<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q
                                        
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1998

                          COMMISSION  FILE NO. 1-9699



                         BORDEN CHEMICALS AND PLASTICS
                              LIMITED PARTNERSHIP

          Delaware                                  31-1269627
   (STATE OF ORGANIZATION)             (I.R.S. EMPLOYER IDENTIFICATION NO.)

   HIGHWAY 73, GEISMAR, LOUISIANA  70734               614-225-4482
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)      (REGISTRANT'S TELEPHONE NUMBER)



                                 ------------- 

     Indicate by check mark whether the registrant (1)  has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X    No     .
                                               ----      ---   


                                  ------------  

     Number of Common Units outstanding as of the close of business on August 7,
1998:  36,750,000.

                                       1
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
 
 
                                                           Three Months Ended
                                                           ------------------
<S>                                                        <C>        <C>
 
                                                           JUNE 30,   JUNE 30,
                                                               1998       1997
                                                           --------   --------
REVENUES
  Net trade sales................................          $126,116   $152,558
  Net sales to related parties...................            20,196     37,218
                                                           --------   --------
 
     Total revenues..............................           146,312    189,776
                                                           --------   --------
 
 
 
 
EXPENSES
  Cost of goods sold
        Trade....................................           121,462    125,926
        Related parties..........................            20,483     29,704
  Marketing, general & administrative expense....             6,637      6,338
  Interest expense...............................             5,565      5,243
  General Partner incentive......................                 0        794
  Other (income) expense, including minority
        interest.................................               (14)       525
                                                           --------   --------
 
             Total expenses                                 154,133    168,530
                                                           --------   --------
 
  Net (loss) income...............................           (7,821)    21,246
       Less 1% General Partner interest...........               78       (212)
                                                           --------   --------
  Net (loss) income applicable to Limited Partners'
        interest..................................         $ (7,743)  $ 21,034
                                                           ========   ========
 
 
PER UNIT DATA-BASIC, NET OF 1% GENERAL PARTNER INTEREST
  Net (loss) income per Unit......................           $(0.21)     $0.57
                                                           ========   ========
 
  Average number of Units outstanding during the period      36,750     36,750
                                                           ========   ========
 
  Cash distribution declared per Unit.............            $0.00      $0.45
                                                           ========   ========
</TABLE>

                                       2
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
 
      
                                                                    Six Months Ended
                                                                    -----------------
<S>                                                        <C>                <C>
 
                                                                   June 30,   June 30,
                                                                       1998       1997
                                                                   --------   --------
REVENUES
  Net trade sales.................................                 $254,252   $315,475
  Net sales to related parties....................                   45,571     68,983
                                                                   --------   --------
 
        Total revenues............................                  299,823    384,458
                                                                   --------   --------
 
EXPENSES
  Cost of goods sold
        Trade.....................................                  248,409    283,868
        Related parties...........................                   44,832     59,799
  Marketing, general & administrative expense.....                   12,369     11,779
  Interest expense................................                   10,392     10,493
  General Partner incentive.......................                        0        794
  Other (income) expense, including minority
        interest..................................                      (34)       886
                                                                   --------   --------
 
             Total expenses.......................                  315,968    367,619
                                                                   --------   --------
 
  Net (loss) income...............................                  (16,145)    16,839
       Less 1% General Partner interest...........                      161       (168)
                                                                   --------   --------
  Net (loss) income applicable to Limited Partners'
        interest..................................                 $(15,984)  $ 16,671
                                                                   ========   ========
 
 
PER UNIT DATA-BASIC, NET OF 1% GENERAL PARTNER INTEREST
  Net (loss) income per Unit......................                   $(0.43)     $0.45
                                                                   ========   ========
 
  Average number of Units outstanding during the period              36,750     36,750
                                                                   ========   ========
 
  Cash distribution declared per Unit.............                    $0.00      $0.55
                                                                   ========   ========
</TABLE>

                                       3
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
 
   
                                                                 Six Months Ended
                                                                 -----------------
                                                              June 30,       June 30,
                                                                1998           1997
                                                              ----------     ---------
<S>                                                       <C>                <C>
CASH FLOWS FROM OPERATIONS
 
Net (loss) income.................................               $ (16,145)  $ 16,839
 
