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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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, SUITE 595, ATLANTA, GEORGIA 30346
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 395-4500
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
Securities registered pursuant to Section 12(g) of the Act: NONE
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed using the closing price on the New York Stock Exchange for
the Registrant's common stock on March 21, 2001, was $527,738,000.
Indicate the number of shares outstanding of the Registrant's common stock
as of the latest practicable date.
Class Outstanding at March 21, 2001
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COMMON STOCK, $0.01 PAR VALUE 31,715,002 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
(To the Extent Indicated Herein)
Proxy Statement for the Annual Meeting of Stockholders to be held on
May 15, 2001, in Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I
PAGE
ITEM NUMBER
- ---- --------
1) Business.................................................... 1
2) Properties.................................................. 13
3) Legal Proceedings........................................... 14
4) Submission of Matters to a Vote of Security Holders......... 15
PART II
5) Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters...................... 15
6) Selected Financial Data..................................... 16
7) Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
7A) Quantitative and Qualitative Disclosures about Market
Risk........................................................ 24
8) Financial Statements and Supplementary Data................. 26
9) Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 60
PART III
10) Directors and Executive Officers of the Registrant.......... 60
11) Executive Compensation...................................... 60
12) Security Ownership of Certain Beneficial Owners and
Management.................................................. 60
13) Certain Relationships and Related Transactions.............. 60
PART IV
14) Exhibits, Financial Statement Schedule and Reports on Form
8-K......................................................... 61
SIGNATURES....................................................... 64
PART I
ITEM 1. BUSINESS.
GENERAL
We are a leading North American manufacturer and international marketer of
two highly integrated product lines, chlorovinyls and aromatics. In our
chlorovinyls business, we are:
- the third largest North American producer of vinyl chloride monomer, or
VCM,
- the third largest North American producer of polyvinyl chloride, or PVC,
resins and
- the second largest North American producer of PVC compounds.
In our aromatics business, we are:
- one of the two largest North American producers of cumene, and
- a leading North American producer and marketer of phenol.
Our manufacturing processes also include the production of caustic soda and
acetone. The primary products we sell externally include PVC resins, PVC
compounds and caustic soda in our chlorovinyls business and phenol and acetone
in our aromatics business. These products are used globally in a wide variety of
end-use applications, including construction and renovation, engineered
plastics, pulp and paper production, chemical intermediates, pharmaceuticals and
consumer products. Our integration provides us with the flexibility to shift our
product sales mix towards those products that are experiencing relatively more
favorable market conditions. We believe our vertical integration, world scale
facilities, operating efficiencies, facility locations and the productivity of
our employees provide us with a competitive cost position in our primary
markets.
For selected financial information concerning our chlorovinyls and aromatics
product lines, see Note 18 to our consolidated financial statements included in
Item 8.
ACQUISITIONS AND DISCONTINUED OPERATIONS
On November 12, 1999, we completed the purchase of substantially all of the
assets and working capital of the vinyls business of CONDEA Vista Company.
Assets acquired in the purchase include:
- one VCM facility with annual capacity of 950 million pounds;
- 50% ownership of PHH Monomers, L.L.C., a joint venture that operates a VCM
facility with capacity to produce 1.15 billion pounds of VCM annually,
which entitles us to one-half of the production capacity, or 575 million
pounds;
- two PVC resin facilities with combined annual capacity of 1.5 billion
pounds; and
- three PVC compound facilities with annual combined capacity of
265 million pounds.
Additionally, we entered into a long-term supply contract with CONDEA Vista
for the supply of ethylene and assumed a chlorine supply contract with PPG
Industries, Inc., our joint venture partner in PHH Monomers, for the acquired
VCM facilities.
On May 11, 1998, we acquired North American Plastics, Inc., a manufacturer
of flexible PVC compounds with two manufacturing locations in Mississippi having
a combined annual production capacity of 190 million pounds.
On August 31, 2000, we ceased manufacturing PVC compounds at the Mansfield
Massachusetts facility leased from the CONDEA Vista Company. Manufacturing of
compounds was transferred to our
1
other compound plants. We have reached an agreement for early termination of the
property lease. The cost associated with closing the facility and removing
equipment is immaterial.
During 1998 the methanol market suffered from overcapacity and low-cost
imports with significant increases in global supply in areas of the world with
low-cost natural gas. As a result, several domestic methanol producers including
Georgia Gulf, idled their methanol plants. We ceased operating our methanol
plant in December 1998. During 1999, we met our contractual obligations to
supply methanol to our customers by purchasing imported methanol. Although the
shutdown of several methanol plants resulted in a supply contraction and an
increase in spot prices during the first half of 1999, several new overseas
methanol plants began production late in the year. This additional supply added
further pressure to the sales price of methanol. As a result of these trends, in
September 1999, we announced that we would exit the methanol business entirely
at the end of 1999. As a result, we incurred a charge against earnings of
$7.6 million, net of tax benefits, during the third quarter of 1999 to write-off
certain methanol assets and to accrue losses related to our methanol buy and
resale program through the end of 1999.
PRODUCTS AND MARKETS
The following table shows our total annual production capacities as of
December 31, 2000 in each of our product lines:
PRODUCT LINE CAPACITY
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Chlorovinyls Products
PVC Compounds.......................................... 875 million pounds
PVC Resins............................................. 2.7 billion pounds
VCM.................................................... 3.1 billion pounds
Caustic Soda........................................... 500,000 tons
Chlorine............................................... 450,000 tons
Aromatics Products
Phenol................................................. 660 million pounds
Acetone................................................ 408 million pounds
Cumene................................................. 1.5 billion pounds
CHLOROVINYLS
PVC COMPOUNDS. These formulations provide specific end-use properties that
allow PVC compounds to be processed directly into our customers' finished
products. All of our production is sold to third parties. We produce flexible
and rigid compounds used in the following products and process applications.
FLEXIBLE PVC COMPOUNDS. Our flexible PVC compounds are used in wire and
cable insulation and jacketing, automotive modular window encapsulation,
custom strips and profiles, automotive trim and body side molding, and
flexible tubing.
RIGID PVC COMPOUNDS. Our rigid PVC compounds are used in a wide range
of applications and production processes. Our injection molding compounds
are used in the production of computer housings and keyboards, electrical
outlet boxes and pipe fittings. Our extrusion compounds are used in window
and furniture profiles and sheets for household fixtures and decorative
overlays. Our blow molding compounds are primarily used for both food-grade
and general purpose bottles used to package cosmetics, shampoos, charcoal
lighter fluid, water and edible oils. We also supply chlorinated PVC
compounds to the extrusion and injection molding markets, mainly for hot
water pipe and pipe fittings.
2
PVC RESINS. PVC is among the most widely used plastics in the world today,
and we supply numerous grades of PVC resins to a broad number of end-use
markets. During 2000, about 80% of our PVC resin production was sold to
customers who use our resins to formulate PVC compounds which are then heated
and shaped utilizing various extrusion and molding processes to create finished
products. These products include pipe and pipe fittings, wire and cable
coatings, home siding and windows, electrical wall boxes and apparatus, fencing,
home and office furnishings, consumer products, packaging and containers. We
used about 20% of our production of PVC resin internally during 2000 in the
manufacture of our PVC compounds.
VCM. During 2000, we used about 87% of our VCM production in the
manufacture of our PVC resins. VCM production not used internally is sold to
other PVC resin producers in domestic and international markets.
CHLOR-ALKALI PRODUCTS. Substantially all of the chlorine we produce is used
internally in the production of VCM. As a co-product, caustic soda further
diversifies our revenue base. We sell all of our caustic soda domestically and
overseas to customers in numerous industries, with the pulp and paper and
chemical industries constituting our largest markets. Our other markets for
caustic soda include the alumina, soap and detergent, textile and water
treatment industries. We also manufacture and sell sodium chlorate, which is an
environmentally preferred bleaching agent for the production of pulp and paper.
AROMATICS
PHENOL. Our phenol is primarily sold to producers of phenolic resins and to
manufacturers of engineered plastics. Phenolic resins are used extensively as
adhesives for wood products such as plywood and chipped wood panels. Engineered
plastics are used in compact discs, automobiles, household appliances,
electronics and protective coating applications. We also sell phenol for use in
insulation, electrical parts, oil additives and pharmaceuticals.
ACETONE. As a co-product of phenol, acetone further diversifies our revenue
base. Acetone is primarily used as a key ingredient in acrylic resins and as an
ingredient for surface coating resins for automotive and architectural markets.
Acetone is also an intermediate for the production of engineered plastics and
several major industrial solvents. Other uses range from solvents for automotive
and industrial applications to pharmaceuticals and cosmetics.
CUMENE. About 67% of our cumene was consumed internally during 2000 to
produce phenol and acetone. Cumene production not used internally is sold to
other phenol and acetone manufacturers.
END-USE MARKETS
We sell our broad array of products to numerous end-use markets. The
following table lists our major end-use markets for all of our products and the
estimated percentage of revenues associated with those markets for 2000:
INDUSTRY PERCENTAGE OF SALES
- -------- -------------------
Housing and construction.................................... 57%
Plastics and fibers......................................... 23%
Solvents and chemicals...................................... 9%
Miscellaneous............................................... 11%
PRODUCTION, RAW MATERIALS AND FACILITIES
Our operations are vertically integrated as a result of our production of
some of our key raw materials and intermediates used in the manufacture of our
products. Our operational integration
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enhances our control over production costs and capacity utilization rates, as
compared to our non-integrated competitors. It also provides us the flexibility
to shift our product sales mix towards those products that are enjoying
relatively more favorable market conditions.
In our chlorovinyls product line, we produce chlorine and its co-product
caustic soda by electrolysis of salt brine. We produce VCM by reacting purchased
ethylene with chlorine produced internally or purchased from third parties; our
internal production of VCM exceeds our internal demand requirements. We produce
PVC resin by polymerization of our internally supplied VCM in a batch reactor
process. We formulate our PVC compounds by blending our PVC resins with various
additives such as plasticizers, impact modifiers, stabilizers and pigments, most
of which are purchased. We also have the capacity to produce ethylene
dichloride, an intermediate in the manufacture of VCM, for external sales. In
our aromatics product line, we produce cumene utilizing benzene and refinery
grade propylene purchased from third parties, which we react using low cost
zeolite catalyst technology. We produce phenol by reacting internally produced
cumene under high temperatures and pressure. We produce acetone as a co-product
in our production of phenol.
The important raw materials we purchase from third parties include chlorine,
natural gas, ethylene, benzene and propylene. The majority of our purchases of
chlorine, ethylene, propylene, and benzene are made under long-term agreements,
and we purchase natural gas both in the open market and under long-term
contracts. We have not experienced a major disruption in our supplies of raw
materials over the past five years, and we believe we have reliable sources of
supply under normal market conditions. We cannot, however, predict the
likelihood or impact of any future raw material shortages. Any shortages could
have a material adverse impact on our results of operations. For example,
increased demand for natural gas caused significant cost increases when compared
to prior years, and contributed to a loss in the fourth quarter of 2000.
PLAQUEMINE, LOUISIANA FACILITY. Our operations at this facility include the
production of chlorine, caustic soda, sodium chlorate, VCM, PVC resins, phenol
and acetone. We produce chlorine and its co-product caustic soda at our
chlor-alkali facility by electrolysis of salt brine. We have a long-term lease
on a nearby salt dome with reserves in excess of twenty years, from which we
supply our salt brine requirements. We use substantially all of our chlorine
production in the manufacture of VCM at this facility and we sell substantially
all of our caustic soda production externally. We also use sodium hypochlorite,
a by-product from our chlor-alkali production process, to produce sodium
chlorate for sale to third parties. All of the ethylene requirements for our VCM
production are supplied by pipeline. Most of our Plaquemine VCM production is
consumed on-site in our PVC resin production or shipped to our other PVC resin
facilities with the remainder sold to third parties.
Our cumene requirements for the production of phenol and its co-product
acetone are shipped from our Pasadena, Texas facility by dedicated barges. Our
250-megawatt co-generation facility supplies all of the electricity and steam
needs at our Plaquemine facilities, and it also provides us with the capability
to generate excess electricity for sale to the local utility. We also own an
on-site air separation unit operated by a third party that provides all of the
facility's nitrogen and oxygen gas requirements.
LAKE CHARLES, LOUISIANA FACILITIES. We produce VCM at our Lake Charles,
Louisiana facility and, through our joint venture with PPG Industries have the
right to 50% of the VCM production of PHH Monomers, which is located in close
proximity to our Lake Charles VCM facility. The chlorine needs of our Lake
Charles VCM facility and the PHH Monomers' facility are supplied by pipeline,
under a long-term contract with PPG Industries, who is also our partner in PHH
Monomers. Ethylene is supplied to both facilities by pipeline from the adjacent
CONDEA Vista ethylene facility and by pipeline from other third parties. The
majority of our ethylene requirements for our Lake Charles VCM facility are
supplied under a take-or-pay contract which expires November 12, 2006, and PHH
Monomers is supplied under a requirements-based contract. These chlorine and
ethylene contracts are
4
primarily market price-based. VCM from these facilities supplies our Aberdeen,
Mississippi and Oklahoma City, Oklahoma PVC facilities. A portion of VCM
produced at the Lake Charles facilities is sold in domestic and export markets.
PASADENA, TEXAS FACILITY. At our Pasadena, Texas facility we produce
cumene, phenol, its co-product acetone and alpha-methylstyrene, a saleable
by-product of our phenol production. We produce cumene utilizing purchased
benzene and propylene that we react using low cost zeolite catalyst technology.
Our cumene facility is integrated by pipeline with our phenol and acetone
facility at Pasadena. We consume a portion of our cumene production at this
facility in phenol and acetone production, with the remainder shipped to the
Plaquemine phenol and acetone facility and sold to third parties. We purchase
refinery grade propylene and benzene at market prices from various suppliers
connected by multiple transportation modes to our cumene facility. A portion of
the benzene is supplied under contracts at market prices, and the propylene is
provided from numerous refineries at market prices. Based on current industry
capacity, we believe we have adequate access to benzene and propylene under
normal conditions.
ABERDEEN, MISSISSIPPI AND OKLAHOMA CITY, OKLAHOMA FACILITIES. We produce
PVC resins at both our Aberdeen, Mississippi and Oklahoma facilities from VCM
supplied by railcar from our VCM facilities and PHH Monomers. In addition, the
Aberdeen facility produces plasticizers, some of which are consumed in internal
PVC compound production with the remainder sold to third parties.
PVC COMPOUND FACILITIES. We operate six compound facilities located in
proximity of our PVC resin operations. All of our PVC compound facilities are
supplied from our PVC resin facilities by railcar, truck or pipeline. These
operations consumed about 20% of our annual PVC resin production during 2000. We
purchase our remaining additive needs from various sources at market prices.
SALES AND MARKETING
Our sales and marketing program is aimed at supporting our existing
customers and expanding and diversifying our customer base. Our sales force
consists of 26 employees managed by national and regional managers. In addition,
distributors are used to market products to our smaller customers. This sales
force is organized by product line and region. We have a product development and
technical service staff that primarily supports our PVC resin and PVC compound
businesses. This staff works closely with customers to qualify existing Georgia
Gulf products for use by our customers. They also work to develop new products
for the customers' existing and new requirements. Our products are sold
primarily to domestic industrial companies, and no single customer accounted for
more than 10% of our sales for the years ended December 31, 2000, 1999 and 1998.
In addition to our domestic sales, we export some of our products, including our
VCM and PVC resins, caustic soda and aromatics products. Export sales accounted
for about 11% of total sales for 2000, 14% for 1999, and 18% for 1998. The
principal international markets we sell to are Canada, Mexico, Latin America,
Europe and Asia.
COMPETITION
We experience competition from numerous manufacturers in all of our product
lines. Some of our competitors have substantially greater financial resources
and are more highly diversified than we are. We compete on a variety of factors
such as price, product quality, delivery and technical service. We believe that
we are well-positioned to compete as a result of integrated product lines, the
operational efficiency of our plants and the location of our facilities near
major water and/or rail transportation terminals.
5
ENVIRONMENTAL REGULATION
Our operations are subject to increasingly stringent federal, state and
local laws and regulations relating to environmental quality. These regulations
are enforced principally by the United States Environmental Protection Agency
and comparable state agencies. These regulations govern the management of solid
hazardous waste, emissions into the air and discharges into surface and
underground waters, and the manufacture of chemical substances.
There are several serious environmental issues concerning the VCM facility
we acquired from CONDEA Vista at Lake Charles, Louisiana. Substantial
investigation of the groundwater at the site has been conducted, and groundwater
contamination was first identified in 1981. Groundwater remediation through the
installation of groundwater recovery wells began in 1984. The site currently
contains about 90 monitoring wells and 18 recovery wells. A further
investigation to determine the full extent of the contamination is currently
being planned. It is possible that offsite groundwater recovery will be
required, in addition to groundwater monitoring. Soil remediation could also be
required.
Investigations are currently underway by federal environmental authorities
concerning contamination of an estuary near the Lake Charles VCM facility we
acquired known as the Calcasieu Estuary. It is likely that this estuary will be
listed as a Superfund site and be the subject of a natural resource damage
recovery claim. It is estimated that there are about 200 potentially responsible
parties associated with the estuary contamination. CONDEA Vista is included
among these parties with respect to its Lake Charles facilities, including the
VCM facility we acquired. The estimated cost for investigation and remediation
of the estuary is unknown and could be quite costly. Also, Superfund statutes
may impose joint and several liability for the cost of investigations and
remedial actions on any company that generated the waste, arranged for disposal
of the waste, transported the waste to the disposal site, selected the disposal
site, or presently or formerly owned, leased or operated the disposal site or a
site otherwise contaminated by hazardous substances. Any or all of the
responsible parties may be required to bear all of the costs of cleanup
regardless of fault, legality of the original disposal or ownership of the
disposal site. Currently, we discharge our wastewater to CONDEA Vista who has a
permit to discharge treated wastewater into the estuary.
Additionally, offsite groundwater contamination was identified in 1990 in
the Mossville subdivision located west of the VCM facility we acquired at Lake
Charles. Over 80 lawsuits were filed by the Mossville residents in 1995 and
1996. The lawsuits alleged personal and property damages due to groundwater
contamination. Most of the lawsuits were settled by the end of 1998, and the
vinyls business of CONDEA Vista incurred a charge in 1998 of $42.1 million
relating to these settlements. In addition, many of the residences in the
Mossville subdivision have been purchased by CONDEA Vista.
