<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, 1999
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 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 AUGUST 11, 1999
----- -----------------
Common Stock, $0.01 par value.............. 30,933,924 shares
<PAGE>
GEORGIA GULF CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1999
INDEX
<TABLE>
PAGE
NUMBERS
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998..................................................................... 1
Condensed Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1999 and 1998............................................... 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998............................................... 3
Notes to Condensed Consolidated Financial Statements as of
June 30, 1999 .................................................................... 4-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 8-12
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders ........................................ 15
Item 6. Exhibits and Reports on Form 8-K............................................................ 15
SIGNATURES............................................................................................. 16
</TABLE>
PART I. FINANCIAL INFORMATION.
<PAGE>
Item 1. Financial Statements.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 752 $ 1,244
Receivables 57,741 61,203
Insurance receivable 31,910 9,030
Inventories 72,855 72,301
Prepaid expenses 4,208 3,562
Deferred income taxes 6,492 6,492
-------------- --------------
Total current assets 173,958 153,832
-------------- --------------
Property, plant and equipment, at cost 690,638 683,495
Less accumulated depreciation 304,417 282,346
-------------- --------------
Property, plant and equipment, net 386,221 401,149
-------------- --------------
Goodwill 83,915 85,154
-------------- --------------
Other assets 32,873 29,626
-------------- --------------
Total assets $ 676,967 $ 669,761
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 225,000 $ --
Accounts payable 73,287 66,459
Interest payable 2,283 2,272
Accrued compensation 4,716 6,814
Accrued pension 742 378
Other accrued liabilities 18,102 12,833
-------------- --------------
Total current liabilities 324,130 88,756
-------------- --------------
Long-term debt 224,925 459,475
-------------- --------------
Deferred income taxes 96,884 92,649
-------------- --------------
Stockholders' equity
Common stock - $0.01 par value 309 309
Additional paid-in capital 490 --
Retained earnings 30,229 28,572
-------------- --------------
Total stockholders' equity 31,028 28,881
-------------- --------------
Total liabilities and stockholders' equity $ 676,967 $ 669,761
"
-------------- --------------
-------------- --------------
Common shares outstanding 30,930,154 30,883,754
-------------- --------------
-------------- --------------
</TABLE>
See notes to condensed consolidated financial statements.
<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,
------------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 191,472 $ 225,555 $ 379,060 $ 458,260
------------ ------------ ------------ ------------
Operating costs and expenses
Cost of sales 168,031 180,992 333,963 368,691
Selling and administrative 9,674 10,447 20,016 21,192
Total operating costs and expenses 177,705 191,439 353,979 389,883
------------ ------------ ------------ ------------
Operating income 13,767 34,116 25,081 68,377
Other income (expense)
Interest, net (7,359) (7,703) (14,682) (14,829)
------------ ------------ ------------ ------------
Income before income taxes 6,408 26,413 10,399 53,548
Provision for income taxes 2,338 9,907 3,795 20,086
------------ ------------ ------------ ------------
Net income $ 4,070 $ 16,506 $ 6,604 $ 33,462
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic earnings per share $ 0.13 $ 0.52 $ 0.21 $ 1.05
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted earnings per share $ 0.13 $ 0.52 $ 0.21 $ 1.04
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares
Basic 30,922,192 31,603,716 30,910,525 32,018,855
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted 31,032,475 31,799,781 31,032,917 32,263,111
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,604 $ 33,462
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 23,662 22,235
Change in operating assets, liabilities and
other, net of effects of acquisition (9,478) 8,131
----------- ----------
Net cash provided by operating activities 20,788 63,828
----------- ----------
Cash flows from financing activities:
Long-term debt proceeds 115,000 156,800
Long-term debt payments (124,550) (58,000)
Proceeds from issuance of common stock 359 1,212
Purchase and retirement of common stock -- (44,152)
Dividends paid (4,946) (5,089)
----------- ----------
Net cash provided by (used in) financing activities (14,137) 50,771
----------- ----------
Cash flows from investing activities:
Capital expenditures (7,143) (12,927)
Acquisition, net of cash acquired -- (99,902)
----------- ----------
Net cash used in investing activities (7,143) (112,829)
----------- ----------
Net change in cash and cash equivalents (492) 1,770
Cash and cash equivalents at beginning of period 1,244 1,621
----------- ----------
$ 752 $ 3,391
Cash and cash equivalents at end of period
----------- ----------
----------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
<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 annual report for the year
ended December 31, 1998 for Georgia Gulf Corporation and its subsidiaries (the
"Company" or "Georgia Gulf").
