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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 MARCH 31, 2000
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
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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, 30346
SUITE 595, ATLANTA, GEORGIA (Zip code)
(Address of principal executive offices)
------------------------
Registrant's telephone number, including area code: (770) 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 MAY 5, 2000
- ----- -----------------
Common Stock, $0.01 par value............................. 31,332,762 shares
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GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
PAGE
NUMBERS
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1
2000
and December 31, 1999.................................
Condensed Consolidated Statements of Income for the 2
Three Months Ended March 31, 2000 and 1999............
Condensed Consolidated Statements of Cash Flows for the 3
Three Months Ended March 31, 2000 and 1999............
Notes to Condensed Consolidated Financial Statements as 4-12
of March 31, 2000.....................................
Item 2. Management's Discussion and Analysis of Financial 13-15
Condition and Results of Operations.....................
Item 3. Quantitative and Qualitative Disclosures About 16
Market Risk.............................................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................. 17
Item 6. Exhibits and Reports on Form 8-K.................. 18
SIGNATURES.................................................. 19
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
ASSETS
Cash and cash equivalents................................... $ 1,480 $ 4,424
Receivables................................................. 183,362 164,376
Inventories................................................. 121,979 112,844
Prepaid expenses............................................ 4,118 5,440
Deferred income taxes....................................... 6,172 6,172
----------- -----------
Total current assets...................................... 317,111 293,256
----------- -----------
Property, plant and equipment, at cost...................... 991,745 985,825
Less accumulated depreciation............................. 330,682 314,275
----------- -----------
Property, plant and equipment, net...................... 661,063 671,550
----------- -----------
Goodwill.................................................... 82,056 82,676
Other assets................................................ 51,261 50,083
Net assets of discontinued operation........................ -- 443
----------- -----------
Total assets................................................ $ 1,111,491 $ 1,098,008
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........................... $ 18,362 $ 22,000
Accounts payable............................................ 164,126 143,898
Interest payable............................................ 13,464 5,926
Accrued income taxes........................................ 16,545 494
Accrued compensation........................................ 9,194 7,682
Other accrued liabilities................................... 9,805 17,632
----------- -----------
Total current liabilities................................. 231,496 197,632
----------- -----------
Long-term debt, net of current portion...................... 696,762 749,194
----------- -----------
Deferred income taxes....................................... 96,864 93,949
----------- -----------
Stockholders' equity
Common stock--$0.01 par value............................. 313 313
Additional paid-in capital................................ 5,453 5,250
Retained earnings......................................... 80,603 51,670
----------- -----------
Total stockholders' equity.............................. 86,369 57,233
----------- -----------
Total liabilities and stockholders' equity.................. $ 1,111,491 $ 1,098,088
=========== ===========
Common shares outstanding................................... 31,316,562 31,290,862
=========== ===========
See notes to condensed consolidated financial statements.
1
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
Net sales................................................... $ 403,671 $ 179,264
----------- -----------
Operating costs and expenses
Cost of sales............................................. 321,856 155,691
Selling and administrative................................ 13,674 10,294
----------- -----------
Total operating costs and expenses...................... 335,530 165,985
----------- -----------
Operating income............................................ 68,141 13,279
Other expense
Interest, net............................................. 19,008 7,323
----------- -----------
Income from continuing operations before income taxes....... 49,133 5,956
Provision for income taxes.................................. 17,695 2,174
----------- -----------
Income from continuing operations........................... 31,438 3,782
Discontinued operation
Loss from discontinued operation, net..................... -- (1,248)
----------- -----------
Net income.................................................. $ 31,438 $ 2,534
=========== ===========
Earnings / (loss) per share:
Basic
Continuing operations................................... $ 1.00 $ 0.12
Discontinued operation.................................. -- (0.04)
----------- -----------
$ 1.00 $ 0.08
=========== ===========
Weighted average common shares-basic...................... 31,301,278 30,898,728
=========== ===========
Diluted
Continuing operations................................... $ 1.00 $ 0.12
Discontinued operation.................................. -- (0.04)
----------- -----------
$ 1.00 $ 0.08
=========== ===========
Weighted average common shares-diluted.................... 31,501,115 31,133,780
=========== ===========
See notes to condensed consolidated financial statements.
