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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed using the closing price on the New York Stock Exchange for
the Registrant's common stock on March 23, 1999, was $332,304,000.
Indicate the number of shares outstanding of the Registrant's common
stock as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 23, 1999
----- -----------------------------
COMMON STOCK, $0.01 PAR VALUE 30,911,954 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
(To the Extent Indicated Herein)
1998 Annual Report to Stockholders in Parts II and IV of this Form 10-K.
Proxy Statement for the Annual Meeting of Stockholders to be held
on May 18, 1999, in Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I
PAGE
ITEM NUMBER
- ---- ------
1) Business
General Description of Business 1 - 2
Chlorovinyl Products 2 - 3
Aromatic Chemical Products 3 - 4
Methanol 4
Great River Oil & Gas Corporation 4
North American Plastics, Inc. 5
Significant Customer 5
Marketing and Sales 5
Raw Materials 5-6
Competition 6
Employees 6
Environmental Regulation 6
Year 2000 Computer Systems Compliance 6
Forward-Looking Statements 7
2) Properties 7 - 8
3) Legal Proceedings 8 - 9
4) Submission of Matters to a Vote of Security Holders 9
PART II
5) Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters 10
6) Selected Financial Data 10
7) Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
7A) Quantitative and Qualitative Disclosures about Market Risk 10
8) Financial Statements and Supplementary Data 10
9) Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 10
PART III
10) Directors and Executive Officers of the Registrant 11
11) Executive Compensation 11
12) Security Ownership of Certain Beneficial Owners and Management 11
13) Certain Relationships and Related Transactions 12
PART IV
14) Exhibits, Financial Statement Schedules and Reports on Form 8-K 13 - 17
SIGNATURES 18
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PART I
ITEM 1. BUSINESS.
GENERAL DESCRIPTION OF BUSINESS
Georgia Gulf Corporation is a major manufacturer and worldwide
marketer of two highly integrated product lines, chlorovinyls and aromatic
chemicals; and also a third product line, methanol, a natural gas chemical.
Georgia Gulf's chlorovinyl products include chlorine, caustic soda, sodium
chlorate, vinyl chloride monomer ("VCM") and polyvinyl chloride ("PVC")
resins and compounds. Georgia Gulf's primary aromatic chemical products
include cumene, phenol and acetone. For selected financial information
concerning these product lines, see Note 18 to Georgia Gulf's consolidated
financial statements incorporated by reference in Item 14.
Georgia Gulf has operated as an independent corporation since its
acquisition on December 31, 1984, of a major portion of the business and
assets of the chemical division of Georgia-Pacific Corporation. Georgia
Gulf's operations include:
-- production units at six locations;
-- several marketing organizations to handle sales;
-- a technical service laboratory; and
-- a purchasing organization to buy all major raw materials.
At Georgia Gulf's six manufacturing locations, there are thirteen plants
including six located in Plaquemine, Louisiana. Georgia Gulf also owns an air
separation plant located in Plaquemine, Louisiana, which supplies all of the
oxygen and nitrogen requirements for the complex. Georgia Gulf leases a
cogeneration facility that supplies essentially all of the electricity and
steam requirements for the Plaquemine, Louisiana, complex. In addition,
Georgia Gulf leases storage terminals and warehouses from which a portion of
its products is distributed to customers.
Georgia Gulf's products are generally intermediate chemicals that
are sold for further processing into a wide variety of end-use applications.
Some of the more significant end-use markets include:
-- plastic pipe and pipe fittings, window lineals and siding,
wire and cable insulation, packaging material and containers
made from vinyl resins and compounds;
-- adhesives for wood products and high quality plastics made
from phenol;
-- acrylic sheeting for automotive and architectural products
made from acetone; and
-- formaldehyde and methyl tertiary-butyl ether ("MTBE"), a
gasoline additive, produced from methanol.
The following percentages of sales were made in 1998 to manufacturers
in the following industries:
INDUSTRY PERCENTAGE OF SALES
- ----------------------------------------- -----------------------------
Housing and construction 31%
Plastics and fibers 22%
Solvents and chemicals 18%
Consumer products 16%
Pulp and paper 4%
Miscellaneous 9%
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In the commodity chemical industry, the cost of raw materials, as
well as the overall industry capacity and demand for particular product
lines, significantly affect pricing of products. These factors also impact
Georgia Gulf's earnings and cash flow. Georgia Gulf has invested $613 million
in the past five years to maintain, expand and improve the efficiency of its
operating facilities. The major planned capital expenditures for 1999 will be
directed toward certain environmental projects and increased efficiency of
existing operations. Management believes that with its low-cost position and
integrated product lines, Georgia Gulf is well-positioned to compete in its
various product lines.
Georgia Gulf's long-term strategy is to continue to make investments
that will improve or maintain its low-cost position, as well as selective and
prudent capacity additions and expansions in its core product areas. In
addition, Georgia Gulf will consider acquisitions, joint ventures or similar
transactions that management believes will promote profitable growth in
present and closely related product lines.
CHLOROVINYL PRODUCTS
CHLORINE/CAUSTIC SODA/SODIUM CHLORATE. Georgia Gulf's facility at
Plaquemine, Louisiana, has the annual capacity to produce the following:
-- 450 thousand tons of chlorine;
-- 500 thousand tons of caustic soda, chlorine's co-product; and
-- 27 thousand tons of sodium chlorate.
The major raw materials for these products are salt and electric power.
Georgia Gulf has a long-term lease on a salt dome near the Plaquemine
facility. The salt dome has sufficient salt reserves to last over thirty
years at current rates of production. Electric power is the most significant
cost component in the production of these products. Georgia Gulf operates a
250-megawatt cogeneration facility located at the Plaquemine, Louisiana,
complex. This facility supplies, under a long-term lease agreement,
essentially all of the electricity and steam requirements for that site. The
primary cost component of producing electricity in the cogeneration facility
is natural gas.
Chlorine is used in the production of various chemicals, including
those used to make vinyl resins. In 1998, approximately 92 percent of Georgia
Gulf's chlorine production was consumed internally in the production of VCM,
which Georgia Gulf uses to produce vinyl resins. Georgia Gulf sells the
remaining chlorine principally to the pulp and paper and chemical industries.
The major uses of caustic soda are in the production of pulp and
paper and aluminum. Caustic soda also has applications in the production of
other chemicals and in chemical processes where caustic soda is used to
control pH levels, aiding in waste neutralization. Another use is in the
textile industry where it makes fabrics more absorbent and improves the
strength of dyes. Caustic soda is also used, to a lesser extent, in food
processing, electroplating and detergents.
The predominant use for sodium chlorate is in the bleaching process
for pulp and paper.
VCM. Georgia Gulf produces VCM at its Plaquemine, Louisiana,
complex. The major raw materials used to produce VCM are purchased ethylene
and internally-produced chlorine. The VCM plant's annual capacity is
approximately 1.6 billion pounds with the capability of also producing an
additional 400 million pounds of ethylene dichloride ("EDC"), the precursor
to VCM. Approximately 79 percent of the VCM production in 1998 was used by
Georgia Gulf's PVC resins operations with the remainder being sold to other
PVC resins producers, particularly in the export market.