Operating results for Georgia Gulf for the three- and six-month periods
ended June 30, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENT
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("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. In June 1999, the FASB issued SFAS No. 137 which
deferred the effective date of SFAS No. 133 for fiscal quarters of all fiscal
years beginning after June 15, 2000, although earlier adoption is permitted.
SFAS No. 133 can not be applied retroactively. Management has not yet quantified
the impacts of adopting SFAS No. 133 on the Company's financial statements.
NOTE 3: INVENTORIES
The major classes of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- -----------
<S> <C> <C>
Raw materials and supplies $ 36,957 $ 26,462
Finished goods 35,898 45,839
-------- --------
$ 72,855 $ 72,301
-------- --------
-------- --------
</TABLE>
NOTE 4: DERIVATIVE FINANCIAL INSTRUMENTS
Georgia Gulf has two interest rate swap agreements for a total notional
amount of
<PAGE>
$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.
Georgia Gulf does not use derivatives for trading purposes. Interest rate
swap agreements, a form of derivative, are used by the Company to manage
interest costs on certain portions of the Company's long-term debt. These
financial statements do not reflect temporary market gains and losses on
derivative financial instruments. Amounts paid or received on the interest rate
swap agreements are recorded to interest expense as incurred. As of June 30,
1999, and December 31, 1998, interest rate swap agreements were the only form of
derivative financial instruments outstanding. The fair value of these swap
agreements as of June 30, 1999 and December 31, 1998 was a payable of $187,000
and $6,412,000, respectively.
NOTE 5: EARNINGS PER SHARE
The numerator in basic and diluted earnings per share computations is
reported net income.
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- -----
<S> <C> <C> <C> <C>
Weighted average common shares - basic 30,922 31,604 30,911 32,019
Plus incremental shares from
assumed conversions:
Options 93 196 102 244
Employee stock purchase plan rights 17 -- 20 --
------ ------ ------ ------
Weighted average common shares - diluted 31,032 31,800 31,033 32,263
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
NOTE 6: SEGMENT INFORMATION
SFAS No. 131 - "Disclosures about Segments of an Enterprise and Related
Information" became effective for fiscal year 1998 and for all succeeding
interim reporting periods. In accordance with the requirements of SFAS No. 131,
the Company has identified three reportable segments through which it conducts
its operating activities: chlorovinyls, aromatics and gas chemicals. These three
segments reflect the organization used by Company management for internal
reporting. The chlorovinyls segment is a highly integrated chain of products
which includes chlorine, caustic soda, vinyl chloride monomer and vinyl resins
and compounds. The aromatics segment is also vertically integrated and includes
cumene and the co-products phenol
<PAGE>
and acetone. The third product segment, gas chemicals, includes methanol.
Earnings of industry segments exclude interest income and expense,
unallocated corporate expenses and general plant services, provision for income
taxes, and income and expense items reflected as "other income (expense)" on the
Company's consolidated statements of income. Intersegment sales and transfers
are insignificant.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Segment net sales:
Chlorovinyls $ 132,462 $ 133,475 $ 253,270 $ 260,299
Aromatics 48,252 81,334 106,708 169,896
Gas chemicals 10,758 10,746 19,082 28,065
---------- ----------- ---------- ----------
Net sales $ 191,472 $ 225,555 $ 379,060 $ 458,260
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Segment operating income:
Chlorovinyls $ 15,325 $ 22,717 $ 27,218 $ 39,002
Aromatics 3,588 20,107 10,237 40,454
Gas chemicals (2,990) (4,549) (7,013) (3,170)
Corporate and general
plant services (2,156) (4,159) (5,361) (7,909)
---------- ----------- ---------- ----------
Total operating $ 13,767 $ 34,116 $ 25,081 $ 68,377
income
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</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 Georgia Gulf'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.
<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 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, increased domestic chlorine/caustic capacity in the first
half of 1999, together with additional capacity scheduled to come on line later
this year and in 2000, have resulted in a significant decline in pricing for
co-products, chlorine and caustic soda, from prior year levels. Recent
strengthening in the PVC resin market has resulted in a stronger demand for
chlorine while continued weakness in the pulp and paper industry has reduced the
demand for caustic soda. In the first half of 1999, the combination of increased
capacity and higher chlorine demand has led to a further deterioration in
caustic soda pricing. Georgia Gulf consumes most of its chlorine production
internally in the manufacture of VCM, which is further processed into PVC resins
and compounds. The PVC resin market continued to recover in the second quarter
of 1999 as a surge in demand resulted in a sold out market for much of the
quarter. Upward pricing trends are expected to continue as no new domestic resin
capacity is expected for the next several years. The market demand for PVC
compounds, which are more specialized products, has remained strong in early
1999, benefitting from the continued good overall domestic business environment.
