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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, 2001 Commission file number: 1-9699
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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NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _____ No X .
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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 of the Common Units held by non-affiliates of
the Registrant on March 28, 2002: $73,350.00
Number of Common Units outstanding as of the close of business on March
28, 2002: 36,750,000.
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The Exhibit Index is located herein at sequential page 36.
1
PART I
Item I. Business
General
Borden Chemicals and Plastics Limited Partnership (the "Company" or
"Partnership") is a limited partnership formed in 1987 to acquire, own and
operate, through its subsidiary operating partnership, Borden Chemicals and
Plastics Operating Partnership (the "Operating Partnership"), 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., now known as Borden Chemical, Inc. ("Borden"). In 1995, the
Operating Partnership purchased a PVC resin manufacturing facility, from
Occidental Chemical Corporation ("OxyChem"), located in Addis, Louisiana ("Addis
Facility"). Historically, the Operating Partnership'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. The Operating Partnership exited the Methanol and Derivatives
and Nitrogen Products businesses in 2000.
Due to unprecedented high natural gas costs, poor PVC market conditions and
a severe economic downturn, 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) (together "the Operating Partnership Chapter 11") on April 3,
2001.
With the approval of the Bankruptcy Court, the Operating Partnership sold
the Addis Facility on February 28, 2002, to Shintech Louisiana, LLC for $38
million plus the value of certain inventory and accounts receivable located at
the Addis facility. The Operating Partnership announced on March 8, 2002, that
it had executed an asset purchase agreement for the plant at Illiopolis,
Illinois, with Formosa Plastics Corporation, Delaware. The Bankruptcy Court
approved the Illiopolis transaction on March 27, 2002, and it closed on April
17, 2002, realizing net proceeds of approximately $23 million. The Operating
Partnership commenced the idling of the Geismar operations in March 2002,
scheduled for completion in June 2002, and continues to pursue the disposition
of the assets comprising the Geismar complex.
On March 22, 2002, BCP Management, Inc, the General Partner of the Company
and the Operating Partnership ("BCPM" or the "General Partner"), filed a
voluntary petition for protection under Chapter 11 of the Bankruptcy Code, in
the Bankruptcy Court under case number 02-10875 (the "General Partner
Bankruptcy"). For a discussion of developments in the bankruptcy proceedings and
the anticipated impact (including anticipated tax consequences) of the Operating
Partnership Chapter 11 and the General Partner Chapter 11 on the Company's
Unitholders, see "Operating Partnership Chapter 11", "General Partner Chapter
11" and "Impact of Bankruptcy Proceedings on Unitholders".
As a result of the Operating Partnership Chapter 11, the Company is not
reporting the Operating Partnership's financial results on a consolidated basis
for 2001. The Company does not have any operations or engage in any revenue
producing activities independent of the Operating Partnership. Therefore, a
discussion of the Company's business is not meaningful, and the following
discussion describes the business of the Operating Partnership.
During 2001 the principal production activities at Geismar, Louisiana,
Illiopolis, Illinois, and the Addis, Louisiana facility produced products for
the following applications:
Products Location Principal Applications
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PVC POLYMERS PRODUCTS
PVC Geismar Water distribution pipe, residential
2
Illiopolis siding, wallcoverings, vinyl
Addis flooring
VCM Geismar Raw material for the Company's
PVC operations
PVC Polymers Products
During 2001 the Operating Partnership operated only in the PVC Polymers
Products business segment, which consists of PVC resins, ethylene-based vinyl
chloride monomer (for internal consumption), and acetylene and acetylene-based
vinyl chloride monomer which were idled throughout the year. See the
Consolidated Financial Statement of the Operating Partnership at page 59 of this
Form 10-K for financial information regarding this segment.
PVC Resins - PVC is the second largest volume plastic material produced in
the world. During 2001 the Operating Partnership produced 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 77% and 78% of combined capacity
in 2001 and 2000, respectively. Although there have been year-to-year
fluctuations in product mix, the Operating Partnership has over time
concentrated on the higher margin grades of PVC resin and reduced its dependence
on commodity pipe grade PVC resins, which have historically experienced lower
margins. Based on data from the Society of the Plastics Industry, the Operating
Partnership believes its production accounted for approximately 8% of total
industry domestic capacity of PVC resins in 2001.
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 Operating Partnership's production of certain specialty PVC resin
grades also involves the consumption of purchased vinyl acetate monomer. The
Operating Partnership purchases vinyl acetate monomer from unrelated third
parties.
During 2001 all the VCM used by the Geismar PVC resin plant and most of the
VCM used by the Illiopolis PVC resin plants were obtained from the Operating
Partnership's two Geismar VCM plants discussed below. Substantially all of the
production of these VCM plants was consumed by the PVC resins plants at Geismar
and Illiopolis. The Geismar PVC resin plants obtained VCM from the Operating
Partnership'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 was supplied by OxyChem by pipeline via
exchange, or 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. During 2001 the
Operating Partnership had 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 flexibility of favoring the process that results in the lower
cost at any particular time.
Ethylene-Based VCM. Ethylene-based VCM ("VCM-E") was produced during 2001
at a 650 million pound stated annual capacity plant at the Geismar complex. The
plant operated at approximately 77% and 86% of capacity during 2001 and 2000,
respectively. All of the production of the VCM-E plant was consumed by the PVC
resin plants at the Geismar complex and Illiopolis.
3
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") was not produced by the
Operating Partnership during 2001. Its 320 million pound stated annual capacity
plant at the Geismar complex was idled in December 2000 due to the high cost of
raw material feedstock. During 2000, the plant operated at approximately 72% of
capacity. All of the VCM-A produced at the Geismar complex during 2000 was
consumed by the PVC resin plants at Geismar and Illiopolis.
Acetylene. Acetylene is primarily used as a feedstock for VCM-A and for
other chemical intermediates. Until January 2000, the Operating Partnership 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 Operating Partnership purchased BASF's interest
in the acetylene plant.
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 Operating Partnership
and Air Liquide America Corporation. For a description of the 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.
The principal competitors in the sale of PVC include Shintech, Formosa
Plastics, Oxyvinyl, L.P. and Georgia Gulf.
Discontinued Operations
The Operating Partnership sold its formaldehyde and certain other assets
for $48.5 million to Borden on July 28, 2000, with the Operating 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. Certain Purchase
Agreements and Processing Agreements with Borden covering PVC resins, methanol,
ammonia, urea, formaldehyde and urea-formaldehyde concentrate were also
terminated in 2000 as part of the sale transaction.
Raw Materials
Historically, the Operating Partnership purchased 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. 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 Operating Partnership idled or shutdown
its production units that consume natural gas as a feedstock and during 2001
consumed gas only as an energy source.
During 2001 the Operating Partnership purchased other raw materials for its
operations, principally ethylene and chlorine. Ethylene was supplied during 2001
by pipeline to the Geismar facility by several suppliers. Chlorine was supplied
by rail car and pipeline to the Geismar complex by various suppliers. The major
raw material for the Illiopolis PVC plant, VCM, was supplied by rail car from
the Geismar facility. In addition, in connection with the production of certain
specialty grades of PVC resins, the Operating Partnership purchased certain
quantities of vinyl acetate monomer. See "PVC Polymers Products-Production
Process". The Operating Partnership purchased its VCM requirements for the Addis
Facility under a VCM supply agreement entered into with Oxy Vinyl, LP.
4
Despite management's continuing efforts to reduce the exposure to high
natural gas prices, 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. During late 2000 and throughout 2001, management took
significant steps to improve liquidity, including idling unprofitable or high
cost assets and production facilities, wage freezes, reductions-in-force and
entering into the credit facilities as described in Note 2 to the Limited
Partnership consolidated financial statements.
Because raw materials have accounted for a high percentage of the total
production costs, the inability to pass on increases in costs of these raw
material feedstocks had a significant impact on operating results during 2001
due to the then existing market conditions.
Insurance
The Operating Partnership 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. It 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 Operating Partnership has, may cover environmental
claims against it. Insurance, however, generally does not cover penalties or the
costs of obtaining permits. See "Item 3 - Legal Proceedings".
Under its risk retention program, the Operating Partnership 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 Operating Partnership is included in Borden's master excess insurance
program.
Marketing and Sales
The 2001 marketing and sales activities were conducted by PVC sales and
marketing department 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. During the year, the group was relocated
from Baton Rouge, LA to the Geismar, LA manufacturing facility as a means to
reduce the cost of marketing activities. Additional professional sales personnel
were geographically positioned throughout the United States.
During 2001 a majority of the sales were made in the United States, and a
small portion in Canada. The Operating Partnership has not historically
participated in the export market, but retained access to these markets through
third party specialists.
Utilities
During 2001 the Geismar complex operated 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 Operating Partnership owns 50% of the capital stock.
The Operating Partnership'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
5
portion of the demand for water supply from the municipal water company, the
Operating Partnership 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.
Competition
The business in which the Operating Partnership operates was highly
competitive in 2001. The Operating Partnership competed with major chemical
manufacturers and diversified companies, a number of which have revenues and
capital resources exceeding those of the Operating Partnership. Because of the
commodity nature of its products, the Operating Partnership is not in a position
to protect its position by product differentiation and is not able to pass on
cost increases to its customers to the extent its competitors do not pass on
such costs. In addition to price, other significant factors in the marketing of
the products are delivery, quality and, in the case of PVC resins, technical
service. The Operating Partnership's competitive position in 2001 was also
adversely affected by the pending Operating Partnership Chapter 11. Security of
supply became a major concern for the Operating Partnership's customers given an
anticipated improvement in the PVC market.
Trademarks
The Operating Partnership entered into a Use of Name and Trademark License
Agreement ("Use of Name and Trademark License Agreement") with Borden pursuant
to which it is permitted to use in its name the Borden name and logo. The Use of
Name and Trademark License Agreement and the right to use the Borden name and
logo terminate in the event that BCPM ceases to be the General Partner.
Management
Since April 2001, BCPM as General Partner of the Operating Partnership has
managed the activities of the Operating Partnership, subject to orders of the
Bankruptcy Court in the Operating Partnership Chapter 11. The General Partner's
activities are limited to management of the Company and the Operating
Partnership. Since March 2002, management of the Company by BCPM as General
Partner has been subject to orders of the Bankruptcy Court in the General
Partner Chapter 11. Unitholders do not participate in the management or control
of the Company or the Operating Partnership. Subject to the General Partner
Chapter 11, the General Partner is liable, as general partner, for all the debts
of the Operating Partnership (to the extent not paid by the Operating
Partnership) other than any debt (such as the Operating Partnership's
outstanding 9.5% Notes due 2005 in the aggregate principal amount of $200
million) incurred by the Operating Partnership that is made specifically
nonrecourse to the General Partner.
BCPM has a seven member Board of Directors consisting of three outside
directors, three members who are officers of BCI and the President and CEO of
BCPM and the General Partner.
Neither the Company nor the Operating Partnership directly employs any of
the persons responsible for managing or operating the business of the Operating
Partnership, but as authorized by the bankruptcy court, relies on the officers
and employees of the General Partner, and to a limited extent 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 Operating Partnership'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 Operating Partnership has expended substantial resources,
both financial and managerial, to comply with environmental regulations and
permitting requirements. Although the Operating Partnership 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 Operating Partnership holds various environmental
permits for operations at each of its plants.
6
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 Operating Partnership's
ability to continue the affected plant operations.
During 2001 the Operating Partnership maintained an environmental and
industrial safety and health compliance program and conducted internal
regulatory audits at its Geismar, Illiopolis and Addis plants. The 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 Operating
Partnership believes that the Geismar, Illiopolis and Addis plants generally are
in material compliance with these requirements.
The 1990 Amendments to the Clean Air Act (the "1990 Clean Air Act
Amendments") require stringent controls on volatile organic compounds ("VOC")
emissions in ozone non-attainment areas and also require, subject to certain
exceptions, the control of nitrogen oxide ("NOx") emissions in such areas. The
Geismar and Addis plants are located in "nonattainment areas" for ozone under
the 1990 Clean Air Act Amendments.
In March 1998, the United States Department of Justice ("DOJ") and the
Operating Partnership signed a consent decree (the "Consent Decree") to resolve
an enforcement proceeding brought against the Operating Partnership 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 entered the Consent Decree which settled and resolved the
enforcement proceeding. 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 Operating Partnership believes
that the Geismar, Illiopolis, and Addis plants were in material compliance
during 2001 with OSHA requirements, including general industry standards, vinyl
chloride exposure requirements, recordkeeping requirements and chemical process
safety standards.
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 Operating Partnership to organize information about the
hazardous materials in the plants and to communicate that information to
employees and certain governmental authorities. The Operating Partnership has a
hazard communication program in place and believes that it generally was in
material compliance with EPCRA during 2001.
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 Operating Partnership believes that the Geismar,
Illiopolis and Addis plants were in material compliance with RCRA during 2001.
However, see "Item 3 - Legal Proceedings".
In accordance with the Consent Decree, the Operating Partnership 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
7
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 Operating Partnership'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 Operating Partnership 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 generated
hazardous substances and dispose of such hazardous substances at various offsite
disposal sites.
The Consent Decree signed by DOJ and the Operating Partnership in March
1998 resolved an enforcement proceeding against the Operating Partnership 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 Operating Partnership 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
Operating Partnership believes that it generally was in material compliance with
TSCA during 2001. 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 Operating
Partnership also applied for and received permits to discharge stormwater. The
Operating Partnership believes that the Geismar, Illiopolis and Addis plants
were in material compliance with the Federal Water Pollution Act of 1972 and
comparable state laws during 2001. In cases where there are excursions from the
permit requirements, the Geismar and Illiopolis plants are taking action to
achieve compliance, are working in cooperation with the appropriate agency to
achieve compliance or are in good faith pursuing their procedural rights in the
permitting process.
The EPA has issued effluent regulations specifying amounts of pollutants
allowable in direct discharges and in discharges to publicly owned treatment
works. The Geismar, Illiopolis and Addis plants manufacture or use as raw
materials a number of chemicals subject to additional regulation.
Areas of groundwater contamination have been identified at the Operating
Partnership's plants. It is the Operating Partnership's policy, where possible
and appropriate, to address and resolve groundwater contamination. The Operating
Partnership believes that environmental indemnities available to it would cover
all, or a substantial portion of, known groundwater contamination. The Operating
Partnership believes that the Geismar, Illiopolis and Addis plants generally
were in material compliance with all laws with respect to known groundwater
contamination during 2001. At the Geismar complex, Borden and the Operating
Partnership have complied with the Settlement Agreement with the state of
Louisiana, and the Operating Partnership complied with the Consent Decree with
DOJ for groundwater remediation during 2001. See "Item 3 - Legal Proceedings".
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.
8
Capital expenditures for environmental control facilities were approximately
$0.6 million in 2001 and $3.1 million in 2000.
Borden Environmental Indemnity
Under the Environmental Indemnity Agreement dated as of November 30, 1987
(the "EIA"), Borden agreed, subject to certain conditions, to indemnify the
Operating Partnership in respect of environmental liabilities arising from
events or violations which occurred or existed prior to November 30, 1987, the
date of the initial sale by Borden of the Geismar and Illiopolis plants to the
Operating Partnership (the "Transfer Date"). See "Item 3 - Legal Proceedings".
Addis Environmental Indemnity
OxyChem has indemnified the Operating Partnership 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 Operating Partnership for environmental liabilities
is subject to certain limitations. There can be no assurance that the
indemnification provided by OxyChem will be sufficient to cover all
environmental liabilities existing or arising at the Addis Facility.
Product Liability and Regulation
As a result of the Operating Partnership's manufacture, distribution and
use of different chemicals, it 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, 2001, BCPM employed 466 individuals. Subsequent to
year-end, further employee reductions have taken place.
Operating Partnership Chapter 11
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 Operating Partnership Chapter 11, 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 (the "Primary DIP Facility") to the
prepetition Year 2000 Revolving Credit Facility (the "Prepetition Credit
Facility") providing up to $100 million of debtor-in-possession financing, (ii)
permitted continued operation of the consolidated cash management system during
the Operating Partnership Chapter 11 in substantially the same manner as it was
operated prior to the commencement of the Operating Partnership Chapter 11,
(iii) authorized payment of pre-petition wages, vacation pay and employee
benefits and reimbursement of employee business expenses,
9
and (iv) authorized payment of pre-petition obligations to certain vendors
critical to the Operating Partnership's ability to continue its operations.