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PVC RESINS. Georgia Gulf operates a world-scale PVC resins plant in
Plaquemine, Louisiana. The plant is located adjacent to its major raw
material supplier, the VCM facility. This minimizes transportation and
handling costs. The annual production capacity is approximately 1.12 billion
pounds.
PVC resins are among the most widely used plastics in the world
today. After being formulated and compounded to desired properties, PVC
resins are heated and shaped into finished products by various extrusion and
molding processes. Georgia Gulf uses approximately one-fourth of its PVC
resin internally in the production of vinyl compounds. The remainder of the
production is sold to other vinyl compound manufacturers or to downstream
manufacturers who compound PVC resins internally.
VINYL COMPOUNDS. Vinyl compounds blend PVC resins with various
additives such as plasticizers, impact modifiers, stabilizers and pigments to
achieve desired properties. Georgia Gulf's vinyl compounding plants have an
aggregate annual capacity of approximately 570 million pounds and are located
in Tiptonville, Tennessee, and Aberdeen, Gallman and Madison, Mississippi.
Vinyl compounds are formulated to provide specific end-use
properties that allow the material to be processed directly into a finished
product. All sales of vinyl compounds are to outside customers. This product
line can be segregated into five major product areas according to the
following process applications:
INJECTION MOLDING -- Georgia Gulf supplies various vinyl compounds,
which are used in the business machine market for computer housings
and keyboards. It also supplies vinyl compounds to produce electrical
outlet boxes. These proprietary compounds have extensive approval
procedures by customers or regulatory bodies. Georgia Gulf also
manufactures vinyl compounds for use in pipe fittings.
EXTRUSION -- Georgia Gulf supplies extrusion markets which have
applications in window and furniture profiles and extruded sheets for
household fixtures and decorative overlays.
FLEXIBLE -- Georgia Gulf supplies flexible compounds for wire and
cable for construction, automobiles and appliances, and other consumer
and industrial purposes.
CHLORINATED POLYVINYL CHLORIDE ("CPVC") -- Georgia Gulf supplies
Protherm(R) CPVC compounds to the extrusion and injection molding
markets, mainly for pipe and pipe fittings.
BLOW MOLDING -- Georgia Gulf is a supplier of blow molding compounds,
which are primarily used for both food-grade and general purpose
bottles. Supplied in both clear and opaque colors, these bottles are
used to package cosmetics, shampoos, charcoal lighter fluid, water and
edible oils.
AROMATIC CHEMICAL PRODUCTS
CUMENE. Cumene is produced at the Pasadena, Texas, facility located
on the Houston ship channel. Georgia Gulf's cumene plant is one of the
world's largest and has an annual capacity of approximately 1.5 billion
pounds. Cumene is produced from benzene and propylene purchased from various
suppliers in the surrounding area. Approximately 68 percent of the 1998
cumene output was consumed internally to produce phenol and its co-product,
acetone. The balance was sold into the merchant market to other phenol and
acetone manufacturers.
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PHENOL/ACETONE. Phenol and acetone are produced at the Plaquemine,
Louisiana and Pasadena, Texas facilities. The Plaquemine facility has
approximately 500 million pounds of phenol capacity and 308 million pounds of
acetone capacity per year. The Pasadena facility has annual capacity of 160
million pounds of phenol and 100 million pounds of acetone.
Phenol is a major ingredient in phenolic resins, which are used
extensively as adhesives for wood products such as plywood and granulated
wood panels. Phenol is also used in insulation, electrical parts, nylon
carpeting, oil additives and pharmaceuticals. Phenol is also a precursor to
high performance plastics used in compact discs, automobiles, household
appliances, electronics and protective coating applications.
The primary uses for acetone are as a key ingredient to methyl
methacrylate, which is used to produce acrylic sheeting, and as an ingredient
for surface coating resins for automotive and architectural markets. Acetone
is also an intermediate for the production of engineering plastics and
several major industrial solvents. Other uses range from wash solvents for
automotive and industrial applications to pharmaceuticals and cosmetics.
As a result of the phenol/acetone manufacturing process, Georgia
Gulf also produces and markets small amounts of a by-product,
alpha-methylstyrene ("AMS"). AMS is primarily used as a polymer modifier and
as a chemical intermediate.
METHANOL
Methanol is produced at Georgia Gulf's facility at Plaquemine,
Louisiana, which has an annual capacity of approximately 160 million gallons.
Natural gas represents the majority of the cost of the production of
methanol. The Plaquemine facility is in the center of Louisiana's oil and gas
producing region and has three separate pipeline systems that can deliver gas
to the plant. Natural gas is purchased by Georgia Gulf under contracts at
market prices from both producers and gas pipeline suppliers.
A key use for methanol is in the production of MTBE, an additive
that promotes cleaner burning gasoline by adding oxygen. Methanol is also
used as a raw material in the manufacture of formaldehyde, an ingredient in
adhesives for building materials such as granulated wood panels and plywood.
Other applications for methanol include windshield washer fluid, solvents,
acrylic sheeting, coatings, fibers and household adhesives.
In 1998, substantial increases in global supply created a
significant imbalance between supply and demand, which had a serious impact
on profitability for the methanol industry. In the United States, producers
face increased competition from low-cost imports. As a result, Georgia Gulf
has temporarily shut down operations of its methanol plant and is supplying
customers by purchasing methanol from offshore suppliers. Georgia Gulf is
presently examining a range of options to enhance the value of the methanol
business and take advantage of Georgia Gulf's customer base and extensive
distribution system.
GREAT RIVER OIL & GAS CORPORATION
In July 1997, Georgia Gulf sold oil and gas properties representing
most of the assets of Great River Oil & Gas Corporation, a subsidiary of
Georgia Gulf. Net proceeds from this sale were $16,477,000, on which Georgia
Gulf recorded a pretax gain of $8,600,000 ($5,300,000, net of income taxes).
Historically, the operating results for this subsidiary had not been material
to the operating results or financial condition of Georgia Gulf.
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NORTH AMERICAN PLASTICS, INC.
On May 11, 1998, Georgia Gulf acquired all the issued and
outstanding common stock of North American Plastics, Inc., a privately held
manufacturer of flexible vinyl compounds with a production capacity of
190,000,000 pounds. North American Plastics has two manufacturing locations
in Mississippi and generated approximately $90,000,000 in revenue in 1997.
Its vinyl compounds are used in wire and cable for construction, automobiles
and appliances, as well as various other consumer and industrial products.
The stock of North American Plastics 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
Georgia Gulf's existing revolving credit facility. 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
$86,725,000. 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 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.
