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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission File Number 1-9753
GEORGIA GULF CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 58-1563799
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Perimeter Center Terrace, Suite 595, Atlanta, Georgia 30346
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (770) 395-4500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class May 6, 1998
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Common Stock, $0.01 par value..............................31,652,472 shares
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GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
Page
PART I. FINANCIAL INFORMATION Numbers
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997........................................ 1
Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 1998 and 1997......................... 2
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997......................... 3
Notes to Condensed Consolidated Financial Statements as of
March 31, 1998............................................... 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 6-7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................... 8
SIGNATURES.............................................................................. 9
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1998 1997
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ASSETS
Cash and cash equivalents $ 5,149 $ 1,621
Receivables 65,505 67,553
Inventories 80,447 92,921
Prepaid expenses 7,127 6,508
Deferred income taxes 7,409 7,409
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Total current assets 165,637 176,012
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Property, plant and equipment, at cost 658,555 650,968
Less accumulated depreciation 250,739 240,108
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Property, plant and equipment, net 407,816 410,860
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Other assets 28,305 25,831
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Total assets $ 601,758 $ 612,703
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 80,340 $ 92,588
Interest payable 4,030 2,218
Accrued income taxes 6,752 564
Accrued compensation 4,411 7,281
Accrued pension 2,615 2,257
Other accrued liabilities 15,079 13,632
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Total current liabilities 113,227 118,540
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Long-term debt 398,840 393,040
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Deferred income taxes 68,520 65,520
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Stockholders' equity
Common stock - $0.01 par value 319 328
Retained earnings 20,852 35,275
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Total stockholders' equity 21,171 35,603
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Total liabilities and stockholders' equity $ 601,758 $ 612,703
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Common shares outstanding 31,872,472 32,781,439
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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
March 31,
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1998 1997
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Net sales $ 232,705 $ 239,225
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Operating costs and expenses
Cost of sales 187,699 203,460
Selling and administrative 10,745 11,098
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Total operating costs and expenses 198,444 214,558
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Operating income 34,261 24,667
Other income (expense)
Interest, net (7,126) (5,262)
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Income before income taxes 27,135 19,405
Provision for income taxes 10,179 7,344
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Net income $ 16,956 $ 12,061
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Basic earnings per share $ 0.52 $ 0.35
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Diluted earnings per share $ 0.52 $ 0.35
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Weighted average common shares 32,438,607 34,441,497
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Weighted average common shares and equivalents 32,721,604 34,807,712
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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)
Three Months Ended
March 31,
----------------------------------
1998 1997
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Cash flows from operating activities:
Net income $ 16,956 $ 12,061
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,927 7,875
Change in operating assets, liabilities and other 9,899 9,546
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Net cash provided by operating activities 37,782 29,482
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Cash flows from financing activities:
Long-term debt proceeds 37,000 45,000
Long-term debt payments (31,200) (38,600)
Proceeds from issuance of common stock 981 325
Repurchase and retirement of common stock (30,884) (9,783)
Dividends paid (2,564) (2,750)
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Net cash used in financing activities (26,667) (5,808)
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Cash flows from investing activities:
Capital expenditures (7,587) (20,330)
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Net cash used in investing activities (7,587) (20,330)
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Net change in cash and cash equivalents 3,528 3,344
Cash and cash equivalents at beginning of period 1,621 698
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Cash and cash equivalents at end of period $ 5,149 $ 4,042
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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. 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, 1997.
Operating results for Georgia Gulf Corporation and its subsidiaries
(the "Company" or "Georgia Gulf") for the three-month period ended March 31,
1998, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
requires additional disclosure and presentation of amounts comprising
comprehensive income beyond net income. The Company had no other comprehensive
income amounts for the periods presented. As a result, the adoption had no
impact on the Company's reporting under generally accepted accounting
principles.
