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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2000 Commission file number: 1-9699
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BORDEN CHEMICALS AND PLASTICS
LIMITED PARTNERSHIP
Delaware 31-1269627
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(State of organization) (I.R.S. Employer Identification No.)
Highway 73, Geismar, Louisiana 70734 (614) 225-4482
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(Address of principal executive offices) (Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
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Depositary Units Representing New York Stock Exchange
Common Units
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
________________________
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 _____.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by the referenced Part III and this Form 10-K or any
amendment to this Form 10-K. [x]
__________________________________
Aggregate market value in thousands of the Common Units held by non-
affiliates of the Registrant based upon the closing price of such Units on April
3, 2001, was approximately $23.2 million.
Number of Common Units outstanding as of the close of business on April 3, 2001:
36,750,000.
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The Exhibit Index is located herein at sequential page 33.
PART I
Item I. Business
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General
Borden Chemicals and Plastics Limited Partnership (the "Company" or
"Partnership") is a limited partnership formed in 1987 to acquire, own and
operate polyvinyl chloride resins ("PVC"), methanol and other chemical plants
located in Geismar, Louisiana, and Illiopolis, Illinois, that were previously
owned and operated by Borden, Inc. ("Borden"). In 1995, the Company, through its
subsidiary operating partnership Borden Chemicals and Plastics Operating
Partnership (the "Operating Partnership"), purchased a PVC resin manufacturing
facility, from Occidental Chemical Corporation ("OxyChem"), located in Addis,
Louisiana ("Addis Facility"). Historically, the Company's principal product
groups were PVC Polymers Products, which consist of PVC resins and feedstocks
(such as vinyl chloride monomer ("VCM") and acetylene), Methanol and
Derivatives, which consist of methanol and formaldehyde, and Nitrogen Products,
which consist of ammonia and urea. As discussed below, the Company made the
decision in 2000 to exit the Methanol and Derivatives and Nitrogen Products
businesses. On April 3, 2001, the Operating Partnership and its subsidiary, BCP
Finance Corporation, (collectively, the "Debtors") filed voluntary petitions for
protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Sections 101 -
1330 (the "Bankruptcy Code"), in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court") under case number 01-1268(RRM) and
01-1269 (RRM) ("the Chapter 11 Cases"), respectively.
The Company's production complex at Geismar, Louisiana, its plant at
Illiopolis, Illinois, and the Addis Facility produce products for the following
applications:
Products Location Principal Applications
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PVC POLYMERS PRODUCTS
PVC Geismar Water distribution pipe, residential
Illiopolis siding, wallcoverings, vinyl flooring
Addis
VCM Geismar Raw material for the Company's
PVC operations
The Company's plants generally can be operated at rates in excess of stated
capacity to take advantage of market opportunities without undue adverse
effects. References to capacity assume normal operating conditions, including
downtime and maintenance. The Company's objective is to operate the Geismar,
Illiopolis and Addis plants at or near full capacity because of the reduced
operating costs per unit of output at full operation.
The integrated design of the Company's plants provides it with a high degree
of flexibility to shift production volumes according to market conditions and
efficiently utilize by-product streams. The Company's products are produced
through the highly integrated lines described below.
PVC Polymers Products
PVC Resins - PVC is the second largest volume plastic material produced in the
world. The Company produces general purpose and specialty purpose PVC resins at
three plants - one located at the Geismar complex, one at Illiopolis and another
at Addis - with stated annual capacities of 550 million, 400 million and 600
million pounds of PVC resins, respectively. The PVC resin plants operated at
approximately 78% and 80% of combined capacity in 2000 and 1999, respectively.
Although there have been year-to-year fluctuations in product mix, the Company
has over time concentrated on
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the higher margin grades of PVC resin and reduced its dependence on commodity
pipe grade PVC resins, which have historically experienced lower margins. Based
on data from the Society of the Plastics Industry, the Company believes its
production currently accounts for approximately 9% of total industry domestic
capacity of PVC resins.
The PVC industry in both the United States and Europe has entered a
consolidation and rationalization phase, evidenced by the mergers of OxyChem and
Geon, Georgia Gulf and Condea Vista, BASF and Solvay, EVA and BSU Schkopag and
Shin-Etso, Shell and Rovin in recent years.
Production Process. PVC resins are produced through the polymerization of VCM,
an ethylene and chlorine intermediate material internally produced by the
Company. The Company's production of certain specialty PVC resin grades also
involves the consumption of purchased vinyl acetate monomer. The Company
purchases vinyl acetate monomer from unrelated third parties.
All the VCM used by the Company's Geismar PVC resin plant and most of the VCM
used by the Company's Illiopolis PVC resin plants is obtained from the Company's
two Geismar VCM plants discussed below. Substantially all of the production of
these VCM plants is consumed by the Company's PVC resins plants at Geismar and
Illiopolis. The Geismar PVC resin plants obtain VCM from the Company's adjacent
VCM plants in the Geismar complex and the Illiopolis PVC resin plant obtains VCM
from the Company's Geismar plant via rail. The VCM requirement at the Addis
Facility is currently supplied by OxyChem which has arranged for physical
delivery to the Addis Facility by pipeline via exchange, but which may also be
supplied by rail car from OxyChem's plant in Deer Park, Texas or from OxyChem's
joint venture facility ("OxyMar") in Corpus Christi, Texas.
VCM is principally used in the production of PVC resins. The Company has the
capability of producing VCM by two processes: an ethylene process and an
acetylene process. The finished product of both of these processes is
essentially identical but the production costs vary depending on the cost of raw
materials and energy. The ability to produce VCM by either process allows the
Company the flexibility of favoring the process that results in the lower cost
at any particular time.
Ethylene-Based VCM. Ethylene-based VCM ("VCM-E") is produced by the Company
at a 650 million pound stated annual capacity plant at the Geismar complex. The
plant operated at approximately 86% and 79% of capacity during 2000 and 1999,
respectively. All of the production of the VCM-E plant is consumed by the
Company's PVC resin plants at the Geismar complex and Illiopolis.
Ethylene and chlorine constitute the principal feedstocks used in the
production of VCM-E. Both feedstocks are purchased by the Geismar plant from
outside sources.
Acetylene-Based VCM. Acetylene-based VCM ("VCM-A") is produced at a 320
million pound stated annual capacity plant at the Geismar complex. During 2000
and 1999, the plant operated at approximately 72% and 63% of capacity
respectively. All of the VCM-A produced at the Geismar complex is consumed by
the PVC resin plants at Geismar and Illiopolis.
As discussed below under acetylene, the VCM-A plant was idled in December 2000
due to the high cost of raw material feedstock.
Acetylene. Acetylene is primarily used as a feedstock for VCM-A and for other
chemical intermediates. Until January 2000, the Company had a 50% interest in a
200 million pound stated annual capacity acetylene plant at the Geismar complex,
with the remaining 50% interest held by BASF Corporation ("BASF"). In January
2000, the Partnership purchased BASF's interest in the acetylene plant. During
2000 and 1999, the plant operated at approximately 69% and 83%, respectively, of
capacity, with all production being consumed by either the Company or BASF.
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The principal feedstocks used in the production of acetylene are natural gas
and oxygen. Oxygen is obtained from certain air separation units and related
air compression systems, which are jointly owned by the Company, BASF (through
December 31, 1999) and Air Liquide America Corporation. For a description of
the Company's arrangements for the purchase of natural gas, see "Raw Materials".
-------------
Due to the dramatic increase in the cost of natural gas during 2000, the
acetylene and VCM-A production processes became uneconomical to operate. In
December 2000, these units were idled, and the Partnership does not intend to
operate these units unless and until natural gas returns to economically
acceptable levels. Subject to the orders of the Bankruptcy Court in the Chapter
11 Cases, the Partnership plans to increase its purchases of VCM and its
production of VCM-E to replace the idled VCM-A capacity.
The Company's principal competitors in the sale of PVC include Shintech,
Formosa Plastics, Oxyvinyl, L.P. and Georgia Gulf.
Discontinued Operations
In January 2000, the Partnership announced its intention to evolve into a
focused PVC company and to explore ways to realize maximum value in the near
term for its non-PVC businesses. On June 27, 2000, the Partnership announced its
decision to exit the methanol and derivatives and nitrogen products business
segments, as part of a process that included the sale of its formaldehyde and
certain other assets for $48.5 million to a subsidiary of Borden. The sale of
those assets was completed on July 28, 2000, with the Partnership receiving
$38.8 million in cash and an interest-bearing note for $9.7 million which was
paid in January 2001. The nitrogen products facilities were closed in July 2000,
and the methanol production ceased in December 2000.
Raw Materials
A principal purchased raw material used historically in the Company's
operations is natural gas. In 2000, the Company purchased 54.2 million BTUs
of natural gas for feedstock and as an energy source. Natural gas can be
supplied by pipeline to the Geismar complex by six major natural gas pipelines.
The Company purchases the majority of its natural gas under fixed-term, market
sensitive supply contracts. In 2000, the cost of purchasing natural gas
increased to unprecedented levels, with natural gas increasing from an average
of $2.25 per million BTU in 1999 to over $3.73 per million BTU, with monthly
prices exceeding $6 per million BTU in December and $10 per million BTU in
January 2001. As a consequence, the Company has idled or shutdown its
production units that consume natural gas as a feedstock and currently is
consuming gas only as an energy source. In this operating mode, annual
consumption is approximately 12 million BTUs, and natural gas is currently
being purchased from one supplier. There can be no assurance that the Company
will in the future be able to purchase adequate supplies of natural gas at
acceptable price levels to again utilize natural gas as a feedstock.
The Company purchases other raw materials for its operations, principally
ethylene and chlorine. Ethylene is currently supplied by pipeline to the
Geismar facility by several suppliers. Chlorine is supplied by rail car and
pipeline to the Geismar complex by various suppliers. The major raw material
for the Illiopolis PVC plant, VCM, is supplied by rail car from the Geismar
facility. In addition, in connection with the production of certain specialty
grades of PVC resins, the Company purchases certain quantities of vinyl acetate
monomer. See "PVC Polymers Products-Production Process". The Company purchases
its VCM requirements for the Addis Facility under a VCM supply agreement entered
into with Oxyvinyl, LP.
Because raw materials have accounted for a high percentage of the Company's
total
4
production costs, and are expected to continue to represent a high percentage of
such costs for the Company, the Company's ability to pass on increases in costs
of these raw material feedstocks will have a significant impact on operating
results. The ability to pass on increases in feedstock and fuel costs is, to a
large extent, dependent on the then existing market conditions. If the Company
is unable to pass on increases in these costs, it could materially adversely
affect the Company's income and cash flow from operations and its ability to
service its debt obligations.
Insurance
The Company maintains property, business interruption and casualty insurance
which it believes is in accordance with customary industry practices, but it is
not fully insured against all potential hazards incident to its business. The
Company also maintains pollution legal liability insurance coverage. However,
because of the complex nature of environmental insurance coverage and the
rapidly developing case law concerning such coverage, no assurance can be given
concerning the extent to which its pollution legal liability insurance, or any
other insurance that the Company has, may cover environmental claims against the
Company. Insurance, however, generally does not cover penalties or the costs of
obtaining permits. See "Item 3 - Legal Proceedings".
Under its risk retention program, the Company maintains property damage and
liability insurance deductibles of $2.5 million, $1.0 million and $1.0 million
per occurrence for property and related damages at the Geismar, Illiopolis and
Addis facilities, respectively, and deductibles ranging from $0.1 million to
$2.0 million per event for liability insurance. In addition the Company is
included in Borden's master excess insurance program.
Marketing and Sales
Marketing and sales activities are conducted by PVC sales and marketing
department.
This group is comprised of 16 people, including a Vice President of Sales and
Marketing, a Director of Sales, two Product Managers, seven Regional Sales
personnel, and three Service managers, along with a small, office support staff.
The group is headquartered in Baton Rouge, LA with professional sales
personnel geographically positioned throughout the United States.
The Company's sales activities are based on frequent customer contact to
secure and maintain long-term supply relationships. A substantial portion of
the Company's sales are made under contracts with annual renegotiation
provisions. The majority of the Company's sales are made in the United States,
and a small portion in Canada. The Company has not historically participated in
the export market, but retains access to these markets through third party
specialists.
Utilities
The Geismar complex operates three high thermal efficiency co-generation units
providing the site with low cost electricity and steam. Each unit is composed
of a natural gas burning turbine/generator unit combined with a steam producing
heat recovery system (i.e., the "co-generation" of electricity and steam).
The co-generation units are designed to provide a significant portion of the
electricity and steam, and a portion of the reformer combustion air requirements
of the Geismar complex at full production levels. These units have electrical
outputs of 20, 35 and 35 megawatts, respectively. The electricity is supplied
by the units through a substation owned by Monochem, Inc. ("Monochem"), a
corporation of which the Partnership
5
owns 50% of the capital stock. The Company's interest in Monochem is subject to
certain rights of first refusal and limitations on transfer.
Water requirements at the Geismar complex are obtained through Monochem from
the Mississippi River. At Illiopolis, a municipal water company supplies the
facility with its water requirements. Because the Illiopolis facility
represents a significant portion of the demand for water supply from the
municipal water company, the Company manages the operations of the water company
on a cost-reimbursed basis. The Addis Facility obtains its electricity and water
requirements from local public utilities. Natural gas can be supplied by
pipeline from various suppliers.
Purchase and Processing Agreements
In connection with the formation of the Company in 1987, Borden entered into
certain purchase agreements ("Purchase Agreements") and processing agreements
("Processing Agreements") with the Company covering the following products: PVC
resins, methanol, ammonia, urea, formaldehyde and urea-formaldehyde concentrate.
These agreements were transferred to Borden Chemical, Inc. ("BCI") in 1997 and
the agreement to purchase PVC resins was assigned to and renegotiated with a
third party in connection with the sale of certain businesses by Borden in 1996
and 1997.
The Purchase Agreements and Processing Agreements with BCI were terminated in
2000 as part of the agreement for the Company to sell its formaldehyde and
related assets to BCI. The agreements called for BCI to purchase most of its
requirements for the applicable products based on pricing formulas. The Company
believes that the pricing formulas set forth in the Purchase and Processing
Agreements in the past provided aggregate prices and processing charges that BCI
would have been able to obtain from unaffiliated suppliers, considering the
magnitude of BCI's purchases, the long-term nature of such agreements and other
factors.
Competition
The business in which the Company operates is highly competitive. The Company
competes with major chemical manufacturers and diversified companies, a number
of which have revenues and capital resources exceeding those of the Company.
Because of the commodity nature of the Company's products, the Company is not in
a position to protect its position by product differentiation and is not able to
pass on cost increases to its customers to the extent its competitors do not
pass on such costs. In addition to price, other significant factors in the
marketing of the products are delivery, quality and, in the case of PVC resins,
technical service.
Borden has agreed that, so long as BCP Management, Inc. ("BCPM") is the
general partner of the Company, Borden will not engage in the manufacture or
sale in the United States of acetylene, VCM or PVC resins. However, if BCPM (i)
is removed as general partner by the Unitholders under circumstances where cause
exists or (ii) withdraws as general partner under circumstances where such
withdrawal violates the existing partnership agreements ("Partnership
Agreements"), Borden has agreed not to engage in such manufacture or sale for a
period of two years from the date of such removal or withdrawal. If Borden were
to sell any of its manufacturing facilities to an unaffiliated purchaser that is
not a successor to Borden, the purchasers of such facilities would be free to
compete with the Company.