The Primary DIP Facility, which received final approval of the Bankruptcy
Court on July 11, 2001, provided the Operating Partnership with a revolving line
of credit in an aggregate amount not to exceed $100 million, subject to
borrowing base limitations. During 2001 the Operating Partnership used amounts
borrowed under the Primary DIP Facility for its ongoing working capital needs
and for certain other purposes of the Operating Partnership as permitted by that
facility. 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 Primary DIP Facility. All obligations under the
Primary DIP Facility are afforded "super-priority" administrative expense status
in the Operating Partnership Chapter 11.
In light of the possibility that the Primary DIP Facility would be
insufficient to finance the Operating Partnership's working capital needs during
the period required to obtain confirmation of a plan of reorganization for the
Debtors, the Operating Partnership approached a number of institutional lenders
to assess their interest in extending additional credit to the Debtors. None of
these lenders were willing to provide credit or terms acceptable to the
Operating Partnership. The Operating Partnership requested its General Partner,
BCPM, to provide a loan to it. On October 31, 2001, the Debtors filed an initial
motion with the Bankruptcy Court seeking an interim order to obtain additional,
secondary postpetition financing (the "Secondary DIP Facility") from BCPM. The
terms of the proposed Secondary DIP Facility were negotiated, on the one hand,
by management of the Operating Partnership and the Debtors' legal counsel and,
on the other hand, by officers of BCPM and BCPM's legal counsel, with the
approval of the Independent Committee of the Board of Directors of BCPM which is
comprised of three outside directors who are not employees of BCPM or Borden.
The negotiations included efforts to obtain the support of the lenders under the
Primary DIP Facility and the Official Committee of Unsecured Creditors (the
"Creditors Committee") appointed in the Operating Partnership Chapter 11. The
Creditors Committee filed an objection to the initial motion on November 6,
2001.
Further negotiations between the Operating Partnership and BCPM occurred,
and the parties agreed to revisions to the terms of the proposed Secondary DIP
Facility. The Debtors sought interim approval of the revised Secondary DIP
Facility. Subject to the terms and conditions of the Secondary DIP Facility,
BCPM has agreed to makes loans to the Operating Partnership through March 31,
2002, in an aggregate amount not to exceed $10 million for working capital,
other general corporate purposes and to make payments on the Primary DIP
Facility. The loans are unsecured, bear interest at the Alternate Base Rate
specified in the Primary DIP Facility plus 2.75% and mature on March 31, 2002.
The Creditors Committee also objected to the revised Secondary DIP Facility.
After a hearing, the Bankruptcy Court entered an order on December 20, 2001,
granting interim approval to $5 million in loans under the Secondary DIP
Facility.
On March 22, 2002, BCPM, the General Partner of the Company and the
Operating Partnership, filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. As of the date of the filing, BCPM had cash of approximately
$26 million, a claim of approximately $4 million against the Operating
Partnership for repayment of borrowings under the Secondary DIP Facility, and
claims of approximately $7.8 million against the Operating Partnership for
unreimbursed expenses of the Company and the Operating Partnership paid by BCPM,
the payment of which is subject to the approval of the Bankruptcy Court.
BCPM also filed a motion in the General Partner Bankruptcy requesting
authority to extend the maturity date of the Secondary DIP Facility to April 30,
2002, and approval of the second $5 million of lending authority under the
Secondary DIP Facility. The Bankruptcy Court granted the motion on March 27,
2002. Subsequently, BCPM filed a further motion seeking authority to lend the
Operating Partnership up to $6 million (with sub-limits on the use of funds to
pay ordinary costs of administration and severance) after expiration of the
Secondary DIP Facility on April 30. The Bankruptcy Court entered a "bridge
order" on April 24, 2002, authorizing such lending until May 23, 2002, at which
time the court authorized loans of up to $4.5 million to the Operating
Partnership through June 30, 2002. The maturity date has been further
10
extended to July 17, 2002. There can, however, be no assurance that BCPM will be
authorized by the Bankruptcy Court to make further loans to the Operating
Partnership or that the Operating Partnership will be authorized by the
Bankruptcy Court to make further borrowings from BCPM.
The Operating Partnership has explored various strategic alternatives,
including possible mergers or joint ventures or a sale or sales of substantially
all of its assets. This strategy has been announced by the Company and the
Debtors to the public, creditors and the Bankruptcy Court in various public
filings, press releases and pleadings. Prior to the filing of the Operating
Partnership Chapter 11, the Operating Partnership had retained Taylor Strategic
Divestitures Corporation ("Taylor") to provide investment-banking services in
connection with its attempts to complete an asset sale or other transaction. On
September 28, 2001, the Bankruptcy Court entered an order approving the Debtors'
retention of Taylor and a fee structure for its services.
Throughout the Operating Partnership Chapter 11, Taylor has worked with the
Debtors to identify and contact potential candidates for asset purchases or
other transactions. Beginning in June 2001, certain potential purchasers
submitted non-binding expressions of interest for certain of the Debtors'
assets. On August 24, 2001, the Debtors filed a motion with the Bankruptcy Court
for an order approving bidding procedures for the sale of substantially all of
the Debtors' assets. An order approving bidding procedures was entered by the
Bankruptcy Court on October 12, 2001. The procedures include a five-stage
process for marketing assets, negotiating with potential purchasers, conducting
an auction if needed, and obtaining court approval of sales of principal assets.
Following due diligence by several candidates, the number and amount of the
bids declined. Several candidates cited the events of September 11, 2001 and
related events for withdrawing from the bidding process, while others offered
business reasons for declining to bid. The Operating Partnership has, however,
continued to solicit bids and has conducted discussions with a number of
candidates.
On December 3, 2001, the Debtors filed a motion with the Bankruptcy Court
seeking approval of an asset purchase agreement with Shintech Louisiana, LLC
("Shintech") regarding the sale of the assets and operations of the Addis plant.
Shintech agreed to pay: (i) $38 million for the Addis plant, (ii) the value of
the Addis inventory and accounts receivable, and (iii) the cost of severance
benefits for certain Addis employees. The sale excludes certain items such as
cash, intercompany accounts, claims against third parties and equity interests
in certain entities. The sale was approved by the Bankruptcy Court on December
20, 2001, and closed on February 28, 2002.
The Operating Partnership announced on March 8, 2002, that it had executed an
asset purchase agreement for the plant at Illiopolis, Illinois, with Formosa
Plastics Corporation, Delaware, for the plant and working capital, subject to
adjustments. The Bankruptcy Court approved the Illiopolis transaction on March
27, 2002, and it closed on April 17, 2002, realizing net proceeds of
approximately $23 million.
The Operating Partnership continues to explore possible dispositions of the
Geismar plant, but there is no assurance that a sale of this plant will be
completed. The Operating Partnership began idling the Geismar plant in March,
2002, and the idlement is scheduled for completion in June 2002. On December 12,
2001, the Creditors Committee filed a motion seeking an order requiring the
Debtors to abandon the assets comprising the Geismar plant. The Debtors objected
to the motion. The Bankruptcy Court held an initial hearing on this motion on
December 20, 2001, and the motion was subsequently withdrawn by the Creditors
Committee. On April 16, 2002, the Creditors Committee filed a motion to convert
the Operating Partnership Chapter 11 to a case under Chapter 7 of the Bankruptcy
Code. The Bankruptcy Court denied the motion at a hearing on May 2, 2002 and
management continues to oversee liquidation of the remaining assets.
General Partner Chapter 11
11
On March 22, 2002, BCPM, the General Partner of the Company and the
Operating Partnership, filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. As of the date of the filing, BCPM had cash of approximately
$26 million, a claim of approximately $4 million against the Operating
Partnership for repayment of borrowings under the Secondary DIP Facility, and
claims of approximately $7.8 million against the Operating Partnership for
unreimbursed expenses of the Company and the Operating Partnership paid by BCPM,
the payment of which is subject to the approval of the Bankruptcy Court. The
Operating Partnership has subsequently repaid BCPM the $4 million of borrowings
under the Secondary DIP Facility.
Impact of Bankruptcy Proceedings on Unitholders
Pursuant to its Amended and Restated Agreement of Limited Partnership, the
Company 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 Company plus net reductions to reserves established in prior quarters,
less cash disbursements and net additions to reserves in such quarter. The
Operating Partnership is the sole source of Available Cash for the Company.
Since 1998, adverse business conditions, and during 2001 the Operating
Partnership Chapter 11, have considerably reduced revenues of the Operating
Partnership and caused the Operating Partnership and, in turn, the Company to
have net losses. No cash distributions to Unitholders have been declared since
the fourth quarter of 1997.
In connection with the announcement of the filing of the Operating
Partnership Chapter 11 in April, 2001, the Company issued a press release
stating that it was unlikely that the publicly traded units of the Company would
have any value following resolution of the Operating Partnership Chapter 11
process or that Unitholders would receive any distribution as a result of any
asset sales or plan of reorganization. That outlook has not improved.
As of the date of this report, sales of the Operating Partnership's assets
are not expected to generate enough cash to make a distribution to Unitholders
or to satisfy all of the Operating Partnership's debts. For federal income tax
purposes, Unitholders take into account their allocable share of income, gains,
losses, deductions and credits of the Operating Partnership (which flow to them
through the Company), even if they receive no cash distribution. Sales of the
Operating Partnership's assets may, and discharge of indebtedness income
resulting from the anticipated nonpayment of certain of the Operating
Partnership's debts will, result in the allocation of ordinary income and/or
capital gain to Unitholders in 2002 or later years without receipt of a cash
distribution from which to pay any tax liability. Due to income characterization
differences, timing considerations and other potential factors, a Unitholder's
tax liability attributable to such income and/or gain may exceed, and not be
offset by, any tax benefits resulting from any losses attributable to the
Unitholder's allocable share of operating results of the Operating Partnership
or the Unitholder's subsequent disposition or write-off of the Company's units.
The actual tax impact to a Unitholder is dependent on the Unitholder's overall
tax circumstance. Unitholders should consult with their personal tax advisors
regarding the federal, state, local and/or foreign tax consequences of
purchasing, holding or disposing of units.
Under the Company's Amended and Restated Agreement of Limited Partnership,
the Company is to dissolve and wind up its affairs upon, among other events, the
bankruptcy of the General Partner or the sale of all or substantially all of the
assets and properties of the Operating Partnership. It is anticipated that the
Company will be dissolved and terminated as a Delaware Limited Partnership in
2002 or thereafter. As explained above, no liquidating distribution will be made
to Unitholders upon the dissolution and termination of the Company.
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
12
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 Operating Partnership and the General
Partner, could cause the actual results of the Operating Partnership and, in
turn, the Company 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 Operating Partnership include the Operating
Partnership Chapter 11, the General Partner Bankruptcy, the sale of the
Operating Partnership's assets in such bankruptcy proceeding, the idling of the
Geismar plant, changes in the demand or pricing of the Operating Partnership's
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 Operating Partnership
Chapter 11, 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
The following is a description of properties of the Operating Partnership
as of December 31, 2001.
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. In 2000, the three formaldehyde plants were sold to BCI, the acetylene and
VCM-A plants were idled, and the methanol, ammonia and urea plants were
shut-down. 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 Operating Partnership began idling the operations at the Geismar
complex in March 2002 and continues to explore possible dispositions of the
assets comprising the Geismar complex. The Illiopolis PVC resin facility is
located on approximately 45 acres in central Illinois between Springfield and
Decatur. The Operating Partnership announced on March 8, 2002, that it had
executed an asset purchase agreement for the Illiopolis plant. The sale of the
Illiopolis facility was completed April 17, 2002. The Addis Facility is located
on approximately 40 acres of a 220 acre site adjacent to the Mississippi River,
approximately 20 miles from the Geismar complex. The Addis Facility was sold on
February 28, 2002.
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 were owned by the Operating Partnership at
December 31, 2001:
Annual Stated Capacity
Plants (stated in millions)
- ------ ----------------------
Geismar, LA:
PVC Resins ....................... 550 lbs.
Acetylene-based VCM .............. 320 lbs.
13
Ethylene-based VCM ...................................... 650 lbs.
Acetylene ............................................... 200 lbs.
Illiopolis, IL:
PVC Resins .............................................. 400 lbs.
Addis, LA:
PVC Resins .............................................. 600 lbs.
Item 3. Legal Proceedings
The following is a description of legal proceedings involving the Operating
Partnership and BCPM.
Federal Environmental Enforcement Proceeding
On March 11, 1998, the Operating Partnership and the DOJ signed a Consent
Decree to resolve the enforcement action brought by the DOJ against the
Operating Partnership in October 1994. In June 1998, the U.S. District Court for
the Middle District of Louisiana entered the Consent Decree, which settled and
resolved the enforcement proceeding. The Consent Decree provided for a specific
and detailed program of groundwater and other remediation at the Geismar
facility. See "Borden Environmental Indemnity" below.
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
Operating Partnership has reached a tentative settlement with the adjoining
landowners in the amount of $0.6 million. Litigation has been stayed due to the
bankruptcy proceedings.
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 Operating Partnership.
Borden Environmental Indemnity
Under the Environmental Indemnity Agreement dated as of November 30, 1987
(the "EIA"), Borden agreed, subject to certain conditions, to indemnify the
Operating Partnership in respect of environmental liabilities arising from
events or violations which occurred or existed prior to November 30, 1987, the
date of the initial sale of the Geismar and Illiopolis plants to the Operating
Partnership (the "Transfer Date"). The Operating Partnership is responsible for
certain environmental liabilities which arose after the Transfer Date. With
respect to environmental liabilities that may arise from events or violations
that occurred or existed both prior to and after the Transfer Date, Borden and
the Operating Partnership will share liabilities on an equitable basis
considering all of the facts and circumstances including, but not limited to,
the relative contribution of each to the matter and the amount of time each has
operated the asset in question (to the extent relevant). No claims can be made
under the EIA for liabilities incurred after November 30, 2002.
The United States Environmental Protection Agency ("EPA") has objected to
the motion filed by the Creditors Committee in the Operating Partnership Chapter
11 requesting abandonment of the Geismar plant by the Operating Partnership. The
motion is also opposed by the Operating Partnership and BCPM. The EPA takes the
position that the Debtors should not be permitted to abandon the Geismar plant
unless there are appropriate assurances that the obligations of the Consent
Decree will be implemented by Borden pursuant to the EIA or otherwise.
Representatives of the Operating Partnership, BCPM and Borden are currently
engaged in discussions seeking to resolve which obligations under the Consent
Decree are subject to indemnification by Borden under the EIA. Any agreement
among the Operating Partnership, BCPM and Borden regarding obligations of the
parties under the Consent Decree and/or the EIA will be subject to approval by
the Bankruptcy Court.
14
Operating Partnership Chapter 11
The Debtors commenced the Operating Partnership Chapter 11 on April 3,
2001. Additional information relating to the Operating Partnership Chapter 11 is
set forth in Part I, Item 1 of this Form 10-K under the caption "Operating
Partnership Chapter 11" and in Note 2 of the Notes to Consolidated Financial
Statements under the caption "Organization, Business and 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
Operating Partnership may be entitled. For information regarding the equity
interests in the Company held by Unitholders, see Part I, Item 1 of this Form
10-K under the caption "Impact of Bankruptcy Proceeding on Unitholders".
General Partner Bankruptcy
BCPM commenced the General Partner Bankruptcy on March 22, 2002. Additional
information relating to the General Partner Bankruptcy is set forth in Part I,
Item 1 of this Form 10-K under the caption "General Partner Bankruptcy" and in
Note 2 the Notes to Consolidated Financial Statements. Such information is
incorporated herein by reference.
Other Legal Proceedings
The Operating Partnership manufactures, distributes and uses many different
chemicals in its business. As a result of its chemical operations the Operating
Partnership 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 Operating Partnership's various chemical
operations may be made in the future.
In addition, the Operating Partnership is subject to various other legal
proceedings and claims which arise in the ordinary course of business. The
management of the Operating Partnership believes, based upon the information it
presently possesses, that the realistic range of liability to the Operating
Partnership of these other matters, taking into account the Operating
Partnership'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 Operating Partnership. 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 Operating Partnership Chapter 11.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of 2001 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 New York Stock Exchange suspended trading of the Common Units on April
4, 2001, and the Securities and Exchange Commission by order dated May 17, 2001,
granted the application of the New York Stock Exchange to remove the Common
Units from listing and registration on the Exchange effective May 18, 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. Since April 4,
2001, Common Units have traded in the over-the-counter market. As of December
31, 2001, there were approximately 16,000 holders of record of Common Units.
