<PAGE>
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 June 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 ___
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 o 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 AUGUST 5, 1997
----- ----------------
<S> <C>
Common Stock, $0.01 par value............................ 33,390,000 shares
</TABLE>
<PAGE>
GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBERS
-------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996........ 1
Condensed Consolidated Statements of Income
for the Three and Six Months Ended
June 30, 1997 and 1996........................... 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997
and 1996......................................... 3
Notes to Condensed Consolidated Financial
Statements as of June 30, 1997................... 4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 6-7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders.......................................... 8
Item 6. Exhibits and Reports on Form 8-K................... 8
SIGNATURES.......................................................... 9
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................. $ 3,864 $ 698
Receivables............................................................... 89,051 64,131
Inventories............................................................... 74,888 89,196
Prepaid expenses.......................................................... 6,028 9,934
Deferred income taxes..................................................... 6,410 6,410
------------ ------------
Total current assets...................................................... 180,241 170,369
------------ ------------
Property, plant and equipment, at cost.................................... 682,278 646,144
Less accumulated depreciation............................................. (268,587) (251,407)
------------ ------------
Property, plant and equipment, net........................................ 413,691 394,737
------------ ------------
Other assets.............................................................. 23,767 22,893
------------ ------------
Total assets.............................................................. $ 617,699 $ 587,999
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS EQUITY
Accounts payable.......................................................... $ 89,133 $ 94,767
Interest payable.......................................................... 3,085 2,910
Accrued income taxes...................................................... 2,617 2,039
Accrued compensation...................................................... 4,692 5,637
Accrued pension........................................................... 2,782 2,139
Other accrued liabilities................................................. 13,718 13,482
------------ ------------
Total current liabilities................................................. 116,027 120,974
------------ ------------
Long-term debt............................................................ 423,000 395,600
------------ ------------
Deferred income taxes..................................................... 60,755 52,855
------------ ------------
Stockholders equity
Common stock--$0.01 par value............................................. 336 346
Retained earnings......................................................... 17,581 18,224
------------ ------------
Total stockholders equity................................................. 17,917 18,570
------------ ------------
Total liabilities and stockholders equity................................. $ 617,699 $ 587,999
------------ ------------
------------ ------------
Common shares outstanding................................................. 33,568,250 34,584,800
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ --------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------------- ------------ ------------ ------------
Net sales.............................. $ 258,208 $ 231,387 $ 497,433 $ 439,423
---------------- ------------ ------------ ------------
Operating costs and expenses
Cost of sales........................ 206,430 184,294 409,890 351,412
Selling and administrative........... 11,874 10,926 22,972 21,734
---------------- ------------ ------------ ------------
Total operating costs and expenses. 218,304 195,220 432,862 373,146
---------------- ------------ ------------ ------------
Operating income....................... 39,904 36,167 64,571 66,277
Other income (expense)
Interest, net........................ (6,740) (5,080) (12,002) (9,722)
---------------- ------------ ------------ ------------
Income before income taxes............. 33,164 31,087 52,569 56,555
Provision for income taxes............. 12,584 11,801 19,928 21,463
---------------- ------------ ------------ ------------
Net income............................. $ 20,580 $ 19,286 $ 32,641 $ 35,092
---------------- ------------ ------------ ------------
---------------- ------------ ------------ ------------
Net income per common share............ $ 0.60 $ 0.52 $ 0.95 $ 0.94
---------------- ------------ ------------ ------------
---------------- ------------ ------------ ------------
Weighted average common shares
and outstanding equivalents.......... 34,222,185 36,969,074 34,517,746 37,312,728
---------------- ------------ ------------ ------------
---------------- ------------ ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Cash flows from operating activities:
Net income............................................ $ 32,641 $ 35,092
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization..................... 17,840 17,905
Change in assets, liabilities and other........... (4,688) 75
--------- ---------
Net cash provided by operating activities............... 45,793 53,072
--------- ---------
Cash flows from financing activities:
Long-term debt proceeds............................... 107,400 117,000
Long-term debt payments............................... (80,000) (60,900)
Proceeds from issuance of common stock................ 786 1,374
Purchase and retirement of common stock............... (29,234) (56,134)
Dividends paid........................................ (5,445) (5,852)
--------- ---------
Net cash used in financing activities................... (6,493) (4,512)
--------- ---------
Cash flows from investing activities:
Capital expenditures.................................. (36,134) (56,345)
Net proceeds from the sale of assets.................. -- 6,062
--------- ---------
Net cash used in investing activities................... (36,134) (50,283)
--------- ---------
Net change in cash and cash equivalents................. 3,166 (1,723)
Cash and cash equivalents at beginning of period........ 698 2,530
--------- ---------
Cash and cash equivalents at end of period.............. $ 3,864 $ 807
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
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 six-month periods ended June 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):
JUNE 30, DEC. 31,
1996 1997
--------- ---------
Raw materials and supplies............................. $ 34,211 $ 38,803
Finished goods......................................... 40,677 50,393
--------- ---------
$ 74,888 $ 89,196
--------- ---------
--------- ---------
NOTE 3: STOCKHOLDERS' EQUITY
The Company purchased 1,116,700 shares of its common stock for $29,234,000
during the six months ended June 30, 1997. As of June 30, 1997, the Company had
authorization to purchase up to 2,034,100 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 co-generation facility
operating lease agreement. This interest rate swap agreement will become
effective in August 1997 and will mature August 2002. As of June 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 they occur. In the event a
financial instrument is terminated prior to maturity, the Company would record
the gain or loss on the transaction.