Trademarks
The Company entered into a Use of Name and Trademark License Agreement ("Use
of Name and Trademark License Agreement") with Borden pursuant to which the
Company is
6
permitted to use in its name the Borden name and logo. The Use of Name and
Trademark License Agreement and the right to use the Borden name and logo
terminate in the event that BCPM ceases to be the General Partner.
Management
The General Partner, BCPM, manages and controls the activities of the Company
and the Operating Partnership and the General Partner's activities are limited
to such management and control. Unitholders do not participate in the
management or control of the Company or the Operating Partnership. The General
Partner has fiduciary duties to Unitholders, subject to the provisions of the
Partnership Agreement. The General Partner is liable, as general partner, for
all the debts of the Company (to the extent not paid by the Company) other than
any debt incurred by the Company that is made specifically nonrecourse to the
General Partner.
The Company does not directly employ any of the persons responsible for
managing or operating the business of the Company, but instead relies on the
officers and employees of the General Partner and of Borden who provide support
to or perform services for the General Partner and reimburses the General
Partner or Borden (on its own or on the General Partner's behalf) for their
services.
Environmental and Safety Regulations
General. The Company's operations are subject to federal, state and local
environmental, health and safety laws and regulations, including laws relating
to air quality, hazardous and solid wastes, chemical management and water
quality. The Company has expended substantial resources, both financial and
managerial, to comply with environmental regulations and permitting
requirements, and anticipates that it will continue to do so in the future.
Although the Company believes that its operations are in material compliance
with these requirements, there can be no assurance that significant costs, civil
and criminal penalties, and liabilities will not be incurred. The Company holds
various environmental permits for operations at each of its plants. In the
event a governmental agency were to deny a permit application or permit renewal,
or revoke or substantially modify an existing permit, such agency action could
have a material adverse effect on the Company's ability to continue the affected
plant operations. Plant expansions are subject to securing necessary
environmental permits. Environmental laws and regulations have changed in the
past, and the Company anticipates continuing changes. Increasingly strict
environmental regulations have resulted in increased operating costs for the
Company, and it is possible that the costs of compliance with environmental,
health and safety laws and regulations will continue to increase.
The Company maintains an environmental and industrial safety and health
compliance program and conducts internal regulatory audits at its Geismar,
Illiopolis and Addis plants. The Company's plants have had a history of
involvement in regulatory, enforcement and variance proceedings in connection
with safety, health and environmental matters. Risks of substantial costs and
liabilities are inherent in plant operations and products found at and produced
by the plants, as they are with other enterprises engaged in the chemical
business, and there can be no assurance that significant costs and liabilities
will not be incurred.
Air Quality. The Geismar, Illiopolis and Addis plants emit air contaminants
and are subject to the requirements of the Clean Air Act and comparable state
statutes. Many of the existing requirements under these laws are embodied in
permits issued to the plants by state environmental agencies. The Company
believes that the Geismar, Illiopolis and Addis plants generally are in material
compliance with these requirements.
The 1990 Amendments to the Clean Air Act (the "1990 Clean Air Act Amendments")
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require stringent controls on volatile organic compounds ("VOC") emissions in
ozone non-attainment areas and also require, subject to certain exceptions, the
control of nitrogen oxide ("NOx") emissions in such areas. The Geismar and
Addis plants are located in "nonattainment areas" for ozone under the 1990 Clean
Air Act Amendments. Additional capital expenditures may be required at the
Geismar and Addis plants in order to upgrade existing pollution control
equipment and/or install additional control equipment to comply with the
stringent regulations for VOC and NOx.
The 1990 Clean Air Act Amendments and state laws and regulations also require
certain sources to control emissions of hazardous air pollutants, including
vinyl chloride. Additional capital expenditures may be necessary to comply with
these control standards.
The 1990 Clean Air Act Amendment further requires "enhanced monitoring" of the
emissions from certain pieces of equipment. Although monitoring systems are
already in place at the Geismar, Illiopolis and Addis plants, capital
expenditures may be necessary to comply with the "enhanced monitoring"
requirements.
In late 1996 the Illiopolis plant discovered through emission stack testing
that the actual emissions from a specific dryer were higher than calculated
using emissions factors and engineering estimates. These new emission numbers
were reported to the Illinois Environmental Protection Agency, and an air
pollution control devise known as a baghouse was installed on the unit in 1998
at a cost of $1.3 million.
Based on information currently available to the Company, the Company does not
believe that the capital expenditures that may be required at the Geismar,
Illiopolis and Addis plants to comply with the 1990 Clean Air Act Amendments and
corresponding state regulations will be material. However, because the Company
is continuing to evaluate the impact of such amendments on it, there can be no
assurance that the actual costs will not exceed the Company's estimates.
In March 1998, the United States Department of Justice ("DOJ") and the Company
signed a consent decree (the "Consent Decree") to resolve an enforcement
proceeding brought against the Company and BCPM, for alleged violations of the
Clean Air Act and other environmental statutes at the Geismar facility. In June
1998, the U.S. District Court for the Middle District of Louisiana accepted the
Consent Decree into record, and the proceedings were closed. See "Item 3 -
Legal Proceedings".
OSHA and Community Right to Know. The Geismar, Illiopolis and Addis plants
are subject to the requirements of the federal Occupational Safety and Health
Act ("OSHA") and comparable state statutes. The Company believes that the
Geismar, Illiopolis, and Addis plants are in material compliance with OSHA
requirements, including general industry standards, vinyl chloride exposure
requirements, recordkeeping requirements and chemical process safety standards.
It is possible that changes in safety and health regulations, or a finding of
noncompliance with current regulations, could result in additional capital
expenditures or operating expenses for the Geismar, Illiopolis and Addis plants.
The OSHA hazard communication standard and the EPA community right-to-know
regulations under the Emergency Planning and Community Right-to-Know Act
("EPCRA") require the Company to organize information about the hazardous
materials in the plants and to communicate that information to employees and
certain governmental authorities. The Company has a hazard communication
program in place and will continue this program as a part of its industrial
safety and health compliance program. The Company believes that it generally is
in material compliance with EPCRA.
Solid and Hazardous Waste. The Geismar, Illiopolis and Addis plants generate
hazardous and nonhazardous solid waste and are subject to the requirements of
the Resource Conservation and Recovery Act ("RCRA") and comparable state
statutes. The Company believes that the Geismar, Illiopolis and Addis plants
are in material
8
compliance with RCRA. However, see "Item 3 - Legal Proceedings".
A primary trigger for RCRA requirements is the designation of a substance as a
"hazardous waste". It is anticipated that additional substances will in the
future be designated as "hazardous waste", which likely would result in
additional capital expenditures or operating expenses for the Company.
In accordance with the Consent Decree, the Company has applied for a RCRA
permit for its valorization of chlorinated residuals ("VCR") unit. In addition,
the settlement provides guidelines for future investigation and possible
remediation of groundwater contamination. See "Item 3 - Legal Proceedings".
Superfund. The Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on classes of
persons that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and the companies that
disposed, or arranged for the disposal of, the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances and for damages to natural resources. In
the ordinary course of the Company's operations, substances are generated that
fall within the CERCLA definition of "hazardous substance". If such wastes have
been disposed of at sites which are targeted for cleanup by federal or state
regulatory authorities, the Company may be among those responsible under CERCLA
or analogous state laws for all or part of the costs of such cleanup. The
Geismar, Illiopolis and Addis plants have in the past and are expected to
continue to generate hazardous substances and dispose of such hazardous
substances at various offsite disposal sites.
The Consent Decree signed by DOJ and the Company in March 1998 resolved an
enforcement proceeding against the Company and BCPM for alleged violation of
CERCLA's reporting and other environmental requirements at the Geismar facility.
See "Item 3 - Legal Proceedings".
Toxic Substances Control Act. The Company is subject to the Toxic Substances
Control Act ("TSCA"), which regulates the development, manufacture, processing,
distribution, importation, use, and disposal of thousands of chemicals. Among
other requirements, TSCA provides that a chemical cannot be manufactured,
processed, imported or distributed in the United States until it has been
included on the TSCA Chemical Inventory. Other important TSCA requirements
govern recordkeeping and reporting. For example, TSCA requires a company to
maintain records of allegations of significant adverse reactions to health or
the environment caused by chemicals or chemical processes. The Company believes
that it generally is in material compliance with TSCA. Violations of TSCA can
result in significant penalties.
Water Quality. The Geismar, Illiopolis and Addis plants maintain wastewater
discharge permits for their facilities pursuant to the Federal Water Pollution
Control Act of 1972 and comparable state laws. Where required, the Company also
applied for and received permits to discharge stormwater. The Company believes
that the Geismar, Illiopolis and Addis plants are in material compliance with
the Federal Water Pollution Act of 1972 and comparable state laws. In cases
where there are excursions from the permit requirements, the Geismar and
Illiopolis plants are taking action to achieve compliance, are working in
cooperation with the appropriate agency to achieve compliance or are in good
faith pursuing their procedural rights in the permitting process.
The EPA has issued effluent regulations specifying amounts of pollutants
allowable in direct discharges and in discharges to publicly owned treatment
works. The Geismar, Illiopolis and Addis plants manufacture or use as raw
materials a number of
9
chemicals subject to additional regulation. Both federal and state authorities
continue to develop legislation and regulations to control the discharge of
certain toxic water pollutants. Passage of such legislation or regulations could
necessitate additional capital expenditures to reduce discharges of these
substances into the environment either during routine or episodic events. The
Company does not believe that these legislative developments would have a
material adverse impact on the Company's operations.
Areas of groundwater contamination have been identified at the Company's
plants. It is the Company's policy, where possible and appropriate, to address
and resolve groundwater contamination. The Company believes that environmental
indemnities available to it would cover all, or a substantial portion of, known
groundwater contamination. The Company does not believe that the known
contamination will have a material adverse impact on the Company's operations.
The Company believes that the Geismar, Illiopolis and Addis plants generally are
in material compliance with all laws with respect to known groundwater
contamination. At the Geismar complex, Borden and the Company have complied
with the Settlement Agreement with the state of Louisiana and the Company is
complying with the Consent Decree with DOJ, for groundwater remediation. See
"Item 3 - Legal Proceedings".
Present and Future Environmental Capital Expenditures. Although it is the
Company's policy to comply with all applicable environmental, health and safety
laws and regulations, all of the implementing regulations have not been
finalized. Even where regulations or standards have been adopted, they are
subject to varying and conflicting interpretations and implementation. In many
cases, compliance with environmental regulations or standards can only be
achieved by capital expenditures, some of which may be significant. Capital
expenditures for environmental control facilities were approximately $3.1
million in 2000 and $2.8 million in 1999. Capital expenditures for environmental
control facilities are expected to total approximately $2.0 million in 2001
(although such estimate could vary substantially depending on the outcome of the
various proceedings and matters discussed herein, and no assurance can be given
that greater expenditures on the part of the Company will not be required as to
matters not covered by the environmental indemnity from Borden).
Borden Environmental Indemnity
Under the Environmental Indemnity Agreement, subject to certain conditions,
Borden has agreed to indemnify the Company in respect of environmental
liabilities arising from facts or circumstances that existed and requirements in
effect prior to November 30, 1987, the date of the initial sale by Borden of the
Geismar and Illiopolis plants to the Company (the "Transfer Date"). See "Item 3
- - Legal Proceedings".
Addis Environmental Indemnity
OxyChem has indemnified the Company for environmental liabilities arising from
the manufacture, generation, treatment, storage, handling, processing, disposal,
discharge, loss, leak, escape or spillage of any product, waste or substance
generated or handled by OxyChem prior to the closing of the acquisition of the
Addis facility from OxyChem in 1995, any condition resulting therefrom relating
to acts, omissions or operations of OxyChem prior to such date, and any duty,
obligation or responsibility imposed on OxyChem prior to such date under
environmental laws in effect prior to such date to address such condition.
However, except with regard to claims arising from OxyChem's disposal of waste
at sites other than the Addis Facility, OxyChem has no indemnification
obligation if the claim for indemnification is the result of a change in
applicable law after the closing of the Acquisition. OxyChem's obligation to
indemnify the Company for environmental liabilities is subject to certain
limitations. There can be no assurance that the indemnification provided by
OxyChem will be sufficient to cover all environmental liabilities existing or
arising at the Addis Facility.
10
Product Liability and Regulation
As a result of the Company's manufacture, distribution and use of different
chemicals, the Company is, and in the future may be, subject to various lawsuits
and claims, such as product liability and toxic tort claims, which arise in the
ordinary course of business and which seek compensation for physical injury,
pain and suffering, costs of medical monitoring, property damage, and other
alleged harms. New or different types of claims arising from the Company's
various chemical operations may be made in the future.
Employees
The Partnership does not directly employ any of the persons responsible for
managing and operating the Partnership, but instead reimburses BCPM for their
services. On December 31, 2000, BCPM employed approximately 650 individuals.
Proceedings Under Chapter 11 of the Bankruptcy Code
On April 3, 2001, the Debtors filed voluntary petitions for protection under
Chapter 11 of the Bankruptcy Code. The Chapter 11 Cases have been procedurally
consolidated for administrative purposes only. The Debtors are currently
acting as debtors-in-possession pursuant to the Bankruptcy Code.
Subsequent to the commencement of the Chapter 11 Cases, the Debtors sought and
obtained several orders from the Bankruptcy Court which were intended to
stabilize and continue business operations. The most significant of these orders
(i) approved an amendment to the Operating Partnership's Credit Agreement dated
as of March 31, 2000, (the "Year 2000 Revolving Credit Facility") with Fleet
Capital Corporation ("Fleet") as agent for itself and other lenders party
thereto (the "DIP Lenders"). The amendment (the "DIP Loan Agreement")provides
up to $100 million debtor-in-possession financing, (ii) permits continued
operation of their consolidated cash management system during the Chapter 11
Cases in substantially the same manner as it was operated prior to the
commencement of the Chapter 11 Cases, and (iii) authorized payment of pre-
petition wages, vacation pay and employee benefits and reimbursement of employee
business expenses.
The DIP Loan Agreement provides the Operating Partnership with a revolving
line of credit in an aggregate amount not to exceed $100 million, subject to
borrowing base limitations. The aggregate borrowing limit can be increased to an
amount not to exceed $120 million at the discretion of the DIP Lenders. The
Operating Partnership will use amounts borrowed under the DIP Loan Agreement for
its ongoing working capital needs and for certain other purposes of the
Operating Partnership as permitted by the DIP Loan Agreement. The Operating
Partnership granted a security interest to the DIP Lenders in substantially all
of the Operating Partnership's assets as security for its obligations under the
DIP Loan Agreement. All obligations under the DIP Loan Agreement will be
afforded "super-priority" administrative expense status in the Chapter 11 Cases.