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
  Depreciation....................................                  16,198     24,949
  Decrease (increase) in receivables..............                  11,195    (10,494)
  Decrease (increase) in inventories..............                   9,171     (7,762)
  (Decrease) increase in payables.................                 (16,165)       181
  Increase in incentive distribution payable......                       0        794
  (Decrease) in accrued interest..................                      (5)       (18)
   Other, net.....................................                 ( 7,447)   ( 3,030)
                                                                 ---------   --------
 
                                                                    (3,198)    21,459
                                                                 ---------   --------
 
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures............................                ( 14,954)    (4,178)
                                                                 ---------   --------
 
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from borrowings........................                  35,000          0
  Cash distributions paid.........................                  (3,712)    (7,424)
                                                                 ---------   --------
                                                                    31,288     (7,424)
                                                                 ---------   --------
 
Increase in cash and equivalents..................                  13,136      9,857
 
Cash and equivalents at beginning of period.......                   7,528     10,867
                                                                 ---------   --------
 
Cash and equivalents at end of period.............               $  20,664   $ 20,724
                                                                 =========   ========
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Interest paid during the period...................                 10,774      $10,511
                                                                 =========   ========
</TABLE> 

                                       4
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
 
                         ASSET                               JUNE 30, 1998   DECEMBER 31, 1997
                         -----                               --------------  ------------------
<S>                                                          <C>             <C>
 
Cash and equivalents..............................               $  20,664           $   7,528
Accounts receivable (less allowance for doubtful accounts
  of $414 and $475, respectively)
  Trade...........................................                  68,969              72,718
  Related parties.................................                  14,295              21,741
Inventories
  Finished and in process goods...................                  26,186              33,686
  Raw materials and supplies......................                   7,644               9,315
Other current assets..............................                   4,705               4,380
                                                                 ---------           ---------
  Total current assets............................                 142,463             149,368
                                                                 ---------           ---------
 
Investments in and advances to affiliated companies                  8,078               7,834
Other assets......................................                  57,425              52,784
                                                                 ---------           ---------
                                                                    65,503              60,618
                                                                 ---------           ---------
 
Plant, property and equipment
  Land............................................                  15,952              15,952
  Buildings.......................................                  45,050              45,050
  Machinery and equipment.........................                 677,003             662,050
                                                                 ---------           ---------
                                                                   738,005             723,052
Less accumulated depreciation.....................                (449,049)           (432,852)
                                                                 ---------           ---------
  Net plant, property and equipment                                288,956             290,200
                                                                 ---------           ---------
 
    Total assets                                                 $ 496,922           $ 500,186
                                                                 =========           =========
 
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
 
Accounts and drafts payable.......................               $  40,837           $  57,002
Cash distributions payable........................                       0               3,712
Accrued interest..................................                   3,204               3,209
Other accrued liabilities.........................                  19,450              21,111
                                                                 ---------           ---------
  Total current liabilities.......................                  63,491              85,034
 
Long-term debt....................................                 260,000             225,000
Other liabilities.................................                   5,349               5,760
Minority interest in consolidated subsidiary......                   1,149               1,314
                                                                 ---------           ---------
  Total liabilities...............................                 329,988             317,108
                                                                 ---------           ---------
 
Partners' capital
  Limited Partners................................                 166,734             182,718
  General Partner.................................                     199                 360
                                                                 ---------           ---------
     Total partners' capital......................                 166,933             183,078
                                                                 ---------           ---------
 
    Total liabilities and partners' capital.......               $ 496,922           $ 500,186
                                                                 =========           =========
 
</TABLE>

                                       5
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

            CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                                  (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
 
 
<S>                                                              <C>        <C>        <C>

                                               
                                                                 LIMITED    GENERAL   
                                                                 PARTNERS   PARTNER       TOTAL
                                                                  --------   ------    --------
Balance at December 31, 1996 ......................               $207,680   $  620    $208,300
   Net income  ..............................................       16,671      168      16,839
   Cash distributions declared  ........................           (20,213)   (  212)   (20,425)
                                                                  --------   ------    --------
Balance at June 30, 1998  .........................               $204,138   $  576    $204,714
                                                                  ========   ======    ========
 
 
Balance at December 31, 1997  .....................               $182,718   $  360    $183,078
   Net loss  ..............................................        (15,984)    (161)    (16,145)
   Cash distributions declared  ........................                 0        0           0
                                                                  --------   ------    --------
Balance at June 30, 1998  .........................               $166,734   $  199    $166,933
                                                                  ========   ======    ========
</TABLE>

                                       6
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                  (IN THOUSANDS EXCEPT UNIT AND PER UNIT DATA)

1.         INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated condensed financial statements
of Borden Chemicals and Plastics Limited Partnership (the "Partnership") contain
all adjustments, consisting only of normal recurring adjustments, which in the
opinion of BCP Management, Inc. (the "General Partner") are necessary for a fair
statement of the results for the interim periods.  Results for the interim
periods are not necessarily indicative of the results for the full year.