15
The following table sets forth the 2001 and 2000 quarterly Common Unit
data. The transaction prices for the first quarter of 2001 and the four quarters
of 2000 are the high and low sales prices quoted on the New York Stock Exchange.
The transaction prices for the over-the-counter market for the second, third and
fourth quarters of 2001 are high and low closing bid quotations obtained from
Pink Sheets LLC, which compiles information from sources it believes to be
reliable but does not guarantee the accuracy of such information nor warrant its
use for any purpose. The over-the-counter quotations represent inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
2001 Quarters
---------------------------------
First Second Third Fourth
------ ------ ----- ------
Cash distributions declared $ 0.00 $ 0.00 $ 0.00 $ 0.00
Market price range:
High 1.187 0.065 0.038 0.017
Low 0.620 0.01 0.015 0.0015
2000 Quarters
---------------------------------
First Second Third Fourth
------ ------- ------ ------
Cash distribution declared $ 0.00 $ 0.00 $ 0.00 $ 0.00
Market price range:
High 6 1/4 5 4 5/8 2 1/2
Low 4 1/4 3 1/4 1 1/2 1/2
16
Item 6. Selected Financial Data
The following table sets forth selected historical financial information
for the Company for each of the five years ended December 31.
(in thousands except per Unit data, which is
net of 1% General Partner interest)
2001/(b)/ 2000 1999 1998 1997
---- ---- ---- ---- ----
Earnings Summary:
Net revenues $ - $491,055 $402,763 $372,854 $486,189
Gross profit - 22,941 43,557 8,425 4,398
(Loss) from
continuing operations (23,156) (88,573)/(a)/ (12,260) (45,803) (42,581)
(Loss) income from
discontinued operations - (10,816) (11,731) 5,196 48,178
------- -------- -------- -------- --------
Net (loss) income ($23,156) ($99,389)/(a)/ $(23,991) $(40,607) $ 5,597
======= ======== ======== ======== ========
Per Unit data - basic and diluted:
(Loss) per unit from
continuing operations $ (0.62) $ (2.39) $ (0.33) $ (1.23) $ (1.15)
(Loss) income from
discontinued operations - (0.29) (0.32) 0.14 1.30
------- -------- -------- -------- --------
Net (loss) income $ (0.62) $ (2.68) $ (0.65) $ (1.09) $ 0.15
======= ======== ======== ======== ========
Cash distributions
declared per Unit $ - $ - $ - $ - $ 0.15
Financial Statistics:
Current assets $ - $156,890 $152,391 $110,485 $149,368
Current liabilities 2,952 88,648 87,010 58,776 85,034
Property and equipment, net - 190,415 269,260 288,300 290,200
Total assets - 388,837 480,851 461,696 500,186
Long-term debt - 272,410 263,200 251,800 225,000
Total partners' capital (4,065) 19,091 118,480 142,471 183,078
Capital expenditures - 13,587 18,328 31,788 19,426
Depreciation - 36,350 36,514 33,369 48,569
Interest expense 152 27,516 25,040 23,084 20,898
(a) Includes a $58,083 charge for impairment of long-lived assets and other
charges.
(b) As a result of the Operating Partnership's bankruptcy filing, the Company
no longer consolidated the Operating Partnership, effective January 1,
2001.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
On April 3, 2001, the Operating Partnership and its wholly owned subsidiary BCP
Finance Corporation, (the "Debtors") filed voluntary petitions for protection
under Chapter 11 of the Bankruptcy Code, 11 U.S. C. 101-1330 in the United
States Bankruptcy Court for the District of Delaware under case number 01-1268
(RRM) and 01-1269 (RRM) ("The Operating Partnership Chapter 11 case"). The
Operating Partnership 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.
Under the Company's Amended and Restated Agreement of Limited Partnership, the
Company is to dissolve and wind up its affairs upon, among other events, the
bankruptcy of the General Partner or the sale of all or substantially all of the
assets and properties
17
of the Operating Partnership. It is anticipated that the Company will be
dissolved and terminated as a Delaware Limited Partnership in 2002 or
thereafter.
During the fourth quarter 2001, the Operating Partnership began accepting bids
for the sale of substantially all of its assets. An asset purchase agreement was
entered into on December 21, 2001 for the sale of the Addis facility and the
plant was subsequently sold in February 2002. Its Illiopolis facility was sold
in April 2002 and the remaining facility, Geismar, began to be idled in March
2002 and is expected to be completed by June 2002. The Operating Partnership
continues to explore possible dispositions of the Geismar plant.
As a result of the expected dissolution of the Company and the imminent
liquidation of the Operating Partnership, the liquidation basis of accounting
and financial statement presentation has been adopted by both the Company and
the Operating Partnership effective December 31, 2001. The liquidation basis of
accounting requires an accrual for the estimate for all liabilities related to
expenses to be incurred during the wind down period. Additionally, assets and
liabilities are stated at their estimated net realizable value. The estimated
net realizable value of assets represents management's best estimate of the
recoverable value of the assets, net of selling expenses and without
consideration for the effect that the settlement of any litigation may have on
the value of the assets. The assets are held at their estimated net realizable
value until they are sold or liquidated. There can be no assurance, however,
that the Operating Partnership will be successful in selling the assets at the
estimated net realizable value.
Due to the bankruptcy filing, the Company no longer consolidates the Operating
Partnership's financial results in its condensed consolidated financial
statements, resulting in a change in reporting entity. As a result of this
change in reporting entity, the Company has restated its fiscal 2001 results,
effective January 1, 2001, to account for its investment in the Operating
Partnership under the equity method. Under the equity method, the Company's
share of the Operating Partnership's income or loss is recorded in earnings and
as an adjustment to the Company's investment in the Operating Partnership, to
the extent that the Company's investment is not reduced below zero. During the
first quarter fiscal 2001, the Company's investment in the Operating Partnership
was reduced to zero; therefore, further losses incurred by the Operating
Partnership are no longer recognized by the Company. The Company did not
recognize its 99% share of the Operating Partnership's losses amounting to
$255.1 million for the year ended December 31, 2001.
The Company is a holding company and does not have its own independent
operations, engage in any revenue producing activities, maintain its own bank
accounts nor does it have any cash flows. Prior to the Operating Partnership
filing for bankruptcy, certain obligations of the Company, including gross
margin taxes, were paid by BCPM and reimbursed by the Operating Partnership, as
management believes these expenses are reimbursable expenses pursuant to the
Partnership Agreement and past practice.
The Company's $2.8 million gross margin tax obligation due in April 2001 was
paid by BCPM, and, in return, the Company issued a demand note payable to BCPM.
Certain other expenses, primarily for accounting and legal services, of
approximately $3.1 million through December 31, 2001 have also been funded by
BCPM. It is the position of BCPM that these expenses are reimbursable by the
Operating Partnership pursuant to the Partnership Agreement and consistent with
past practice; however, such reimbursement is subject to approval of the
Bankruptcy Court. It is the position of BCPM that it is not required to make
capital contributions or further loans to, or advances on behalf of, the
Company. However, BCPM will consider making additional loans and advances upon
request of the Company, taking into account the interests of its creditors, but
there can be no assurance that BCPM will make further loans or advances in the
future. The Partnership recorded interest of $0.2 million associated with this
note.
To the extent that payments for Company obligations are not made by BCPM, are
not deemed to be reimbursable expenses from the Operating Partnership by the
bankruptcy court, or the Operating Partnership does not have the ability to pay
expenses deemed to be reimbursable, the Partnership would not have the
wherewithal or ability to pay these obligations.
18
Due to the change in reporting entity discussed above, a comparative analysis
and discussion of the Company's operations is not deemed to be meaningful. The
following management discussion pertaining to the results of operations and
liquidity of the Operating Partnership are included as management believes this
is the most meaningful manner in which to explain the changes in the losses from
its equity investment in the Operating Partnership.
Overview of Business
The Operating Partnership exited the Methanol and Derivatives and the Nitrogen
Products businesses in 2000, and its revenues during 2001 were derived
principally from the sale of PVC resins.
The markets for and profitability of PVC resins have been 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 Operating Partnership's products have been affected by general
economic conditions, a downturn in the economy and the Operating Partnership
Chapter 11. The demand for the Operating Partnership's PVC products has been
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 continued to increase 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 and into 2001 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 and continued to decline in 2001. 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 Operating
Partnership incurred negative profit margins from PVC Products over the second
half 2000, and throughout 2001.
Results of Operations
2001 Compared to 2000
Total Revenue
Total revenue during the year 2001 decreased $145.6 million or 29.6% to $345.5
million from $491.1 million in 2000. The decrease in revenues is attributed to a
decrease in average selling prices and volumes in PVC resins. Selling prices and
volume decreases are the result of a decreased demand in the marketplace.
Cost of Goods Sold
Total cost of goods sold decreased $77.8 million to $390.3 million in the
current year from $468.1 million last year. The decrease in total cost of goods
was due to a decrease in sales volumes and increased raw materials prices.
Expressed as percent of
19
revenue, cost of goods sold in 2001 was 113.0% in the current period versus
95.3% in the prior period.
As a result of the changes in revenues and cost of goods sold, the contributing
margin from continuing operations declined to a negative margin of $44.8 million
in 2001 from a positive margin of $22.9 million for 2000.
Impairment of Long-lived Assets and Other Charges
An impairment charge of $154.1 million was recorded during 2001 to write-down to
fair value long-lived assets associated with the Geismar Addis and Illiopolis
facilities in accordance with FAS 121 "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed of" as the Company's estimates of
future undiscounted cash flows associated with these facilities no longer
recovered the asset's carrying value. Estimates of future undiscounted cash
flows were lowered during the third and fourth quarter as a result of several
factors including the expected loss of a significant customer contract,
continued deterioration in the overall economy, and an extended forecast in the
expected upturn of the PVC industry from previous projections. The fair value of
the assets was estimated by management based on various sources including
binding or non-binding bids or offers from third parties, other discussions with
third parties, and an independent asset valuation.
In the year ended December 31, 2001, the Company severed 101 employees, at an
expense of $3.6 million. The Company continues to pay 75% of the cost of medical
and dental insurance for severed employees for up to six months after
termination. This will continue as long as the Company has the ability to
provide and maintain a group medical plan.
In July 2001, the court approved a Severance Plan designed to retain key
non-union employees whereby employees will receive severance benefits which vary
based on years of service. The plan also provided for stay bonus payments. As a
result of the imminent liquidation of the Operating Partnership, it was
determined that payment of severance under the Plan to the remaining employees
was probable. As a result, additional severance costs in the amount of $9.5
million were accrued in the fourth quarter 2001. These employees were terminated
in 2002 and received severance payments in accordance with the plan.
Additionally, stay bonuses of $2.3 million were expensed as incurred during
2001.
The Company accrued $12.2 million for estimated closure costs associated with
the Geismar facility and costs associated with rejecting rail car leases.
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 estimated fair value and to accrue for estimated losses on related purchase
commitments to be made during 2001. Actual payments on the purchase commitments
during 2001 amounted to $4.6 million. The excess accrual of $0.9 million was
reversed into income through Impairment of Long-Lived Assets and Other Charges
during 2001.
Interest Expense
Interest expense decreased $15.2 million compared to 2000, which is the result
of lower interest rates under the Revolving Credit Facility in 2001 and the
bankruptcy proceedings which precludes interest charges on the unsecured
Subordinated Notes. Interest expense has been recorded for the first quarter of
2001. However, contractual interest charges on the Subordinated Notes for the
period after the bankruptcy filing, which are not expected to be paid, have not
been recorded.
Tax on Gross Margin
Gross margin tax expense represents a deferred tax benefit as a result of the
impairment of long-lived assets. No current gross margin tax expense has been
20
incurred or recognized during 2001 as the Partnership does not have taxable
income for 2001 due to the losses incurred. Deferred tax benefits were not
provided for 2001 tax losses, as it is unlikely that such benefits will be
realized in the future.
Other Income and Expense
Other expense during 2001 was $2.4 million as compared to income of $3.2 million
for the same period last year. The change was largely due to accruals for sales
tax assessments of $2.5 million, a decrease in non-operating revenues of $1.1
million, and reduced interest income of $0.3 million as a result of the
bankruptcy filing.
Reorganization Items
Professional fees during 2001 related to the reorganization proceedings were
$7.5 million compared to no expense for the same period last year. Debt issuance
costs of $3.8 million associated with the $200 million of Subordinated Notes
were written off in the second quarter of 2001, in accordance with SOP 90-7 as a
result of the bankruptcy proceedings.
Net Loss from Continuing Operations
The net loss for 2001 was $276.9 million compared to a $87.6 million loss for
2000. As discussed above, the primary reasons for the decline were decreased
sales volumes and selling prices for PVC resins and an impairment of fixed
assets and other closure related costs discussed above.
Loss from Discontinued Operations
The Partnership exited the Methanol and Derivatives and the Nitrogen Products
business in 2000, and its revenues are now derived principally from the sale of
PVC resins. A net loss from discontinued operations of $10.8 million was
incurred for 2000. Depressed selling prices for Methanol, Ammonia and Urea
caused the continued losses from the discontinued businesses. A net gain of $1.4
million was recognized during 2000 on the sale of the Partnership's formaldehyde
and related assets.
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 $468.1 in 2000 from $359.2 million in
1999. Expressed as a percentage of total revenues, cost of goods sold increased
in 2000 to 95% compared to 89% in 1999.
Gross profit for PVC Polymer Products declined to $22.9 million in 2000
from $43.6 million in 1999. Increased costs of chlorine and natural gas during
2000 more than 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 and to accrue
21
for estimated losses on related purchase commitments to be made during 2001.
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 $2.5 million to $0.2 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 $87.6
million vs. $12.0 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 $12.2 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.
Liquidity and Capital Resources
Cash Flows from Operations
Cash provided by operations for the year 2001 totaled $15.2 million compared to
uses of $19.2 million in 2000, primarily due to favorable changes in
inventories, receivables and payables as a result of the bankruptcy filing,
offset by payments for professional fees associated with the Chapter 11
proceedings.
Cash Flows from Investing Activities
Capital expenditures totaled $11.6 million and $13.6 million for 2001 and 2000,
respectively. The Partnership 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. The Partnership purchased BASF's interest in
the acetylene plant in January 2000 for $15.9 million, $8.2 million of which was
paid in the first quarter 2000 and the remaining balance was paid in July 2000.
Proceeds from a note receivable from the sale of the formaldehyde business of
$9.7 million were collected in the first quarter of 2001.
Cash Flows from Financing Activities
Net repayments of long-term borrowings were $12.4 million in 2001 compared to
net borrowings of $9.2 million in 2000. In 2001, a $1.4 million refinancing
payment was made on the Primary DIP facility.
Liquidity
On April 3, 2001, the Debtors commenced the Operating Partnership Chapter 11
case. The Debtors are currently acting as debtors-in-possession pursuant to the
Bankruptcy Code.
22
Subsequent to the commencement of the Operating Partnership Chapter 11 case, 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 (the "Primary DIP Facility") to the
prepetition Year 2000 Revolving Credit Facility (the "Prepetition Credit
Facility") providing up to $100 million of debtor-in-possession financing, (ii)
permitted continued operation of the consolidated cash management system during
the Operating Partnership Chapter 11 case in substantially the same manner as it
was operated prior to the commencement of the Operating Partnership Chapter 11
case, (iii) authorized payment of pre-petition wages, vacation pay and employee
benefits and reimbursement of employee business expenses, and (iv) authorized
payment of pre-petition obligations to certain vendors critical to the Operating
Partnership's ability to continue its operations.
The Primary DIP Facility, which received final Approval of the Bankruptcy Court
on July 11, 2001, provides the Operating Partnership with a revolving line of
credit in an aggregate amount not to exceed $100 million, subject to borrowing
base limitations and bears interest at the Alternate Base Rate plus 1.25%. The
Operating Partnership has used amounts borrowed under the Primary DIP Facility
for its ongoing working capital needs and for certain other purposes of the
Operating Partnership as permitted by that facility. 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 Primary
DIP Facility. All obligations under the Primary DIP Facility are afforded
"super-priority" administrative expense status in the Operating Partnership
Chapter 11 case. The Primary DIP Facility matured on March 31, 2002, but the
lenders agreed, and the Bankruptcy Court approved, the extension of the maturity
date to April 30, 2002. The Primary DIP Facility was paid in full on April 18,
2002.
