Item I. Business
Borden Chemicals and Plastics Limited Partnership (the "Company" or
"Partnership") is a limited partnership formed in 1987 to acquire, own and
operate polyvinyl chloride resins ("PVC"), methanol and other chemical plants
located in Geismar, Louisiana, and Illiopolis, Illinois, that were previously
owned and operated by Borden, Inc. ("Borden"). In 1995, the Company, through its
subsidiary operating partnership Borden Chemicals and Plastics Operating
Partnership (the "Operating Partnership"), purchased a PVC resin manufacturing
facility, from Occidental Chemical Corporation ("OxyChem"), located in Addis,
Louisiana ("Addis Facility"). Historically, the Company's principal product
groups were PVC Polymers Products, which consist of PVC resins and feedstocks
(such as vinyl chloride monomer ("VCM") and acetylene), Methanol and
Derivatives, which consist of methanol and formaldehyde, and Nitrogen Products,
which consist of ammonia and urea. As discussed below, the Company made the
decision in 2000 to exit the Methanol and Derivatives and Nitrogen Products
businesses. On April 3, 2001, the Operating Partnership and its subsidiary, BCP
Finance Corporation, (collectively, the "Debtors") filed voluntary petitions for
protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Sections 101 -
1330 (the "Bankruptcy Code"), in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court") under case number 01-1268(RRM) and
01-1269 (RRM) ("the Chapter 11 Cases"), respectively.
The Company's production complex at Geismar, Louisiana, its plant at
Illiopolis, Illinois, and the Addis Facility produce products for the following
Products Location Principal Applications
-------- -------- ----------------------
PVC POLYMERS PRODUCTS
PVC Geismar Water distribution pipe, residential
Illiopolis siding, wallcoverings, vinyl flooring
VCM Geismar Raw material for the Company's
The Company's plants generally can be operated at rates in excess of stated
capacity to take advantage of market opportunities without undue adverse
effects. References to capacity assume normal operating conditions, including
downtime and maintenance. The Company's objective is to operate the Geismar,
Illiopolis and Addis plants at or near full capacity because of the reduced
operating costs per unit of output at full operation.
The integrated design of the Company's plants provides it with a high degree
of flexibility to shift production volumes according to market conditions and
efficiently utilize by-product streams. The Company's products are produced
through the highly integrated lines described below.
Restatement of Financial Statements
The accompanying consolidated financial statements, listed in the index on
page 23, have been revised. Other portions of this Form 10-K have also been
revised to reflect the changes in the financial statements. See note 2 to the
consolidated financial statements for further information.
PVC Polymers Products
PVC Resins - PVC is the second largest volume plastic material produced in the
world. The Company produces general purpose and specialty purpose PVC resins at
three plants - one located at the Geismar complex, one at Illiopolis and another
at Addis - with stated annual capacities of 550 million, 400 million and 600
million pounds of PVC resins, respectively. The PVC resin plants operated at
approximately 78% and 80% of combined capacity in 2000 and 1999, respectively.
Although there have been year-to-year fluctuations in product mix, the Company
has over time concentrated on
the higher margin grades of PVC resin and reduced its dependence on commodity
pipe grade PVC resins, which have historically experienced lower margins. Based
on data from the Society of the Plastics Industry, the Company believes its
production currently accounts for approximately 9% of total industry domestic
capacity of PVC resins.
The PVC industry in both the United States and Europe has entered a
consolidation and rationalization phase, evidenced by the mergers of OxyChem and
Geon, Georgia Gulf and Condea Vista, BASF and Solvay, EVA and BSU Schkopag and
Shin-Etso, Shell and Rovin in recent years.
Production Process. PVC resins are produced through the polymerization of VCM,
an ethylene and chlorine intermediate material internally produced by the
Company. The Company's production of certain specialty PVC resin grades also
involves the consumption of purchased vinyl acetate monomer. The Company
purchases vinyl acetate monomer from unrelated third parties.