SIGNIFICANT CUSTOMER
Georgia Gulf has supply contracts, subject to some limitations, for
significant percentages of Georgia-Pacific Corporation's requirements for
caustic soda, methanol and phenol. These supply contracts provide for prices
approximating the market. These supply contracts have various expiration
dates (depending on the product) from 1999 through 2003 and may be extended
year-to-year upon expiration. Sales under these contracts were about 11% of
total sales in 1998, 12% in 1997 and 15% in 1996.
MARKETING AND SALES
Georgia Gulf's marketing program is aimed at expanding and
diversifying its customer base. Other than Georgia-Pacific Corporation, no
single customer represents more than 10% of Georgia Gulf's net sales. Export
sales accounted for about 17% of total sales in 1998, 15% in 1997 and 12% in
1996. The principal international markets served by Georgia Gulf are Canada,
Mexico, Latin America, Europe and Asia.
Georgia Gulf markets its products primarily to industrial customers.
The sales force is organized by product line. The sales organization, located
throughout the United States, is supported by a technical service staff.
RAW MATERIALS
The most important raw materials purchased by Georgia Gulf are
natural gas, ethylene, benzene, propylene and salt. Raw materials used for
production of Georgia Gulf's products are usually purchased from various
suppliers at market prices under supply contracts, some of which are
long-term take or pay agreements. Since raw materials account for a
significant portion of Georgia Gulf's total production cost, its ability to
pass on increases in these costs to its customers has a significant impact on
operating results. The ability to pass on increases is, to a large extent,
related to industry
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capacity and market demand. Georgia Gulf's leased cogeneration facility
supplies essentially all of the electricity and steam requirements for its
Plaquemine production facilities. Management believes Georgia Gulf has a
reliable supply base of raw materials under normal market conditions. Georgia
Gulf cannot predict the impact of any future raw material shortages.
COMPETITION
Georgia Gulf experiences competition from numerous manufacturers in
all of its product lines. Some of Georgia Gulf's competitors have
substantially greater financial resources and are more highly diversified
than Georgia Gulf. Georgia Gulf competes on a variety of factors such as
price, product quality, delivery and technical service.
Management believes that Georgia Gulf is well-positioned to compete
as a result of integrated product lines, the operational efficiency of its
plants and the location of its facilities near major water and/or rail
transportation terminals.
EMPLOYEES
As of December 31, 1998, Georgia Gulf had 1,050 full-time employees.
Georgia Gulf has one collective bargaining agreement, which covered
fifty-three employees at the Tiptonville, Tennessee, facility as of December
31, 1998.
ENVIRONMENTAL REGULATION
Georgia Gulf's operations are subject to increasingly stringent
federal, state and local laws and regulations relating to environmental
quality. These regulations are enforced principally by the United States
Environmental Protection Agency and comparable state agencies. These
regulations govern the management of solid hazardous waste, emissions into
the air and discharges into surface and underground waters, and the
manufacture of chemical substances.
Management believes that Georgia Gulf is in material compliance with
all current environmental laws and regulations. Georgia Gulf estimates that
any expenses incurred in maintaining compliance with these requirements will
not materially affect earnings or cause it to exceed its level of anticipated
capital expenditures. However, there can be no assurance that regulatory
requirements will not change, and Georgia Gulf cannot predict the aggregate
cost of compliance resulting from any such changes.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Georgia Gulf has recognized the need to ensure its operations will
not be adversely impacted by the Year 2000 date conversion situation common
in many data processing systems. All of Georgia Gulf's financial reporting
systems have been acquired or developed within the past seven years. The
installation of these systems is complete and testing indicates these systems
are Year 2000 compliant. Process control software controls the operation of
many of Georgia Gulf's plants. This process control software was updated to
Year 2000 compliant versions during 1998.
Management believes its remaining Year 2000 exposure exists
primarily with personal computers and external partners. The remaining
exposure related to the personal computers will be addressed during the first
half of 1999. Third parties critical to Georgia Gulf, both suppliers and
customers, were contacted during the first quarter of 1999 in order to
develop appropriate contingency plans, if necessary. The additional Year 2000
conversion costs are not expected to be material.
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FORWARD-LOOKING STATEMENTS
This Form 10-K and other communications to stockholders, as well as
oral statements made 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.
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 unforeseen circumstances.
A number of these factors are discussed in this Form 10-K and in
Georgia Gulf's other periodic filings with the Securities and Exchange
Commission.
ITEM 2. PROPERTIES.
Georgia Gulf's asset base was established from 1971 to the present
with the construction of the Plaquemine, Louisiana, complex; the construction
of the Pasadena, Texas, cumene plant; and the purchase of the PVC compound
plants. Georgia Gulf purchased the Bound Brook, New Jersey, phenol/acetone
facility which was subsequently relocated to Pasadena, Texas, and modernized
in 1990. In 1996, Georgia Gulf sold its vinyl emulsion business including the
property and buildings at the Delaware City location. In 1997, Georgia Gulf
completed construction of cogeneration and air separation plants in
Plaquemine, Louisiana, in order to supply substantially all of its
requirements for electricity, oxygen and nitrogen at that location. The
cogeneration plant is leased under an operating lease agreement. In 1998,
Georgia Gulf purchased North American Plastics, Inc., a manufacturer of
flexible vinyl compounds with production facilities in Aberdeen and Madison,
Mississippi. With the exception of the cogeneration plant, Georgia Gulf owns
each of these facilities.
Georgia Gulf continues to explore ways to expand both its plant
capacities and product lines. Georgia Gulf believes current and additional
planned capacity will adequately meet anticipated demand requirements.
Average capacity utilization of Georgia Gulf's production facilities in 1998
was 91%.
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The following table sets forth the location of Georgia Gulf's
manufacturing facilities as well as the products manufactured and the
approximate processing capability of each as of December 31, 1998. Finally,
the table indicates the segment of the products produced.
<TABLE>
<CAPTION>
LOCATIONS PRODUCTS ANNUAL CAPACITY SEGMENT
- --------- -------- --------------- -------
<S> <C> <C> <C>
Aberdeen, MS Vinyl Compounds 570 million pounds Chlorovinyls
Gallman, MS
Madison, MS
Tiptonville, TN
Pasadena, TX Cumene 1.5 Billion pounds Aromatics
Phenol 160 million pounds Aromatics
Acetone 100 million pounds Aromatics
Plaquemine, LA Chlorine 450 thousand tons Chlorovinyls
Caustic Soda 500 thousand tons Chlorovinyls
Sodium Chlorate 27 thousand tons Chlorovinyls
Vinyl Chloride Monomer 1.6 Billion pounds Chlorovinyls
Polyvinyl Chloride Resins 1.12 Billion pounds Chlorovinyls
Phenol 500 million pounds Aromatics
Acetone 308 million pounds Aromatics
Methanol 160 million gallons Gas Chemicals
</TABLE>
Georgia Gulf's manufacturing facilities are located near major water
and/or rail transportation terminals, facilitating efficient delivery of raw
materials and prompt shipment of finished products. In addition, Georgia Gulf
has a fleet of 2,446 railcars of which 713 are owned and the remainder leased
pursuant to operating leases with varying terms through the year 2010. The
total lease expense for these railcars and other transportation equipment was
approximately $10,108,000 for 1998.
