-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GfgwiQiYZr0u+CNJFuefUGQTDW7XcGGIbSWa+qubC6tUZiBZobxUc8kjxERHwJMU fj5zaB31mP9+QeJdDyMhZw== 0000950152-94-001097.txt : 19941108 0000950152-94-001097.hdr.sgml : 19941108 ACCESSION NUMBER: 0000950152-94-001097 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940923 FILED AS OF DATE: 19941107 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BORDEN CHEMICALS & PLASTICS OPERATING LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000821202 STANDARD INDUSTRIAL CLASSIFICATION: 2821 IRS NUMBER: 311269627 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09699 FILM NUMBER: 94557883 BUSINESS ADDRESS: STREET 1: HIGHWAY 73 CITY: GEISMAR STATE: LA ZIP: 70734 BUSINESS PHONE: 5046736121 MAIL ADDRESS: STREET 1: HIGHWAY 73 STREET 2: 180 EAST BROAD STREET 25TH FLOOR CITY: COLUMBUS STATE: OH ZIP: 43215 FORMER COMPANY: FORMER CONFORMED NAME: BORDEN CHEMICALS & PLASTICS LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19920703 10-Q 1 BORDEN CHEMICAL AND PLASTICS LIMITED 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D. C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 23, 1994 ------------------------------------------- Commission file number 1-9699 --------------------------------------------------- BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Delaware 31-1269627 - ------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Highway 73, Geismar, Louisiana 70734 ---------------------------------------------- (Address of principal executive offices) (504) 673-6121 ----------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ----------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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 October 21, 1994: 36,750,000 Page 1 of 17 2 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP -------------- CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands except per Unit data)
Three Months Three Months Ended Ended September 23, 1994 September 24, 1993 ------------------ ------------------ Revenues Net trade sales $ 130,940 $ 89,850 Net affiliated sales 38,541 21,151 --------- --------- Total revenues 169,481 111,001 --------- --------- Expenses Cost of goods sold Trade 83,472 83,838 Affiliated 24,111 19,424 Marketing, general and administrative expenses 5,733 4,793 Interest expense 4,107 4,110 Incentive distribution to General Partner 6,097 Other (income) and expense, including minority interest 5,315 307 --------- --------- Total expenses 128,835 112,472 --------- --------- Net income (loss) 40,646 (1,471) Less 1% General Partner interest (406) 15 --------- --------- Net income (loss) applicable to Limited Partners' interest $ 40,240 $ (1,456) ========= ========= Net income (loss) per Unit $ 1.09 $ (.04) ========= ========= Average number of Units outstanding during the period 36,750 36,750 ========= ========= Cash distributions declared per Unit $ 1.02 $ .12 ========= =========
Page 2 of 17 3 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP -------------------------- CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands except per Unit data)
Nine Months Nine Months Ended Ended September 23, 1994 September 24, 1993 ------------------ ------------------ Revenues Net trade sales $ 345,422 $ 248,113 Net affiliated sales 92,711 59,463 --------- --------- Total revenues 438,133 307,576 --------- --------- Expenses Cost of goods sold Trade 258,793 232,024 Affiliated 67,432 54,863 Marketing, general and administrative expenses 15,298 14,153 Interest expense 12,009 12,066 Incentive distribution to General Partner 8,751 Other (income) and expense, including minority interest 6,312 530 --------- --------- Total expenses 368,595 313,636 --------- --------- Net income (loss) 69,538 (6,060) Less 1% General Partner interest (695) 61 --------- --------- Net income (loss) applicable to Limited Partners' interest $ 68,843 $ (5,999) ========= ========= Net income (loss) per Unit $ 1.87 $ (.16) ========= ========= Average number of Units outstanding during the period 36,750 36,750 ========= ========= Cash distributions declared per Unit $ 1.88 $ .60 ========= =========
Page 3 of 17 4 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP -------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Nine Months Ended Ended September 23, 1994 September 24, 1993 ------------------ ------------------ Cash Flows From Operations Net income (loss) $ 69,538 $ (6,060) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 32,941 32,171 Increase in receivables (34,305) (12,269) Decrease (increase) in inventories 3,389 (2,581) Increase in payables 3,348 11,574 Increase in incentive distribution payable 6,097 Increase in accrued interest 3,825 3,870 Other, net 8,524 (1,208) --------- --------- 93,357 25,497 --------- --------- Cash Flows From Investing Activities Capital expenditures (14,215) (7,991) --------- --------- Cash Flows From Financing Activities Cash distributions paid (38,633) (29,326) --------- --------- Increase (decrease) in cash and equivalents 40,509 (11,820) Cash and equivalents at beginning of period 9,054 19,389 --------- --------- Cash and equivalents at end of period $ 49,563 $ 7,569 ========= ========= Supplemental Disclosure of Cash Flow Information Interest paid during the period $ 8,184 $ 8,196 ========= ========
Page 4 of 17 5 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP ---------------- CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
