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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO________ to ________
Commission File Number 1-9753
__________
GEORGIA GULF CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 58-1563799)
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
400 Perimeter Center Terrace, Suite 595, Atlanta, Georgia 30346
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (770) 395-4500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AS OF
CLASS NOVEMBER 7, 1997
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Common Stock, $0.01 par value..................... 32,940,695 shares
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GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
PAGE
NUMBERS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996............................................... 1
Condensed Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1997 and 1996....................... 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996............................ 3
Notes to Condensed Consolidated Financial Statements as of
September 30, 1997.................................................. 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 6-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................... 9
SIGNATURES.......................................................................... 10
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
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ASSETS
Cash and cash equivalents........................................................... $ 3,237 $ 698
Receivables......................................................................... 70,873 64,131
Inventories......................................................................... 82,911 89,196
Prepaid expenses.................................................................... 5,314 9,934
Deferred income taxes............................................................... 6,410 6,410
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Total current assets.............................................................. 168,745 170,369
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Property, plant and equipment, at cost.............................................. 639,751 646,144
Less accumulated depreciation..................................................... (230,050) (251,407)
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Property, plant and equipment, net.............................................. 409,701 394,737
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Other assets........................................................................ 24,804 22,893
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Total assets........................................................................ $ 603,250 $ 587,999
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................................................... $ 91,910 $ 94,767
Interest payable.................................................................... 3,830 2,910
Accrued income taxes................................................................ 9,172 2,039
Accrued compensation................................................................ 6,033 5,637
Accrued pension..................................................................... 3,357 2,139
Other accrued liabilities........................................................... 24,358 13,482
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Total current liabilities......................................................... 138,660 120,974
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Long-term debt...................................................................... 373,500 395,600
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Deferred income taxes............................................................... 62,324 52,855
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Stockholders' equity
Common stock--$0.01 par value..................................................... 331 346
Retained earnings................................................................. 28,435 18,224
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Total stockholders' equity...................................................... 28,766 18,570
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Total liabilities and stockholders' equity.......................................... $ 603,250 $ 587,999
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Common shares outstanding........................................................... 33,113,620 34,584,800
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See notes to condensed consolidated financial statements.
1
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales.......................................... $ 235,915 $ 237,946 $ 733,348 $ 677,369
------------ ------------ ------------ ------------
Operating costs and expenses
Cost of sales.................................... 182,275 190,368 592,165 541,780
Selling and administrative....................... 11,336 9,977 34,308 31,711
------------ ------------ ------------ ------------
Total operating costs and expenses................. 193,611 200,345 626,473 573,491
------------ ------------ ------------ ------------
Operating income................................... 42,304 37,601 106,875 103,878
Other income (expense)
Gain on sale of assets........................... 8,600 -- 8,600 --
Interest, net.................................... (6,311) (5,601) (18,313) (15,323)
------------ ------------ ------------ ------------
Income before income taxes......................... 44,593 32,000 97,162 88,555
Provision for income taxes......................... 16,869 12,129 36,797 33,592
------------ ------------ ------------ ------------
Net income......................................... $ 27,724 $ 19,871 $ 60,365 $ 54,963
------------ ------------ ------------ ------------
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Net income per common share........................ $ 0.82 $ 0.56 $ 1.76 $ 1.50
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Weighted average common shares
and equivalents outstanding...................... 33,627,717 35,465,268 34,235,015 36,685,951
------------ ------------ ------------ ------------
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See notes to condensed consolidated financial statements.
2
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
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Cash flows from operating activities:
Net income.................................................................. $ 60,365 $ 54,963
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization........................................... 27,609 26,998
Gain on sale of assets.................................................. (8,600) --
Change in assets, liabilities and other................................. 25,461 22,313
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Net cash provided by operating activities..................................... 104,835 104,274
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Cash flows from financing activities:
Long-term debt proceeds..................................................... 137,900 181,600
Long-term debt payments..................................................... (160,000) (107,500)
Proceeds from issuance of common stock...................................... 1,153 1,421
Purchase and retirement of common stock..................................... (43,828) (89,764)
Dividends paid.............................................................. (8,093) (8,629)
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Net cash used in financing activities......................................... (72,868) (22,872)
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Cash flows from investing activities:
Capital expenditures........................................................ (45,905) (87,018)
Net proceeds from the sale of assets........................................ 16,477 6,062
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Net cash used in investing activities......................................... (29,428) (80,956)
Net change in cash and cash equivalents....................................... 2,539 446
Cash and cash equivalents at beginning of period.............................. 698 2,530
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Cash and cash equivalents at end of period.................................... $ 3,864 $ 2,976
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See notes to condensed consolidated financial statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for Georgia Gulf Corporation and its subsidiaries (the
"Company" or "Georgia Gulf") for the three- and nine-month periods ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report for the year ended December 31, 1996.