Georgia Gulf makes lease payments under an operating lease agreement
for the 250-megawatt cogeneration facility at the Plaquemine, Louisiana,
complex. The lease expense under the operating lease agreement for 1998 was
approximately $11,629,000.
Georgia Gulf leases office space for its principal executive offices
in Atlanta, Georgia, and for information services in Baton Rouge, Louisiana.
Space is leased for sales and marketing offices in Houston, Texas;
Schaumburg, Illinois; and Lawrenceville, New Jersey. Space for numerous
storage terminals is leased throughout the United States, and in the
Netherlands, Canada, New Zealand, Mexico and South Korea.
ITEM 3. 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,
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of which approximately 650 are workers claiming to have been onsite 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.
Discovery has been occurring in these cases. Georgia Gulf 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.
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. The plaintiffs filed motions contesting the
jurisdiction of the federal court and seeking to remand the cases back to
state court, and a hearing on the issue was held in federal court on January
15, 1999. 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 approximately 260 of the original
workers, including the majority of those claimants believed to be the most
severely injured, and the settled cases have been or will be dismissed.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
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PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information set forth under the captions "Corporate Information
- --Common Stock Data" and "Dividend Policy" and in Notes 7, 8 and 19 of the
"Notes to Consolidated Financial Statements" of Georgia Gulf's 1998 Annual
Report to Stockholders is hereby incorporated by reference herein in response
to this item.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under the caption "Ten-Year Selected
Financial Data" of Georgia Gulf's 1998 Annual Report to Stockholders is
hereby incorporated by reference herein in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information set forth under the caption "Management's Discussion
and Analysis" of Georgia Gulf's 1998 Annual Report to Stockholders is hereby
incorporated by reference herein in response to this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information set forth under the caption "Management's Discussion
and Analysis --Disclosures about Market Risk" of Georgia Gulf's 1998 Annual
Report to Stockholders is hereby incorporated by reference herein in response
to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information set forth on pages 23 through 41 of Georgia Gulf's
1998 Annual Report to Stockholders is hereby incorporated by reference herein
in response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Georgia Gulf has not changed its independent public accountants and
has had no disagreements with its independent public accountants on
accounting and financial disclosure during the Registrant's two most recent
fiscal years prior to, or in any period subsequent to, the date of the most
recent financial statements included herein.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in Georgia
Gulf's Proxy Statement for the Annual Meeting of Stockholders to be held May
18, 1999, is hereby incorporated by reference in response to this item.
The following is certain information regarding the executive
officers of Georgia Gulf who are not Directors:
Richard B. Marchese, 57, has served as Vice President Finance, Chief
Financial Officer and Treasurer of Georgia Gulf since May 1989, and
prior thereto served as Corporate Controller from its inception.
Joel I. Beerman, 49, has served as Vice President, General Counsel and
Secretary since February 1994 and as General Counsel since February
1992. Prior thereto, Mr. Beerman served as Associate General Counsel
for Georgia Gulf since its inception.
Mark J. Seal, 47, has served as Vice President, Polymer Group since
August 1993. Mr. Seal served as Business and Manufacturing Director --
PVC Resins from May 1992 until August 1993 and as Business Manager --
PVC Resins and Compounds from May 1989 until May 1992. Prior thereto,
Mr. Seal served as Business Manager -- Electrochemicals from January
1987 until May 1989 and as Midwest Regional Sales Manager for Georgia
Gulf from its inception until January 1987.
Thomas G. Swanson, 57, has served as Vice President, Commodity
Chemicals Group since February 1999, and from December 1989 to August
1993. He served as Vice President, Supply and Corporate Development
from August 1993 until February 1999; as General Manager -- Commodity
Chemicals Group from November 1988 until December 1989; as Director of
Corporate Development for Georgia Gulf from July 1987 until November
1988; and prior thereto as Manager -- Supply and Distribution for
Georgia Gulf since its inception.
Executive officers are elected by, and serve at the pleasure of, the
Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Election of Directors"
and "Executive Compensation" in Georgia Gulf's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 18, 1999, is hereby incorporated by
reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the captions "Principal
Stockholders" and "Security Ownership of Management" in Georgia Gulf's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 18, 1999,
is hereby incorporated by reference in response to this item.
11
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Georgia Gulf has not had any transactions required to be reported
under this item for the calendar year 1998, or for the period from January 1,
1999, to the date of this report.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this 1998 Annual
Report for Georgia Gulf Corporation:
(1) The Consolidated Financial Statements, the Notes to
Consolidated Financial Statements, the Report of Management
and the Report of Independent Public Accountants listed
below are incorporated herein by reference from pages 23
through 41 of Georgia Gulf's 1998 Annual Report to
Stockholders:
Consolidated Balance Sheets as of December 31, 1998 and
1997
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Management
Report of Independent Public Accountants
(2) Financial Statement Schedules:
Report of Independent Public Accountants on Financial
Statement Schedule
The following financial statement schedule is for the
years ended December 31, 1998, 1997 and 1996:
II Valuation and Qualifying Accounts
Schedules other than the one listed above are omitted
because they are not required and are inapplicable or the
information is otherwise shown in the Consolidated
Financial Statements or notes thereto.
(3) Exhibits. Each management contract or compensatory plan or
arrangement is preceded by an asterisk.
13
<PAGE>
The following exhibits are filed as part of this Form 10-K Annual Report:
EXHIBIT
NO. DESCRIPTION
------- -----------
13 1998 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
The following exhibit is incorporated by reference to Georgia Gulf's 1998
Form 10-Q Quarterly Report for the period ending June 30, 1998, filed August
13, 1998:
EXHIBIT
NO. DESCRIPTION
------- -----------
10(a) Stock Purchase Agreement, dated May 11, 1998, between
Georgia Gulf and North American Plastics, Inc.
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-8 (File No. 33-59433) filed July 20, 1998:
EXHIBIT
NO. DESCRIPTION
-------- -----------
*4 Georgia Gulf Corporation 1998 Equity and Performance
Incentive Plan
The following exhibit is incorporated by reference to Georgia Gulf's 1998
Form 10-Q Quarterly Report for the period ending March 31, 1998, filed May 8,
1998:
EXHIBIT
NO. DESCRIPTION
------- -----------
10(a) Receivable Transfer Agreement dated March 10, 1998, by
and among GGRC Corp., as Transferor, Georgia Gulf
Corporation, individually and as Collection Agent, and
Blue Ridge Asset Funding Corporation
10(b) Receivable Purchase Agreement dated March 10, 1998,
between Georgia Gulf Corporation, as Seller and as
Collection Agent and GGRC Corp., as Purchaser
The following exhibits are incorporated herein by reference to Georgia Gulf's
1995 Form 10-K Annual Report filed March 28, 1996:
EXHIBIT
NO. DESCRIPTION
------- -----------
10(a) Trust Agreement dated February 6, 1996, between
NationsBanc Leasing Corporation of North Carolina and
First Security Bank of Utah, N.A.
