on gross income taxes, for the quarter and nine months ended September 30, 1999 and 1998 as follows:
Third Quarter Nine Months ------------------------- --------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Total segment contributing margin $ 5,898 $ 2,330 $ 17,025 $ 8,912 Marketing, general and Administrative expense (6,895) (6,466) (19,076) (18,835) Interest expense (5,573) (5,981) (17,231) (16,373) Other misc. (expense) income, net (205) 1,856 (1,229) 2,080 Consolidated loss before tax on gross income $(6,775) $(8,261) $(20,511) $(24,216)
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results - ------------------------------------------------------------------------------- of Operations - ------------- Results of Operations Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998 Revenues Total revenues during the third quarter of 1999 increased $34.3 million or 29% to $153.3 million from $119.0 million in the third quarter of 1998. This increase was the result of a $29.3 million increase in PVC Polymers Products revenues, a $5.1 million increase in Methanol and Derivatives revenues and a $0.1 million decrease in Nitrogen Products revenues. Total revenues for PVC Polymers Products increased $29.3 million as a result of a 32% increase in selling prices, and a 3% increase in sales volumes. Selling prices and volume increases are the result of increased demand in the marketplace. Total revenues for Methanol and Derivatives increased $5.1 million as a result of a 14% and 5% increase in selling prices and sales volumes, respectively. These results are due to an increase in demand coupled with a number of domestic plants being idle during the current period. Total revenues for Nitrogen Products decreased $0.1 million as a result of a 18% decrease in sales prices, which was offset by a 21% increase in volume. Nitrogen Products pricing continue to be adversely affected by worldwide overcapacity. The increase in volume is due to three of our major customers experiencing outages in the third quarter of 1998 that did not occur this year. Cost of Goods Sold Total cost of goods sold increased $30.7 million to $147.4 million in the current period from $116.7 million in the year ago period. The increase was due to increased sales volumes along with increases in all major raw materials. Expressed as a percent of revenue, cost of goods sold was 96% in the current period versus 98% in the prior year. PVC Polymers Products contributing margin improved upon prior year's profitability to a profit of $10.6 million. This is a result of both an increase in selling prices, and a higher yielding product mix. Contributing margin of Methanol and Derivatives decreased $1.4 million from the same period a year ago. Increased natural gas costs were partially offset by a 16% increase in selling prices. Nitrogen Products generated a $5.0 million loss in third quarter of 1999, compared to a positive $1.1 contributing margin for the third quarter of 1998. Natural gas price increases and selling prices that decreased 18% were not able to be offset by a 20% volume increase when compared to the same period last year. NetLoss Net loss for the third quarter of 1999 was $7.3 million compared to $8.8 million loss for the third quarter of 1998. As discussed above, the primary reasons for the $1.5 million increase from prior year was the results of increased volume and selling prices from PVC products being able to offset declines in Methanol and Nitrogen products. 10 Results of Operations Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998 Revenues Total revenues for the first nine months of 1999 decreased $22.9 million or 5% to $395.9 million from $418.8 million in the first nine months of 1998. Total revenues for PVC Polymers Products decreased $0.4 million as a result of a 4% increase in selling prices offset by a corresponding 4% decrease in sales volumes. Excess supply of PVC in the first quarter of 1999 and the planned plant changeover to higher yielding PVC Polymer products caused sales volume to decline while sales prices advanced versus the like prior year period. Total revenues for Methanol and Derivatives decreased $15.3 million as a result of both a 9% decrease in selling prices and sales volume. Excess capacity and customer turnarounds adversely affected both selling price and sales volumes, respectively. Total revenues for Nitrogen Products decreased $7.2 million as a result of a 19% decrease in selling prices partially offset with a 2% increase in sales volumes. Additional world wide capacity contributed to the downward pressure on selling prices for Nitrogen products. Cost of Goods Sold Total cost of good sold decreased 8% to $378.9 million in the first nine months of 1999 from $409.9 million in the first nine months of 1998, due to the decrease in sales volumes and composite raw material costs. During the first nine months of 1999, the cost of natural gas, the Partnership's largest raw material, decreased 2.2% when compared to the same period in 1998. Costs of