NOTE 2: INVENTORIES
The major classes of inventories were as follows (in thousands):
SEPT. 30, DEC. 31,
1997 1996
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Raw materials and supplies....................... $ 33,296 $ 38,803
Finished goods................................... 49,615 50,393
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$ 82,911 $ 89,196
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NOTE 3: STOCKHOLDERS' EQUITY
The Company purchased 1,621,600 shares of its common stock for
$43,828,000 during the nine months ended September 30, 1997. As of September
30, 1997, the Company had authorization to purchase up to 1,529,200
additional shares under the current common stock purchase program.
NOTE 4: DERIVATIVE FINANCIAL INSTRUMENTS
The Company has two interest rate swap agreements for a total notional
amount of $100,000,000 maturing in June 2000 to fix the interest rate on a
term loan. Also, the Company has an interest rate swap agreement for a
notional amount of $100,000,000 as a cash flow hedge for a cogeneration
facility operating lease agreement. This interest rate swap agreement became
effective in August 1997 and will mature August 2002. As of September 30,
1997, these interest rate swap agreements were the only derivative financial
instruments outstanding.
The Company does not use derivatives for trading purposes. Interest rate
swap agreements, a form of derivative, are used by the Company to manage
interest costs. The annual financial statements do not reflect temporary
market gains and losses on derivative financial instruments, although the
estimated fair value is disclosed. Amounts paid or received on the interest
rate swap agreements are recorded to interest expense as incurred. In the
event a financial instrument is terminated prior to maturity, the Company
would record the gain or loss on the transaction.
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NOTE 5: NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share," which becomes
effective for both interim and annual periods ending after December 15, 1997.
SFAS No. 128 established, among other things, a new accounting and reporting
standard for computing and presenting earnings per share. The Company will
adopt the new standard in the fourth quarter of 1997 but does not anticipate
any material impact to the financial statements.
NOTE 6: DISPOSITION
In July 1997, the Company completed the sale of certain oil and gas
properties representing substantially all of the assets of Great River Oil &
Gas Corporation, a subsidiary of the Company. Net proceeds from this sale
were $16,477,000, and the Company recorded a pretax gain in the third quarter
of 1997 for $8,600,000. Historically, the operating results for this
subsidiary have not been material to the financial statements of Georgia Gulf.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Third Quarter of 1997 Compared With the Third Quarter of 1996:
For the third quarter ended September 30, 1997, net income per common
share was $0.82 on net income of $27.7 million and net sales of $235.9
million. This compares with net income per common share of $0.56, net income
of $19.9 million and net sales of $237.9 million for the third quarter of
1996.
Operating income for the third quarter of 1997 was $42.3 million, an
increase of 13 percent from $37.6 million for the same period in 1996.
Comparing the quarters ended September 30, 1997 and 1996, overall sales
volume climbed 8 percent as strong cumene sales, accompanied by higher vinyl
chloride monomer ("VCM") sales, more than offset the impact of lower sales
volumes in the Company's vinyl business. Cumene sales for 1997 reflect the
full impact of the capacity expansion which was completed during the third
quarter of 1996. The increase in VCM sales volumes was primarily attributable
to a maintenance turnaround during the third quarter of 1996 which reduced
product availability. Vinyl resin sales volumes continued to suffer from
excess industry capacity. The overall average selling price of the Company's
products declined 9 percent as a result of significantly lower prices for
caustic soda, which exceeded pricing gains for methanol and acetone. Raw
material prices were lower for the quarterly comparison and included savings
in electricity costs associated with the start-up of the cogeneration plant
at the Company's Plaquemine, Louisiana facility early in the third quarter of
1997. The combination of higher sales volumes and lower raw material prices
more than offset the decline in the overall average selling price of the
Company's products resulting in improved profits for the third quarter of
1997.
In July 1997, the Company completed the sale of certain oil and gas
properties representing substantially all of the assets of Great River Oil &
Gas Corporation, a subsidiary of the Company. The gain from this sale was
$8.6 million.
Interest expense increased to $6.3 million for the third quarter of 1997,
compared with $5.6 million for the same period in 1996. This increase was
primarily attributable to slightly higher interest rates and a higher debt
balance during the earlier part of the third quarter of 1997. The higher debt
balance was related to the funding of the Company's capital expenditure and
stock purchase programs.
Net income per common share for the third quarter of 1997 was favorably
impacted by a reduction in the number of outstanding common shares from the
third quarter of 1996 as a result of the Company's stock purchase programs.
Nine Months Ended September 30, 1997 Compared With the Nine Months Ended
September 30, 1996:
For the nine months ended September 30, 1997, net income per common share
was $1.76 on net income of $60.4 million and net sales of $733.3 million.
This compares with net income per common share of $1.50, net income of $55.0
million and net sales of $677.4 million for the same period in 1996.
