<PAGE>
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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, 1998
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)
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 9, 1998
----- ------------------
Common Stock, $0.01 par value...........30,840,802 shares
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<PAGE>
GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION> Page
PART I. FINANCIAL INFORMATION Numbers
-------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997.............................................. 1
Condensed Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1998 and 1997........................... 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997........................... 3
Notes to Condensed Consolidated Financial Statements as of
September 30, 1998 ................................................ 4-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................................... 11
Item 6. Exhibits and Reports on Form 8-K......................................... 11
SIGNATURES............................................................................... 12
</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>
September 30, December 31,
1998 1997
--------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents....................................... $ 3,494 $ 1,621
Receivables..................................................... 62,353 67,553
Inventories..................................................... 74,384 92,921
Prepaid expenses................................................ 6,371 6,508
Deferred income taxes........................................... 7,410 7,409
--------------- --------------
Total current assets........................................ 154,012 176,012
--------------- --------------
Property, plant and equipment, at cost.......................... 678,136 650,968
Less accumulated depreciation............................... 271,465 240,108
--------------- --------------
Property, plant and equipment, net....................... 406,671 410,860
--------------- --------------
Other assets.................................................... 115,737 25,831
--------------- --------------
Total assets.................................................... $ 676,420 $ 612,703
--------------- --------------
--------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................................ $ 81,127 $ 92,588
Interest payable................................................ 4,478 2,218
Accrued income taxes............................................ 3,136 564
Accrued compensation............................................ 5,708 7,281
Accrued pension................................................. 3,715 2,257
Other accrued liabilities....................................... 18,598 13,632
--------------- --------------
Total current liabilities................................... 116,762 118,540
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Long-term debt.................................................. 463,840 393,040
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Deferred income taxes........................................... 76,389 65,520
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Stockholders' equity
Common stock - $0.01 par value.............................. 309 328
Retained earnings........................................... 19,120 35,275
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Total stockholders' equity.............................. 19,429 35,603
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Total liabilities and stockholders' equity...................... $ 676,420 $ 612,703
--------------- --------------
--------------- --------------
Common shares outstanding....................................... 30,897,102 32,781,439
--------------- --------------
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</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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 220,465 $ 235,915 $ 678,725 $ 733,348
----------- ----------- ----------- -----------
Operating costs and expenses
Cost of sales 174,822 182,275 543,513 592,165
Selling and administrative 12,019 11,336 33,211 34,308
Total operating costs and expenses 186,841 193,611 576,724 626,473
----------- ----------- ----------- -----------
Operating income 33,624 42,304 102,001 106,875
Other income (expense)
Gain on sale of assets -- 8,600 -- 8,600
Loss on interest rate hedge agreement (9,500) -- (9,500) --
Interest, net (8,053) (6,311) (22,882) (18,313)
----------- ----------- ----------- -----------
Income before income taxes 16,071 44,593 69,619 97,162
Provision for income taxes 5,896 16,869 25,982 36,797
----------- ----------- ----------- -----------
Net income $ 10,175 $ 27,724 $ 43,637 $ 60,365
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share $ 0.33 $ 0.83 $ 1.38 $ 1.78
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per share $ 0.33 $ 0.82 $ 1.36 $ 1.77
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares 31,047,468 33,300,900 31,691,501 33,871,306
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares
and equivalents 31,287,380 33,606,893 32,044,015 34,183,144
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</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>
Nine Months Ended
September 30,
------------------------
1998 1997
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 43,637 $ 60,365
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 33,921 27,609
Gain on sale of assets -- (8,600)
Provision for deferred income taxes 10,868 9,469
Change in operating assets, liabilities and other,
net of effects of acquisition 24,782 15,992
---------- ---------
Net cash provided by operating activities 113,208 104,835
---------- ---------
Cash flows from investing activities:
Capital expenditures (20,547) (45,905)
Proceeds from the sale of assets -- 16,477
Acquisition, net of cash acquired (99,902) --
---------- ---------
Net cash used in investing activities (120,449) (29,428)
---------- ---------
Cash flows from financing activities:
Long-term debt proceeds 180,300 137,900
Long-term debt payments (110,000) (160,000)
Proceeds from issuance of common stock 1,377 1,153
Repurchase and retirement of common stock (55,002) (43,828)
Dividends paid (7,561) (8,093)
---------- ---------
Net cash provided by (used in) financing activities 9,114 (72,868)
---------- ---------
Net change in cash and cash equivalents 1,873 2,539
Cash and cash equivalents at beginning of period 1,621 698
---------- ---------
Cash and cash equivalents at end of period $ 3,494 $ 3,237
---------- ---------
---------- ---------
</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. 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- and nine-month periods ended
September 30, 1998, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
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.