14
<PAGE>
10(b) Leasehold Mortgage, Assignment of Leases, Security
Agreement and Financing Statement dated February 16,
1996, between Georgia Gulf, First Security Bank of Utah,
N.A., and Val T. Orton
10(c) Participation Agreement dated February 6, 1996, between
Georgia Gulf, First Security Bank of Utah, N.A.,
NationsBanc Leasing Corporation of North Carolina,
NationsBank, N.A. (South), ABN AMRO Bank N.V., Bank of
Montreal, Bank of New York, Bank of Nova Scotia, Bank of
Tokyo Trust Company, Chase Manhattan Bank, The Dai-Ichi
Kangyo Bank, Limited, Atlanta Agency, The Fuji Bank,
Ltd., The Industrial Bank of Japan, Limited, the Sakura
Bank Limited, Atlanta Agency, Rabobank Nederland, New
York Branch, The Tokai Bank, Limited, Atlanta Agency,
Wachovia Bank of Georgia, N.A., and Val T. Orton
10(d) Lease Agreement (Tax Retention Operating Lease) dated
February 6, 1996, between Georgia Gulf and First Security
Bank of Utah, N.A.
10(e) Credit Agreement dated February 6, 1996, between First
Security Bank of Utah, N.A. and NationsBank, N.A.
(South)
10(f) Security Agreement dated February 6, 1996, between First
Security Bank of Utah, N.A., Val T. Orton, NationsBank,
N.A. (South), and NationsBanc Leasing Corporation of
North Carolina
10(g) Ground Lease Agreement dated February 16, 1996, between
Georgia Gulf and First Security Bank of Utah, N.A.
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-8 (File No. 33- 64749) filed December 5, 1995:
EXHIBIT
NO. DESCRIPTION
------- -----------
10 Georgia Gulf Corporation Employee Stock Purchase Plan
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-3 (File No. 33- 63051) filed September 28, 1995:
EXHIBIT
NO. DESCRIPTION
------- -----------
4 Indenture, dated as of November 15, 1995, between Georgia
Gulf and LaSalle National Bank, as trustee (including
form of Notes)
15
<PAGE>
The following exhibit is incorporated by reference to Georgia Gulf's 1995
Form 10-Q Quarterly Report for the period ending June 30, 1995, filed August
2, 1995:
EXHIBIT
NO. DESCRIPTION
------- -----------
10(I) Term Loan Agreement, dated June 29, 1995, between Georgia
Gulf and The Industrial Bank of Japan, Limited as
Administrative Agent
The following exhibit is incorporated by reference to Georgia Gulf's 1995
Form 10-Q Quarterly Report for the period ending March 31, 1995, filed May
15, 1995:
EXHIBIT
NO. DESCRIPTION
------- -----------
10 Credit Agreement, dated March 30, 1995, between Georgia
Gulf and The Chase Manhattan Bank (National Association)
as Administrative Agent
The following exhibits are incorporated herein by reference to Georgia Gulf's
1991 Form 10-K Annual Report filed March 30, 1992:
EXHIBIT
NO. DESCRIPTION
------- -----------
3(a) Certificate of Amendment of Certificate of Incorporation
3(b) Amended and Restated By-Laws
*10 Georgia Gulf Corporation 1990 Incentive Equity Plan
The following exhibit is incorporated herein by reference to Exhibit 2 to
Georgia Gulf's Registration Statement on Form 8-A filed May 11, 1990, as
amended:
EXHIBIT
NO. DESCRIPTION
------- -----------
4 Amended and Restated Rights Agreement effective as of
August 31, 1990
The following exhibits are incorporated herein by reference to Georgia Gulf's
Registration Statement on Form S-1 (File No. 33-9902) declared effective on
December 17, 1986:
EXHIBIT
NO. DESCRIPTION
------- -----------
3(a) Certificate of Agreement of Merger, with Certificate of
Incorporation of Georgia Gulf as Exhibit A thereto, dated
December 31, 1984, and amendments thereto
10(f) Chemical Sales Agreement between Georgia Gulf and
Georgia-Pacific dated December 31, 1984, and Letter re:
Chemical Sales Agreement dated December 31, 1984
10(g) Agreement re: Liabilities among Georgia-Pacific,
Georgia-Pacific Chemicals, Inc., and others dated,
December 31, 1984
16
<PAGE>
10(o) Georgia Gulf Savings and Capital Growth Plan
10(p) Georgia Gulf Salaried Employees Retirement Plan
10(q) Georgia Gulf Hourly Employees Retirement Plan
*10(u) Executive Retirement Agreements
10(v) Salt Contract
(b) Reports on Form 8-K
No report on Form 8-K was filed with the Securities and Exchange
Commission during the last quarter of 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: MARCH 25, 1999 By: /s/ EDWARD A. SCHMITT
-------------------- ---------------------------------
Edward A. Schmitt, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EDWARD A. SCHMITT
- -----------------------------
Edward A. Schmitt President, Chief Executive Officer March 25, 1999
and Director (Principal Executive Officer)
/s/ RICHARD B. MARCHESE
- -----------------------------
Richard B. Marchese Vice President Finance, Chief Financial March 25, 1999
Officer and Treasurer (Principal Financial
and Accounting Officer)
/s/ JAMES R. KUSE
- -----------------------------
James R. Kuse Chairman of the Board and Director March 25, 1999
/s/ JOHN D. BRYAN
- -----------------------------
John D. Bryan Director March 25, 1999
/s/ DENNIS M. CHORBA
- -----------------------------
Dennis M. Chorba Director March 25, 1999
/s/ ROBERT E. FLOWERREE
- -----------------------------
Robert E. Flowerree Director March 25, 1999
/s/ CHARLES T. HARRIS III
- -----------------------------
Charles T. Harris III Director March 25, 1999
/s/ JERRY R. SATRUM
- -----------------------------
Jerry R. Satrum Director March 25, 1999
/s/ EDWARD S. SMITH
- -----------------------------
Edward S. Smith Director March 25, 1999
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To Georgia Gulf Corporation:
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in Georgia Gulf Corporation's
Annual Report to Stockholders incorporated by reference in this Form 10-K,
and have issued our report thereon dated February 12, 1999. Our audit was
made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14 of this Form 10-K is the responsibility
of Georgia Gulf's management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 12, 1999
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONS
Charged
Balance at Charged to to other Balance at
beginning costs and accounts-- Deductions end of
Description of period expenses describe --describe period
- ----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Allowance for
doubtful accounts $2,400 $ 300 $ --- $ (300) (1) $2,400
====== ======= ========= ======== ======
1997
Allowance for
doubtful accounts $2,400 $ 184 $ --- $ (184) (1) $2,400
====== ======= ========= ======== ======
1998
Allowance for
doubtful accounts $2,400 $ 28 $ --- $ (28) (1) $2,400
====== ======= ========= ======== ======
</TABLE>
NOTES:
(1) Accounts receivable balances written off during the period.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE (1)
- ------- ----------- --------
13 1998 Annual Report to Stockholders ___
21 Subsidiaries of the Registrant ___
23 Consent of Independent Public Accountants ___
(1) Page numbers appear on the manually signed Form 10-K's only.
