<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 September 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 November
6, 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
                                                             -------------------------------

                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1998             1997
                                                                 -------         --------
<S>                                                          <C>              <C>
REVENUES
  Net trade sales..............................................   $100,247         $147,140
  Net sales to related parties.................................     18,775           33,750
                                                                  --------         --------

        Total revenues.........................................    119,022          180,890
                                                                  --------         --------

EXPENSES
  Cost of goods sold
        Trade..................................................     98,038          138,508
        Related parties........................................     18,655           29,948
  Marketing, general & administrative expense..................      6,466            6,067
  Interest expense.............................................      5,981            5,217
  General Partner incentive....................................          0                0
  Other (income) expense, including minority
        interest...............................................     (1,213)           2,212
                                                                  --------         --------

             Total expenses....................................    127,927          181,952
                                                                  --------         --------

  Net (loss)...................................................     (8,905)          (1,062)
       Less 1% General Partner interest........................         89               10
                                                                  --------         --------
  Net (loss) applicable to Limited Partners'
        interest...............................................   $ (8,816)         ($1,052)
                                                                  ========         ========


PER UNIT DATA-BASIC, NET OF 1% GENERAL PARTNER INTEREST
  Net (loss) per Unit..........................................     $(0.24)          $(0.03)
                                                                  ========         ========

  Average number of Units outstanding during the period........     36,750           36,750
                                                                  ========         ========

  Cash distribution declared per Unit..........................      $0.00            $0.18
                                                                  ========         ========
</TABLE>

                                       2
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>


                                                                    NINE MONTHS ENDED
                                                               ------------------------------

                                                               SEPTEMBER 30,    SEPTEMBER 30,
                                                                    1998             1997
                                                                  --------         --------
<S>                                                            <C>              <C>
REVENUES
  Net trade sales........................................         $354,500         $462,615
  Net sales to related parties...........................           64,346          102,733
                                                                  --------         --------

     Total revenues......................................          418,846          565,348
                                                                  --------         --------



EXPENSES
  Cost of goods sold
        Trade............................................          346,447          422,376
        Related parties..................................           63,487           89,747
  Marketing, general & administrative expense............           18,835           17,846
  Interest expense.......................................           16,373           15,710
  General Partner incentive..............................                0              794
  Other (income) expense, including minority
        interest.........................................           (1,247)           3,098
                                                                  --------         --------

             Total expenses..............................          443,895          549,571
                                                                  --------         --------

  Net (loss) income......................................          (25,049)          15,777
       Less 1% General Partner interest..................              250             (158)
                                                                  --------         --------
  Net (loss) income applicable to Limited Partners'
        interest.........................................         $(24,799)        $ 15,619
                                                                  ========         ========


PER UNIT DATA-BASIC, NET OF 1% GENERAL PARTNER INTEREST
  Net (loss) income per Unit.............................           $(0.67)           $0.42
                                                                  ========         ========

  Average number of Units outstanding during the period..           36,750           36,750
                                                                  ========         ========

  Cash distribution declared per Unit....................            $0.00            $0.73
                                                                  ========         ========
</TABLE>

                                       3
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

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

<TABLE>
<CAPTION>


                                                                    NINE MONTHS ENDED
                                                            -----------------------------------
                                                              SEPTEMBER 30,      SEPTEMBER 30,
                                                                   1998               1997
                                                            ------------------   --------------
<S>                                                         <C>                  <C>
CASH FLOWS FROM OPERATIONS

Net (loss) income................................             $ (25,049)              $ 15,777

Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
  Depreciation...................................                24,297                 37,462
  Decrease (increase) in receivables.............                20,206                (13,751)
  Decrease in inventories........................                12,926                  2,223
  (Decrease) in payables.........................               (20,858)                (9,259
  (Increase) in accrued interest.................                 4,604                  4,748
   Other, net....................................                (7,132)                   (82)
                                                              ---------               --------

                                                                  8,994                 37,118
                                                              ---------               --------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures...........................               (26,217)                (8,918)
                                                              ---------               --------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from borrowings.......................                53,700                      0
  Cash distributions paid........................                (3,712)               (24,137)
                                                              ---------               --------
                                                                 49,988                (24,137)
                                                                                      --------

Increase in cash and equivalents.................                32,765                  4,063

Cash and equivalents at beginning of period......                 7,528                 10,867
                                                              ---------               --------

Cash and equivalents at end of period............             $  40,293               $ 14,930
                                                              =========               ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Interest paid during the period..................             $  12,146               $ 10,962
                                                              =========               ========
</TABLE>

                                       4
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

             ASSETS                                             SEPTEMBER 30, 1998    DECEMBER 31, 1997
             ------                                            -------------------   ------------------
<S>                                                            <C>                   <C>
Cash and equivalents.....................................          $  40,293            $   7,528
Accounts receivable (less allowance for doubtful accounts
  of $1,225 and $475, respectively)
  Trade..................................................             60,004               72,718
  Related parties........................................             14,249               21,741
Inventories
  Finished and in process goods..........................             23,095               33,686
  Raw materials and supplies.............................              6,980                9,315
Other current assets.....................................              5,487                4,380
                                                                   ---------            ---------
  Total current assets...................................            150,108              149,368
                                                                   ---------            ---------

Investments in and advances to affiliated companies......              7,767                7,834
Other assets.............................................             54,193               52,784
                                                                   ---------            ---------
                                                                      61,960               60,618
                                                                   ---------            ---------

Plant, property and equipment
  Land...................................................             15,952               15,952
  Buildings..............................................             45,050               45,050
  Machinery and equipment................................            688,266              662,050
                                                                   ---------            ---------
                                                                     749,268              723,052
Less accumulated depreciation............................           (457,148)            (432,852)
                                                                   ---------            ---------
  Net plant, property and equipment......................            292,120              290,200
                                                                   ---------            ---------