For aromatics, cumene prices increased during the second quarter of 1999
following the price trends for raw materials benzene and propylene. However,
prices were basically flat as compared to the second quarter last year. Industry
operating rates for cumene are estimated to be around 80 percent as the industry
continues to absorb capacity expansions added during the last several years.
Phenol industry operating rates were high in the first half of 1999. Although
demand for phenol was strong due to continued strength in the polycarbonate and
phenolic resin markets, prices declined significantly from the prior year in
anticipation of large capacity increases scheduled for the second half of 1999
and 2000. Although demand for phenol's co-product, acetone, recently began to
strengthen, prices are still considerably lower than in the second quarter and
first half of 1998.
The methanol market continues to suffer from overcapacity as significant
increases in global supply have created an imbalance between supply and demand.
As a result, several domestic methanol producers, including Georgia Gulf, have
idled their methanol plants. While these shutdowns, which began in 1998, have
resulted in a supply contraction and an increase in spot prices during the first
half of 1999, several new overseas methanol plants are scheduled to start-up
later this year. This additional supply will add further pressure on sales
prices in the future.
SECOND QUARTER OF 1999 COMPARED WITH THE SECOND QUARTER OF 1998
<PAGE>
For the second quarter ended June 30, 1999, diluted earnings per share were
$0.13 on net income of $4.1 million and net sales of $191.5 million. This
compares with diluted earnings per share of $0.52, net income of $16.5 million
and net sales of $225.6 million for the second quarter of 1998.
Operating income for the second quarter of 1999 was $13.8 million, a
decrease of 60 percent from $34.1 million for the same period in 1998. The
average sales price of Georgia Gulf's products declined 5 percent for the
period-to-period comparison as almost all products experienced lower pricing.
Raw material prices were slightly higher during the second quarter of 1999 which
further reduced margins. Additionally, total sales volumes declined by 10
percent for the period-to-period comparison.
In chlorovinyls, operating income for the second quarter of 1999 was $15.3
million, a decrease of 33 percent from the same period in 1998. With the
exception of VCM, pricing was down for all chlorovinyl products in the second
quarter of 1999 as compared to the second quarter of 1998. The significant
decline in caustic soda pricing was primarily responsible for the decline in
operating income; however, higher ethylene raw material prices also contributed
to lower results for 1999.
Operating income from aromatics was $3.6 million for the second quarter of
1999 compared to $20.1 million for the second quarter of 1998. Although raw
material costs were lower for the second quarter of 1999, this benefit was more
than offset by a significant decline in pricing, particularly for phenol and
acetone.
As a result of continued excess capacity and weakening demand in the global
methanol market, Georgia Gulf's methanol plant remained idle during the second
quarter of 1999. Georgia Gulf continues to supply customers with purchased
methanol. The operating loss for gas chemicals was $3.0 million for the second
quarter of 1999 compared with an operating loss of $4.5 million for the same
period last year when the methanol plant was operating. The loss for the second
quarter of 1999 is attributable to ongoing fixed costs associated with the idled
methanol plant and losses related to the buy/resell program.
Interest expense decreased to $7.4 million for the second quarter of 1999,
compared with $7.7 million for the same period in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1998
For the six months ended June 30, 1999, diluted earnings per share were
$0.21 on net income of $6.6 million and sales of $379.1 million. This compares
with diluted earnings per share
<PAGE>
of $1.04, net income of $33.5 million and sales of $458.3 million for the first
six months of 1998.
Operating income for the first six months of 1999 was $25.1 million, a
decrease of 63 percent from $68.4 million for the same period in 1998. Total
sales volumes declined 10 percent over the prior year for the six-month
comparison. Average sales price declined by 9 percent when comparing the two
periods. Although lower raw material prices helped offset a portion of the
decline in average sales price, the net result was a lower profit margin.
In chlorovinyls, operating income for the first half of 1999 was $27.2
million, a decrease of 30 percent from $39.0 million for the same period last
year. Lower sales prices, particularly for caustic soda and vinyl resins, in the
first half of 1999, more than offset lower raw material costs and improved
results from vinyl compounds, as well as the impact of North American Plastics
which was acquired in May 1998.