In light of the possibility that the Primary DIP Facility would be insufficient
to finance the Operating Partnership's working capital needs during the period
required to obtain confirmation of a plan of reorganization for the Debtors, the
Operating Partnership approached a number of institutional lenders to assess
their interest in extending additional credit to the Debtors. None of these
lenders were willing to provide credit or terms acceptable to the Operating
Partnership. The Operating Partnership requested its general partner, BCPM, to
provide a loan to it. On October 31, 2001, the Debtors filed an initial motion
with the Bankruptcy Court seeking an interim order to obtain additional,
secondary postpetition financing (the "Secondary DIP Facility") from BCPM. The
terms of the proposed Secondary DIP Facility were negotiated, on the one hand,
by management of the Operating Partnership and the Debtors' legal counsel and,
on the other hand, by officers of BCPM and BCPM's legal counsel, with the
approval of the Independent Committee of the Board of Directors of BCPM which is
comprised of three outside directors who are not employees of the Operating
Partnership, BCPM or its affiliates. The negotiations included efforts to obtain
the support of the lenders under the Primary DIP Facility and the Official
Committee of Unsecured Creditors appointed in the Operating Partnership Chapter
11 case. The Creditors Committee filed an objection to the initial motion on
November 6, 2001.
Further negotiations between the Operating Partnership and BCPM occurred, and
the parties agreed to revisions to the terms of the proposed Secondary DIP
Facility. The Debtors sought interim approval of the revised Secondary DIP
Facility. Subject to the terms and conditions of the Secondary DIP Facility,
BCPM has agreed to makes loans to the Operating Partnership through March 31,
2002, in an aggregate amount not to exceed $10 million for working capital,
other general corporate purposes and to make payments on the Primary DIP
Facility. The loans are unsecured, bear interest at the Alternate Base Rate
specified in the Primary DIP Facility plus 2.75% and originally matured on March
31, 2002. The Creditors Committee also objected to the revised Secondary DIP
Facility. After a hearing, the Bankruptcy Court entered an order on December 20,
2001, granting interim approval to $5 million in loans under the Secondary DIP
Facility. In 2002, the Operating Partnership has had to make borrowings under
the Secondary Facility which amounts have been subsequently repaid.
On March 22, 2002, BCPM filed a motion in the General Partner Bankruptcy
requesting authority to extend the maturity date of the Secondary DIP Facility
and approval of the second $5 million of lending authority under the Secondary
DIP Facility. This motion was approved by the Bankruptcy Court on March 27,
2002. Subsequently, BCPM
23
filed a further motion seeking authority to lend the Operating Partnership up to
$6 million (with sub-limits on the use of funds to pay ordinary costs of
administration and severance) after expiration of the Secondary DIP Facility on
April 30. The Bankruptcy Court entered a "bridge order" on April 24, 2002,
authorizing such lending until May 23, 2002, at which time the court authorized
loans of up to $4.5 million to the Operating Partnership through June 30, 2002.
The maturity date has been further extended to July 17, 2002. There can,
however, be no assurance that BCPM will be authorized by the Bankruptcy Court to
make further loans to the Operating Partnership or that the Operating
Partnership will be authorized by the Bankruptcy Court to make further
borrowings from BCPM.
On March 22, 2002, BCPM, the General Partner of the Company and the Operating
Partnership, filed a voluntary petition under Chapter 11 of the Bankruptcy Code.
As of the date of the filing, BCPM had cash of approximately $26 million, a
claim of approximately $4 million against the Operating Partnership for
repayment of borrowings under the Secondary DIP Facility, and claims of
approximately $7.8 million against the Operating Partnership for unreimbursed
expenses of the Company and the Operating Partnership paid by BCPM, the payment
of which is subject to the approval of the Bankruptcy Court. The Operating
Partnership has subsequently repaid BCPM the $4 million of borrowings under
the Secondary DIP Facility.
On May 1, 1995, the Operating Partnership issued $200 million aggregate
principal amount of 9.5% Notes due 2005 (the "Notes") pursuant to an Indenture
dated as of May 1, 1995. The Notes are senior unsecured obligations of the
Operating Partnership and are non-recourse to the Company, BCPM and its
affiliates. As a result of the filing of the Operating Partnership Chapter 11
case, no principal or interest payments will be made on any pre-petition debt,
including the Notes, except as approved by the Bankruptcy Court.
The Operating Partnership explored various strategic alternatives, including
possible mergers or joint ventures or a sale or sales of substantially all of
its assets. These strategies have been announced by the Company and the Debtors
to the public, creditors and the Bankruptcy Court in various public filings,
press releases and pleadings. Prior to the filing of the Operating Partnership
Chapter 11 case, the Operating Partnership had retained Taylor Strategic
Divestitures Corporation ("Taylor") to provide investment-banking services in
connection with its attempts to complete an asset sale or other transaction. On
September 28, 2001, the Bankruptcy Court entered an order approving the Debtors'
retention of Taylor and a fee structure for its services.
Throughout the Operating Partnership Chapter 11 case, Taylor has worked with the
Debtors to identify and contact potential candidates for asset purchases or
other transactions. Beginning in June 2001, certain potential purchasers
submitted non-binding expressions of interest for certain of the Debtors'
assets. On August 24, 2001, the Debtors filed a motion with the Bankruptcy Court
for an order approving bidding procedures for the sale of substantially all of
the Debtors' assets. An order approving bidding procedures was entered by the
Bankruptcy Court on October 12, 2001. The procedures include a five-stage
process for marketing assets, negotiating with potential purchasers, conducting
an auction if needed, and obtaining court approval of sales of principal assets.
Following due diligence by several candidates, the number and amount of the bids
declined. Several candidates cited the events of September 11, 2001 and related
events for withdrawing from the bidding process, while others offered business
reasons for declining to bid. The Operating Partnership has, however, continued
to solicit bids and has conducted discussions with a number of candidates.
On December 3, 2001, the Debtors filed a motion with the Bankruptcy Court
seeking approval of an asset purchase agreement with Shintech Louisiana, LLC
("Shintech") regarding the sale of the assets and operations of the Addis plant.
Shintech agreed to pay: (i) $38 million for the Addis plant, (ii) the value of
the Addis inventory and accounts receivable, and (iii) the cost of severance
benefits for certain Addis employees. The sale excludes certain items such as
cash, intercompany accounts, claims against third parties and equity interests
in certain entities. The sale was approved by the Bankruptcy Court on December
20, 2001, and closed on February 28,
24
2002. The proceeds from the sale of the Addis plant were applied to pay expenses
of the transaction and outstanding borrowings under the Primary DIP Facility.
The Operating Partnership announced on March 8, 2002, that it had executed an
asset purchase agreement for the plant at Illiopolis, Illinois, with Formosa
Plastics Corporation, Delaware. The Bankruptcy Court approved the Illiopolis
transaction at a hearing on March 27, 2002. The transaction closed on April 17,
2002, realizing net proceeds of approximately $23 million.
The Operating Partnership continues to explore possible dispositions of the
Geismar plant, but there is no assurance that a sale of the plant will be
completed. The Operating Partnership began idling the Geismar plant in March
2002, and the idlement is scheduled for completion in June 2002. On December 12,
2001 the Creditors Committee filed a motion seeking an order requiring the
Debtors to abandon the assets comprising the Geismar plant. The Debtors objected
to the motion. The Bankruptcy Court held an initial hearing on this motion on
December 20, 2001, and the motion was subsequently withdrawn by the Creditors
Committee. On April 16, 2002, the Creditors Committee filed a motion to convert
the Operating Partnership Chapter 11 to a case under Chapter 7 of the Bankruptcy
Code. The Bankruptcy Court denied the motion at a hearing on May 2, 2002 and
management continues to oversee liquidation of the remaining assets.
Management has taken several initiatives to improve liquidity, including idling
unprofitable or high cost assets and production facilities, wage freezes and
reductions in-force. At this time, sales of Operating Partnership assets are not
expected to generate enough cash to make a distribution to unit holders of the
Company or to satisfy all of the Operating Partnership's debts.
Critical Accounting Policies and 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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period, as well as the related disclosure of contingent assets and
liabilities at the date of the financial statements. On an on-going basis,
management evaluates its estimates and judgments. Management bases its estimates
and judgments on historical experience and various other factors that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates. Management believes the following accounting principles
are the most critical because they involve the most significant judgments,
assumptions and estimates used in preparation of the financial statements:
. Liquidation Basis Adjustments - The preparation of financial statements
on the liquidation basis of accounting requires accruals to be
established for estimates of costs to be incurred during the wind-down
period and for all assets and liabilities to be reported at their
estimated net realizable values. The valuation of assets and
liabilities necessarily requires many estimates and assumptions and
there are substantial uncertainties in liquidation. There can be no
assurance that the assets will be sold at their estimated net
realizable values, or that costs incurred during the wind-down period
will not differ significantly from their estimated amounts.
. Claims and Contingencies - The Company and the Operating Partnership is
subject to various claims and contingencies related to lawsuits, taxes,
and other matters arising out of the normal course of business. The
financial statement treatment of claims and contingencies is based on
management's view of the expected outcome of the applicable claim or
contingency. Management consults with legal counsel on matters related
to litigation and seeks input from other experts both within and
outside the Company with respect to matters in the ordinary course of
business. The Company accrues a liability if the likelihood of an
adverse outcome is probable and the amount is estimable.
New Accounting Pronouncements
25
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Accounting Standard No. 141, "Business Conditions". This statement requires
that all business combinations in the scope of this statement are to be
accounted for using one method, the purchase accounting method. Also in June
2001, the FASB issued Statement of Accounting Standard No. 142, "Goodwill and
Other Intangible Assets". This statement addresses how intangible assets that
are acquired individually or within a group of other assets (but not those
acquired in a business combination) should be accounted for in financial
statements upon their acquisition. This statement also addresses how goodwill
and other intangible assets should be accounted for after they have been
initially recognized in the financial statements. These statements currently
would not have an impact on the Company's financial statements.
In August 2001, the FASB issued Statement of Accounting Standard No. 143,
"Accounting for Obligations Associated with the Retirement of Long-Lived
Assets". This standard is effective for fiscal years beginning after June 15,
2002. The Statement would require that (1) an existing legal obligation
associated with the retirement of a tangible long-lived asset be recognized as a
liability when incurred and the amount of the liability be initially measured at
fair value (2) an entity recognize subsequent changes in the liability that
result from (a) the passage of time and (b) revisions in either the timing or
amount of estimated cash flows; and (3) upon initially recognizing a liability
for an Asset Retirement Obligation, an entity capitalized the cost by
recognizing an increase in the carrying amount of the related long-lived asset.
The Partnership does not believe this statement will have a material impact on
the Company's financial statements.
In October 2001, the FASB issued Statement of Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This standard
is effective for fiscal years beginning after December 15, 2001. The Statement
addresses issues relating to the implementation of FASB Statement No. 121 (FAS
121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and to develop a single accounting model, based on the
framework established in FAS 121, for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired. The Partnership does
not believe this standard will have a material impact on the Company's financial
statements.
In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 145 (SFAS No. 145), Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 eliminates Statement 4 and as a result, gains and
losses from extinguishment of debt should be classified as extraordinary items
only if they meet the criteria in APB Opinion No. 30. SFAS No. 145 amends FASB
Statement No. 13, Accounting for Leases, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement 4 shall be
applied in fiscal years beginning after May 15, 2002. The provisions of this
Statement related to Statement 13 shall be effective for transactions occurring
after May 15, 2002. All other provisions of this Statement shall be effective
for financial statements issued on or after May 15, 2002. The Company does not
believe this statement will have a material impact.
Item 7-A Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Risk - The Primary DIP Facility provides up to $100 million under
a revolving credit agreement with Fleet Capital Corporation. Interest on
borrowings under the revolving credit facility is determined, at the Operating
Partnership's option, either at LIBOR plus 3% or Base Rate plus 1.25%. At
December 31, 2001, borrowings under the facility were $60.0 million. The Primary
DIP Facility was paid in full on April 18, 2002.
The Partnership is exposed to swings in the LIBOR or Base rates. A change of
1.00% in
26
the applicable rate would change the Partnership's annual interest cost by
approximately $0.6 million based on the borrowings at December 31, 2001.
Commodity Risk - The Partnership generally does not use derivatives or other
financial instruments such as futures contracts to manage commodity market risk.
The Partnership has entered into a fifteen-year supply agreement (commencing in
1997) to provide a long-term supply of ethylene, a raw material, and minimize
price volatility. The purchase price for the product varies with the supplier's
raw material and variable costs, which are market-driven, as well as its fixed
costs. The Partnership evaluates all such contracts on the basis of whether
committed costs are expected to be realized in light of current and expected
selling prices when the commodities are consumed in manufactured products.
Foreign Exchange and Equity Risk
The Partnership is not exposed to significant foreign exchange or equity market
risk.
Forward-Looking Statements
Certain statements in this Form 10-K are forward-looking. These can be
identified by the use of forward-looking words or phrases such as "believe",
"expect", "may" and "potential", among others and include statements regarding
the business outlook for the Operating Partnership and its ability to fund its
cash needs. The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for such forward-looking statements. While these forward-looking
statements are based on the Partnership's reasonable current expectations, a
variety of risks uncertainties and other factors, including many which are
outside the control of the Partnership, could cause the Partnership's actual
results to differ materially from the anticipated results or expectations
expressed in such forward-looking statements.
27
Item 8. Financial Statements and Supplementary Data
Sequential
Index to Financial Statements Page
- ----------------------------- ----------
Report of Independent Accountants 43
Statement of Liabilities in Liquidation as of
December 31, 2001 44
Consolidated Balance Sheet as of December 31, 2000 45
Consolidated Statements of Operations for the years
ended December 31, 2001, 2000, and 1999 46
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000, and 1999 47
Consolidated Statements of Changes in Partners'
Capital for the years ended December 31, 2001, 2000,
and 1999 48
Notes to Consolidated Financial Statements 49
Financial Statement Schedule:
II - Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000, and 1999 68
Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
28
PART III
Item 10. Directors and Executive Officers of the Registrant
Each of the Company and the Operating 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 Company and the Operating
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.
Age on Served in
Name Position and Office with Dec. 31 Present
General Partner 2001 Position
Since
- ----------------------------------------------------------------------------------------------
William H. Carter Director and Chairman 48 2000
Mark J. Schneider Director, President and Chief
Executive Officer 56 2000
William F. Stoll, Jr. Director and Vice Chairman 53 2001
E. Linn Draper, Jr. Director 59 1996
Edward H. Jennings Director 64 1989
George W. Koch Director 75 1987
Ronald P. Starkman Director 47 1998
Ronald Bryan Vice President- Sales and Marketing 49 2000
Marshall D. Owens, Jr. Vice President - Manufacturing 58 1997
Robert R. Whitlow, Jr. Vice President, Treasurer and Chief
Financial Officer 53 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 Chemical, Inc.,
(formerly Borden, Inc.), a position he has held since April 1995. He is also a
Director of Borden Chemical, Inc., AEP Industries, Inc. and WKI Holding Company,
Inc
Mark J. Schneider was elected a Director, President and Chief Executive
Officer of BCPM June, 2000. Prior to that, from 1992 to September 2000, he was
Vice President Olefins and Vinyls for CONDEA Vista Company (now SASOL North
America).
William F. Stoll, Jr. has been a director of BCPM since 1996. He was elected
Vice Chairman of BCPM in February 2001. He was elected Senior Vice President and
General Counsel of Borden, Inc., (now Borden Chemical, Inc.) effective July 1996
and promoted to Executive Vice President and General Counsel in December 2000.
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. and Borden Chemical, Inc.
29
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. He is a member of the Independent/Audit Committee.
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. Mr. Jennings is also a
director of Lancaster Colony, Inc. He is a member of the Independent/Audit
Committee.
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. Prior to
that he was a partner of Kirkpatrick & Lockhart since April 1990. He is a member
of the Independent/Audit Committee.