CONDEA Vista has agreed to retain responsibility for substantially all
environmental liabilities and remediation activity relating to the vinyls
business we acquired from them, including the Lake Charles, Louisiana VCM
facility. For all matters of environmental contamination that are currently
known, we may make a claim for indemnification at any time; for environmental
matters that are unknown, we must generally make claims for indemnification
before November 12, 2009. Further, Georgia Gulf's agreement with CONDEA Vista
provides that CONDEA Vista will be subject to the presumption that all later
discovered on-site environmental contamination arose before closing, and is
therefore CONDEA Vista's responsibility; this presumption may only be rebutted
if CONDEA Vista can show that we caused the environmental contamination by a
major, unaddressed release.
At the Lake Charles VCM facility, CONDEA Vista will continue to conduct the
ongoing remediation at its expense until November 12, 2009. After November 12,
2009, we will be responsible for remediation costs up to $150,000 of expense per
year, as well as costs in any year in excess of this annual amount up to an
aggregate one-time amount of $2,250,000. We will be responsible for remediation
costs at the other acquired facilities until the level of expense we incur meets
the specified amount for each facility which in the aggregate equals $700,000.
The indemnity given by CONDEA
6
Vista also includes off-site contamination created before November 12, 2009,
including CONDEA Vista's contribution to any claim based upon contamination of
the Calcasieu Estuary.
The property owned by CONDEA Vista in Mansfield, Massachusetts, for which we
have negotiated an early lease termination, has been the subject of ongoing
environmental investigations under an order with the Massachusetts Department of
Environmental Protection. Groundwater investigations continue at the Mansfield
property to address identified on-site groundwater contamination and investigate
the possible off-site migration of contaminated groundwater. It is also possible
that the United States Environmental Protection Agency may list the property as
a Superfund site. The environmental investigations and actions are associated
with the past operations at the property and were not assumed in our lease of
the property. In addition, CONDEA Vista has indemnified us for claims related to
this environmental contamination beyond an aggregate threshold amount of
$250,000, including coverage for potential joint and several liability under the
environmental statutes. The lease termination calls for our payment of the
unspent portion of the aggregate threshold amount. Upon removal of manufacturing
equipment and termination of the lease, the site with buildings and
infrastructure equipment will revert to CONDEA Vista.
As for employee and independent contractor exposure claims, CONDEA Vista is
responsible for exposures before November 12, 2009, and we are responsible for
exposures after November 12, 2009 on a pro rata basis determined by years of
employment or service before and after November 12, 1999 by any claimant. There
is, however, a presumption for claims brought before November 12, 2004 by
current or former CONDEA Vista employees and contractors that, absent a showing
of new acute exposure after November 12, 1999, all responsibility will be deemed
to have arisen before November 12, 1999 and will be solely CONDEA Vista's.
Except as described above, we believe that we are in material compliance
with all current environmental laws and regulations. We estimate that any
expenses incurred in maintaining compliance with these requirements will not
materially affect earnings or cause us to exceed our level of anticipated
capital expenditures. However, there can be no assurance that regulatory
requirements will not change, and it is not possible to accurately predict the
aggregate cost of compliance resulting from any such changes.
EMPLOYEES
As of December 31, 2000, we had 1,329 full-time employees. Approximately 174
of our employees are unionized under two collective bargaining agreements that
expire in 2002 and 2003. We believe our relationships with our employees are
good.
7
RISK FACTORS
THE CHEMICAL INDUSTRY IS CYCLICAL AND VOLATILE, WHICH AFFECTS OUR
PROFITABILITY.
- OUR INDUSTRY EXPERIENCES ALTERNATING PERIODS OF TIGHT SUPPLY AND
OVERCAPACITY.
Our historical operating results reflect the cyclical and volatile nature of
the chemical industry. Historically, periods of tight supply have resulted in
increased prices and profit margins and have been followed by periods of
substantial capacity addition, resulting in oversupply and declining prices and
profit margins. As a result of changes in demand for our products, our earnings
fluctuate significantly, not only from year to year but also from quarter to
quarter. Capacity expansions or the announcement of these expansions have
generally led to a decline in the pricing of our products in the affected
product line. We cannot assure you that future growth in product demand will be
sufficient to utilize any additional capacity.
- RAW MATERIAL COSTS AND OTHER EXTERNAL FACTORS BEYOND OUR CONTROL CAN CAUSE
WIDE FLUCTUATIONS IN OUR MARGINS.
The cost of our raw materials and other costs may not correlate with changes
in the prices we receive for our products, either in the direction of the price
change or in absolute magnitude. Raw material costs represent a substantial part
of our manufacturing costs. Most of the raw materials we use are commodities and
the price of each can fluctuate widely for a variety of reasons, including
changes in availability because of major capacity additions or significant
facility operating problems. Other external factors beyond our control can cause
volatility in raw material prices, demand for our products, product prices,
sales volumes and margins. These factors include general economic conditions,
the level of business activity in the industries that use our products,
competitors' actions, international events and circumstances, and governmental
regulation in the United States and abroad. These factors can also magnify the
impact of economic cycles on our business. A number of our products are highly
dependent on markets that are particularly cyclical, such as the construction,
paper and pulp, and automotive markets. For example, increased demand for
natural gas caused significant cost increases when compared to prior years, and
contributed to a loss in the fourth quarter of 2000.
- THE CYCLICALITY AND VOLATILITY OF THE CHEMICAL INDUSTRY AFFECTS OUR
CAPACITY UTILIZATION AND CAUSES FLUCTUATIONS IN OUR RESULTS OF OPERATIONS.
The operating rates at our facilities will impact the comparison of
period-to-period results. Different facilities may have differing operating
rates from period to period depending on many factors, such as feedstock costs,
transportation costs, and supply and demand for the product produced at the
facility during that period. As a result, individual facilities may be operated
below or above rated capacities in any period. We may idle a facility for an
extended period of time because an oversupply of a certain product or a lack of
demand for that product makes production uneconomical. The expenses of the
shutdown and restart of facilities may adversely affect quarterly results when
these events occur. In addition, a temporary shutdown may become permanent,
resulting in a write-down or write-off of the related assets.
THE CHEMICAL INDUSTRY IS HIGHLY COMPETITIVE, WITH SOME OF OUR COMPETITORS HAVING
GREATER FINANCIAL RESOURCES THAN WE HAVE; COMPETITION MAY ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.
The chemical industry is highly competitive; we compete with many chemical
companies, a substantial number of whom are larger and have greater financial
resources than Georgia Gulf. Moreover, barriers to entry, other than capital
availability, are low in most product segments of our business. Capacity
additions or technological advances by existing or future competitors also
create greater competition, particularly in pricing. We cannot assure you we
will have access to the financing necessary to upgrade our facilities in
response to technological advances or other competitive developments.
8
EXTENSIVE ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND REGULATIONS IMPACT OUR
OPERATIONS AND ASSETS; COMPLIANCE WITH THESE REGULATIONS COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.
Our operations on and ownership of real property are subject to extensive
environmental, health and safety regulation at both the national and local
level. The nature of the chemical industry exposes Georgia Gulf to risks of
liability under these laws and regulations due to the production, storage,
transportation and sale of materials that can cause contamination or personal
injury if released into the environment. Environmental laws may have a
significant effect on the costs of transportation and storage of raw materials
and finished products, as well as the costs of the storage and disposal of
wastes. We may incur substantial costs, including fines, damages, criminal or
civil sanctions, remediation costs, or experience interruptions in our
operations for violations arising under these laws.
Also, Superfund statutes may impose joint and several liability for the cost
of investigations and remedial actions on any company that generated the waste,
arranged for disposal of the waste, transported the waste to the disposal site,
selected the disposal site, or presently or formerly owned, leased or operated
the disposal site or a site otherwise contaminated by hazardous substances. Any
or all of the responsible parties may be required to bear all of the costs of
cleanup, regardless of fault, legality of the original disposal or ownership of
the disposal site. A number of environmental liabilities have been associated
with the facilities at Lake Charles, Louisiana and Mansfield, Massachusetts that
we acquired or leased as part of the acquisition of the vinyls business of
CONDEA Vista Company and which may be designated as Superfund sites as described
in "Environmental Regulation" above. Any or all responsible parties, including
us, may be required to bear all of the costs of cleanup regardless of fault,
legality of the original disposal, or ownership of the disposal site. Although
CONDEA Vista retained substantially all financial responsibility for
environmental liabilities that relate to the facilities we acquired from them
and which arose before the closing of that acquisition, we cannot assure you
that CONDEA Vista will be able to satisfy its obligations in this regard,
particularly in light of the long period of time in which environmental
liabilities may arise under the environmental laws. If CONDEA Vista fails to do
so, then we could be held responsible.
Our policy is to accrue costs relating to environmental matters when it is
probable that these costs will be required and can be reasonably estimated.
However, estimated costs for future environmental compliance and remediation may
be too low or we may not be able to quantify the potential costs. We expect to
continue to be subject to increasingly stringent environmental and health and
safety laws and regulations. It is difficult to predict the future
interpretation and development of these laws and regulations or their impact on
our future earnings and operations. We anticipate that compliance will continue
to require increased capital expenditures and operating costs. Any increase in
these costs could adversely affect our financial performance.
HAZARDS ASSOCIATED WITH CHEMICAL MANUFACTURING MAY OCCUR, WHICH WOULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS.
The usual hazards associated with chemical manufacturing and the related
storage and transportation of raw materials, products and wastes may occur in
Georgia Gulf's operations. These hazards could lead to an interruption or
suspension of operations and have an adverse effect on the productivity and
profitability of a particular manufacturing facility or on Georgia Gulf as a
whole. These hazards include:
- pipeline and storage tank leaks and ruptures;
- explosions and fires;
- inclement weather and natural disasters;
- mechanical failure;
- unscheduled downtime;
9
- labor difficulties;
- transportation interruptions;
- remediation complications; and
- chemical spills and other discharges or releases of toxic or hazardous
substances or gases.
These hazards may cause personal injury and loss of life, severe damage to
or destruction of property and equipment, and environmental damage; any of these
could lead to claims under the environmental laws. In addition, individuals
could seek damages for alleged personal injury or property damage due to
exposure to chemicals at our facilities or to chemicals otherwise owned or
controlled by Georgia Gulf. Furthermore, Georgia Gulf is also subject to present
and future claims with respect to workplace exposure, workers' compensation and
other matters. Although we maintain property, business interruption and casualty
insurance of the types and in the amounts that we believe are customary for the
industry, we are not fully insured against all potential hazards incident to our
business.
WE RELY HEAVILY ON THIRD PARTY TRANSPORTATION, WHICH SUBJECTS US TO RISKS THAT
WE CANNOT CONTROL; THESE RISKS MAY ADVERSELY AFFECT OUR OPERATIONS.
We rely heavily on railroads and shipping companies to transport raw
materials to our manufacturing facilities and to ship finished product to our
customers. Rail and shipping operations are subject to various hazards,
including extreme weather conditions, work stoppages and operating hazards. If
we are delayed or unable to ship finished product or unable to obtain raw
materials as a result of the railroads' or shipping companies' failure to
operate properly, or if there were significant changes in the cost of these
services, we may not be able to arrange efficient alternatives and timely means
to obtain raw materials or ship our goods, which could result in an adverse
effect on our revenues and costs of operations.
WE HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS, WHICH COULD LIMIT OUR BUSINESS AND
OPERATIONS.
At December 31, 2000, we had approximately $632.3 million of indebtedness
outstanding. In addition, we had approximately $89.1 million of additional
credit available under our revolving credit facility. As a result, Georgia Gulf
is highly leveraged. This high level of indebtedness could have important
consequences to our operations, including:
- we may have difficulty borrowing money in the future for working capital,
capital expenditures, acquisitions or other purposes;
- we will need to use a large portion of our available cash for debt
service, which will reduce the amount of money available to finance our
operations and other business activities;
- some of our debt, including the debt under our senior credit facility, has
variable rates of interest, which exposes us to the risk of increased
interest rates;
- we may have a much higher level of debt than some of our competitors,
which may put us at a competitive disadvantage; make us more vulnerable to
economic downturns and adverse developments in our business; and reduce
our flexibility in responding to changing business and economic
conditions.
We expect to obtain the money to pay our expenses and to pay principal and
interest on our debt from our cash flow and from additional loans under our
senior credit facility. Our ability to meet these requirements will depend on
our future financial performance. We cannot be sure that our cash flow will be
sufficient to allow us to pay principal and interest on our debt as well as meet
our other obligations. If we do not have enough money to do so, we may be
required to refinance all or part of our debt, sell assets or borrow more money.
We cannot assure you that we will be able to do so on
10
commercially reasonable terms, if at all. In addition, the terms of our existing
or future debt agreements, including our senior credit facility and the
indenture related to our 10 3/8% senior subordinated notes, may restrict us from
pursuing any of these alternatives.
WE MAY ENCOUNTER DIFFICULTIES IN INTEGRATING THE ASSETS OF BUSINESSES WE
ACQUIRE, WHICH MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
We cannot be sure that we will be able to successfully integrate any
acquisitions into our operations without substantial costs, delays or other
problems. The integration of any business we acquire may be disruptive to our
business and may result in a significant diversion of management attention and
operational resources. In addition, we may suffer a loss of key employees,
customers or suppliers, loss of revenues, increases in costs or other
difficulties.
OUR PARTICIPATION IN JOINT VENTURES EXPOSES US TO RISKS OF SHARED CONTROL.
As part of the vinyls business we acquired from CONDEA Vista Company, we
purchased a 50% interest in a joint venture, the remainder of which is
controlled by PPG Industries, Inc., which also supplies chlorine to the facility
operated by the joint venture. We may enter into additional joint ventures in
the future. The nature of a joint venture requires us to share control with
unaffiliated third parties. If our joint venture partners do not fulfill their
obligations, the affected joint venture may not be able to operate according to
its business plan. In that case, our operations may be adversely affected or we
may be required to increase our level of commitment to the joint venture. Also,
differences in views among joint venture participants may result in delayed
decisions or failures to agree on major issues. Any differences in our views or
problems with respect to the operations of our joint ventures could have a
material adverse effect on our business, financial condition, results of
operations or cash flows.
WE RELY ON OUTSIDE SUPPLIERS FOR SPECIFIED FEEDSTOCKS AND SERVICES.
In connection with our acquisition of the vinyls business of CONDEA Vista
Company, we entered into agreements with CONDEA Vista to provide specified
feedstocks for the Lake Charles facility. Moreover, this facility is dependent
upon CONDEA Vista's infrastructure for services such as waste water and ground
water treatment, site remediation, fire water supply and rail car management.
Any failure of CONDEA Vista to perform those agreements could adversely affect
the operation of the affected facilities and our results of operations. The
agreements relating to these feedstocks and services had initial terms of one to
ten years. Although most of these agreements provide for automatic renewal, they
may be terminated after specified notice periods. If we were required to obtain
an alternate source for these feedstocks or services, we may not be able to
obtain pricing on as favorable terms. Additionally, we may be forced to pay
additional transportation costs or to invest in capital projects for pipelines
or alternate facilities to accommodate railcar or other delivery or to replace
other services.
We also obtain a significant portion of our other raw materials from a few
key suppliers. If any of these suppliers is unable to meet its obligations under
present supply agreements, we may be forced to pay higher prices to obtain the
necessary raw materials. Any interruption of supply or any price increase of raw
materials could have an adverse effect on our business and results of
operations.
SALES MADE IN INTERNATIONAL MARKETS EXPOSE US TO RISKS THAT MAY ADVERSELY AFFECT
OUR OPERATIONS OR FINANCIAL CONDITION.
During 2000, 11% of our revenues were generated in international markets.
Substantially all of our international sales are made in U.S. dollars and, as a
result, any increase in the value of the U.S. dollar relative to foreign
currencies will increase the effective price of our products in international
markets. Our international sales are also subject to other risks, including
differing and changing legal and
11
regulatory requirements in local jurisdictions; export duties and import quotas;
domestic and foreign customs and tariffs or other trade barriers; potentially
adverse tax consequences, including withholding taxes or taxes on other
remittances; and foreign exchange restrictions. We cannot assure you that these
factors will not have an adverse effect on our financial condition or results of
operations.
OUR SENIOR CREDIT FACILITY AND THE INDENTURE FOR OUR 10 3/8% SENIOR SUBORDINATED
NOTES IMPOSE SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS, WHICH MAY PREVENT
US FROM CAPITALIZING ON BUSINESS OPPORTUNITIES AND TAKING SOME ACTIONS.
Our senior credit facility and the indenture for our 10 3/8% senior
subordinated notes impose significant operating and financial restrictions on
us. These restrictions will limit our ability to:
- incur additional indebtedness and liens;
- make capital expenditures;
- make investments and sell assets, including the stock of subsidiaries;
- make payments of dividends and other distributions;
- purchase Georgia Gulf stock;
- use the proceeds of the sale of specified assets;
- engage in business activities unrelated to our current business;
- enter into transactions with affiliates; or
- consolidate, merge or sell all or substantially all of our assets.
In addition, our senior credit facility also requires us to maintain
specified financial ratios. We cannot assure you that these covenants will not
adversely affect our ability to finance our future operations or capital needs
or to pursue available business opportunities. A breach of any of these
covenants could result in a default in respect of the related indebtedness. If a
default occurs, the relevant lenders could elect to declare the indebtedness,
together with accrued interest and other fees, to be immediately due and payable
and proceed against any collateral securing that indebtedness. In addition, any
acceleration of indebtedness under our senior credit facility will constitute a
default under some of our other indebtedness.
FORWARD-LOOKING STATEMENTS
This Form 10-K 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. Actual
results could differ materially due to various factors. Factors that could
change forward-looking statements are, among others, those contained in the
"Risk Factors" section above as well as 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-K and in our other periodic filings with the
Securities and Exchange Commission.
12
ITEM 2. PROPERTIES.
Our asset base was established from 1971 to the present with the
construction of the Plaquemine, Louisiana, complex, the construction of the
Pasadena, Texas cumene plant, and the purchase of the PVC compound plants. There
was also the purchase of the Bound Brook, New Jersey, phenol/acetone facility
which was subsequently relocated to Pasadena, Texas, and modernized in 1990. In
1997, we completed construction of cogeneration and air separation plants in
Plaquemine, Louisiana, in order to supply all of our requirements for
electricity, oxygen and nitrogen at that location. The cogeneration plant was
leased under an operating lease agreement until we purchased it in 1999. In
1998, we purchased North American Plastics, Inc., a manufacturer of flexible
vinyl compounds with production facilities in Aberdeen and Madison, Mississippi.
In 1999, we purchased substantially all of the assets of the vinyls business of
CONDEA Vista Company, an integrated producer of VCM, PVC resins and PVC
compounds with production facilities in Aberdeen, Mississippi, Lake Charles,
Louisiana, Jeffersontown, Kentucky, Mansfield, Massachusetts, and Oklahoma City,
Oklahoma. We have since ceased production in Mansfield, Massachusetts and are
removing manufacturing equipment before returning the property to CONDEA Vista
Company under a lease termination agreement.