2
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income................................................ $ 31,438 $ 2,534
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 18,806 11,215
Loss on discontinued operation, net..................... -- 1,248
Change in operating assets, liabilities and other....... 10,661 (17,110)
-------- -------
Net cash provided by (used in) continuing operations...... 60,905 (2,113)
Net cash provided by (used in) discontinued operation..... 443 (2,325)
-------- -------
Net cash provided by (used in) operating activities....... 61,348 (4,438)
-------- -------
Cash flows from financing activities:
Long-term debt proceeds................................. 2,605 39,150
Long-term debt payments................................. (58,675) (28,000)
Proceeds from issuance of common stock.................. 203 218
Dividends paid.......................................... (2,505) (2,472)
-------- -------
Net cash (used in) provided by financing activities....... (58,372) 8,896
-------- -------
Cash flows from investing activities:
Capital expenditures.................................... (5,920) (4,202)
-------- -------
Net change in cash and cash equivalents................... (2,944) 256
Cash and cash equivalents at beginning of period.......... 4,424 1,244
-------- -------
Cash and cash equivalents at end of period................ $ 1,480 $ 1,500
======== =======
See notes to condensed consolidated financial statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States 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 accounting principles generally
accepted in the United States for complete financial statements. In our opinion,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. For further information, refer to
our consolidated financial statements and footnotes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 1999.
Our operating results for the three-month period ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENT
During June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows derivative gains and losses to offset
related results on the hedged item in the income statement, and requires that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. In June 1999, the FASB issued SFAS
No. 137 which deferred the effective date of SFAS No. 133 for fiscal quarters of
all fiscal years beginning after June 15, 2000, although earlier adoption is
permitted. SFAS No. 133 cannot be applied retroactively. We have not yet
quantified the impact of adopting SFAS No. 133 on our financial statements.
NOTE 3: ACQUISITION
On November 12, 1999, we completed the acquisition of the assets of the
vinyls business of CONDEA Vista Company. The purchase included substantially all
of the assets and net working capital of the vinyls business as of the date of
acquisition. The acquisition was accounted for as a purchase, and the results of
the vinyls business's operations have been included in our consolidated
financial statements from the date of acquisition. The initial purchase price,
including related fees and expenses, consisted of $263,000,000 of cash and the
issuance of a $10,000,000 two-year, non-interest-bearing note payable to CONDEA
Vista Company. The note was recorded at its net present value of $7,750,000 at
the date of acquisition. The initial purchase price was subject to an adjustment
for actual working capital acquired. We recorded a payable to CONDEA Vista
Company of approximately $16,286,000 representing the adjustment for working
capital. This payable is included in accounts payable on the accompanying
balance sheet as of March 31, 2000 and was paid during the second quarter of
2000. The purchase price approximated the fair market value of the net assets
acquired.
NOTE 4: DISCONTINUED OPERATION
On September 2, 1999, we announced our decision to exit the methanol
business at the end of 1999. In connection with the discontinuance of the
methanol business, we incurred a one-time charge of $7,631,000, net of income
tax benefits, related to the write-off of the methanol plant assets, net of
expected proceeds, and an accrual for estimated losses during the phase-out
period. The disposition of
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: DISCONTINUED OPERATION (CONTINUED)
the methanol operation represented the disposal of a business segment under
Accounting Principles Board ("APB") Opinion No. 30. Accordingly, results of the
methanol operation were classified as discontinued, and prior periods were
restated, including the reallocation of fixed overhead charges to other business
segments. For business segment reporting purposes, the methanol business results
were previously classified as the segment "Gas Chemicals."
Net sales and income from the discontinued operation were as follows:
THREE MONTHS ENDED
MARCH 31, 1999
------------------
IN THOUSANDS
Net sales................................................. $ 8,324
=======
Pretax loss from discontinued operation................... $(1,966)
Income tax benefit........................................ 718
-------
Net loss from discontinued operation...................... $(1,248)
=======
Assets and liabilities of the discontinued operation were as follows:
DECEMBER 31, 1999
-----------------
IN THOUSANDS
Current assets.............................................. $3,553
Current liabilities......................................... (3,110)
------
Net assets of discontinued operation........................ $ 443
======
NOTE 5: INVENTORIES
The major classes of inventories were as follows:
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
IN THOUSANDS
Raw materials and supplies............................ $ 52,288 $ 48,868
Finished goods........................................ 69,691 63,976
-------- --------
$121,979 $112,844
======== ========
NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS
We have two interest rate swap agreements for a total notional amount of
$100,000,000 maturing in June 2002. We also have an interest rate swap agreement
for a notional amount of $100,000,000 maturing August 2002. We have designated
all of our interest rate swaps as hedges against our senior credit facility
floating rate debt.
We do not use derivatives for trading purposes. Interest rate swap
agreements, a form of derivative, are used to manage interest costs on certain
portions of our long-term debt. These financial statements do not reflect
temporary market gains and losses on derivative financial instruments. Amounts
paid or received on the interest rate swap agreements are recorded to interest
expense as incurred. As of March 31, 2000, and December 31, 1999, interest rate
swap agreements were the only
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
form of derivative financial instruments outstanding. The fair values of these
swap agreements as of March 31, 2000 and December 31, 1999 were $3,980,000 and
$3,405,000 (in our favor), respectively.
