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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, 1997
OR
---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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 5, 1997
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Common Stock, $0.01 par value....................... 33,896,910 shares
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GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 1997
INDEX
PAGE NUMBERS
------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 1997 and
December 31, 1996 1
Condensed Consolidated Statements of
Income for the three months ended
March 31, 1997 and 1996 2
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial
Statements as of March 31, 1997 4
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
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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)
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
Cash and cash equivalents................... $ 4,042 $ 698
Receivables................................. 79,356 64,131
Inventories................................. 83,054 89,196
Prepaid expenses............................ 6,791 9,934
Deferred income taxes....................... 6,410 6,410
------------ ------------
Total current assets................... 179,653 170,369
------------ ------------
Property, plant and equipment, at cost...... 666,474 646,144
Less accumulated depreciation.......... 259,018 251,407
------------ ------------
Property, plant and equipment, net... 407,456 394,737
------------ ------------
Other assets................................ 22,929 22,893
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Total assets................................ $610,038 $ 587,999
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................ $103,843 $ 94,767
Interest payable............................ 4,951 2,910
Accrued income taxes........................ 6,855 2,039
Accrued compensation........................ 3,567 5,637
Accrued pension............................. 2,243 2,139
Other accrued liabilities................... 15,030 13,482
------------ ------------
Total current liabilities.............. 136,489 120,974
------------ ------------
Long-term debt.............................. 402,000 395,600
------------ ------------
Deferred income taxes....................... 52,855 52,855
------------ ------------
Stockholders' equity
Common stock--$0.01 par value.......... 343 346
Retained earnings...................... 18,351 18,224
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Total stockholders' equity........ 18,694 18,570
------------ ------------
Total liabilities and
stockholders' equity................... $610,038 $ 587,999
------------ ------------
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Common shares outstanding................... 34,267,550 34,584,800
------------ ------------
------------ ------------
See notes to condensed consolidated financial statements.
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GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1997 1996
------------ ------------
Net sales................................... $ 239,225 $ 208,036
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Operating costs and expenses
Cost of sales......................... 203,460 167,118
Selling and administrative............ 11,098 10,808
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Total operating costs and expenses... 214,558 177,926
------------ ------------
Operating income............................ 24,667 30,110
Other income (expense)
Interest, net.......................... (5,262) (4,642)
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Income before income taxes.................. 19,405 25,468
Provision for income taxes.................. 7,344 9,662
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Net income.................................. $ 12,061 $ 15,806
------------ ------------
------------ ------------
Net income per common share................. $ 0.35 $ 0.42
------------ ------------
------------ ------------
Weighted average common shares
and equivalents outstanding............ 34,807,706 37,636,402
------------ ------------
------------ ------------
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)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1,997 1,996
------------ ------------
Cash flows from operating activities:
Net income............................. $ 12,061 $ 15,806
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization..... 7,875 8,680
Change in assets, liabilities
and other....................... 9,546 31,905
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Net cash provided by operating activities... 29,482 56,391
------------ ------------
Cash flows from financing activities:
Long-term debt proceeds................ 45,000 26,000
Long-term debt payments................ (38,600) (20,000)
Proceeds from issuance of common stock. 325 1,250
Purchase and retirement of common stock (9,783) (20,382)
Dividends paid......................... (2,750) (2,958)
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Net cash used in financing activities....... (5,808) (16,090)
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Cash flows from investing activities:
Capital expenditures................... (20,330) (39,381)
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Net cash used in investing activities....... (20,330) (39,381)
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Net change in cash and cash equivalents..... 3,344 920
Cash and cash equivalents at beginning
of period.............................. 698 2,530
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Cash and cash equivalents at end of period.. $ 4,042 $ 3,450
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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-month period ended March 31, 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):
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
Raw materials and supplies........... $ 36,041 $ 38,803
Finished goods....................... 47,013 50,393
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$ 83,054 $ 89,196
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NOTE 3: STOCKHOLDERS' EQUITY
The Company purchased 359,000 shares of its common stock for $9,783,000
during the three months ended March 31, 1997. As of March 31, 1997, the
Company had authorization to purchase up to 2,791,800 additional shares under
the current common stock purchase program.
4
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NOTE 4: 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, new accounting and reporting
standards 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.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter of 1997 Compared with the First Quarter of 1996:
For the first quarter ended March 31, 1997, net income per common share
was $0.35 on net income of $12.1 million and net sales of $239.2 million.
This compares to net income per common share of $0.42, net income of $15.8
million and net sales of $208.0 million for the first quarter of 1996.
Operating income for the first quarter of 1997 was $24.7 million, a
decrease of 18 percent from $30.1 million for the same period in 1996. This
decline resulted from a substantial drop in caustic soda pricing which more
than offset improvements in aromatic chemicals, methanol and vinyl compounds.