We continue to explore ways to expand both our plant capacities and product
lines. We believe current and additional planned capacity will adequately meet
anticipated demand requirements. Average capacity utilization of our production
facilities, including those acquired from CONDEA Vista from the date of
acquisition, was 90.2% in 2000.
The following table sets forth the location of each chemical manufacturing
facility we own, the products manufactured at each facility and the approximate
processing capability of each, assuming normal plant operations, as of
December 31, 2000:
LOCATION PRODUCTS ANNUAL CAPACITY SEGMENT
- -------- -------- --------------- -------
Aberdeen, MS PVC Resins 1.0 billion pounds Chlorovinyls
PVC Compounds (two 210 million pounds Chlorovinyls
locations)
Plasticizers 20 million pounds Chlorovinyls
Gallman, MS PVC Compounds 330 million pounds Chlorovinyls
Jeffersontown, KY PVC Compounds 40 million pounds Chlorovinyls
Lake Charles, LA VCM 1.5 billion Chlorovinyls
(two locations) pounds(1)
Madison, MS PVC Compounds 195 million pounds Chlorovinyls
Oklahoma City PVC Resins 450 million pounds Chlorovinyls
Pasadena, TX Cumene 1.5 billion pounds Aromatics
Phenol 160 million pounds Aromatics
Acetone 100 million pounds Aromatics
Plaquemine, LA Chlorine 450 thousand tons Chlorovinyls
Caustic Soda 500 thousand tons Chlorovinyls
Sodium Chlorate 27 thousand tons Chlorovinyls
VCM 1.6 billion pounds Chlorovinyls
PVC Resins 1.2 billion pounds Chlorovinyls
Phenol 500 million pounds Aromatics
Acetone 308 million pounds Aromatics
Tiptonville,TN PVC Compounds 100 million pounds Chlorovinyls
- ------------------------
(1) Reflects 100 percent of the production at our owned facility in Lake Charles
and our 50 percent share of PHH Monomers' 1,150 million pounds of total VCM
capacity.
Our manufacturing facilities are located near major water and/or rail
transportation terminals, facilitating efficient delivery of raw materials and
prompt shipment of finished products. In addition, we have a fleet of about
3,789 railcars of which about 624 are owned and the remainder leased pursuant to
13
operating leases with varying terms through the year 2014. The total lease
expense for these railcars and other transportation equipment was approximately
$19,130,000 for 2000.
We lease office space for our principal executive offices in Atlanta,
Georgia, and for information services in Baton Rouge, Louisiana. Space is leased
for sales and marketing offices in Houston, Texas, and Lawrenceville, New
Jersey. Space for numerous storage terminals is leased throughout the United
States, and in the Netherlands, Canada and Mexico.
ITEM 3. LEGAL PROCEEDINGS.
Legal Proceedings--Georgia Gulf is a party to numerous individual and
several class-action lawsuits filed against the us, among other parties, arising
out of an incident that occurred in September 1996 in which workers were exposed
to a chemical substance on the our premises in Plaquemine, Louisiana. The
substance was later identified to be a form of mustard agent which 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, past and future
physical and emotional pain and suffering. The lawsuits were originally filed in
Louisiana state court in Iberville Parish.
In September 1998, the state court trial judge granted the plaintiffs'
motion permitting the filing of amended petitions that added the additional
allegations that we had engaged in intentional conduct against the plaintiffs.
Amended petitions making such allegations were filed. Our two insurers notified
us that they were reserving their rights to deny coverage to the extent
liability could be established due to such intentional conduct in accordance
with their insurance policies. We disputed the insurers' reservation of rights.
In December 1998, as required by the terms of the insurance policies, each
insurer demanded arbitration of the issue of the insurers' duties relating to
the intentional conduct allegations.
As a result of the arbitrations relating to the insurance issue, as
permitted by federal statute, the insurers removed the cases to United States
District Court in December 1998. The plaintiffs' motion to remand was denied in
March 1999.
Following removal of these actions and unsuccessful attempts by plaintiffs
to remand the cases, we were able to settle the claims of all but 5 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 of the 5
worker plaintiffs are ongoing.
Following these settlements, Georgia Gulf was sued by approximately 400
additional plaintiff workers (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. After negotiation,
including a mediation, we reached an agreement for the settlement of these
additional claims.
This settlement, which will be on a class basis, will resolve the claims of
all workers who claim to have been exposed and injured as a result of the
incident other than those workers who opt out of the class settlement. We are
aware of 4 worker plaintiffs who have filed suit in state court who will likely
opt not to participate in the class settlement, as well as the 5 worker
plaintiffs whose claims are pending in federal court (see discussion above).
We have also been notified that we may be added as a party to a currently
pending suit in federal court brought by our present and former employees for
injuries allegedly stemming from the incident. We believe that we possess a
number of valid legal defenses to such claims, including worker's compensation
immunity and statutes of limitations defenses.
14
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 on us will not have a material effect on our financial
position or on our results of operations.
On July 31, 2000, Georgia Gulf Lake Charles, LLC, received a Complaint,
Compliance Order and Notice of Opportunity for a Hearing from the United States
Environmental Protection Agency, Region 6 ("EPA"), which arose from an
inspection conducted by the EPA at the Lake Charles facility on December 6-8,
1999. The EPA is seeking to assess a fine of $701,605 and to require certain
corrective actions to be taken as a result of various alleged violations of the
United States Resource Conservation and Recovery Act, including failure to make
adequate hazardous waste determinations, failure to adequately characterize
wastes before disposal, and failure to obtain permits for operations of alleged
hazardous waste facilities. We have filed an Answer and Request for Hearing, and
are participating in ongoing settlement discussions with the EPA. Under the
terms of the asset purchase agreement by which we acquired the Lake Charles VCM
plant from CONDEA Vista, we have notified CONDEA Vista of our claim that these
potential penalties are properly the responsibility of CONDEA Vista, and we have
requested indemnity from CONDEA Vista. We have not received a response to this
request.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Georgia Gulf Corporation's common stock is listed on the New York Stock
Exchange under the symbol "GGC." At March 21, 2001, there were 878 stockholders
of record. The following table sets forth the New York Stock Exchange high, low
and closing stock prices and dividend payments for Georgia Gulf's common stock
for the periods indicated.
IN DOLLARS HIGH LOW CLOSE DIVIDENDS
- ---------- ---- --- ----- ---------
2000
FIRST QUARTER....................................... 29 15/16 19 1/4 26 .08
SECOND QUARTER...................................... 28 21 1/4 22 13/16 .08
THIRD QUARTER....................................... 21 7/8 10 1/2 11 7/16 .08
FOURTH QUARTER...................................... 17 1/16 11 5/8 17 1/16 .08
1999
First quarter....................................... 18 1/4 10 11 3/16 .08
Second quarter...................................... 17 1/16 10 1/2 16 7/8 .08
Third quarter....................................... 19 3/8 11 13/16 17 5/8 .08
Fourth quarter...................................... 31 1/8 16 7/16 30 7/16 .08
We intend, from time to time, to pay cash dividends on our common stock as
our board of directors deems appropriate. Our ability to pay dividends may be
limited by covenants in our senior credit facility (see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources"). Dividends on our common stock are usually
declared quarterly by the board of directors and paid shortly after declaration.
15
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS & EMPLOYEES
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- -------- -------- --------
RESULTS OF OPERATIONS*
Net sales (1)............................................... $1,581,653 $ 908,974 $873,673 $920,894 $879,458
Cost of sales (1)........................................... 1,367,986 765,323 700,728 759,624 716,260
Selling, general and administrative expense................. 45,634 40,845 42,455 45,401 41,305
---------- ---------- -------- -------- --------
Operating income............................................ 168,033 102,806 130,490 115,869 121,893
Gain on sale of assets...................................... -- -- -- 8,600 --
Loss on interest rate hedge agreement....................... -- -- (9,500) -- --
Interest expense............................................ (67,971) (34,978) (30,867) (24,693) (20,833)
Interest income............................................. 230 141 49 60 67
---------- ---------- -------- -------- --------
Income from continuing operations before taxes.............. 100,292 67,969 90,172 99,836 101,127
Provision for income taxes.................................. 36,112 24,808 33,587 37,813 38,423
---------- ---------- -------- -------- --------
Income from continuing operations........................... 64,180 43,161 56,585 62,023 62,704
(Loss) earnings from discontinued operation, net of tax..... -- (2,525) (306) 19,178 8,916
Loss on disposal of discontinued operation, net of tax...... -- (7,631) -- -- --
---------- ---------- -------- -------- --------
Net income.................................................. $ 64,180 $ 33,005 $ 56,279 $ 81,201 $ 71,620
========== ========== ======== ======== ========
Basic earnings per share from continuing operations......... $ 2.04 $ 1.39 $ 1.80 $ 1.84 $ 1.75
Diluted earnings per share from continuing operations....... 2.03 1.38 1.78 1.83 1.73
Dividends per common share.................................. 0.32 0.32 0.32 0.32 0.32
FINANCIAL HIGHLIGHTS
Working capital............................................. $ 100,428 $ 95,624 $ 61,729 $ 54,309 $ 48,470
Property, plant and equipment, net.......................... 626,777 671,550 388,193 396,741 379,111
Total assets................................................ 1,041,087 1,098,008 665,588 601,560 575,800
Total debt.................................................. 632,335 771,194 459,475 393,040 395,600
Cash provided by operating activities....................... 163,086 102,032 123,371 108,971 113,500
Depreciation and amortization............................... 73,331 49,598 44,023 36,318 37,495
Capital expenditures........................................ 21,739 14,427 25,374 56,545 118,706
Maintenance expenditures.................................... 75,169 50,950 49,299 54,638 53,117
OTHER SELECTED DATA
Earnings before interest, taxes, depreciation and
amortization (EBITDA)(2).................................. $ 237,433 $ 151,729 $173,986 $151,739 $158,948
Weighted average common shares.............................. 31,408 30,947 31,474 33,629 35,759
Weighted average common shares and equivalents.............. 31,540 31,107 31,787 33,947 36,248
Common shares outstanding................................... 31,714 31,291 30,884 32,781 34,585
Return on sales............................................. 4.1% 3.6% 6.4% 8.8% 8.1%
Ratio of operating income to interest expense............... 2.5 2.9 3.2 4.7 5.9
Employees................................................... 1,329 1,440 1,050 1,041 1,030
- ------------------------------
* Our results include the impact of acquisitions and discontinued operation as
discussed in Notes 3 and 4 of the Consolidated Financial Statements.
(1) Shipping and handling costs were reclassified by increasing cost of sales
and net sales. Prior years have been reclassified to conform to the current
year presentation.
(2) EBITDA is commonly used by investors to measure a company's ability to
service its indebtedness. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
considered as an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity. For 1998, the loss on interest rate
hedge agreement has been included as interest expense for the computation of
EBITDA and ratio of operating income to interest expense. For 1997, the
pretax gain on the sale of Great River Oil & Gas Corporation has been
excluded from earnings for the computation of EBITDA.
16
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS.
OVERVIEW
Georgia Gulf is a leading manufacturer and marketer of two highly integrated
chemical product lines, chlorovinyls and aromatics. The primary chlorovinyl
products include chlorine, caustic soda, vinyl chloride monomer (VCM), polyvinyl
chloride (PVC) resins and compounds. For the year ended December 31, 2000, we
consumed 97 percent of our chlorine production in making VCM, sold all of the
caustic soda production, consumed 87 percent of our VCM production in
manufacturing PVC and used 20 percent of our PVC resin in the manufacture of PVC
compounds. The remainder of our VCM, PVC resin and all of our PVC compound was
sold to third parties. The primary aromatic products include cumene, phenol and
acetone. For the year ended December 31, 2000, approximately 33 percent of the
cumene was sold to third parties with the balance used internally in the
manufacture of phenol and acetone. All of the phenol and acetone was sold to
third parties.
Our business, and the chemical industry in general, is cyclical in nature
and is affected by domestic and, to a lesser extent, worldwide economic
conditions. The level of domestic chemical sales tends to reflect fluctuations
in downstream markets that are affected by consumer spending for durable goods
and construction. Global capacity also materially affects the prices of chemical
products. Generally, in periods of high operating rates, prices rise, and as a
result new capacity is announced. Since world-scale size plants are generally
the most cost-competitive, new increases in capacity tend to be on a large scale
and are often undertaken by existing industry participants. Usually, as new
capacity is added, prices decline until increases in demand improve operating
rates and the new capacity consumed, or in some instances, until less efficient
producers withdraw from the market. As the additional supply is absorbed,
operating rates rise, prices increase and the cycle repeats. In addition,
profitability and margins are materially affected by the cost of raw materials
and other important supplies. Our primary raw materials include salt, natural
gas, ethylene, chlorine, benzene and propylene.
In 2000, the chlorovinyls business experienced high demand and pricing until
mid-year, at which time reduced demand contributed to lower prices and excess
supply. In PVC, inventory reductions by customers and the addition of a new
world-scale plant starting production caused a supply and demand imbalance. The
VCM business suffered in the second half of 2000 from reduced demand and
increasing raw material costs, primarily ethylene. The reduced demand for
chlorine caused its co-product, caustic soda, to return to a more balanced
position.
The aromatics business benefited during 2000 from increased pricing across
all products. The last industry capacity increase started production in 2000.
Our cumene volumes increased dramatically from 1999 levels although phenol and
acetone volumes decreased. No capacity increases have been announced in this
segment so profitability should increase as demand increases.
ACQUISITION OF THE VINYLS BUSINESS OF CONDEA VISTA COMPANY
On November 12, 1999, we completed the purchase of substantially all of the
assets of the vinyls business of CONDEA Vista Company. Consideration for the
purchase included $260.0 million in cash and a $10.0 million two-year
noninterest-bearing note to the seller. During the second quarter of 2000 we
paid CONDEA Vista Company approximately $16.3 million, representing an
adjustment to the purchase price for actual working capital on the closing date
(See Note 3). The acquisition was accounted for as a purchase, and the purchase
price approximated the fair market value of the assets acquired. The vinyls
business is a producer of VCM, PVC resins and PVC compounds. Assets acquired in
the purchase include: one VCM facility with an annual capacity of 950 million
pounds; 50 percent ownership of PHH Monomers, L.L.C., a joint venture that
operates a VCM facility with capacity to produce 1.15 billion pounds of VCM
annually, which entitles the vinyls business to one-half of the production
capacity, or 575 million pounds; two PVC resin facilities with combined annual
capacity of
17
1.5 billion pounds; and three PVC compound facilities with combined annual
capacity of 265 million pounds.
Additionally, we entered into a long-term supply contract with CONDEA Vista
for the supply of ethylene and assumed a chlorine supply contract with PPG
Industries, Inc., our joint venture partner in PHH Monomers, for the acquired
VCM facilities. We have included the results of operations for the vinyls
business in our consolidated financial statements since the date of acquisition.
NORTH AMERICAN PLASTICS ACQUISITION
On May 11, 1998, we acquired North American Plastics, Inc., a privately held
manufacturer of flexible PVC compounds with two manufacturing locations in
Mississippi having a combined annual production capacity of 190 million pounds.
Total consideration consisted of $99.9 million in cash and the assumption of
$0.5 million in debt. We financed the cash portion of the acquisition through
borrowings under our previous revolving credit facility. The transaction was
accounted for as a purchase, and the consideration exchanged exceeded the fair
market value of the net tangible assets of North American Plastics by
$86.7 million. We allocated this excess to goodwill, which is being amortized on
a straight-line basis over a period of 35 years. We have included the results of
operations for North American Plastics in our consolidated financial statements
since the date of acquisition.
DISCONTINUATION OF METHANOL OPERATION
During 1999, the methanol market suffered from overcapacity and low-cost
imports with significant increases in global supply in areas of the world with
low cost natural gas. As a result, several domestic methanol producers,
including Georgia Gulf, idled their methanol plants. We had ceased operating our
methanol plant in December 1998. During 1999, we met our contractual obligations
to supply methanol to our customers by purchasing imported methanol. Although
the shutdown of several methanol plants resulted in a supply contraction and an
increase in spot prices during the first half of 1999, several new overseas
methanol plants began production late in the year. This additional supply added
further pressure on the sales price of methanol. As a result of these trends, in
September 1999, we announced that we would exit the methanol business entirely
at the end of 1999. As a result, Georgia Gulf incurred a charge against earnings
of $7.6 million, net of tax benefits, during the third quarter of 1999 to write
off certain methanol assets and to accrue losses related to our methanol buy and
resale program through the end of the year.
COGENERATION AND AIR SEPARATION FACILITIES
In 1997, construction was completed on a cogeneration facility and an air
separation plant, both located at our Plaquemine, Louisiana complex. These
facilities have reduced the cost of electricity, nitrogen and oxygen that we use
in the production of our products and that we previously purchased from third
parties. Prior to November 12, 1999, we operated the cogeneration facility under
an operating lease arrangement. On that date, we terminated the lease by
exercising our option to purchase the cogeneration facility for approximately
$103.3 million.
18
RESULTS OF OPERATIONS--GEORGIA GULF
The following table sets forth our statement of operations data for the
three years ended December 31, 2000, 1999 and 1998 and the percentage of gross
sales of each line item for the periods presented.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
DOLLARS IN MILLIONS 2000 1999 1998
- ------------------- ------------------- ------------------- -------------------
Net sales(1).............................................. $1,581.6 100.0% $908.9 100.0% $873.7 100.0%
Cost of sales(1).......................................... 1,368.0 86.5% 765.3 84.2% 700.7 80.2%
Selling, general and administrative expenses.............. 45.6 2.9% 40.8 4.5% 42.5 4.9%
-------- ----- ------ ----- ------ -----
Operating income.......................................... 168.0 10.6% 102.8 11.3% 130.5 14.9%
Loss on interest rate hedge agreement..................... -- 0.0% -- 0.0% 9.5 1.1%
Net interest expense...................................... 67.7 4.3% 34.8 3.8% 30.8 3.5%
Provision for income taxes................................ 36.1 2.3% 24.8 2.7% 33.6 3.9%
-------- ----- ------ ----- ------ -----
Income from continuing operations......................... 64.2 4.1% 43.2 4.7% 56.6 6.5%
Earnings (loss) from discontinued operation, net.......... -- 0.0% (2.5) 0.3% (0.3) 0.0%
Loss on disposal of Methanol business, including provision
for net operating losses during the phase-out period,
net -- 0.0% (7.6) 0.8% -- 0.0%
-------- ----- ------ ----- ------ -----
Net income................................................ $ 64.2 4.1% $ 33.0 3.6% $ 56.3 6.4%
======== ===== ====== ===== ====== =====
- ------------------------------
(1) Shipping and handling costs were reclassified by increasing cost of sales
and net sales. Prior years have been reclassified to conform to the current
year presentation.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
SALES--For the year ended December 31, 2000, Georgia Gulf reported sales of
$1,581.6 million compared with $908.9 million for 1999. This increase resulted
from the inclusion of a full year's sales from the vinyls business acquired from
CONDEA Vista in late 1999 as well as a 29 percent increase in average selling
price over 1999 prices.