All the VCM used by the Company's Geismar PVC resin plant and most of the VCM
used by the Company's Illiopolis PVC resin plants is obtained from the Company's
two Geismar VCM plants discussed below. Substantially all of the production of
these VCM plants is consumed by the Company's PVC resins plants at Geismar and
Illiopolis. The Geismar PVC resin plants obtain VCM from the Company's adjacent
VCM plants in the Geismar complex and the Illiopolis PVC resin plant obtains VCM
from the Company's Geismar plant via rail. The VCM requirement at the Addis
Facility is currently supplied by OxyChem which has arranged for physical
delivery to the Addis Facility by pipeline via exchange, but which may also be
supplied by rail car from OxyChem's plant in Deer Park, Texas or from OxyChem's
joint venture facility ("OxyMar") in Corpus Christi, Texas.
VCM is principally used in the production of PVC resins. The Company has the
capability of producing VCM by two processes: an ethylene process and an
acetylene process. The finished product of both of these processes is
essentially identical but the production costs vary depending on the cost of raw
materials and energy. The ability to produce VCM by either process allows the
Company the flexibility of favoring the process that results in the lower cost
at any particular time.
Ethylene-Based VCM. Ethylene-based VCM ("VCM-E") is produced by the Company
at a 650 million pound stated annual capacity plant at the Geismar complex. The
plant operated at approximately 86% and 79% of capacity during 2000 and 1999,
respectively. All of the production of the VCM-E plant is consumed by the
Company's PVC resin plants at the Geismar complex and Illiopolis.
Ethylene and chlorine constitute the principal feedstocks used in the
production of VCM-E. Both feedstocks are purchased by the Geismar plant from
Acetylene-Based VCM. Acetylene-based VCM ("VCM-A") is produced at a 320
million pound stated annual capacity plant at the Geismar complex. During 2000
and 1999, the plant operated at approximately 72% and 63% of capacity
respectively. All of the VCM-A produced at the Geismar complex is consumed by
the PVC resin plants at Geismar and Illiopolis.
As discussed below under acetylene, the VCM-A plant was idled in December 2000
due to the high cost of raw material feedstock.
Acetylene. Acetylene is primarily used as a feedstock for VCM-A and for other
chemical intermediates. Until January 2000, the Company had a 50% interest in a
200 million pound stated annual capacity acetylene plant at the Geismar complex,
with the remaining 50% interest held by BASF Corporation ("BASF"). In January
2000, the Partnership purchased BASF's interest in the acetylene plant. During
2000 and 1999, the plant operated at approximately 69% and 83%, respectively, of
capacity, with all production being consumed by either the Company or BASF.
The principal feedstocks used in the production of acetylene are natural gas
and oxygen. Oxygen is obtained from certain air separation units and related
air compression systems, which are jointly owned by the Company, BASF (through
December 31, 1999) and Air Liquide America Corporation. For a description of
the Company's arrangements for the purchase of natural gas, see "Raw Materials".
Due to the dramatic increase in the cost of natural gas during 2000, the
acetylene and VCM-A production processes became uneconomical to operate. In
December 2000, these units were idled, and the Partnership does not intend to
operate these units unless and until natural gas returns to economically
acceptable levels. Subject to the orders of the Bankruptcy Court in the Chapter
11 Cases, the Partnership plans to increase its purchases of VCM and its
production of VCM-E to replace the idled VCM-A capacity.
The Company's principal competitors in the sale of PVC include Shintech,
Formosa Plastics, Oxyvinyl, L.P. and Georgia Gulf.
In January 2000, the Partnership announced its intention to evolve into a
focused PVC company and to explore ways to realize maximum value in the near
term for its non-PVC businesses. On June 27, 2000, the Partnership announced its
decision to exit the methanol and derivatives and nitrogen products business
segments, as part of a process that included the sale of its formaldehyde and
certain other assets for $48.5 million to a subsidiary of Borden. The sale of
those assets was completed on July 28, 2000, with the Partnership receiving
$38.8 million in cash and an interest-bearing note for $9.7 million which was
paid in January 2001. The nitrogen products facilities were closed in July 2000,
and the methanol production ceased in December 2000.