NOTE 3: INVENTORIES
The major classes of inventories were as follows (in thousands):
March 31, December 31,
1998 1997
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Raw materials and supplies $ 28,843 $ 34,451
Finished goods 51,604 58,470
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$ 80,447 $ 92,921
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NOTE 4: STOCKHOLDERS' EQUITY
The Company repurchased and retired 1,021,700 shares of its common
stock for $30,884,000 during the three months ended March 31, 1998. As of March
31, 1998, the Company had authorization to repurchase up to 6,500,000 additional
shares under the current common stock repurchase program.
4
NOTE 5: DERIVATIVE FINANCIAL INSTRUMENTS
The Company has two interest rate swap agreements for a total notional
amount of $100,000,000 maturing in June 2002 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 will mature August
2002.
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 on certain portions of the Company's long-term debt. These
financial statements do not reflect temporary market gains and losses on
derivative financial instruments, although the estimated fair value is disclosed
in the Company's annual report for the year ended December 31, 1997. Amounts
paid or received on the interest rate swap agreements are recorded to interest
expense as incurred. As of March 31, 1998, and December 31, 1997, interest rate
swap agreements were the only form of derivative financial instruments
outstanding.
NOTE 6: EARNINGS PER SHARE
Income available to common stockholders, the numerator in basic and
diluted earnings per share computations, is $16,956,000, and $12,061,000 for the
three months ended March 31, 1998 and 1997, respectively.
The following table reconciles the denominator for the basic and
diluted earnings per share computations shown on the condensed consolidated
statements of income (in thousands):
Three Months Ended
March 31,
----------------------------
1998 1997
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Weighted average common shares 32,439 34,441
Plus incremental shares from
assumed conversions:
Options 261 340
Employee stock purchase plan rights 22 27
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Weighted average common shares and equivalents 32,722 34,808
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5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RESULTS OF OPERATIONS
First Quarter of 1998 Compared With the First Quarter of 1997:
For the first quarter ended March 31, 1998, diluted earnings per share
was $0.52 on net income of $17.0 million and net sales of $232.7 million. This
compares with diluted earnings per share of $0.35, net income of $12.1 million
and net sales of $239.2 million for the first quarter of 1997.
Operating income for the first quarter of 1998 was $34.3 million, an
increase of 39 percent from $24.7 million for the same period in 1997. Compared
with the first quarter of 1997, profit margins improved as overall sales volumes
rose slightly and lower costs for raw materials more than offset lower selling
prices. Phenol and acetone sales increased, resulting from the Company's late-
1997 plant expansion, and the Company's electrochemical products experienced
higher sales as well. These increases were somewhat offset by lower volumes from
methanol and cumene. The overall average selling price of the Company's products
decreased by four percent, as improvements in caustic soda and acetone pricing
were more than offset by lower results from cumene, polyvinyl chloride ("PVC")
resins, and vinyl chloride monomer ("VCM").
Interest expense increased to $7.1 million for the first quarter of
1998, compared with $5.3 million for the same period in 1997. This increase
primarily reflects less interest being capitalized than in 1997 in connection
with capital expansion activity and to a lesser extent slightly higher interest
rates during the first quarter of 1998.
Basic and diluted earnings per share for the first quarter of 1998 were
favorably impacted by a reduction in the number of outstanding common shares
from the first quarter of 1997 as a result of the Company's stock repurchase
programs.
LIQUIDITY AND CAPITAL RESOURCES
Georgia Gulf's primary liquidity focus is to maintain debt at a
manageable level, regardless of the Company's position in the economic cycle.
Management believes that cash provided by operations and the availability of
borrowings under the Company's revolving credit facility will provide sufficient
funds to support planned capital expenditures, dividends, stock repurchases,
working capital fluctuations and debt service requirements.