Sales of chlorovinyls totaled $1,244.7 million for the year ended
December 31, 2000 compared with $672.9 million in the prior year. While a
24 percent average price increase contributed to the increase in sales so did a
49% increase in volume. A majority of the volume increase resulted from the
vinyls business acquired from CONDEA Vista in late 1999.
Sales of aromatics increased to $336.9 million for the year ended
December 31, 2000 compared with $236.1 million in 1999. Average prices increased
by 32 percent during 2000 while volumes increased 8 percent when compared with
1999. Phenol sales volumes declined 10 percent from 1999 volumes while overall
cumene sales volumes increased by 81 percent.
COST OF SALES--Cost of sales equaled $1,368.0 million for the year ended
December 31, 2000 compared with $765.3 million in 1999. The increase resulted
from higher raw material prices for both aromatics and chlorovinyls during 2000
as well as the additional costs resulting from operating the plants acquired
from CONDEA Vista for a full year. Cost of sales increased to 86.5 percent of
sales in 2000 when compared with 84.2 percent in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES--Selling, general and
administrative expenses totaled $45.6 million for the year ended December 31,
2000, an increase of 12 percent from $40.8 million in 1999. Approximately half
of the increase resulted from increased management incentive expense.
OPERATING INCOME--Operating income totaled $168.0 million for the year ended
December 31, 2000, an increase of 63 percent from $102.8 million in 1999. This
increase resulted from improvements in the chlorovinyls operating income offset
by a loss in aromatics. Chlorovinyls operating income for 2000 totaled
$192.3 million, an increase of 95 percent from 1999. The increase resulted from
higher
19
sales prices and increased volumes. Aromatics reported an operating loss of
$9.7 million for 2000 compared with operating income of $15.2 million in 1999.
Increased volumes for cumene and increased sales pricing for the entire segment
did not offset declining phenol and acetone volumes, and increased raw material
cost.
NET INTEREST EXPENSE--Net interest expense increased to $67.7 million for
the year ended December 31, 2000 from $34.8 million in 1999. The increase is
attributable to the increased borrowings used for the purchase of the
co-generation plant and the vinyls business from CONDEA Vista.
PROVISION FOR INCOME TAXES--The provision for income taxes was
$36.1 million for the year ended December 31, 2000 compared with $24.8 million
in 1999. The 46 percent increase corresponds to the increase in pretax income
for the period. The effective tax rate declined slightly in 2000 compared with
1999.
INCOME FROM CONTINUING OPERATIONS--Income from continuing operations for the
year ended December 31, 2000 was $64.2 million, an increase of 49% from the
$43.2 million recorded for 1999. Income from continuing operations increased as
a result of both greater sales volumes and higher sales prices which more than
offset increased raw material costs and interest expense. The inclusion of the
vinyls business acquired from CONDEA Vista for a full year contributed to the
improvement.
LOSS FROM DISCONTINUED OPERATIONS--The discontinued methanol operation
contributed a $2.5 million loss in 1999. In addition, during 1999, a one-time
charge of $7.6 million was recognized net of taxes in connection with the
write-off of certain methanol assets and estimated future losses on servicing
the remaining methanol contracts through 1999.
NET INCOME--Net income totaled $64.2 million for the year ended
December 31, 2000, a 95 percent increase over 1999. The discussion above
enumerates the reasons for the increase.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
SALES--For the year ended December 31, 1999, Georgia Gulf reported sales of
$908.9 million, an increase of 4 percent compared to $873.7 million for the same
period in 1998. This increase was due to a 9 percent increase in the overall
average selling price, offset in part by a 4 percent decrease in overall sales
volumes.
Sales for chlorovinyls were $672.9 million for the year ended December 31,
1999, an increase of 22 percent from $549.5 million for the same period of 1998.
The average selling price in 1999 for chlorovinyl products increased 21 percent
over 1998. Strong demand for vinyl products, particularly VCM and PVC resins,
resulted in higher average selling prices, which were partially offset by a
43 percent decrease in the price of caustic soda. Chlorovinyl sales volumes
remained essentially the same for 1999 and 1998. Higher sales volumes for PVC
resins and PVC compounds were offset by a decrease in caustic soda and chlorine
sales volumes. Sales volumes for 1999 included a full year of sales for North
American Plastics, acquired in May 1998, and the inclusion of the vinyls
business of CONDEA Vista Company acquired in November 1999. The chlorovinyls
segment also benefited from increased electricity sales during certain peak
demand periods in 1999.
Sales for aromatics for the year ended December 31, 1999 were
$236.1 million, a decrease of 27 percent from $324.2 million for the same period
last year. This decrease was primarily attributable to a decrease of 18 percent
in the average selling price for aromatic products and a 13 percent decrease in
sales volumes. Cumene sales volumes for 1999 were 48 percent lower than 1998.
New capacity additions, which created an oversupply of phenol, caused the
average selling price of phenol to decline 31 percent from the prior year.
COST OF SALES--Cost of sales for the year ended December 31, 1999 was
$765.3 million, an increase of 9 percent compared to $700.7 million in 1998.
This increase was due to increases in prices for all
20
major raw materials. As a percentage of net sales, cost of sales increased to
84.2 percent in 1999 compared to 80.2 percent in 1998. This increase in cost of
sales as a percentage of net sales was due to higher raw material costs along
with reduced operating rates.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES--Selling, general and
administrative expenses were $40.8 million for the year ended December 31, 1999,
a decrease of 4 percent from $42.5 million in the same period of 1998. This
decrease was due primarily to lower legal and environmental expenses.
OPERATING INCOME--Operating income for the year ended December 31, 1999 was
$102.8 million, a decrease of 21 percent compared to $130.5 million for the same
period last year. This decrease was primarily the result of lower operating
income in aromatics, offset in part by higher operating income for chlorovinyls.
Chlorovinyls operating income for 1999 was $98.8 million, an increase of
34 percent compared to $73.7 million for the same period in 1998. This increase
was attributable to average selling price increases outpacing raw material price
increases, the sale of electricity during peak demand periods, the inclusion of
North American Plastics for the full year and the inclusion of the vinyls
business purchased in November 1999. Aromatics operating income for the year
ended December 31, 1999 was $15.2 million, a decrease of 79 percent compared to
$71.4 million for 1998. This decrease in operating income was due to reduced
operating rates, lower cumene sales volumes, increased raw material cost and a
decrease in the average selling price for phenol. As a percentage of sales,
operating income decreased to 11.3 percent of sales in 1999 compared to
14.9 percent in 1998. This decrease in operating income as a percentage of sales
was primarily the result of higher raw material costs across all product lines
and reduced pricing in aromatics, which together outpaced average selling price
increases in chlorovinyls, resulting in reduced overall margins.
OTHER EXPENSE--During 1998, we incurred other expenses of $9.5 million,
$6.0 million net of taxes, related to the termination of an interest rate hedge
agreement.
NET INTEREST EXPENSE--Net interest expense increased to $34.9 million for
the year ended December 31, 1999 compared with $30.8 million for the same period
in 1998. This increase was largely attributable to the increased debt issued in
November 1999 to fund the acquisition of the vinyls business and purchase the
assets related to the cogeneration operating lease.
PROVISION FOR INCOME TAXES--Provision for income taxes was $24.8 million for
the year ended 1999, a decrease of 26 percent compared to $33.6 million for the
same period in 1998. This decrease was due to lower taxable income. Our
effective tax rate for 1999 was 36.5 percent compared to 37.2 percent for 1998.
INCOME FROM CONTINUING OPERATIONS--Income from continuing operations for
1999 was $43.1 million, a decrease of 24 percent compared to $56.6 million for
the same period in 1998. This decrease was due to the factors discussed above.
LOSS FROM DISCONTINUED OPERATION--The discontinued methanol operation
incurred a net loss of $2.5 million for 1999 as compared to a loss of
$0.3 million for the same period in 1998. Additionally, during 1999, Georgia
Gulf recognized a one-time charge of $7.6 million, net of taxes, in connection
with the write-off of certain methanol assets and future losses on servicing the
remaining methanol contracts through the end of 1999.
NET INCOME--Net income for the year ended 1999 was $33.0 million, a decrease
of 41 percent compared to $56.3 million for the same period in 1998. This
decrease was primarily due to the factors discussed above.
21
LIQUIDITY AND CAPITAL RESOURCES
The primary focus for 2000 was to apply cash flow towards reducing the debt
incurred in acquiring the vinyls business from CONDEA Vista Company and the
purchase of the cogeneration plant. Both transactions occurred during 1999.
During 2000, long-term debt was reduced by $138.9 million, of which
$25.0 million resulted from an increase in the asset securitization program.
On November 12, 1999 we entered into a new loan agreement and issued
$200 million eight-year unsecured 10 3/8 percent notes. The net proceeds from
these transactions were used to fund the acquisition of the vinyls business of
CONDEA Vista Company, replace the prior unsecured revolving credit facility and
term loan, purchase assets leased pursuant to the cogeneration facility lease
and to pay related fees and expenses.
For the year ended December 31, 2000, we generated $163.1 million of cash
flow from operating activities as compared with $102.0 million during the year
ended December 31, 1999. Major sources of cash flow from operating activities in
2000 included net income of $64.2 million, non-cash provisions for depreciation
and amortization of $73.3 million and $23.5 million for deferred income taxes.
Both the increase in depreciation and amortization and deferred income taxes
resulted from including the acquired vinyls business in the full year's results.
Total working capital increased $4.8 million to $100.4 million for the year
ended December 31, 2000 compared with $95.6 million at the end of 1999.
Financing activities consumed $143.7 million of cash during 2000 primarily
by reducing long-term debt $138.9 million and making dividend payments of
$10.0 million. This was offset by cash proceeds from stock issued under stock
option and employee stock purchase plans totaling $5.3 million.
At December 31, 2000, our debt portfolio consists of a $297.8 million senior
credit facility, $100.0 million principal amount of 7 5/8 percent notes,
$200.0 million principal amount of 10 3/8 percent notes, and $34.5 million in
other debt agreements. In addition, we have a $100.0 million revolving credit
agreement, which had no borrowings against it at the end of 2000. Debt under the
senior credit facility and the 7 5/8 percent notes are secured by substantially
all of our assets, including real and personal property, inventory, accounts
receivable and other intangibles.
We declared dividends of $0.32 per share, or $10.0 million during 2000. We
anticipate continuing to pay dividends to our stockholders of approximately
$10.1 million annually. As of December 31, 2000, we had authorization to
repurchase up to 5.2 million shares under a common stock repurchase program. We
repurchased less than 0.1 million shares during 2000 and have suspended the
stock repurchase program.
We used $21.7 million in cash for investing activities, primarily capital
expenditures, for the year ended December 31,2000. For the year ended
December 31, 1999, we used $380.7 million of cash for investing activities
primarily in three areas, $14. 4 million on capital expenditures,
$103.3 million to purchase the cogeneration plant we previously leased and
$263.0 million for the vinyls business of CONDEA Vista Company. In 1998, our
investing activities consumed $125.3 million divided between capital
expenditures of $25.4 million and the acquisition of North American Plastics for
$99.9 million. Capital expenditures for 2001 will be directed toward the
maintenance of our facilities, increasing the efficiency of existing operations
and certain environmental projects. We estimate total capital expenditures for
2001 will approximate $30.0 million.
We lease railcars, storage terminals, computer equipment, automobiles and
warehouse and office space under noncancelable operating leases with varying
maturities through the year 2014. Future minimum payments under these
noncancelable operating leases as of December 31, 2000 were $18.3 million in
2001, $14.9 million in 2002, $11.4 million in 2003, $7.8 million in 2004,
$6.0 million in 2005 and $28.0 million thereafter.
22
We have take-or-pay agreements for the purchase of ethylene, with various
terms extending through 2014. The aggregate amount of the fixed and determinable
portion of the required payments under these agreements as of December 31, 2000
was $7.1 million for each of the years 2001 through 2007 and $4.6 million for
2008. Additionally, in connection with the acquisition of the vinyls business of
CONDEA Vista, we have agreed to purchase 600 million pounds of ethylene on a
take-or-pay basis at market prices from CONDEA Vista annually through 2002,
followed by an optional reduction in the required purchases of 100 million
pounds per year for the final four years of the agreement.
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. There
can be no assurance, however, that our business will generate sufficient cash
flow from operations or that future borrowings will be available under the
revolving credit facility in an amount sufficient to enable us to service our
debt or to fund our other liquidity needs. Further, any future acquisitions,
joint ventures, arrangements or similar transactions will likely require
additional capital, and there can be no assurance that this capital will be
available to us.
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.
INFLATION
The most significant component of our cost of sales is raw materials, which
include basic commodity items. The cost of raw materials is based primarily on
market forces and has not been significantly affected by inflation. Inflation
has not had a material impact on our sales or income from operations.
NEW ACCOUNTING PRONOUNCEMENTS
During June 1998, the Financial Accounting Standards Board ("FASB") issued
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 formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. As amended, we
adopted SFAS 133 on January 1, 2001. We have evaluated this statement's effect
on our derivative instruments, which are interest rate swaps designated as cash
flow hedges against long-term obligations. We expect to report adjustments to
fair value as other comprehensive income with no material impact to net income
because of the effectiveness of the swaps.
FORWARD-LOOKING STATEMENTS
This Annual Report and other communications to stockholders, as well as oral
statements made by our representatives, 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,
23
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 include, 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 the Annual Report on Form 10-K and in
our other periodic filings with the Securities and Exchange Commission.
ENVIRONMENTAL
Our operations are subject to increasingly stringent federal, state and
local laws and regulations relating to environmental quality. These regulations,
which are enforced principally by the United States Environmental Protection
Agency and comparable state agencies, govern the management of solid hazardous
waste, emissions into the air and discharges into surface and underground
waters, and the manufacture of chemical substances.
We believe that we are in material compliance with all the current
environmental laws and regulations. We estimate that any expenses incurred in
maintaining compliance with these requirements will not materially affect
earnings or cause us to exceed our level of anticipated capital expenditures.
However, there can be no assurance that regulatory requirements will not change,
and therefore, it is not possible to accurately predict the aggregate cost of
compliance resulting from any such changes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURES ABOUT MARKET RISK--We are subject to certain market risks
related to long-term financing and related derivative financial instruments,
foreign currency exchange rates and commodity prices. We have policies and
procedures to mitigate the potential loss arising from adverse changes in these
risk factors.
INTEREST RATE SENSITIVITY--The following table is a "forward-looking"
statement that provides information about our derivative financial instruments
and other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and financing obligations. Our policy is to manage
interest rates through use of a combination of fixed and floating rate debt. We
do not use interest rate swap agreements or any other derivatives for trading
purposes. For financing obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates. For interest
rate swaps, the table presents notional amounts and weighted average interest
rates by expected contractual maturity dates. Notional amounts are used to
calculate the contractual
24
payments to be exchanged under the contracts. The information and cash flows are
presented in U.S. dollars, which is our reporting currency.
PRINCIPAL (NOTIONAL) AMOUNTS BY MATURITY DATE FAIR
----------------------------------------------------------------- VALUE AT
DOLLARS IN THOUSANDS 2001 2002 2003 2004 2005 THEREAFTER TOTAL 12/31/00
- -------------------- -------- -------- -------- -------- -------- ---------- -------- --------
Long-term financing
Long-term debt:
Fixed rate principal................... $ -- $ 8,514 $ -- $ -- $100,000 $208,994 $317,508 $297,065
Average interest rate................ -- 10.88% -- -- 7.63% 10.21% 9.41% --
Variable rate principal.............. 9,794 22,030 24,535 27,040 27,040 204,389 314,828 $314,828
Average interest rate................ 8.33% 8.15% 8.44% 8.65% 8.84% 8.61% 8.58% --
Interest rate derivatives
Interest rate swaps:
Variable to fixed notional amount.... $ -- $100,000 $ -- $ -- $ -- $ -- $100,000 ($ 1,062)
Average pay rate..................... -- 6.273% -- -- -- -- 6.273% --
Average receive rate................. -- 6.625% -- -- -- -- 6.625% --
FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY--Substantially all of our sales
are denominated in U.S. dollars. The foreign currency exchange rate risk relates
to annual sales of less than $15.4 million.
COMMODITY PRICE SENSITIVITY--The availability and price of our raw materials
are subject to fluctuations due to unpredictable factors in global supply and
demand. To reduce price risk caused by market fluctuations, from time to time,
we execute raw material purchase contracts, which are generally less than one
year in duration. As of December 31, 2000, there were no forward raw material
purchase contracts open.
25
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Georgia Gulf Corporation:
We have audited the accompanying consolidated balance sheets of Georgia Gulf
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000
and 1999 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Georgia Gulf Corporation and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Atlanta, Georgia
February 16, 2001
26
REPORT OF MANAGEMENT
To the Stockholders of Georgia Gulf Corporation:
The accompanying consolidated financial statements of Georgia Gulf
Corporation and subsidiaries are the responsibility of and have been prepared by
the Company in conformity with generally accepted accounting principles. The
financial information displayed in other sections of this 2000 Annual Report is
consistent with the consolidated financial statements.
The integrity and the objectivity of the data in these consolidated
financial statements, including estimates and judgments relating to matters not
concluded by year-end, are the responsibility of management. We maintain
accounting systems and related internal controls to provide reasonable assurance
that financial records are reliable for preparing the consolidated financial
statements and for maintaining accountability for assets. The system of internal
controls also provides reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition and that transactions are executed in
accordance with management's authorization. Periodic reviews of the systems and
of internal controls are performed by our internal audit department.
The Audit Committee of the Board of Directors, composed solely of directors
who are not officers or employees of Georgia Gulf, has the responsibility of
meeting periodically with management, our internal auditors and Arthur Andersen
LLP, our independent public accountants that are approved by the stockholders,
to review the scope and results of the annual audit and the general overall
effectiveness of the internal accounting control system. The independent public
accountants and our internal auditors have direct access to the Audit Committee,
with or without the presence of management, to discuss the scope and results of
their audits, as well as any comments they may have related to the adequacy of
the internal accounting control system and the quality of financial reporting.