A principal purchased raw material used historically in the Company's
operations is natural gas. In 2000, the Company purchased 54.2 million BTUs
of natural gas for feedstock and as an energy source. Natural gas can be
supplied by pipeline to the Geismar complex by six major natural gas pipelines.
The Company purchases the majority of its natural gas under fixed-term, market
sensitive supply contracts. In 2000, the cost of purchasing natural gas
increased to unprecedented levels, with natural gas increasing from an average
of $2.25 per million BTU in 1999 to over $3.73 per million BTU, with monthly
prices exceeding $6 per million BTU in December and $10 per million BTU in
January 2001. As a consequence, the Company has idled or shutdown its
production units that consume natural gas as a feedstock and currently is
consuming gas only as an energy source. In this operating mode, annual
consumption is approximately 12 million BTUs, and natural gas is currently
being purchased from one supplier. There can be no assurance that the Company
will in the future be able to purchase adequate supplies of natural gas at
acceptable price levels to again utilize natural gas as a feedstock.
The Company purchases other raw materials for its operations, principally
ethylene and chlorine. Ethylene is currently supplied by pipeline to the
Geismar facility by several suppliers. Chlorine is supplied by rail car and
pipeline to the Geismar complex by various suppliers. The major raw material
for the Illiopolis PVC plant, VCM, is supplied by rail car from the Geismar
facility. In addition, in connection with the production of certain specialty
grades of PVC resins, the Company purchases certain quantities of vinyl acetate
monomer. See "PVC Polymers Products-Production Process". The Company purchases
its VCM requirements for the Addis Facility under a VCM supply agreement entered
into with Oxyvinyl, LP.
Because raw materials have accounted for a high percentage of the Company's
production costs, and are expected to continue to represent a high percentage of
such costs for the Company, the Company's ability to pass on increases in costs
of these raw material feedstocks will have a significant impact on operating
results. The ability to pass on increases in feedstock and fuel costs is, to a
large extent, dependent on the then existing market conditions. If the Company
is unable to pass on increases in these costs, it could materially adversely
affect the Company's income and cash flow from operations and its ability to
service its debt obligations.
The Company maintains property, business interruption and casualty insurance
which it believes is in accordance with customary industry practices, but it is
not fully insured against all potential hazards incident to its business. The
Company also maintains pollution legal liability insurance coverage. However,
because of the complex nature of environmental insurance coverage and the
rapidly developing case law concerning such coverage, no assurance can be given
concerning the extent to which its pollution legal liability insurance, or any
other insurance that the Company has, may cover environmental claims against the
Company. Insurance, however, generally does not cover penalties or the costs of
obtaining permits. See "Item 3 - Legal Proceedings".
Under its risk retention program, the Company maintains property damage and
liability insurance deductibles of $2.5 million, $1.0 million and $1.0 million
per occurrence for property and related damages at the Geismar, Illiopolis and
Addis facilities, respectively, and deductibles ranging from $0.1 million to
$2.0 million per event for liability insurance. In addition the Company is
included in Borden's master excess insurance program.
Marketing and Sales
Marketing and sales activities are conducted by PVC sales and marketing
This group is comprised of 16 people, including a Vice President of Sales and
Marketing, a Director of Sales, two Product Managers, seven Regional Sales
personnel, and three Service managers, along with a small, office support staff.
The group is headquartered in Baton Rouge, LA with professional sales
personnel geographically positioned throughout the United States.
The Company's sales activities are based on frequent customer contact to
secure and maintain long-term supply relationships. A substantial portion of
the Company's sales are made under contracts with annual renegotiation
provisions. The majority of the Company's sales are made in the United States,
and a small portion in Canada. The Company has not historically participated in
the export market, but retains access to these markets through third party
The Geismar complex operates three high thermal efficiency co-generation units
providing the site with low cost electricity and steam. Each unit is composed
of a natural gas burning turbine/generator unit combined with a steam producing
heat recovery system (i.e., the "co-generation" of electricity and steam).