Cash Distributions
Pursuant to its Amended and Restated Agreement of Limited Partnership, the
Operating Partnership is required to distribute 100% of its Available Cash as of
the end of each quarter on or about 45 days after the end of such quarter to
Unitholders of record as of the applicable record date and to the General
Partner. "Available Cash" means generally, with respect to any quarter, the sum
of all cash receipts of the Partnership plus net reductions to reserves
established in prior quarters, less cash disbursements and net additions to
reserves in such quarter. The General Partner has broad discretion in
establishing reserves, and its decisions regarding reserves could have a
significant impact on the amount of Available Cash. The timing and
11
amounts of additions and reductions to reserves may impact the amount of
incentive distributions, if any, payable to the General Partner. As a result,
distributions to Unitholders may over time be reduced from levels which would
have been distributed if the General Partner were not able to control the timing
of additions and reductions to reserves.
Since 1998, adverse business conditions have considerably reduced revenues and
operating margins and caused the Company to incur net losses. Consequently, no
cash distributions have been declared since the fourth quarter of 1997. It is
also highly unlikely that the Company will declare any cash distributions in the
future during the Chapter 11 process or upon its resolution.
Forward-Looking Statements
Certain statements in this Form 10-K, in particular, certain statements under
"Item 1. Business", "Item 3. Legal proceedings" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation", are
forward-looking. These can be identified by the use of forward-looking words or
phrases such as "believe", "expect", "anticipate", "should", "plan", "estimate",
"intend" and "potential" among others. The Private Securities Litigation Reform
Act of 1995 provides a "safe harbor" for such forward-looking statements. While
these forward-looking statements are based on the Partnership's reasonable
current expectations, a variety of risks, uncertainties and other factors,
including many which are outside the control of the Partnership, could cause the
Partnership's actual results to differ materially from the anticipated results
or expectations expressed or implied 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 or pricing of its commodity products, changes in industry production
capacities, changes in the supply of and costs of natural gas and other
significant raw materials, loss of business from major customers, continuing
availability of post-petition financing, negative market and credit impact from
the Chapter 11 filing, unanticipated expenses, substantial changes in the
financial markets, labor unrest, foreign competition, major equipment failure,
unanticipated results in pending legal proceedings, changes in applicable
environmental, health and safety laws and regulations and other factors.
Item 2. Properties
- ------------------
Construction of the Geismar complex began over thirty years ago. Acetylene,
methanol and VCM-A plants were completed in the early 1960s and ammonia and urea
plants were added during the period 1965 to 1967. A VCM-E plant and a
formaldehyde plant were added in the mid 1970s, a second formaldehyde plant was
brought on stream in 1986, and a third formaldehyde plant was brought on stream
in 1991. In 1983 Borden completed construction of a PVC resin plant at the
Geismar complex. During the early 1980s, the methanol, ammonia, and urea plants
were modernized, which reduced energy consumption and expanded capacity. The
urea plant was further modified to produce granular rather than prill product in
1993. The PVC resin facility at Illiopolis became operational in 1962, and was
significantly upgraded in the late 1980s. The Addis Facility began operations
in 1979.
The Geismar complex is located on approximately 490 acres in Ascension Parish,
Louisiana, adjacent to the Mississippi River between Baton Rouge and New
Orleans. The Illiopolis PVC resin facility is located on approximately 45 acres
in central Illinois between Springfield and Decatur. The Addis Facility is
located on approximately 40 acres of a 220 acre site adjacent to the Mississippi
River, approximately 20 miles from the Geismar complex.
In 2000, the three formaldehyde plants were sold to BCI, the acetylene and
VCM-A
12
plants were idled, and the methanol, ammonia and urea plants were shut- down.
The following table sets forth the approximate annual capacity of each of the
principal manufacturing plants at the Geismar complex and the PVC plants at
Illiopolis and Addis, all of which are owned by the Company except as noted.
Annual Stated Capacity
Plants (stated in millions)
- ------ ---------------------
Geismar, LA:
PVC Resins ............................................ 550 lbs.
Acetylene-based VCM ................................... 320 lbs.
Ethylene-based VCM .................................... 650 lbs.
Acetylene ............................................... 200 lbs.
Illiopolis, IL:
PVC Resins ............................................ 400 lbs.
Addis, LA:
PVC Resins ............................................ 600 lbs.
Item 3. Legal Proceedings
- ------- -----------------
Federal Environmental Enforcement Proceeding
- --------------------------------------------
On March 11, 1998, the Company and the DOJ signed a Consent Decree to resolve
the enforcement action brought by the DOJ against the Company in October 1994.
In June 1998, the U.S. District Court for the Middle District of Louisiana
accepted the Consent Decree into record, which closed the proceedings.
The Consent Decree provided for a specific and detailed program of groundwater
and other remediation at the Geismar facility that is consistent with various
actions undertaken previously, currently being undertaken, and planned to be
undertaken in the future, by the Company. Under certain circumstances, the EPA
and the LDEQ may require investigation and remediation beyond the specific terms
of the Consent Decree. The Company, however, believes that the technical
information and knowledge regarding the nature of contamination at the site, and
the need for remediation, make it unlikely that investigation and remediation
beyond that which the Company has already planned for and is contemplated by the
Consent Decree will be required. Remediation costs incurred under the Consent
Decree, which is expected to be several million dollars, will continue to be
paid by Borden.
In April 1996 and November 1997, adjoining landowners filed separate tort
actions in state court asserting personal injury and property value diminution
as a result of releases of hazardous materials from the Geismar complex. The
Company has reached a tentative settlement with the adjoining landowners in the
amount of $0.8 million.
Because of the complex nature of environmental insurance coverage and the
rapidly developing case law concerning such coverage, no assurance can be given
concerning the extent to which insurance may cover environmental claims against
the Company.
Borden Environmental Indemnity
- ------------------------------
Under the Environmental Indemnity Agreement ("EIA"), subject to certain
conditions, Borden has agreed to indemnify the Company in respect of
environmental liabilities arising from facts or circumstances that existed and
requirements in effect prior to November 30, 1987, the date of the initial sale
of the Geismar and Illiopolis plants to the Company (the "Transfer Date"). The
Company is responsible for environmental liabilities arising from facts or
circumstances that existed and
13
requirements in effect on or after the Transfer Date. With respect to certain
environmental liabilities that may arise from facts or circumstances that
existed and requirements in effect both prior to and after the Transfer Date,
Borden and the Company will share liabilities on an equitable basis considering
all of the facts and circumstances including, but not limited to, the relative
contribution of each to the matter and the amount of time each has operated the
asset in question (to the extent relevant). No claims can be made under the EIA
after November 30, 2002.
Chapter 11 Cases
- ----------------
The Debtors commenced the Chapter 11 Cases on April 3, 2001. Additional
information relating to the Chapter 11 Cases is set forth in Part 1, Item 1 of
this Form 10-K under the caption "Proceedings under Chapter 11 of the Bankruptcy
Code" and in Note 2 of the Notes to Consolidated Financial Statements under the
caption "Proceedings under Chapter 11". Such information is incorporated herein
by reference. Unsecured claims may be satisfied at less than 100% of their face
value. It is impossible at this time to predict the actual recovery, if any, to
which creditors of the company may be entitled. Management believes it is
unlikely that the equity interests in the Company held by unitholders will have
any value following resolution of the Chapter 11 process.
Other Legal Proceedings
- -----------------------
The Company manufactures, distributes and uses many different chemicals in its
business. As a result of its chemical operations the Company is subject to
various lawsuits in the ordinary course of business which seek compensation for
physical injury, pain and suffering, costs of medical monitoring, property
damage and other alleged harm. New or different damage claims arising from the
Company's various chemical operations may be made in the future.
In addition, the Company is subject to various other legal proceedings and
claims which arise in the ordinary course of business. The management of the
Company believes, based upon the information it presently possesses, that the
realistic range of liability to the Company of these other matters, taking into
account the Company's insurance coverage, including its risk retention program,
and the Indemnity Agreement with Borden, would not have a material adverse
effect on the financial position or results of operations of the Company. Many
of the claims that are asserted in these other legal proceedings are subject to
the automatic stay provided in the Bankruptcy Code and may eventually be
resolved as part of the Chapter 11 Cases.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
No matter was submitted during the fourth quarter of 2000 to a vote of
security holders, through the solicitation of proxies or otherwise.
Part II
Item 5. Market for the Registrant's Common Equity and Related
- ------- -----------------------------------------------------
Stockholder Matters
-------------------
The Operating Partnership and its subsidiary, BCP Finance Corporation, filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code
on April 3, 2001. The high and low sales prices for the Common Units, traded on
the New York Stock Exchange on April 3, 2001 were $0.70 and $0.63, respectively.
As of December 31, 2000 there were approximately 23,000 holders of record of
Common Units. On April 4, 2001, the New York Stock Exchange notified the
Partnership that the Exchange had suspended trading of the Common Units and
intended to file an application to delist the Partnership's Common Units. At
the present time, the
14
Partnership believes it is unlikely that the Common Units would have any value
following resolution of the Chapter 11 Cases.
The following table sets forth the 2000 and 1999 quarterly Common Unit data:
2000 Quarters
--------------------------------------
First Second Third Fourth
------ ------ ----- ------
Cash distributions declared $0.00 $0.00 $0.00 $0.00
Market price range:
High 6 1/4 5 4 5/8 2 1/8
Low 4 1/4 3 1/4 1 1/2 1/2
1999 Quarters
--------------------------------------
First Second Third Fourth
------ ------ ----- ------
Cash distribution declared $0.00 $0.00 $0.00 $0.00
Market price range:
High 8 9 7/16 7 3/8 6 3/16
Low 4 9/16 6 5/8 3 5/8 3 1/4
15
Item 6. Selected Financial Data
- ------- -----------------------
The following table sets forth selected historical financial information
for the Company for each of the five years ended December 31.
(in thousands except per Unit data, which is
net of 1% General Partner interest)
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Earnings Summary:
Net revenues $491,055 $402,763 $372,854 $486,189 $464,496
Gross profit 37,031 43,557 8,425 4,398 9,602
(Loss) from
continuing operations (75,117)(a) (12,260) (45,803) (42,581) (36,954)
(Loss) income from
discontinued operations (8,795) (11,731) 5,196 48,178 41,782
-------- -------- -------- -------- --------
Net (loss) income $(83,912)(a) $(23,991) $(40,607) $ 5,597 $ 4,828
======== ======== ======== ======== ========
Per Unit data - basic and diluted:
(Loss) per unit from
continuing operations $ (2.02) $ (0.33) $ (1.23) $ (1.15) $ (1.00)
(Loss) income from
discontinued operations (0.24) (0.32) 0.14 1.30 1.13
-------- -------- -------- -------- --------
- -
Net (loss) income $ (2.26) $ (0.65) $ (1.09) $ 0.15 $ 0.13
======== ======== ======== ======== ========
Cash distributions
declared per Unit $ 0.00 $ 0.00 $ 0.00 $ 0.15 $ 0.35
Financial Statistics:
Current assets $156,890 $152,391 $110,485 $149,368 $152,463
Current liabilities 73,013 87,010 58,776 85,034 110,225
Property and equipment, net 190,415 269,260 288,300 290,200 319,471
Total assets 388,837 480,851 461,696 500,186 525,705
Long-term debt 272,410 263,200 251,800 225,000 200,000
Total partners' capital 34,568 118,480 142,471 183,078 208,200
Capital expenditures 13,587 18,328 31,788 19,426 14,558
Depreciation 36,350 36,514 33,369 48,569 49,092
Interest expense 27,516 25,040 23,084 20,898 21,696
(a) Includes a $58.1 million charge for impairment of long-lived assets.
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
Overview and Outlook
On April 3, 2001, the Debtors commenced the Chapter 11 Cases. The Chapter 11
Cases have been procedurally consolidated for administrative purposes only.
The Debtors are currently acting as debtors-in-possession pursuant to the
Bankruptcy Code.
As mentioned previously, the Partnership has exited the Methanol and
Derivatives and the Nitrogen Products businesses in 2000, and its revenues are
now derived principally from the sale of PVC resins.
16
The markets for and profitability of PVC resins 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 and decreased margins until
the cycle is repeated. In addition, markets for the Partnership's products are
affected by general economic conditions and a downturn in the economy could have
a material adverse effect on the Partnership, including, but not limited to, its
ability to service its debt obligations. The demand for the Partnership's PVC
products is primarily dependent on the construction and automotive industries.
Historically, natural gas has been a principal raw material feedstock, the
price of which has been volatile in recent years. The other principal feedstocks
are ethylene and chlorine. Prices for these raw materials may change
significantly from year to year.
Prices for PVC improved somewhat during the first half of 1997, but then
declined due to competitive market conditions experienced in the second half of
1997. Published prices for PVC during the fourth quarter of 1997 declined to an
average of approximately $0.30 per pound. PVC continued to decline in 1998.
General competitive conditions and reduced demand for PVC in the Far East kept
downward pressure on selling prices through 1998 with the fourth quarter price
in the $0.24 per pound range. Prices for PVC steadily increased each quarter in
1999, with the fourth quarter price averaging approximately $0.36 per pound.
During the first half of 2000, selling prices continue to increased steadily,
with prices reaching a high of approximately $0.42 per pound with strong volumes
and profit margins. During the summer months, however, the demand for PVC
resins declined significantly as customers took steps to control their inventory
levels and due to seasonal customer plant shutdowns. Demand for PVC resins
continued to be soft in the fourth quarter of 2000 as general economic
conditions weakened the demand for construction and automotive applications. As
a result, selling prices for PVC resins decreased every month over the second
half of 2000. When combined with lower sales volumes due to decreased demand
and increased raw material and energy costs due to the significant increases in
the cost of natural gas, the Partnership incurred negative profit margins from
PVC Products over the second half of the year.
Results of Operations
2000 Compared to 1999
Total Revenues
Total revenues for 2000 increased $88.3 million or 22% to $491.1 million from
$402.8 million in 1999.
This increase was the result of a 28% increase in selling prices, with sales
volumes remaining relatively flat. The increase in selling prices occurred over
the first half of the year, with prices declining during the second half as
industry market conditions worsened.
Cost of Goods Sold
Total cost of goods sold increased to $454.0 in 2000 from $359.2 million in
1999. Expressed as a percentage of total revenues, cost of goods sold increased
in 2000 to 92% compared to 89% in 1999.
Gross profit for PVC Polymer Products declined to $37.0 million in 2000 from
$43.6 million in 1999. Increased costs of chlorine and natural gas during 2000
more than
17
offset the increased average selling prices of PVC resins during the year.
Impairment of Long-lived Assets
In December 2000, the Partnership idled its acetylene plant and acetylene-
based VCM plant due to unfavorable economic conditions. As a result, the fixed
assets and other related assets of the idled facilities were reviewed for
impairment and were determined to be impaired under SFAS No. 121. As a result,
the Partnership recorded a $58.1 million charge in 2000 to write these assets
down to fair value.
Interest Expense
Interest expense during 2000 increased $2.5 million to $27.5 million from
$25.0 million in 1999 due to an increase in the average outstanding amounts
borrowed under the Partnership's credit facility from 1999 to 2000, and due to
the write-off of debt issuance costs associated with the Partnership's previous
credit facility.
Tax on Gross Margin
Taxes on gross margin decreased $2.0 million to $0.7 million from $2.7 million
in 1999. The decrease is directly attributable to the decline in profitability
vs. the prior year.