Richard B. Marchese
Vice President Finance, Chief Financial Officer and Treasurer
27
CONSOLIDATED BALANCE SHEETS
GEORGIA GULF CORPORATION
YEAR ENDED DECEMBER 31,
-------------------------
IN THOUSANDS, EXCEPT SHARE DATA 2000 1999
- ------------------------------- ----------- -----------
Assets
Cash and cash equivalents................................... $ 2,042 $ 4,424
Receivables, net of allowance for doubtful accounts of
$2,372 in 2000 and $2,400 in 1999......................... 145,789 164,376
Inventories................................................. 123,156 112,844
Prepaid expenses............................................ 7,607 5,440
Deferred income taxes....................................... 5,243 6,172
---------- ----------
Total current assets.................................. 283,837 293,256
---------- ----------
Property, plant and equipment, at cost...................... 1,004,861 985,825
Less accumulated depreciation............................. 378,084 314,275
---------- ----------
Property, plant and equipment, net........................ 626,777 671,550
---------- ----------
Goodwill.................................................... 80,198 82,676
---------- ----------
Other assets................................................ 50,275 50,083
---------- ----------
Net assets of discontinued operation........................ -- 443
---------- ----------
Total assets.......................................... $1,041,087 1,098,008
---------- ----------
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 9,794 22,000
Accounts payable............................................ 147,949 143,898
Interest payable............................................ 5,388 5,926
Accrued income taxes........................................ -- 494
Accrued compensation........................................ 10,380 7,682
Other accrued liabilities................................... 9,898 17,632
---------- ----------
Total current liabilities............................. 183,409 197,632
---------- ----------
Long-term debt 622,541 749,194
---------- ----------
Deferred income taxes....................................... 116,545 93,949
---------- ----------
Stockholders' equity
Preferred stock--$0.01 par value; 75,000,000 shares
authorized; no shares issued............................ -- --
Common stock--$0.01 par value; 75,000,000 shares
authorized; shares issued and outstanding: 31,714,280 in
2000 and 31,290,862 in 1999............................. 317 313
Additional paid-in capital................................ 12,478 5,250
Retained earnings......................................... 105,797 51,670
---------- ----------
Total stockholders' equity............................ 118,592 57,233
---------- ----------
Total liabilities and stockholders' equity............ $1,041,087 $1,098,008
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
28
CONSOLIDATED STATEMENTS OF INCOME
GEORGIA GULF CORPORATION
YEAR ENDED DECEMBER 31,
------------------------------------
IN THOUSANDS, EXCEPT SHARE DATA 2000 1999 1998
- ------------------------------- ---------- ---------- ----------
Net Sales................................................ $1,581,653 $ 908,974 $ 873,673
Operating costs and expenses
Cost of sales........................................ 1,367,986 765,323 700,728
Selling, general and administrative expenses......... 45,634 40,845 42,455
---------- ---------- ----------
Total operating costs and expenses............... 1,413,620 806,168 743,183
---------- ---------- ----------
Operating income......................................... 168,033 102,806 130,490
Other income (expense)
Loss on interest rate hedge agreement................ -- -- (9,500)
Interest expense..................................... (67,971) (34,978) (30,867)
Interest income...................................... 230 141 49
---------- ---------- ----------
Income from continuing operations before income taxes.... 100,292 67,969 90,172
Provision for income taxes............................... 36,112 24,808 33,587
---------- ---------- ----------
Income from continuing operations........................ 64,180 43,161 56,585
Discontinued operation
(Loss)/earnings from discontinued operation, net..... -- (2,525) (306)
Loss on disposal of discontinued operation, net...... -- (7,631) --
---------- ---------- ----------
Net income............................................... $ 64,180 $ 33,005 $ 56,279
========== ========== ==========
Earnings/(loss) per share
Basic
Continuing operations............................ $ 2.04 $ 1.39 $ 1.80
Discontinued operation........................... -- (0.32) (0.01)
---------- ---------- ----------
$ 2.04 $ 1.07 $ 1.79
========== ========== ==========
Diluted
Continuing operations............................ $ 2.03 $ 1.38 $ 1.78
Discontinued operation........................... -- (0.32) (0.01)
---------- ---------- ----------
$ 2.03 $ 1.06 $ 1.77
========== ========== ==========
Weighted average common shares--basic.................... 31,408,042 30,946,784 31,474,072
Weighted average common shares--diluted.................. 31,539,854 31,106,680 31,786,536
The accompanying notes are an integral part of these consolidated financial
statements.
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
GEORGIA GULF CORPORATION
YEAR ENDED DECEMBER 31,
---------------------------------
IN THOUSANDS 2000 1999 1998
- ------------ --------- --------- ---------
Cash flows from operating activities:
Net income................................................ $ 64,180 $ 33,005 $ 56,279
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 73,331 49,598 44,023
Provision for deferred income taxes................... 23,525 4,604 28,237
Tax benefit related to stock plans.................... 2,048 840 1,406
Loss on disposal of discontinued operation, net....... -- 7,631 --
Loss (earnings) from discontinued operation, net...... -- 2,525 306
Change in operating assets and liabilities, net of
effects of acquisitions:
Receivables....................................... 18,587 165 2,575
Inventories....................................... (10,312) (5,322) 23,347
Prepaid expenses.................................. (2,167) (2,199) 4,361
Accounts payable.................................. 4,051 5,230 (27,764)
Interest payable.................................. (538) 3,654 54
Accrued income taxes.............................. (494) 494 --
Accrued compensation.............................. 2,698 (548) (2,664)
Accrued pension................................... -- (378) (1,879)
Accrued liabilities............................... (7,734) 4,799 (1,995)
Other............................................. (4,532) (4,786) (3,397)
--------- --------- ---------
Net cash provided by continuing operations.................. 162,643 99,312 122,889
Net cash provided by discontinued operation................. 443 2,720 482
--------- --------- ---------
Net cash provided by operating activities................... 163,086 102,032 123,371
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures.............................. (21,739) (14,427) (25,374)
Buyout of cogeneration operating lease............ -- (103,303) --
Acquisitions, net of cash acquired................ -- (263,000) (99,902)
--------- --------- ---------
Net cash used in investing activities....................... (21,739) (380,730) (125,276)
--------- --------- ---------
Cash flows from financing activities:
Long-term debt proceeds........................... 53,814 736,921 207,485
Long-term debt payments........................... (192,674) (449,550) (141,550)
Proceeds from issuance of common stock............ 5,305 4,414 4,497
Repurchase and retirement of common stock......... (121) -- (58,880)
Dividends......................................... (10,053) (9,907) (10,024)
--------- --------- ---------
Net cash provided by (used in) financing activities......... (143,729) 281,878 1,528
--------- --------- ---------
Net change in cash and cash equivalents..................... (2,382) 3,180 (377)
Cash and cash equivalents at beginning of year.............. 4,424 1,244 1,621
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 2,042 $ 4,424 $ 1,244
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GEORGIA GULF CORPORATION
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED STOCKHOLDERS'
IN THOUSANDS, EXCEPT SHARE DATA SHARES AMOUNT CAPITAL EARNINGS EQUITY
- ------------------------------- ---------- -------- ---------- -------- -------------
Balance, December 31, 1997 32,781,439 $328 $ -- $ 35,275 $ 35,603
Net income..................................... -- -- -- 56,279 56,279
Dividends paid................................. -- -- -- (10,024) (10,024)
Tax benefit realized from stock option plans... -- -- 1,406 -- 1,406
Common stock issued upon exercise of stock
options...................................... 169,830 2 1,440 -- 1,442
Common stock issued under stock purchase
plan......................................... 228,585 2 3,053 -- 3,055
Repurchase and retirement of common stock...... (2,296,100) (23) (5,899) (52,958) (58,880)
---------- ---- ------- -------- --------
Balance, December 31, 1998 30,883,754 $309 $ -- $ 28,572 $ 28,881
---------- ---- ------- -------- --------
Net income..................................... -- -- -- 33,005 33,005
Dividends paid................................. -- -- -- (9,907) (9,907)
Tax benefit realized from stock option plans... -- -- 840 -- 840
Common stock issued upon exercise of stock
options...................................... 188,655 2 1,494 -- 1,496
Common stock issued under stock purchase
plan......................................... 218,453 2 2,916 -- 2,918
---------- ---- ------- -------- --------
Balance, December 31, 1999 31,290,862 $313 $ 5,250 $ 51,670 $ 57,233
---------- ---- ------- -------- --------
NET INCOME..................................... -- -- -- 64,180 64,180
DIVIDENDS PAID................................. -- -- -- (10,053) (10,053)
TAX BENEFIT REALIZED FROM STOCK OPTION PLANS... -- -- 1,039 -- 1,039
TAX BENEFIT REALIZED FROM STOCK PURCHASE
PLAN......................................... -- -- 1,009 -- 1,009
COMMON STOCK ISSUED UPON EXERCISE OF STOCK
OPTIONS...................................... 195,865 2 1,785 -- 1,787
COMMON STOCK ISSUED UNDER STOCK PURCHASE
PLAN......................................... 236,953 2 3,516 -- 3,518
REPURCHASE AND RETIREMENT OF COMMON STOCK...... (9,400) -- (121) -- (121)
---------- ---- ------- -------- --------
BALANCE, DECEMBER 31, 2000..................... 31,714,280 $317 $12,478 $105,797 $118,592
========== ==== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GEORGIA GULF CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of Georgia Gulf Corporation and its subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.
NATURE OF OPERATIONS--We are a manufacturer and international marketer of
chemical products. Our products are primarily intermediate chemicals sold for
further processing into a wide variety of end-use applications, including
plastic pipe and pipe fittings, siding and window frames, bonding agents for
wood products, high-quality plastics, acrylic sheeting and coatings for wire and
cable.
USE OF ESTIMATES--Management is required to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying notes
prepared in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Marketable securities that are highly liquid with
an original maturity of three months or less are considered to be the equivalent
of cash for purposes of financial statement presentation.
INVENTORIES--Inventories are valued at the lower of cost (first-in,
first-out) or market. Costs include raw materials, direct labor and
manufacturing overhead. Market is based on current replacement cost for raw
materials and supplies and on net realizable value for finished goods.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Maintenance and repairs are charged to expense as incurred, and major
renewals and improvements are capitalized. Interest expense attributable to
funds used in financing the construction of major plant and equipment is
capitalized. Interest expense capitalized during 2000, 1999 and 1998 was
$1,171,000, $948,000 and $667,000, respectively. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets for book
purposes, with accelerated methods being used for income tax purposes.
Depreciation expense totaled approximately $66,500,000, $47,300,000 and
$43,400,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The estimated useful lives of the assets are as follows:
Buildings and land improvements............................. 20-30 years
Machinery and equipment..................................... 3-15 years
GOODWILL--Goodwill of $86,725,000 was capitalized in connection with the
acquisition of North American Plastics, Inc. in 1998 (see Note 3). The goodwill
is being amortized over a 35-year period. Goodwill amortized to cost of sales
during 2000, 1999 and 1998 was $2,478,000, $2,478,000 and $1,571,000,
respectively. Accumulated amortization of goodwill totaled approximately
$6,527,000 and $4,049,000 for the years ended December 31, 2000 and 1999,
respectively.
OTHER ASSETS--Other assets primarily consist of deposits for long-term raw
material purchase contracts and debt issuance costs (see Note 8). Deposits are
being amortized as additional raw material cost over the remaining 15-year life
of the related contracts in proportion to raw material delivery. Debt issuance
costs are being amortized to interest expense using the effective interest rate
method over the term of the related indebtedness.
LONG-LIVED ASSETS--We evaluate long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is probable
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that undiscounted future cash flows will not be sufficient to recover an asset's
carrying amount, the asset will be written down to its fair value.
FINANCIAL INSTRUMENTS--We do not use derivatives for trading purposes.
Interest rate swap and cap agreements, forms of derivatives, are used to manage
interest costs on certain portions of our long-term debt (see Note 16). These
financial statements do not reflect temporary market gains and losses on
derivative financial instruments, although the estimated fair value is disclosed
in Note 16. If subsequent to being hedged underlying transactions are no longer
likely to occur, the related derivative gains and losses are recognized
currently as income or expense. Amounts paid or received on the interest rate
swap agreements are recorded to interest expense as incurred. As of
December 31, 2000 and 1999, interest rate swap agreements were the only form of
derivative financial instrument outstanding.
REVENUE RECOGNITION--Revenue is recognized when an agreement exists, product
is shipped, prices are determinable and collectibility is reasonably assured.
ENVIRONMENTAL EXPENDITURES--Environmental expenditures related to current
operations or future revenues are expensed or capitalized consistent with our
capitalization policy. Expenditures that relate to an existing condition caused
by past operations and that do not contribute to future revenues are expensed.
Liabilities are recognized when environmental assessments or cleanups are
probable and the costs can be reasonably estimated.
EARNINGS PER SHARE--Basic earnings per share are computed based on the
weighted average number of common shares outstanding during the respective
periods. Diluted earnings per share are computed based on the weighted average
number of common shares outstanding, adjusted for dilutive potential issuances
of common stock. A reconciliation of the number of shares used for computing
basic and diluted earnings per share is presented in Note 17.
STOCK-BASED COMPENSATION--Stock-based compensation is recognized using the
intrinsic value method. Pro forma net income and earnings per share impacts are
presented in Note 11 as if the fair value method had been applied.
COMPREHENSIVE INCOME--Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," requires additional disclosure and
presentation of amounts comprising comprehensive income beyond net income. There
are no differences between comprehensive income and net income for the periods
presented. As a result, comprehensive income amounts are not presented
separately in the accompanying financial statements.
2. NEW ACCOUNTING PRONOUNCEMENTS
During June 1998, the Financial Accounting Standards Board ("FASB") issued
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 formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. We adopted
SFAS 133, as amended, on January 1,2001. The adoption of SFAS 133 impacts the
accounting for our interest rate swap agreements, which is discussed further in
Note 16.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
2. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
During 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements"
which clarifies the basic criteria for recognizing revenue. We adopted this
bulletin during the fourth quarter of 2000. The adoption of this bulletin did
not have a material impact on our financial statements.
During 2000, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." The
consensus requires that all amounts billed to a customer in a sale transaction
related to shipping and handling be classified as revenue. We adopted this
accounting during the fourth quarter of 2000 and reclassified prior years to
conform to the current year presentation. As a result, sales and cost of goods
sold increased by $62.5 million in 2000, $51.2 million in 1999 and
$48.4 million in 1998.
3. ACQUISITIONS
The vinyls business of CONDEA Vista Company--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 preliminary purchase price, including related fees and
expenses, consisted of $263,000,000 of cash and the issuance of a $10,000,000
two-year, noninterest-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.
During the second quarter of 2000, we paid CONDEA Vista Company approximately
$16,286,000, representing an adjustment to the purchase price for actual working
capital on the closing date. The final purchase price approximated the fair
market value of the net assets acquired.
The following unaudited pro forma combined information presents the combined
results of operations as if the acquisition had occurred at the beginning of
fiscal 1999 and 1998. The unaudited pro forma combined information is based upon
the historical consolidated financial statements of Georgia Gulf and the vinyls
business. Pro forma results include interest expense on debt incurred to finance
the acquisition.
YEAR ENDED
DECEMBER 31,
-----------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1999 1998
- ----------------------------------- ---------- ----------
Statement of income data:
Net sales.......................................... $1,224,167 $1,166,960
Income from continuing operations.................. 31,376 10,569
Earnings per share from continuing operations:
Basic............................................ 1.01 0.34
Diluted.......................................... 1.01 0.33
In our opinion, the unaudited pro forma combined results of operations are
not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of fiscal 1999 or at the beginning
of fiscal 1998 or of future operations of the combined companies under our
ownership and management.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
3. ACQUISITIONS (CONTINUED)
NORTH AMERICAN PLASTICS--On May 11, 1998, we acquired all the issued and
outstanding common stock of North American Plastics, Inc., a privately held
manufacturer of flexible vinyl compounds with a production capacity of
190,000,000 pounds. North American Plastics has two manufacturing locations in
Mississippi. The vinyl compounds produced by North American Plastics are used in
wire and cable for construction, automobiles and appliances as well as various
other consumer and industrial products.
We acquired the stock of North American Plastics in exchange for net cash
consideration of $99,902,000 plus our assumption of $500,000 in debt. The cash
portion of the acquisition was financed with proceeds from our previous
revolving credit facility. The transaction was accounted for as a purchase, and
the consideration exchanged exceeded the fair market value of the net tangible
assets of North American Plastics by $86,725,000. This excess was allocated to
goodwill and is being amortized on a straight-line basis over a period of
35 years. The results of operations of the acquired business have been included
in our consolidated financial statements from the date of acquisition.
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 methanol plant remains idle and we intend to dismantle the facility
at some time in the future. All methanol sales contracts have been assigned, and
our methanol customer list has been sold. Proceeds from sales of the methanol
railcars, customer list and other discontinued plant assets approximated
$2,900,000. The disposition of the methanol operations represents the disposal
of a business segment under Accounting Principles Board ("APB") Opinion No. 30.
Accordingly, results of this operation have been classified as discontinued, and
prior periods have been 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."
Sales and income from the discontinued operation are as follows:
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 2000 1999 1998
- ------------ -------- -------- --------
Net sales........................................... -- $ 39,091 $52,580
Pretax (loss) income from discontinued operation.... -- (3,976) (487)
Pretax loss on disposal of business segment......... -- (12,017) --
Income tax benefit (expense)........................ -- 5,837 181
Net (loss) income from discontinued operation....... -- $(10,156) $ (306)
Assets and liabilities of the discontinued operation were as follows:
DECEMBER 31,
-------------------
IN THOUSANDS 2000 1999
- ------------ -------- --------
Current assets.............................................. -- $3,553
Current liabilities......................................... -- (3,110)
Net assets of discontinued operation........................ -- $ 443
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
5. RECEIVABLES
We have an agreement pursuant to which we sell an undivided percentage
ownership interest in a defined pool of our trade receivables on a revolving
basis through a wholly-owned subsidiary to a third party (the "Securitization").
As collections reduce accounts receivable included in the pool, we sell
ownership interests in new receivables to bring the ownership interests sold up
to $75,000,000, as permitted by the Securitization. Prior to May 24, 2000, the
Securitization permitted the sale of $50,000,000. In conjunction with the sale
of receivables, we recorded losses of $4,539,000, $2,793,000 and $2,807,000 for
2000, 1999 and 1998, respectively, which are included as selling and
administrative expenses in the accompanying consolidated statements of income.
The losses were determined by applying a discount factor, as prescribed under
the Securitization, to the monthly balance in the ownership interest sold.
At December 31, 2000, the unpaid balance of accounts receivable in the
defined pool was approximately $154 million. We continue to service these
receivables and maintain an interest in the receivables. We have not recorded a
servicing asset or liability since the cost to service the receivables
approximates the servicing income. We have a subordinated interest of
approximately $79 million in the defined pool of receivables, which represents
the excess of receivables sold over the amount funded to us. The fair value of
the retained interest approximates the carrying amount because of the short
period of time it takes for the portfolio to be liquidated. During 2000, we
received approximately $1.35 billion from the sales of receivables under the
Securitization consisting of $25 million related to sales of new securitizations
and $1.32 billion from subsequent sales of receivables.