The co-generation units are designed to provide a significant portion of the
electricity and steam, and a portion of the reformer combustion air requirements
of the Geismar complex at full production levels. These units have electrical
outputs of 20, 35 and 35 megawatts, respectively. The electricity is supplied
by the units through a substation owned by Monochem, Inc. ("Monochem"), a
corporation of which the Partnership
owns 50% of the capital stock. The Company's interest in Monochem is subject to
certain rights of first refusal and limitations on transfer.
Water requirements at the Geismar complex are obtained through Monochem from
the Mississippi River. At Illiopolis, a municipal water company supplies the
facility with its water requirements. Because the Illiopolis facility
represents a significant portion of the demand for water supply from the
municipal water company, the Company manages the operations of the water company
on a cost-reimbursed basis. The Addis Facility obtains its electricity and water
requirements from local public utilities. Natural gas can be supplied by
pipeline from various suppliers.
Purchase and Processing Agreements
In connection with the formation of the Company in 1987, Borden entered into
certain purchase agreements ("Purchase Agreements") and processing agreements
("Processing Agreements") with the Company covering the following products: PVC
resins, methanol, ammonia, urea, formaldehyde and urea-formaldehyde concentrate.
These agreements were transferred to Borden Chemical, Inc. ("BCI") in 1997 and
the agreement to purchase PVC resins was assigned to and renegotiated with a
third party in connection with the sale of certain businesses by Borden in 1996
The Purchase Agreements and Processing Agreements with BCI were terminated in
2000 as part of the agreement for the Company to sell its formaldehyde and
related assets to BCI. The agreements called for BCI to purchase most of its
requirements for the applicable products based on pricing formulas. The Company
believes that the pricing formulas set forth in the Purchase and Processing
Agreements in the past provided aggregate prices and processing charges that BCI
would have been able to obtain from unaffiliated suppliers, considering the
magnitude of BCI's purchases, the long-term nature of such agreements and other
The business in which the Company operates is highly competitive. The Company
competes with major chemical manufacturers and diversified companies, a number
of which have revenues and capital resources exceeding those of the Company.
Because of the commodity nature of the Company's products, the Company is not in
a position to protect its position by product differentiation and is not able to
pass on cost increases to its customers to the extent its competitors do not
pass on such costs. In addition to price, other significant factors in the
marketing of the products are delivery, quality and, in the case of PVC resins,
Borden has agreed that, so long as BCP Management, Inc. ("BCPM") is the
general partner of the Company, Borden will not engage in the manufacture or
sale in the United States of acetylene, VCM or PVC resins. However, if BCPM (i)
is removed as general partner by the Unitholders under circumstances where cause
exists or (ii) withdraws as general partner under circumstances where such
withdrawal violates the existing partnership agreements ("Partnership
Agreements"), Borden has agreed not to engage in such manufacture or sale for a
period of two years from the date of such removal or withdrawal. If Borden were
to sell any of its manufacturing facilities to an unaffiliated purchaser that is
not a successor to Borden, the purchasers of such facilities would be free to
compete with the Company.
The Company entered into a Use of Name and Trademark License Agreement ("Use
of Name and Trademark License Agreement") with Borden pursuant to which the
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.
The General Partner, BCPM, manages and controls the activities of the Company
and the Operating Partnership and the General Partner's activities are limited
to such management and control. Unitholders do not participate in the
management or control of the Company or the Operating Partnership. The General
Partner has fiduciary duties to Unitholders, subject to the provisions of the
Partnership Agreement. The General Partner is liable, as general partner, for
all the debts of the Company (to the extent not paid by the Company) other than
any debt incurred by the Company that is made specifically nonrecourse to the
The Company does not directly employ any of the persons responsible for
managing or operating the business of the Company, but instead relies on the
officers and employees of the General Partner and of Borden who provide support
to or perform services for the General Partner and reimburses the General
Partner or Borden (on its own or on the General Partner's behalf) for their
Environmental and Safety Regulations
General. The Company's operations are subject to federal, state and local
environmental, health and safety laws and regulations, including laws relating
to air quality, hazardous and solid wastes, chemical management and water
quality. The Company has expended substantial resources, both financial and
managerial, to comply with environmental regulations and permitting
requirements, and anticipates that it will continue to do so in the future.