Loss from Continuing Operations
The loss from continuing operations incurred by the Partnership was $75.1
million vs. $12.3 million in 1999. As discussed above, the loss was due to
declines in gross margin and the impairment charge recorded to write-down the
carrying value of long-lived assets.
Loss from Discontinued Operations
A net loss from discontinued operations of $10.2 million was incurred from
discontinued operations in 2000 vs. a net loss of $11.7 million in 1999.
Depressed selling prices for methanol, ammonia and urea, and high natural gas
costs caused to the continued losses from the discontinued businesses. In 2000,
a net gain of $1.4 million was recognized on the sale of the Partnership's
formaldehyde and related assets.
Net Loss
The net loss incurred by the Partnership was $83.9 million vs. $24.0 million
in 1999. As discussed above, the decline was attributable to lower profit
margins from continuing operations and the charge for impairment of long-lived
assets.
1999 Compared to 1998
Total Revenues
Total revenues for 1999 increased $29.9 million or 8% to $402.8 million from
$372.9 million in 1998.
This increase was the net result of a 21% increase in selling prices, offset
by a 10% decrease in sales volumes. The increase in selling prices was
primarily due to improved industry market conditions in the second half of 1999.
Cost of Goods Sold
Total cost of goods sold decreased to $359.2 million in 1999 from $364.4
million in
18
1998. Expressed as a percentage of total revenues, cost of goods sold decreased
in 1999 to 89% compared to 98% in 1998.
Gross profit for PVC Polymer Products increased to $43.6 million in 1999 from
the $8.4 million recorded in 1998. Sales price increases more than offset
increased raw material costs and lower volumes.
Interest Expense
Interest expense during 1999 increased $1.9 million to $25.0 million from
$23.1 million in 1998 due to an increase in the average outstanding amounts
borrowed under the Partnership's credit facility from 1998 to 1999.
Tax on Gross Margin
Taxes on gross margin decreased to $2.7 million from $6.8 million in 1998. As
a result of changes in partnership tax laws, a one-time charge of $5.8 million
to record a deferred tax provision is reflected in 1998.
Loss from Continuing Operations
The loss from continuing operations incurred by the Partnership was reduced to
$12.3 million in 1999 from $45.8 million in 1998. As discussed above, this
improvement is attributable to improvements in gross profits as increased
selling prices in PVC more than offset increased raw material costs and lower
volumes
Loss/Income from Discontinued Operations
A loss of $11.7 million was incurred from discontinued operations in 1999 vs.
income of $5.2 million in 1998. The decline in results was due to declines in
selling prices for methanol, ammonia and urea, lower sales volumes for methanol,
and increased costs for raw materials, primarily natural gas.
Net Loss
The net loss incurred by the Partnership was reduced to $24.0 million in 1999
from $40.6 million in 1998. As discussed above, this improvement was
attributable to improved margins from continuing operations offset by losses
from discontinued operations.
Liquidity and Capital Resources
Cash Flows from Operations. Cash used by operations in 2000 totaled $19.2
million, vs. cash provided by operations of $1.5 million in 1999, due to the
increase in the Partnership's net loss as well as an increase in working capital
requirements and other requirements. Cash provided by operations decreased $9.4
million from 1999 to 1998 as the reduction in the Partnership's net loss was
offset by an increase in working capital requirements.
Cash Flows from Investing Activities. Capital expenditures totaled $13.6
million and $18.3 million for 2000 and 1999, respectively. These expenditures
were primarily for environmental projects, the Partnership's enterprise system
and other non-discretionary capital expenditures. In 2000, the Partnership
purchased the remaining 50% ownership in its acetylene plant for $15.9 million.
Cash proceeds from the sale of its formaldehyde plant and related assets totaled
$38.8 million in 2000, with a $9.7 million note receivable that was due and
received in January 2001.
Cash Flows from Financing Activities. Cash flows from financing activities
were
19
$8.1 million in 2000 and $11.4 million in 1999, which were primarily the result
of net increases in borrowings under its credit facilities.
Pursuant to its Amended and Restated Agreement of Limited Partnership, 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. No cash distribution was made during 2000 or
1999; a cash distribution of $3.7 million was made during the first quarter of
1998. It is highly unlikely that the Company will declare any cash
distributions in the future during the Chapter 11 process or upon resolution.
Liquidity
The Partnership has incurred net losses of $83.9 million, $23.9 million and
$40.6 million in 2000, 1999, and 1998, respectively. During 2000, the
Partnership exited its Methanol and Derivatives and Nitrogen Products operations
that were dependent on natural gas as a raw material feedstock. Increased
production capacities outside of the United States that take advantage of low
cost supplies of natural gas had resulted in the Partnership incurring
significant losses from these businesses competing against low cost global
producers.
During the second half of 2000, the Partnership incurred significant losses
from continuing operations, as market conditions in the PVC resin industry
deteriorated. Industry resin capacity increases combined with a significant
downturn in consumption from PVC converters, which was a result of inventory
control efforts by the converters and reduced demand from end users due to
sluggish economic conditions, caused the Partnership's sales volume and selling
prices to fall well below profitable levels. Further, the cost of natural gas
increased to unprecedented levels during the second half of the year. This
caused the Partnership's production costs to rise dramatically, as natural gas
affected both raw material costs and energy costs.
The Debtors elected to commence the Chapter 11 Cases because, despite
management's continuing efforts to reduce the exposure to natural gas, depressed
resin prices and demand converged with sharply increased energy costs in the
first quarter of 2001 to create a critical debt and liquidity situation.
Management is in the process of developing strategies to restructure the
Operating Partnership's financial affairs and allow it to emerge from
bankruptcy. These strategies could include seeking strategic investors, lenders,
and/or joint venture partners, selling substantial assets or pursuing other
strategic transactions including a merger, joint venture or asset sale. There
can be no assurance that management's efforts in this regard will be successful.
The support of vendors, customers, lenders, unitholders and employees will
continue to be key to the Operating Partnership's future success.
Management has undertaken several initiatives to improve liquidity, including
idling unprofitable or high cost assets and production facilities, wage freezes,
reductions-in-force and entering into the DIP Loan Agreement. However, given
current business and market conditions, there can be no assurance that the
Operating Partnership will be able to meet its financial obligations in the
future.
The Operating Partnership entered into the DIP Loan Agreement subsequent to
the commencement of the Chapter 11 Cases. The DIP Loan Agreement will terminate
upon the
20
earlier of an Event of Default (as such term is defined in the DIP Loan
Agreement) or December 28, 2001. The DIP Loan Agreement provides the Operating
Partnership with a revolving line of credit for loans in an aggregate amount not
to exceed $100 million subject to borrowing base limitations. The aggregate
borrowing limit can be increased to an amount not to exceed $120 million at the
DIP Lenders' discretion. The Operating Partnership granted a security interest
in substantially all of the Operating Partnership's assets to the DIP Lenders as
security for the Operating Partnership's obligations under the DIP Loan
Agreement. The availability of borrowings under the DIP Loan Agreement is
reduced by borrowings outstanding under the Year 2000 Revolving Credit Facility.
The Operating Partnership will use all amounts borrowed under the DIP Loan
Agreement for its ongoing working capital needs and for certain other purposes
of the Operating Partnership as permitted by the DIP Loan Agreement.
Under the DIP Loan Agreement, the Operating Partnership, at its option, may
make either LIBOR based or Base Rate Borrowings. The applicable interest rate
for LIBOR based borrowings is LIBOR plus 3.00%, and for Base Rate Borrowings, is
Base Rate plus 1.25%.
Prior to the commencement of the Chapter 11 Cases, the Operating Partnership
and the DIP Lenders were parties to the Year 2000 Revolving Credit Facility,
which provided for a revolving credit facility of up to $100 million subject to
borrowing base limitations. As of December 31, 2000, the Operating Partnership
had $72.4 million outstanding under the Year 2000 Revolving Credit Facility.
See Note 6. "Debt" of the Notes to the Consolidated Financial Statements. The
Operating Partnership's obligations under the Year 2000 Revolving Credit
Agreement are among the liabilities of the Operating Partnership subject to
settlement under the Chapter 11 Cases.
The DIP Loan Agreement contains covenants that place significant restrictions
on, among other things, the ability of the Operating Partnership to incur
additional indebtedness, make distributions, engage in certain transactions with
affiliates, create liens or other encumbrances, merge or consolidate with other
entities, make certain acquisitions, make certain capital expenditures, and sell
or otherwise dispose of assets. In addition, a change in control of the General
Partner, the Partnership or the Operating Partnership are events of default
under the DIP Loan Agreement.
On May 1, 1995, the Operating Partnership issued $200 million aggregate
principal amount of 9.5% Notes due 2005 (the "Notes") pursuant to an Indenture
dated as of May 1, 1995 (the "Indenture"). The Notes are senior unsecured
obligations of the Operating Partnership.
As a result of the filing of the Chapter 11 Cases, no principal or interest
payments will be made on any pre-petition debt except as approved by the
Bankruptcy Court.
Capital Expenditures
The Partnership currently believes that the level of annual base capital
expenditures for 2001 will be in the range of $9 to $12 million, with the
expenditures to be mainly for required environmental, safety and other non-
discretionary projects. This estimate reflects limitations placed on capital
expenditures by the DIP Loan Agreement.
21
Item 7-A Quantitative and Qualitative Disclosure About Market Risk
- ------------------------------------------------------------------
Interest Rate Risk - The Year 2000 Credit Facility provided up to $100 million
under a revolving credit agreement with Fleet Capital Corporation. Interest on
borrowings under the revolving credit facility was determined, at the Operating
Partnership's option, based on the applicable LIBOR rate (one, two, three or six
month periods) plus a margin or the Base Rate. The Base Rate borrowing rate is
the greater of (a) the prime rate as announced or quoted by Fleet Bank or (b)
Federal Funds Effective rate plus .50%. At December 31, 2000, borrowings under
the facility were $72.4 million and bore interest at an average rate of 9.5%.
The Partnership is exposed to fluctuations in the LIBOR rate or the Base
Rate. A change of 1% in the applicable rate would change the Partnership's
annual interest cost by approximately $0.7 million based on the borrowings at
December 31, 2000.
Commodity Risk - The Partnership generally does not use derivatives or other
financial instruments such as futures contracts to manage commodity price 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 product varies with the supplier's raw
material and variable costs, which are market-driven, as well as its fixed
processing 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 manufacturing
products.
Foreign Exchange and Equity Risk - The Partnership is not exposed to
significant foreign exchange or equity market risk.
22
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
Sequential
Index to Financial Statements Page
- ----------------------------- ----------
Report of Independent Accountants 39
Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and 1998 40
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998 41
Consolidated Balance Sheets as of December 31, 2000
and 1999 42
Consolidated Statements of Changes in Partners'
Capital for the years ended December 31, 2000, 1999
and 1998 43
Notes to Consolidated Financial Statements 44-54
Financial Statement Schedule:
II - Valuation and Qualifying Accounts for the years
ended December 31,2000, 1999 and 1998 55
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
23
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The Partnership is a limited partnership (of which BCPM is the General
Partner) and has no directors or officers. The directors, officers and employees
of the General Partner and Borden perform management and non-supervisory
functions for the Partnership.
Independent Committee - BCPM is required to maintain an Independent Committee
of its Board of Directors, which shall be composed of at least three directors,
each of whom is neither an officer, employee or director of Borden nor an
officer or employee of BCPM. Certain actions require special approval from the
Independent Committee. Such actions include an expansion of the scope of
business of the Partnership, the making of material capital expenditures, the
material curtailment of operations of any plant, the material expansion of
capacity of any plant, and the amendment of or entry into by the Partnership of
any agreement with Borden. The members of the Independent Committee are Edward
H. Jennings, George W. Koch, and E. Linn Draper, Jr.
As sole stockholder of BCPM, Borden elects directors of BCPM on an annual
basis. Set forth below is certain information concerning the Directors and
Executive Officers of BCPM as of March 1, 2001. Their terms of office extend to
the next annual meeting of BCMP or until their earlier resignation or
replacement.
Name Position and Office with Age on Dec. 31 Served in Present
General Partner 2000 Position Since
- ------------------------------------------------------------------------------------------------------------
William H. Carter Director and Chairman 47 2000
Mark J. Schneider Director, President and Chief Executive
Officer 55 2000
William F. Stoll, Jr. Director and Vice Chairman 52 2001
E. Linn Draper, Jr. Director 58 1996
Edward H. Jennings Director 63 1989
George W. Koch Director 74 1987
Ronald P. Starkman Director 46 1998
Ronald Bryan Vice President- Sales and Marketing
48 2000
Marshall D. Owens, Jr. Vice President - Manufacturing 57 1997
Robert R. Whitlow, Jr. Vice President, Treasurer and Chief
Financial Officer 52 2001
William H. Carter, Chairman, has been a director of BCPM since 1995. He was
named Chairman of the Board of Directors in January 2000 and acted as interim
President and Chief Executive Officer from January to June 2000. He is also
Executive Vice President and Chief Financial Officer of Borden, a position he
has held since April 1995. He is also a Director of AEP Industries, Inc.
Mark J. Schneider was elected a Director, President and Chief Executive
Officer of BCMP June, 2000. Prior to that, from 1992 to September 1999, he was
Vice President Olefins and Vinyls for CONDEA Vista Company.
William F. Stoll, Jr. has been a director of BCPM since 1996. He was elected
Vice Chairman of BCMP in February 2001. He is Senior Vice President and General
Counsel of Borden, Inc., a position he has held since July 1996. Prior to
joining Borden, he was Vice President and Deputy General Counsel of Westinghouse
Electric Corporation, a position he held since January 1993. He is also a
Director of AEP Industries, Inc.
24
E. Linn Draper, Jr. has been a director of BCPM since 1996. He is Chairman,
President and Chief Executive Officer of American Electric Power Company, Inc.
and American Electric Power Service Corporation, positions he has held since
1993.
Edward H. Jennings has been a director of BCPM since 1989. He is also a
professor and President Emeritus of The Ohio State University. He served as
president of The Ohio State University from 1981 to 1990. Dr. Jennings is also a
director of Lancaster Colony, Inc.
George W. Koch has been a director of BCPM since 1987. He has been Of Counsel,
in the law firm of Kirkpatrick & Lockhart since January 1992. From April 1990
through December 1991, he was a partner in Kirkpatrick & Lockhart.
Ronald P. Starkman has been a director of BCPM since 1998. He is Senior Vice
President and Treasurer of Borden, Inc., a position he has held since November
1995. Prior to that, he was Senior Managing Director of Claremont Capital Group,
Inc. from December 1994 to November 1995.
Ronald Bryan was elected Vice President Sales and Marketing of BCPM effective
October 25, 2000. Prior thereto he held various management positions with CONDEA
Vista Company from July 1996 to October 2000.
Marshall D. Owens, Jr. is Vice President of Manufacturing for BCPM, a position
he has held since October 1997. Prior thereto, he served as Director of
Manufacturing since 1993.
Robert R. Whitlow, Jr. was elected a Vice President, Chief Financial Officer
and Treasurer of BCPM effective February 5, 2001. Prior to joining the Company
he was a consultant with Paul L. Comstock Co., investment advisors. From 1994 to
1999 he was Manager of Finance and Treasurer of CONDEA Vista Company.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
No Disclosure Required.