other major material such as ethylene, and vinyl chloride monomer increased while chlorine decreased for the like period. Expressed as a percentage of revenue, cost of goods sold was 96% and 98% of sales revenue in the first nine months of 1999 and the first nine months of 1998, respectively. Contributing margins for PVC Polymers Products increased to $29.1 million due to increased selling prices, an upgrade in product mix, offset by a decrease in sales volume. Contributing margins for Methanol and Derivatives were negative, $1.9 million, as declines in selling prices and volume were offset by a decrease in natural gas costs. Contributing margins for Nitrogen Products, a loss of $10.1 million during the first nine months of 1999 compared unfavorably to the like nine month period of 1998, a loss of $1.8 million, due to selling price and volume declines previously noted, partially offset by a decrease in natural gas costs. Net Loss Net loss was $21.8 million for the first nine months of 1999 compared to a net loss of $25.0 million for the first nine months of 1998. As discussed above, the primary reasons for the improvement is the operating performance of the PVC Polymers Product segment. Liquidity and Capital Resources Cash Flows from Operations. Cash provided by operations for the first nine months of 1999 totaled $2.8 million, a decrease of $6.2 million versus prior year, primarily due to a decrease in net loss being more than offset by an unfavorable change in working capital. Cash Flows from Investing Activities. First nine months capital expenditures totaled $11.2 million and $26.2 million for 1999 and 1998, respectively. The 1998 amount related primarily to environmental projects and other discretionary capital expenditures. 11 Cash Flow 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 paid during the first nine months of 1998. This amount relates to the cash distribution declared for the first quarter of 1998. 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 Adverse business conditions across two of 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 the Methanol and Derivatives, and Nitrogen product groups is likely to cause narrow operating margins to persist throughout the remainder of the year, even if selling prices continue to improve. These narrow operating margins, combined with the Partnership's capital expenditure needs (which are anticipated to be in the range of $3 to $6 million per quarter) and debt service requirements, along with restrictions in the Credit Agreement and Indenture as discussed below, make it unlikely that the Partnership will resume making quarterly cash distributions for the remainder of 1999 and into the year 2000. 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 1998, and reset coverage ratio covenants through December 31, 2000. The Operating Partnership's obligations under the facility are secured by the Geismar Plant Facility. As of September 30, 1999, the Operating Partnership had $58.4 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. The partnership's covenant on capital spending under the Credit Agreement is furthered discussed in the "Capital Expenditures" section. 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. The Partnership has been working with financial advisors, since December 1998, to assist it in exploring strategic alternatives, including joint ventures, mergers or alliances, or the sale of some or all of the business. While these 12 efforts are still on-going, to date they have not resulted in any transaction and there can be no assurances that they will result in a transaction. The Partnership also has retained a consulting firm to assist in a review of operational and cost reduction initiatives to improve competitiveness and reduce costs. Capital Expenditures The Partnership has agreed to purchase its partner's 50% share of the Acetylene Plant at the Geismar complex on December 31, 1999. The purchase price is approximately $17 million, $8.0 million payable at closing with the remainder payable in equal monthly installments over three years. Certain covenants under the Credit Agreement however, restrict the amount of annual capital expenditures which may be made by the Partnership. Proceeding with the agreement with respect to the Acetylene Plant on the agreed time schedule would cause the Partnership to exceed the restrictions on capital expenditures under the Credit Agreement. Accordingly, the Partnership is pursuing with its 50% partner in the Acetylene Plant a modification of the timing for making Acetylene Plant payments. The Operating Partnership may also seek a waiver of the relevant covenants in the Credit Agreement. A failure to obtain either a modification of the schedule for making Acetylene Plant payments or a Credit Agreement waiver would cause the Partnership to be in default on or after December 31, 1999 under the agreement with its partner in the Acetylene Plant, the Operating Partnership to be in default under the Credit Agreement or a combination