    Total assets.........................................          $ 504,188            $ 500,186
                                                                   =========            =========

LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Accounts and drafts payable..............................          $  36,144            $  57,002
Cash distributions payable...............................                  0                3,712
Accrued interest.........................................              7,813                3,209
Other accrued liabilities................................             20,543               21,111
                                                                   ---------            ---------
  Total current liabilities..............................             64,500               85,034

Long-term debt...........................................            278,700              225,000
Other liabilities........................................              1,901                5,760
Minority interest in consolidated subsidiary.............              1,058                1,314
                                                                   ---------            ---------
  Total liabilities......................................            346,159              317,108
                                                                   ---------            ---------

Partners' capital
  Limited Partners.......................................            157,919              182,718
  General Partner........................................                110                  360
                                                                   ---------            ---------
     Total partners' capital.............................            158,029              183,078
                                                                   ---------            ---------

     Total liabilities and partners' capital..............         $ 504,188            $ 500,186
                                                                   =========            =========

</TABLE>

                                       5
<PAGE>
 
               BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP

            CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                    LIMITED      GENERAL
                                                                    PARTNERS     PARTNER   TOTAL
                                                                    --------    --------   -----


 <S>                                                                <C>          <C>       <C>
Balance at December 31, 1996...........................             $207,680    $  620     $208,300
   Net income..........................................               15,619       158       15,777
   Cash distributions declared.........................              (26,828)    ( 279)     (27,107)
                                                                    --------    ------     --------
Balance at September 30, 1997..........................             $196,471    $  499     $196,970
                                                                    ========    ======     ========


Balance at December 31, 1997...........................             $182,718    $  360     $183,078
   Net loss............................................              (24,799)     (250)     (25,049)
   Cash distributions declared.........................                    0         0            0
                                                                    --------    ------     --------
Balance at September 30, 1998..........................             $157,919    $  110     $158,029
                                                                    ========    ======     ========
</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 nine months ended September 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 investigation 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

                                       7
<PAGE>
 
Protection Agency ("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.  All other obligations required under the Consent Decree to date
have been fulfilled.

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 SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997

Revenues

Total revenues during the third quarter of 1998 decreased $61.9 million or 34.2%
to $119.0 million from $180.9 million in the third quarter of 1997.  This
decrease was the result of a $36.6 million decrease in PVC Polymers Products
revenues, a $18.6 million decrease in Methanol and Derivatives revenues and  a
$6.7 million decrease in Nitrogen Products revenues.

Total revenues for PVC Polymers Products decreased $36.6 million as a result of
a 20.9% decrease in selling prices, and a 11% decrease 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 $18.6 million as a result
of a 41.3% decrease in selling prices, and a 6.8% decrease in sales volumes.
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 $6.7 million as a result of a
8.7% decrease in sales prices and 29% reduction in volume.  Increases in
production supply in 1997 and a decrease in imports of urea into China have put
downward pressure on selling prices and volumes.

Cost of Goods Sold

Total cost of goods sold decreased $51.8 million to $116.7 million in the
current period from $168.5 million in the year-ago period.  The decrease was a
combination of lower sales volumes and decreases in all major raw materials lead
by a significant decline in the costs of chlorine.  Expressed as a percentage of
total revenues, cost of goods sold increased to 98.1% of total revenues in the
third quarter of 1998 from 93.1% in the third quarter of 1997, due to the
significant decrease in selling prices discussed above.

Gross margins for all three product groups declined a total of $10.1 million 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 the
third quarter of 1998 and the third quarter of 1997.

Net Income (Loss)

Net loss for the third quarter of 1998 was $8.9 million compared to $1.1 million
loss for the third 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.

RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997

Revenues

Total revenues for the first nine months of 1998 decreased $146.5 million or
25.9% to $418.8 million from $565.3 million for the comparable period a year
ago.  Total revenues for PVC Polymers Products decreased $88.8 million as a
result of a 15.1% decrease in selling prices and a 9.9% decrease in sales
volumes.  Total revenues for Methanol and Derivatives decreased $43.6 million as
a result of a 30.7% decrease in selling prices on slightly lower volumes.

                                       9
<PAGE>
 
Total revenues for Nitrogen Products decreased $14.1 million as a result of a
19.7% decrease in selling prices combined with a 12.5% decrease in sales
volumes.

Cost of Goods Sold

Total cost of goods sold decreased $102.2 million to $409.9 million for the
first nine months of 1998 from $512.1 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 nine
months of 1998 from 90.6% in the same period of 1997, due to the significant
decrease in selling prices discussed above.

Gross margins for all three product groups declined a total of $44.3 million as
a result of the decreased selling prices and lower volumes as discussed above.

Incentive Distribution to General Partner

There was no incentive distribution to the General Partner generated during the
first three quarters 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 nine months of 1998 was $25.0 million compared to net
income of $15.8 million for the same period 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 generated $9.0 million of cash for
operations during the first nine months of 1998 compared to generating cash from
operations of $37.1 million in the first nine 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 nine
months of 1998 increased significantly to $26.2 million compared to $8.9 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 nine months of 1998, the
Partnership borrowed $53.7 million to fund operations and capital expenditures.
See further discussion in "Liquidity".

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

                                       10
<PAGE>
 
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 three 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 $3 to $5 million per quarter) 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 1999.

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 September 30, 1998, the Operating Partnership had $78.7
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 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

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<PAGE>
 
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 September 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 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.

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<PAGE>
 
                           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.

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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: /s/ Ronald B. Wiles
                                         ---------------------------------------
                                                    Ronald B. Wiles
                                         Vice President, Chief Financial Officer
                                         and Treasurer
                                         Principal Accounting Officer



October 29, 1998

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