25
Item 11. Executive Compensation
- -------- ----------------------
The Partnership has no directors or officers. The directors and officers of
BCPM receive no direct compensation from the Partnership for services to the
Partnership. The Partnership reimburses BCPM for all direct and indirect costs
incurred in managing the Partnership.
The following table sets forth all cash compensation paid and accrued by
Borden or BCPM and reimbursed by the Partnership for services rendered during
the periods indicated by each Chief Executive Officer and three other executive
officers of BCPM whose remuneration exceeded $100,000 as of December 31, 2000
(the "Named Executive Officers").
================================================================================================================================
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
==========================================================================
AWARDS ALL
OTHER ============================ OTHER
NAME AND ANNUAL SECURITIES UNDERLYING COMPENSATION
PRINCIPAL COMPENSATION OPTIONS/LSAR (e)
POSITION YEAR SALARY ($) BONUS ($) ($) (#) ($)
- --------------------------------------------------------------------------------------------------------------------------------
M.J. SCHNEIDER 2000 161,538 86,735 (a) 43,790 (d) 225,000 12,532
President and CEO
- --------------------------------------------------------------------------------------------------------------------------------
J.M. SAGGESE (1) 2000 0 0 0 0 0
Former Chairman, President & 1999 510,000 (b) 512,710 0 14,000
CEO 1998 100,000 (b) 0 0 7,000
- --------------------------------------------------------------------------------------------------------------------------------
W.H. CARTER 2000 0 (c) 0 (c) 0 0 0 (c)
Chairman and Former
Acting President and CEO
- --------------------------------------------------------------------------------------------------------------------------------
W.P. LEONARD (2) 2000 242,000 0 0 46,500 36,666
Former Executive V.P. and 1999 242,000 278,285 13,000
Chief Operating Officer 1998 227,108 52,272 6,500
- --------------------------------------------------------------------------------------------------------------------------------
M.D. OWENS, JR. 2000 193,475 25,000 0 109,000 18,082
V.P. - Manufacturing 1999 172,425 160,474 8,000
1998 165,285 25,728 4,000
- --------------------------------------------------------------------------------------------------------------------------------
J.O. STEVNING (3) 2000 153,678 100,000 (f) 0 105,000 16,683
Former V.P. and Chief
Financial Officer
================================================================================================================================
(a) Mr. Schneider's signing bonus was used to purchase units of the company.
(b) Represents approximate amount of reimbursement paid to Borden by the
Partnership in consideration for services provided by Mr. Saggese to the
Partnership. Mr. Saggese received aggregate salary from Borden of $519,808
and $496,461 for the years 1999 and 1998, respectively. Additionally Mr.
Saggese received certain bonuses and other compensation in consideration
for his services rendered to Borden for which the Partnership did not have
any reimbursement obligations.
(c) No compensation was paid by the Partnership to Mr. Carter for his services.
(d) Reimbursement for tax payments.
(e) All Other Compensation is identified in the table below.
(f) Signing bonus paid to Mr. Stevning under the terms of his employment.
(1) Mr. Saggese retired as Chairman, President and CEO January 25, 2000.
(2) Mr. Leonard retired December 31, 2000.
(3) Mr. Stevning resigned as Chief Financial Officer effective February 5,
2001.
26
MATCHING
CONTRIBUTIONS (RSP RELOCATION UNUSED
YEAR AND ESP)(a) EXPENSE VACATION PAID TOTAL
---- ----------- ------- ------------- -----
Schneider, M.J. 2000 4,063 8,469 0 12,532
Saggese, J.M. 2000 0 0 0 0
Carter, W.H. 2000 0 0 0 0
Leonard, W.P. 2000 26,815 0 9,851 36,666
Owens, M.D. 2000 18,082 0 0 18,082
Stevning, J.O. 2000 16,683 0 0 16,683
(a) RSP and ESP refer to the Company's Retirement Savings Plan and the executive
supplemental benefit plans.
27
The following table sets forth information concerning individual grants of stock
options and free standing unit appreciation rights ("UARs") made during 2000 to
each of the Named Executive Officers.
Option/UAR(a) Grants in Last Fiscal Year
----------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term (a)
----------------------------- --------------------
Number Of Percent Of
Securities Total Option
Underlying SARs Granted Exercise Or
Option/SARs To Employees Base price Expiration
Name Granted (#) In Fiscal Year ($/Sh) Date 5%($) 10%($)
- ----------------------- ----------- -------------- ----------- ---------- ------------------- ----------------
Carter, W.H. 0 0 - - - -
Saggese, J.M. 0 0 - - - -
Schneider, M.J. 225,000 21.5% 3.75 18-Apr-07 344,250 800,482
Leonard, W.P. 46,500 4.4% 3.75 31-Dec-03 27,486 57,718
Stevning, J.O. 105,000 10% 3.75 18-Apr-07 160,293 373,559
Owens, M.D. 109,000 10.4% 3.75 18-Apr-07 166,399 387,789
(a) UARs are unit appreciation rights which, in the event the fair market
value of one Unit equals or exceeds the Base Price of such UAR at the time of
exercise of such UAR, entitles the holder thereof to receive, upon exercise of
such UAR, cash in an amount equal to the excess of the Fair Market Value of one
Unit on the date of exercise over the exercise price of such UAR. Based on a
December 29, 2000 unit price of $0.625, none of the UARs were in-the-money.
The UAR's vest 50% after two years, with the balance vesting after three years.
28
The following table provides information on unit appreciation rights (UARs)
exercised during 2000 by the Named Executive Officers and the value of their
unexercised UAR's and phantom units at December 31, 2000.
Aggregated Options/SAR Exercises in Last Fiscal Year
----------------------------------------------------
and Fiscal Year-End Options/SAR Values
--------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/UARs At Options/UARs
Fiscal Year-End (#) At Fiscal Year-End ($)
====================================================================================================
Name Exercisable(1) Unexercisable(1) Exercisable Unexercisable
====================================================================================================
M.J. Schneider 0 225,000 (2) (2)
- ----------------------------------------------------------------------------------------------------
W.H. Carter 0 0 (2) (2)
- ----------------------------------------------------------------------------------------------------
J.M. Saggese 17,837 17,500 (2) (2)
- ----------------------------------------------------------------------------------------------------
W.P. Leonard 24,067 62,750 (2) (2)
- ----------------------------------------------------------------------------------------------------
J.O. Stevning 10,103 105,000 (2) (2)
- ----------------------------------------------------------------------------------------------------
M.D. Owens 11,018 121,000 (2) (2)
====================================================================================================
(1) Includes UARs and phantom units.
(2) Based on a December 29, 2000 unit price of $0.625, none of the UARs were in-
the-money.
Pension Plan
The executive officers named above are employees of the General Partner or
Borden and participate in Borden's pension plans. The Borden Employees
Retirement Income Plan ("ERIP") for salaried employees was amended as of January
1, 1987, to provide benefit credits of 3% of earnings which are less than the
Social Security wage base for the year plus 6% of earnings in excess of the wage
base. Earnings include annual incentive awards paid currently but exclude any
long-term incentive awards. Benefits for service through December 31, 1986 are
based on the plan formula then in effect and have been converted to opening
balances under the plan. Both opening balances and benefit credits receive
interest credits at one-year Treasury bill rates until the participant commences
receiving benefit payments. For 2000, the interest rate was 5.54% as determined
in accordance with the plan language. Benefits vest after completion of five
years of employment for employees hired on or after July 1, 1990.
Borden's supplemental pension plan provides for a grandfathering of benefits
for certain key employees as of January 1, 1983, that, generally speaking,
provide for the payment of any shortfall if the sum of (a) the pension actually
payable on retirement under the ERIP (and any excess of supplemental plans),
together with (b) the amount (converted to a pension equivalent) attributable to
Borden contributions that would be standing to the employee's credit at
retirement under Borden's Retirement Savings Plan if the employee had
contributed at the maximum permitted rate eligible for Company matching from
December 31, 1983 until retirement, does not equal or exceed the sum of
29
(c) the retirement income calculated on the basis of the December 31, 1982, ERIP
pension formula (with certain adjustments), and (d) the amount (converted to a
pension equivalent) attributable to company contributions (equal to 3.3% of
compensation) that would be standing to the employee's credit at retirement had
the Borden's Retirement Savings Plan as in effect on January 1, 1983, been in
effect continuously to retirement. The projected pension figure for J.M. Saggese
appearing at the end of this section includes the effect of the foregoing
grandfathering.
Borden has supplemental plans which will provide those benefits which are
otherwise produced by application of the ERIP formula, but which, under Section
415 or Section 401(a)(17) of the Internal Revenue Code, are not permitted to be
paid through a qualified plan and its related trust. The supplemental plan also
provides a pension benefit using the ERIP formula based on deferred incentive
compensation awards and certain other deferred compensation, which are not
considered as part of compensation under the ERIP.
The total projected annual benefits payable under the formulas of the ERIP at
age 65 without regard to the Section 415 or 401(a)(17) limits and recognizing
supplemental pensions as described above, are as follows for the above Named
Executive Officers: M.J. Schneider - $21,652, J. M. Saggese - $367,215, (as of
February 29, 2000), W. P. Leonard - $58,426, W.H. Carter - $125,843, J.O.
Stevning - $90,349, and M. D. Owens, Jr. - $37,830.
Compensation Committee Interlocks and Insider Participation
W. H. Carter, who acted as Interim Chief Executive Officer from January to
June, and M.J. Schneider, President and Chief Executive Officer, participate in
deliberations concerning executive officer compensation; however, all executive
compensation decisions are made by the Independent Committee of the Board of
Directors of BCPM.
Compensation of Directors
During 2000 the three independent directors of BCPM received a retainer of
$15,000 per year plus a fee of $1,000 for each BCPM Board meeting attended. The
Board functions in part through its Independent Committee. The three non-
employee members of this committee are paid a meeting fee of $800 for each
committee meeting attended. In addition, the three independent directors of BCPM
were each granted 8,000 unit appreciation rights during 2000, pursuant to BCPM's
Long Term Incentive Plan. During 2000, the Board met nine times, the Independent
Committee met six times, and the Audit Committee met four times.
Employment Contracts, Termination of Employment and Changes-in-Control
Arrangements
Mr. Schneider's terms of employment provide him with severance and
medical/dental benefits for 12 months in the event he is terminated without
cause within 24 months of his employment date.
Mr. Stevning's terms of employment provide him with severance, medical/dental
benefits and executive outplacement for 12 months, and relocation benefits of up
to $150,000, in the event his employment is terminated without cause within 24
months of his employment date. In addition, in the event that, following a
change of control of the company, Mr. Stevning's base salary is decreased, he is
asked to relocate, or his position or responsibilities are decreased, he will be
eligible for 12 months severance benefits.
30
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
Since the Partnership is managed by its General Partner and has no Board of
Directors, there are no "voting securities" of the Partnership outstanding
within the meaning of Item 403(a) of Regulation S-K and Rule 12b-2 under the
Securities Exchange Act of 1934. Based solely on a Form 13-D and amendments
thereto filed with the SEC (the "Form 13-D), the partnership understands that as
of December 15, 2000, the following individuals and entities (collectively, the
"Holders") owned 2,249,324 common units or 6.1% of all outstanding units.
Name of Beneficial Owner Number of Common Units Percentage of Class
- ------------------------ ---------------------- -------------------
Marc H. Kozberg1 140,000 0.4%
Dr. Demetre Nicoloff1 363,387 1.0%
Robert H. Paymar1 175,000 0.5%
James A. Potter1 116,837 0.3%
Curtis L. Carlson Foundation2 71,300 0.2%
NAFCO Insurance Company
Ltd. Of Bermuda1 71,400 0.2%
Revocable Trust of Glen D. Nelson1 50,000 0.1%
Curtis L. Carlson Octagon Trust1 42,300 0.1%
Scott C. Gage1 15,000 less than 0.1%
Richard C. Gage1 10,000 less than 0.1%
Revocable Trust of Diana Nelson1 5,000 less than 0.1%
Geoffrey C. Gage1 5,000 less than 0.1%
Wendy M. Nelson1 10,000 less than 0.1%
Jennifer L. Nelson Trust1 7,500 less than 0.1%
Juliet A. Nelson Trust1 7,000 less than 0.1%
Revocable Trust of Edwin C. Gage1 12,500 less than 0.1%
Revocable Trust of Barbara C. Gage1 12,500 less than 0.1%
BCU Investments, L.L.C.3 1,134,100 3.1%
Nanser J. Kazeminy3 **1,134,100 3.1%
** Includes 1,134,100 Common Units owned by BCU Investments, L.L.C.
1 According to the Form 13-D, the business address for the members of the
Group is Dougherty Summit Securities LLC, 90 South Seventy Street, Suite
4000, Minneapolis, MN 55402.
2 According to the Form 13-D, the business address for these members of the
Group is 701 Carlson Parkway, Minneapolis, MN 55459-8215.
3 According to the Form 13-D, the business address for these members of the
Group is c/o BCU Investments, L.L.C., 7803 Glenroy Road, Bloomington, MN,
55459-8215.
31
Securities Ownership of Management
- ----------------------------------
The following table shows for (i) each director, (ii) each Named Executive
Officer and (iii) all directors and executive officers as a group, the
beneficial ownership of Units as of December 31, 2000.
Name of Beneficial Owner Units Percent of Units Held
- ------------------------ ----- ---------------------
Mark J. Schneider 50,700 *
Joseph M. Saggese 20,000 *
George W. Koch 20,700 *
Edward H. Jennings 1,000 *
William H. Carter 1,000 *
Ronald P. Starkman 6,000 *
E. Linn Draper, Jr. 0 *
William F. Stoll, Jr. 0 *
Wayne P. Leonard 25,000 *
Marshall D. Owens, Jr. 30 *
James O. Stevning 0 *
All directors and executive officers
as a group 124,430 *
* Represents less than 1% of the outstanding units.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The Partnership is managed by BCPM pursuant to the Partnership Agreement.
Subject to the orders of the Bankruptcy Court in the Chapter 11 cases, the
Partnership Agreement entitles BCPM to reimbursement of certain costs of
managing the Partnership. These costs include compensation and benefits payable
to officers and employees of BCPM, payroll taxes, general and administrative
costs and legal and professional fees. Note 5 of Notes in Consolidated Financial
Statements of the Partnership contained on pages 44-53 of this Form 10-K Annual
Report contains information regarding relationships and related transactions.
Mr. Koch is Of Counsel, retired, with Kirkpatrick & Lockhart, a law firm which
represents the Partnership and its affiliate Borden Chemical, Inc., in
connection with environmental, insurance, and other matters. The Partnership
believes that the terms of such services are on terms no less favorable to the
Partnership and its affiliates than if such services were procured from any
other law firm competent to handle the same matters.
32
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
- -------- ----------------------------------------------------
on Form 8-K
-----------
(a) 1. Financial Statements
--------------------
a. The Consolidated Financial Statements, together with the report
thereon of PricewaterhouseCoopers LLP dated April 5, 2001 are
contained on pages 39 through 54 of this Form 10-K Annual Report.
2. Financial Statement Schedule
----------------------------
II - Valuation and Qualifying Accounts for the years ended December
31, 2000, 1999 and 1998, are contained on page 55 of this Form 10-K annual
report.