For the three months ended March 31, 1998, Georgia Gulf generated $37.8
million of cash flow from operating activities as compared with $29.5 million
for the three months ended March 31, 1997. Major sources of cash flow from
operating activities in the first quarter of 1998 were net income of $17.0
million, non-cash provisions of $10.9 million for depreciation and amortization,
and fluctuations in working capital items, primarily resulting from a decrease
in inventories offset in part by a lower accounts payable balance and higher
accrued income taxes payable due to the timing of payments. Changes in working
capital during the first three months of 1997 were primarily attributable to a
higher accounts payable balance due to the timing of raw material purchases and
an increase in accounts receivable from higher sales during the first quarter of
1997.
6
Debt increased by $5.8 million during the three months ended March 31,
1998, to a level of $398.8 million. The Company had approximately $180.0 million
of availability under its $350.0 million revolving credit loan as of March 31,
1998.
Capital expenditures for the three months ended March 31, 1998 were
down significantly to $7.6 million as compared to $20.3 million for the same
1997 period. Georgia Gulf completed a capital spending program in 1997, which
included capacity expansions in the phenol, acetone, alpha- methyl styrene
("AMS"), cumene, VCM and PVC compound plants. Capital expenditures for 1998 will
be directed toward certain environmental projects and increased efficiency of
existing operations. The Company estimates that total capital expenditures for
1998 will approximate $45.0 million.
The Company declared dividends of $0.08 per share or $2.6 million
during the first quarter of 1998. The Company also repurchased and retired 1.0
million shares of its common stock at a cost of $30.9 million during the same
period. As of March 31, 1998, the Company had authorization to repurchase up to
6.5 million additional shares under the current common stock repurchase program.
OUTLOOK
Several of the Company's products have continued to perform well during
the first part of the second quarter, particularly caustic soda and PVC
compounds. There are some indications of an improvement in operating profits
from aromatic chemicals as well. However, concern about the length and severity
of the ongoing economic problems in Southeast Asia and the resulting impact on
the PVC resins and VCM businesses, as well as the sudden collapse of methanol
pricing in the face of higher natural gas costs, has resulted in anticipation of
lower earnings for the second quarter of 1998 as compared with the first
quarter.
FORWARD-LOOKING STATEMENTS
This form 10-Q and other communications to stockholders, as well as
oral statements made by representatives of the Company, may contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to, among other things,
the Company's outlook for future periods, supply and demand, pricing trends and
market forces within the chemical industry, cost reduction strategies and their
results, planned capital expenditures, long-term objectives of management and
other statements of expectations concerning matters that are not historical
facts.
Predictions of future results contain a measure of uncertainty and,
accordingly, actual results could differ materially due to various factors.
Factors that could change forward-looking statements are, among others, changes
in the general economy, changes in demand for the Company's products or
increases in overall industry capacity that could affect production volumes
and/or pricing, changes and/or cyclicality in the industries to which the
Company's 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
unforseen circumstances. A number of these factors are discussed in this Form
10-Q and in the Company's other periodic filings with the Securities and
Exchange Commission, including the Company's annual report on Form 10-K for the
year ended December 31, 1997.
7
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K.
a) The following exhibits are filed as part of this Form 10-Q
Quarterly Report.
Exhibit No. Description
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10 (a) Receivable Transfer Agreement dated March 10, 1998,
by and among GGRC Corp., as Transferor, Georgia Gulf
Corporation, individually and as Collection Agent, and
Blue Ridge Asset Funding Corporation.
10 (b) Receivable Purchase Agreement dated March 10, 1998,
between Georgia Gulf Corporation, as Seller and as
Collection Agent and GGRC Corp., as Purchaser.
b) No reports on Form 8-K were filed with the Securities and
Exchange Commission during the first quarter of 1998.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEORGIA GULF CORPORATION
(Registrant)
Date May 8, 1998 /s/ Edward A. Schmitt
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Edward A. Schmitt
President and Chief
Executive Officer
(Principal Executive Officer)
Date May 8, 1998 /s/ Richard B. Marchese
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Richard B. Marchese
Vice President Finance,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
9