Although the Company believes that its operations are in material compliance
with these requirements, there can be no assurance that significant costs, civil
and criminal penalties, and liabilities will not be incurred. The Company holds
various environmental permits for operations at each of its plants. In the
event a governmental agency were to deny a permit application or permit renewal,
or revoke or substantially modify an existing permit, such agency action could
have a material adverse effect on the Company's ability to continue the affected
plant operations. Plant expansions are subject to securing necessary
environmental permits. Environmental laws and regulations have changed in the
past, and the Company anticipates continuing changes. Increasingly strict
environmental regulations have resulted in increased operating costs for the
Company, and it is possible that the costs of compliance with environmental,
health and safety laws and regulations will continue to increase.
The Company maintains an environmental and industrial safety and health
compliance program and conducts internal regulatory audits at its Geismar,
Illiopolis and Addis plants. The Company's plants have had a history of
involvement in regulatory, enforcement and variance proceedings in connection
with safety, health and environmental matters. Risks of substantial costs and
liabilities are inherent in plant operations and products found at and produced
by the plants, as they are with other enterprises engaged in the chemical
business, and there can be no assurance that significant costs and liabilities
will not be incurred.
Air Quality. The Geismar, Illiopolis and Addis plants emit air contaminants
and are subject to the requirements of the Clean Air Act and comparable state
statutes. Many of the existing requirements under these laws are embodied in
permits issued to the plants by state environmental agencies. The Company
believes that the Geismar, Illiopolis and Addis plants generally are in material
compliance with these requirements.
The 1990 Amendments to the Clean Air Act (the "1990 Clean Air Act Amendments")
require stringent controls on volatile organic compounds ("VOC") emissions in
ozone non-attainment areas and also require, subject to certain exceptions, the
control of nitrogen oxide ("NOx") emissions in such areas. The Geismar and
Addis plants are located in "nonattainment areas" for ozone under the 1990 Clean
Air Act Amendments. Additional capital expenditures may be required at the
Geismar and Addis plants in order to upgrade existing pollution control
equipment and/or install additional control equipment to comply with the
stringent regulations for VOC and NOx.
The 1990 Clean Air Act Amendments and state laws and regulations also require
certain sources to control emissions of hazardous air pollutants, including
vinyl chloride. Additional capital expenditures may be necessary to comply with
these control standards.
The 1990 Clean Air Act Amendment further requires "enhanced monitoring" of the
emissions from certain pieces of equipment. Although monitoring systems are
already in place at the Geismar, Illiopolis and Addis plants, capital
expenditures may be necessary to comply with the "enhanced monitoring"
In late 1996 the Illiopolis plant discovered through emission stack testing
that the actual emissions from a specific dryer were higher than calculated
using emissions factors and engineering estimates. These new emission numbers
were reported to the Illinois Environmental Protection Agency, and an air
pollution control devise known as a baghouse was installed on the unit in 1998
at a cost of $1.3 million.
Based on information currently available to the Company, the Company does not
believe that the capital expenditures that may be required at the Geismar,
Illiopolis and Addis plants to comply with the 1990 Clean Air Act Amendments and
corresponding state regulations will be material. However, because the Company
is continuing to evaluate the impact of such amendments on it, there can be no
assurance that the actual costs will not exceed the Company's estimates.
In March 1998, the United States Department of Justice ("DOJ") and the Company
signed a consent decree (the "Consent Decree") to resolve an enforcement
proceeding brought against the Company and BCPM, for alleged violations of the
Clean Air Act and other environmental statutes at the Geismar facility. In June
1998, the U.S. District Court for the Middle District of Louisiana accepted the
Consent Decree into record, and the proceedings were closed. See "Item 3 -
OSHA and Community Right to Know. The Geismar, Illiopolis and Addis plants
are subject to the requirements of the federal Occupational Safety and Health
Act ("OSHA") and comparable state statutes. The Company believes that the
Geismar, Illiopolis, and Addis plants are in material compliance with OSHA
requirements, including general industry standards, vinyl chloride exposure
requirements, recordkeeping requirements and chemical process safety standards.