NOTE 7: EARNINGS PER SHARE
There are no adjustments to "Net income" or "Income from continuing
operations" for the diluted earnings per share computations.
The following table reconciles the denominator for the basic and diluted
earnings per share computations shown on the condensed consolidated statements
of income:
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
IN THOUSANDS
Weighted average common shares--basic....................... 31,301 30,899
Plus incremental shares from assumed conversions:
Options................................................... 179 134
Employee stock purchase plan rights....................... 21 101
------ ------
Weighted average common shares--diluted..................... 31,501 31,134
====== ======
NOTE 8: SEGMENT INFORMATION
SFAS No. 131--"Disclosures about Segments of an Enterprise and Related
Information" became effective for fiscal year 1998 and for all succeeding
interim reporting periods. In accordance with the requirements of SFAS No. 131,
we have identified two reportable segments through which we conduct our
operating activities: chlorovinyls and aromatics. These two segments reflect the
organization which we use for internal reporting. The chlorovinyls segment is a
highly integrated chain of products which includes chlorine, caustic soda, vinyl
chloride monomer and vinyl resins and compounds. The aromatics segment is also
vertically integrated and includes cumene and the co-products phenol and
acetone. A third product segment, gas chemicals, which included methanol, was
discontinued in the third quarter of 1999. See Note 4 for a discussion of the
discontinuance of our methanol operation.
Earnings of industry segments exclude interest income and expense,
unallocated corporate expenses and general plant services, provision for income
taxes, and income and expense items
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: SEGMENT INFORMATION (CONTINUED)
reflected as "other income (expense)" on our consolidated statements of income.
Intersegment sales and transfers are insignificant.
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
IN THOUSANDS
Segment net sales:
Chlorovinyls.......................................... $333,726 $120,808
Aromatics............................................. 69,945 58,456
-------- --------
Net sales............................................... $403,671 $179,264
======== ========
Segment operating income:
Chlorovinyls.......................................... $ 79,574 $ 10,346
Aromatics............................................. (6,483) 6,139
Corporate and general plant services.................. (4,950) (3,206)
-------- --------
Total operating income.................................. $ 68,141 $ 13,279
======== ========
NOTE 9: SUPPLEMENTAL GUARANTOR INFORMATION
Our payment obligations under our 10 3/8% senior subordinated notes are
guaranteed by GG Terminal Management Corporation, Great River Oil & Gas
Corporation, North American Plastics, LLC, Georgia Gulf Lake Charles, LLC and
Georgia Gulf Chemicals & Vinyls, LLC, some of our wholly owned subsidiaries (the
"Guarantor Subsidiaries"). The guarantees are full, unconditional and joint and
several. The following condensed consolidating balance sheets, statements of
income and statements of cash flows present the financial statements of the
parent company, and the combined financial statements of our Guarantor
Subsidiaries and our remaining subsidiaries (the "Non-guarantor Subsidiaries").
Separate financial statements of the Guarantor Subsidiaries are not presented
because we have determined that they would not be material to investors.
In connection with the acquisition of the vinyls business from CONDEA Vista
Company on November 12, 1999, we essentially became a holding company by
transferring our operating assets and employees to our wholly owned subsidiary,
Georgia Gulf Chemicals & Vinyls LLC. Provisions in our senior credit facility
limit payment of dividends, distributions, loans and advances to us by our
subsidiaries.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Cash and cash equivalents......... $ 1,309 $ 158 $ 13 $ -- $ 1,480
Receivables....................... 64,800 253,100 120,539 (255,077) 183,362
Inventories....................... -- 121,979 -- -- 121,979
Prepaid expenses.................. -- 4,008 110 -- 4,118
Deferred income taxes............. -- 6,172 -- -- 6,172
-------- ---------- -------- --------- ----------
Total current assets............ 66,109 385,417 120,662 (255,077) 317,111
-------- ---------- -------- --------- ----------
Plant, property and equipment, at
cost............................ -- 991,745 -- -- 991,745
Less accumulated depreciation... -- 330,682 -- -- 330,682
-------- ---------- -------- --------- ----------
Plant, property and equipment,
net......................... -- 661,063 -- -- 661,063
-------- ---------- -------- --------- ----------
Goodwill.......................... -- 82,056 -- -- 82,056
Other assets...................... 7,934 43,293 34 -- 51,261
Investment in subsidiaries........ 547,439 56,215 -- (603,654) --
