FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9753
GEORGIA GULF CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 58-1563799
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Perimeter Center Terrace, Suite 595
Atlanta, Georgia 30346
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(404) 395-4500
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding as of
Class August 1, 1994
Common Stock, $0.01 par value................41,578,044 shares
GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1994
INDEX
Page Numbers
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1994 and
December 31, 1993 2
Condensed Consolidated Statements of
Income for the three and six months ended
June 30, 1994 and 1993 3
Condensed Consolidated Statements of
Cash Flows for the six months
ended June 30, 1994 and 1993 4
Notes to Condensed Consolidated Financial
Statements as of June 30, 1994 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 2,827 $ 3,099
Receivables 123,082 96,068
Inventories 62,897 58,261
Prepaid expenses 9,983 10,350
Deferred income taxes 7,098 9,759
Total current assets 205,887 177,537
Property, plant and equipment, at cost 419,324 388,844
Less accumulated depreciation 179,248 166,009
Property, plant and equipment, net 240,076 222,835
Other assets 4,831 4,915
Total assets $ 450,794 $ 405,287
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt $ -- $ 14,049
Accounts payable 79,353 59,911
Interest payable 7,439 16,824
Accrued income taxes 2,357 3,129
Other accrued liabilities 21,221 15,950
Total current liabilities 110,370 109,863
Long-term debt 370,131 365,157
Deferred income taxes 40,982 40,844
Stockholders' equity (deficit)
Common stock - $0.01 par value 414 410
Additional paid-in capital 173,641 166,439
Retained earnings (deficit) (244,744) (277,426)
Total stockholders' equity (deficit) (70,689) (110,577)
Total liabilities and stockholders' equity (deficit) $ 450,794 $ 405,287
Common shares outstanding 41,387,814 40,951,571
See notes to condensed consolidated financial statements.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Net sales $ 208,188 $ 195,202 $ 401,094 $ 377,108
Operating costs and expenses
Cost of sales 156,342 157,262 310,062 302,342
Selling and administrative 11,472 9,292 21,359 19,009
Total operating costs and expenses 167,814 166,554 331,421 321,351
Operating income 40,374 28,648 69,673 55,757
Other income (expense)
Interest, net (9,454) (11,351) (19,236) (23,242)
Income before income taxes, extraordinary charge
and cumulative effect of accounting change 30,920 17,297 50,437 32,515
Provision for income taxes 10,968 5,821 17,755 10,919
Income before extraordinary charge and cumulative
effect of accounting change 19,952 11,476 32,682 21,596
Extraordinary charge on early retirement of debt
(net of tax benefit of $6,834) -- -- -- (13,267)
Cumulative effect of accounting change for
income taxes -- -- -- 12,973
Net income $ 19,952 $ 11,476 $ 32,682 $ 21,302
Income per common share:
Before extraordinary charge and cumulative
effect of accounting change $ 0.47 $ 0.28 $ 0.77 $ 0.51
Extraordinary charge on early retirement of debt -- -- -- (0.32)
Cumulative effect of accounting change for
income taxes -- -- -- 0.32
Net income per common share $ 0.47 $ 0.28 $ 0.77 $ 0.51
Weighted average common shares and equivalents
outstanding 42,406,419 41,510,111 42,389,301 41,514,866
See notes to condensed consolidated financial statements.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
1994 1993
Cash flows from operating activities:
Net income $ 32,682 $ 21,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,861 313,411
Cost associated with early retirement of debt -- 20,101
Cumulative effect of accounting change for income taxes -- (12,973)
Change in assets, liabilities and other (10,566) (4,712)
Net cash provided by operating activities 35,977 37,129
Cash flows from financing activities:
Net change in revolving credit loan 73,050 57,650
Proceeds from issuance of long-term debt 1,000 150,000
Principal payments on long-term debt (83,125) (232,960)
Proceeds from issuance of common stock 3,306 854
Net cash used in financing activities (5,769) (24,456)
Cash flows from investing activities:
Capital expenditures (30,480) (12,909)
Net cash used in investing activities (30,480) (12,909)
Net change in cash and cash equivalents (272) (236)
Cash and cash equivalents at beginning of period 3,099 2,904
Cash and cash equivalents at end of period $ 2,827 $ 2,668
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
Operating results for the three- and six-month periods ended June
30, 1994, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1994. For further
information, refer to the consolidated financial statements and
footnotes thereto included in Georgia Gulf Corporation and its
subsidiaries' ("the Company") annual report for the year ended
December 31, 1993.