ASSETS ------ September 23, 1994 December 31, 1993 ------------------ ----------------- Cash and equivalents $ 49,563 $ 9,054 Accounts receivable (less allowance for doubtful accounts of $510 and $768, respectively) Trade 71,719 48,990 Affiliated 29,843 18,267 Inventories Finished goods 18,025 21,499 Raw materials 7,843 7,758 Other current assets 2,687 2,182 --------- --------- Total current assets 179,680 107,750 --------- --------- Investments in and advances to affiliated companies 3,742 3,623 Other assets 27,781 26,956 --------- --------- 31,523 30,579 --------- --------- Land 12,051 12,051 Buildings 36,418 35,955 Machinery and equipment 517,530 505,236 --------- --------- 565,999 553,242 Less accumulated depreciation (279,364) (247,267) --------- --------- 286,635 305,975 --------- --------- $ 497,838 $ 444,304 ========= ========= LIABILITIES AND PARTNERS' CAPITAL ----------------- Accounts and drafts payable $ 47,756 $ 44,408 Cash distributions payable 37,925 6,682 Incentive distribution payable to General Partner 6,097 Accrued interest 5,670 1,845 Other accrued liabilities 13,595 8,515 --------- --------- Total current liabilities 111,043 61,450 --------- --------- Long-term debt 150,000 150,000 Minority interest in consolidated subsidiary 1,791 1,795 Other liabilities 5,137 854 --------- --------- 156,928 152,649 --------- --------- Partners' capital Common Unitholders 228,615 228,862 General Partner 1,252 1,343 --------- --------- Total partners' capital 229,867 230,205 --------- --------- $ 497,838 $ 444,304 ========= =========
Page 5 of 17 6 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP ------------------ CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (Unaudited) (In thousands)
PREFERENCE COMMON GENERAL UNITHOLDERS UNITHOLDERS PARTNER TOTAL ------------- ------------- ------------- ------------- Balances at December 31, 1992 $ 210,923 $ 48,025 $ 1,647 $ 260,595 Combination of preference and common Units (210,923) 210,923 Net loss (5,999) (61) (6,060) Cash distributions declared (22,050) (223) (22,273) ------------ ------------ ------------ ------------ Balances at September 24, 1993 $ -0- $ 230,899 $ 1,363 $ 232,262 ============ ============ ============ ============ Balances at December 31, 1993 $ 228,862 $ 1,343 $ 230,205 Net income 68,843 695 69,538 Cash distributions declared (69,090) (786) (69,876) ------------ ------------ ------------ Balances at September 23, 1994 $ 228,615 $ 1,252 $ 229,867 ============ ============ ============
Page 6 of 17 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (unaudited) 1. Acquisition ----------- On August 12, 1994, Borden Chemicals and Plastics Operating Limited Partnership (the "Operating Partnership") entered into an agreement with Occidental Chemical Corporation to purchase its Addis, Louisiana PVC manufacturing facility. The Addis facility has an annual proven production capacity of 450 million pounds per year, which will increase the Operating Partnership's stated annual capacity for the production of PVC resins by over 50 percent. The cash purchase price for the Addis assets is $104.3 million, subject to certain customary post-closing adjustments. The acquisition is subject to certain conditions, including approval by the U.S. Federal Trade Commission, an environmental assessment of the real estate upon which the Addis facility is located and the financing of the acquisition. 2. New Offering of Units and Notes ------------------------------- On October 7, 1994, Borden Chemicals and Plastics Limited Partnership (the "Partnership") filed a registration statement on Form S-3 (File No. 33-55863) with the Securities and Exchange Commission ("SEC") relating to the offering of up to 4.0 million Depositary Units (excluding an over-allotment option for 600,000 additional Units) representing common limited partner interests in the Partnership. The net proceeds of this offering will be used to fund a portion of the purchase price of the Addis facility. On October 14, 1994 the Operating Partnership filed a registration statement on Form S-1 (File No. 33-85186) with the SEC relating to the offering of $200 million of Senior Notes. The Senior Notes offering is contingent upon negotiation by the Operating Partnership of a right of prepayment with holders of the Operating Partnership's existing Notes, due November 30, 1997 and November 30, 1999. Management expects that the prepayment price will involve payment by the Operating Partnership of a prepayment premium. The Operating Partnership intends to use the net proceeds from the sale of the Senior Notes first to prepay the currently outstanding $150.0 million principal amount of existing Notes. The remaining proceeds would be used to provide funds for the remaining purchase price of the Addis facility and other permitted partnership purposes. 3. Interim Financial Statements ---------------------------- The accompanying unaudited interim consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, which in the opinion of Borden Chemicals and Plastics 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. Page 7 of 17 8 4. Combination of Preference and Common Units ------------------------------------------ With the payment of the 1992 fourth quarter distribution on February 12, 1993, all differences between the Preference and Common Units ceased and all units became Common Units. 5. Contingencies ------------- As a result of a Complaint filed on October 27, 1994 by the U.S. Department of Justice ("DOJ") on behalf of the Environmental Protection Agency ("EPA") against the Partnership, significant penalties and costs for obtaining permits and performing environmental cleanup and investigation at the Geismar, La. facility, may be incurred (depending on the outcome of the litigation), portions of which could be subject to the Environmental Indemnity Agreement ("EIA") discussed below (see "Legal Proceedings"). 