3. Exhibits
--------
Management contracts, compensatory plans and arrangements are listed herein
at Exhibit 10.40.
2.1(1) Asset Transfer Agreement dated as of August 12, 1994 and amended
as of January 10, 1995, and March 16, 1995, between the Borden
Chemicals and Plastics Operating Limited Partnership (the
"Operating Partnership") and Occidental Chemical Corporation
("OxyChem") and the forms of VCM Supply Agreement and PVC
Tolling Agreement annexed thereto
3.1(2) Restated Certificate of Incorporation of BCPM
3.2(3) Amended by-laws of BCPM
3.3(4) Amended and Restated Certificate of Limited Partnership of the
Partnership
3.4(4) Amended and Restated Certificate of Limited Partnership of the
Operating Partnership
3.5(4) Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of December 15, 1988
3.6(5) First Amendment to the Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of April 9, 1997.
3.7(6) Second Amendment to the Amended and Restated
Agreement of Limited Partnership of the
Partnership dated August 14, 1997.
3.8(7) Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated as of November 30, 1987
4.1(8) Form of Depository Receipt for Common Units
4.2(9) Indenture dated as of May 1, 1995 of 9.5% Notes due 2005 between
the Operating Partnership and The Chase Manhattan
33
Bank (National Association), as Trustee
4.3(5) Rights Agreement between the Partnership and Harris Trust and
Savings Bank, as Rights Agent, dated as of April 8, 1997.
4.4(6) First Amendment to Rights Agreement between the Partnership and
Harris Trust and Savings Bank, as Rights Agent, dated as of
August 14, 1997.
10.1(10) Revolving Credit Agreement, dated March 31, 2000, between the
Operating Partnership and Fleet Capital Corporation, as Agent
and as a lender, and other lenders.
10.2(3) Conveyance and Transfer Agreement Dated as of June 27, 2000 by
and between the Operating Partnership and Borden Chemical, Inc.
10.3 Utilities and Service Agreement dated as of July 28, 2000 by and
between Borden Chemical, Inc. and the Partnership
10.4 Barge Dock Agreement dated as of July 28, 2000 by and between
Borden Chemical, Inc. and the Partnership
10.5 Environmental Indemnity Agreement dated as of July 28, 2000 by
and between Borden Chemical, Inc. and the Partnership
10.6 Control Room Agreement dated as of July 28, 2000 by and between
Borden Chemical, Inc. and the Partnership
10.7 Amendment to Intercompany Agreement dated July 28, 2000 by and
among the Partnership, the Company, Borden, Inc. and the General
Partner
10.8 Ground Lease dated as of July 28, 2000 by and between Borden
Chemical, Inc. and the Partnership
10.9 Mutual Release and Termination Agreement dated as of July 28,
2000 by and between Borden Chemical, Inc. and the Partnership
10.10 Act of Declaration of Separate Ownership dated as of July 28,
2000 and recorded as of August 2, 2000 executed by the
Partnership and acknowledged by Borden Chemical, Inc.
10.12(7) Service Agreement, dated as of November 30, 1987, between Borden
and the Operating Partnership
10.13(7) Intercompany Agreement, dated as of November 30, 1987, among
Borden, BCPM, the Partnership and the Operating Partnership
10.14(4) Borden and BCPM Covenant Agreement, dated as of December
34
15, 1988, among Borden and the Partnership
10.15(7) Use of Name and Trademark License Agreement, dated as of
November 30, 1987, among Borden, the Partnership and the
Operating Partnership
10.16(7) Patent and Know-how Agreement, dated November 30, 1987, among
Borden, the Partnership and the Operating Partnership
10.17(7) Environmental Indemnity Agreement, dated as of November 30,
1987, among the Partnership, the Operating Partnership and
Borden
10.18(7) Lease Agreement, dated as of November 30, 1987, between the
Operating Partnership and Borden
10.19(11) Restructuring Agreement, dated as of December 9, 1980, among
Borden, Uniroyal Chemical Company, Inc. (as successor to
Uniroyal, Inc.) and Monochem, Inc.
10.20(11) Amendment to Restructuring Agreement, dated as of December 31,
1981, among Borden, Uniroyal Chemical Company, Inc. (as
successor to Uniroyal, Inc.) and Monochem, Inc.
10.21(11) Restated Basic Agreement, dated as of January 1, 1982, between
Borden and Uniroyal Chemical Company, Inc. (as successor to
Uniroyal, Inc.)
10.2211) Restated Operating Agreement, dated as of January 1, 1982, among
Borden, Uniroyal Chemical Company, Inc. (as successor to
Uniroyal, Inc.) and Monochem, Inc.
10.23(11) Restated Agreement to Amend Operating Agreement, dated as of
January 1, 1983, among Borden, Uniroyal Chemical Company, Inc.
(as successor to Uniroyal, Inc.) and Monochem, Inc.
10.24(11) Operating Agreement, dated December 14, 1984 among Borden,
BASF, Liquid Air Corporation ("LAC") and LAI Properties, Inc.
("LAI")
10.25(11) Amendment No. 1 to Operating Agreement, dated October 2, 1985,
among Borden, BASF, LAC and LAI
10.26(4) Amendment No. 2 to the Operating Agreement, dated February 11,
1988, among Borden, the Operating Partnership, BASF, LAC and LAI
10.27(11) Second Operating Agreement, dated October 2, 1985, among
Borden, BASF, LAC and LAI
10.29(4) Restated Second Operating Agreement, dated February 11, 1988
among Borden, the Operating Partnership, BASF, LAC and LAI
10.30(7) Railroad Car Master Sublease Agreement, dated as of November 30,
1987, between Borden and the Operating Partnership, relating to
ACF Industries, Incorporated
35
Master Service Contract
10.31(7) Railroad Car Master Sublease Agreement, dated as of November
30, 1987, between Borden and the Operating Partnership,
relating to Pullman Leasing Company Lease of Railroad Equipment
10.32(7) Railroad Car Master Sublease Agreement, dated as of November
30, 1987, between Borden and the Operating Partnership,
relating to Union Tank Car Company Service Agreement
10.33(7) Railroad Car Master Sublease Agreement, dated as of November
30, 1987, between Borden and the Operating Partnership,
relating to General Electric Railroad Service Corporation Car
Leasing Agreement
10.34(7) Railroad Car Master Sublease Agreement, dated as of November
30, 1987, between Borden and the Operating Partnership,
relating to General American Transportation Corporation Tank
Car Service Contract
10.35(7) Railroad Car Sublease Agreement, dated as of November 30, 1987,
between Borden and the Operating Partnership, relating to EHF
Leasing Corporation Railroad Equipment Lease
10.36(7) Railroad Car Sublease Agreement, dated as of November 30, 1987,
between Borden and the Operating Partnership, relating to Bank
of New York Lease of Railroad Equipment (as amended)
10.37(11) Form of Rail Service Agreement between Borden and the
Operating Partnership
10.38(12) Form of Letter Agreement with Directors
10.39(7) Illiopolis Indemnity Agreement
10.40 Amended and Restated Long-Term Incentive Plan, as of April 18,
2000
10.41 Amended Agreed Interim and Proposed Final Order Authorizing
Debtor: (a) To use Cash Collateral; (b) To incur Postpetition
Debt; and (c) To Grant Adequate Protection and Provide Security
to Fleet Capital Corporation, as Agent
27 Financial Data Schedule
__________________
(1) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
Confidential treatment has been granted as to certain provisions.
(2) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and is
incorporated herein by reference in this Form 10-K Annual Report.
(3) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and is
incorporated herein by reference in this Form 10-K Annual Report.
(4) Filed as an exhibit to the joint Registration Statement on Form S-1 and
Form S-3
36
of the Partnership, Borden, Inc. and Borden Delaware Holdings, Inc. (File
No. 33-25371) and is incorporated herein by reference in this Form 10-K
Annual Report.
(5) Filed as exhibit 99.4 to the Registrant's Current Report on Form 8-K dated
April 8, 1997 (filed April 15, 1997) ( File No. 1-9699) and incorporated
herein by reference.
(6) Filed as exhibit 99.3 to the Registrant's Current Report on Form 8-K dated
August 14, 1997 (filed August 18, 1997) (File No. 1-9699) and incorporated
herein by reference.
(7) Filed as an exhibit to the Partnership's Registration Statement on Form S-1
(File No. 33-18938) and is incorporated herein by reference in this Form
10-K Annual Report.
(8) Filed as an exhibit to the Registrant's 1992 Form 10-K Annual Report and is
incorporated herein by reference in this Form 10-K Annual Report.
(9) Filed as an exhibit to the Registrant's 1995 Form 10-K Annual Report and is
incorporated herein by reference in this Form 10-K Annual Report.
(10) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and is
incorporated herein by reference in this Form 10-K Annual Report.
(11) Filed as an exhibit to the Partnership's Registration Statement on Form S-1
(File No. 33-17057) and is incorporated herein by reference in this Form
10-K Annual Report.
(12) Filed as an exhibit to the Registrant's 1989 Form 10-K Annual Report and is
incorporated herein by reference in this Form 10-K Annual Report.
(13) Exhibits 10.17, 10.18 and 10.19, which were previously filed, contain
information which has been deleted pursuant to an application for
confidential treatment pursuant to Rule 406 of the Securities Act of 1933,
with respect to which an order has been granted by the Commission.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BORDEN CHEMICALS AND PLASTICS
LIMITED PARTNERSHIP
By BCP Management, Inc.,
General Partner
By /s/ Robert R. Whitlow
---------------------------
Robert R. Whitlow
Chief Financial Officer and
Treasurer
Date: April 17, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with BCP Management, Inc., General Partner)
indicated, on the date set forth above.
Signature Title
--------- -----
/s/ William H. Carter Director, Chairman
- --------------------------
William H. Carter
/s/ E. Linn Draper, Jr. Director
- --------------------------
E. Linn Draper, Jr.
/s/ Edward H. Jennings Director
- --------------------------
Edward H. Jennings
Director
- --------------------------
George W. Koch
/s/ Mark J. Schneider Director, President and Chief Executive Officer
- --------------------------
Mark J. Schneider
/s/ Ronald P. Starkman Director
- --------------------------
Ronald P. Starkman
/s/ William F. Stoll, Jr. Director, Vice-Chairman
- --------------------------
William F. Stoll, Jr.
38
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS OF BORDEN CHEMICALS
AND PLASTICS LIMITED PARTNERSHIP
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Borden
Chemicals and Plastics Limited Partnership at December 31, 2000 and December 31,
1999, and the results of its operations and its cash flows for the three years
in the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 1 and Note 2
to the consolidated financial statements, the Partnership has experienced
recurring net losses and its principal operating subsidiary has on April 3, 2001
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code. These matters raise substantial doubt about the Partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1 and Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Columbus, Ohio
April 5, 2001
39
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per Unit data)
Year Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
Revenues
Net trade sales $468,434 $383,071 $351,038
Net sales to related parties 22,621 19,692 21,816
-------- -------- --------
Total revenues 491,055 402,763 372,854
-------- -------- --------
Expenses
Cost of goods sold
Trade 435,292 344,445 341,294
Related parties 18,732 14,761 23,135
Marketing, general & administrative expense 26,719 27,016 23,513
Impairment of long-lived assets 58,083
Interest expense 27,516 25,040 23,084
Tax on gross margin 702 2,673 6,802
Equity in loss of affiliate 1,200 905 1,683
Other (income) expense, including
minority interest (2,072) 183 (854)
-------- -------- --------
Total expenses 566,172 415,023 418,657
-------- -------- --------
(Loss) from continuing operations (75,117) (12,260) (45,803)
Discontinued operations:
(Loss)income from discontinued
operations, net (10,192) (11,731) 5,196
Gain on disposal of discontinued
operations, net 1,397
-------- -------- --------
Net (loss) (83,912) (23,991) (40,607)
Less 1% General Partner interest 839 240 406
-------- -------- --------
Net (loss) applicable to Limited
Partners' interest $(83,073) $(23,751) $(40,201)
======== ======== ========
Per Unit Data, net of 1% General Partner interest:
(Loss) from continuing operations per Unit $ (2.02) $ (0.33) $ (1.23)
(Loss)income from discontinued
operations per Unit (0.24) (0.32) 0.14
-------- -------- --------
Net (loss) per Unit $ (2.26) $ (0.65) $ (1.09)
======== ======== ========
Average number of Units outstanding
during the year 36,750 36,750 36,750
======== ======== ========
Cash distributions declared per Unit $ 0.00 $ 0.00 $ 0.00
======== ======== ========
See notes to consolidated financial statements
40
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-------------------------------
2000 1999 1998
--------- -------- --------
Cash Flows from Operations
Net (loss) (83,912) ($23,991) ($40,607)
Adjustments to reconcile net (loss) to
net cash provided (used in) by operating activities:
(Gain) on disposal of discontinued
operations, net (1,397)
Impairment of long-lived assets 52,533
Depreciation 36,350 36,514 33,369
Amortization 1,671 1,428 804
Deferred tax on gross margin (2,507) 840 5,800
Increase (decrease) in cash from changes
in certain assets and liabilities:
Accounts receivables 9,884 (20,120) 23,923
Inventories (5,455) (22,981) 14,449
Accounts payables (16,217) 24,633 (15,118)
Accrued interest 264 219 ( 19)
Other, net (10,447) 4,957 (11,662)
--------- -------- --------
(19,233) 1,499 10,939
--------- -------- --------
Cash Flows from Investing Activities
Capital expenditures (13,587) (18,328) (31,788)
Proceeds from sale of business segments 38,800
Proceeds from sale of equipment 3,297
Capital contribution to affiliate (714) ( 812) ( 1,064)
Plant acquisition (15,880)
--------- -------- --------
8,619 (15,843) (32,852)
--------- -------- --------
Cash Flows from Financing Activities
Proceeds from long-term borrowings 139,831 33,800 53,700
Repayments of long-term borrowings (130,621) (22,400) (26,900)
Payment of debt issuance costs (1,132)
Cash distribution paid (3,712)
--------- -------- --------
8,078 11,400 23,088
--------- -------- --------
(Decrease) increase in cash and equivalents (2,536) ( 2,944) 1,175
Cash and equivalents at beginning of year 5,759 8,703 7,528
--------- -------- --------
Cash and equivalents at end of year $ 3,223 $ 5,759 $ 8,703
========= ======== ========
- -----------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Interest paid during the year $ 25,247 $ 23,393 $ 23,103
Gross margin taxes paid during the year 1,938 1,348
- -----------------------------------------------------------------------------------------
Supplemental Schedule of Non-Cash Investing and Financing Activities
Note receivable in partial payment
of asset sale $ 9,700
- -----------------------------------------------------------------------------------------
See notes to consolidated financial statements
41
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2000 1999
--------- ---------
ASSETS
Cash and equivalents $ 3,223 $ 5,759
Accounts receivable (less allowance for
doubtful accounts of $1,843 and $456,
respectively)
Trade 58,444 75,794
Related parties 22,328 14,862
Inventories
Finished and in process goods 44,024 36,041
Raw materials and supplies 12,964 15,492
Note receivable 9,700
Other current assets 6,207 4,443
--------- ---------
Total current assets 156,890 152,391
--------- ---------
Investments in and advances to
affiliated companies 4,124 8,521
Other assets 37,408 50,679
--------- ---------
41,532 59,200
--------- ---------
Property, plant and equipment, at cost 486,410 766,185
Less accumulated depreciation (295,995) (496,925)
--------- ---------
Property, plant and equipment, net 190,415 269,260
--------- ---------
Total assets $ 388,837 $ 480,851
========= =========
LIABILITIES AND
PARTNERS' CAPITAL
Accounts payable $ 50,300 $ 66,517
Accrued interest 3,673 3,409
Other accrued liabilities 19,040 17,084
--------- ---------
Total current liabilities 73,013 87,010
Long-term debt 272,410 263,200
Deferred tax on gross margin 4,133 6,640
Other liabilities 4,713 5,521
--------- ---------
Total liabilities 354,269 362,371
--------- ---------
Commitments and contingencies (Note 12)
Partners' capital
Limited Partners 35,693 118,766
General Partner (1,125) (286)
--------- ---------
Total partners' capital 34,568 118,480
--------- ---------
Total liabilities and partners' capital $ 388,837 $ 480,851
========= =========
See notes to consolidated financial statements
42
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(In thousands)
Limited General
Partners Partner Total
---------- -------- ----------
Balances at December 31, 1997 $ 182,718 $ 360 $ 183,078
Net loss (40,201) (406) (40,607)
Balances at December 31, 1998 142,517 ( 46) 142,471
Net loss ( 23,751) ( 240) ( 23,991)
Balances at December 31, 1999 118,766 ( 286) 118,480
Net loss (83,073) (839) (83,912)
--------- ------- ---------
Balances at December 31, 2000 $ 35,693 $(1,125) $ 34,568
========= ======= =========
See notes to consolidated financial statements
43
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(In thousands except Unit and per Unit data)
1. Organization and Business
Borden Chemicals and Plastics Limited Partnership (the "Company" or
"Partnership") is a Delaware limited partnership which owns a 98.9899% limited
partner interest as sole limited partner in Borden Chemicals and Plastics
Operating Limited Partnership (the "Operating Partnership"). BCP Management,
Inc. ("BCPM"), a wholly-owned subsidiary of Borden, Inc. ("Borden"), owns a 1%
interest as the sole general partner in the Partnership and a 1.0101% interest
as the sole general partner ("General Partner") in the Operating Partnership,
resulting in an aggregate 2% ownership interest in the partnerships. BCPM
manages and controls the activities of the Partnership and the Operating
Partnership, and its activities are limited to such management and control. The
General Partner's interest in the Operating Partnership is reflected as minority
interest in the accompanying consolidated financial statements.