Ronald P. Starkman has been a director of BCPM since 1998. He is Treasurer
of Borden Chemical, Inc. (formerly Borden, Inc.), a position he has held since
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 (now SASOL North America) from July 1996 to October
2000. He was terminated from the Company April 30, 2002.
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, Treasurer and Chief
Financial Officer of BCPM effective February 1, 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
(now SASOL North America).
Section 16(a) Beneficial Ownership Reporting Compliance
No Disclosure Required.
30
Item 11. Executive Compensation
The Company has no directors or officers. The directors and officers of BCPM
receive no direct compensation from the Company or the Operating Partnership for
services to the Company and the Operating Partnership. Under the Amended and
Restated Partnership Agreement, the Operating Partnership is to reimburse BCPM
for all direct and indirect costs incurred by BCPM in managing the Company and
the Operating Partnership.
The following table sets forth all cash compensation paid and accrued by BCPM
for services rendered during the periods indicated by the Chief Executive
Officer and the three other executive officers of BCPM as of December 31, 2001
(the "Named Executive Officers").
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
===============================================================================================================================
LONG TERM
ANNUAL COMPENSATION COMPENSATION
=====================================================================
AWARDS
===============================
NAME AND OTHER ANNUAL SECURITIES UNDERLYING ALL OTHERS
PRINCIPAL SALARY BONUS COMPENSATION /(2)/ OPTIONS/LSAR COMPENSATION/(3)/
POSITION YEAR ($) ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
M.J. SCHNEIDER 2001 358,333 /(4)/ 135,000 8,856 0 15,453
President and CEO 2000 161,538 /(1)/ 86,735 43,790 225,000 12,532
- -----------------------------------------------------------------------------------------------------------------------------------
R.R. WHITLOW, JR. 2001 207,575 /(4)/ 67,500 7,318 0 4,973
VP, Chief Financial Officer
and Treasurer
- -----------------------------------------------------------------------------------------------------------------------------------
R. BRYAN 2001 191,250 /(4)/ 67,500 0 0 6,375
VP, Sales and Marketing
- -----------------------------------------------------------------------------------------------------------------------------------
M.D. OWENS, JR. 2001 209,100 /(4)/ 75,000 0 15,757
V.P. - Manufacturing 2000 193,475 25,000 0 109,000 18,082
1999 172,425 160,474 8,000
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Schneider's signing bonus was used to purchase units of BCP.
(2) Amounts shown in this column represent reimbursements for tax payments.
(3) Amounts shown in this column as All Other Compensation consist of matching
company contributions to the Retirement Savings Plan and the executive
supplemental benefit plans.
(4) Amounts represent retention bonuses paid pursuant to the Key Employees
Retention Bonus and Severance Plan approved by the Delaware Bankruptcy
Court.
31
No options to purchase units or unit appreciation rights ("UARs") were
granted during 2001. The following table provides information on the value of
unexercised UAR's and phantom units held by the Named Executive Officers at
December 31, 2001.
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)
- ----------------------------------------------------------------------------------------------------
R.R. Whitlow, Jr. 0 0 (2) (2)
- ----------------------------------------------------------------------------------------------------
R. Bryan 0 0 (2) (2)
- ----------------------------------------------------------------------------------------------------
M.D. Owens 17,018 113,000 (2) (2)
====================================================================================================
/(1)/ Includes UARs and phantom units.
/(2)/ None of the UARs were in-the-money as of December 31, 2001.
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 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 payableunder 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 - $30,297, R.R. Whitlow, Jr. - $21,487, R.
Bryan - $27,342, and M. D. Owens, Jr. - $36,649.
Compensation Committee Interlocks and Insider Participation
M.J. Schneider, President and Chief Executive Officer, participates in
deliberations concerning executive officer compensation; however, all executive
compensation decisions are made by the Independent Committee of the Board of
Directors of BCPM.
32
Compensation of Directors
During 2001 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. During 2001, the Board met 14 times, and the
Independent Committee met three times.
Employment Contracts, Termination of Employment and Changes-in-Control
Arrangements
On August 1, 2001, the Bankruptcy Court approved, in the Operating
Partnership Chapter 11, an employee retention and severance plan (the "Retention
Plan"), including the Named Executives. Under the Retention Plan, the Named
Executives are eligible to receive retention bonuses as follows: M.J. Schneider
- - $270,000, R.R. Whitlow, Jr. - $135,000, R. Bryan - $135,000, and M.D. Owens -
$150,000; 50% of the retention bonuses was paid to each of the Named Executives
in 2001, and the remaining 50% is payable on the occurrence of certain events,
including the sale of substantially all of the Operating Partnership's assets.
In addition, if employment is involuntarily terminated for reasons other than
death, disability, retirement or cause, the Named Executives are eligible to
receive severance benefits as follows: M.J. Schneider - 12 months' salary, R.R.
Whitlow, Jr. - 9 months' salary, R. Bryan - 12 months' salary, and M.D. Owens -
9 months' salary.
Mr. Schneider is also entitled, under the terms of his employment, to a
similar severance benefit of salary and medical/dental benefits for 12 months in
the event he is terminated without cause within 24 months of his employment
date.
Mr. Bryan is also entitled, under the terms of his employment, to a similar
severance benefit of salary and medical/dental benefits for 12 months in the
event he is terminated without cause within 24 months of his employment date.
33
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 on a review of filings made with the Securities and Exchange
Commission, the Partnership is not aware of any beneficial owner of more than
five percent of the outstanding units, as of March 1, 2002.
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 March 1, 2002.
Name of Beneficial Owner Units Percent of Units Held
- ------------------------ ----- ---------------------
Mark J. Schneider 50,700 *
George W. Koch 20,700 *
Edward H. Jennings 1,000 *
William H. Carter 1,000 *
Ronald P. Starkman 0 0
E. Linn Draper, Jr. 0 0
William F. Stoll, Jr. 0 0
Robert R. Whitlow, Jr. 0 0
Marshall D. Owens, Jr. 30 *
Ronald Bryan 0 0
All directors and executive officers 73,430 *
as a group
* Represents less than 1% of the outstanding units.
Item 13. Certain Relationships and Related Transactions
The Company and the Operating Partnership are managed by BCPM, subject to
orders of the ankruptcy Court, pursuant to the Amended and Restated Partnership
Agreement of the Company and the Amended and Restated Partnership Agreement of
the Operating Partnership, respectively. Neither the Company nor the Operating
Partnership directly employs any of the persons responsible for managing or
operating the business of the Operating Partnership, 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. Note 7 of Notes to Consolidated Financial Statements of the
Partnership contained on pages 55-56 and Note 4 of Notes to Consolidated
Debtor-in-Possession Financial Statements of the Operating Partnership,
contained on pages 66 - 68 of this Form 10K Annual Report contain information
regarding certain relationships and related transactions.
As of the filing of the Operating Partnership Chapter 11 on April 3, 2001,
the General Partner was the payee of a Demand Note dated November 30, 1987, from
Borden in the original principal amount of $37.5 million. Subsequently, the
General Partner made a series of demands on the Demand Note, applying such
principal payments and interest received on the Demand Note to pay taxes and
other expenses of the Company and the Operating Partnership. On January 24,
2002, the General Partner made demand on Borden for payment of the remaining
principal due on the Demand Note and accrued interest in the aggregate amount of
approximately $32.4 million. On January 29, 2002 Borden transmitted a payment of
approximately $24.2 million to the General Partner, stating that the amount
represented payment in full of the Demand Note after giving effect to the
set-off of obligations of the General Partner to Borden. The amount set-off
against the Demand Note consisted of (i) claims in the amount of approximately
$1.8 million relating to a Rail Car Sublease Agreement between Borden and the
Operating Partnership (the "Rail Car Obligations"), (ii) claims in the amount of
34
approximately $5.6 million relating to a Utilities and Services Agreement
between Borden and the Operating Partnership (the "Utilities and Services
Agreement Obligations"), (iii) claims in the amount of approximately $648,000
relating to obligations of the General Partner for participation of certain of
its employees in Borden's Executive Supplemental Pension Plan (the "ESPP
Obligations"), and (iv) claims in the amount of approximately $77,000 for
various administrative expenses incurred by Borden on behalf of the Operating
Partnership (the "Miscellaneous Obligations"). The General Partner, through the
Independent Committee and its legal counsel, negotiated a resolution of the
dispute over the set-off amounts with Borden. Effective March 7, 2002, the
General Partner, with the authorization of the Independent Committee, entered in
a Settlement Agreement and Release with Borden pursuant to which the General
Partner agreed that Borden had a valid and enforceable right to set-off the Rail
Car Obligations, ESPP Obligations and Miscellaneous Obligations against amounts
due under the Demand Note, and Borden relinquished its right to set-off the
Utilities and Services Agreement Obligations and paid approximately $5.6 million
(plus $27,000 in accrued interest) to the General Partner in full satisfaction
of the Demand Note.
Under the Environmental Indemnity Agreement dated as of November 30, 1987
(the "EIA"), Borden agreed, subject to certain conditions, to indemnify the
Operating Partnership in respect of environmental liabilities arising from
events or violations which occurred or existed prior to November 30, 1987, the
date of the initial sale of the Geismar and Illiopolis plants to the Operating
Partnership. Representatives of the Operating Partnership, the General Partner
and Borden are currently engaged in discussions seeking to resolve which
obligations under the Consent Decree are subject to indemnification by Borden
under the EIA. See "Item 3 - Legal Proceedings."
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.
35
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, 2002 are
contained on pages 43 through 67 of this Form 10-K Annual
Report.
2. Financial Statement Schedule
II - Valuation and Qualifying Accounts for the years ended December
31, 2001, 2000 and 1999 is contained on page 68 of this Form
10-K Annual Report.
3. Exhibits
Management contracts, compensatory plans and arrangements are listed
herein at Exhibits 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
Bank (National Association), as Trustee
4.3/(5)/ Rights Agreement between the Partnership and Harris Trust
36
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/(14)/ Utilities and Service Agreement dated as of July 28,
2000 by and between Borden Chemical, Inc. and the
Partnership
10.4/(14)/ Barge Dock Agreement dated as of July 28, 2000 by and
between Borden Chemical, Inc. and the Partnership
10.5/(14)/ Environmental Indemnity Agreement dated as of July 28,
2000 by and between Borden Chemical, Inc. and the
Partnership
10.6/(14)/ Control Room Agreement dated as of July 28, 2000 by
and between Borden Chemical, Inc. and the Partnership
10.7/(14)/ Amendment to Intercompany Agreement dated July 28,
2000 by and among the Partnership, the Company,
Borden, Inc. and the General Partner
10.8/(14)/ Ground Lease dated as of July 28, 2000 by and between
Borden Chemical, Inc. and the Partnership
10.9/(14)/ Mutual Release and Termination Agreement dated as of
July 28, 2000 by and between Borden Chemical, Inc. and
the Partnership
10.10/(14)/ 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 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
37
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.)
10.22/(11)/ 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
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
38
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/(14)/ Amended Agreed Interim and Proposed Final Order
Authorizing Debtors: (A) To use cash collateral: (B)
To incur postpetition debt; (C) To grant adequate
protection and provide security to Fleet Capital
Corporation, as agent
10.41/(14)/ Amended and Restated Long-Term Incentive Plan, as of
April 18, 2000
10.42 Order Authorizing Debtors and Debtors In Possession to
Implement Key Employee Retention Bonus Plan and
Severance Plan
10.43 Agreed 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
10.44/(14)/ First Amendment to Agreed 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
10.45 Loan Agreement dated as of January 14, 2002, by and
between Borden Chemicals and Plastics Operating
Limited Partnership and BCP Management, Inc.
10.46 First Amendment to Loan Agreement dated as of March
29, 2002, by and between Borden Chemicals and Plastics
Operating Limited Partnership and BCP Management, Inc.
10.47 Modified Loan Agreement dated as of April 30, 2002, by
and between Borden Chemicals and Plastics Operating
Limited Partnership and BCP Management, Inc.
10.48 First Amendment to Modified Loan Agreement dated as of
May 23, 2002, by and between Borden Chemicals and
Plastics Operating Limited Partnership and BCP
Management, Inc.
10.49 Final Order Authorizing Secondary Postpetition
Financing pursuant to Section 346(b) of the Bankruptcy
Code and Rule 4001 of the Federal Rules of Bankruptcy
Procedure (Docket No. 489)
10.50 Asset Purchase Agreement dated as of December 3, 2001,
by and between Borden Chemicals and Plastics Operating
Limited Partnership and Shintech Louisiana, LLC
39
10.51 Order (A) Approving Asset Purchase Agreement, (B)
Authorizing sale of Addis assets free and clear of lines,
claims and encumbrances, (C) Authorizing assumption and
assignment of executory contracts and unexpired leases
related thereto; and (D) Granting related relief
10.52 Asset Purchase Agreement dated as of March 8, 2002, by and
between Borden Chemicals and Plastics Operating Limited
Partnership and Formosa Plastics Corporation, Delaware
10.53 Order (A) Approving Asset Purchase Agreement, (B)
Authorizing sale of Illiopolis assets free and clear of
lines, claims and encumbrances, (C) Authorizing assumption
and assignment of executory contracts and unexpired leases
related thereto; and (D) Granting related relief
10.54 Settlement Agreement and Release dated as of March 7, 2002,
by and between BCP Management, Inc. and Borden Chemical,
Inc.
_________________
/(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 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.
40
/(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.
/(14)/ Filed as an exhibit to the Registrant's 2000 Form 10K Annual Report and
is incorporated herein by references in this form 10K Annual Report.
Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
41
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: July 2, 2002
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
/s/ George W. Koch 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.
42
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 on page 28 present fairly in all material respects, the financial position
of Borden Chemicals and Plastics Limited Partnership (the "Company") at December
31, 2001 and December 31, 2000, and the results of its operations and its cash
flows for the three years in the period ended December 31, 2001, 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 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.
As described in Note 1 to the financial statements, the Company is expected to
be dissolved due to the bankruptcy filing of its General Partner, and the
imminent liquidation of substantially all of the assets of its principal
operating subsidiary. As a result, the Company has changed its basis of
accounting from the going-concern basis to the liquidation basis effective
December 31, 2001.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2001, the Company changed its method of accounting for the Operating
Partnership from the consolidation method of accounting to the equity method
accounting.
The selected quarterly financial data on page 58 contain information that we did
not audit, and, accordingly, we do not express an opinion on that data. We
attempted but were unable to complete a review of the quarterly data for the
year ended December 31, 2000 in accordance with standards established by the
American Institute of Certified Public Accountants because of the adjustment
discussed in Note 13.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
April 5, 2002 except for Note 2, as to which the date is May 2, 2002.