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 $500,000 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 approximately $2.0 million through September 30, 1994. In connection with potential environmental matters, a $4.0 million provision has been included in the Partnership's third quarter financial statements. Page 8 of 17 9 PART I. FINANCIAL INFORMATION ------------------------------ Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Acquisition and New Offering of Units and Notes - ----------------------------------------------- On August 12, 1994, the Operating Partnership entered into an agreement with Occidental Chemical Corporation to purchase its Addis, Louisiana PVC manufacturing facility. The Addis facility has an annual proven production capacity of 450 million pounds per year, which will increase the Operating Partnership's stated annual capacity for the production of PVC resins by over 50 percent. The cash purchase price for the Addis assets is $104.3 million, subject to certain customary post-closing adjustments. The acquisition is subject to certain conditions, including approval by the United States Federal Trade Commission, an environmental assessment of the real estate upon which the Addis facility is located and the financing of the acquisition. On October 7, 1994, the Partnership filed a registration statement on Form S-3 (File No. 33-55863) with the SEC relating to the offering of up to 4.0 million Depositary Units (excluding an over-allotment option for 600,000 additional Units) representing common limited partner interests in the Partnership. The net proceeds of this offering will be used to fund a portion of the purchase price of the Addis facility. On October 14, 1994 the Operating Partnership filed a registration statement on Form S-1 (File No. 33-85186) with the SEC relating to the offering of $200 million of Senior Notes. The Senior Notes offering is contingent upon negotiation by the Partnership of a right of prepayment with holders of the Operating Partnership's existing Notes, due November 30, 1997 and November 30, 1999. Management expects that the prepayment price will involve payment by the Operating Partnership of a prepayment premium. The Operating Partnership intends to use the net proceeds from the sale of the Senior Notes first to prepay the currently outstanding $150.0 million principal amount of existing Notes. The remaining proceeds would be used to provide funds for the remaining purchase price of the Addis facility and other permitted partnership purposes. RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 23, 1994 COMPARED TO QUARTER ENDED SEPTEMBER 24, 1993 Total Revenues - -------------- Total revenues for the third quarter of 1994 increased 52.7% to $169.5 million compared to $111.0 million in the third quarter 1993. Total revenues for PVC Polymers Products increased 29.1% to $88.7 million from $68.7 million in 1993. The improvement was due to strong increases in volume and selling prices for PVC resins as industry demand continues to exceed product availability. Page 9 of 17 10 Total revenues for Methanol and Derivatives increased 95.7% to $62.7 million in 1994 from $32.1 million in 1993. Selling prices approximately doubled from the 1993 period due to the worldwide tightness in the methanol market resulting from limited growth in methanol supply and industry consolidations in recent years and increased demand for methanol and formaldehyde in downstream applications such as methyl tertiary butyl ether ("MTBE") and adhesives. Total revenues for Nitrogen Products increased 76.5% to $18.1 million in 1994 from $10.2 million in 1993. Ammonia selling prices and volumes increased significantly due to strong demand for industrial applications and the worldwide tightness in the ammonia market. Urea selling prices improved moderately on comparable volumes. Cost of Goods Sold - ------------------ Total cost of goods sold increased 4.2% to $107.6 million in 1994 from $103.3 million in 1993. The increase was primarily a result of the increased PVC and ammonia volumes discussed above. Aggregate raw material costs were comparable to 1993 with reduced unit costs for natural gas offsetting increased unit costs for ethylene and chlorine. Expressed as a percentage of total revenues, cost of goods sold decreased to 63% of revenues in 1994 from 93% in 1993, resulting in greatly improved gross margins and net income for the Partnership. Gross margins for PVC Polymers Products more than tripled as a result of improved selling prices and volumes, partially offset by the increase in raw material ethylene and chlorine costs. Gross margins for Methanol and Derivatives increased over 700% as a result of the higher selling prices combined with reduced natural gas costs. Gross margins for Nitrogen Products improved from a slightly negative position in 1993 to a moderately profitable position in 1994 on the strength of increased ammonia selling prices and reduced natural gas costs. Incentive Distribution to GeneraL Partner - ----------------------------------------- An incentive distribution to the General Partner of $6.1 million was generated in 1994 as a result of the third quarter cash distribution of $1.02 per Unit exceeding the target distribution of $.3647 per Unit (the "Target Distribution") due to improved operating performance. The quarterly distribution for the third quarter of 1993 did not exceed the Target Distribution, resulting in no incentive distribution to the General Partner. Other (Income) and Expense, Including Minority Interest - ------------------------------------------------------- The net expense for the third quarter 1994 was $5.3 million compared to $0.3 million in third quarter 1993. This increase was primarily due to a $4.0 million provision established in the third quarter 1994 for potential expenses related to environmental matters. Page 10 of 17 11 Net Income (Loss) - ----------------- Net income was $40.6 million compared to net loss