It is possible that changes in safety and health regulations, or a finding of
noncompliance with current regulations, could result in additional capital
expenditures or operating expenses for the Geismar, Illiopolis and Addis plants.
The OSHA hazard communication standard and the EPA community right-to-know
regulations under the Emergency Planning and Community Right-to-Know Act
("EPCRA") require the Company to organize information about the hazardous
materials in the plants and to communicate that information to employees and
certain governmental authorities. The Company has a hazard communication
program in place and will continue this program as a part of its industrial
safety and health compliance program. The Company believes that it generally is
in material compliance with EPCRA.
Solid and Hazardous Waste. The Geismar, Illiopolis and Addis plants generate
hazardous and nonhazardous solid waste and are subject to the requirements of
the Resource Conservation and Recovery Act ("RCRA") and comparable state
statutes. The Company believes that the Geismar, Illiopolis and Addis plants
are in material
compliance with RCRA. However, see "Item 3 - Legal Proceedings".
A primary trigger for RCRA requirements is the designation of a substance as a
"hazardous waste". It is anticipated that additional substances will in the
future be designated as "hazardous waste", which likely would result in
additional capital expenditures or operating expenses for the Company.
In accordance with the Consent Decree, the Company has applied for a RCRA
permit for its valorization of chlorinated residuals ("VCR") unit. In addition,
the settlement provides guidelines for future investigation and possible
remediation of groundwater contamination. See "Item 3 - Legal Proceedings".
Superfund. The Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability,
without regard to fault or the legality of the original conduct, on classes of
persons that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and the companies that
disposed, or arranged for the disposal of, the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances and for damages to natural resources. In
the ordinary course of the Company's operations, substances are generated that
fall within the CERCLA definition of "hazardous substance". If such wastes have
been disposed of at sites which are targeted for cleanup by federal or state
regulatory authorities, the Company may be among those responsible under CERCLA
or analogous state laws for all or part of the costs of such cleanup. The
Geismar, Illiopolis and Addis plants have in the past and are expected to
continue to generate hazardous substances and dispose of such hazardous
substances at various offsite disposal sites.
The Consent Decree signed by DOJ and the Company in March 1998 resolved an
enforcement proceeding against the Company and BCPM for alleged violation of
CERCLA's reporting and other environmental requirements at the Geismar facility.
See "Item 3 - Legal Proceedings".
Toxic Substances Control Act. The Company is subject to the Toxic Substances
Control Act ("TSCA"), which regulates the development, manufacture, processing,
distribution, importation, use, and disposal of thousands of chemicals. Among
other requirements, TSCA provides that a chemical cannot be manufactured,
processed, imported or distributed in the United States until it has been
included on the TSCA Chemical Inventory. Other important TSCA requirements
govern recordkeeping and reporting. For example, TSCA requires a company to
maintain records of allegations of significant adverse reactions to health or
the environment caused by chemicals or chemical processes. The Company believes
that it generally is in material compliance with TSCA. Violations of TSCA can
result in significant penalties.
Water Quality. The Geismar, Illiopolis and Addis plants maintain wastewater
discharge permits for their facilities pursuant to the Federal Water Pollution
Control Act of 1972 and comparable state laws. Where required, the Company also
applied for and received permits to discharge stormwater. The Company believes
that the Geismar, Illiopolis and Addis plants are in material compliance with
the Federal Water Pollution Act of 1972 and comparable state laws. In cases
where there are excursions from the permit requirements, the Geismar and
Illiopolis plants are taking action to achieve compliance, are working in
cooperation with the appropriate agency to achieve compliance or are in good
faith pursuing their procedural rights in the permitting process.