Basic income per unit is computed by dividing net income, after subtracting the
General Partner's 1% interest, by the weighted average number of units
outstanding.  Currently, there are no potentially dilutive securities;
accordingly, basic income per unit and diluted income per unit are equivalent.

Effective for the quarter ended March 31, 1998, the Partnership adopted
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income".  There were no items of other comprehensive income for
the six months ended June 30, 1998 and 1997, respectively.

In April 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use".  This statement requires the
capitalization of certain costs incurred to develop internal use software.  The
Partnership is required to adopt the provisions of  SOP 98-1 beginning January
1, 1999 but has elected to adopt the provisions of the statement for internal
use software developed or acquired during 1998.

In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131,  "Disclosures about Segments of an Enterprise and Related Information".
This statement requires certain disclosures about segment information in interim
and annual financial statements and related information about products and
services, geographic areas and major customers.  The Partnership must adopt the
provisions of SFAS No. 131 for its consolidated financial statements for the
year ending December 31, 1998.  The adoption of this statement will not affect
the Partnership's financial position, results of operations or cash flows;
changes in the form and content of its financial statement disclosures may be
required.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities".  This statement requires all derivative
instruments to be recognized in the balance sheet as either assets or
liabilities and measured at fair value.  The Partnership must adopt the
provisions of SFAS No. 133 for the year ending December 31, 2000.  The adoption
of the statement is not expected to have a material effect on the Partnership's
financial position.

2. ENVIRONMENTAL AND LEGAL PROCEEDINGS

On April 8, 1998, the Partnership and the United States Department of Justice
("DOJ") signed a Consent Decree (the "Consent Decree") to resolve the
enforcement action brought by the DOJ against Borden Chemicals and Plastics
Operating Limited Partnership (the "Operating Partnership"), the Partnership and
the General Partner in October, 1994, and the Declaratory Judgement Action
brought by the Partnership against the United States.  The complaint sought
civil penalties for alleged violations of the federal Resource, Conservation and
Recovery Act ("RCRA"), the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), and the Clean Air Act at the Geismar
facility, as well as corrective action at that facility.

The Consent Decree provides for payment of a civil penalty of $3.6 million and
funding of $0.4 million for community based environmental programs, but it does
not include any admission of wrongdoing. The Consent Decree also provides for a
specific and detailed program of groundwater and other remediation at the
Geismar facility that is consistent with various actions undertaken previously,
currently being undertaken, and planned to be undertaken in the future, by the
Partnership. Under certain circumstances, the Environmental Protection Agency

                                       7
<PAGE>
 
("EPA") and the Louisiana Department of Environmental Quality ( the "LDEQ")  may
require investigation and remediation beyond the specific terms of the
agreement.  The Partnership, however, believes that the technical information
and knowledge regarding the nature of contamination at the site, and the need
for remediation, make it unlikely that investigation and remediation beyond that
which the Partnership has already planned for and is contemplated by the Consent
Decree will be required.  The Consent Decree also provides that the Partnership
will undertake a Supplemental Environmental Project to decommission its
underground injection wells and instead subject the waste to innovative source
reduction.  The estimated cost of the project to the Partnership is $3.0
million.  The Partnership also agreed to apply for a RCRA permit for its VCR
unit and related tanks.

In 1985, the LDEQ and Borden, Inc. ("Borden") entered into a settlement
agreement ("Settlement Agreement") that called for the implementation of a long-
term groundwater and soil remediation program at the Geismar complex to address
contaminants, including ethylene dichloride ("EDC").  Borden and the Partnership
implemented the Settlement Agreement, and worked in cooperation with the LDEQ to
remediate the groundwater and soil contamination.  The Settlement Agreement
contemplated, among other things, that Borden would install a series of
groundwater monitoring  and recovery wells and recovery trench systems.  Borden
has paid substantially all the costs to date associated with the Settlement
Agreement under the provisions of an Environmental Indemnity Agreement among
Borden, the Partnership and the Operating Partnership (the " EIA").  The Consent
Decree establishes new guidelines for remediation of groundwater and soil
contamination that was identified by the Settlement Agreement; all future
remediation of this groundwater and soil contamination will be performed under
the terms of the Consent Decree.  Remediation costs incurred under the Consent
Decree, which are expected to be several million dollars, are expected to be
paid by Borden.