4
<PAGE>
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, 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.
NOTE 6: SUBSEQUENT 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
approximated $17,000,000, and the Company expects to record a pretax gain in the
third quarter of approximately $8,000,000. Historically, the operating results
for this subsidiary have not been material to the financial statements of the
Company.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Second Quarter of 1997 Compared With the Second Quarter of 1996:
For the second quarter ended June 30, 1997, net income per common share was
$0.60 on net income of $20.6 million and net sales of $258.2 million. This
compares with net income per common share of $0.52, net income of $19.3 million
and net sales of $231.4 million for the second quarter of 1996.
Operating income for the second quarter of 1997 was $39.9 million, an
increase of 10 percent from $36.2 million for the same period in 1996. Total
sales volumes were up 18 percent for the second quarter of 1997 over the prior
year resulting from a strong increase in cumene sales, accompanied by higher
export shipments of vinyl chloride monomer ( VCM ). Although selling prices
increased for most products, most notably methanol and vinyl resins, caustic
soda experienced significantly lower pricing resulting in a 6 percent decline in
the overall average selling price of the company s products. Raw material costs
were higher in 1997 with the exception of slightly lower natural gas costs.
Interest expense increased to $6.7 million for the second quarter of 1997,
compared with $5.1 million for the same period in 1996. This increase was
primarily attributable to a higher debt balance during the second quarter of
1997 which helped fund the Company s capital expenditure and stock purchase
programs.
Net income per common share for the second quarter of 1997 was favorably
impacted by a reduction in the number of outstanding common shares from the
second quarter of 1996 as a result of the Company s stock purchase programs.
Six Months Ended June 30, 1997 Compared With the Six Months Ended June 30,
1996:
For the six months ended June 30, 1997, net income per common share was
$0.95 on net income of $32.6 million and net sales of $497.4 million. This
compares with net income per common share of $0.94, net income of $35.1 million
and net sales of $439.4 million for the same period in 1996.
Operating income for the six months ended June 30, 1997, was $64.6
million, a decrease of 3 percent from $66.3 million for the same period in
1996. Total sales volumes for the first half of 1997 were up 18 percent over
the same period in 1996 as a result of a significant increase in cumene sales
volume, accompanied by higher sales for methanol and additional export
shipments of VCM. The increase in cumene sales volume for the six months of
1997 over 1996 was partially related to lower sales in 1996 due to the tie-in
of the cumene expansion project. The overall selling price of the Company s
products declined 4 percent for the six-month period ended June 30, 1997,
compared with the same period in 1996. This resulted from significantly lower
caustic soda pricing and slightly lower acetone pricing, which were largely
offset by increases in most other products. Raw material costs were
considerably higher in 1997, particularly in the earlier part of the year
with the exception of slightly lower natural gas costs.
Net interest expense for the first six months of 1997 increased to $12.0
million from $9.7 million in the same period in 1996. This increase was
primarily attributable to a higher debt balance in 1997 compared with 1996,
which helped fund the Company s capital expenditures and stock purchase
programs.
Net income per common share for the six months ended June 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.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1997, Georgia Gulf generated $45.8
million of cash flow from operating activities as compared with $53.1 million
for the six months ended June 30, 1996. This reduction in cash flow resulted
from slightly lower net income in 1997 and working capital fluctuations in both
periods. For the first six months of 1997, working capital fluctuations
primarily resulted from a higher accounts receivable balance due to higher sales
in 1997, partially offset by lower inventories. Working capital fluctuations for
the first six months of 1996 were attributable to changes in accrued
compensation related to the Company s profit sharing plan and trade receivables,
offset by an increase in accounts payable.