43
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
STATEMENT OF LIABILITIES IN LIQUIDATION
AS OF DECEMBER 31, 2001
(In thousands)
LIABILITIES (SEE NOTE 2)
Note payable to General Partner $ $2,800
Accrued interest 152
Deferred tax on gross margin 1,113
--------
Total liabilities 4,065
Liabilities in liquidation $ 4,065
========
See notes to consolidated financial statements
44
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2000
(In thousands)
Assets
Cash and equivalents $ 3,223
Accounts receivable (less allowance for doubtful
accounts of $1,843)
Trade 58,444
Related parties 22,328
Inventories
Finished and in process goods 44,024
Raw materials and supplies 12,964
Note receivable 9,700
Other current assets 6,207
---------
Total current assets 156,890
---------
Investments in and advances to
affiliated companies 4,124
Other assets 37,408
---------
41,532
---------
Property, plant and equipment, at cost 486,410
less accumulated depreciation (295,995)
---------
Property, plant and equipment, net 190,415
---------
Total assets $ 388,837
=========
LIABILITIES AND PARTNERS' CAPITAL
Accounts and drafts payable $ 66,495
Accrued interest 3,673
Other accrued liabilities 18,480
---------
Total current liabilities 88,648
---------
Long-term debt 272,410
Deferred tax on gross margin 4,133
Other liabilities 4,555
---------
Total liabilities 369,746
---------
Commitments and contingencies
Partners' capital (deficit)
Limited Partners 20,371
General Partner (1,280)
---------
Total partners' capital 19,091
---------
Total liabilities and partners' capital $ 388,837
=========
See notes to consolidated financial statements
45
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per Unit Data)
Year Ended December 31
----------------------------------------------
2001 2000 1999
----------------------------------------------
Revenues
Net trade sales $ - $ 468,434 $ 383,071
Net sales to related parties - 22,621 19,692
--------- --------- ---------
Total revenues - 491,055 402,763
Expenses --------- --------- ---------
Costs of goods sold
Trade - 449,382 344,445
Related parties - 18,732 14,761
Impairment of long-lived assets and other charges - 58,083 -
Marketing, general & administrative expense - 26,719 27,016
Interest expenses 152 27,516 25,040
Bad debt expense 6,933 - -
Tax on gross margin (benefit) expense (3,020) 226 2,673
Equity in loss of unconsolidated subsidiaries 19,091 - -
Equity in loss of affiliate - 1,200 905
Other (income) expense, including minority
interest - (2,230) 183
--------- --------- ---------
Total expenses $ 23,156 $ 579,628 $ 415,023
--------- --------- ---------
Loss from continuing operations (23,156) (88,573) (12,260)
--------- --------- ---------
Discontinued operations:
Loss income from discontinued
operations, net - (12,213) (11,731)
Gain on disposal of discontinued
operations, net - 1,397 -
-------- --------- ---------
Net loss (23,156) (99,389) (23,991)
Less 1% General Partner interest 232 994 240
--------- --------- ---------
Net loss applicable to Limited Partners'
interest $ (22,924) $ (98,395) $ (23,751)
========= ========= =========
Per Unit Data, net of 1% General Partner interest:
Loss from continuing operations per Unit $ (0.62) $ (2.39) $ (0.33)
Loss from discontinued operations per unit (-) (0.29) (0.32)
--------- --------- ---------
Net loss per Unit $ (0.62) $ (2.68) $ (0.65)
========= ========= =========
Average number of Units outstanding during the
Year 36,750 36,750 36,750
Cash distributions declared per Unit - - -
See notes to consolidated financial statements
46
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31
-----------------------------------------------
2001 2000 1999
--------------- ----------------- -------------
Cash Flows from Operations
Net loss ($23,156) ($99,389) ($23,991)
Adjustments to reconcile net loss to
Net cash provided by (used in) operating activities:
Gain on disposal of discontinued
operations, net - (1,397) -
Equity on loss of unconsolidated
Subsidiaries 19,091 - -
Bad debt expense 6,933 - -
Depreciation - 36,350 36,514
Amortization - 1,671 1,428
Impairment of long-lived assets - 52,533 -
Deferred tax on gross margin (3,020) (2,507) 840
Adjustments to reconcile net loss to net
cash provided (used) by operating activities
Accounts receivables - 9,884 (20,120)
Inventories - (5,455) (22,981)
Accounts payables - (22) 24,633
Accrued interest 152 264 219
Other, net - (11,165) 4,957
--------- --------- ---------
$ - ($19,233) $ 1,499
--------- --------- ---------
Cash Flows from Investing Activities
Capital expenditures $ - ($13,587) ($18,328)
Proceeds from sale of business segments - 38,800 -
Proceeds from sale of equipment - - 3,297
Capital contribution to affiliate - (714) (812)
Plant acquisition - (15,880) -
--------- --------- ---------
$ - $ 8,619 ($15,843)
--------- --------- ---------
Cash Flows from Financing Activities
Proceeds from long-term borrowings $ - $ 139,831 $ 33,800
Repayments of long-term borrowings - (130,621) (22,400)
Payment of debt issuance costs - (1,132) -
--------- --------- ---------
$ - $ 8,078 $ 11,400
--------- --------- ---------
(Decrease) increase in cash and equivalents $ - ($2,536) ($2,944)
Cash and equivalents at beginning of year - 5,759 8,703
--------- --------- ---------
Cash and equivalents at end of year $ - $ 3,223 $ 5,759
--------- --------- ---------
Supplemental Disclosures of Cash Flow Information
Interest paid during the year - $ 25,247 $ 23,393
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 -
Payment of gross margin tax in exchange for note
Payable $ 2,800 - -
See notes to consolidated financial statement
47
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(In thousands)
Limited General
Partners Partner Total
------------------------------------------
Balances at December 31, 1998 142,517 (46) 142,471
Net loss (23,751) (240) (23,991)
--------- --------- ---------
Balances as December 31, 1999 118,766 (286) 118,480
Net loss (98,395) (994) (99,389)
--------- --------- ---------
Balances at December 31, 2000 20,371 (1,280) 19,091
Net loss (22,924) (232) (23,156)
--------- --------- ---------
Balances at December 31, 2001 $ (2,553) $ (1,512) $ (4,065)
========= ========= =========
See notes to consolidated financial statements
48
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except Unit and per Unit data)
1. Basis of Presentation
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 Chemical, Inc., formerly
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 the activities of the Partnership and
the Operating Partnership, and its activities are limited to such management.
The General Partner's interest in the Operating Partnership is reflected as
minority interest in the accompanying consolidated condensed financial
statements.
On April 3, 2001, the Operating Partnership and its wholly owned subsidiary BCP
Finance Corporation, filed a voluntary petition in the U.S. Bankruptcy Court to
reorganize under Chapter 11 of the U.S. Bankruptcy Code. As of April 3, 2001,
the Operating Partnership's operations are subject to the jurisdiction of the
Bankruptcy Court and are no longer controlled by the Company. Accordingly, the
Company no longer consolidates the Operating Partnership's financial results in
its condensed consolidated financial statements, resulting in a change in
reporting entity.
As a result of this change in reporting entity, the Company changed its method
of accounting for the Operating Partnership from the consolidation method to the
equity method, effective January 1, 2001. Under the equity method, the
Partnership's share of the Operating Partnerships' income or loss is recorded in
earnings and as an adjustment to the Partnership's investment in the Operating
Partnership, to the extent that the Partnership's investment is not reduced
below zero. During the first quarter fiscal 2001, the Partnership's investment
in the Operating Partnership was reduced to zero, therefore, further losses
incurred by the Operating Partnership are no longer recognized by the
Partnership. The Partnership did not recognize its 99% share of the Operating
Partnership's losses amounting to $255.1 million for the year ended December 31,
2001.
Under the Company's Amended and Restated Agreement of Limited Partnership, the
Company is to dissolve and wind up its affairs upon, among other events, the
bankruptcy of the General Partner or the sale of all or substantially all of the
assets and properties of the Operating Partnership. As further discussed in Note
2, the General Partner has filed for Chapter 11 bankruptcy protection on March
22, 2002 and the Operating Partnership is in the process of liquidating all of
its assets. Accordingly, it is anticipated that the Company will be dissolved
and terminated as a Delaware Limited Partnership in 2002 or thereafter.
As a result of the imminent dissolution and termination of the Company, the
liquidation basis of accounting and financial statement presentation has been
adopted by the Company effective December 31, 2001. The liquidation basis of
accounting requires an accrual for an estimate for all liabilities related to
expenses to be incurred during the wind-down period. Additionally, assets are
stated at their estimated net realizable value and liabilities are stated at
their anticipated settlement amounts. The Company is a holding company and does
not have its own independent operations, engage in any revenue producing
activities, maintain its own bank accounts or have any cash flows or assets.
Costs anticipated to be incurred to dissolve and terminate the Company are not
anticipated to be significant.
2. Organization, Business and Proceedings Under Chapter 11
The Partnership is a holding company and does not have its own independent
operations and does not engage in any revenue producing activities. As of
December 31, 2001, the Operating Partnership had three operating locations: its
main operating site in
49
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
pipefittings, vinyl siding and window frames, vinyl flooring and other
applications. The acetylene plant located in Geismar, Louisiana has been idled
since December 2000.
On April 3, 2001, the Operating Partnership and its wholly owned 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.
Subsequent to the commencement of the Operating Partnership Chapter 11 case, 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 (the "Primary DIP Facility") to the
prepetition Year 2000 Revolving Credit Facility (the "Prepetition Credit
Facility") providing up to $100 million of debtor-in-possession financing, (ii)
permitted continued operation of the consolidated cash management system during
the Operating Partnership Chapter 11 case in substantially the same manner as it
was operated prior to the commencement of the Operating Partnership Chapter 11
case, (iii) authorized payment of pre-petition wages, vacation pay and employee
benefits and reimbursement of employee business expenses, and (iv) authorized
payment of pre-petition obligations to certain vendors critical to the Operating
Partnership's ability to continue its operations.
The Primary DIP Facility, which received final Approval of the Bankruptcy Court
on July 11, 2001, provides the Operating Partnership with a revolving line of
credit in an aggregate amount not to exceed $100 million, subject to borrowing
base limitations and bears interest at the Alternate Base Rate plus 1.25%. The
Operating Partnership has used amounts borrowed under the Primary DIP Facility
for its ongoing working capital needs and for certain other purposes of the
Operating Partnership as permitted by that facility. 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 Primary
DIP Facility. All obligations under the Primary DIP Facility are afforded
"super-priority" administrative expense status in the Operating Partnership
Chapter 11 case. The Primary DIP Facility matured on March 31, 2002, but the
lenders agreed, and the Bankruptcy Court approved, the extension of the maturity
date to April 30, 2002. The Primary DIP Facility was paid in full on April 18,
2002.
In light of the possibility that the Primary DIP Facility would be insufficient
to finance the Operating Partnership's working capital needs during the period
required to obtain confirmation of a plan of reorganization for the Debtors, the
Operating Partnership approached a number of institutional lenders to assess
their interest in extending additional credit to the Debtors. None of these
lenders were willing to provide credit or terms acceptable to the Operating
Partnership. The Operating Partnership requested its general partner, BCPM, to
provide a loan to it. On October 31, 2001, the Debtors filed an initial motion
with the Bankruptcy Court seeking an interim order to obtain additional,
secondary postpetition financing (the "Secondary DIP Facility") from BCPM. The
terms of the proposed Secondary DIP Facility were negotiated, on the one hand,
by management of the Operating Partnership and the Debtors' legal counsel and,
on the other hand, by officers of BCPM and BCPM's legal counsel, with the
approval of the Independent Committee of the Board of Directors of BCPM which is
comprised of three outside directors who are not employees of the Operating
Partnership, BCPM or Borden. The negotiations included efforts to obtain the
support of the lenders under the Primary DIP Facility and the Official Committee
of Unsecured Creditors appointed in the Operating Partnership Chapter 11 case.
The Creditors Committee filed an objection to the initial motion on November 6,
2001.
Further negotiations between the Operating Partnership and BCPM occurred, and
the parties agreed to revisions to the terms of the proposed Secondary DIP
Facility. The Debtors sought interim approval of the revised Secondary DIP
Facility. Subject to the terms and conditions of the Secondary DIP Facility,
BCPM has agreed to makes loans to the Operating Partnership through March 31,
2002, in an aggregate amount not to exceed
50
$10 million for working capital, other general corporate purposes and to make
payments on the Primary DIP Facility. The loans are unsecured, bear interest at
the Alternate Base Rate specified in the Primary DIP Facility plus 2.75% and
originally matured on March 31, 2002. The Creditors Committee also objected to
the revised Secondary DIP Facility. After a hearing, the Bankruptcy Court
entered an order on December 20, 2001, granting interim approval to $5 million
in loans under the Secondary DIP Facility.
On March 22, 2002, BCPM filed a motion in the General Partner Bankruptcy
requesting authority to extend the maturity date of the Secondary DIP Facility
and approval of the second $5 million of lending authority under the Secondary
DIP Facility. This motion was approved by the Bankruptcy Court on March 27,
2002. Subsequently, BCPM filed a further motion seeking authority to lend the
Operating Partnership up to $6 million (with sub-limits on the use of funds to
pay ordinary costs of administration and severance) after expiration of the
Secondary DIP Facility on April 30, 2002. The Bankruptcy Court entered a "bridge
order" on April 24, 2002, authorizing such lending until May 23, 2002. The court
extended the "bridge order" through June 30, 2002 in the amount of $4.5 million,
based on cash flow needs of the Operating Partnership. The maturity date has
been further extended to July 17,2002. There can, however, be no assurance that
BCPM will be authorized by the Bankruptcy Court to make further loans to the
Operating Partnership or that the Operating Partnership will be authorized by
the Bankruptcy Court to make further borrowings from BCPM.
On March 22, 2002, BCPM, the General Partner of the Company and the Operating
Partnership, filed a voluntary petition under Chapter 11 of the Bankruptcy Code.
As of the date of the filing, BCPM had cash of approximately $26 million, a
claim of approximately $4 million against the Operating Partnership for
repayment of borrowings under the Secondary DIP Facility, and claims of
approximately $7.8 million against the Operating Partnership for unreimbursed
expenses of the Company and the Operating Partnership paid by BCPM, the payment
of which is subject to the approval of the Bankruptcy Court.
The Operating Partnership explored various strategic alternatives, including
possible mergers or joint ventures or a sale or sales of substantially all of
its assets. These strategies had been announced by the Company and the Debtors
to the public, creditors and the Bankruptcy Court in various public filings,
press releases and pleadings. Prior to the filing of the Operating Partnership
Chapter 11 case, the Operating Partnership had retained Taylor Strategic
Divestitures Corporation ("Taylor") to provide investment-banking services in
connection with its attempts to complete an asset sale or other transaction. On
September 28, 2001, the Bankruptcy Court entered an order approving the Debtors'
retention of Taylor and a fee structure for its services.
Throughout the Operating Partnership Chapter 11 case, Taylor has worked with the
Debtors to identify and contact potential candidates for asset purchases or
other transactions. Beginning in June 2001, certain potential purchasers
submitted non-binding expressions of interest for certain of the Debtors'
assets. On August 24, 2001, the Debtors filed a motion with the Bankruptcy Court
for an order approving bidding procedures for the sale of substantially all of
the Debtors' assets. An order approving bidding procedures was entered by the
Bankruptcy Court on October 12, 2001. The procedures include a five-stage
process for marketing assets, negotiating with potential purchasers, conducting
an auction if needed, and obtaining court approval of sales of principal assets.
Following due diligence by several candidates, the number and amount of the bids
declined. Several candidates cited the events of September 11, 2001 and related
events for withdrawing from the bidding process, while others offered business
reasons for declining to bid. The Operating Partnership has, however, continued
to solicit bids and has conducted discussions with a number of candidates.
On December 3, 2001, the Debtors filed a motion with the Bankruptcy Court
seeking approval of an asset purchase agreement with Shintech Louisiana, LLC
("Shintech") regarding the sale of the assets and operations of the Addis plant.
Shintech agreed to pay: (i) $38 million for the Addis plant, (ii) the value of
the Addis inventory and accounts receivable, and (iii) the cost of severance
benefits for certain Addis
51
employees. The sale excluded certain items such as cash, intercompany accounts,
claims against third parties and equity interests in certain entities. The sale
was approved by the Bankruptcy Court on December 20, 2001, and closed on
February 28, 2002. The proceeds from the sale were applied to pay expenses of
the transaction and outstanding borrowings under the Primary DIP Facility.
The Operating Partnership announced on March 8, 2002, that it had executed an
asset purchase agreement for the plant at Illiopolis, Illinois, with Formosa
Plastics Corporation, Delaware. The Bankruptcy Court approved the Illiopolis
transaction at a hearing on March 27, 2002. The transaction closed April 17,
2002, realizing net proceeds of approximately $23 million.
The Operating Partnership continues to explore possible dispositions of the
Geismar plant, but there is no assurance that a sale of the plant will be
completed. The Operating Partnership began idling the Geismar plant in March
2002, and the idlement is scheduled for completion in June 2002. On December 12,
2001 the Creditors Committee filed a motion seeking an order requiring the
Debtors to abandon the assets comprising the Geismar plant. The Debtors objected
to the motion. The Bankruptcy Court held an initial hearing on this motion on
December 20, 2001, and the motion was subsequently withdrawn by the Creditors
Committee. On April 16, 2002, the Creditors Committee filed a motion to convert
the Operating Partnership Chapter 11 to a case under Chapter 7 of the Bankruptcy
Code. The Bankruptcy Court denied the motion on May 2, 2002 and management
continues to oversee liquidation of the remaining assets.