6. INVENTORIES
The major classes of inventories were as follows:
DECEMBER 31,
---------------------
IN THOUSANDS 2000 1999
- ------------ ---------- --------
Raw materials and supplies............................ $ 45,662 $ 48,868
Finished goods........................................ 77,494 63,976
Inventories........................................... $ 123,156 $112,844
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
DECEMBER 31,
---------------------
IN THOUSANDS 2000 1999
- ------------ ---------- --------
Machinery and equipment............................... $ 926,394 $905,470
Land and land improvements............................ 27,792 27,646
Buildings............................................. 31,939 32,172
Construction in progress.............................. 18,736 20,537
Property, plant and equipment, at cost................ $1,004,861 $985,825
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
8. OTHER ASSETS
Other assets, net of accumulated amortization, consisted of the following:
DECEMBER 31,
---------------------
IN THOUSANDS 2000 1999
- ------------ ---------- --------
Deposits for long-term purchase contracts $ 25,808 $ 25,302
Debt issuance costs................................... 15,401 18,536
Other................................................. 9,066 6,245
Other assets.......................................... $ 50,275 $ 50,083
Debt issuance costs amortized as interest expense during 2000, 1999 and 1998
were $3,931,000, $675,000 and $527,000, respectively.
9. LONG-TERM DEBT
Long-term debt consisted of the following:
DECEMBER 31,
---------------------
IN THOUSANDS 2000 1999
- ------------ ---------- --------
Senior credit facility
Tranche A term loan................................. $ 100,471 $225,000
Tranche B term loan................................. 197,356 200,000
Revolving facility.................................. -- 13,000
7 5/8% notes due 2005................................. 100,000 100,000
10 3/8% notes due 2007................................ 200,000 200,000
Other................................................. 34,508 33,194
Total debt............................................ 632,335 771,194
Less current portion................................ 9,794 22,000
Long-term debt........................................ $ 622,541 $749,194
On November 12, 1999, we entered into a new loan agreement (the "Senior
Credit Facility") and issued $200,000,000 of eight-year unsecured 10 3/8 percent
notes. The Senior Credit Facility included a tranche A term loan of
$225,000,000, a tranche B term loan of $200,000,000 and a revolving credit
facility of up to $100,000,000. The net proceeds from these transactions were
used to fund the acquisition of the vinyls business (see Note 3), replace the
prior unsecured revolving credit facility and term loan, purchase assets leased
pursuant to the cogeneration facility lease (see Note 14) and pay related fees
and expenses of approximately $16,598,000.
Under the Senior Credit Facility, the tranche A term loan and the revolving
credit facility mature November 12, 2005. The tranche B term loan matures
November 12, 2006. As of December 31, 2000, $89,068,000 was available for
borrowing under the terms of the Senior Credit Facility. An annual commitment
fee, which ranges from 0.375 percent to 0.5 percent (currently 0.375 percent),
is required to be paid on the undrawn portion of the commitments under the
Senior Credit Facility. For any of the loans under the Senior Credit Facility,
we may choose to pay interest based on the prime rate of The Chase Manhattan
Bank plus the applicable pricing margin or LIBOR plus the applicable pricing
margin. For 2000 and 1999, the average interest rate for the tranche A term loan
was 8.75 percent and 8.64 percent, for the tranche B term loan was 9.19 percent
and 8.64 percent and for the revolving credit facility was 10.55 percent and
10.23 percent, respectively. The Senior Credit Facility is secured by
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
9. LONG-TERM DEBT (CONTINUED)
substantially all of our assets, including real and personal property,
inventory, accounts receivable and intangibles.
We have $100,000,000 principal amount of 7 5/8 percent notes outstanding,
which are due in November 2005. Interest on the notes is payable semiannually on
May 15 and November 15 of each year. The notes are not redeemable prior to
maturity. In accordance with the indenture relating to the 7 5/8 percent notes,
at the closing of the Senior Credit Facility, the 7 5/8 percent notes became
secured equally and ratably with the Senior Credit Facility. The 7 5/8 percent
notes are secured by substantially all of our assets, including real and
personal property, inventory, accounts receivable and intangibles.
In November 1999, we issued $200,000,000 of unsecured 10 3/8 percent notes,
which are due November 2007. Interest on the notes is payable on May 1 and
November 1 of each year, commencing May 1, 2000. Prior to November 1, 2002, we
may on any one or more occasions redeem up to 35 percent of the original
principal amount of the notes with the net cash proceeds of one or more equity
offerings at a redemption price of 110.375 percent of the principal amount of
the notes. On or after November 1, 2003, we may redeem the notes in whole or
part, initially at 105.188 percent of their principal amount, and thereafter at
prices declining annually to 100 percent on or after November 1, 2006.
On November 12, 1999, we terminated our prior unsecured revolving credit
facility and term loan. The interest rate on the revolving credit facility was
based on LIBOR and averaged 5.51 percent for 1999. The average interest rate for
the term loan agreement was 7.04 percent for 1999. The LIBOR-based variable
interest rate on the term loan was fixed at a rate ranging from 6.71 percent to
7.04 percent using interest rate swap agreements.
Under the Senior Credit Facility and the indentures related to the 7 5/8
percent notes and 10 3/8 percent notes, we are subject to certain restrictive
covenants, the most significant of which require us to maintain certain
financial ratios and limit our ability to pay dividends, make investments, grant
liens, sell our assets and engage in certain other activities. Our limit for
dividends and repurchases of common stock was $25,000,000 as of December 31,
2000.
Scheduled maturities of long-term debt outstanding at December 31, 2000 are
$9,794,000 in 2001, $30,544,000 in 2002, $24,535,000 in 2003, $27,040,000 in
2004, $127,040,000 in 2005 and $413,382,000 thereafter. Cash payments for
interest during 2000, 1999 and 1998, excluding debt issuance costs, were
$63,123,000, $31,133,000 and $30,398,000, respectively.
10. STOCKHOLDERS' EQUITY
During 2000 we repurchased 9,400 shares of common stock for $121,000. As of
December 31, 2000, we had authorization to repurchase 5,216,200 additional
shares under a common stock repurchase program, subject to certain restrictions
as described in Note 9. During 1999 we did not repurchase any shares of our
common stock.
Each outstanding share of common stock is accompanied by a preferred stock
purchase right, which entitles the holder to purchase from us 1/100th of a share
of Junior Participating Preferred Stock for $90.00, subject to adjustment in
certain circumstances. The rights expire on April 27, 2010 and may be redeemed
by us for $0.01 per right until the earlier to occur of (1) the tenth calendar
day following announcement by us that a person or group (other than us or
certain related persons) beneficially owns 15 percent or more of our outstanding
shares of common stock (an "Acquiring Person") or (2) the
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
10. STOCKHOLDERS' EQUITY (CONTINUED)
tenth business day following the commencement of a tender or exchange offer that
would result in a person or group becoming an Acquiring Person (the earliest of
any such date, the "Distribution Date"). The rights first become exercisable on
the Distribution Date. Subject to certain conditions, if a person or group
becomes an Acquiring Person, each right will entitle its holder (other than the
Acquiring Person) to receive, upon exercise, common stock having a market value
equal to two times the right's exercise price. In addition, subject to certain
conditions, if we are involved in a merger or certain other business combination
transactions, each right will entitle its holder (other than an Acquiring
Person) to receive, upon exercise, common stock of the acquiring company having
a market value equal to two times the right's exercise price.
In connection with the stock purchase rights described above, 15,000,000 of
the authorized shares of preferred stock are designated Junior Participating
Preferred Stock. If issued, the Junior Participating Preferred Stock would be
entitled, subject to the prior rights of any senior preferred stock, to a
dividend equal to the greater of $0.01 or that which is paid on the common
shares.
11. STOCK OPTION AND PURCHASE PLANS
Options to purchase our common stock have been granted to employees under a
plan adopted in 1998. Under the 1998 Equity and Performance Incentive Plan,
approved by our stockholders, we grant options to purchase up to 2,000,000
shares to employees and nonemployee directors. Option prices are equal to the
closing price of our stock on the date of grant. Options vest over a one or
three year period from the date of grant and expire no more than ten years after
the grant. Options to purchase our common stock under a 1990 plan expired during
2000.
A summary of stock option activity under all plans is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- -------------------------- --------------------------
EXERCISE SHARES PRICE(1) EXERCISE SHARES PRICE(1) EXERCISE SHARES PRICE(1)
---------------- -------- --------------- -------- --------------- --------
Outstanding at
beginning of year.......... 1,697,731 $ 25.46 952,386 $ 24.75 768,116 $16.13
Granted...................... -- -- 963,000 22.69 440,000 35.19
Exercised.................... (195,865) 9.12 (188,655) 7.93 (169,830) 8.49
Forfeited/Expired............ (49,283) 24.34 (29,000) 25.00 (85,900) 32.91
---------------- -------- --------- ------- --------- ------
Outstanding at year end...... 1,452,583 $ 27.70 $1,697,731 $ 25.46 952,386 $24.75
================ ======== ========= ======= ========= ======
Exercisable at year end...... 752,759 $ 30.19 $ 500,900 $ 25.62 519,386 $16.01
Options available for
grant...................... 716,833 730,827 1,664,827
- ------------------------
(1) Weighted average
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
11. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The following table summarizes information about stock options at
December 31, 2000:
EXERCISABLE
OUTSTANDING STOCK OPTIONS STOCK OPTIONS
------------------------------------------ -------------------
EXERCISE REMAINING EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE(1) CONTRACTUAL LIFE(1) SHARES PRICE(1)
- ------------------------ --------- -------- ------------------- -------- --------
$15.01 TO $25.00.............................. 416,583 $15.45 8.11 YEARS 151,919 $15.46
$25.01 TO $35.00.............................. 493,500 29.31 8.96 YEARS 171,836 29.31
$35.00 TO $36.50.............................. 542,500 35.65 6.00 YEARS 429,004 35.76
--------- ------ ---------- ------- ------
TOTAL $15.01 TO $36.50........................ 1,452,583 $27.70 7.61 YEARS 752,759 $30.19
========= ====== ========== ======= ======
- ------------------------
(1) Weighted average
Our stockholders have approved a qualified, noncompensatory employee stock
purchase plan, which allows employees to acquire shares of common stock through
payroll deductions over a twelve-month period. The purchase price is equal to
85 percent of the fair market value of the common stock on either the first or
last day of the subscription period, whichever is lower. Purchases under the
plan are limited to 15 percent of an employee's base salary. In connection with
this stock purchase plan, 1,023,137 shares of common stock are reserved for
future issuances. Under this plan, 236,953, 218,453 and 228,585 shares of common
stock were issued at $14.85, $13.36 and $13.36 per share during 2000, 1999 and
1998, respectively.
We account for our stock-based compensation plans in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and comply with SFAS
No. 123, "Accounting for Stock-Based Compensation," for disclosure purposes.
Under these provisions, no compensation was recognized in 2000, 1999 and 1998
for our stock option plans or our stock purchase plan.
For SFAS No. 123 purposes, the fair value of each stock option and stock
purchase right for 2000, 1999 and 1998 has been estimated as of the date of the
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for 2000, 1999 and 1998, respectively: risk-free interest
rates of 6.11 percent, 5.30 percent and 5.44 percent; dividend yields of
1.00 percent, 1.56 percent and 1.00 percent; and expected volatilities of 0.44,
0.46 and 0.32. The expected life of a right and option was assumed to be one
year and three years, respectively, for all years. The weighted average fair
value of options granted was $7.64 and $9.29 for the years ended December 31,
1999 and 1998, respectively. Using these assumptions, the amount of compensation
expense under the fair value method related to the stock option grants in 1999
and 1998 would have been $1,861,000 and $1,056,000 for 1999 and 1998,
respectively. There were no stock option grants in 2000. Also using these
assumptions, the compensation expense under the fair value method for the stock
purchase plan rights for 2000, 1999 and 1998 would have been $1,392,000,
$1,140,000 and $1,224,000, respectively. Had compensation expense been
determined consistently with SFAS No. 123, utilizing the assumptions
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
11. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
previously detailed, our net income and earnings per common share would have
been the following pro forma amounts:
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 2000 1999 1998
- ----------------------------------- -------- -------- --------
Net income
As reported...................................... $64,180 $33,005 $56,279
Pro forma........................................ 61,105 31,124 54,848
Basic earnings per share
As reported...................................... $ 2.04 $ 1.07 $ 1.79
Pro forma........................................ 1.95 1.01 1.74
Diluted earnings per share
As reported...................................... $ 2.03 $ 1.06 $ 1.77
Pro forma........................................ 1.94 1.00 1.73
12. EMPLOYEE BENEFIT PLANS
We have certain pension, savings and profit-sharing plans that cover
substantially all of our employees. The expense incurred for these plans was
approximately $4,452,000, $3,343,000 and 2,434,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
Most employees are covered by defined contribution plans under which we make
contributions to individual employee accounts and by defined benefit plans for
which the benefits are based on years of service and the employee's compensation
or for which the benefit is a specific monthly amount for each year of service.
Our policy on funding the defined benefit plans is to contribute an amount
within the range of the minimum required and the maximum tax-deductible
contribution.
During 1998, we restructured several of our executive benefit plans whereby
certain plan benefits were replaced by new retirement agreements funded by life
insurance contracts. The elimination of the benefits under the previous plans
resulted in a reduction to pension expense for 1998 of $1,520,000. The total
expense related to the new agreements for 1999 and 1998 was $130,000 and
$693,000, respectively, which represented the cost of the insurance contracts,
net of the increase in the cash surrender value of the contracts. The new
agreements generated $30,000 of income for 2000.
In 1998, we adopted SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits." The statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable.
On a weighted average basis, the following assumptions were used in the
accounting for the net periodic benefit costs of the defined benefit plans:
YEAR ENDED
DECEMBER 31,
------------------------------------
2000 1999 1998
-------- -------- --------
Discount rate........................................... 7.75% 7.75% 7.00%
Expected return on plan assets.......................... 9.00% 9.00% 9.00%
Rate of compensation increase........................... 5.50% 5.50% 5.50%
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
The amount of net periodic benefit cost recognized includes the following
components:
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 2000 1999 1998
- ------------ -------- -------- --------
Components of periodic benefit cost:
Service cost.................................... $ 2,976 $ 2,297 $ 1,946
Interest cost................................... 3,524 3,216 3,156
Expected return on assets....................... (6,104) (5,512) (4,808)
Amortization of:
Transition obligation......................... 344 343 343
Prior service cost............................ 97 95 103
Actuarial gain................................ (1,180) (807) (634)
------- ------- -------
(343) (368) 106
Settlement benefit................................ 262 -- (1,520)
------- ------- -------
Total net periodic benefit (income) cost.......... $ (81) $ (368) $(1,414)
======= ======= =======
The reconciliations of the beginning and ending balances of the benefit
obligation for our defined benefit plans and the fair value of plan assets were
as follows:
DECEMBER 31,
-------------------
IN THOUSANDS 2000 1999
- ------------ -------- --------
Change in benefit obligation:
Net benefit obligation at beginning of year............. $43,025 $45,085
Service cost............................................ 2,976 2,297
Interest cost........................................... 3,524 3,216
Actuarial (gain) loss................................... 159 (6,474)
Plan Amendments......................................... 38 --
Settlements............................................. (471) --
Gross benefits paid..................................... (1,292) (1,099)
------- -------
Net benefit obligation at end of year..................... $47,959 $43,025
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year.......... $68,405 $61,636
Actual return on plan assets............................ 4,465 7,589
Employer contributions.................................. 466 279
Settlements............................................. (795) --
Gross benefits paid..................................... (1,292) (1,099)
------- -------
Fair value of plan assets at end of year.................. $71,249 $68,405
======= =======
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of our defined benefit plans and the amounts recognized in
the statement of financial position were as follows:
DECEMBER 31,
-------------------
IN THOUSANDS 2000 1999
- ------------ -------- --------
Reconciliation of funded status:
Funded status at end of year.......................... $ 23,290 $ 25,380
Unrecognized net actuarial gain....................... (23,892) (26,898)
Unrecognized prior service cost....................... 417 476
Unrecognized net transition obligation................ 1,574 1,884
-------- --------
Net amount recognized at end of year.................... $ 1,389 $ 842
======== ========
Amounts recognized in the statement of financial
position:
Prepaid benefit cost.................................. $ 6,488 $ 5,575
Accrued benefit cost.................................. (5,099) (4,733)
Additional minimum liability.......................... (423) (310)
Intangible asset...................................... 423 310
Net amount recognized at end of year.................... $ 1,389 $ 842
13. INCOME TAXES
The provision for income taxes was as follows:
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 2000 1999 1998
- ------------ -------- -------- --------
Current:
Federal........................................ $11,669 $18,472 $ 6,046
State.......................................... 918 1,732 (696)
------- ------- -------
12,587 20,204 5,350
------- ------- -------
Deferred:
Federal........................................ 21,433 3,957 24,651
State.......................................... 2,092 647 3,586
------- ------- -------
23,525 4,604 28,237
------- ------- -------
Provision for income taxes....................... $36,112 $24,808 $33,587
======= ======= =======
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
13. INCOME TAXES (CONTINUED)
The difference between the statutory federal income tax rate and our
effective income tax rate is summarized as follows:
YEAR ENDED
DECEMBER 31,
------------------------------------
2000 1999 1998
-------- -------- --------
Statutory federal income tax rate..................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit............ 2.0 2.3 2.1
Other................................................. (1.0) (0.8) 0.1
Effective income tax rate............................. 36.0% 36.5% 37.2%
Cash payments for income taxes during 2000, 1999 and 1998 were $32,201,000,
$6,474,000 and $11,004,000 respectively.
Our net deferred tax liability consisted of the following major items:
DECEMBER 31,
--------------------
IN THOUSANDS 2000 1999
- ------------ --------- --------
Deferred tax assets:
Receivables.......................................... $ 808 $ 646
Inventories.......................................... 1,437 1,504
Vacation............................................. 1,944 2,000
Other................................................ 1,054 2,022
--------- --------
Total deferred tax assets.......................... 5,243 $ 6,172
Deferred tax liability:
Property, plant and equipment........................ (116,545) (93,949)
--------- --------
Net deferred tax liability............................. $(111,302) $(87,777)
========= ========
We believe, based on our history of operating expenses and expectations for
the future, that future taxable income will be sufficient to fully utilize the
deferred tax assets at December 31, 2000.