-------- ---------- -------- --------- ----------
Total assets...................... $621,482 $1,228,044 $120,696 $(858,731) $1,111,491
======== ========== ======== ========= ==========
Current portion of long-term
debt............................ $ -- $ 18,362 $ -- $ -- $ 18,362
Accounts payable.................. 190,277 164,115 64,811 (255,077) 164,126
Interest payable.................. 11,537 1,927 -- -- 13,464
Accrued income taxes.............. -- 16,289 256 -- 16,545
Accrued compensation.............. -- 9,194 -- -- 9,194
Other accrued liabilities......... -- 9,805 -- 9,805
-------- ---------- -------- --------- ----------
Total current liabilities....... 201,814 219,692 65,067 (255,077) 231,496
-------- ---------- -------- --------- ----------
Long-term debt, net of current
portion......................... 333,299 363,463 -- -- 696,762
-------- ---------- -------- --------- ----------
Deferred income taxes............. -- 96,864 -- -- 96,864
-------- ---------- -------- --------- ----------
Stockholders' equity
Common stock.................... 313 6 20 (26) 313
Additional paid-in-capital...... 5,453 467,322 55,587 (522,909) 5,453
Retained earnings............... 80,603 80,697 22 (80,719) 80,603
-------- ---------- -------- --------- ----------
Total stockholders' equity...... 86,369 548,025 55,629 (603,654) 86,369
-------- ---------- -------- --------- ----------
Total liabilities and
stockholders' equity............ $621,482 $1,228,044 $120,696 $(858,731) $1,111,491
======== ========== ======== ========= ==========
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Cash and cash equivalents......... $ 4,151 $ 252 $ 21 $ -- $ 4,424
Receivables....................... 70,008 239,225 125,453 (270,310) 164,376
Inventories....................... -- 112,844 -- -- 112,844
Prepaid expenses.................. -- 4,786 654 -- 5,440
Deferred income taxes............. -- 6,172 -- -- 6,172
-------- ---------- -------- --------- ----------
Total current assets............ 74,159 363,279 126,128 (270,310) 293,256
-------- ---------- -------- --------- ----------
Plant, property and equipment, at
cost............................ -- 985,825 -- -- 985,825
Less accumulated depreciation... -- 314,275 -- -- 314,275
-------- ---------- -------- --------- ----------
Plant, property and equipment,
net........................... -- 671,550 -- -- 671,550
-------- ---------- -------- --------- ----------
Goodwill.......................... -- 82,676 -- -- 82,676
Other assets...................... 7,906 42,128 49 -- 50,083
Investment in subsidiaries........ 513,000 55,588 -- (568,588) --
Net assets of discontinued
operation....................... -- 443 -- -- 443
-------- ---------- -------- --------- ----------
Total assets...................... $595,065 $1,215,664 $126,177 $(838,898) $1,098,008
======== ========== ======== ========= ==========
Current portion of long-term
debt............................ $ -- $ 22,000 $ -- $ -- $ 22,000
Accounts payable.................. 200,302 149,019 64,887 (270,310) 143,898
Interest payable.................. 4,336 1,590 -- -- 5,926
Accrued compensation.............. -- 7,682 -- -- 7,682
Other accrued liabilities......... -- 14,046 4,080 -- 18,126
-------- ---------- -------- --------- ----------
Total current liabilities....... 204,638 194,337 68,967 (270,310) 197,632
-------- ---------- -------- --------- ----------
Long-term debt, net of current
portion......................... 333,194 416,000 -- -- 749,194
-------- ---------- -------- --------- ----------
Deferred income taxes............. -- 93,949 -- -- 93,949
-------- ---------- -------- --------- ----------
Stockholders' equity
Common stock.................... 313 6 20 (26) 313
Additional paid-in capital...... 5,250 467,322 55,587 (522,909) 5,250
Retained earnings............... 51,670 44,050 1,603 (45,653) 51,670
-------- ---------- -------- --------- ----------
Total stockholders' equity...... 57,233 511,378 57,210 (568,588) 57,233
-------- ---------- -------- --------- ----------
Total liabilities and
stockholders' equity............ $595,065 $1,215,664 $126,177 $(838,898) $1,098,008
======== ========== ======== ========= ==========
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 2000
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Revenues............................ $ -- $403,822 $1,952 $ (2,103) $403,671
------- -------- ------ -------- --------
Operating costs and expenses
Cost of sales..................... -- 321,856 -- -- 321,856
Selling and administrative........ -- 14,796 981 (2,103) 13,674
------- -------- ------ -------- --------
Total operating costs and
expenses.......................... -- 336,652 981 (2,103) 335,530
------- -------- ------ -------- --------
Operating income.................... -- 67,170 971 -- 68,141
Other expense
Interest expense, net............. 8,126 10,882 -- -- 19,008
------- -------- ------ -------- --------
Income before income taxes.......... (8,126) 56,288 971 -- 49,133
Provision for income taxes.......... (2,925) 20,268 352 -- 17,695
Equity in net income of