Management has taken significant steps to improve liquidity, including idling
unprofitable or high cost assets and production facilities, wage freezes,
reductions-in-force and entering into the credit facilities as described in Note
2. It is not anticipated that holders of the Company's Common Units will receive
any distribution as a result of any sales of the Operating Partnership's assets
or the Debtors' plan of reorganization or that the Partnership or Operating
Partnership will be able to meet its financial obligations in the future. To the
extent that payments for Company obligations are not made by BCPM, are not
deemed to be reimbursable expenses from the Operating Partnership by the
bankruptcy court, or the Operating Partnership does not have the ability to pay
expenses deemed to be reimbursable, the Partnership would not have the
wherewithal or ability to pay these obligations.
3. Significant Accounting Policies
The consolidated financial statements for 2000 and 1999 include the accounts of
the Partnership and the Operating Partnership after elimination of
inter-partnership accounts and transactions. As discussed in Note 1, the
Partnership accounts for its investment in the Operating Partnership under the
equity method effective January 1, 2001. The significant accounting policies
discussed below, describe the policies used by the Company for periods prior to
the de-consolidation of the Operating Partnership. 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.
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 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.
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 Operating Partnership
owns 50% of a utility station, Monochem, located at the Geismar complex.
Utilities provided are allocated to the owners at cost. The Operating
Partnership's allocated costs are included in cost of goods sold.
52
The Operating Partnership owns a 51% partner interest in another partnership,
V.E.I., engaged in manufacturing and marketing vinyl esters. Due to the
significance of the rights held by the minority partner, the Operating
Partnership's interest in this partnership is accounted for using the equity
method.
Debt Issuance Costs - Debt issuance costs are capitalized and are amortized over
the term of the associated debt or credit agreement.
Property, Plant and Equipment - The amount of 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 that 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. 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 estimated losses on related purchase
commitments to be made during fiscal 2001.
Environmental Expenditures - Environmental related expenditures associated with
current operations are generally expenses 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 5 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 2001, 2000 or
1999. The plan provides the independent committee of the
53
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 it 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 incomeand 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 4. Consequently, the Partnership
now operates in only the PVC Polymers Products business segment, which consists
of PVC resigns, 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
during 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.
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.
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 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 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.
Net revenues and (losses) income from the discontinued operations are as
follows:
Year ended December 31,
----------------------------
54
2001 2000 1999
------ -------- --------
Net sales $0 $170,135 $150,531
------ -------- --------
(Loss) income from discontinued operations 0 $(12,213) $(11,731)
Gain on disposal of business segments 0 1,397
------ -------- --------
Net (loss) income from discontinued operations $0 $(10,816) $(11,731)
====== ======== ========
5. Environmental and Legal Proceedings
Under an Environmental Indemnity Agreement (the "EIA") with Borden, Inc.
("Borden"), Borden has agreed, subject to certain specified limitations, to
indemnify the Partnership in respect of environmental liabilities arising from
facts or circumstances that existed and requirements in effect prior to November
30, 1987, the date of the initial sale of the Geismar and Illiopolis plants to
the Partnership. The Partnership is responsible for environmental liabilities
arising from facts or circumstances that existed and requirements that become
effective on or after such date. With respect to certain environmental
liabilities that may arise from facts or circumstances that existed and
requirements in effect both prior to and after such date, Borden and the
Operating Partnership will share liabilities on an equitable basis considering
all of the facts and circumstances including, but not limited to, the relative
contribution of each to the matter and the amount of time each has operated the
assets in question (to the extent relevant). No claims can be made under the EIA
for liabilities incurred after November 30, 2002.
The Operating 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 Operating 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 Operating Partnership is subject to legal proceedings and claims which may
arise in the ordinary course of business. Management of the Operating
Partnership believes, based on the information it currently possesses, that the
amount of the ultimate liability, taking into account its insurance coverage,
including its risk retention program and Environmental Indemnity Agreement with
Borden, is unlikely to have a material adverse effect on the financial position
or results of operations of the Operating Partnership. Any potential liability
may be impacted by the Operating Partnership Chapter 11 case described in Note
2.
6. Debt
On May 1, 1995, the Operating Partnership issued $200 million aggregate
principal amount of 9.5% Notes due 2005 (the "Notes") pursuant to an Indenture
dated as of May 1, 1995 (the "Indenture"). The Notes are senior unsecured
obligations of the Operating Partnership. The Notes include restrictions on the
Operating Partnership's ability to make cash distributions, incur additional
indebtedness, sell assets, engage in sale/leaseback and to take certain other
actions. Upon a Change in Control, the holders of the Notes may require the
Operating Partnership to repurchase their Notes at a price equal to 101% of the
aggregate principal amount plus accrued and unpaid interest to the date of
repurchase. As a result of the filing of the Operating Partnership Chapter 11
case described in Note 2, no payments will be made by the Debtors on the Notes
except as approved by the Bankruptcy Court. The Company has no obligation with
regards to payment of the Subordinated Notes.
7. Related Party Transactions
55
The Company and the Operating Partnership are managed by BCPM, subject to orders
of the Bankruptcy Court, pursuant to the Amended and Restated Partnership
Agreement of the Company and the Amended and Restated Partnership Agreement of
the Operating Partnership, respectively. Neither the Company nor the Operating
Partnership directly employs any of the persons responsible for managing or
operating the business of the Operating Partnership, 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.
The Operating Partnership sold its formaldehyde and certain other assets for
$48.5 million to Borden on July 28, 2000. As part of the transaction, the
Operating Partnership and Borden entered into a series of agreements with
respect to the operations of the parties at the Geismar complex, including the
provision of utilities and other services by the Operating Partnership to
Borden's facilities, the provision of dock capacity by Borden to the Operating
Partnership at Borden's dock facility, the provision of a control room by Borden
to the Operating Partnership, and indemnification of Borden by the Operating
Partnership for any environmental liability relating to the assets purchased by
Borden during the period in which they were owned by the Operating Partnership.
In April 2001, the Partnership borrowed $2.8 million from BCPM in order to pay
federal gross margin taxes, and has issued a demand note, bearing interest at
prime rate plus 1.50%, payable to BCPM for the same amount. The Partnership
recorded a deferred tax liability of $1.6 million and a receivable of $4.4
million from the Operating Partnership for future reimbursement of these
expenses. Management believes the Partnership is entitled to reimbursement for
these obligations by the Operating Partnership, pursuant to the Partnership
Agreement and consistent with past practice; however, such reimbursement is
subject to approval of the Bankruptcy Court. This receivable was written down to
zero upon the Operating Partnership filing for bankruptcy due to the uncertainty
surrounding the ultimate collection of these amounts.
See Note D to the Operating Partnership financial statements on page 64 for
information regarding related party transactions between BCPM and the Operating
Partnership.
8. 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,
----------------------------
2001 2000 1999
-------- -------- --------
Current tax expense $ 0 $ 2,733 $ 1,833
Deferred tax (benefit) expense (3,020) (2,507) 840
-------- -------- --------
Total $ (3,020) $ 226 $ 2,673
======== ======== ========
At December 31, 2000, substantially all of the Partnership's deferred tax
liability related to property and equipment. Deferred tax benefits were not
provided for 2001 tax losses, as it is unlikely that such benefits will be
realized in the future.
56
9. Property, Plant and Equipment
Property, plant and equipment at December 31, 2000 consisted of the
following:
December 31, 2000
-----------------
Land and improvements $ 16,385
Buildings 45,881
Machinery and equipment 400,989
Computer software and equipment 23,155
----------
$ 486,410
==========
10. Allocation of Income and Loss
Income and loss of the Partnership is allocated in proportion to the
partners' percentage interests in the Partnership, provided that at least 1% of
the income or loss of the Partnership and Operating Partnership is allocated to
the General Partner. For gross margin tax purposes, certain items are
specifically 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.
11. 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 disbursement (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.
12. 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 of the number of the
units 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, 2001 was 37,121,212.
57
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 become 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.
13. The following table sets forth certain unaudited quarterly financial data
for the periods indicated (in thousands except per unit data):
2001 Quarters (a)
- -----------------------------------------------------------------------------------
First Second Third Fourth
-------- -------- ------- -------
Net income (loss) $(19,091) $ (6,983) $ 2,459 $ 459
Net income (loss) per Unit -
basic and diluted: $ (0.51) $ (0.19) $ 0.07 $ 0.01
2000 Quarters (Not reviewed)
- -----------------------------------------------------------------------------------
First Second Third Fourth
-------- -------- ------- -------
Revenues $140,478 $139,707 $113,333 $ 97,537
Gross profit 20,600 23,081 4,246 (24,986)
Income (loss) from continuing operations 4,974 8,638 (8,078) (94,107)/(b)/(c)/
Income (loss) from discontinued operations (4,603) (5,589) - (2,021)
Net gain on disposal of
discontinued operations - 5,012 - (3,615)
Net income (loss) 371 8,061 (8,078) (99,743)/(b)/(c)/
Net income (loss) per Unit -
basic and diluted:
Continuing operations 0.14 0.23 (0.22) (2.71)
Discontinued operations (0.12) (0.02) - (0.15)
------- -------- ------- -------
Total 0.02 0.21 (0.22) (2.86)
(a) Reflects the de-consolidation of the Operating Limited Partnership effective
January 1, 2001. See Note 1.
(b) Includes a $58,083 charge in the fourth quarter for impairment of long-lived
assets and other charges.
(c) Includes a $15,477 fourth quarter adjustment (allocated $13,456 to cost of
sales and $2,021 to discontinued operations) associated with system issues
encountered from the implementation of a new enterprise-wide information
system. The impact of the situation on specific interim periods could not be
determined and as a result, the entire adjustment was recorded in the fourth
quarter 2000.
14. Consolidated Debtor-In-Possession Financial Statements of Borden Chemicals
and Plastics Operating Limited Partnership
The consolidated Debtor-In-Possession financial statements of the Operating
Partnership as of and for the year ended December 31, 2001 are as follows:
58
STATEMENT OF NET LIABILITIES IN LIQUIDATION AS OF DECEMBER 31, 2001 (in
thousands):
Going Concern Liquidation Basis Liquidation
Basis Adjustments Basis
----------------------------------------------------------
ASSETS
Cash and equivalents $ 2,791 $ - $ 2,791
Accounts receivable
Trade 25,459 - 25,459
Related parties 558 - 558
Inventories
Finished and in process goods 18,788 3,162(a) 21,950
Raw materials and supplies 4,080 - 4,080
Assets held for sale 53,907 - 53,907
Other assets 13,074 (1,539)(a) 11,535
---------- ---------- ---------
Total assets $ 118,657 $ 1,623 $ 120,280
========== ========== =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities not subject to compromise
Priority debt $ 60,000 - $ 60,000
Accounts payable 13,856 - 13,856
Accrued severance and closure costs 23,876 18,900(b) 42,776
Accrued interest 310 - 310
Deferred tax on gross margin 1,113 - 1,113
Other accrued liabilities 9,820 (2,183)(a) 7,637
---------- ---------- ---------
Total liabilities not subject to compromise 108,975 16,717 125,692
Total liabilities subject to compromise (see Note C) 267,888 - 267,888
---------- ---------- ---------
Total liabilities $ 376,863 $ 16,717 $ 393,580
========== =========
Net liabilities in liquidation $ 273,300
=========
Partners' capital (deficit)
General Partner (3,156)
Limited Partners (255,050)
----------
Total partners' capital (258,206)
----------
Total liabilities and partners' capital $ 118,657
==========
See notes A-F to Debtor-in-Possession financial statements that follow.
(a) Represents adjustments to the stated assets and liabilities at their
estimated net realizable values.
(b) Represents estimate of net operating costs to be incurred subsequent to
December 31, 2001 and throughout the liquidation process.
59
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2000 (in thousands):
ASSETS
Current assets
Cash and equivalents $ 3,223
Accounts receivable (less allowance for doubtful accounts of $1,843)
Trade 58,444
Related parties 22,328
Inventories
Finished and in process goods 44,024
Raw materials and supplies 12,964
Other current assets 15,907
---------
Total current assets 156,890
---------
Property, plant and equipment, net 190,415
Investments in and advances to affiliated companies 4,124
Other assets 37,408
---------
Total assets $ 388,837
=========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 66,495
Accrued interest 3,673
Other accrued liabilities 18,480
--------
Total current liabilities 88,648
--------
Long-term debt 272,410
Deferred tax on gross margin 4,133
Other liabilities 4,914
---------
Total liabilities 370,105
---------
Partners' capital (deficit)
General Partner (359)
Limited Partners 19,091
---------
Total partners' capital 18,732
---------
Total liabilities and partners' capital $ 388,837
=========
See notes A-F to Debtor-in-Possession financial statements that follow.
60
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 (in
thousands):
2001 2000 1999
--------------------------------------
Revenues
Net trade sales $ 345,522 $ 468,434 $ 383,071
Net sales to related parties - 22,621 19,692
--------- --------- ---------
Total revenues 345,522 491,055 402,763
--------- --------- ---------
Expenses
Costs of goods sold
Trade 390,278 449,382 344,445
Related parties - 18,732 14,761
Impairment of long-lived assets and other charges 180,744 58,083 -
Marketing, general & administrative expense 26,439 26,719 27,016
Interest expense 12,337 27,516 25,040
Tax on gross margin (2,461) 226 2,673
Equity in loss of affiliate 1,863 1,200 905
Other (income) expense 2,363 (3,244) (62)
Reorganization costs:
Professional fees 7,519 - -
Loss on debt issuance costs 3,755 - -
Gain on settlement of pre-petition claims (377) - -
--------- --------- ---------
Total expenses $ 622,460 $ 578,614 $ 414,778
--------- --------- ---------
Loss from continuing operations (276,938) (87,559) (12,015)
--------- --------- ---------
Discontinued operations:
Loss from discontinued operations, net - (12,213) (11,731)
Gain on disposal of discontinued operations, net - 1,397 -
--------- --------- ---------
Net loss (276,938) (98,375) (23,746)
========= ========= =========
See notes A-F to Debtor-in-Possession financial statements that follow.
61
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (in
thousands):
2001 2000 1999
---------------------------------------
Cash Flows from Operations
Net (loss) ($276,938) ($ 98,375) ($ 23,746)
Adjustments to reconcile net (loss) to net cash provided (used) by
operating activities:
Gain on disposal of discontinued operations, net - (1,397) -
Impairment of long-lived assets 180,744 52,533 -
Depreciation 21,044 36,350 36,514
Bad debt expense 3,181 1,420 (172)
Amortization 2,017 1,671 1,428
Deferred tax on gross margin (3,020) (2,507) 840
Changes in certain assets and liabilities
Accounts receivables 51,574 8,464 (19,948)
Inventories 34,120 (5,455) (22,981)
Accounts payables (12,748) (22) 24,633
Accrued liabilities 33,307 1,660 3,601
Other, net (15,544) (13,575) 1,330
Reorganization items
Payment of professional fees (5,867) - -
Loss on debt issuance costs 3,755 - -
Gain on settlement of pre-petition claims (377) - -
--------- --------- ---------
Net cash flows provided (used) by operating activities $ 15,248 ($ 19,233) $ 1,499
--------- --------- ---------
Cash Flows from Investing Activities
Capital expenditures $ (11,610) ($ 13,587) ($ 18,328)
Proceeds from sale of business segments - 38,800 -
Proceeds from sale of equipment - - 3,297
Capital contribution to affiliate - (714) (812)
Proceeds from note receivable 9,700 - -
Plant acquisition - (15,880) -
--------- --------- ---------
Net cash flows provided (used) by investing activities $ (1,910) $ 8,619 ($ 15,843)
--------- --------- ---------
Cash Flows from Financing Activities
Proceeds from long-term borrowings $ 161,774 $ 139,831 $ 33,800
Repayments of long-term borrowings (174,184) (130,621) (22,400)
Payment of debt issuance costs (1,360) (1,132) -
--------- --------- ---------
Net cash flows provided (used) by financing activities $ (13,770) $ 8,078 $ 11,400
--------- --------- ---------
(Decrease) increase in cash and equivalents $ (432) ($ 2,536) ($ 2,944)
Cash and equivalents at beginning of year 3,223 5,759 8,703
--------- --------- ---------
Cash and equivalents at end of year $ 2,791 $ 3,223 $ 5,759
--------- --------- ---------
Supplemental Disclosures of Cash Flow Information
Interest paid during the year 5,610 25,247 23,393
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 A-F to Debtor-in-Possession financial statements that follow.