<PAGE>
FINANCIALS
<TABLE>
<S> <C>
14 Ten-Year Selected Financial Data
16 Management's Discussion and Analysis
23 Consolidated Balance Sheets
24 Consolidated Statements of Income
25 Consolidated Statements of Cash Flows
26 Consolidated Statements of Stockholders' Equity
27 Notes to Consolidated Financial Statements
41 Report of Management
41 Report of Independent Public Accountants
42 Directors and Officers
</TABLE>
1
<PAGE>
TEN-YEAR SELECTED FINANCIAL DATA
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS &
EMPLOYEES 1998 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
RESULTS OF OPERATIONS
Net sales............................................. $ 875,018 $ 965,650 $ 896,186 $1,081,576 $ 955,305 $ 768,902 $ 779,455
Cost of sales......................................... 702,365 773,129 718,327 705,259 677,919 619,540 616,802
Selling and administrative expense.................... 42,650 45,720 41,586 48,371 47,164 38,901 33,827
--------- --------- --------- --------- --------- --------- ---------
Operating income...................................... 130,003 146,801 136,273 327,946 230,222 110,461 128,826
Recapitalization expense(1)........................... -- -- -- -- -- -- --
Gain on sale of assets................................ -- 8,600 -- -- -- -- --
Loss on interest rate hedge agreement................. (9,500) -- -- -- -- -- --
Interest expense...................................... (30,867) (24,693) (20,833) (25,114) (37,557) (44,779) (61,216)
Interest income....................................... 49 60 67 244 113 106 73
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes, extraordinary charge and
cumulative effect of accounting change.............. 89,685 130,768 115,507 303,076 192,778 65,788 67,683
Provision for income taxes............................ 33,406 49,567 43,887 116,582 70,618 23,560 21,346
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary charge and cumulative
effect of accounting change......................... 56,279 81,201 71,620 186,494 122,160 42,228 46,337
Extraordinary charge on early retirement of debt...... -- -- -- -- -- (13,267) --
Cumulative effect of accounting change for income
taxes............................................... -- -- -- -- -- 12,973 --
--------- --------- --------- --------- --------- --------- ---------
Net income............................................ $ 56,279 $ 81,201 $ 71,620 $ 186,494 $ 122,160 $ 41,934 $ 46,337
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic earnings per share.............................. $ 1.79 $ 2.41 $ 2.00 $ 4.82 $ 2.95 $ 1.04 $ 1.22
Diluted earnings per share............................ 1.77 2.39 1.98 4.73 2.89 1.01 1.18
Dividends per common share............................ 0.32 0.32 0.32 0.32 -- -- --
<CAPTION>
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS &
EMPLOYEES 1991 1990 1989
- ------------------------------------------------------ --------- --------- ---------
RESULTS OF OPERATIONS
Net sales............................................. $ 838,336 $ 932,104 $1,104,468
Cost of sales......................................... 626,672 661,448 753,255
Selling and administrative expense.................... 41,129 42,087 52,204
--------- --------- ---------
Operating income...................................... 170,535 228,569 299,009
Recapitalization expense(1)........................... -- (17,869) --
Gain on sale of assets................................ -- -- --
Loss on interest rate hedge agreement................. -- -- --
Interest expense...................................... (80,772) (63,161) (961)
Interest income....................................... 492 2,505 2,045
--------- --------- ---------
Income before income taxes, extraordinary charge and
cumulative effect of accounting change.............. 90,255 150,044 300,093
Provision for income taxes............................ 28,782 54,700 108,103
--------- --------- ---------
Income before extraordinary charge and cumulative
effect of accounting change......................... 61,473 95,344 191,990
Extraordinary charge on early retirement of debt...... -- -- --
Cumulative effect of accounting change for income
taxes............................................... -- -- --
--------- --------- ---------
Net income............................................ $ 61,473 $ 95,344 $ 191,990
--------- --------- ---------
--------- --------- ---------
Basic earnings per share.............................. $ 1.82 $ 3.11 $ 7.96
Diluted earnings per share............................ 1.77 3.08 7.58
Dividends per common share............................ -- -- 1.00
</TABLE>
2
<PAGE>
TEN-YEAR SELECTED FINANCIAL DATA (CONTINUED)
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS &
EMPLOYEES 1998 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
FINANCIAL HIGHLIGHTS
Working capital....................................... $ 65,076 $ 57,472 $ 49,395 $ 73,370 $ 126,668 $ 67,674 $ 57,465
Property, plant and equipment, net.................... 401,149 410,860 394,737 312,536 255,608 222,835 217,781
Total assets.......................................... 669,761 612,703 587,999 507,332 508,447 405,287 419,420
Total debt............................................ 459,475 393,040 395,600 292,400 314,081 379,206 444,416
Stockholders' equity (deficit)(1)..................... 28,881 35,603 18,570 50,628 31,138 (110,577) (161,165)
Cash provided by operating activities................. 123,903 109,017 114,689 278,641 111,595 88,268 60,385
Depreciation and amortization......................... 45,718 37,871 39,431 32,068 27,774 27,062 29,583
Capital expenditures.................................. 25,906 56,591 119,895 86,278 59,142 29,583 14,261
Maintenance expenditures.............................. 51,795 58,675 57,064 51,558 46,033 43,141 47,664
OTHER SELECTED DATA
Earnings before interest, taxes, depreciation and
amortization (EBITDA)(2)............................ $ 175,194 $ 193,272 $ 175,704 $ 360,014 $ 257,996 $ 137,523 $ 158,409
Weighted average common shares........................ 31,474 33,629 35,759 38,728 41,427 40,515 37,873
Weighted average common shares and equivalents........ 31,787 33,947 36,248 39,428 42,255 41,476 39,215
Common shares outstanding............................. 30,884 32,781 34,585 37,240 42,013 40,952 40,294
Sales per employee.................................... $ 833 $ 928 $ 870 $ 946 $ 834 $ 684 $ 691
Current ratio......................................... 1.7 1.5 1.4 1.6 2.0 1.6 1.4
Return on assets...................................... 8.8% 13.5% 13.1% 36.7% 26.7% 10.2% 11.1%
Return on sales....................................... 6.4% 8.4% 8.0% 17.2% 12.8% 5.5% 5.9%
Ratio of operating income to interest expense......... 4.2 5.9 6.5 13.1 6.1 2.5 2.1
Employees............................................. 1,050 1,041 1,030 1,143 1,146 1,124 1,128
<CAPTION>
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS &
EMPLOYEES 1991 1990 1989
- ------------------------------------------------------ --------- --------- ---------
FINANCIAL HIGHLIGHTS
Working capital....................................... $ 20,676 $ 50,131 $ 132,097
Property, plant and equipment, net.................... 226,746 220,851 215,182
Total assets.......................................... 415,585 456,657 472,989
Total debt............................................ 639,153 726,481 856
Stockholders' equity (deficit)(1)..................... (357,512) (424,476) 330,341
Cash provided by operating activities................. 112,148 127,752 225,255
Depreciation and amortization......................... 26,447 19,834 18,667
Capital expenditures.................................. 28,273 58,111 54,159
Maintenance expenditures.............................. 42,853 42,985 40,400
OTHER SELECTED DATA
Earnings before interest, taxes, depreciation and
amortization (EBITDA)(2)............................ $ 196,982 $ 248,403 $ 317,676
Weighted average common shares........................ 33,690 30,676 24,111
Weighted average common shares and equivalents........ 34,721 30,942 25,327
Common shares outstanding............................. 33,711 33,608 24,437
Sales per employee.................................... $ 760 $ 868 $ 818
Current ratio......................................... 1.1 1.3 2.2
Return on assets...................................... 14.1% 20.5% 41.3%
Return on sales....................................... 7.3% 10.2% 17.4%
Ratio of operating income to interest expense......... 2.1 3.6 311.1
Employees............................................. 1,103 1,074 1,350
</TABLE>
- ------------------------------
(1) All years subsequent to 1989 include the effects of the recapitalization,
which occurred in April 1990. (See Note 8 to the consolidated financial
statements.)