of $1.5 million in the third quarter 1993. As discussed above, the primary reasons for the improved operating performance were significant selling price increases in all product lines, volume improvements in PVC and ammonia, and stable aggregate raw material costs. NINE MONTHS ENDED SEPTEMBER 23, 1994 COMPARED TO NINE MONTHS ENDED SEPTEMBER 24, 1993 Total Revenues - -------------- Total revenues for the first nine months of 1994 increased 42.4% to $438.1 million compared to $307.6 million in 1993. Total revenues for PVC Polymers Products increased 30.2% to $241.6 million from $185.5 million in 1993. The improvement was due to strong increases in volume and selling prices for PVC resins resulting from strength in the construction and automotive industries, as well as other applications. Total revenues for Methanol and Derivatives increased 73.7% to $146.5 million in 1994 from $84.4 million in 1993. Increased volumes and significant increases in selling prices were due to the worldwide tightness in the methanol market resulting from limited growth in methanol supply and industry consolidations in recent years and increased demand for methanol and formaldehyde in downstream applications such as MTBE and adhesives. Total revenues for Nitrogen Products increased 32.6% to $50.0 million in 1994 from $37.7 million in 1993. Ammonia selling prices increased significantly fueled primarily by strong demand from industrial users and the worldwide tightness in the ammonia market. Volumes were comparable to the same period in 1993. Urea volumes and selling prices showed modest improvements. Cost of Goods Sold - ------------------ Total costs of goods sold increased 13.7% to $326.2 million in 1994 from $286.9 million in 1993. The increase was a result of the increased volumes discussed above and an aggregate raw material cost increase of approximately 7% comprised of significant unit cost increases for chlorine offset by reduced natural gas costs. Ethylene costs were comparable. Expressed as a percentage of total revenues, cost of goods sold decreased to 74% of revenues in 1994 from 93% in 1993, resulting in greatly improved gross margins and net income for the Partnership. Gross margins for PVC Polymers Products more than doubled as a result of improved selling prices and volumes, offset by substantially higher raw material chlorine costs. Gross margins for Methanol and Derivatives increased over 500% as a result of increased volumes and significantly higher selling prices combined with reduced natural gas costs. Page 11 of 17 12 Gross margins for Nitrogen Products improved from a slightly negative position in 1993 to a profitable position in 1994 on the strength of the ammonia selling price increases and reduced natural gas costs. Incentive Distribution to General Partner - ----------------------------------------- An incentive distribution to the General Partner of $8.8 million has been generated in 1994 as a result of the second and third quarter cash distributions of $0.65 and $1.02 per Unit, respectively, exceeding the Target Distribution due to improved operating performance. The distributions generated in the first three quarters of 1993 did not exceed the Target Distribution, resulting in no incentive distribution to the General Partner. Other (Income) and Expense, Including Minority Interest - ------------------------------------------------------- The net expense for 1994 was $6.3 million compared to $0.5 million in 1993. This increase was primarily due to a $4.0 million provision established in the third quarter 1994 for potential expenses related to environmental matters. The increase was also partially due to the increase in the minority interest in consolidated subsidiary due to the subsidiary's improved operating performance. Net Income (Loss) - ----------------- Net income was $69.5 million compared to a net loss of $6.1 million in 1993. As discussed above, the primary reasons for the improved operating performance were significant selling price increases in all product lines and volume improvements in PVC and methanol, partially offset by increased raw material costs. LIQUIDITY AND CAPITAL RESOURCES Cash Flows From Operations - -------------------------- Cash provided by operations increased to $93.4 million in 1994 from $25.5 million for the first nine months of 1993. The increase was primarily attributable to the increase in net income and increased accruals for the incentive distribution payable and other liabilities, offset by an increase of $22.0 million in receivables. Cash Flows From Investing Activities - ------------------------------------ Capital expenditures for the first nine months of 1994 totaled $14.2 million, $4.6 million of which related to completion of the urea granulation and expansion project and other discretionary capital projects and $9.6 million of which related to non-discretionary projects, and environmental and safety related projects. Non-discretionary capital expenditures vary with normal equipment renovation requirements. Cash Flows From Financing Activities - ------------------------------------ Cash distributions of $38.6 million were paid during the first nine months of 1994 compared to $29.3 million in the 1993 period. Distributions paid in 1994 were for distributions declared for the fourth quarter 1993 and first and Page 12 of 17 13 second quarters of 1994. The 1993 payments were for distributions declared for the fourth quarter 1992 and first and second quarters of 1993. On October 18, 1994, a cash distribution of $1.02 per Unit was declared for the third quarter, payable November 7, 1994 to Unitholders of record October 28, 1994. A cash distribution a $0.12 per Unit was declared for third quarter 1993. Cash distributions with respect to interim periods are not necessarily indicative of distributions with respect to a full year. Moreover, due to the cyclical nature of the Partnership's business, past distributions are not necessarily indicative of future distributions. 