The terms of the Consent Decree also settle all federal and state civil issues
regarding the export of partially depleted mercuric chloride catalyst.

On June 11, 1998, the terms of the Consent Decree were accepted into record and
the proceedings were closed.  Payment of the civil penalty was made on July 9,
1998.  In light of the $4.0 million provision previously established for
potential environmental liabilities and Borden's obligation under the EIA to pay
for the remediation program, the terms of the Consent Decree are not expected to
have a material effect on the Partnership's financial position or results of
operations.

The Partnership is subject to extensive federal, state and local environmental
laws and regulations which impose limitations on the discharge of pollutants
into the air and water, establish standards for the treatment, storage,
transportation and disposal of solid and hazardous wastes, and impose
obligations to investigate and remediate contamination in certain circumstances.
The Partnership has expended substantial resources, both financial and
managerial, and it anticipates that it will continue to do so in the future.
Failure to comply with the extensive federal, state and local environmental laws
and regulations could result in significant civil or criminal penalties, and
remediation costs.

Under the EIA, Borden has agreed, subject to certain specified limitations, to
indemnify the Partnership in respect of environmental liabilities arising from
facts or circumstances that existed and requirements in effect prior to November
30, 1987, the date of the initial sale of the Geismar and Illiopolis plants to
the Partnership.  The Partnership is responsible for environmental liabilities
arising from facts or circumstances that existed and requirements that become
effective on or after such date.  With respect to certain environmental
liabilities that may arise from facts or circumstances that existed and
requirements in effect both prior  to and after such date, Borden and the
Partnership will share liabilities on an equitable basis considering all of the
facts and circumstances including, but not limited to, the relative contribution
of each to the matter and the amount of time each has operated the assets in
question (to the extent relevant).  No claims can be made under the EIA after
November 30, 2002, and no claims can, with certain exceptions, be made with
respect to the first $0.5 million of liabilities which Borden would otherwise be
responsible for thereunder in any year, but such excluded amounts shall not
exceed $3.5 million in the aggregate.  Excluded amounts under the EIA aggregated
approximately $3.5 million as of March 31, 1997.

The Partnership is subject to other environmental and legal proceedings and
claims which arise in the ordinary course of business.  In the opinion of the
General Partner, the amount of  the ultimate liability, taking into account the
Partnership's risk retention program and EIA with Borden, would not materially
affect the financial position or results of operations of the Partnership.

                                       8
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
--------------

RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1998 COMPARED TO QUARTER ENDED JUNE 30, 1997

Revenues

Total revenues during the second quarter of 1998 decreased $43.5 million or
22.9% to $146.3 million from $189.8 million in the second quarter of 1997.  This
decrease was the result of a $24.0 million decrease in PVC Polymers Products
revenues, a $16.6 million decrease in Methanol and Derivatives revenues and  a
$2.9 million decrease in Nitrogen Products revenues.

Total revenues for PVC Polymers Products decreased $24.0 million as a result of
a 20.7% decrease in selling prices, partially offset by a 2.0% increase in sales
volumes.  Excess supply of PVC in the market, exacerbated by on-going lower
demand levels in many countries in the Far East region, has continued to put
downward pressure on selling prices and intensified competitive market
conditions.

Total revenues for Methanol and Derivatives decreased $16.6 million as a result
of a 49.4% decrease in selling prices, partially offset by a 22.2% increase in
sales volumes.  Selling prices fell dramatically during the first quarter of
1998, and eroded slightly in the second quarter of 1998.  Normalization of
supply in the market in 1998, after continued disruptions in 1997, has created
excess supply conditions which put severe downward pressure on selling prices.

Total revenues for Nitrogen Products decreased $2.9 million as a result of a
14.7% decrease in sales prices.  Increases in production supply in 1997 and a
decrease in imports of urea into China have put downward pressure on selling
prices.