(2) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is
commonly used by certain investors to measure a company's ability to service
its indebtedness. EBITDA is not a measurement of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as a measure of performance or to cash flow as a
measure of liquidity. For 1998, the loss on interest rate hedge agreement
has been included as interest expense for the computation of EBITDA.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GEORGIA GULF CORPORATION
RESULTS OF OPERATIONS
Georgia Gulf manufactures and markets two highly integrated chemical product
lines, chlorovinyls and aromatics; 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 vinyl resins
and compounds; the Company's primary aromatic chemical products include cumene,
phenol and acetone.
Georgia Gulf's business, and the chemical industry in general, is cyclical
in nature and is affected by world economic conditions. The level of domestic
chemical sales and product pricing tends to reflect fluctuations in downstream
markets that are affected by consumer spending for durable goods and
construction spending. Global capacity of certain chemicals also affects the
supply and demand for the products the Company manufactures and markets.
1998 COMPARED WITH 1997--For the year ended December 31, 1998, diluted earnings
per share were $1.77 on net income of $56.3 million and net sales of $875.0
million. This compares with diluted earnings per share of $2.39, net income of
$81.2 million and net sales of $965.7 million for 1997.
Operating income for 1998 was $130.0 million, a decrease of 11 percent from
$146.8 million in 1997. Total sales volume increased slightly over the prior
year as increased sales volume in chlorovinyls more than offset declines in
aromatics and methanol. The average selling price of the Company's products
declined 10 percent for the period-to-period comparison. With the exception of
caustic soda, pricing declined for all products; however, lower raw material
costs helped mitigate a portion of these sales price decreases. Operating income
also included a reduction in maintenance expense of $5.1 million for the
deferment of certain plant turnarounds until 1999.
In chlorovinyls, industry operating rates for chlorine/caustic soda plants
ran above 90 percent for most of 1998. Georgia Gulf markets all of its caustic
soda and consumes most of its chlorine, while approximately 72 percent of VCM
production is used internally in the manufacture of vinyl resins. Approximately
37 percent of the Company's vinyl resin is used internally to produce vinyl
compounds. Both VCM and vinyl resins have suffered from industry overcapacity,
resulting in excess supply and reduced operating rates in both 1998 and 1997.
Demand from Asia has also suffered as a result of the economic troubles in that
region. However, the market demand for vinyl compounds remained strong in 1998,
benefitting from the continued strength of the United States economy. In
addition, the acquisition in May 1998 of North American Plastics, Inc., a
manufacturer of flexible vinyl compounds, has contributed positively to earnings
of the Company's vinyl compounds business.
The Company's chlorovinyls business had a higher profit contribution of
$80.2 million in 1998 as compared with $69.8 million in 1997 as sales volume
increased 10 percent, offsetting a 5 percent decrease in sales prices. Sales
volumes were up for most chlorovinyl products in 1998, especially vinyl
compounds which included the flexible vinyl compound sales of newly acquired
North American Plastics. Sales prices for all chlorovinyl products were lower,
with the exception of caustic soda. However, caustic soda did begin to weaken in
the second half of 1998, largely due to a combination of high caustic/chlorine
operating rates and lower demand from pulp and paper producers. Pricing pressure
is expected to continue into 1999 for caustic/chlorine as two major expansions
are scheduled for completion in 1999. Industry operating rates during 1998 for
VCM plants were in the high 80 percent range for most of the year as producers
adjusted production levels to meet reduced export demand. Prices were negatively
impacted from this oversupply situation as well. Vinyl resins have endured an
eighteen-month decline in sales prices also due to industry overcapacity, but
pricing did begin to improve slightly toward the end of 1998. There are no
significant vinyl resin capacity additions scheduled for 1999, which should lead
to a more balanced market and higher pricing levels.
4
<PAGE>
Aromatic industry operating rates were high for 1998 as a result of strong
demand attributable to the continued strength of downstream markets for phenol,
particularly bisphenol-A and phenolic resins. The Company's aromatics business
generated $73.4 million in operating income for 1998 as compared to $71.1
million for 1997. Sales volume for aromatic chemicals in 1998 decreased 4
percent from 1997 levels, as a drop in cumene volume more than offset increases
in both phenol and acetone volumes. The average sales price for the entire
aromatic chemical chain declined approximately 14 percent in 1998, as compared
to 1997. Industry operating rates for cumene, which experienced the sharpest
drop in sales volume and price, were in the low 80 percent range in 1998. The
Company's average phenol sales price declined approximately 13 percent as
compared to 1997. The phenol industry operated at rates in the mid-90 percent
range. Looking forward, management expects phenol demand to continue its steady
growth in 1999; however, capacity additions scheduled for 1999 and 2000 will
cause further margin compression as industry supply increases. Phenol's
co-product, acetone, was also under price pressure during 1998. This trend will
more than likely continue as the current acetone industry capacity exceeds
forecasted demand.
The methanol market has experienced a rapid decline in pricing and
profitability since the first quarter of 1998. Earnings for methanol declined
from $24.3 million in 1997 to a loss of $9.0 million in 1998. Substantial
increases in global supply created a significant imbalance between supply and
demand, resulting in a 39 percent decline in average pricing for 1998 as
compared to 1997. These market conditions have had a serious impact on
profitability for the domestic methanol industry as United States producers face
tighter competition from increased levels of low-cost imports. As a result, the
Company has temporarily shut down its operations of the methanol plant and is
supplying customers by purchasing methanol from offshore suppliers. The Company
is presently examining a range of options to enhance the value of the methanol
business and take advantage of the Company's customer base and extensive
distribution system.
Selling and administrative expenses decreased $3.1 million in 1998 to $42.7
million, primarily as a result of reduced pension costs and lower profit-sharing
expense.
