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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(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, 1996
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)
<TABLE>
<S> <C>
DELAWARE 58-1563799
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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.
<TABLE>
<CAPTION>
OUTSTANDING AS OF
CLASS NOVEMBER 7, 1996
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<S> <C>
Common Stock, $0.01 par value........................... 34,536,077 shares
</TABLE>
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GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBERS
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1996
and
December 31, 1995.............................................. 1
Condensed Consolidated Statements of Income for the three and
nine months ended September 30, 1996 and 1995.................. 2
Condensed Consolidated Statements of Cash Flows for the nine
months ended
September 30, 1996 and 1995.................................... 3
Notes to Condensed Consolidated Financial Statements as of
September 30, 1996............................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 5-6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 7
SIGNATURES.............................................................. 8
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................... $ 2,976 $ 2,530
Receivables......................................... 73,996 89,414
Inventories......................................... 80,287 75,049
Prepaid expenses.................................... 14,006 12,108
Deferred income taxes............................... 8,115 8,115
---------- ----------
Total current assets............................... 179,380 187,216
---------- ----------
Property, plant and equipment, at cost .............. 613,267 534,264
Less accumulated depreciation....................... 241,836 221,728
---------- ----------
Property, plant and equipment, net................. 371,431 312,536
---------- ----------
Other assets......................................... 6,288 7,580
---------- ----------
Total assets......................................... $ 557,099 $ 507,332
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................... $ 89,903 $ 78,861
Interest payable.................................... 4,739 2,737
Accrued income taxes................................ 4,907 3,296
Accrued compensation................................ 5,815 14,715
Accrued pension..................................... 3,327 2,307
Other accrued liabilities........................... 17,826 11,930
---------- ----------
Total current liabilities.......................... 126,517 113,846
---------- ----------
Long-term debt 366,500 292,400
---------- ----------
Deferred income taxes 53,479 50,458
---------- ----------
Stockholders' equity
Common stock -- $0.01 par value..................... 347 372
Additional paid-in capital.......................... -- 31,312
Retained earnings 10,256 18,944
---------- ----------
Total stockholders' equity......................... 10,603 50,628
---------- ----------
Total liabilities and stockholders' equity........... $ 557,099 $ 507,332
========== ==========
Common shares outstanding............................ 34,704,122 37,240,252
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
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GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales...................... $ 237,946 $ 270,877 $ 677,369 $ 860,736
---------- ---------- ---------- ----------
Operating costs and expenses
Cost of sales................. 190,368 182,204 541,780 552,116
Selling and administrative.... 9,977 11,471 31,711 35,327
---------- ---------- ---------- ----------
Total operating costs and ex-
penses 200,345 193,675 573,491 587,443
---------- ---------- ---------- ----------
Operating income............... 37,601 77,202 103,878 273,293
Other income (expense)
Interest, net................. (5,601) (4,880) (15,323) (20,565)
---------- ---------- ---------- ----------
Income before income taxes..... 32,000 72,322 88,555 252,728
Provision for income taxes..... 12,129 27,840 33,592 97,296
---------- ---------- ---------- ----------
Net income..................... $ 19,871 $ 44,482 $ 54,963 $ 155,432
========== ========== ========== ==========
Net income per common share.... $ 0.56 $ 1.15 $ 1.50 $ 3.90
========== ========== ========== ==========
Weighted average common shares
and equivalents outstanding... 35,465,268 38,606,833 36,685,951 39,843,754
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
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GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $54,963 $155,432
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 26,998 23,921
Change in assets, liabilities and other.................. 22,313 56,710
-------- --------
Net cash provided by operating activities.................. 104,274 236,063
-------- --------
Cash flows from financing activities:
Long-term debt proceeds................................... 181,600 401,700
Long-term debt payments................................... (107,500) (440,081)
Proceeds from issuance of common stock.................... 1,421 1,703
Purchase and retirement of common stock................... (89,764) (135,585)
Dividends paid............................................ (8,629) (9,311)
-------- --------
Net cash used in financing activities...................... (22,872) (181,574)
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (87,018) (52,377)
Net proceeds from the sale of assets...................... 6,062 --
-------- --------
Net cash used in investing activities...................... (80,956) (52,377)
-------- --------
Net change in cash and cash equivalents.................... 446 2,112
Cash and cash equivalents at beginning of period........... 2,530 1,216
-------- --------
Cash and cash equivalents at end of period................. $ 2,976 $ 3,328
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
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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") for the three-and nine-month periods ended September 30, 1996, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. 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, 1995.