NOTE 2: INVENTORIES
The major classes of inventories were as follows (in thousands):
June 30, December 31,
1994 1993
Raw materials and supplies $ 23,336 $ 20,819
Finished goods 39,561 37,442
$ 62,897 $ 58,261
NOTE 3: LONG-TERM DEBT AND INTEREST RATE SWAP AGREEMENTS
The Company refinanced its senior debt on April 27, 1994, replacing
an existing revolving credit facility and $79,613,000 term loan
with an unsecured revolving credit facility permitting borrowings
of up to $250,000,000 through April 1999 (the "New Credit
Agreement"). The terms and conditions of the New Credit Agreement
provide for reduced interest rates, less restrictive covenants and
increased financial flexibility. The new revolving credit facility
matures in April 1999 at which time any amounts outstanding
thereunder are payable in full. The costs incurred in connection
with the refinancing, including both the unamortized debt issuance
costs associated with the terminated credit facility and the costs
related to the New Credit Agreement, were not material. As of June
30, 1994, the Company had availability of up to $61,771,000 under
the terms of the new revolving credit facility.
On June 6, 1994, the Company entered into various agreements
providing for the issuance of $17,000,000 of industrial development
bonds to finance an expansion of its compounding plant in Gallman,
Mississippi. Under these agreements, $1,000,000 of the bonds were
sold with the proceeds being deposited in a construction account
maintained by a trustee to reimburse the Company for expenditures
relating to the expansion. The remaining bonds were delivered to
the trustee and will be sold at the Company's request by a
placement agent as construction of the expansion project
progresses. The bonds are collateralized by property, plant and
equipment at the Gallman facility, unexpended funds, and an
irrevocable letter of credit for $17,737,000. The bonds are
callable at par by the Company on any date prior to the maturity of
the entire bond issue on May 1, 2009. The outstanding bonds bear
interest at a variable rate (4.49% at June 30, 1994). In addition,
the Company is required to pay annual letter of credit and
remarketing fees ranging from .20% to .775% depending on the amount
of bonds issued and outstanding.
Also during the second quarter, the Company paid $6,131,000 to
terminate its two outstanding interest rate swap agreements
totalling a notional amount of $100,000,000. The swap agreements
were being carried in the financial statements at their fair value;
accordingly, the termination payment resulted in a reduction to
interest payable, and no gain or loss was recorded on the
transaction.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Second Quarter of 1994 Compared with the Second Quarter of 1993:
For the second quarter ended June 30, 1994, net income per common
share was $0.47 on net income of $20.0 million and sales of $208.2
million. This compares to net income per common share of $0.28,
net income of $11.5 million and sales of $195.2 million for the
second quarter of 1993.
Operating income for the second quarter of 1994 was $40.4 million,
an increase of 41% from $28.6 million for the same period in 1993.
This increase was largely attributable to the strong demand for
methanol and vinyl products, which resulted in higher sales prices
and gross margins. Overall, the average sales price of the
Company's products increased, while the Company experienced a
slight decline in total sales volumes. Also reflected in the
second quarter results is a charge relating to stock option plan
compensation, which increased selling and administrative expense by
$2.1 million.
Interest expense declined $1.9 million when comparing the second
quarter of 1994 to the same period in 1993. This decline was
attributable to $49.0 million of debt repayments over the past
twelve months from funds generated by operating activities and
reduced interest rates attributable to a debt refinancing early in
the second quarter of 1994.
The effective tax rate increased to 35.5% for the second quarter of
1994 from 33.7% in the second quarter of 1993 principally due to
the 1% increase of the statutory federal income tax rate during the
third quarter of 1993 and the higher taxable income in 1994.
Six Months Ended June 30, 1994, Compared With Six Months Ended June
30, 1993:
Sales for the six months ended June 30, 1994, increased to $401.1
million from $377.1 million for the same 1993 period. Operating
income for the six months ended June 30, 1994, was $69.7 million,
up 25 percent from $55.8 million for the same 1993 period. These
increases were primarily attributable to a continued high level of
demand for methanol, accompanied by a strong performance from the
Company's vinyl products.
Net income for the six months ended June 30, 1994, was $32.7
million as compared to $21.3 million for the same 1993 period.