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows derivative
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999, although
earlier adoption is permitted. SFAS No. 133 cannot be applied retroactively.
Management has not yet quantified the impacts of adopting SFAS No. 133 on the
Company's financial statements nor determined the timing or method of adoption
of this pronouncement.
NOTE 3: INVENTORIES
The major classes of inventories were as follows (in thousands):
<TABLE>
<CAPTION> September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Raw materials and supplies $ 29,330 $ 34,451
Finished goods 45,054 58,470
------------- ------------
Inventories $ 74,384 $ 92,921
------------- ------------
------------- ------------
</TABLE>
4
<PAGE>
NOTE 4: STOCKHOLDERS' EQUITY
The Company repurchased and retired 2,045,600 shares of its common
stock for $55,002,000 during the nine months ended September 30, 1998. As of
September 30, 1998, the Company had authorization to repurchase up to 5,476,100
additional shares under the current common stock repurchase program.
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.
In June 1998, the Company filed a shelf registration with the
Securities and Exchange Commission for the issuance of $200,000,000 of long-term
bonds. Shortly after the filing, the Company entered into an agreement to
lock-in interest rates on a portion of the long-term bonds. During the third
quarter, treasury yields plunged to their lowest levels in thirty years, while
at the same time, investors' preference for treasury bonds and reluctance to buy
corporate bonds limited the Company's ability to issue longer-term bonds. As a
result, the Company's plans to issue long-term bonds were postponed indefinitely
and the interest rate lock agreements were terminated, resulting in a pre-tax
loss of $9,500,000 in the third quarter of 1998.
The Company does not use derivatives for trading purposes. Interest
rate swap and cap agreements, forms of derivatives, 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 September 30, 1998, and December 31, 1997, interest
rate swap agreements were the only forms 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 $10,175,000, and $27,724,000 for the
three months ended September 30, 1998 and 1997, respectively. For the nine
months ended September 30, 1998 and 1997, the numerator for basic and diluted
earnings per share is $43,637,000 and $60,365,000, respectively.
5
<PAGE>
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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares 31,047 33,301 31,692 33,871
Plus incremental shares from
assumed conversions:
Options 165 273 242 286
Employee stock purchase plan rights 75 33 110 26
-------- -------- -------- --------
Weighted average common shares
and equivalents 31,287 33,607 32,044 34,183
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
NOTE 7: ACQUISITION
On May 11, 1998, the Company acquired all the issued and outstanding
common stock (the "Stock") of North American Plastics, Inc. ("North American
Plastics"), a privately-held manufacturer of flexible polyvinyl chloride ("PVC")
compounds with a production capacity of 190,000,000 pounds. North American
Plastics has two manufacturing locations in Mississippi, with revenues for 1997
of approximately $90,000,000. Its PVC compounds are used in wire and cable for
construction, automobiles and appliances, as well as various other consumer and
industrial products.
The Stock was acquired in exchange for net cash consideration of
$99,902,000 plus the assumption of $500,000 in debt. The cash portion of the
acquisition was financed with proceeds from the Company's existing revolving
credit loan. The transaction was accounted for as a purchase and the
consideration exchanged exceeded the fair market value of the net tangible
assets of North American Plastics by approximately $87,000,000. This excess was
allocated to goodwill and is being amortized on a straight-line basis over a
period of 35 years. The results of operations of the acquired business have been
included in the Company's condensed consolidated financial statements from the
date of acquisition. Pro forma results of operations have not been presented
because the effect of this acquisition was not significant.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Industry Overview
Georgia Gulf manufactures and markets products through two highly
integrated lines categorized into chlorovinyls (electrochemicals) and aromatic
chemicals; and also a third product line, methanol, a natural gas chemical. The
Company's chlorovinyl products include chlorine, caustic soda, sodium chlorate,
vinyl chloride monomer ("VCM"), and polyvinyl chloride ("PVC") resins and
compounds; the Company's primary aromatic chemical products include cumene,
phenol and acetone.