Cost of Goods Sold

Total cost of goods sold decreased $13.7 million to $141.9 million in the
current period from $155.6 million in the year-ago period.  The decrease was
primarily due to significant declines in the costs of chlorine and purchased
VCM, as well as a decrease in the cost of ethylene.  These raw material cost
decreases were partially offset by an increase in the cost of natural gas and a
slight increase in sales volumes.  Expressed as a percentage of total revenues,
cost of goods sold increased to 97.0% of total revenues in the second quarter of
1998 from 82% in the second quarter of 1997, due to the significant decrease in
selling prices discussed above.

Gross margins for PVC Polymers Products decreased 73.4% as a result of the
decline in selling prices and sales volumes discussed above.

Gross margins for Methanol and Derivatives decreased 99.0% as a result of the
decreased selling prices and volumes discussed above.

Gross margins for Nitrogen Products decreased 78.1% as a result of the decreased
selling prices and volumes discussed above.

Incentive Distribution to General Partner

There was no incentive distribution to the General Partner generated during
either the first or second quarter of 1998 as there were no cash distributions
declared to the Unitholders during these periods.  An incentive distribution to
the General Partner of $0.8 million was generated during the second quarter of
1997 as a result of cash distributions to Unitholders of $0.45 per unit, which
exceeded the Target Distribution of $0.3647 per unit.

Net Income (Loss)

Net loss for the second quarter of 1998 was $7.8 million compared to net income
of $21.2 million for the second quarter of 1997.  As discussed above, the
primary reason for the decline in operating performance was significantly lower
selling prices across all three major product groups, partially offset by
declining raw material costs.

                                       9
<PAGE>
 
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

Revenues

Total revenues for the first six months of 1998 decreased $84.6 million or 22.0%
to $299.8 million from $384.5 million for the comparable period a year ago.
Total revenues for PVC Polymers Products decreased $47.2 million as a result of
a 13.3% decrease in selling prices a 6.0% decrease in sales volumes.  Total
revenues for Methanol and Derivatives decreased $25.1 million as a result of a
28.7% decrease in selling prices on comparable volumes.  Total revenues for
Nitrogen Products decreased $12.4 million as a result of a 25.6% decrease in
selling prices combined with a 5.8% decrease in sales volumes.

Cost of Goods Sold

Total cost of goods sold decreased $50.4 million to $293.2 million for the first
six months of 1998 from $343.7 million in the year-ago period.  The decrease was
primarily due to declines in the costs of major raw materials period to period,
including natural gas, ethylene, chlorine and purchased VCM, as well as a
decrease in sales volumes.  Expressed as a percentage of total revenues, cost of
goods sold increased to 97.8% of total revenues for the first half of 1998 from
89.4% in the first half of 1997, due to the significant decrease in selling
prices discussed above.

Gross margins for PVC Products decreased 87.7% as a result of the decline in
selling prices and sales volumes discussed above.

Gross margins for Methanol and Derivatives decreased 68.1% as a result of the
decreased selling prices discussed above.

Gross margins for Nitrogen Products decreased 162.8% to a negative position as a
result of the decreased selling prices and volumes discussed above.

Incentive Distribution to General Partner

There was no incentive distribution to the General Partner generated during
either the first or second quarter of 1998 as there were no cash distributions
declared to the Unitholders during these periods.  An incentive distribution to
the  General Partner of $0.8 million was generated during the second quarter of
1997 as a result of cash distributions to Unitholders exceeding the Target
Distribution.

Net Income (Loss)

Net loss for the first half of 1998 was $16.1 million compared to net income of
$16.8 million for the first half of 1997.  As discussed above, the primary
reason for the decline in operating performance was significantly lower selling
prices across all three major product groups, partially offset by declining raw
material costs.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows from Operations.  The Partnership used $3.2 million of cash for
operations during the first six months of 1998 compared to generating cash from
operations of $21.5 million in the first six months of 1997.  Cash flows from
operations declined period to period due to significantly lower earnings, which
were partially offset by a favorable change in working capital, specifically
accounts receivable and inventories.

Cash Flows from Investing Activities.  Capital expenditures for the first six
months of 1998 increased significantly to $15.0 million compared to $4.2 million
for the same period a year ago.  The increase in capital expenditures reflects
spending on environmental compliance projects and implementation of year 2000
compatible computer software and infrastructure.