subsidiaries...................... 36,639 627 -- (37,266) --
------- -------- ------ -------- --------
Net income.......................... $31,438 $ 36,647 $ 619 $(37,266) $ 31,438
======= ======== ====== ======== ========
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 1999
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Revenues........................... $158,642 $20,692 $777 $ (847) $179,264
-------- ------- ---- ------- --------
Operating costs and expenses
Cost of sales.................... 140,917 14,774 -- -- 155,691
Selling and administrative....... 9,759 612 770 (847) 10,294
-------- ------- ---- ------- --------
Total operating costs and
expenses....................... 150,676 15,386 770 (847) 165,985
-------- ------- ---- ------- --------
Operating income................... 7,966 5,306 7 -- 13,279
Other expense
Interest expense, net............ 7,323 -- -- -- 7,323
-------- ------- ---- ------- --------
Income from continuing operations
before income taxes.............. 643 5,306 7 -- 5,956
Provision for income taxes......... 318 1,856 -- -- 2,174
Equity in net income of
subsidiaries................... 3,457 -- -- (3,457) --
-------- ------- ---- ------- --------
Income from continuing
operations....................... 3,782 3,450 7 (3,457) 3,782
Loss from discontinued operation,
net.............................. (1,248) -- -- -- (1,248)
-------- ------- ---- ------- --------
Net income......................... $ 2,534 $ 3,450 $ 7 $(3,457) $ 2,534
======== ======= ==== ======= ========
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating
activities:
Net income....................... $ 31,438 $ 36,647 $ 619 $(37,266) $ 31,438
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............... 286 18,505 15 -- 18,806
Equity in net income of
subsidiaries............... (36,639) (627) -- 37,266 --
Change in operating assets,
liabilities and other...... 2,175 6,928 1,558 -- 10,661
-------- -------- ------- -------- --------
Net cash (used in) provided by
continuing operations.......... (2,740) 61,453 2,192 -- 60,905
Net cash provided by discontinued
operation...................... -- 443 -- -- 443
-------- -------- ------- -------- --------
Net cash (used in) provided by
operating activities............. (2,740) 61,896 2,192 -- 61,348
-------- -------- ------- -------- --------
Cash flows from financing
activities:
Long-term debt proceeds.......... -- 2,605 -- -- 2,605
Long-term debt payments.......... -- (58,675) -- -- (58,675)
Proceeds from issuance of common
stock.......................... 203 -- -- -- 203
Dividends paid................... (2,505) -- (2,200) 2,200 (2,505)
-------- -------- ------- -------- --------
Net cash flow used in financing
activities....................... (2,302) (56,070) (2,200) 2,200 (58,372)
-------- -------- ------- -------- --------
Cash flows from investing
activities:
Capital expenditures............. -- (5,920) -- -- (5,920)
Dividends received from
subsidiary..................... 2,200 -- -- (2,200) --
-------- -------- ------- -------- --------
Net cash flow provided by (used in)
investing activities............. 2,200 (5,920) -- (2,200) (5,920)
-------- -------- ------- -------- --------
Net change in cash and cash
equivalents...................... (2,842) (94) (8) -- (2,944)
Cash and cash equivalents at
beginning of period.............. 4,151 252 21 -- 4,424
-------- -------- ------- -------- --------
Cash and cash equivalents at end of
period........................... $ 1,309 $ 158 $ 13 $ -- $ 1,480
======== ======== ======= ======== ========
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating
activities:
Net income....................... $ 2,534 $ 3,450 $ 7 $(3,457) $ 2,534
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............... 11,071 144 -- -- 11,215
Loss on discontinued
operation, net............. 1,248 -- -- -- 1,248
Equity in net income of
subsidiaries............... (3,457) -- -- 3,457 --
Change in operating assets,
liabilities and other...... (16,427) (3,374) 2,691 -- (17,110)
-------- ------- ------- ------- --------
Net cash (used in) provided by
continuing operations............ (5,031) 220 2,698 -- (2,113)
Net cash used in discontinued
operation........................ (2,325) -- -- -- (2,325)
-------- ------- ------- ------- --------
Net cash (used in) provided by
operating activities............. (7,356) 220 2,698 -- (4,438)
-------- ------- ------- ------- --------
Cash flows from financing
activities:
Long-term debt proceeds.......... 39,150 -- -- -- 39,150
Long-term debt payments.......... (28,000) -- -- -- (28,000)
Proceeds from issuance of common
stock.......................... 218 -- -- -- 218
Dividends paid................... (2,472) -- (2,694) 2,694 (2,472)
-------- ------- ------- ------- --------
Net cash flow provided by (used in)
financing activities............. 8,896 -- (2,694) 2,694 8,896
-------- ------- ------- ------- --------
Cash flows from investing
activities:
Capital expenditures............. (3,956) (246) -- -- (4,202)
Dividends received from