The EPA has issued effluent regulations specifying amounts of pollutants
allowable in direct discharges and in discharges to publicly owned treatment
works. The Geismar, Illiopolis and Addis plants manufacture or use as raw
materials a number of
chemicals subject to additional regulation. Both federal and state authorities
continue to develop legislation and regulations to control the discharge of
certain toxic water pollutants. Passage of such legislation or regulations could
necessitate additional capital expenditures to reduce discharges of these
substances into the environment either during routine or episodic events. The
Company does not believe that these legislative developments would have a
material adverse impact on the Company's operations.
Areas of groundwater contamination have been identified at the Company's
plants. It is the Company's policy, where possible and appropriate, to address
and resolve groundwater contamination. The Company believes that environmental
indemnities available to it would cover all, or a substantial portion of, known
groundwater contamination. The Company does not believe that the known
contamination will have a material adverse impact on the Company's operations.
The Company believes that the Geismar, Illiopolis and Addis plants generally are
in material compliance with all laws with respect to known groundwater
contamination. At the Geismar complex, Borden and the Company have complied
with the Settlement Agreement with the state of Louisiana and the Company is
complying with the Consent Decree with DOJ, for groundwater remediation. See
"Item 3 - Legal Proceedings".
Present and Future Environmental Capital Expenditures. Although it is the
Company's policy to comply with all applicable environmental, health and safety
laws and regulations, all of the implementing regulations have not been
finalized. Even where regulations or standards have been adopted, they are
subject to varying and conflicting interpretations and implementation. In many
cases, compliance with environmental regulations or standards can only be
achieved by capital expenditures, some of which may be significant. Capital
expenditures for environmental control facilities were approximately $3.1
million in 2000 and $2.8 million in 1999. Capital expenditures for environmental
control facilities are expected to total approximately $2.0 million in 2001
(although such estimate could vary substantially depending on the outcome of the
various proceedings and matters discussed herein, and no assurance can be given
that greater expenditures on the part of the Company will not be required as to
matters not covered by the environmental indemnity from Borden).
Borden Environmental Indemnity
Under the Environmental Indemnity Agreement, subject to certain conditions,
Borden has agreed to indemnify the Company in respect of environmental
liabilities arising from facts or circumstances that existed and requirements in
effect prior to November 30, 1987, the date of the initial sale by Borden of the
Geismar and Illiopolis plants to the Company (the "Transfer Date"). See "Item 3
- Legal Proceedings".
Addis Environmental Indemnity
OxyChem has indemnified the Company for environmental liabilities arising from
the manufacture, generation, treatment, storage, handling, processing, disposal,
discharge, loss, leak, escape or spillage of any product, waste or substance
generated or handled by OxyChem prior to the closing of the acquisition of the
Addis facility from OxyChem in 1995, any condition resulting therefrom relating
to acts, omissions or operations of OxyChem prior to such date, and any duty,
obligation or responsibility imposed on OxyChem prior to such date under
environmental laws in effect prior to such date to address such condition.
However, except with regard to claims arising from OxyChem's disposal of waste
at sites other than the Addis Facility, OxyChem has no indemnification
obligation if the claim for indemnification is the result of a change in
applicable law after the closing of the Acquisition. OxyChem's obligation to
indemnify the Company for environmental liabilities is subject to certain
limitations. There can be no assurance that the indemnification provided by
OxyChem will be sufficient to cover all environmental liabilities existing or
arising at the Addis Facility.
Product Liability and Regulation
As a result of the Company's manufacture, distribution and use of different
chemicals, the Company is, and in the future may be, subject to various lawsuits
and claims, such as product liability and toxic tort claims, which arise in the
ordinary course of business and which seek compensation for physical injury,
pain and suffering, costs of medical monitoring, property damage, and other
alleged harms. New or different types of claims arising from the Company's
various chemical operations may be made in the future.
The Partnership does not directly employ any of the persons responsible for
managing and operating the Partnership, but instead reimburses BCPM for their
services. On December 31, 2000, BCPM employed approximately 650 individuals.
Proceedings Under Chapter 11 of the Bankruptcy Code
On April 3, 2001, the Debtors filed voluntary petitions for protection under
Chapter 11 of the Bankruptcy Code. The Chapter 11 Cases have been procedurally
consolidated for administrative purposes only. The Debtors are currently
acting as debtors-in-possession pursuant to the Bankruptcy Code.