Operating income from aromatics was $10.2 million for the first six months
of 1999 as compared to $40.5 million for the same period in 1998. Lower raw
material prices in the first half of 1999 were unable to offset lower sales
prices, particularly for phenol and acetone. Cumene production rates and sales
volumes were lower in the first half of 1999 as cumene remains in an
over-supplied position.
Georgia Gulf's methanol plant remained idled during the first half of 1999.
The operating loss for gas chemicals was $7.0 million for the first six months
of 1999 compared with an operating loss of $3.2 million for the same period last
year when the methanol plant was operating. The loss for the first half of 1999
is attributable to ongoing fixed costs associated with the idled methanol plant
and losses related to the buy/resell program.
Interest expense decreased to $14.7 million for the first six months of
1999, compared with $14.8 million for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Many of Georgia Gulf's commodity products have faced continued pricing
pressure during 1999. As management anticipates lower cash flow from operations,
investment in capital projects and stock repurchases will continue to be
curtailed in order to maintain debt and available credit at manageable levels.
Management believes that cash provided by operations and the availability under
Georgia Gulf's revolving credit facility will provide sufficient funds to
support planned capital expenditures, dividends, working capital fluctuations
and debt service requirements.
For the six months ended June 30, 1999, Georgia Gulf generated $20.8
million of cash flow from operating activities as compared with $63.8 million
during the six months ended June 30, 1998. The "change in operating assets,
liabilities and other" category for the first six months of 1999 included the
payment of $22.9 million in litigation expenses which are expected to be
reimbursed by
<PAGE>
Georgia Gulf's insurance carriers in the third quarter of 1999. Other
significant working capital changes included increases in accounts payable and
accrued liabilities due to timing of payments. Changes in working capital during
the first six months of 1998 were primarily attributable to a decrease in
inventories offset by lower accounts payable.
Debt decreased by $9.6 million during the six months ended June 30, 1999,
to a level of $449.9 million. Georgia Gulf had approximately $135.0 million of
availability under its $350.0 million revolving credit loan as of June 30, 1999.
The revolving credit loan is scheduled to mature March 30, 2000. Management
anticipates refinancing this debt before its maturity date.
Capital expenditures for the six months ended June 30, 1999 were down to
$7.1 million as compared to $12.9 million for the same 1998 period. Capital
expenditures for 1999 will be directed toward certain environmental projects and
increased efficiency of existing operations. Georgia Gulf estimates that total
capital expenditures for 1999 will approximate $20.0 million.
Georgia Gulf declared dividends of $0.16 per share or $4.9 million during
the first half of 1999. As of June 30, 1999, Georgia Gulf had authorization to
repurchase up to 5.5 million shares under the current common stock repurchase
program.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Georgia Gulf has recognized the need to ensure its operations will not be
adversely affected by the Year 2000 date conversion situation common in many
data processing systems.
Georgia Gulf believes that all mission critical financial reporting and
plant systems, hardware and software are currently Year 2000 compliant. The
remaining plant systems waiting for final review are classified as low-risk and
generally record but do not process dates for either controlling or calculation
purposes. None of the critical third-parties contacted by Georgia Gulf, both
suppliers and customers, have indicated any anticipation of major difficulties
handling Year 2000 issues.
Georgia Gulf will continue monitoring its Year 2000 compliance efforts to
ensure its compliant status. Expenses related to Year 2000 compliance efforts
were not material.
FORWARD-LOOKING STATEMENTS
This form 10-Q and other communications to stockholders, as well as oral
statements made
<PAGE>
by representatives of Georgia Gulf, may contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements relate to, among other things, Georgia Gulf'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 Georgia Gulf'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 Georgia Gulf's
products are sold;
- - availability and pricing of raw materials;
- - technological changes affecting production;
- - difficulty in plant operations and product transportation;
- - governmental and environmental regulations; and
- - other unforseen circumstances.
A number of these factors are discussed in this Form 10-Q and in Georgia
Gulf's other periodic filings with the Securities and Exchange Commission,
including Georgia Gulf's annual report on Form 10-K for the year ended December
31, 1998.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of certain market risks related to Georgia Gulf, see Part
I, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. There
have been no significant developments with respect to the Company's exposure to
market risk except for the change in the fair value of interest rate swaps
disclosed in note 4 to the financial statements included herein.