subsidiary..................... 2,694 -- -- (2,694) --
-------- ------- ------- ------- --------
Net cash flow used in investing
activities....................... (1,262) (246) -- (2,694) (4,202)
-------- ------- ------- ------- --------
Net change in cash and cash
equivalents...................... 278 (26) 4 -- 256
Cash and cash equivalents at
beginning of period.............. 788 428 28 -- 1,244
-------- ------- ------- ------- --------
Cash and cash equivalents at end of
period........................... $ 1,066 $ 402 $ 32 $ -- $ 1,500
======== ======= ======= ======= ========
12
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Georgia Gulf manufactures and markets products through two highly integrated
lines categorized into chlorovinyls and aromatic chemicals. Our chlorovinyl
products include chlorine, caustic soda, sodium chlorate, vinyl chloride monomer
("VCM"), and polyvinyl chloride ("PVC") resins and compounds; our primary
aromatic chemical products include cumene, phenol and acetone. During 1999, we
announced our decision to exit the methanol business and had ceased operations
at the end of the year. Additionally, on November 12, 1999, we completed the
purchase of all the assets of the vinyls business of CONDEA Vista Company. The
vinyls business is an integrated producer of VCM, PVC resins and PVC compounds.
We have included the results of operations for the vinyls business in our
consolidated financial statements since the date of acquisition.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
NET SALES. Net sales for the quarter ended March 31, 2000 were
$403.7 million, an increase of 125 percent compared to $179.3 million for the
same period in 1999. This increase was due to 50 percent higher sales volumes,
largely attributable to the acquisition of the vinyls business, and an increase
in the overall average selling price of 50 percent.
Net sales of chlorovinyls for the first quarter of 2000 were
$333.7 million, 176 percent higher than net sales for first quarter of 1999 of
$120.8 million. This increase was the result of an 88 percent increase in sales
volume and a 47 percent increase in sales prices. Sales volume increases were
primarily attributable to the vinyls business acquired during the fourth quarter
of 1999 which more than doubled our sales of vinyl resins. The higher sales
prices resulted from continuing strong demand for vinyl products, particularly
VCM and vinyl resins.
Net sales of aromatics for the first quarter of 2000 were $69.9 million, an
increase of 19 percent compared to $58.5 million for the same period in 1999.
This increase was the result of a 28 percent improvement in sales prices, offset
in part by a 7 percent decline in sales volumes. Acetone prices increased as a
result of continued strong demand and tight supply.
COST OF SALES. Cost of sales for the first quarter of 2000 was
$321.9 million, an increase of 107 percent compared to $155.7 million for the
first quarter of 1999. The primary factor for this increase was the additional
sales volumes from the acquired vinyls business. Also contributing to the
increase were higher prices for all purchased major raw materials. As a
percentage of sales, cost of sales decreased to 80 percent in the first quarter
of 2000 compared to 87 percent in the first quarter of 1999. This decrease was
caused by overall sales price increases outpacing higher raw material costs and
also an increase in capacity utilization rates.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
were $13.7 million for the three months ended March 31, 2000, an increase of
33 percent from the same period in 1999. This increase is primarily attributable
to the effects of the acquired vinyls business and higher profit sharing
expense. During the first quarter of 2000, we incurred transition charges
associated with the acquisition of approximately $0.8 million.
OPERATING INCOME. Operating income in the first quarter of 2000 was
$68.1 million, an increase of 412 percent compared to $13.3 million in the first
quarter of 1999. This increase was the result of higher operating income in
chlorovinyls offset in part by decreased operating profit in aromatics. As a
percentage of net sales, operating profit increased to 17 percent of net sales
in the first quarter of 2000 compared to 7 percent for the same period in 1999.
This increase in operating profit as a percentage of net sales was the result of
overall sales price increases outpacing increases in raw material costs.
13
Our chlorovinyls operating profit for the first quarter of 2000 was
$79.6 million, an increase of 673 percent compared to $10.3 million for the same
period in 1999. The most significant factors in this increase are the
improvement in vinyl resin profit margins coupled with operating income from the
acquired vinyls business.
Our aromatics operating loss for the first quarter of 2000 was
$6.5 million, a decrease of 207 percent compared to operating profit of
$6.1 million in the first quarter 1999. Aromatic sales price increases were
unable to compensate for increases in the cost of benzene and propylene.