62
NOTES TO CONSOLIDATED DEBTOR-IN-POSSESSION FINANCIAL STATEMENTS:
A. Basis of presentation and Bankruptcy Proceedings
On April 3, 2001, the Operating Partnership and its wholly-owned subsidiary, BCP
Finance Corporation, filed a voluntary petition in the U.S. Bankruptcy Court to
reorganize under Chapter 11 of the U.S. Bankruptcy Code. During the fourth
quarter 2001, the Operating Partnership began accepting bids for the sale of
substantially all of its assets. An asset purchase agreement was entered into on
December 21, 2001 for the sale of the Addis facility and the plant was
subsequently sold in February 2002. Its Illiopolis facility was sold in April
2002 and the remaining facility, Geismar, began to be idled in March 2002 and is
expected to be completed by June 2002. The Operating Partnership continues to
explore possible dispositions of the Geismar plant.
As a result of the imminent liquidation of the Operating Partnership, the
liquidation basis of accounting and financial statement presentation has been
adopted by the Operating Partnership effective December 31, 2001. The
liquidation basis of accounting requires the Operating Partnership to accrue an
estimate for all liabilities related to expenses to be incurred during the wind
down period. Additionally, assets and liabilities are stated at their estimated
net realizable value. The estimated net realizable value of assets represents
management's best estimate of the recoverable value of the assets, net of
selling expenses and without consideration for the effect that the settlement of
any litigation may have on the value of the assets. The assets are held at their
net realizable value until they are sold or liquidated. There can be no
assurance, however, that the Operating Partnership will be successful in selling
the assets at the net realizable value.
The valuation of assets and liabilities necessarily requires many estimates and
assumptions, and there are substantial uncertainties in liquidating the Company.
The valuations presented in the accompanying Statement of Net Liabilities in
Liquidation represent estimates based on present facts and circumstances of the
net realizable values of assets, estimated liabilities and estimated costs
associated with carrying out the liquidation of the Company. The actual values
and costs could be higher or lower than the amounts recorded as of December 31,
2001.
Accounts payable and accrued expenses as of December 31, 2001 include estimates
of costs to be incurred in carrying out the liquidation of the Company. These
costs include a reserve for salary continuation costs, closure costs associated
with the Geismar facility and other estimated liabilities including future
non-cancelable lease payments. The actual costs could vary significantly from
the related provisions due to uncertainty related to the length of time required
to liquidate the Company and complexities and contingencies.
For more detailed information regarding the proceedings under Chapter 11, see
Note 2 to the Limited Partnership financial statements. At this time, the
Operating Partnership assets are not expected to generate enough cash to make a
distribution to unit holders of the Company or to satisfy all of the Operating
Partnership's debts.
B. Significant Accounting Policies
The consolidated financial statements include the accounts of the Operating
Partnership and its subsidiary after elimination of intercompany accounts and
transactions. The significant accounting policies discussed in Note 3 to the
Limited Partnership financial statements are also applied by the Operating
Limited Partnership.
C. Liabilities subject to compromise
Liabilities subject to compromise refer to liabilities incurred prior to the
commencement of the Operating Partnership Chapter 11 case. These liabilities
consist primarily of amounts outstanding under the Company's long-term debt and
also include accounts payable, accrued interest, and other accrued expenses.
These amounts represent management's best estimate of known or potential claims
to be resolved in connection with the Operating Partnership Chapter 11 case.
Certain creditors have submitted claims in excess of the amounts recorded as
liabilities by the Operating
63
Partnership. Such claims remain subject to future adjustments based on
reconciliation and negotiations with applicable creditors, actions of the
Bankruptcy Court, further developments with respect to disputed claims, or other
events. Payment terms for these amounts, which are considered long-term
liabilities at this time, will be established in connection with the Operating
Partnership Chapter 11 case. The Operating Partnership has received approval
from the Bankruptcy Court to pay or otherwise honor certain of its pre-petition
obligations, including pre-petition wages, vacation pay, employee benefits and
reimbursement of employee business expenses. The Bankruptcy Court also has
authorized the Company to pay pre-petition obligations to critical vendors to
aid the Company in maintaining its normal operations.
Liabilities subject to compromise consist of the following as of December 31,
2001 (in thousands):
Long-term debt $200,000
Pre-petition accounts payable 39,891
Accrued interest 8,073
Payable to BCPM 7,706
Other accrued liabilities 12,218
--------
Total liabilities subject to compromise $267,888
D. Related party transactions
The Company and the Operating Partnership are managed by BCPM, subject to orders
of the Bankruptcy Court, pursuant to the Amended and Restated Partnership
Agreement of the Company and the Amended and Restated Partnership Agreement of
the Operating Partnership, respectively. Neither the Company nor the Operating
Partnership directly employs any of the persons responsible for managing or
operating the business of the Operating Partnership, 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.
The Operating Partnership sold its formaldehyde and certain other assets for
$48.5 million to Borden on July 28, 2000. As part of the transaction, the
Operating Partnership and Borden entered into a series of agreements with
respect to the operations of the parties at the Geismar complex, including the
provision of utilities and other services by the Operating Partnership to
Borden's facilities at an annual charge of approximately $1.2 million for 2001,
the provision of dock capacity by Borden to the Operating Partnership at
Borden's dock facility, the provision of a control room by Borden to the
Operating Partnership, and indemnification of Borden by the Operating
Partnership for any environmental liability relating to the assets purchased by
Borden during the period in which they were owned by the Operating Partnership.
The Company subleased 99 railcars from Borden at an annual cost of $0.5 million.
As part of the Bankruptcy Court proceedings, the Company elected to reject the
sublease agreement with Borden. As a result of this lease rejection, Borden has
offset approximately $1.8 million from the proceeds of the $37.5 million note
used to capitalize BCPM. BCPM has a claim against the Company for the amount of
this offset. As part of the Borden offset, invoices amounting to $0.3 million
for exchanges, environmental and utility services were also offset.
The employees of BCPM (together with employees providing support to or services
for BCPM) operate the Partnership and participate in various General Partner
benefit plans including pension, retirement savings, post-retirement other than
pension, 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 the General Partner (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 the General Partner (on its own or
BCPM's behalf) for actual benefits paid. The difference between cash payments to
the General Partner (on its own or BCPM's behalf) and expense is accrued on the
Partnership's books. The General Partner maintains a post-
64
retirement and disability plan for employees of the General Partner. This
liability was approximately $4.4 million as of December 31, 2001.
During 2001, BCPM made unreimbursed severance payments totaling $0.8 million to
former employees of the Operating Partnership. In addition, BCPM also made
unreimbursed payments for certain professional services and other expenses of
$2.3 million. The Operating Partnership has reflected these payments as expense
in the condensed statement of operations and have recorded a corresponding
payable to BCPM, which liability is included in liabilities subject to
compromise in the accompanying consolidated condensed balance sheet at December
31, 2001.
In December 2001, the Operating Partnership entered into a Loan Agreement "Loan
Agreement" with BCPM whereby BCPM agreed to provide loans up to $10 million for
the Operating Partnership to use for working capital requirements or other
general corporate purposes in the event that there is no borrowing availability
under the Operating Partnership's revolving credit facility with Fleet. The
Operating Partnership could only borrow pursuant to this Loan Agreement if there
were no positive borrowing availability under the Operating Partnership's
revolving credit facility with Fleet. Borrowings under the Loan Agreement were
payable on the earlier of a) March 31, 2002, which was subsequently extended to
April 30, 2002, b) the date of confirmation of a plan of reorganization, c) the
date upon which the sale of substantially all of the Operating Partnership's
assets has been completed, or d) an event of default. Borrowings under the Loan
Agreement bear interest at the Alternate Base Rate plus 2.75%. The Bankruptcy
Court approved the Loan Agreement for borrowings up to $5 million. Borrowings
under the Loan Agreement have been granted administrative expense status. On
April 24, 2002, the Bankruptcy Court modified the Secondary DIP Facility by the
entry of a "bridge order" authorizing BCPM to lend up to $6 million to the
Operating Partnership through May 24, 2002. The Bankruptcy Court subsequently
revised the bridge order reducing lending authority to $4.5 million through July
17, 2002.
Through the normal course of business, the Operating Partnership makes operating
payments for two of its joint ventures, V.E.I. and Monochem. The Operating
Partnership is then reimbursed in full for these payments from the joint
ventures. At December 31, 2001, the receivable from these joint ventures
amounted to $4.5 million.
E. Impairment of Long-Lived Assets and Other Charges
During the year ended December 31, 2001, the Company recorded restructuring and
other charges of $192.6 million primarily associated with asset impairment
charges, bankruptcy court proceedings, severance, and plant closure costs.
Restructuring charges for bankruptcy reorganization include professional fees of
$7.5 million, a write off of pre-petition debt issuance costs of $3.8 million
and a gain from the settlement of a pre-petition liability of $0.4 million.
In the year ended December 31, 2001, the Company severed 101 employees, at an
expense of $3.6 million. The Company continues to pay 75% of the cost of medical
and dental insurance for severed employees for up to six months after
termination. This will continue as long as the Company has the ability to
provide and maintain a group medical plan. The cost of these health benefits for
severed employees for the year ending December 31, 2001, was $0.2 million.
In July 2001, the court approved a Severance Plan designed to retain key
non-union employees whereby employees will receive severance benefits which vary
based on years of service. The plan also provided for stay bonus payments. As a
result of the imminent liquidation of the Operating Partnership, it was
determined that payment of severance under the Plan to the remaining employees
was probable. As a result, additional severance cost in the amount of $9.5
million were accrued in the fourth quarter 2001. These employees were terminated
in 2002 and received severance payments in accordance with the plan.
Additionally, stay bonuses of $2.3 million were expensed as incurred during
2001.
An impairment charge of $123.0 million was recorded during the third quarter to
write-down to fair value long-lived assets associated with the Geismar and Addis
facilities
65
in accordance with FAS 121 "Accounting for the Impairment of Long-Lived Assets
and Assets to be Disposed of" as the Company's estimates of future undiscounted
cash flows associated with these facilities no longer recovered the asset's
carrying value. Estimates of future undiscounted cash flows were lowered during
the third quarter as a result of several factors including the expected loss of
a significant customer contract, continued deterioration in the overall economy,
and an extended forecast in the expected upturn of the PVC industry from
previous projections. The fair value of the assets was estimated by management
based on various sources including binding or non-binding bids or offers from
third parties, other discussions with third parties, and an independent asset
valuation.
During the fourth quarter 2001, the Court approved bidding proceedings for the
sale of substantially all of the Operating Partnership's assets and the Company
began the process of selling its assets. As a result, the Operating
Partnership's long-lived assets became held for sale and were written down to
fair value less cost to sell in accordance with FAS 121, resulting in an
additional impairment charge of $31.1 million. Additionally, the Company accrued
$12.2 million for estimated closure costs associated with the Geismar facility
and costs associated with rejecting rail car leases.
The following is a schedule of the restructuring and related charges recorded in
the year ended December 31, 2001:
in millions)
Description Type Charge Payment Balance
Severance and stay bonuses Cash $ 15.4 $(1.8) $13.6
Closure costs Cash 8.7 - 8.7
Lease rejection costs Cash 3.5 - 3.5
Bankruptcy - professional fees Cash 7.5 (5.8) 1.7
-------------------------------
Total cash $ 35.1 $(7.6) $27.5
Asset impairment Non-cash 154.1
Bankruptcy - debt issuance costs Non-cash 3.8
Bankruptcy - claim settlement Cash (0.4)
------
Total non-cash 157.5
Total $192.6
In December 2000, the Operating 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 Operating Partnership recorded a $58.1 million charge in 2000. The
charge was comprised of $52.6 million 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 $5.5 million to accrue for losses
on related purchase commitments to be made during fiscal 2001. Actual payments
on the purchase commitments during 2001 amounted to $4.6 million. The excess
accrual of $0.9 million was reversed into income through Impairment of
Long-Lived Assets and Other Charges during 2001.
F. Commitments & Contingencies
Purchase Commitments
The Company 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.
Subject to rights under the contract and applicable bankruptcy law, the
Operating Partnership is required to purchase a specified amount of ethylene per
month throughout the term of the contract. As a result of ceasing manufacturing
and distribution operations at the Geismar facility, the Operating Partnership
did not purchase the full amount required during April 2002 and may not purchase
the full amount required thereafter. The Operating Partnership is considering
assuming the
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contract and assigning it to a third party under section 365 of the Bankruptcy
Code. There can be no assurance, however, that the Operating Partnership will
identify and reach an agreement with a third party. Nor can there be any
assurance that the Bankruptcy Court will approve any proposed assumption and
assignment. If the Operating Partnership does not assign the contract to a third
party, the supplier may take the position that the Operating Partnership is in
default under the contract. If so, the supplier may attempt to terminate the
contract and assert a claim for breach of the contract. Likewise, the supplier
may attempt to assert a claim for breach of the contract if the Operating
Partnership chooses to reject the contract under section 365 of the Bankruptcy
Code. If the supplier asserts a claim for breach, the supplier may contend that
its damages include: (i) amounts owing under the contract that accrued but were
unpaid pre-petition, (ii) amounts owing under the contract that accrued but were
unpaid postpetition and (iii) amounts the contract purports to impose in the
nature of liquidated damages. In the aggregate, the supplier may contend that
these three components of damages amount to approximately $26 million. No
provision has been made in the financial statements for any damages the supplier
may contend arise from breach, because of the possibility of assuming and
assigning the contract and thereby eliminating the Operating Partnership's
liability for any such damages. If the contract is not assigned and the supplier
seeks damages, the Operating Partnership may take the position that all damages
constitute pre-petition liabilities subject to compromise. In contrast, the
supplier may attempt to obtain administrative priority for some portion of any
damages. Although the Operating Partnership most likely would contest
administrative priority and assert all possible defenses to all three components
of the damages, there can be no assurance that the supplier would not succeed.
Environmental and Legal Contingencies
The Operating Partnership is subject to extensive state, federal and local laws
and regulations. See Note 5 to the Limited Partnership financial statements for
further information regarding contingencies relating to these environmental
matters.
Contingencies for the Company also include lawsuits and claims, which arise in
the normal course of business. Provisions of $5.3 million have been recorded as
of December 31, 2001, for these various matters. In the opinion of management,
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 Operating Partnership. Any potential liability may be impacted
by the Chapter 11 Cases described in Note 2.
Liens
Liens in the amount of $3.0 million have been filed against specific assets of
the Operating Partnership. If the Court approves these liens, the liens would
need to be paid before the related assets could be sold by the Operating
Partnership. These obligations have been accrued in pre-petition liabilities.
Operating Lease Arrangements
The Company leases certain railcars under operating leases, which expire over
the next fifteen years. Substantially all of these leases were rejected due to
the bankruptcy proceedings during 2001 and 2002. Certain obligations exist after
the rejection of these leases to clean and return these railcars to the lessor.
Estimated costs of $1.7 million for cleaning and returning these railcars has
been included in the Impairment of Long-Lived Assets and Other Charges, as
discussed in Note 5. No provision has been established at December 31, 2001 for
potential claims which may be asserted by lessors for future rentals under the
respective lease agreements subsequent to the lease rejection dates as
management does not believe that such claims would be allowed by the Bankruptcy
Court.
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Borden Chemicals and Plastics Limited Partnership
Schedule II - Valuation and Qualifying Accounts
(Dollars in thousands)
Charged
Balance at Charged to to other Balance at
beginning of cost and accounts- Deductions - end of
Description period expenses describe describe period
- ----------- ------------ ---------- --------- ------------ ----------
2001 $1,843 $6,933 $ - $(8,776) (2) $ 0
Allowance for doubtful accounts
====== ======= ==== ============ =======
2000 $ 456 $1,420 $ - $ (33) (1) $ 1,843
Allowance for doubtful accounts
====== ======= ==== ============ =======
1999 $ 672 $ (172) $ - $ (44) (1) $ 456
Allowance for doubtful accounts
====== ======= ==== ============ =======
NOTES:
(1) Accounts receivable balances written off during the period.
(2) Includes $1,843 for the de-consolidation of the Operating Limited
Partnership, $3,020 for the reduction of both the receivable and related
allowance for amounts due from the Operating Limited Partnership for gross
margin tax liabilities as a result of a decrease in the deferred gross
margin tax liability, and $3,913 as a result of adjusting receivables to
their estimated net realizable value at December 31, 2001 as a result of
adopting the liquidation basis of accounting.
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