<PAGE>
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
Georgia Gulf is a party to numerous individual and several class-action
lawsuits filed against Georgia Gulf, among other parties, arising out of an
incident that occurred in September 1996 in which workers were exposed to a
chemical substance on Georgia Gulf'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 Georgia Gulf's ordinary operations, but instead
occurred as a result of an unforeseen chemical reaction. Georgia Gulf presently
believes there are approximately 2,000 plaintiffs, of which approximately 650
are workers claiming to have been on-site at the time of the incident. All of
the actions claim one or more forms of compensable damages, including past and
future wages, past and future physical and emotional pain and suffering, and
medical monitoring. The lawsuits were originally filed in Louisiana State Court
in Iberville Parish.
In September 1998, the plaintiffs filed amended petitions that added the
additional allegations that Georgia Gulf had engaged in intentional conduct
against the plaintiffs. These additional allegations raised a coverage issue
under Georgia Gulf's general liability insurance policies. In December 1998, as
required by the terms of the insurance policies, the insurers demanded
arbitration to determine whether coverage is required for the alleged
intentional conduct in addition to the coverage applicable to the other
allegations of the case. The date for the arbitration has not yet been
established.
As a result of the arbitration relating to the insurance issue, as
permitted by federal statute, the insurers removed the cases to United States
District Court in December 1998. By order entered March 2, 1999, the federal
court denied the plaintiff's motion to remand the cases back to state court and
retained federal jurisdiction.
Settlements have been reached with a majority of the original workers,
including those claimants believed to be the most severely injured. Cases for
130 plaintiffs have been dismissed and another 832 plaintiff cases are pending
dismissal before the court. Additionally, settlements have been reached or are
being negotiated with other parties named as defendants whereby such parties
have made, or are being requested to make, contributions to the recoveries made
by the plaintiffs. Negotiations for the resolution of the remaining claims are
continuing.
Notwithstanding the foregoing, Georgia Gulf is asserting and pursuing
defenses to the claims. Based on the present status of the proceedings, Georgia
Gulf believes the liability ultimately imposed will not have a material effect
on the financial position or on results of operations of Georgia Gulf.
In addition, Georgia Gulf is subject to other claims and legal actions that
may 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 Georgia Gulf.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held May 18, 1999 in
Atlanta, Georgia for the following purposes: (i) to elect two 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 year ending December 31, 1999.
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>
James R. Kuse 26,233,160 808,014 0
Charles T. Harris III 26,582,861 458,313 0
</TABLE>
In addition, the terms of the following directors continued after the
meeting:
John D. Bryan
Dennis M. Chorba
Jerry R. Satrum
Edward A. Schmitt
Edward S. Smith
The selection of Arthur Andersen LLP to serve as independent public
accountants for the Company for the year ending December 31, 1999, was ratified
by the following votes:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
<S> <C> <C> <C>
26,954,624 80,785 5,765 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
a) No exhibits are required to be filed as part of this Form 10-Q.
b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the second quarter of 1999.
<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, 1999 /s/ EDWARD A. SCHMITT
----------------------- ----------------------------------------
Edward A. Schmitt
President and Chief
Executive Officer
(Principal Executive Officer)
Date AUGUST 11, 1999 /s/ RICHARD B. MARCHESE
----------------------- ----------------------------------------
Richard B. Marchese
Vice President Finance,
Chief Financial Officer and
Treasurer
<PAGE>
(Principal Financial Officer)
<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, 1999
----------------------- ----------------------------------------
Edward A. Schmitt
President and Chief
Executive Officer
(Principal Executive Officer)
Date AUGUST 11, 1999
----------------------- ----------------------------------------
Richard B. Marchese
Vice President Finance,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 752
<SECURITIES> 0
<RECEIVABLES> 92,051
<ALLOWANCES> 2,400
<INVENTORY> 72,855
<CURRENT-ASSETS> 173,958
<PP&E> 690,638
<DEPRECIATION> 304,417
<TOTAL-ASSETS> 676,967
<CURRENT-LIABILITIES> 324,130
<BONDS> 224,925
0
0
<COMMON> 309
<OTHER-SE> 30,719
<TOTAL-LIABILITY-AND-EQUITY> 676,967
<SALES> 379,060
<TOTAL-REVENUES> 379,060
<CGS> 333,963
<TOTAL-COSTS> 333,963
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,682
<INCOME-PRETAX> 10,399
<INCOME-TAX> 3,795
<INCOME-CONTINUING> 6,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,604
<EPS-BASIC> .21
<EPS-DILUTED> .21
</TABLE>