Cash Flow from Financing Activities.  During the first half of 1998, the
Partnership borrowed $35 million to fund operations and capital expenditures.
See further discussion in "Liquidity".

                                       10
<PAGE>
 
Pursuant to its Amended and Restated Agreement of Limited Partnership, the
Partnership is required to make quarterly distributions to Unitholders and the
General Partner of 100% of its Available Cash, if any.  Available Cash means
generally, with respect to any quarter, the sum of all cash receipts of the
Partnership plus net reductions to reserves established in prior quarters, less
all of its cash disbursements and net additions to reserves in such quarter.
The General Partner may establish such reserves, as it deems necessary or
appropriate in its reasonable discretion, to provide for the proper conduct of
the business of the Partnership or the Operating Partnership and to stabilize
distributions of cash to Unitholders and the General Partner and such other
reserves as are necessary to comply with the terms of any agreement or
obligation of the Partnership.

A cash distribution of $3.7 million was made during the first quarter of 1998;
cash distributions of $3.7 million also were made during each of the first and
second quarters of 1997.  These amounts reflect the payment of cash
distributions declared for the immediately preceeding quarters.  Cash
distributions with respect to interim periods are not necessarily indicative of
cash distributions with respect to a full year.  Moreover, due to the cyclical
nature of the Partnership's business, past cash distributions are not
necessarily indicative of future cash distributions.  The General Partner
determined that no cash distributions would be declared for the first and second
quarters of 1998.

The cyclical nature of the Partnership's business as well as various seasonality
factors have a significant impact on its results of operations and, therefore,
on its ability to make cash distributions on a quarterly basis.  In addition,
the amount of Available Cash constituting Cash from Operations for any period
does not necessarily correlate directly with net income for such period because
various items and transactions affect net income but do not affect Available
Cash constituting Cash from Operations, while changes in working capital items
(including receivables, inventories, accounts payable and other items) generally
do not affect net income but do affect such Available Cash.  Moreover, as
provided for in the Partnership Agreements with respect to the Partnership and
the Operating Partnership, certain reserves may be established which affect
Available Cash constituting Cash from Operations but do not affect cash balances
in financial statements.  Such reserves have generally been used to set cash
aside for debt service, capital expenditures and other accrued items.

Liquidity

Adverse business conditions across the Partnership's three product groups have
considerably reduced its sales revenues and operating margins and caused the
Partnership to incur net losses over the past several quarters.  Unless business
conditions broadly improve, industry overcapacity affecting all of the
Partnership's product groups is likely to cause narrow operating margins to
persist throughout the remainder of the year, even if raw material prices
continue to decline.  These narrow operating margins, combined with the
Partnership's capital expenditure needs (which are anticipated to be in the
range of $5 to $8 million per quarter for the remainder of the year) and debt
service requirements, along with restrictions in the Credit Agreement and
Indenture as discussed below,  make it highly unlikely that the Partnership will
resume making quarterly cash distributions in 1998.

The Operating Partnership and several lending institutions are parties to a
Credit Agreement (the "Credit Agreement"), dated as of December 19, 1997 which
provides for a revolving credit facility of $100 million (the "Revolving Credit
Facility").  As of June 30, 1998, the Operating Partnership had $60 million
outstanding under the Revolving Credit 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 "Indenture").  The Notes are senior unsecured
obligations of the Operating Partnership.

Historically, the Operating Partnership has funded working capital requirements,
capital expenditures and other cash requirements primarily through cash flow
from operations and borrowings under the Credit Agreement.  The General
Partner believes that, absent a default under the Credit Agreement (the
possibility of which is discussed below),  operating cash flows and the
additional borrowing capacity under the Credit Agreement will be sufficient to
fund the Operating Partnership's cash needs.

The Credit Agreement contains financial covenants with which the Operating
Partnership must comply in order to prevent a default.  A default under the
Credit Agreement could have serious adverse consequences on the Operating
Partnership, including the inability to continue to borrow under the Revolving
Credit Facility, which in turn would 

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<PAGE>
 
have serious adverse consequences on the Partnership. Financial covenant
compliance under the Credit Agreement is measured quarterly.

The Operating Partnership was not in compliance with the financial covenants of
the Credit Agreement at the end of the second quarter of 1998.  Effective June
30, 1998, the Credit Agreement was amended (the "Amendment") to provide for a
waiver of the non-compliance with the financial covenants for the second quarter
of 1998.  The Amendment also provides for revised financial covenants for the
third and fourth quarters of 1998 and the first quarter of 1999.