The Operating Partnership has three operating locations: its main operating
site in Geismar, Louisiana, which produces PVC resins, vinyl chloride monomer
and acetylene; a PVC resins plant located in Illiopolis, Illinois; and a PVC
resins plant in Addis, Louisiana. Its finished goods PVC resins are sold for
further processing into various end-use applications, such as plastic pipe and
pipe fittings, vinyl siding and window frames, vinyl flooring and other
applications.
The Partnership has incurred net losses of $83,912, $23,991 and $40,607 in
2000, 1999, and 1998, respectively. During 2000, the Partnership exited its
Methanol and Derivatives and Nitrogen Products operations that were dependent on
natural gas as a raw material feedstock. Increased production capacities
outside of the United States that take advantage of low cost supplies of natural
gas had resulted in the Partnership incurring significant losses from these
businesses competing against low cost global producers.
During the second half of 2000, the Partnership incurred significant losses
from continuing operations, as market conditions in the PVC resin industry
deteriorated. Industry resin capacity increases combined with a significant
downturn in consumption from PVC converters, which was a result of inventory
control efforts by the converters and reduced demand from end users due to
sluggish economic conditions, caused the Partnership's sales volume and selling
prices to fall well below profitable levels. Further, the cost of natural gas
increased to unprecedented levels during the second half of the year. This
caused the Partnership's production costs to rise dramatically, as natural gas
affected both raw material costs and energy costs.
On April 3, 2001, the Operating Partnership and its subsidiary, BCP Finance
Corporation, (collectively, "the Debtors") elected to seek bankruptcy court
protection to develop and implement a financial reorganization because, despite
management's continuing efforts to reduce the exposure to natural gas, depressed
resin prices and demand converged with sharply increased energy costs in the
first quarter of 2001 to create a critical debt and liquidity situation.
Management is in the process of developing strategies to restructure the
Operating Partnership's financial affairs and allow it to emerge from
bankruptcy. These strategies could include seeking strategic investors, lenders,
and/or joint venture partners, selling substantial assets or pursuing a merger
or other strategic transactions. There can be no assurance that management's
efforts in this regard will be successful. The support of the Partnership's
vendors, customers, lenders, unitholders and employees will continue to be key
to the Partnership's future success.
44
Management has undertaken several initiatives to improve liquidity, including
idling unprofitable or high cost assets and production facilities, wage freezes,
reductions-in-force and entering into a DIP Credit Facility as described below.
However, given current business and market conditions, there can be no assurance
that the Partnership will be able to meet its financial obligations in the
future.
2. Proceedings Under Chapter 11
On April 3, 2001, the Debtors filed voluntary petitions for protection under
Chapter 11 of the Bankruptcy Code (the "Chapter 11 Cases"). The Chapter 11 Cases
have been procedurally consolidated for administrative purposes only. The
Debtors are currently acting as debtors-in-possession pursuant to the
Bankruptcy Code.
Subsequent to the commencement of the Chapter 11 Cases, the Debtors sought and
obtained several orders from the Bankruptcy Court which were intended to
stabilize and continue business operations. The most significant of these orders
(i) approved an amendment to the Operating Partnership's Credit Agreement dated
as of March 31, 2000, (the "Year 2000 Revolving Credit Facility") with Fleet
Capital Corporation ("Fleet") as agent for itself and other lenders party
thereto (the "DIP Lenders"). The amendment (the "DIP Loan Agreement") provides
up to $100 million debtor-in-possession financing, (ii) permitted continued
operation of the consolidated cash management system during the Chapter 11 Cases
in substantially the same manner as it was operated prior to the commencement of
the Chapter 11 Cases, and (iii) authorized payment of pre-petition wages,
vacation pay and employee benefits and reimbursement of employee business
expenses.
The DIP Loan Agreement provides the Operating Partnership with a revolving
line of credit in an aggregate amount not to exceed $100 million subject to
borrowing base limitations. The aggregate borrowing limit can be increased to an
amount not to exceed $120 million at the discretion of the DIP Lenders. The
Operating Partnership will use amounts borrowed under the DIP Loan Agreement for
its ongoing working capital needs and for certain other purposes of the
Operating Partnership as permitted by the DIP Loan Agreement. The Operating
Partnership granted a security interest to the DIP Lenders in substantially all
of the Operating Partnership's assets as security for its obligations under the
DIP Loan Agreement. All obligations under the DIP Loan Agreement will be
afforded "super-priority" administrative expense status in the Chapter 11 Cases.
Under the DIP Loan Agreement, the Operating Partnership, at its option, may
make either LIBOR based or Base Rate Borrowings. The applicable interest rate
for LIBOR based borrowings is LIBOR plus 3.00%, and for Base Rate Borrowings, is
Base Rate plus 1.25%.
3. Summary of Significant Accounting Policies
The significant accounting policies summarized below are in conformity with
generally accepted accounting principles; however, this is not the basis for
reporting taxable income to Unitholders.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Partnership and the Operating Partnership after elimination
of interpartnership accounts and transactions.
Revenues - Sales and related cost of sales are recognized upon shipment of
products. Net trade and net related party sales are net of sales discounts and
product returns and allowances.
Shipping and Handling Costs - Shipping and handling costs are recorded as part
of
45
cost of goods sold upon shipment of products.
Cash Equivalents - The Partnership considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents. Included in cash and equivalents are time deposits of $243 and
$2,000 at December 31, 2000 and 1999, respectively.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Investments in and Advances to Affiliated Companies - The Partnership owns 50%
of a utility station located at the Geismar complex. Utilities provided are
allocated to the owners at cost. The Partnership's allocated costs are included
in cost of goods sold.
The Partnership owns a 51% partner interest in another partnership engaged in
manufacturing and marketing vinyl esters. Due to the significance of the rights
held by the minority partner, the Partnership's interest in this partnership is
accounted for using the equity method.
Other Assets and Liabilities - Debt issuance costs are capitalized and are
amortized over the term of the associated debt or credit agreement. Included in
other assets are spare parts totaling $13,244 and $22,996 at December 31, 2000
and 1999, respectively. Included in other accrued liabilities are accrued sales
discounts of $4,156 and $4,380 at December 31, 2000 and 1999, respectively.
Property, Plant and Equipment - The amount of the purchase price originally
allocated by the Partnership at its formation to land, buildings, and machinery
and equipment was based upon their relative fair values. Expenditures made
subsequent to the formation of the Partnership have been capitalized at cost
except that the purchase price for the Addis, Louisiana plant acquired in 1995
was allocated to properties based upon their relative fair values. Major
renewals and betterments are capitalized. Maintenance, repairs and minor
renewals totaling $39,824 in 2000, $34,768 in 1999 and $34,766 in 1998 were
expensed as incurred. When properties are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts.
Depreciation is recorded on the straight-line basis by charges to costs and
expenses based on the estimated useful lives of the assets.
The estimated useful lives of the assets are as follow:
Land improvements 10 - 20 years
Buildings 20 - 30 years
Machinery and equipment 5 - 15 years
Computer equipment and software 3 - 8 years
Long-Lived Assets - When events or changes in circumstances indicate that
assets may be impaired, an evaluation is performed in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". If it is
probable that undiscounted future cash flows will not be sufficient to recover
an asset's carrying amount, the asset is written down to its fair value.
In December 2000, the Partnership idled its acetylene plant and acetylene-
based VCM plant due to unfavorable economic conditions. As a result, the fixed
assets and other related assets of the idled facilities were reviewed for
impairment and were determined to be impaired under SFAS No. 121. As a result,
the Partnership recorded a $58,083 charge in 2000. The charge was comprised of
$52,533 to write-down the idled acetylene plant, acetylene-based VCM plant and
other related assets to fair value as determined by estimated future discounted
cash flows and $5,550 to accrue for losses on related purchase commitments to be
made during fiscal 2001.
46
Environmental Expenditures - Environmental related expenditures associated
with current operations are generally expensed as incurred. Expenditures for
the assessment and/or remediation of environmental conditions related to past
operations are charged to expense; in this connection, a liability is recognized
when assessment or remediation effort is probable and the costs are estimable.
See also Note 11 for discussion of the Environmental Indemnity Agreement ("EIA")
with Borden.
Income Taxes - Income taxes are accounted for under SFAS No. 109, "Accounting
for Income Taxes". In accordance with this statement, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and the respective tax bases, as measured by the expected 3.5%
gross margin tax rate that will be in effect in the periods when the deferred
tax assets and liabilities are expected to be settled or realized.
Long-Term Incentive Plan - Under the Long-Term Incentive Plan (the Plan),
certain management personnel and employees are awarded phantom appreciation
rights. Phantom appreciation rights provide the grantee the opportunity to earn
a cash amount equal to the appreciation from the base price to the fair market
value of the Partnership's traded units at the time of exercise. The phantom
appreciation rights vest 50% after two years, with the balance vesting after
three years. Due to declines in the price of the units there was no compensation
expense recognized for the phantom appreciation rights during 2000, 1999 or
1998. The plan provides the independent committee of the Board of Directors of
the General Partner the discretion to decrease the base price of the phantom
appreciation rights in certain events, including changes in ownership or
capitalization.
Earnings per Unit - Basic income per unit is computed by dividing net income,
after subtracting the General Partner's 1% interest, by the weighted average
number of units outstanding. Currently, there are no potentially dilutive
securities; accordingly, basic income per unit and diluted income per unit are
equivalent.
Comprehensive Income -SFAS No. 130 "Reporting Comprehensive Income",
establishes standards for reporting of comprehensive income and its components.
However, the Partnership has no elements of "other comprehensive income" and,
accordingly, net income and comprehensive income are equivalent.
Segment Information - Prior to fiscal 2000, the Partnership operated in three
reportable segments as defined by SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The segments were PVC Polymers
Products, Methanol and Derivatives and Nitrogen Products. The Partnership
identifies its reportable segments based on the internal organization that is
used by management for making operating decisions and assessing performance
During fiscal 2000, the Partnership exited its Methanol and Derivatives and
Nitrogen Products business segments. See Note 3. Consequently, the Partnership
now operates in only the PVC Polymers Products business segment, which consists
of PVC resins, ethylene-based vinyl chloride monomer (for internal consumption),
and its currently idled acetylene and acetylene-based vinyl chloride monomer
operations.
Internal Use Software - The Partnership accounts for internal use software
costs using the provisions of Statement of Provision ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
According to the SOP, costs incurred to develop the software during the
application development stage, upgrades and enhancements that provide additional
functionality are to be capitalized. As of December 31, 2000 and 1999, the net
book value of computer software costs were $12,986 and $11,985, respectively.
Depreciation expense of computer software costs amounted to $2,143, $1,971 and
$10 for the years ended December 31, 2000, 1999 and 1998, respectively
47
New Accounting Pronouncements - In June 1998, the FASB 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 the derivative and the resulting
designation. The Partnership does not believe that SFAS No. 133 will have a
significant impact on the Consolidated Financial Statements.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenditures during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain amounts in the prior year's financial statements
and notes thereto have been reclassified to conform to fiscal 2000
classifications.
4. Discontinued Operations
On June 27, 2000, the Partnership announced its decision to exit the methanol
and derivatives and nitrogen products business segments, as part of a process
that included the sale of its formaldehyde and certain other assets for $48,500
to a subsidiary of Borden. The sale of those assets was completed on July 28,
2000, with the Partnership receiving $38,800 in cash and an interest-bearing
note for $9,700 which was paid in January 2001. The nitrogen products facilities
were closed in July 2000, and the methanol production ceased in December 2000.
In connection with the discontinuance of the methanol and derivatives and
nitrogen products business segments, a gain of $1,397 (net of taxes) was
recognized in 2000. The gain was based on the sales proceeds less associated
transaction costs, book value of assets sold, charges for the write-down of
methanol and nitrogen products assets to estimated net realizable value, and an
accrual for estimated losses from these operations during the phase-out period.
The accrual for estimated losses was adjusted in the fourth quarter of 2000 to
reflect actual losses during the phase-out period. Estimated net realizable
value for the methanol and nitrogen products assets was determined based
on preliminary discussions with potential buyers and are expected to be sold in
fiscal 2001.
Results of these operations, previously reported as separate business
segments, have been classified as discontinued and prior periods have been
restated. Continuing operations are now comprised of the PVC Polymers Products
business segment.
Net revenues and (losses) income from the discontinued operations are as
follows:
Year ended December 31,
-------------------------------
2000 1999 1998
-------- -------- --------
Net sales $170,135 $150,531 $162,674
-------- -------- --------
(Loss) income from discontinued operations $(10,192) $(11,731) $ 5,196
Gain on disposal of business segments 1,397
-------- -------- --------
Net (loss) income from discontinued operations $ (8,795) $(11,731) $ 5,196
======== ======== ========
5. Related Party Transactions
The Partnership is managed by the General Partner. Under certain
agreements, the
48
General Partner and Borden are entitled to reimbursement of costs incurred
relating to the business activities of the Partnership. The Partnership is
engaged in various transactions with Borden and its affiliates in the ordinary
course of business. Such transactions include, among other things, the sharing
of certain general and administrative costs, sales of products to and purchases
of raw materials from Borden or its related parties, and usage of rail cars
owned or leased by Borden.