This increase was principally due to higher operating income and
lower interest expense. Net income for the six months ended June
30, 1993, reflects an extraordinary charge of $13.3 million
relating to a debt extinguishment, which was offset by a $13.0
million benefit from a change in the method of accounting for
income taxes.
The effective tax rate increased to 35.2% in 1994 from 33.6% in
1993, resulting from the 1% increase of the statutory federal
income tax rate during the third quarter of 1993 and higher taxable
income in 1994.
Earnings per share for the six months ended June 30, 1994, were
$0.77 as compared to $0.51 for the same 1993 period reflecting the
higher net income.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1994, $36.0 million of cash
was generated by operating activities as compared to $37.1 million
for the six months ended June 30, 1993. This decrease was largely
attributable to an increase in accounts receivable resulting from
higher sales during the first half of 1994, which was offset in
part by an increase in accounts payable.
Debt was reduced by $9.1 million during the six months ended June
30, 1994, to a level of $370.1 million, which consisted of senior
debt of $179.0 million and subordinated notes of $191.1 million.
The senior debt was refinanced on April 27, 1994, which provides
the Company with greater financial flexibility and lower interest
rates. The new credit agreement is an unsecured $250 million
revolving credit facility due in April of 1999. The costs
associated with the refinancing were not material.
Capital expenditures for the six months ended June 30, 1994, were
$30.5 million as compared to $12.9 million for the same 1993
period. This increase reflects the expenditures for a methanol
plant expansion to be completed in the third quarter and a vinyl
resin plant expansion scheduled for completion by the fourth
quarter of 1994. Capital expenditures for the second half of 1994
are expected to total approximately $30 million, with the majority
being spent on the vinyl resin plant expansion.
The Company has not declared a dividend since December 1989. The
terms of the Company's new credit agreement and its outstanding
note indenture limit the payment of cash dividends based on certain
criteria.
Management believes that cash provided by operations and the
availability under the Company's revolving credit facility will
provide sufficient funds to support planned capital expenditures,
working capital and debt service requirements.
OUTLOOK
During the first half of 1994, positive changes developed in the
marketplace for nearly all of the Company's products. Two of the
key factors were the increased demand for MTBE, a fuel additive
made from methanol that results in cleaner burning fuels, and
improvements in the construction industry. Looking forward to the
third quarter, the Company is expecting further improvements in the
level of demand and product pricing, which will hopefully sustain
the Company's upward earnings momentum.
PART II.OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held May 17, 1994,
in Atlanta, Georgia, for the following purposes: (i) to elect three
directors for a term of three years; (ii) to consider and take
action to approve and adopt the Company's 1994 Employee Stock
Purchase Plan; and (iii) to consider and take action upon the
ratification of the selection of Arthur Andersen & Co. to serve as
independent public accountants for the Company for the year ending
December 31, 1994.
The results of the voting by stockholders at the annual meeting
were as follows:
Broker Non-Votes
Director For Withheld or abstentions
John D. Bryan 34,558,925 256,787 0
Dennis M. Chorba 34,628,542 187,170 0
Edward S. Smith 34,557,025 258,687 0
The terms of the following directors also continued after the
meeting:
James R. Kuse
Jerry R. Satrum
Alfred C. Eckert III
Robert E. Flowerree
Holcombe T. Green, Jr.
The Company's 1994 Employee Stock Purchase Plan was approved and
adopted by the following votes:
For Against Abstain Broker Non-Votes
34,356,873 253,167 205,672 0
The selection of Arthur Andersen & Co. to serve as independent
public accountants for the Company for the year ending December 31,
1994, was ratified by the following votes:
For Against Abstain Broker Non-Votes
34,712,102 37,803 65,807 0
Item 6. Exhibits and Reports on Form 8-K
a) No exhibits are filed as part of this Form 10-Q Quarterly
Report.
b) No reports on Form 8-K were filed with the Securities and
Exchange Commission during the second quarter of 1994.
SIGNATURES
Pursuant to the requirements 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.
GEORGIA GULF CORPORATION
(Registrant)
Date August 10, 1994 /s/ Jerry R. Satrum
Jerry R. Satrum
President and Chief
Executive Officer
(Principal Executive Officer)
Date August 10, 1994 /s/ Richard B. Marchese
Richard B. Marchese
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)