Given current business conditions, particularly the instability of selling
prices and the unpredictability of natural gas costs, no assurance can be given
that the Operating Partnership will be in compliance with the amended financial
covenants at the end of the third quarter of 1998 or any quarter thereafter. If
the Operating Partnership were able to obtain additional waivers or amended
covenants for any such noncompliance, it is likely that such waivers or amended
covenants would require additional borrowing costs, collateralizing outstanding
borrowings, or other changes to the Credit Agreement.

In addition, under the Credit Agreement and the Indenture, the Operating
Partnership is generally prevented from making cash distributions to the
Partnership unless it maintains certain financial ratios specified therein.  Due
to recent quarterly losses, the Operating Partnership did not maintain such
financial ratios at the end of the second quarter.  As such, the Operating
Partnership is prevented from making quarterly cash distributions to the
Partnership for the quarter ended June 30, 1998.  Given the current outlook, it
is unlikely that the Operating Partnership will be in compliance with these
ratios for the next several quarters as well, and will be precluded from making
cash distributions to the Partnership during this period.  In the absence of
quarterly cash distributions from the Operating Partnership, the Partnership
will be unable to make quarterly cash distributions to Unitholders and to the
General Partner.  In addition, because such financial ratios are measured over a
trailing four quarter period, it is expected to take several quarters of
profitable operating results by the Operating Partnership to permit the
resumption of quarterly distributions to the Partnership and therefore the
resumption of quarterly distributions by the Partnership to Unitholders and the
General Partner.  However, no assurance can be given regarding the resumption of
such cash distributions.

Capital Expenditures

Similar to other business entities, the Partnership will be impacted by the
inability of its computer application software programs, as well as certain
date-sensitive devices, to properly identify the year 2000 due to a commonly
used programming convention of using only two digits to identify a year.  Unless
modified or replaced, these programs and devices could fail or create erroneous
results when referencing the year 2000.

Management is assessing the extent and impact of this issue for both financial
and non-financial systems and has developed an action plan to mitigate the
possibility of business interruption or other risks.  Management believes that
the most significant year 2000 business risk to the Partnership relates to the
current financial system applications. Accordingly, an enterprise-wide
implementation of year 2000 compliant software has been initiated.  The
anticipated cost associated with this enterprise-wide implementation is
approximately $16.2 million.  Date-sensitive devices in non-financial
applications are currently being identified and modified or replaced.
Management currently does not anticipate any significant business interruption
or other adverse impacts related to the year 2000 issue.

Forward-Looking Statements

Certain statements in this Form 10-Q are forward-looking.  These can be
identified by the use of forward-looking words or phrases such as "believe",
"expect",  "may", and "potential" among others and include statements regarding
the business outlook for the Operating Partnership and its ability to fund its
cash needs.  The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for such forward-looking statements.  While these forward-looking
statements are based on the Partnership's reasonable current expectations, a
variety of risks, uncertainties and other factors, including many which are
outside the control of the Partnership, could cause the Partnership's actual
results to differ materially from the anticipated results or expectations
expressed in such forward-looking statements.  The risks, uncertainties and
other factors that may affect the operations, performance, development and
results of the Partnership include changes in the demand for and pricing of its
commodity 

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<PAGE>
 
products, changes in industry production capacities, changes in the supply of
and costs of its significant raw materials, and changes in applicable
environmental, health and safety laws and regulations.



                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings
--------------------------

There is incorporated by reference herein the information regarding legal
proceeding in Item 3 of Part 1 of the Partnership's 1997 Annual Report on Form
10-K and Note 2 to the consolidated financial statements in Part 1 hereof.



Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

On July 21, 1998, the Partnership filed a Form 8-K under Item 5 to disclose the
Amendment, dated as of June 30, 1998, to the Credit Agreement dated as of
December 19, 1997.

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<PAGE>
 
SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                         BORDEN CHEMICALS AND PLASTICS
                                         LIMITED PARTNERSHIP
                                         By BCP Management, Inc.,
                                         its General Partner


                                     By: ________________________
                                             Christopher L. Nagel
                                         Vice President, Chief Financial Officer
                                         and Treasurer
                                         Principal Accounting Officer



August 12, 1998

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