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 the general economic conditions and a downturn in the economy could materially adversely affect the Partnership. The principal raw material feedstock for the Partnership's products 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. The Partnership expects to maintain a strong performance into 1995, based on continuing positive trends within its product categories. Environmental Litigation - ------------------------ As a result of a complaint filed on October 27, 1994 by the U.S. DOJ acting at the request of the U.S. EPA against the Operating Partnership, the Partnership, and the General Partner, the Partnership could face significant costs for penalties, obtaining permits and performing environmental cleanup and investigation at the Geismar facility. The Partnership plans to vigorously defend against the allegations in the complaint. See "Legal Proceedings." Page 13 of 17 14 PART II. OTHER INFORMATION --------------------------- Item 1. Legal Proceedings - ------- ----------------- Louisiana Groundwater Remediation Settlement Agreement - ------------------------------------------------------ In 1985 the Louisiana Department of Environmental Quality ("LDEQ") and Borden, Inc. ("Borden") entered into a 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"). Also during this time frame, Borden commenced closure of various units identified to have been contributors to the EDC contamination underlying the Geismar complex. Borden and the Chemical Company (meaning herein the Operating Partnership, and, in the applicable contexts, the Partnership) have implemented the Settlement Agreement, and have worked in cooperation with the LDEQ to remediate the groundwater and soil contamination. The Settlement Agreement contemplated, among other things, that Borden would install a series of groundwater monitoring and recovery wells, and recovery trench systems. The Chemical Company believes that it already has sufficiently identified the extent of the groundwater plume. Nevertheless, the Chemical Company intends to drill and test some additional groundwater wells for the purpose of addressing issues raised by LDEQ concerning whether the extent of the groundwater contamination has been identified. Borden has paid substantially all of the costs to date of the Settlement Agreement. It is unknown how long the remediation program will continue. Federal Environmental Enforcement Proceeding - -------------------------------------------- On October 27, 1994, the DOJ acting at the request of the EPA filed an action against the Operating Partnership, the Partnership, and the General Partner in the United States District Court for the Middle District of Louisiana ("Geismar enforcement proceeding"). The Complaint seeks civil penalties for alleged violations of the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and the Clean Air Act at the Geismar facility, as well as corrective action at that facility. Prior to the filing of the Complaint, the Chemical Company and DOJ had engaged in settlement discussions. The press release issued by the DOJ and EPA and the press releases issued by the Operating Partnership concerning the Complaint, are provided as Exhibits hereto. The federal government's primary allegations for which it seeks penalties include claims that (i) the Chemical Company's international export of a partially depleted mercuric chloride catalyst for recycling violated RCRA; (ii) the Chemical Company should have applied for a RCRA permit for operation of its valorization of chlorinated residuals ("VCR") unit and related tanks before August 1991; and (iii) the Chemical Company should have applied for a RCRA permit for the north trench sump at the Geismar complex because such sump allegedly contains hazardous waste. The government's allegations include 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. The Chemical Company plans to vigorously defend all of the above allegations. Page 14 of 17 15 Because of a reversal of LDEQ's position that the partially depleted mercuric chloride catalyst was not a hazardous waste, and pending the outcome of the Geismar enforcement proceeding, the Chemical Company has ceased exporting the partially depleted mercuric chloride catalyst for recycling and is currently handling it as if it were a hazardous waste. Accordingly, even if a court should determine that the partially depleted catalyst was a hazardous waste when it was exported, the Chemical Company does not anticipate that it would incur material additional expenditures to continue to manage the partially depleted catalyst as a hazardous waste. In 1991, as a protective filing, the Chemical Company applied for a hazardous waste permit for the VCR unit and related tanks. In January 1994, in response to a petition from the Chemical Company to LDEQ for a determination that the VCR unit does not require a RCRA permit, LDEQ determined that the VCR unit is subject to RCRA. The Chemical Company continues to maintain that the VCR unit is not subject to RCRA and has filed appeals of LDEQ's determination in Louisiana State Courts. In May 1994, the Chemical Company filed a Complaint for Declaratory Judgment in the U.S. District Court in Baton Rouge seeking a determination that (i) the partially depleted mercuric chloride catalyst was not a hazardous waste when it was exported for recycling, (ii) the materials entering the VCR unit and related tanks are not hazardous waste and (iii) the north trench sump does not require a RCRA permit. The EPA has moved to dismiss