14. COMMITMENTS AND CONTINGENCIES
LEASES--We lease railcars, storage terminals, computer equipment, automobiles
and warehouse and office space under noncancelable operating leases with varying
maturities through the year 2014. Future minimum payments under these
noncancelable operating leases as of December 31, 2000 were $18,300,000 for
2001, $14,900,000 for 2002, $11,400,000 for 2003, $7,800,000 for 2004,
$6,000,000 for 2005 and $28,000,000 thereafter. Total lease expense was
approximately $21,483,000, $22,892,000 and $25,734,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
On November 12, 1999, we exercised our option to purchase the 250-megawatt
cogeneration facility located at our Plaquemine, Louisiana complex for a net
cash purchase price of approximately $103,303,000. The cogeneration facility was
previously leased under an operating lease. Lease expense relating to the
cogeneration facility was approximately $9,904,000 and $11,309,000 for 1999 and
1998, respectively.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PURCHASE COMMITMENTS--We have certain take-or-pay raw material purchase
agreements with various terms extending through 2014. The aggregate amount of
the fixed and determinable portion of the required payments under these
agreements as of December 31, 2000 was $7,143,000 for each of the years 2001
through 2007 and $4,648,000 for the year 2008.
LEGAL PROCEEDINGS--Georgia Gulf is a party to numerous individual and several
class-action lawsuits filed against the Company, among other parties, arising
out of an incident that occurred in September 1996 in which workers were exposed
to a chemical substance on the Company's premises in Plaquemine, Louisiana. The
substance was later identified to be a form of mustard agent which 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, past and future
physical and emotional pain and suffering. The lawsuits were originally filed in
Louisiana state court in Iberville Parish.
In September 1998, the state court trial judge granted the plaintiffs'
motion permitting the filing of amended petitions that added the additional
allegations that the Company had engaged in intentional conduct against the
plaintiffs. Amended petitions making such allegations were filed. The Company's
two insurers notified the Company that they were reserving their rights to deny
coverage to the extent liability could be established due to such intentional
conduct in accordance with their insurance policies. The Company disputed the
insurers' reservation of rights. In December 1998, as required by the terms of
the insurance policies, each insurer demanded arbitration of the issue of the
insurers' duties relating to the intentional conduct allegations.
As a result of the arbitrations relating to the insurance issue, as
permitted by federal statute, the insurers removed the cases to United States
District Court in December 1998. The plaintiffs' motion to remand was denied in
March 1999.
Following removal of these actions and unsuccessful attempts by plaintiffs
to remand the cases, we were able to settle the claims of all but 5 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 of the 5
worker plaintiffs are ongoing.
Following these settlements, Georgia Gulf was sued by approximately 400
additional plaintiff workers (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. After negotiation,
including a mediation, we reached an agreement for the settlement of these
additional claims.
This settlement, which will be on a class basis, will resolve the claims of
all workers who claim to have been exposed and injured as a result of the
incident other than those workers who opt out of the class settlement. We are
aware of 4 worker plaintiffs who have filed suit in state court who will likely
opt not to participate in the class settlement, as well as the 5 worker
plaintiffs whose claims are pending in federal court (see discussion above).
We have also been notified that we may be added as a party to a currently
pending suit in federal court brought by present and former employees of the
Company for injuries allegedly stemming from the incident. We believe that we
possess a number of valid legal defenses to such claims, including worker's
compensation immunity and statutes of limitations defenses.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 on us will not have a material effect on our financial
position or on our results of operations.
On July 31, 2000, Georgia Gulf Lake Charles, LLC, received a Complaint,
Compliance Order and Notice of Opportunity for a Hearing from the United States
Environmental Protection Agency, Region 6 ("EPA"), which arose from an
inspection conducted by the EPA at the Lake Charles facility on December 6-8,
1999. The EPA is seeking to assess a fine of $701,605 and to require certain
corrective actions to be taken as a result of various alleged violations of the
United States Resource Conservation and Recovery Act, including failure to make
adequate hazardous waste determinations, failure to adequately characterize
wastes before disposal, and failure to obtain permits for operations of alleged
hazardous waste facilities. The Company has filed an Answer and Request for
Hearing, and is participating in ongoing settlement discussions with the EPA.
Under the terms of the asset purchase agreement by which we acquired the Lake
Charles VCM plant from CONDEA Vista, we have notified CONDEA Vista of our claim
that these potential penalties are properly the responsibility of CONDEA Vista,
and we have requested indemnity from CONDEA Vista. We have not received a
response to this request.
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.
15. EXPORT SALES
Export sales were approximately 11 percent, 14 percent and 18 percent of our
sales for the years ended December 31, 2000, 1999 and 1998, respectively. The
principal international markets we serve include Canada, Mexico, Latin America,
Europe and Asia.
16. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
We maintain floating rate debt (i.e., Senior Credit Facility), which exposes
us to changes in interest rates going forward. On November 30, 2000, we entered
into a new interest swap agreement for a notional amount of $100 million, which
has been designated as a cash flow hedge to effectively convert a portion of our
outstanding Senior Credit Facility (Tranche B term loan) to a fixed rate basis,
thus reducing the impact of interest rate changes on future income. This
agreement involves the receipt of floating rate amounts in exchange for fixed
rate interest payments at an interest rate of 6.273 percent over the life of the
agreement without an exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. Upon
adoption of SFAS 133 on January 1, 2001, we will record a loss of approximately
$1.1 million related to the interest rate swap, which will be recorded as part
of long-term liabilities and accumulated other comprehensive income. The
reclassification of amounts associated with the interest rate swap into the
statement of income is anticipated to occur through the maturity date of the
interest rate swap agreement, which expires November 29, 2002.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
16. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL (CONTINUED)
During 2000, various interest swaps previously designated as hedges against
our Senior Credit Facility floating rate debt were canceled. The gain on the
terminations amounted to $936,301 and will be amortized as an offset to interest
expense over the term of the related indebtedness.
In June 1998, we filed a shelf registration with the Securities and Exchange
Commission for the issuance of $200,000,000 of long-term bonds. Shortly after
the filing, we entered into an agreement to lock in interest rates on a portion
of the long-term bonds. During the third quarter of 1998 our plans to issue
long-term bonds were postponed indefinitely and the interest rate lock
agreements were terminated, resulting in a pretax loss of $9,500,000 in the
third quarter of 1998.
Following is a summary of financial instruments where the fair values differ
from the recorded amounts as of December 31, 2000 and 1999:
DECEMBER 31,
-----------------------------------------
2000 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
IN THOUSANDS AMOUNT VALUE AMOUNT VALUE
- ------------ -------- -------- -------- --------
Long-term debt:
7 5/8% notes due 2005............. $100,000 $ 94,057 $100,000 $ 93,000
10 3/8% notes due 2007............ 200,000 $185,500 200,000 208,750
Interest rate swap agreements in
receivable (payable) position..... -- (1,062) -- 3,045
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
DEBT--The fair values of the 7 5/8 percent notes and the 10 3/8 percent
notes were based on quoted market prices. The carrying amounts of the Senior
Credit Facility, revolving credit loan and the term loan were assumed to
approximate fair value due to the floating market interest rates to which the
respective agreements are subject.
INTEREST RATE SWAP AGREEMENTS--The fair value of the interest rate swap
agreements was estimated by obtaining quotes from brokers.
17. 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 consolidated statements of income:
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 2000 1999 1998
- ------------ -------- -------- --------
Weighted average common shares...................... 31,408 30,947 31,474
Plus incremental shares from assumed conversions:
Options........................................... 76 109 217
Employee stock purchase plan rights............... 56 51 96
Weighted average common shares and equivalents...... 31,540 31,107 31,787
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
18. SEGMENT INFORMATION
In accordance with the requirements of SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," we have identified two
reportable segments through which we conduct our operating activities:
chlorovinyls and aromatics. These two segments reflect the organization used by
our management 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 description 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 reflected as "other income (expense)" on our
consolidated statements of income. Intersegment sales and transfers are
insignificant.
Identifiable assets consist of plant and equipment used in the operations of
the segment as well as inventory, receivables and other assets directly related
to the segment. Corporate and general plant service assets include cash, certain
corporate receivables, data processing equipment and spare parts inventory, as
well as property (i.e., land) on which the manufacturing plants are located. We
have no significant assets located outside of the United States.
INDUSTRY SEGMENTS
CORPORATE AND
GAS GENERAL PLANT
IN THOUSANDS CHLOROVINYLS AROMATICS CHEMICALS SERVICES TOTAL
- ------------ ------------ --------- --------- ---------- -------------
YEAR ENDED DECEMBER 31, 2000:
NET SALES (1).................... 1,244,734 $336,919 $ -- $ -- $1,581,653
OPERATING INCOME (LOSS).......... 192,325 (9,694) -- (14,598)(2) 168,033
DEPRECIATION AND AMORTIZATION.... 52,479 13,614 -- 7,238 73,331
CAPITAL EXPENDITURES............. 15,166 504 -- 6,069 21,739
TOTAL ASSETS..................... 808,218 150,424 -- 82,445 1,041,087
Year Ended December 31, 1999:
Net Sales (1).................... $ 672,851 $236,123 $ -- $ -- $ 908,974
Operating income (loss).......... 98,750 15,238 -- (11,182)(2) 102,806
Depreciation and amortization.... 31,854 13,864 -- 3,880 49,598
Capital expenditures............. 10,281 735 -- 3,411 14,427
Total Assets..................... 867,487 140,681 443 89,397 1,098,008
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
18. SEGMENT INFORMATION (CONTINUED)
CORPORATE AND
GAS GENERAL PLANT
IN THOUSANDS CHLOROVINYLS AROMATICS CHEMICALS SERVICES TOTAL
- ------------ ------------ --------- --------- ---------- -------------
Year Ended December 31, 1998:
Net Sales (1).................... $ 549,525 $324,148 $ -- $ -- $ 873,673
Operating income (loss).......... 73,737 71,377 -- (14,624)(2) 130,490
Depreciation and amortization.... 26,488 13,724 -- 3,811 44,023
Capital expenditures............. 18,694 3,312 -- 3,368 25,374
Total Assets..................... 429,757 144,154 13,319 78,358 665,588
- ------------------------
(1) Shipping and handling costs were reclassified by increasing cost of sales
and net sales. Prior years have been reclassified to conform to the current
year presentation.
(2) Includes shared services, administrative and legal expense, along with the
cost of our receivables program.
GEOGRAPHIC AREAS
YEAR ENDED DECEMBER 31,
--------------------------------
IN THOUSANDS 2000 1999 1998
- ------------ ---------- -------- --------
Sales:
Domestic.................................. $1,405,889 $780,611 $715,488
Foreign................................... 175,764 128,363 158,185
Total....................................... $1,581,653 $908,974 $873,673
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly financial data for the
periods indicated:
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER
- ----------------------------------- -------- -------- -------- --------
2000
- ----------------------------------------------------
NET SALES........................................... $421,343 $429,987 $366,382 $363,941
GROSS MARGIN........................................ 81,815 80,482 38,864 12,506
OPERATING INCOME.................................... 68,141 69,124 28,351 2,417
EARNINGS FROM CONTINUING OPERATIONS................. 31,438 32,750 7,492 (7,500)
NET LOSS FROM DISCONTINUED OPERATION................ -- -- -- --
NET LOSS ON DISPOSAL OF DISCONTINUED OPERATION...... -- -- -- --
NET INCOME (LOSS)................................... 31,438 32,751 7,492 (7,500)
BASIC EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS............................. 1.00 1.04 0.24 (0.24)
DISCONTINUED OPERATION............................ -- -- -- --
-------- -------- -------- --------
TOTAL........................................... 1.00 1.04 0.24 (0.24)
DILUTED EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS............................. 1.00 1.04 0.24 (0.24)
DISCONTINUED OPERATION............................ -- -- -- --
TOTAL........................................... 1.00 1.04 0.24 (0.24)
DIVIDENDS PER COMMON SHARE.......................... 0.08 0.08 0.08 0.08
1999
- ----------------------------------------------------
Net Sales........................................... $190,847 $192,186 $226,391 $299,550
Gross margin........................................ 23,573 24,584 37,975 57,520
Operating income.................................... 13,280 14,958 28,687 45,881
Earnings from continuing operations................. 3,782 4,827 13,747 20,805
Net loss from discontinued operation................ (1,248) (757) (520) --
Net loss on disposal of discontinued operation...... -- -- (7,631) --
Net income.......................................... 2,534 4,070 5,596 20,805
Basic earnings (loss) per share
Continuing operations............................. 0.12 0.15 0.44 0.67
Discontinued operation............................ (0.04) (0.02) (0.26) --
Total........................................... 0.08 0.13 0.18 0.67
Diluted earnings (loss) per share
Continuing operations............................. 0.12 0.15 0.44 0.66
Discontinued operation............................ (0.04) (0.02) (0.26) --
Total........................................... 0.08 0.13 0.18 0.66
Dividends per common share.......................... 0.08 0.08 0.08 0.08
20. 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 combined financial statements of
the parent company, Guarantor
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
20. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
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.
51
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------ -------- ------------ ------------- ------------ ------------
Cash and cash equivalents................. $ 0 $ 1,982 $ 60 $ -- $ 2,042
Receivables............................... 347,076 114,213 59,110 (374,610) 145,789
Inventories............................... -- 123,156 -- -- 123,156
Prepaid expenses.......................... 2,698 4,696 213 -- 7,607
Deferred income taxes..................... -- 5,243 -- -- 5,243
-------- ---------- ------- --------- ----------
Total current assets.................. 349,774 249,290 59,383 (374,610) 283,837
-------- ---------- ------- --------- ----------
Plant, property and equipment, at cost.... 1,077 1,003,784 -- -- 1,004,861
Less accumulated depreciation........... 756 377,328 -- -- 378,084
-------- ---------- ------- --------- ----------
Plant, property and equipment, net...... 321 626,456 -- -- 626,777
-------- ---------- ------- --------- ----------
Goodwill -- 80,198 -- -- 80,198
Other assets.............................. 14,431 35,798 46 -- 50,275
Investment in subsidiaries................ 128,775 57,869 -- (186,644) --
Net assets of discontinued operation...... -- -- -- -- --
-------- ---------- ------- --------- ----------
Total Assets.......................... $493,301 $1,049,611 $59,429 $(561,254) $1,041,087
======== ========== ======= ========= ==========
Current portion of long-term debt......... $ -- $ 9,794 $ -- $ -- $ 9,794
Accounts payable.......................... 30,054 492,475 30 (374,610) 147,949
Interest payable.......................... 4,971 417 -- -- 5,388
Accrued compensation...................... -- 10,380 -- -- 10,380
Other accrued liabilities................. 5,226 4,672 -- -- 9,898
-------- ---------- ------- --------- ----------
Total current liabilities............. 40,251 517,738 30 (374,610) 183,409
-------- ---------- ------- --------- ----------
Long-term debt............................ 334,458 288,083 -- -- 622,541
Deferred income taxes..................... -- 116,545 -- -- 116,545
Common stock.............................. 317 6 20 (26) 317
Additional paid-in capital................ 12,478 2,763 55,587 (58,350) 12,478
Retained earnings......................... 105,797 124,476 3,792 (128,268) 105,797
-------- ---------- ------- --------- ----------
Total stockholders' equity............ 118,592 127,245 59,399 (186,644) 118,592
-------- ---------- ------- --------- ----------
Total liabilities and stockholders'
equity.............................. $493,301 $1,049,611 $59,429 $(561,254) $1,041,087
======== ========== ======= ========= ==========
52
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------ -------- ------------ ------------- ------------ ------------
Cash and cash equivalents................. $ 4,151 $ 252 $ 21 $ -- $ 4,424
Receivables............................... 353,506 59,243 124,377 (372,750) 164,376
Inventories............................... -- 112,844 -- -- 112,844
Prepaid expenses.......................... -- 4,786 654 -- 5,440
Deferred income taxes..................... -- 6,172 -- -- 6,172
-------- ---------- -------- --------- ----------
Total current assets.................. 357,657 183,297 125,052 (372,750) 293,256
-------- ---------- -------- --------- ----------
Plant, property and equipment, at cost.... 989 984,836 -- -- 985,825
Less accumulated depreciation........... 989 313,286 -- -- 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................ 48,444 55,588 -- (104,032) --
Net assets of discontinued operation...... -- 443 -- -- 443
-------- ---------- -------- --------- ----------
Total Assets.......................... $414,007 $1,035,682 $125,101 $(476,782) $1,098,008
======== ========== ======== ========= ==========
Current portion of long-term debt......... $ -- $ 22,000 $ -- $ -- $ 22,000
Accounts payable.......................... 19,244 433,594 63,810 (372,750) 143,898
Interest payable.......................... 4,336 1,590 -- -- 5,926
Accrued compensation...................... -- 7,682 -- -- 7,682
Other accrued liabilities................. -- 14,048 4,078 -- 18,126
-------- ---------- -------- --------- ----------
Total current liabilities............. 23,580 478,914 67,888 (372,750) 197,632
-------- ---------- -------- --------- ----------
Long-term debt............................ 333,194 416,000 -- -- 749,194
Deferred income taxes..................... -- 93,949 -- -- 93,949
Common stock.............................. 313 6 20 (26) 313
Additional paid-in capital................ 5,250 2,763 55,587 (58,350) 5,250
Retained earnings......................... 51,670 44,050 1,606 (45,656) 51,670
-------- ---------- -------- --------- ----------
Total stockholders' equity............ 57,233 46,819 57,213 (104,032) 57,233
-------- ---------- -------- --------- ----------
Total liabilities and stockholders'
equity.............................. $414,007 $1,035,682 $125,101 $(476,782) $1,098,008
======== ========== ======== ========= ==========
53
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT
DECEMBER 31, 2000
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------ -------- ------------ ------------- ------------ ------------
Revenues.................................. $ 10,400 $1,588,971 $10,891 $ (28,609) $1,581,653
Operating costs and expenses
Cost of sales........................... -- 1,377,711 -- (9,725) 1,367,986
Selling and administrative.............. 6,522 52,865 5,131 (18,884) 45,634
-------- ---------- ------- --------- ----------
Total operating costs and expenses...... 6,522 1,430,576 5,131 (28,609) 1,413,620
-------- ---------- ------- --------- ----------
Operating income.......................... 3,878 158,395 5,760 -- 168,033
Other income (expense)
Interest expense, net................... (32,551) (35,190) -- -- (67,741)
Equity in income of subsidiaries........ 82,531 2,281 -- (84,812) --