Debt increased by $27.4 million during the six months ended June 30, 1997,
to a level of $423.0 million. The Company had approximately $159.0 million of
availability under its $350.0 million revolving credit loan as of June 30, 1997.
Capital expenditures for the six months ended June 30, 1997, were $36.1
million as compared to $56.3 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 VCM plant were completed during the latter
part of the first quarter of 1997, raising the Company s annual VCM capacity to
approximately 1.6 billion pounds. Also, the expansion of the phenol/acetone
plant in Plaquemine, Louisiana, was completed at the end of the second quarter
of 1997, increasing Georgia Gulf s total annual capacity to approximately 660
million pounds of phenol and 408 million pounds of acetone. The second phase of
the vinyl compound expansion at Gallman, Mississippi, is scheduled to be
completed by the end of the third quarter of 1997. The Company estimates that
total capital expenditures for 1997 will approximate $65.0 to $70.0 million. In
addition, although not part of the Company s capital expenditure program, a
250-megawatt co-generation 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 co-generation facility is
leased by the Company under an operating lease agreement.
The Company declared dividends of $0.16 per share or $5.4 million during the
first six months of 1997. The Company also purchased 1.1 million shares of its
common stock at a cost of $29.2 million during the same period. As of June 30,
1997, the Company had authorization to purchase up to 2.0 million additional
shares under the current common stock purchase program.
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
approximated $17.0 million and will be used to reduce debt.
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
During the second quarter of 1997, the Company made significant progress in
the stock purchase program and completed two major projects, the phenol/acetone
expansion and the co-generation facility. Management believes the phenol/acetone
expansion is very timely as 60 million pounds of phenol and 38 million pounds of
acetone will be added under favorable market conditions. While the vinyl chain
continues to face a challenging market environment, management is hopeful that
future profits and savings from the two recently completed major projects,
together with some strengthening in the aromatics market, will lead to improved
results for the third quarter of 1997.
7
<PAGE>
PART II. OTHER INFORMATION.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company s annual meeting of stockholders was held May 20, 1997, in
Atlanta, Georgia, for the following purposes: (I) to elect three directors to
serve for a term of three years, and (ii) to consider and take action upon the
ratification of the selection of Arthur Andersen LLP to serve as independent
public accountants for the Company for the year ending December 31, 1997.
The results of the voting by stockholders at the annual meeting were as
follows:
<TABLE>
<CAPTION>
BROKER NON-VOTES
DIRECTORS FOR WITHHELD OR ABSTENTIONS
- ----------------------------------------------------------------------- ------------ --------- -----------------------
<S> <C> <C> <C>
John D. Bryan.......................................................... 30,685,834 405,443 0
Dennis M. Chorba....................................................... 30,337,846 753,431 0
Edward S. Smith........................................................ 30,682,541 408,736 0
</TABLE>
In addition, the terms of the following directors continued after the
meeting:
Alfred C. Eckert, III
Robert E. Flowerree
Holcombe T. Green, Jr.
James R. Kuse
Jerry R. Satrum
The selection of Arthur Andersen LLP to serve as independent public
accountants for the Company for the year ending December 31, 1997, was ratified
by the following votes:
FOR AGAINST ABSTAIN BROKER NON-VOTES
------------ ----------- --------- -----------------------
31,069,883 9,688 11,706 0
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 second quarter of 1997.
8
<PAGE>
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 AUGUST 11, 1997 /S/ JERRY R. SATRUM
--------------- --------------------------------
JERRY R. SATRUM
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE AUGUST 11, 1997 /S/ RICHARD B. MARCHESE
--------------- --------------------------------
RICHARD B. MARCHESE
VICE PRESIDENT FINANCE,
CHIEF FINANCIAL OFFICER AND
TREASURER
(PRINCIPAL FINANCIAL OFFICER)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 3,864
<SECURITIES> 0
<RECEIVABLES> 91,423
<ALLOWANCES> 2,372
<INVENTORY> 74,888
<CURRENT-ASSETS> 180,241
<PP&E> 682,278
<DEPRECIATION> 268,587
<TOTAL-ASSETS> 617,699
<CURRENT-LIABILITIES> 116,027
<BONDS> 423,000
336
0
<COMMON> 0
<OTHER-SE> 17,581
<TOTAL-LIABILITY-AND-EQUITY> 617,699
<SALES> 497,433
<TOTAL-REVENUES> 497,433
<CGS> 409,890
<TOTAL-COSTS> 409,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,002
<INCOME-PRETAX> 52,569
<INCOME-TAX> 19,928
<INCOME-CONTINUING> 32,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,641
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.95
</TABLE>