this Complaint. If the Chemical Company is unsuccessful in prosecuting its Declaratory Judgment Action, or in defending itself against the Geismar enforcement proceeding, it could be subject to three types of costs: (i) penalties, (ii) corrective action, and (iii) costs needed to obtain a RCRA permit. As to penalties, although the maximum statutory penalties that would apply in a successful enforcement action by the United States would be in excess of $150.0 million, the Chemical Company believes that, assuming the Chemical Company is unsuccessful and based on information currently available to it and an analysis of relevant case law and administrative decisions, the more likely amount of any liability for civil penalties would not exceed several million dollars. If the Chemical Company is unsuccessful in either the Declaratory Judgment Action or the Geismar enforcement proceedings, it could be subject to costs for corrective action. The federal government can require corrective action for a facility that applies for a RCRA permit. Corrective action could require the Chemical Company to conduct investigatory and remedial activities at the Geismar complex concurrently with the groundwater monitoring and remedial program that the Chemical Company is currently conducting under the Settlement Agreement with LDEQ. The DOJ has advised the Chemical Company that it intends to seek facility-wide corrective action to address the contamination at the Geismar complex. EPA has indicated that it intends to evaluate the adequacy of the existing groundwater remediation project performed under the Settlement Agreement with LDEQ, and to determine the potential for other areas of contamination on or near the Geismar complex. The cost of any corrective action could be material, depending on the scope of such corrective action. However, the actual cost of a facility-wide corrective action cannot be identified until the EPA provides substantially more information to the Chemical Company. Page 15 of 17 16 As to permitting costs, the Chemical Company estimates that its costs to complete the permitting process for the VCR unit and related tanks would be approximately $1.0 million. The Chemical Company believes that the costs for amending its pending RCRA permit application to include the north trench sump would not be material. 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 the Emergency Planning and Community Right to Know Act ("EPCRA") by failing to report certain relief valve releases, which occurred between February 1987 and July 1989, that the Chemical Company believes are exempt from CERCLA and EPCRA reporting. The Chemical Company's petition for reconsideration was denied, a penalty hearing will be scheduled, and further appeals are possible. Management does not believe that any ultimate penalty arising from this proceeding would have a material adverse effect on it. Borden Environmental Indemnity - ------------------------------ Under the EIA, subject to certain conditions, Borden has agreed to indemnify the Chemical 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 Chemical Company (the "Transfer Date"). The Chemical 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 Chemical 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 approximately $2.0 million through September 30, 1994. If the United States is successful in the Geismar enforcement proceeding and the Chemical Company is required to perform corrective action as a result thereof, the Chemical Company anticipates that a portion of its corrective action costs may be covered by the EIA. The Chemical Company's costs of managing the partially depleted mercuric chloride catalyst would not appear to be subject to the EIA. The extent to which any penalties or permit costs that the Chemical Company may incur as a result of any of the above described environmental proceedings will be subject to the EIA will depend, in large part, on whether such penalties or costs are attributable to facts or circumstances that existed and requirements in effect prior to the Transfer Date. Page 16 of 17 17 General Proceedings - ------------------- The Partnership is subject to various other legal proceedings and claims which arise in the ordinary course of business. The management of BCPM believes, based upon the information it presently possesses, that the realistic range of liability to the Partnership of these other matters, taking into account the Partnership's insurance coverage, including its risk retention program, and the EIA with Borden, would not have a material adverse effect on the financial position and results of operations of the Partnership. Item 5. Other Events - ------- ------------ On October 27, 1994, the EPA and DOJ issued a joint press release (attached as Exhibit 99.1) announcing that the U.S. government filed a civil action against the Partnership, the Operating Partnership, and the General Partner alleging various environmental violations. See "Legal Proceedings." Also on October 27, 1994, the Operating Partnership issued two press releases (attached as Exhibit 99.2) regarding the government action. Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits 27. Financial Data Schedule 99.1 Press Release of the United States Department of Justice and United States Environmental Protection Agency. 99.2 Two Press Releases of Borden Chemicals and Plastics Operating Limited Partnership. (b) Reports on Form 8-K On July 19, 1994 the Registrant filed a Form 8-K announcing the Partnership's results of operations for second quarter 1994. SIGNATURE Pursuant to the requirements 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 Date: November 7, 1994 By /s/ D. A. Kelly ---------------------------- D. A. Kelly Treasurer (Principal Financial Officer and duly authorized signing officer) Page 17 of 17 EX-27 2 EXHIBIT 27