of the two. A default under either of these agreements could have a material adverse effect on the liquidity and financial condition of the Partnership and the Operating Partnership. Other than this acquisition, 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 Partnership in preparing for the year 2000. Year 2000 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. The Partnership's company-wide Year 2000 Project (the "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 completed Phase I having developed detailed inventories of related equipment and resources and assigned a relative risk to each application based on the potential impact to the business and the specific effects of a material Year 2000 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 was initiated. The anticipated cost associated with the enterprise-wide implementation is approximately $17.7 million, of which $15.2 million has been expended through September 30, 1999. 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 continued into 1999 and is operational as of October 1, 1999. The Category 2 Phase II plan including detailed test plans was completed during December 1998. Estimated cost associated with the remediation of our manufacturing, lab, and R&D equipment/systems 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. Phase III was completed on June 30, 1999. The Partnership has also initiated a program to determine the effects of third-party suppliers and customers on the 13 business with respect to Year 2000 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. Additionally approximately 150 of the 2000+ suppliers have been identified as critical vendors. Each has been contacted directly to determine the status of their Year 2000 compliance effort and the need, if any to develop a contingency plan. Inventories, alternate suppliers and forms of transportation, production and maintenance schedules, etc. are all contingency considerations as noted below. The company also contacted each of its major customers to assess their Y2K readiness and to identify any customer contingency plan issues which might have a direct impact on the business before, during, and after the rollover. While it is expected that the Partnership 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 and/or customers. 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. During all three phases of the Project, management has considered 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 was expended in the second and third quarters of 1999. The Partnership continues to fully explore contingency requirements with its major suppliers and customers and their possible resolutions are 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 the Partnership'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 3 Market Risk - ------------------- Interest Rate Risk -- The Credit Agreement provides for a revolving credit facility of up to $90 million. The 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, nine or twelve month periods) plus a margin, (9.13% at September30, 1999) or ABT Rate plus a margin (10.75% at September 30, 1999). 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%. At September 30, 1999 borrowings under the revolving credit facility were $58.4 million and bore interest at 9.81%. The Partnership is exposed to swings in the Eurodollar or ABR rates. A change of 1.00% in the applicable rate would change the Partnership's interest cost by $584,000 based on the borrowings at September 30, 1999. 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 Partnership will enter into contracts whereby it agrees to purchase a specified quantity of natural gas (the Partnership's principal raw material) at a fixed price. Such contracts are generally not in excess of three months forward, and the 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 co-product credits 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. 14 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 is incorporated by reference herein the information regarding legal proceeding in Item 3 of Part 1 of the Partnership's Annual Report on Form 10-K (File No. 1-9699) for the year ended December 31, 1998, and Note 2 to the consolidated financial statements in Part 1 hereof. 15 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: ----------------------------------- Francis J. Proto Chief Financial Officer and Treasurer Principal Accounting Officer November 12, 1999 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 9-MOS DEC-31-1999 DEC-31-1999 JUL-01-1999 JAN-01-1999 SEP-30-1999 SEP-30-1999 6,908 6,908 0 0 87,749 87,749 489 489 32,387 32,387 131,936 131,936 762,789 762,789 490,624 490,624 464,958 464,958 77,440 77,440 200,000 200,000 0 0 0 0 0 0 120,662 120,662 464,958 464,958 153,282 395,922 153,282 395,922 147,384 378,897 147,384 378,897 7,665 21,603 0 0 5,573 17,231 (7,340) (21,809) 0 0 (7,340) (21,809) 0 0 0 0 0 0 (7,340) (21,809) (0.20) (0.59) (0.20) (0.59)
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