NET INTEREST EXPENSE. Interest expense increased to $19.0 million for the
quarter ended March 31, 2000 compared with $7.3 million for the same period in
1999. This increase was primarily attributable to higher debt balances related
to both the acquisition of the vinyls business and the purchase of the
previously leased cogeneration facility during the fourth quarter of 1999.
PROVISION FOR INCOME TAXES. Provision for income taxes was $17.7 million
for the first quarter of 2000 compared to $2.2 million for the first quarter of
1999. Our effective tax rate in the first quarter of 2000 was 36.0 percent
compared to 36.5 percent for the same period in 1999.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for
the three months ended March 31, 2000 was $31.4 million, an increase of
726 percent compared to $3.8 million for the three months ended March 31, 1999.
Income from continuing operations increased significantly as a result of both
overall sales volume and price increases that more than offset higher raw
material costs and additional interest expense.
LOSS FROM DISCONTINUED OPERATION. The discontinued methanol operation
incurred a net loss of $1.2 million in the first quarter of 1999. The methanol
operation was discontinued in the third quarter of 1999.
NET INCOME. Net income for the first quarter of 2000 was $31.4 million, an
eleven-fold increase from $2.5 million in the first quarter of 1999. This
increase was due to the factors discussed above.
14
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2000, we generated $61.3 million in
cash flow from operating activities as compared to $4.4 million used for
operating activities during the same 1999 period. Major sources of cash flow for
the first quarter of 2000 were net income of $31.4 million and non-cash
provisions of $18.8 million for depreciation and amortization. Total working
capital at March 31, 2000 was $85.6 million versus $95.6 million at
December 31, 1999. This decrease in working capital was primarily attributable
to increased accounts payable, interest payable and accrued income taxes payable
as a result of the timing of certain payments. This was partially offset by
increases in accounts receivable and inventories. Significant working capital
changes for the first quarter of 1999 included the payment of certain litigation
expenses reimbursed by our insurance carriers later in 1999, a decrease in
inventories and an increase in accounts payable due to the timing of payments.
Debt decreased by $56.1 million during the three months ended March 31, 2000
to $715.1 million. As of March 31, 2000, we had availability to borrow an
additional $86.5 million under the revolving credit facility.
Capital expenditures for the three months ended March 31, 2000 were
$5.9 million as compared to $4.2 million for the same 1999 period. Capital
expenditures for 2000 will be directed toward certain environmental projects and
increased efficiency of existing operations. We estimate total capital
expenditures for 2000 will approximate $30.0 million.
We declared dividends of $0.08 per share or $2.5 million during the first
three months of 2000. As of March 31, 2000, we had authorization to repurchase
up to 5.5 million shares under a common stock repurchase program; however, we
have suspended the stock repurchase program and we did not repurchase any shares
during the first quarter of 2000.
Our ability to satisfy our debt obligations and to pay principal and
interest on our debt, fund working capital, and make anticipated capital
expenditures will depend on our future performance, which is subject to general
economic conditions and other factors, some of which are beyond our control. We
believe that based on current and anticipated levels of operations and
conditions in our markets, cash flow from operations will be adequate for the
foreseeable future to make required payments of principal and interest on our
debt and fund our working capital and capital expenditure requirements.
We are essentially a holding company and, accordingly, must rely on
distributions, loans and other intercompany cash flows from our wholly owned
subsidiaries to generate the funds necessary to satisfy the repayment of our
existing debt. Provisions in our senior credit facility limit payments of
dividends, distributions, loans or advances to us by our subsidiaries.
OUTLOOK
We are currently experiencing strong demand and favorable margins in our
vinyl chain which we believe will continue through the second quarter of 2000.
We also believe that the first quarter of 2000 was the bottom of the cycle for
aromatics and that we will see improvement in the second quarter. While caustic
soda pricing has recovered significantly from its low point of last year, there
does appear to be some weakness in current pricing. At this point, we expect
results for the second quarter of 2000 to be higher than the results for the
first quarter of this year.
15
YEAR 2000 ISSUE UPDATE
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
ongoing business as a result of the year 2000 issue. However, it is possible
that the full impact of the date change has not been fully recognized. We
believe that any such problems are likely to be minor and correctable. In
addition, we could still be negatively affected if year 2000 or similar issues
adversely affect our customers or suppliers. Currently we are not aware of any
significant year 2000 or similar problems that have arisen for our customers and
suppliers. Expenditures related to year 2000 compliance efforts were not
material.