For chlorovinyls, industry operating rates for chlorine/caustic soda
plants have run above 90 percent for most of 1998. Demand for caustic has been
steady and pricing has improved over the comparable prior year periods. Georgia
Gulf consumes most of its chlorine capacity internally in the production of VCM,
which is further processed into PVC resins and compounds. Both VCM and PVC
resins have suffered from industry overcapacity, which has led to excess supply
and reduced operating rates in both 1998 and 1997. The decline in demand from
Asia has also negatively impacted pricing for VCM and PVC resins. However, the
market demand for PVC compounds, which are more specialized products, has
remained strong in 1998, benefiting from the continued good overall domestic
business environment. In addition, the acquisition in mid-May of North American
Plastics, a manufacturer of flexible PVC compounds, has contributed
significantly to earnings of the Company's compounds business.
Aromatics industry operating rates were high for both the three- and
nine-month periods ended September 30, 1998 as a result of strong demand
attributable to the continued strength of downstream markets for phenol,
particularly bisphenol A and phenolic resins. However, phenol prices did decline
during the third quarter, more than offsetting the positive impact from lower
raw material costs. Acetone prices were also down due to a slight industry
supply and demand imbalance.
The methanol market has experienced a rapid decline in pricing and
profitability since the beginning of 1998. Substantial increases in global
supply created a significant imbalance between supply and demand resulting in
lower pricing for the third quarter and first nine months of 1998, as compared
to the same periods last year. These market conditions have eliminated all the
profitability from the domestic methanol industry as the United States producers
face low-cost imports.
Third Quarter of 1998 Compared With the Third Quarter of 1997:
For the third quarter ended September 30, 1998, diluted earnings per
share were $0.33 on net income of $10.2 million and net sales of $220.5 million.
This compares with diluted earnings per share of $0.82, net income of $27.7
million and net sales of $235.9 million for the third quarter of 1997.
7
<PAGE>
In June 1998, the Company filed a shelf registration for the issuance
of $200.0 million of long-term bonds. Shortly after the filing, the Company
entered into an agreement to lock-in interest rates on a portion of the
long-term bonds. During the third quarter, treasury yields plunged to their
lowest levels in thirty years, while at the same time, investors' preference for
treasury bonds and reluctance to buy corporate bonds limited the Company's
ability to issue longer-term bonds. As a result, the Company's plans to issue
long-term bonds were postponed indefinitely and the interest rate lock
agreements were terminated, resulting in a one-time charge of $6.0 million
after-tax or $0.19 per share in the third quarter of 1998.
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 the sale was $5.3
million after-tax or $0.16 per share.
Operating income for the third quarter of 1998 was $33.6 million, a
decrease of 21 percent from $42.3 million for the same period in 1997. Total
sales volumes rose seven percent over the prior year for the quarterly
comparison as sales volume increases for phenol, acetone, caustic soda, and the
Company's PVC compound products overshadowed lower methanol and cumene sales
volumes. However, the overall average selling price of the Company's products
experienced a thirteen percent decline for the same period comparison. With the
exception of caustic soda, pricing was generally lower for all products with the
most significant decline coming from methanol which operated at a loss for the
quarter. Lower raw material costs helped offset a portion of these sales price
decreases; however, natural gas costs declined only slightly, which contributed
to the significant deterioration in methanol margins from the prior year period.
Results for the third quarter of 1998 were positively impacted by the Company's
recent acquisition of North American Plastics, Inc. ("North American Plastics")
as operating profits from this business significantly exceeded the additional
financing costs resulting from the acquisition.
Interest expense increased to $8.1 million for the third quarter of
1998, compared with $6.3 million for the same period in 1997. This increase is
primarily attributable to a higher debt balance for the third quarter of 1998
resulting from the North American Plastics acquisition.