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Operating income for the nine months ended September 30, 1997, was $106.9
million, an increase of 3 percent from $103.9 million for the same period in
1996. When comparing the nine-month periods ended September 30, 1997 and
1996, overall sales volumes grew 14 percent as nearly all product sales
volumes increased over prior year levels with the exception of the vinyl
business where volumes declined. A portion of the increase in sales volumes
resulted from lower sales in 1996 due to plant downtime for tie-ins of
capacity expansions and maintenance turnarounds. Although pricing for most
products improved, these increases were not sufficient to offset
significantly lower caustic soda pricing which resulted in a 5 percent
decline in the overall average selling price of the Company's products. Raw
material costs were considerably higher in 1997 with the exception of
slightly lower natural gas costs. Overall, results for the first nine months
of 1997 improved as the significant increase in sales volumes more than
covered the overall decline in average sales price and higher raw material
costs.
Net interest expense for the first nine months of 1997 increased to $18.3
million from $15.3 million in the same period in 1996. This increase was
primarily attributable to a higher overall average debt balance in 1997
primarily associated with the Company's capital expenditure and stock
purchase programs.
Net income per common share for the nine months ended September 30, 1997,
was favorably impacted by a reduction in the number of outstanding common
shares from the same period in 1996 as a result of the Company's stock
purchase programs.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997, Georgia Gulf generated
$104.8 million of cash flow from operating activities as compared with $104.3
million for the nine months ended September 30, 1996. During the third
quarter of 1997, the Company sold certain oil and gas properties for net
proceeds of $16.5 million, which are included in cash flows from investing
activities in the Statement of Cash Flows. The book gain from this sale of
$8.6 million has been reflected as a reduction to net income for purposes of
determining net cash provided by operating activities. Cash flows from
operating activities were also impacted by changes in working capital
fluctuations for both 1997 and 1996. For the first nine months of 1997,
working capital fluctuations primarily resulted from an increase in accounts
receivable due to higher sales in 1997, offset by lower inventories and a
higher accrued income tax payable due to the timing of payments. Working
capital fluctuations during the first nine months of 1996 were attributable
to a reduction in accounts receivable and an increase in accounts payable,
partially offset by an increase in inventories and a reduction in accrued
compensation related to the Company's profit sharing plan.
Debt decreased by $22.1 million during the nine months ended September
30, 1997, to a level of $373.5 million. Funds used to decrease debt included
net proceeds of $16.5 million from the sale of certain oil and gas properties
in July 1997. The Company had approximately $208.0 million of availability
under its $350.0 million revolving credit loan as of September 30, 1997.
Capital expenditures for the nine months ended September 30, 1997, were
$45.9 million as compared to $87.0 million for the same 1996 period. The
expansion and modernization of the VCM plant, along with the expansion of the
phenol/acetone plant, both located in Plaquemine, Louisiana, were completed
during the first half of 1997. The second phase of the vinyl compound
expansion at Gallman, Mississippi, was completed at the end of the third
quarter of 1997 bringing annual vinyl compound capacity to approximately 380
million pounds. The Company estimates that total capital expenditures for
1997 will approximate $60.0 million. In addition, although not part of the
Company's
7
capital expenditure program, a 250-megawatt cogeneration facility
became fully operational at the beginning of the third quarter and is
supplying essentially all of the electricity and steam requirements to the
Plaquemine, Louisiana complex. The cogeneration facility is leased by the
Company under an operating lease agreement.
The Company declared dividends of $0.24 per share or $8.1 million during
the first nine months of 1997. The Company also purchased 1.6 million shares
of its common stock at a cost of $43.8 million during the same period. As of
September 30, 1997, the Company had authorization to purchase up to 1.5
million additional shares under the current common stock purchase program.
Management believes that cash provided by operations and the availability
under the Company's current debt agreements will provide sufficient funds to
support planned capital expenditures, dividends, stock purchases, working
capital and debt service requirements.
OUTLOOK
Many of the Company's products have continued to perform well during the
first part of the fourth quarter, particularly the aromatic products.
Management is encouraged by recent strengthening in the caustic soda market,
but is anticipating some earnings pressure in the fourth quarter due to
higher natural gas costs and a possible slowdown during the latter part of
the year.
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PART II. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) No exhibits are filed as part of this Form 10-Q Quarterly Report.
b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the third quarter of 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEORGIA GULF CORPORATION
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(REGISTRANT) /S/
DATE NOVEMBER 11, 1997 /S/ JERRY R. SATRUM
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JERRY R. SATRUM
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE NOVEMBER 11, 1997 /S/ RICHARD B. MARCHESE
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RICHARD B. MARCHESE
VICE PRESIDENT FINANCE,
CHIEF FINANCIAL OFFICER AND
TREASURER
(PRINCIPAL FINANCIAL OFFICER)
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