Subsequent to the commencement of the Chapter 11 Cases, the Debtors sought and
obtained several orders from the Bankruptcy Court which were intended to
stabilize and continue business operations. The most significant of these orders
(i) approved an amendment to the Operating Partnership's Credit Agreement dated
as of March 31, 2000, (the "Year 2000 Revolving Credit Facility") with Fleet
Capital Corporation ("Fleet") as agent for itself and other lenders party
thereto (the "DIP Lenders"). The amendment (the "DIP Loan Agreement")provides
up to $100 million debtor-in-possession financing, (ii) permits continued
operation of their consolidated cash management system during the Chapter 11
Cases in substantially the same manner as it was operated prior to the
commencement of the Chapter 11 Cases, and (iii) authorized payment of pre-
petition wages, vacation pay and employee benefits and reimbursement of employee
The DIP Loan Agreement provides the Operating Partnership with a revolving
line of credit in an aggregate amount not to exceed $100 million, subject to
borrowing base limitations. The aggregate borrowing limit can be increased to an
amount not to exceed $120 million at the discretion of the DIP Lenders. The
Operating Partnership will use amounts borrowed under the DIP Loan Agreement for
its ongoing working capital needs and for certain other purposes of the
Operating Partnership as permitted by the DIP Loan Agreement. The Operating
Partnership granted a security interest to the DIP Lenders in substantially all
of the Operating Partnership's assets as security for its obligations under the
DIP Loan Agreement. All obligations under the DIP Loan Agreement will be
afforded "super-priority" administrative expense status in the Chapter 11 Cases.
Pursuant to its Amended and Restated Agreement of Limited Partnership, the
Operating Partnership is required to distribute 100% of its Available Cash as of
the end of each quarter on or about 45 days after the end of such quarter to
Unitholders of record as of the applicable record date and to the General
Partner. "Available Cash" means generally, with respect to any quarter, the sum
of all cash receipts of the Partnership plus net reductions to reserves
established in prior quarters, less cash disbursements and net additions to
reserves in such quarter. The General Partner has broad discretion in
establishing reserves, and its decisions regarding reserves could have a
significant impact on the amount of Available Cash. The timing and
amounts of additions and reductions to reserves may impact the amount of
incentive distributions, if any, payable to the General Partner. As a result,
distributions to Unitholders may over time be reduced from levels which would
have been distributed if the General Partner were not able to control the timing
of additions and reductions to reserves.
Since 1998, adverse business conditions have considerably reduced revenues and
operating margins and caused the Company to incur net losses. Consequently, no
cash distributions have been declared since the fourth quarter of 1997. It is
also highly unlikely that the Company will declare any cash distributions in the
future during the Chapter 11 process or upon its resolution.
Certain statements in this Form 10-K, in particular, certain statements under
"Item 1. Business", "Item 3. Legal proceedings" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation", are
forward-looking. These can be identified by the use of forward-looking words or
phrases such as "believe", "expect", "anticipate", "should", "plan", "estimate",
"intend" and "potential" among others. The Private Securities Litigation Reform
Act of 1995 provides a "safe harbor" for such forward-looking statements. While
these forward-looking statements are based on the Partnership's reasonable
current expectations, a variety of risks, uncertainties and other factors,
including many which are outside the control of the Partnership, could cause the
Partnership's actual results to differ materially from the anticipated results
or expectations expressed or implied in such forward-looking statements. The
risks, uncertainties and other factors that may affect the operations,
performance, development and results of the Partnership include changes in the
demand or pricing of its commodity products, changes in industry production
capacities, changes in the supply of and costs of natural gas and other
significant raw materials, loss of business from major customers, continuing
availability of post-petition financing, negative market and credit impact from
the Chapter 11 filing, unanticipated expenses, substantial changes in the
financial markets, labor unrest, foreign competition, major equipment failure,
unanticipated results in pending legal proceedings, changes in applicable
environmental, health and safety laws and regulations and other factors.