The Partnership participates in general insurance coverage held in its name by
a Borden affiliate. The costs of the coverage are specifically apportioned to
the Partnership by the insurance carriers and the Partnership pays the premiums
for the coverage directly to those carriers. The deductibles for property and
liability insurance coverages are $2,500, $1,000 and $1,000 per occurrence for
property and related damages at the Geismar, Illiopolis and Addis facilities,
respectively, and deductibles ranging from $100 to $2,000 per event for
liability insurance.
The employees of BCPM (together with employees providing support to or
services for BCPM) operate the Partnership and participate in various Borden
benefit plans including pension, retirement savings, postretirement other than
pensions, post employment, and health and life insurance. The Partnership has no
direct liability for such benefits since the Partnership does not directly
employ any of the persons responsible for managing and operating the
Partnership, but instead reimburses Borden (on its own or BCPM's behalf) for
their services. Charges to the Partnership for such services are actuarially
determined where appropriate. The Partnership expenses the full amount of such
charges but only reimburses Borden (on its own or BCPM's behalf) for actual
benefits paid. The difference between cash payments to Borden (on its own or
BCPM's behalf) and expense is accrued on the Partnership's books.
Benefit plan costs paid to Borden, and allocation for usage of resources such
as personnel and data processing equipment paid to Borden were $6,224 in 2000,
$5,622 in 1999, and $6,072 in 1998. Management believes the allocation methods
used are reasonable. Although no specific analysis has been undertaken, if the
Partnership were to directly provide such services and resources at the same
cost as Borden, management believes the allocations are indicative of costs that
would be incurred on a stand-alone basis.
The Partnership sold methanol, ammonia and urea to, and processed formaldehyde
and urea-formaldehyde concentrate for, Borden and its affiliates at prices which
approximated market under long-term agreements with Borden. As part of the
formaldehyde sales agreement (see Note 4) and the Partnership's decision to exit
these business segments, these agreements were terminated in 2000.
The Partnership also sells PVC resins to a customer in which Borden has a 34%
ownership interest. Sales to this entity are included in related party sales on
the face of the income statement.
6. Debt
This note contains information regarding the Operating Partnership's short-
term borrowings and long-term debt as of December 31, 2000. On April 3, 2001,
the Debtors commenced the Chapter 11 Cases. See Note 2. As a result of the
filing of the Chapter 11 Cases, no payments will be made on any pre-petition
debt except as approved by the Bankruptcy Court.
On May 1, 1995, the Operating Partnership issued $200,000 aggregate principal
amount of senior unsecured 9.5% notes due 2005. The senior unsecured notes
contain a number of financial and other covenants, including limitations on
liens and sales of assets. Cash distributions are not permitted unless
compliance with certain covenants is maintained. See Note 9 for further
discussion of cash distributions.
49
The aggregate fair value of the Operating Partnership's outstanding notes was
$75,500 at December 31, 2000 and $186,000 at December 31, 1999 as determined by
the market trading price for the notes at those dates.
The Operating Partnership entered into a four-year Credit Agreement (the "Year
2000 Revolving Credit Facility") with Fleet Capital Corporation ("Fleet"),
effective March 31, 2000, which provides for a revolving credit facility of up
to $100,000 subject to borrowing base limitations. The credit facility expires
on March 30, 2004, at which time all amounts outstanding must be repaid. The
Operating Partnership's obligations under the facility are collateralized by its
accounts receivable, inventory and a lien against certain fixed assets. The
Year 2000 Revolving Credit Facility replaced the existing facility and all
amounts outstanding under that facility were repaid with borrowings under the
Year 2000 Credit Facility.
Under the Year 2000 Revolving Credit Facility, the Operating Partnership, at
its option, may make either LIBOR based or Base Rate borrowings. The applicable
margin for such borrowings is reset quarterly based on the ratio of EBITDA to
interest expense for the previous twelve months. For LIBOR based borrowings the
applicable margin can range from LIBOR plus 1.25% to 2.50%, and for Base Rate
borrowings, the margin can range from Base Rate flat plus 0.5%. In addition,
the Operating Partnership pays a commitment fee between 0.375% and 0.50% on the
unused portion of the facility based on the same EBITDA to interest expense
ratio. The applicable margin, through the quarter ended December 31, 2000, was
2.00% for LIBOR loans and 0.0% for Base Rate loans and the commitment fee was
0.375% for the same period. Effective March 15, 2001, the Year 2000 Revolving
Credit Facility was amended such that the applicable margin for borrowings under
the facility is LIBOR plus 3.00% for LIBOR based borrowings and is Base Rate
plus 1.25% for Base Rate borrowings.
The Year 2000 Revolving Credit Facility contains covenants that place
significant restrictions on, among other things, the ability to incur additional
indebtedness, make distributions, engage in certain transactions with
affiliates, create liens or other encumbrances, merge or consolidate with other
entities, make acquisitions, make capital expenditures, and sell or otherwise
dispose of assets. In addition, a change in control of the General Partner, the
Partnership or the Operating Partnership are events of default under the Year
2000 Revolving Credit Facility.
At December 31, 2000, borrowings under the Year 2000 Credit facility were
$72,410 and bore interest at an average rate of 9.5%. At December 31, 1999,
borrowings under the prior facility were $63,200 and bore interest at an average
rate of 10.41%.
7. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
December 31,
---------------------
2000 1999
-------- --------
Land and improvements ......... $16,385 $16,308
Buildings ..................... 45,881 45,625
Machinery and equipment ....... 400,989 682,598
Computer software and equipment 23,155 21,654
-------- --------
$486,410 $766,185
======== ========
8. Allocation of Income and Loss
50
Income and loss of the Partnership is allocated in proportion to the partners'
percentage interests in the Partnership, provided that at least 1% of the income
or loss of the Partnership and Operating Partnership is allocated to the General
Partner. For gross margin tax purposes, certain items are specially allocated
to account for differences between the tax basis and fair market value of
property contributed to the Partnership by Borden and to facilitate uniformity
of Units. In addition, the Partnership Agreement generally provides for an
allocation of gross income to the Unitholders and the General Partner to reflect
disproportionate cash distributions, on a per Unit basis.
9. Cash Distributions
Under the terms of the Partnership Agreement, the Partnership is required to
make quarterly distributions to Unitholders and the General Partner of 100% of
its Available Cash. Available Cash each quarter generally consists of cash
receipts less cash disbursements (excluding cash distributions to Unitholders
and the General Partner) and reserves.
Distributions of Available Cash are generally made 98% to the Unitholders and
2% to the General Partner, subject to the payment of an incentive distribution
to the General Partner after a target level of cash distributions to the
Unitholders is achieved for the quarter. The incentive distribution is 20% of
any remaining Available Cash for the quarter (in addition to the General
Partner's 2% regular distribution). Incentive distributions are accounted for as
an expense of the Partnership.
Cash distributions are limited by the terms of the Partnership's debt
agreements-(See Note 6) and are unlikely to be made in the future during the
Chapter 11 process or upon its resolution.
10. Tax on Gross Margin
In August, 1997 legislation was enacted which extends indefinitely the
Partnership's ability to be treated as a partnership for federal income tax
purposes provided that the Partnership elected to be subject to a 3.5% tax on
taxable gross income beginning on January 1, 1998 (the ability to be treated as
a partnership had been scheduled to expire on December 31, 1997). The
Partnership made such an election.
Taxes on gross margin expense are comprised of:
Year ended December 31,
--------------------------
2000 1999 1998
------- ------ ------
Current tax expense $ 3,209 $1,833 $1,002
Deferred tax expense (2,507) 840 5,800
------- ------ ------
Total $ 702 $2,673 $6,802
======= ====== ======
At December 31, 2000, substantially all of the Partnership's deferred tax
liability related to property and equipment.
11. Rights to Purchase Units
On April 8, 1997, the General Partner declared a distribution of one common
unit purchase right (a "Right") for each outstanding common unit of the
Partnership and the number of Rights most closely approximating 1/99 th of the
number of the units
51
outstanding corresponding to the General Partner's interest in the Partnership.
The Rights are not exercisable until the earlier to occur of: (i) ten days
following a public announcement that a person or affiliated group of persons (an
"Acquiring Person") have acquired 15% or more of the outstanding units or (ii)
ten days (or such later date as may be determined by the General Partner prior
to someone becoming an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender or exchange offer the
consummation of which would result in a person or affiliated group of persons
acquiring 15% or more of the outstanding units. Until then, The Rights will
trade with the units and a Right will be issued with each additional unit
issued. The number of Rights outstanding at December 31, 2000 was 37,121,212.
Each Right entitles the holder to purchase from the Partnership one common
unit at a price of $21.00, subject to adjustment in certain circumstances. In
the event an Acquiring Person acquires a 15% or more interest in the
Partnership, each holder of a Right, with the exception of the Acquiring Person,
will have the right to receive upon exercise of the Right at the then exercise
price of the Right, that number of Units having market value of two times such
exercise price. At any time prior to an Acquiring Person becoming such, the
General Partner may redeem the Rights in whole, but not in part, for $0.01 per
Right. The Rights, which do not have voting rights, generally will expire no
later than April 8, 2007.
12. Commitments and Contingencies
Purchase Commitments:
The Partnership has entered into a fifteen year supply agreement for one of
its raw materials commencing in 1997 to assure long-term supply and minimize
price volatility. The purchase price is based on raw material and variable
costs, as well as fixed costs that will vary based on economic indices, changes
in taxes or regulatory requirements. The aggregate amount at December 31, 2000
of minimum payments required under the agreement is $34,067 with $4,753 per year
of minimum payments required through 2008. The payments are amortized over the
life of the contract on a straight-line basis. Purchases under the agreement
totaled $31,418 in 2000, and $25,528 in 1999.
Environmental and Legal Proceedings
On March 11, 1998, the Partnership and the United States Department of Justice
("DOJ") reached an agreement in principle to resolve the enforcement action
brought by the DOJ against the Operating Partnership, the Partnership and the
General Partner in October 1994, and the Declaratory Judgement Action brought by
the Partnership against the United States. The settlement provides for a
program of groundwater and other remediation at the Geismar facility. In light
of Borden's obligation under the EIA to pay for the groundwater remediation
program, the settlement will not have a material effect on the Partnership's
financial position or results of operations.
Under the EIA, Borden has agreed, subject to certain specified limitations, to
indemnify the Partnership in respect of environmental liabilities arising from
facts or circumstances that existed and requirements in effect prior to November
30, 1987, the date of the initial sale of the Geismar and Illiopolis plants to
the Partnership. The Partnership is responsible for environmental liabilities
arising from facts or circumstances that existed and requirements that become
effective on or after such date. With respect to certain environmental
liabilities that may arise from facts or circumstances that existed and
requirements in effect both prior to and after such date, Borden and the
Partnership will share liabilities on an equitable basis
52
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).
The Partnership is subject to extensive federal, state and local environmental
laws and regulations which impose limitations on the discharge of pollutants
into the air and water, establish standards for the treatment, storage,
transportation and disposal of solid and hazardous wastes, and impose
obligations to investigate and remediate contamination in certain circumstances.
The Partnership has expended substantial resources, both financial and
managerial, and it anticipates that it will continue to do so in the future.
Failure to comply with the extensive federal, state and local environmental laws
and regulations could result in significant civil or criminal penalties, and
remediation costs.
The Partnership is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of the management of the
Partnership, the amount of the ultimate liability, taking into account its
insurance coverage, including its risk retention program and Environmental
Indemnity Agreement with Borden would not materially affect the financial
position or results of operations of the Partnership. Any potential liability
may be impacted by the Chapter 11 Cases described in Note 2.
Operating Lease Arrangements
The Company leases certain railcars under operating leases which expire over
the next fifteen years. Generally, management expects that leases will be
renewed or replaced by other leases in the normal course of business.
Minimum payments for operating leases having initial or remaining non-
cancelable terms in excess of one year are as follows:
Fiscal Year(s) Amount
2001 $ 8,592
2002 6,886
2003 6,017
2004 5,037
2005 2,439
2006 to termination 6,460
- ---------------------------------------------------
Total minimum lease payments $35,431
- ---------------------------------------------------
Total rent expense for all operating leases amounted to $9,721 for 2000,
$9,537 for 1999 and $9,403 for 1998. The lease obligations described above are
subject to the impact of the Chapter 11 Cases described in Note 2.
During 1999, the Partnership realized a gain of $2,519 on the sale and
leaseback of railcars which has been deferred and is being amortized as a
reduction of rental expense over the terms of the leases.
13. Quarterly Financial Data (Unaudited)
The following table sets forth certain financial data for the periods
indicated:
2000 Quarters
- ------------------------------------------------------------------------------------------------
First Second Third Fourth
-------------- --------- --------- ------------
53
Revenues $140,478 $139,707 $113,333 $ 97,537
Gross profit 20,600 23,081 4,246 (10,896)
Income (loss) from continuing operations 4,974 8,638 (8,078) (80,651)(a)
(Loss) from discontinued operations (4,603) (5,589)
Net gain on disposal of
discontinued operations 5,012 (3,615)
Net income (loss) 371 8,061 (8,078) (84,266)(a)
Net income (loss) per Unit -
basic and diluted:
Continuing operations 0.14 0.23 (0.22) (2.17)
Discontinued operations (0.12) (0.02) (0.10)
-------- -------- --------- --------
Total 0.02 0.21 (0.22) (2.27)
1999 Quarters
- ------------------------------------------------------------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
Revenues $ 83,125 $ 95,111 $111,027 $113,500
Gross profit 9,097 9,334 10,182 14,944
(Loss) from continuing operations (3,925) (2,692) (2,460) (3,183)
(Loss) income from discontinued operations (1,766) (6,086) (4,880) 1,001
Net (loss) (5,691) (8,778) (7,340) (2,182)
Net (loss) income per Unit -
basic and diluted:
Continuing operations (0.11) (0.07) (0.07) (0.09)
Discontinued operations (0.04) (0.17) (0.13) 0.03
-------- -------- -------- --------
Total (0.15) (0.24) (0.20) (0.06)
(a) Includes a $58,083 charge for impairment of long-lived assets.
54
Borden Chemicals and Plastics Limited Partnership
Schedule II - Valuation and Qualifying Accounts
(Dollars in thousands)
Additions
---------
Charged
Balance at Charged to to other Balance at
beginning cost and accounts - Deductions end of
Description of period expenses describe - describe period
- ----------- ---------- ----------- ---------- ----------- ----------
2000
Allowance for doubtful accounts $456 $1,420 $-- $(33)(1) $1,843
==== ====== ========== ======= ======
1999
Allowance for doubtful accounts $672 $ (172) $-- $(44)(1) $ 456
==== ====== ========== ======= ======
1998
Allowance for doubtful accounts $475 $ 197 $-- $-- $ 672
==== ====== ========== ======= ======
NOTES:
(1) Accounts receivable balances written off during the period.
55