5 1,000 9-MOS DEC-31-1994 SEP-23-1994 $49,563 0 101,562 510 25,868 179,680 565,999 279,364 497,838 111,043 150,000 0 0 0 229,867 497,838 438,133 438,133 326,225 326,225 0 170 12,009 69,538 0 69,538 0 0 0 $69,538 1.87 $1.87
EX-99.1 3 EXHIBIT 99.1 1 Exhibit 99.1 ENFORCEMENT NEWS UNITED STATES UNITED STATES [SEAL] DEPARTMENT OF [SEAL] ENVIRONMENTALPROTECTION JUSTICE AGENCY - ---------------------------------------------------------------------------- FOR RELEASE: THURSDAY, OCTOBER 27, 1994 U. S. FILES MULTI-MILLION DOLLAR ACTION AGAINST BORDEN CHEMICALS AND PLASTICS FOR ILLEGAL HAZARDOUS WASTE MANAGEMENT PRACTICES AND FOR CLEANUP OF CONTAMINATED GROUNDWATER EPA/GWENDOLYN BROWN 202-260-1384 DOJ/BERT BRANDENBURG 202-616-0189 The U.S. government today filed a civil action against Borden Chemicals and Plastics Operating Limited Partnership and two related Borden entities to compel Borden to clean up a release of cancer-causing and other hazardous contaminants into the groundwater at its Geismar, La., facility. The action also seeks a multi-million dollar penalty for the illegal shipment of hundreds of thousands of pounds of hazardous waste to South Africa and the operation of unpermitted hazardous waste facilities, including an incinerator. The lawsuit, brought under federal hazardous waste and clean air laws, will also force Borden Chemicals to comply fully with all environmental statutes. The Geismar facility manufacturers chemicals, including vinyl chloride, ammonia, and polyvinyl chloride (PVC), which is used for production of plastic pipes and other plastic products. The facility is located on the Mississippi River, in a highly industrialized area, with a predominantly African-American population. "The Clinton Administration is committed to making sure that no company will realize unfair profits from polluting anywhere in the U.S., but particularly in minority and low-income communities that already face disproportionate risks," said EPA Administrator Carol M. Browner. R-263 (more) 2 -2- "This case will send the message that those who attempt to circumvent the hazardous waste laws do so at their peril," said U.S. Atorney General Janet Reno. "For years, Borden stored and disposed of large quantities of hazardous wastes in violation of the law. Such practices can only be stopped with vigorous enforcement" The complaint against Borden Chemical and Plastics includes a claim for "corective action" under the Resource Conservation and Recovery Act (RCRA), under which the U.S. will be seeking to force Borden to evaluate the extent of, and clean up, contamination of the groundwater. EPA has already determined that the contaminants that have been released to the groundwater at the Geismar facility include vinyl chloride, a know carcinogen, and ethylene dichloride, a probable carcinogen. In addition, the lawsuit alleges that Borden operated a hazaradous waste incinerator and other hazardous waste units without RCRA permits. The United States also alleges that Borden shipped over 300,000 pounds of hazaradous waste to a Thor Chemicals facility located in South Africa without notifying EPA as required by RCRA. These violations prevented EPA from properly verifying that the shipments were identified as hazaradous waste and whether or not South Africa consented to accept the hazaradous waste. The Borden shipments went to the Thor chemicals facility purportedly for recycling, but little or none of the waste was actually recycled. Borden has already publicly acknowledged that approximately 2,500 barrels containing mercury and vinyl chloride wastes were found at the Thor facility with Borden labels. "Environmental pollution does not stop at U.S. borders, and we will use all of our enforcement authorities against those who engage in the illegal international hazardous waste trade. By doing so, we will protect people from mismanaged wastes generated in the United States, and eliminate any competitive advantgage illegal exporters gain at the expense of U.S. companies that comply with our environmental laws," Browner said. The complaint also alleges that Borden failed to meet Louisiana's standards for controlling the emission into the air of urea particulates, or dust-like particles. Particulate emissions can interfere with breathing and aggravate exisiting respiratory and cardiovascular disease. In addition, the lawsuit alleges that Borden violated the federal Comprehensive Environmental Response, Compensation, and Liability Act by failing to immediately notify authorities following the 1990-91 release of thousands of pounds of hazardous chemicals (including vinyl chloride and ammonia). R-263 EX-99.2 4 EXHIBIT 99.2 1 EXHIBIT 99.2 BCP A DELAWARE LIMITED PARTNERSHIP BORDEN CHEMICALS and PLASTICS OPERATING LIMITED PARTNERSHIP BCP Management, Inc., General Partner NEWS CONTACT: Marshall Owens FOR IMMEDIATE RELEASE (504) 673-0671 October 27, 1994 BCP CHALLENGES EPA FINDINGS GEISMAR, Louisiana -- Borden Chemicals and Plastics Operating Limited Partnership (BCP) today charged the Environmental Protection Agency (EPA) with making "retroactive changes" in hazardous waste regulations that violate the "basic concepts of fairness and due process." "It is simply wrong to allow a federal agency to retroactively change the rules on what constitutes hazardous waste and then attempt to punish a business because it was not in compliance before the rules were changed," said Wayne Leonard, BCP's vice president and general manager. BCP claims it is being sued by EPA because it relied on the legal determination of hazardous waste, as confirmed by the Louisiana Department of Environmental Quality (DEQ), at the time it began shipping catalyst off-site for processing and reuse. The