Basic and diluted earnings per share for the third quarter of 1998 were
lower due to the reduction in net income, but were favorably impacted by a
reduction in the number of outstanding common shares from the third quarter of
1997 as a result of the Company's stock repurchase programs.
Nine Months Ended September 30, 1998 Compared With the Nine Months Ended
September 30, 1997:
For the nine months ended September 30, 1998, diluted earnings per
share were $1.36 on net income of $43.6 million and net sales of $678.7 million.
This compares with diluted earnings per share of $1.77, net income of $60.4
million and net sales of $733.3 million for the first nine months of 1997.
Operating income for the first nine months of 1998 was $102.0 million,
a decrease of five percent from $106.9 million for the same period in 1997.
Total sales volumes increased slightly over the prior year for the nine-month
comparison as lower sales volumes for methanol and cumene were edged out by
gains in all other products. The overall average selling price of the Company's
products declined eight percent for the period to period comparison. With the
exception of caustic soda, pricing was lower for all products. Lower raw
material costs helped offset a portion of these sales price decreases; however,
natural gas costs declined only slightly, which contributed to the significant
margin deterioration in methanol which operated at a loss for the nine months
ended September 30, 1998.
8
<PAGE>
Interest expense increased to $22.9 million for the first nine months
of 1998, compared with $18.3 million for the same period in 1997. This increase
primarily reflects less capitalized interest in 1998, along with a higher
average debt balance for 1998 from the North American Plastics acquisition.
Basic and diluted earnings per share for the first nine months of 1998
were lower due to the reduction in net income, but were favorably impacted by a
reduction in the number of outstanding common shares from the same period in
1997 as a result of the Company's stock repurchase programs.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, Georgia Gulf generated
$113.2 million of cash flow from operating activities as compared with $104.8
million for the nine months ended September 30, 1997. Major sources of cash flow
from operating activities in the first nine months of 1998 were net income of
$43.6 million, non-cash provisions of $33.9 million for depreciation and
amortization, deferred income taxes not currently payable of $10.9 million and
fluctuations in working capital items primarily resulting from decreases in
inventories and receivables offset in part by lower accounts payable. During the
third quarter of 1997, the Company sold certain oil and gas properties for net
proceeds of $16.5 million. The resulting book gain of $8.6 million has been
reflected as a reduction to net income for purposes of determining net cash
provided by operating activities. Changes in working capital during the first
nine months of 1997 were primarily attributable to an increase in accounts
receivable from higher sales in 1997, offset by lower inventories and a higher
accrued income tax payable due to the timing of payments.
Debt increased by $70.8 million during the nine months ended September
30, 1998, to a level of $463.8 million. The revolving credit loan was used to
fund the net purchase price of North American Plastics in May of 1998 for $99.9
million. The Company had $127.0 million of availability under its $350.0 million
revolving credit loan as of September 30, 1998.
Capital expenditures for the nine months ended September 30, 1998 were
down significantly to $20.5 million as compared to $45.9 million for the same
period in 1997. Georgia Gulf completed a major capital expansion program in
1997, which included capacity expansions in the phenol, acetone, cumene, VCM and
PVC compound plants. Capital expenditures for the balance of 1998 and for 1999
will be directed toward certain environmental projects and increased efficiency
of existing operations. The Company estimates that total capital expenditures
for 1998 will approximate $25.0 to $30.0 million.
The Company declared dividends of $0.24 per share or $7.6 million
during the first nine months of 1998. The Company also repurchased and retired
2.0 million shares of its common stock at a cost of $55.0 million during the
same period. As of September 30, 1998, the Company had authorization to
repurchase up to approximately 5.5 million additional shares under the current
common stock repurchase program.
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.
9
<PAGE>
OUTLOOK
Although the acquisition of North American Plastics and the Company's
PVC compound business is having a positive impact on the Company's earnings, the
Company is continuing to experience very difficult market conditions for both
the methanol and PVC resin businesses due to industry over-capacity and poor
economic conditions in the Far East. The prospects for methanol are further
hampered by an increase in supply from at least four world-scale methanol plants
scheduled for completion in 1999, in addition to two large plants recently
completed in Trinidad and Indonesia. These new facilities manufacture methanol
cheaper than United States producers, even with the additional freight charges
to import the methanol to the United States. According to published research,
the global supply of methanol could increase by 2 billion gallons by the end of
the year 2001, while demand is projected to grow at a much slower rate. Aromatic
margins could also be negatively impacted as upcoming phenol expansions come
on-line over the next two years. For chlorovinyls, most major expansions of VCM
and PVC resins have been completed; therefore, supply and demand should become
more balanced which could result in some pricing relief late next year.