NOTE 2: INVENTORIES
The major classes of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
Raw materials and supplies..................... $ 35,055 $23,973
Finished goods................................. 45,232 51,076
-------- -------
$ 80,287 $75,049
======== =======
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NOTE 3: STOCKHOLDERS' EQUITY
The Company purchased 2,799,200 shares of its common stock for $89,764,000
during the nine months ended September 30, 1996. As of September 30, 1996, the
Company had authorization to purchase up to 3,500,000 additional shares under
the current common stock repurchase program.
NOTE 4: DISPOSITION
In April 1996, the Company completed the sale of its Delaware City, Delaware
facility, and its emulsion resin business. The majority of the Delaware City
vinyl compound production has been transferred to the Company's recently
expanded vinyl compound plant in Gallman, Mississippi. The proceeds from the
sale approximated the net book value of the disposed assets.
4
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
THIRD QUARTER OF 1996 COMPARED WITH THE THIRD QUARTER OF 1995:
For the third quarter ended September 30, 1996, net income per common share
was $0.56 on net income of $19.9 million and net sales of $237.9 million. This
compares to net income per common share of $1.15, net income of $44.5 million
and net sales of $270.9 million for the third quarter of 1995. Operating
income for the third quarter of 1996 was $37.6 million, a decrease of 51
percent from $77.2 million for the same period in 1995.
In comparing the two quarterly periods, sales volumes were 5 percent lower
for the third quarter of 1996. Although sales volumes increased for aromatics
and vinyl resins and compounds, these gains were unable to offset the impact
of scheduled maintenance turnarounds at the Company's chlorine/caustic and
vinyl chloride monomer ("VCM") plants during the third quarter of 1996. These
turnarounds resulted in lower production volumes which led to a decrease in
sales volumes. The average selling price of the Company's products also posted
lower results, declining approximately 7 percent from the average for the
third quarter of 1995. Sharp drops in vinyl resin prices due to extremely
competitive market conditions were largely responsible for this decline.
Higher natural gas costs in 1996 pushed the Company's average raw material
price up slightly. As a result of the lower production volumes and sales
coupled with slightly higher raw material costs, profit margins were lower for
all products with the exception of vinyl compounds.
Selling and administrative expenses were $10.0 million for the third quarter
of 1996, compared to $11.5 million for the same period in 1995. This decrease
was primarily attributable to reduced charges relating to the Company's profit
sharing programs for the third quarter of 1996 as a result of lower profits.
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995:
For the nine months ended September 30, 1996, net income per common share
was $1.50 on net income of $55.0 million and net sales of $677.4 million. This
compares to net income per common share of $3.90, net income of $155.4
million, and net sales of $860.7 million for the same period in 1995.
Operating income for the nine months ended September 30, 1996 was $103.9
million, a decrease of 62 percent from $273.3 million for the same period in
1995.
For this comparison, product sales volumes declined nearly 6 percent from
prior year levels even though sales volumes for vinyl resins and compounds
increased. Pricing for nearly all of the Company's products was lower in 1996
as industry supply outpaced demand. The most notable pricing declines came
from the Company's vinyl products chain and methanol which led to a 17 percent
reduction in the average selling price of the Company's products. In reviewing
overall margins, the Company's cost of sales did benefit from lower raw
material costs, but not enough to offset the significant reduction in sales.
Selling and administrative expenses were $31.7 million for the nine months
ended September 30, 1996, compared to $35.3 million for the same period in
1995. This decrease resulted primarily from reduced charges relating to the
Company's profit sharing programs for the nine months ended September 30,
1996.