-------- ---------- ------- --------- ----------
Income from continuing operations before
taxes................................... 53,858 125,486 5,760 (84,812) 100,292
Provision for income taxes................ (10,322) 45,060 1,374 -- 36,112
-------- ---------- ------- --------- ----------
Net income................................ $ 64,180 $ 80,426 $ 4,386 $ (84,812) $ 64,180
======== ========== ======= ========= ==========
54
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT
DECEMBER 31, 1999
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------ -------- ------------ ------------- ------------ ------------
Revenues.................................. $625,308 $ 287,569 $ 6,146 $ (10,049) $ 908,974
Operating Costs and Expenses
Cost of sales........................... 547,220 224,206 -- (6,103) 765,323
Selling and administrative.............. 30,809 10,843 3,139 (3,946) 40,845
-------- ---------- ------- --------- ----------
Total operating costs and expenses...... 578,029 235,049 3,139 (10,049) 806,168
-------- ---------- ------- --------- ----------
Operating income 47,279 52,520 3,007 -- 102,806
Other income (expense)
Interest expense, net................... (29,529) (5,308) -- -- (34,837)
Equity in income of subsidiaries........ 34,941 -- -- (34,941) --
-------- ---------- ------- --------- ----------
Income from continuing operations before
taxes................................... 52,691 47,212 3,007 (34,941) 67,969
Provision for income taxes................ 9,530 14,329 949 -- 24,808
-------- ---------- ------- --------- ----------
Income from continuing operations......... 43,161 32,883 2,058 (34,941) 43,161
Loss from discontinued operation, net..... (2,525) -- -- -- (2,525)
Loss on disposal of discontinued
operation, net.......................... (7,631) -- -- -- (7,631)
-------- ---------- ------- --------- ----------
Net income................................ $ 33,005 $ 32,883 $ 2,058 $ (34,941) $ 33,005
======== ========== ======= ========= ==========
55
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT
DECEMBER 31, 1998
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------ -------- ------------ ------------- ------------ ------------
Revenues.................................. $817,032 $ 65,288 $ 6,353 $ (15,000) $ 873,673
Operating Costs and Expenses
Cost of sales........................... 662,390 49,389 -- (11,051) 700,728
Selling and administrative.............. 41,880 1,411 3,113 (3,949) 42,455
-------- ---------- ------- --------- ----------
Total operating costs and expenses...... 704,270 50,800 3,113 (15,000) 743,183
-------- ---------- ------- --------- ----------
Operating income.......................... 112,762 14,488 3,240 -- 130,490
Other income (expense)
Interest expense, net................... (30,818) -- -- -- (30,818)
Loss on interest rate hedge agreement... (9,500) -- -- -- (9,500)
Equity in income of subsidiaries........ 11,432 -- -- (11,432) --
-------- ---------- ------- --------- ----------
Income from continuing operations before
taxes................................... 83,876 14,488 3,240 (11,432) 90,172
Provision for income taxes................ 27,291 5,088 1,208 -- 33,587
-------- ---------- ------- --------- ----------
Income from continuing operations......... 56,585 9,400 2,032 (11,432) 56,585
Loss from discontinued operation, net..... (306) -- -- -- (306)
-------- ---------- ------- --------- ----------
Net income................................ $ 56,279 $ 9,400 $ 2,032 $ (11,432) $ 56,279
======== ========== ======= ========= ==========
56
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
DECEMBER 31, 2000
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------ --------- ------------ ------------- ------------ ------------
Cash flows from operating activities
Net income........................................ $ 64,180 $ 80,426 $ 4,386 $(84,812) $ 64,180
Adjustments to reconcile net income to net
cash provided by operating activities, net
of acquired amounts:
Depreciation and amortization............. 1,376 71,841 114 -- 73,331
Provision for deferred income taxes....... -- 23,525 -- -- 23,525
Tax benefit related to stock plans........ 2,048 -- -- -- 2,048
Equity in income of subsidiaries.......... (82,531) (2,281) -- 84,812 --
Change in operating assets, liabilities
and other............................... 12,270 (10,450) (2,261) -- (441)
--------- --------- ------- -------- ---------
Net cash provided by continuing operations........ (2,657) 163,061 2,239 -- 162,643
Net cash used in discontinued operations.......... -- 443 -- -- 443
--------- --------- ------- -------- ---------
Net cash provided by operating activities......... (2,657) 163,504 2,239 -- 163,086
--------- --------- ------- -------- ---------
Cash flows from financing activities
Long-term debt proceeds....................... 1,264 52,550 -- -- 53,814
Long-term debt payments....................... -- (192,674) -- -- (192,674)
Proceeds from issuance of common stock........ 5,305 -- -- -- 5,305
Proceeds and retirement of common stock....... (121) -- -- -- (121)
Dividends paid................................ (10,053) -- (2,200) 2,200 (10,053)
--------- --------- ------- -------- ---------
Net cash (used in) provided by financing
activities...................................... (3,605) (140,124) (2,200) 2,200 (143,729)
--------- --------- ------- -------- ---------
Cash flows from investing activities
Capital expenditures.............................. (88) (21,651) -- -- (21,739)
Dividends received from subsidiary................ 2,200 -- -- (2,200) --
--------- --------- ------- -------- ---------
Net cash used in investing activities............. 2,112 (21,651) -- (2,200) (21,739)
--------- --------- ------- -------- ---------
Net change in cash and cash equivalents........... (4,151) 1,730 39 -- (2,382)
Cash and cash equivalents at beginning of year.... 4,151 252 21 -- 4,424
--------- --------- ------- -------- ---------
Cash and cash equivalents at end of year.......... $ -- $ 1,982 $ 60 $ -- $ 2,042
========= ========= ======= ======== =========
57
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
DECEMBER 31, 1999
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------ --------- ------------ ------------- ------------ ------------
Cash flows from operating activities
Net income........................................ $ 33,005 $ 32,883 $ 2,058 $(34,941) $ 33,005
Adjustments to reconcile net income to net
cash provided by operating activities, net
of acquired amounts:
Depreciation and amortization............. 37,860 11,738 -- -- 49,598
Provision for deferred income taxes....... 1,196 3,408 -- -- 4,604
Tax benefit related to stock plans........ 840 -- -- -- 840
Loss on disposal of discontinued
operations, net......................... 7,631 -- -- -- 7,631
Loss on discontinued operations, net...... 2,525 -- -- -- 2,525
Equity in income of subsidiaries.......... (34,941) -- -- 34,941 --
Change in operating assets, liabilities
and other............................... 108,556 (108,076) 629 -- 1,109
--------- --------- ------- -------- ---------
Net cash provided by continuing operations........ 156,672 (60,047) 2,687 -- 99,312
Net cash used in discontinued operations.......... (369) 3,089 -- -- 2,720
--------- --------- ------- -------- ---------
Net cash provided by operating activities......... 156,303 (56,958) 2,687 -- 102,032
--------- --------- ------- -------- ---------
Cash flows from financing activities
Long-term debt proceeds....................... 304,293 432,628 -- -- 736,921
Long-term debt payments....................... (444,550) (5,000) -- -- (449,550)
Proceeds from issuance of common stock........ 4,414 -- -- -- 4,414
Dividends paid................................ (9,907) -- (2,694) 2,694 (9,907)
--------- --------- ------- -------- ---------
Net cash (used in) provided by financing
activities...................................... (145,750) 427,628 (2,694) 2,694 281,878
--------- --------- ------- -------- ---------
Cash flows from investing activities
Capital expenditures.......................... (9,884) (4,543) -- -- (14,427)
Buyout of cogeneration operating lease........ -- (103,303) -- -- (103,303)
Dividends received from subsidiary............ 2,694 -- -- (2,694) --
Acquisition, net of cash acquired............. -- (263,000) -- -- (263,000)
--------- --------- ------- -------- ---------
Net cash used in investing activities............. (7,190) (370,846) -- (2,694) (380,730)
--------- --------- ------- -------- ---------
Net change in cash and cash equivalents........... 3,363 (176) (7) -- 3,180
Cash and cash equivalents at beginning of year.... 788 428 28 -- 1,244
--------- --------- ------- -------- ---------
Cash and cash equivalents at end of year.......... $ 4,151 $ 252 $ 21 $ -- $ 4,424
========= ========= ======= ======== =========
58
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
DECEMBER 31, 1998
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------ --------- ------------ ------------- ------------ ------------
Cash flows from operating activities
Net income........................................ $ 56,279 $ 9,400 $ 2,032 $(11,432) $ 56,279
Adjustments to reconcile net income to net
cash provided by operating activities, net
of acquired amounts:
Depreciation and amortization............. 43,739 284 -- -- 44,023
Provision for deferred income taxes....... 28,287 (50) -- -- 28,237
Tax benefit related to stock plans........ 1,406 -- -- -- 1,406
Loss on discontinued operations, net...... 306 -- -- -- 306
Equity in income of subsidiaries.......... (11,432) -- -- 11,432 --
Change in operating assets, liabilities
and other............................... (18,483) 9,528 1,593 -- (7,362)
--------- --------- ------- -------- ---------
Net cash provided by continuing operations........ 100,102 19,162 3,625 -- 122,889
Net cash used in discontinued operations.......... 482 -- -- -- 482
--------- --------- ------- -------- ---------
Net cash provided by operating activities......... 100,584 19,162 3,625 -- 123,371
--------- --------- ------- -------- ---------
Cash flows from financing activities
Long-term debt proceeds....................... 207,485 -- -- -- 207,485
Long-term debt payments....................... (141,550) -- -- -- (141,550)
Parent investment in subsidiary............... -- -- 18 (18) --
Proceeds from issuance of common stock........ 4,497 -- -- -- 4,497
Purchase and retirement of common stock....... (58,880) -- -- -- (58,880)
Dividends paid................................ (10,024) (16,716) (3,650) 20,366 (10,024)
--------- --------- ------- -------- ---------
Net cash provided by (used in) financing
activities...................................... 1,528 (16,716) (3,632) 20,348 1,528
--------- --------- ------- -------- ---------
Cash flows from investing activities
Capital expenditures.......................... (23,265) (2,109) -- -- (25,374)
Parent investment in subsidiary............... (18) -- -- 18 --
Dividends received from subsidiary............ 20,366 -- -- (20,366) --
Acquisition, net of cash acquired............. (99,902) -- -- -- (99,902)
--------- --------- ------- -------- ---------
Net cash used in investing activities............. (102,819) (2,109) -- (20,348) (125,276)
--------- --------- ------- -------- ---------
Net change in cash and cash equivalents........... (707) 337 (7) -- (377)
Cash and cash equivalents at beginning of year.... 1,495 91 35 -- 1,621
--------- --------- ------- -------- ---------
Cash and cash equivalents at end of year $ 788 $ 428 $ 28 $ -- $ 1,244
========= ========= ======= ======== =========
59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in our proxy statement
for the Annual Meeting of Stockholders to be held May 15, 2001 is hereby
incorporated by reference in response to this item.
The following is additional information regarding our executive officers who
are not directors:
Richard B. Marchese, 59, has served as Vice President Finance, Chief
Financial Officer and Treasurer of Georgia Gulf since May 1989.
Joel I. Beerman, 51, has served as Vice President, General Counsel and
Secretary since February 1994.
William H. Doherty, 46, has served as Vice President, Vinyl Compounds Group
since December 1999. Before then, Mr. Doherty served as General Manager Vinyl
Compounds since May 1998 and as Business Manager Vinyl Compounds from May 1992
until May 1998.
David L. Magee, 64, has served as Vice President, Operations, Chemicals and
Polymers Groups since December 1999. Mr. Magee served as Director of
Manufacturing Operations from January 1999 until December 1999, as General
Manager from March 1997 until January 1999 and as Director of Engineering from
February 1995 until March 1997.
C. Douglas Shannon, 49, has served as Vice President, Chemicals Groups since
December 1999. Before then, Mr. Shannon served as Director of Business Area
Management Commodity Chemicals from July 1998 until December 1999. Since
September 1993, Mr. Shannon has also served as Business Manager Electrochemicals
and provided services in feedstock purchasing.
Mark J. Seal, 49, has served as Vice President, Polymer Group since
August 1993.
Executive officers are elected by, and serve at the pleasure of, the board
of directors.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Election of Directors" and
"Executive Compensation" in our proxy statement for the Annual Meeting of
Stockholders to be held on May 15, 2001 is hereby incorporated by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the captions "Principal Stockholders" and
"Security Ownership of Management" in our proxy statement for the Annual Meeting
of Stockholders to be held on May 15, 2001 is hereby incorporated by reference
in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We have not had any transactions required to be reported under this item for
the calendar year 2000, or for the period from January 1, 2001 to the date of
this report.
60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Form 10-K:
(1) Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for the years ended December 31, 2000,
1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Management
Report of Independent Public Accountants
(2) Financial Statement Schedules:
Report of Independent Public Accountants on Financial Statement Schedule
The following financial statement schedule is for the years ended
December 31, 2000, 1999 and 1998:
II Valuation and Qualifying Accounts
Schedules other than the one listed above are omitted because they are not
required and are inapplicable or the information is otherwise shown in the
Consolidated Financial Statements or related notes.
(3) Exhibits. Each management contract or compensatory plan or arrangement
is preceded by an asterisk.
The following exhibits are filed as part of this Form 10-K:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
23 Consent of Independent Public Accountants
The following exhibit is incorporated by reference to Georgia Gulf's
Form 8-A amendment filed December 13, 2000:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
4.1 Amended and Restated Rights Agreement, dated as of December
5, 2000, between Georgia Gulf and EquiServe Trust Company,
N.A.
61
The following exhibit is incorporated by reference to Georgia Gulf's
Form 10-Q Report for the quarter ended June 30, 2000, filed August 14, 2000:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
10 Amended and Restated Receivables Transfer Agreement dated as
of May 24, 2000 among GGRC Corp., as seller, and Georgia
Gulf Corporation and Georgia Gulf Chemicals and Vinyls, LLC,
as initial servicers, and Blue Ridge Asset Funding
Corporation, as purchaser, and Wachovia Bank, N.A. as
administrative agent.
The following exhibits are incorporated herein by reference to Georgia
Gulf's 1999 Form 8-K Current Report dated November 18, 1999, filed November 19,
1999:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
4.1 Indenture dated as of November 12, 1999 between Georgia Gulf
Corporation and SunTrust Bank, Atlanta, as trustee
10.1 Credit Agreement dated as of November 12, 1999 between
Georgia Gulf Corporation, the Eligible Subsidiaries referred
to therein, the Lenders party thereto, and the The Chase
Manhattan Bank as Administrative Agent, Syndication Agent
and Collateral Agent
The following exhibit is incorporated herein by reference to Georgia Gulf's
1999 Form 10-Q Quarterly Report for the period ending September 30, 1999, filed
October 28, 1999:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
2(a) Asset Purchase Agreement dated as of August 30, 1999,
between CONDEA Vista Company and Georgia Gulf Corporation
The following exhibit is incorporated herein by reference to Georgia Gulf's
1998 Form 10-Q Quarterly Report for the period ending June 30, 1998, filed
August 13, 1998:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
10(a) Stock Purchase Agreement, dated May 11, 1998, between
Georgia Gulf and North American Plastics, Inc.
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-8 (File No. 33-59433) filed July 20, 1998:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
*4 Georgia Gulf Corporation 1998 Equity and Performance
Incentive Plan
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-8 (File No. 33-64749) filed December 5, 1995:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
10 Georgia Gulf Corporation Employee Stock Purchase Plan
62
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-3 (File No. 33-63051) filed September 28, 1995:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
4 Indenture, dated as of November 15, 1995, between Georgia
Gulf and LaSalle National Bank, as trustee (including form
of Notes).
The following exhibits are incorporated herein by reference to Georgia
Gulf's 1991 Form 10-K Annual Report filed March 30, 1992:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
3(a) Certificate of Amendment of Certificate of Incorporation
3(b) Amended and Restated By-Laws
*10 Georgia Gulf Corporation 1990 Incentive Equity Plan
The following exhibits are incorporated herein by reference to Georgia
Gulf's Registration Statement on Form S-1 (File No. 33-9902) declared effective
on December 17, 1986:
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
10(g) Agreement re: Liabilities among Georgia-Pacific, Georgia-
Pacific Chemicals, Inc., and others dated, December 31, 1984
10(o) Georgia Gulf Savings and Capital Growth Plan
10(p) Georgia Gulf Salaried Employees Retirement Plan
10(q) Georgia Gulf Hourly Employees Retirement Plan
*10(u) Executive Retirement Agreements
10(v) Salt Contract
The following exhibit is incorporated by reference to Georgia Gulf's 1999
Form 10-K Annual Report filed March 28, 2000.
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
21 Subsidiaries of the Registrant
(b) Reports on Form 8-K
During the fourth quarter of 1999, we filed the following Current Report on
Form 8-K:
Current Report on Form 8-K dated and filed December 13, 2000 reporting under
Item 5, Georgia Gulf's approval of an amended and restated rights agreement
dated as of December 5, 2000 between Georgia Gulf and EquiServe Trust Company,
N.A.
63
SIGNATURES
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.
GEORGIA GULF CORPORATION
(Registrant)
Date: April 2, 2001 By: /s/ EDWARD A. SCHMITT
-----------------------------------------
Edward A. Schmitt,
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EDWARD A. SCHMITT President, Chief Executive
------------------------------------------- Officer and Director April 2, 2001
Edward A. Schmitt (Principal Executive Officer)
Vice President Finance, Chief
/s/ RICHARD B. MARCHESE Financial Officer and
------------------------------------------- Treasurer (Principal April 2, 2001
Richard B. Marchese Financial and Accounting
Officer)
/s/ JAMES R. KUSE
------------------------------------------- Chairman of the Board and April 2, 2001
James R. Kuse Director March 28, 2001
/s/ JOHN E. AKITT
------------------------------------------- Director April 2, 2001
John E. Akitt
/s/ JOHN D. BRYAN
------------------------------------------- Director April 2, 2001
John D. Bryan
/s/ DENNIS M. CHORBA
------------------------------------------- Director April 2, 2001
Dennis M. Chorba
/s/ PATRICK J. FLEMING
------------------------------------------- Director April 2, 2001
Patrick J. Fleming
/s/ CHARLES T. HARRIS III
------------------------------------------- Director April 2, 2001
Charles T. Harris III
/s/ JERRY R. SATRUM
------------------------------------------- Director April 2, 2001
Jerry R. Satrum
64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To Georgia Gulf Corporation:
We have audited, in accordance with auditing standards generally accepted in
the United States, the financial statements included in this Form 10-K and have
issued our report thereon dated February 16, 2001. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in Item 14 of this Form 10-K is the responsibility of Georgia Gulf's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 16, 2001
65
GEORGIA GULF CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
ADDITIONS
-----------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
1998
Allowance for doubtful accounts.......... $2,400 $ -- $ -- $ -- $2,400
1999
Allowance for doubtful accounts.......... $2,400 $103 $ -- $ (103)(1) $2,400
2000
Allowance for doubtful accounts.......... $2,400 $639 $ -- $ (667)(1) $2,372
- ------------------------
NOTES:
(1) Accounts receivable balances written off during the period.
66
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE(1)
- --------------------- ----------- --------
23........ Consent of Independent Public Accountants
- ------------------------
(1) Page numbers appear on the manually signed Form 10-K's only. [This Page
Intentionally Left Blank]
67