Caustic soda pricing decreased as industry supply exceeded demand for much of
the first quarter of 1997. Overall results for aromatic chemicals improved in
spite of lower acetone prices and higher raw material costs. Methanol profits
increased as a result of stronger demand and slightly lower natural gas
costs. Vinyl compounds achieved good results, although the remainder of the
vinyl chain continued to be disappointing as a result of higher raw material
costs.
Overall production and sales volumes were both up 17 percent from the
first quarter of 1996, primarily as a result of prior year weather-related
plant shutdowns. The overall average sales price of the Company's products
declined slightly.
Interest expense increased to $5.3 million for the first quarter of 1997,
compared to $4.6 million for the same period in 1996. This increase was
primarily attributable to a higher debt balance for the first quarter of
1997, which helped fund the Company's capital expenditure and stock purchase
programs.
Net income per common share for the first quarter of 1997 was favorably
impacted by a reduction in the number of outstanding common shares from the
first quarter of 1996, as a result of the Company's stock purchase programs.
6
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LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1997, Georgia Gulf generated
$29.5 million of cash flow from operating activities as compared to $56.4
million for the three months ended March 31, 1996. This reduction in cash
flow resulted from lower net income in 1997 and working capital fluctuations
in both periods. For the first three months of 1997, $9.5 million was
generated by working capital fluctuations, primarily resulting from a higher
accounts payable balance due to the timing of raw material purchases.
However, for the first quarter of 1996, $31.9 million was generated from
working capital fluctuations which were attributable to changes in trade
receivables and accounts payable, offset in part by a decrease in accrued
compensation relating to the Company's profit sharing plan.
Debt increased by $6.4 million during the three months ended March 31,
1997, to a level of $402.0 million. The Company presently has approximately
$165 million of availability under its $350 million revolving credit loan.
Capital expenditures for the three months ended March 31, 1997, were
$20.3 million as compared to $39.4 million for the same 1996 period. The air
separation plant was completed during the first quarter of 1997 and began
suppling oxygen and nitrogen to the Company's Plaquemine, Louisiana complex.
The expansion and modernization of the vinyl chloride monomer ("VCM") plant
was also completed during the latter part of the first quarter of 1997,
raising the Company's annual VCM capacity to approximately 1.6 billion
pounds. Major capital projects underway in 1997 include the expansion of the
phenol/acetone plant in Plaquemine, Louisiana, scheduled to be completed
during the second quarter of 1997, and the second phase of the vinyl compound
expansion at Gallman, Mississippi, scheduled to be completed by the end of
the third quarter of 1997. The Company estimates that total capital
expenditures for 1997 will approximate $70.0 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 end
of the second quarter of 1997.
The Company declared dividends of $0.08 per share or $2.8 million during
the first three months of 1997. The Company also purchased 359,000 shares of
its common stock at a cost of $9.8 million during the same period. As of
March 31, 1997,
7
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the Company had authorization to purchase up to 2.8 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 repurchases, working
capital and debt service requirements.
OUTLOOK
The current capital expansion and modernization program is nearing
completion, which will enable the Company to return to a more normalized
production schedule with fewer disruptions. Thus, the Company is anticipating
an increase in production and a reduction in costs as it begins to realize
the benefits of the capital improvement program.
Although the Company's vinyl resin business continued to struggle in the
first quarter of 1997, strengthening has occurred in the second quarter.
Methanol margins are also improving as a result of stronger demand and lower
natural gas costs. Accordingly, management is hopeful that this stronger
demand will result in a significant increase in earnings for the second
quarter of 1997.
8
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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 first quarter of 1997.
9
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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)
DATE MAY 7, 1997 /S/ JERRY R. SATRUM
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JERRY R. SATRUM
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE MAY 7, 1997 /S/ RICHARD B. MARCHESE
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RICHARD B. MARCHESE
VICE PRESIDENT--FINANCE AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
10
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1997
<CASH> 4,042
<SECURITIES> 0
<RECEIVABLES> 81,728
<ALLOWANCES> 2,372
<INVENTORY> 83,054
<CURRENT-ASSETS> 179,653
<PP&E> 666,474
<DEPRECIATION> 259,018
<TOTAL-ASSETS> 610,038
<CURRENT-LIABILITIES> 136,489
<BONDS> 402,000
0
0
<COMMON> 343
<OTHER-SE> 18,351
<TOTAL-LIABILITY-AND-EQUITY> 610,038
<SALES> 239,225
<TOTAL-REVENUES> 239,225
<CGS> 203,460
<TOTAL-COSTS> 203,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,262
<INCOME-PRETAX> 19,405
<INCOME-TAX> 7,344
<INCOME-CONTINUING> 12,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,061
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
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