central issue in the lawsuit is what constitutes - or does not constitute - hazardous waste. -more- P.O. BOX 427, GEISMAR, LA 70734 * TELEPHONE (504) 673-6121 2 2-2-2 When BCP began shipping the partially-depleted catalyst back to the manufacturer for processing, Leonard said it was costing BCP four times as much as it would have to dispose of it as waste material. "We didn't ship the material to be processed beause it was cheaper," Leonard said, "we did it because we felt it was the proper thing to do for the environment." In 1993, DEQ confirmed that the catalyst was not a hazardous waste. And even though DEQ is the EPA's delegated agent in Louisiana for administering the hazardous waste program, EPA disagreed with the state agency. On May 5, 1994, BCP filed suit in federal court against EPA asking for a declaratory judgment to uphold DEQ's decision. After the lawsuit was filed and after BCP ceased shipments to the manufacturer, DEQ abruptly reversed itself. BCP's lawsuit against the EPA is still pending. "No industry in America should be asked to comply with regulations that can be changed retroactively and without notice," Leonard said. EPA also claims that a more than $20 million program under which BCP agreed to remediate contaminated shallow groundwater (not used for household purposes) is inadequate even though the program was approved by DEQ in 1985. BCP says management is not aware of evidence that the groundwater or hazardous waste issues addressed by EPA in its lawsuit have resulted in any contamination or injury in the the neighboring community. In fact, the evidence is to the contrary based on DEQ and other independendent potable water surveys. The EPA's lawsuit was filed more than two years after EPA conducted a "multi-media" inspection of the BCP facility in Geismar and seven years after EPA made its initial review of the issues. BCP employs approximately 700 workers in the Geismar area. # # # 3 BCP A DELAWARE LIMITED PARTNERSHIP BORDEN CHEMICALS and PLASTICS OPERATING LIMITED PARTNERSHIP BCP Management, Inc., General Partner MEDIA STATEMENT BCP CHALLENGES EPA FINDINGS Wayne Leonard, vice president and general manager of Borden Chemicals and Plastics, issued the following statement today regarding the lawsuit filed against BCP by the Department of Justice on behalf of the U.S. Environmental Protection Agency. For additional information, please contact Marshall Owens, BCP's director of manufacturing, at 504-673-0671. The lawsuit filed against BCP by the Environmental Protection Agency today constitutes a retroactive change in regulations that violates basic concepts of fairness and due process. We are being sued because we relied in good faith on the government's definition of hazardous waste in effect at the time we took action. We are being sued after complying with reasonable interpretations of all applicable regulations and spending more than $20 million on environmental cleanup programs. And, management is not aware of evidence that the groundwater or hazardous waste issues addressed by EPA in its lawsuit have resulted in contamination or injury in the neighboring community. In fact, the evidence is to the contrary based on DEQ and other independent potable water surveys. At issue in the lawsuit is what constitutes - or does not constitute - hazardous waste. In 1993, the Louisiana Department of Environmental Quality (DEQ) confirmed that the partially-depleted mercuric chloride catalyst we were shipping back to the manufacturer for processing was not a hazardous waste. And even though DEQ is the EPA's delegated agent in Louisiana for administering the hazardous waste program, EPA disagreed with the state agency. P.O. BOX 427, GEISMAR, LA 70734 * TELEPHONE (504) 673-6121 4 Page two/Leonard On May 5, 1994, we filed suit in federal court against EPA asking for a declaratory judgment to uphold DEQ's decision. After the lawsuit was filed and after BCP ceased shipments to the manufacturer, DEQ abruptly reversed itself. This reversal was contrary to facts established in the record before DEQ. We believe penalties are unwarranted here because the EPA's own director of the Office of Solid Waste has said that "the regulatory language is not as clear as we would like it to be." BCP's lawsuit against the EPA is still pending. No industry in America should be asked to comply with regulations that can be changed retroactively and without notice. The EPA's charge that our reprocessing activities somehow gave us an unfair competitive advantage is incorrect. When BCP began shipping catalyst back to the manufacturer for processing, it was costing us four times as much as it would have to bury it in a landfilll. We didn't ship the material to be processed because it was cheaper, we did it because we felt like it was the proper thing to do for the environment. The EPA's lawsuit was filed more that two years after EPA conducted a "multi-media" inspection of the BCP facility in Geismar. And the EPA has been well aware of many issues addressed in its lawsuit for at least seven years. Over the past several months, we have negotiated with the EPA in good faith and we have made every reasonable effort to resolve our differences, but to no avail. At this point, we intend to vigorously defend the action and pursue our legal rights to the ful extent of the law. If the EPA wants to redefine what it considers to be waste, it should follow the legal procedures required for all federal agencies and the redefinition should apply only to future activities. It is simply wrong to allow a federal agency to retroactively change the rules on what constitutes hazardous waste and then atempt to punish a business because it was not in compliance before the rules were changed. # # # -----END PRIVACY-ENHANCED MESSAGE-----