Altogether though, management does not presently anticipate an improvement in
financial performance for the fourth quarter of 1998 or for fiscal year 1999.
YEAR 2000 CONVERSION
The Company recognizes the need to ensure its operations will not be
adversely impacted by the year 2000 date conversion problem common in many
processing systems. Georgia Gulf's information processing systems are believed
to be essentially year 2000 compliant. The Company continues to review and
analyze other areas with exposure to potential year 2000 risks, including
operational process control systems. Based upon current information, the Company
believes all significant software systems within its control will be year 2000
compliant by the end of 1998. The costs associated with compliance with year
2000 conversion are not expected to be material.
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
unforeseen 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.
10
<PAGE>
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
As previously reported in its Form 10-K for the year ended December 31,
1997, the Company is a party to numerous individual and several class-action
lawsuits filed against the Company, among other parties, arising out of an
incident that occurred in September 1996 in which workers were exposed to a
chemical substance on the Company's premises in Plaquemine, Louisiana. The
substance was later identified to be a form of mustard agent, a chemical which
is not manufactured as part of the Company's ordinary operations and which
apparently resulted from the unexpected introduction into the Company's
feedstocks of one or more impurities from sources unknown. The Company presently
believes there are approximately 1,950 plaintiffs, of which approximately 600
are workers claiming to have been on-site at the time of the incident.
The lawsuits are pending in the 18th Judicial District, Iberville
Parish. The Company has filed answers in the cases in which it has been served.
Discovery has been occurring in these cases. All of the actions claim one or
more forms of compensable damages, including past and future wages and past and
future physical and emotional pain and suffering.
The Company continues to develop information relating to the extent of
damages suffered, as well as evaluating the merit of such claims, defenses
available and liability of other persons. Settlements with several plaintiffs
have been reached and those cases have been dismissed. It is not yet possible to
estimate the Company's ultimate exposure. Notwithstanding the foregoing, the
Company believes it has meritorious defenses to the claims asserted and intends
to assert and pursue those defenses vigorously; further, the Company believes
any liability ultimately imposed would be covered by its liability insurance.
In addition, the Company is subject to other claims and legal actions
that arise in the ordinary course of business. Management believes that the
ultimate liability, if any, with respect to these other claims and legal
actions, will not have a material effect on the financial position or on results
of operations of the Company.
Item 6. Exhibits and Reports on Form 8-K.
a) Ex-27
b) No reports on Form 8-K were filed with the Securities and
Exchange Commission during the third quarter of 1998.
11
<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 November 12, 1998 /s/ Edward A. Schmitt
----------------------------- ---------------------------
Edward A. Schmitt
President and Chief
Executive Officer
(Principal Executive Officer)
Date November 12, 1998 /s/ Richard B. Marchese
----------------------------- ---------------------------
Richard B. Marchese
Vice President Finance,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000805264
<NAME> GEORGIA GULF CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,494
<SECURITIES> 0
<RECEIVABLES> 65,725
<ALLOWANCES> 3,372
<INVENTORY> 74,384
<CURRENT-ASSETS> 154,012
<PP&E> 678,136
<DEPRECIATION> 271,465
<TOTAL-ASSETS> 676,420
<CURRENT-LIABILITIES> 116,762
<BONDS> 463,840
0
0
<COMMON> 309
<OTHER-SE> 19,120
<TOTAL-LIABILITY-AND-EQUITY> 676,420
<SALES> 678,725
<TOTAL-REVENUES> 678,725
<CGS> 543,513
<TOTAL-COSTS> 543,513
<OTHER-EXPENSES> 9,500<F1>
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 22,882
<INCOME-PRETAX> 69,619
<INCOME-TAX> 25,982
<INCOME-CONTINUING> 43,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,637
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.36
<FN>
<F1>Loss on interest rate hedge agreement.
</FN>
</TABLE>