Net interest expense declined $5.2 million when comparing the first nine
months of 1996 to the same period in 1995. This decline was mainly
attributable to reduced interest rates in connection with the redemption of
the Company's 15% Senior Subordinated Notes early in the second quarter of
1995.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996, $104.3 million of cash was
generated by operating activities as compared to $236.1 million for the nine
months ended September 30, 1995. This reduction in cash
5
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flow resulted from lower net income in 1996 and working capital fluctuations
in 1995. The majority of the change in working capital in 1995 was
attributable to the commencement of the $50.0 million revolving trade
receivables sales program which was offset in part by a decrease in accrued
income taxes.
Debt increased by $74.1 million during the nine months ended September 30,
1996, to a level of $366.5 million which consisted of a $100 million ten-year
public bond issue, a $100 million seven-year term loan, an outstanding balance
of $135.0 million under a $350 million revolving credit loan and two
additional loans with an aggregate balance of $31.5 million.
Capital expenditures for the nine months ended September 30, 1996, were
$87.0 million as compared to $52.4 million for the same 1995 period. Major
capital projects finished during the first nine months of 1996, included the
completion of the first phase of the vinyl compound expansion at Gallman,
Mississippi and a modernization and expansion of the Pasadena, Texas cumene
plant. Additional projects under construction at the Plaquemine, Louisiana
complex include a VCM expansion scheduled for completion during the fourth
quarter of 1996, an air separation plant scheduled to come on-line in January
1997, and an expansion of the phenol\/acetone plant scheduled to be completed
during the second quarter of 1997. The second phase of the vinyl compound
expansion at Gallman, Mississippi is also underway with completion scheduled
for the fourth quarter of 1997. The Company estimates that capital
expenditures for 1996 will approximate $125.0 million. In addition, although
not part of the Company's capital expenditure program, a 250 megawatt co-
generation facility is under construction at the Plaquemine, Louisiana
complex. The co-generation facility, which will be leased by the Company under
an operating lease agreement, is scheduled to be completed by the third
quarter of 1997.
The Company declared dividends of $0.24 per share or $8.6 million during the
first nine months of 1996. The Company also purchased 2.8 million shares of
its common stock at a cost of $89.8 million during the same period. As of
September 30, 1996, the Company had authorization to purchase up to 3.5
million additional shares under the current common stock repurchase 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 repurchases, working
capital, and debt service requirements.
OUTLOOK
Looking forward to the fourth quarter, management anticipates some slowdowns
with certain products, but is hopeful for a continuation of good results in
aromatics and methanol. Moving into 1997, added capacity and cost reduction
projects are expected to positively impact the Company's operations.
6
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<C> <S>
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 1996.
</TABLE>
7
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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
_____________________________________
(Registrant)
November 12, 1996 /s/ Jerry R. Satrum
Date ________________________________ _____________________________________
Jerry R. Satrum
President and Chief
Executive Officer
(Principal Executive Officer)
November 12, 1996 /s/ Richard B. Marchese
Date ________________________________ _____________________________________
Richard B. Marchese
Vice President--Finance and
Chief Financial Officer
(Principal Financial Officer)
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Georgia Gulf
Corporation's Form 10-Q for the quarter ended September 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,976
<SECURITIES> 0
<RECEIVABLES> 76,368
<ALLOWANCES> 2,372
<INVENTORY> 80,287
<CURRENT-ASSETS> 179,380
<PP&E> 613,267
<DEPRECIATION> 241,836
<TOTAL-ASSETS> 557,099
<CURRENT-LIABILITIES> 126,517
<BONDS> 366,500
0
0
<COMMON> 347
<OTHER-SE> 10,256
<TOTAL-LIABILITY-AND-EQUITY> 557,099
<SALES> 677,369
<TOTAL-REVENUES> 677,369
<CGS> 541,780
<TOTAL-COSTS> 541,780
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,323
<INCOME-PRETAX> 88,555
<INCOME-TAX> 33,592
<INCOME-CONTINUING> 54,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,963
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
</TABLE>