FORWARD-LOOKING STATEMENTS
This Form 10-Q and other communications to stockholders may contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to, among other things,
our outlook for future periods, supply and demand, pricing trends and market
forces within the chemical industry, cost reduction strategies and their
results, planned capital expenditures, long-term objectives of management and
other statements of expectations concerning matters that are not historical
facts.
Predictions of future results contain a measure of uncertainty and,
accordingly, actual results could differ materially due to various factors.
Factors that could change forward-looking statements are, among others:
- changes in the general economy;
- changes in demand for our products or increases in overall industry
capacity that could affect production volumes and/or pricing;
- changes and/or cyclicality in the industries to which our products are
sold;
- availability and pricing of raw materials;
- technological changes affecting production;
- difficulty in plant operations and product transportation;
- governmental and environmental regulations; and
- other unforeseen circumstances.
A number of these factors are discussed in this Form 10-Q and in our other
periodic filings with the Securities and Exchange Commission, including our
Annual Report on Form 10-K for the year ended December 31, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of certain market risks related to Georgia Gulf, see
Part I, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk",
in our Annual Report on Form 10-K for the year ended December 31, 1999. There
have been no significant developments with respect to our exposure to market
risk except for the change in the fair value of interest rate swaps disclosed in
Note 6 to the financial statements included herein.
16
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
We are a party to numerous individual and several class-action lawsuits
filed against us, among other parties, arising out of an incident that occurred
in September 1996 in which workers were exposed to a chemical substance on our
premises in Plaquemine, Louisiana. The substance was later identified to be a
form of mustard agent, a chemical which is not manufactured as part of our
ordinary operations, but instead occurred as a result of an unforeseen chemical
reaction. All of the actions claim one or more forms of compensable damages,
including past and future wages and past and future physical and emotional
suffering. The lawsuits were originally filed in Louisiana State Court in
Iberville Parish.
Discovery has been occurring in these cases. We continue to develop
information relating to the extent of damages suffered as well as evaluate the
merit of such claims, defenses available and liability of other persons.
In September 1998, the plaintiffs filed amended petitions that added the
additional allegations that we had engaged in intentional misconduct against the
plaintiffs. These additional allegations raised a coverage issue under our
general liability insurance policies. In December 1998, as required by the terms
of the insurance policies, the insurers demanded arbitration to determine
whether coverage is required for the alleged intentional misconduct in addition
to the coverage applicable to the other allegations of the case. The date for
the arbitration has not yet been established.
As a result of the arbitration relating to the insurance issue, as permitted
by federal statute, the insurers removed the cases to United States District
Court in December 1998. By order entered March 2, 1999, the federal court denied
the plaintiff's motion to remand the cases back to state court and retained
federal jurisdiction.
We have settled the claims of all but eight worker plaintiffs (and their
collaterals) who had filed suit prior to removal. These settlements included the
vast majority of those claimants believed to be the most seriously injured. The
settled cases are in the final processes of being dismissed with prejudice.
Negotiations regarding the remaining claims are ongoing.
Following these settlements, we have been sued by approximately 400
additional plaintiffs (and their collaterals) who claim that they were injured
as a result of the incident. We believe that most, if not all, of these new
plaintiffs have no valid basis to claim exposure and have filed suit only as a
result of their knowledge of the previous settlements. We believe we have
significant defenses to these new claims, including that most of the new
plaintiffs were statutory employees who are barred from bringing tort claims
against us, the claims are proscribed by the applicable statute of limitations
and the plaintiffs have no injuries causally related to their claimed exposure.
We intend to vigorously defend against these new claims.
Notwithstanding the foregoing, we are asserting and pursuing defenses to the
claims. Based on the present status of the proceedings, we believe the liability
ultimately imposed will not have a material effect on our financial position or
on our results of operations.
In addition, we are subject to other claims and legal actions that may arise
in the ordinary course of business. We believe that the ultimate liability, if
any, with respect to these other claims and legal actions, will not have a
material effect on our financial position or on our results of operations.
Pursuant to an asset purchase agreement with us, CONDEA Vista has agreed to
indemnify us for any liabilities and obligations relating to any litigation,
action, suit, claim investigation or proceeding against the vinyls business
pending on the closing date of the sale.
17
Item 6. Exhibits and Reports on Form 8-K.
a) No exhibits are required to be filed as part of this Form 10-Q.
b) No reports on Form 8-K were filed with Securities and Exchange
Commission during the first quarter of 2000.
18
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 May 15, 2000 /s/ EDWARD A. SCHMITT
------------------------ -------------------------------------------
Edward A. Schmitt
President and Chief Executive Officer
(Principal Executive Officer)
Date May 15, 2000 /s/ RICHARD B. MARCHESE
------------------------ -------------------------------------------
Richard B. Marchese
Vice President Finance, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
19