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 bonds. During
the third quarter, treasury yields dropped to their lowest levels in 30 years,
while at the same time, investors' preference for treasury bonds reduced demand
for corporate bonds and limited the Company's ability to issue public debt. 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.
Interest expense increased to $30.9 million for 1998, compared with $24.7
million for 1997. This increase primarily reflects a higher average debt balance
for 1998, as a result of the North American Plastics acquisition.
Basic and diluted earnings per share for 1998 were lower due to the
reduction in net income but were favorably impacted by a reduction in the number
of outstanding common shares compared with the same period in 1997. This
reduction in shares was a result of the Company's stock repurchase program.
1997 COMPARED WITH 1996--Net sales in 1997 were $965.7 million, an increase of 8
percent from $896.2 million in 1996. Operating income also increased 8 percent
to $146.8 million in 1997 from $136.3 million in 1996. Diluted earnings per
share for 1997 were $2.39 on net income of $81.2 million as compared to diluted
earnings per share and net income for 1996 of $1.98 and $71.6 million,
respectively. Results for 1997 include a pretax gain of $8.6 million from the
sale of certain oil and gas properties, which resulted in an increase to net
income of $5.3 million, or $0.16 per share on a diluted basis.
The Company generated the increase in net sales during 1997 from a 12
percent increase in sales volume, which was partially offset by a 4 percent
reduction in average sales price of the Company's products. Overall, the Company
operated its plants at 93 percent of capacity in 1997. Stronger demand led
5
<PAGE>
to higher pricing for nearly all of the Company's products, with the exception
of caustic soda, which experienced a significant price decline. As for raw
materials, prices were up in 1997 with the exception of natural gas, where
prices were level with 1996. The Company's new cogeneration facility and air
separation plant, both completed in 1997 and located at the Plaquemine,
Louisiana complex, reduced the cost of previously purchased electricity,
nitrogen and oxygen.
The Company's chlorovinyls business generated lower profits in 1997 as
compared with 1996 primarily as a result of a significant decline in the selling
price of caustic soda. Total sales volumes for chlorovinyls increased 7 percent;
however, the overall average selling price for chlorovinyls declined 11 percent
as sales price increases for most chlorovinyl products were overshadowed by the
drop in caustic soda pricing. Higher raw material costs also contributed to the
decline in profits from the chlorovinyls chain during 1997.
Aromatic chemical products generated significantly higher operating income
for 1997 when compared to 1996. Sales volume for aromatics was up 23 percent in
1997 as the Company operated its aromatic plants at 98 percent of capacity. The
sales volume increase was also significantly impacted by the expansion of the
Company's cumene plant in 1996, which was fully operational throughout 1997.
Sales prices for cumene and phenol increased as demand for downstream markets
for phenol, primarily bisphenol-A and phenolic resins, strengthened during 1997.
Acetone, phenol's co-product, experienced a decline in pricing as the demand for
phenol exceeded the demand for acetone, creating a supply and demand imbalance
for acetone.
Methanol operating income increased 145 percent to $24.3 million in 1997 as
continued strong demand and several industry outages resulted in higher sales
volumes and prices. The cost of natural gas, the primary cost component of
methanol, was basically the same for 1996 and 1997.
Selling and administrative expenses increased $4.1 million in 1997 primarily
as a result of higher compensation expense relating to profit-sharing programs
and increased legal and environmental expenses.
Interest expense increased $3.9 million in 1997 due to less interest being
capitalized in connection with capital expansion activity and a higher average
outstanding debt balance.
Diluted earnings per share increased 21 percent in 1997 due to higher net
income and fewer shares outstanding resulting from the Company's share
repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to maintain a strong capital structure through
effective use of capital and the Company's ability to generate significant cash
flow from operations. A strong capital position has enabled Georgia Gulf to
invest in projects to enhance efficiency and increase productive capacity and to
repurchase a significant portion of the Company's common stock.
Many of the Company's commodity products are expected to be in the trough
part of their pricing cycles during 1999. As management anticipates lower cash
flow from operations, investment in capital projects and stock repurchases will
be curtailed in order to maintain borrowings and available credit at manageable
levels. 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,
working capital fluctuations and debt service requirements.
In 1998, Georgia Gulf generated $123.9 million from operating activities, up
$14.9 million from 1997. Major sources of cash flow from operating activities in
1998 were net income of $56.3 million, noncash provisions of $45.7 million for
depreciation and amortization and $28.0 million for deferred income taxes. Total
working capital at the end of 1998 was $65.1 million versus $57.5 million at the
end of 1997. The items affecting net income are discussed in the "Results of
Operations" section.
6
<PAGE>
Capital expenditures for 1998 decreased significantly to $25.9 million as
compared to $56.6 million for 1997. Georgia Gulf completed a major capital
expansion program in 1997, which included capacity expansions in the phenol,
acetone, VCM and vinyl compound plants. The Company also invested $99.9 million
for the acquisition of North American Plastics during 1998. As in 1998, capital
expenditures for 1999 will be directed toward certain environmental projects and
increased efficiency of existing operations. The Company estimates that total
capital expenditures for 1999 will approximate $25.0 million.
Georgia Gulf repurchased and retired 2.3 million shares of its common stock
during 1998 at a total cost of $58.9 million. As of December 31, 1998, the
Company had authorization to repurchase an additional 5.2 million shares under
its stock repurchase program. The Company declared common stock dividends of
$0.32 per share or $10.0 million during 1998.
Debt increased from $393.0 million at the end of 1997 to $459.5 million at
the end of 1998 as a result of the North American Plastics acquisition. Georgia
Gulf's debt portfolio primarily consists of a $100 million term loan, $100
million principal amount of 7 5/8% notes, $223.0 million outstanding under its
$350 million revolving credit facility and $36.5 million in other debt
agreements. The Company has interest rate swap agreements to fix the interest
rate on the term loan at a rate ranging from 6.71 percent to 7.04 percent. As of
December 31, 1998, the Company had availability of $127.0 million under its $350
million revolving credit facility.
In 1997, Georgia Gulf generated $109.0 million from operating activities,
down $5.7 million from 1996. Major sources of cash flow from operating
activities in 1997 included net income of $81.2 million, noncash provisions of
$37.9 million for depreciation and amortization and $11.7 million for deferred
income taxes. 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 was reflected as a reduction to net income for purposes of
determining net cash provided by operating activities. Total working capital at
the end of 1997 was $57.5 million versus $49.4 million at the end of 1996.
Net cash used in financing activities was $68.0 million in 1997 and was used
to fund repurchases of common stock in the amount of $59.3 million and dividends
of $10.7 million.
Net cash used in investing activities was $40.1 million in 1997, and was
primarily attributable to capital expenditure requirements of $56.6 million for
several plant expansions, offset in part by $16.5 million generated from the
sale of certain oil and gas properties.
DISCLOSURES ABOUT MARKET RISK
The Company is subject to certain market risks related to long-term
financing and related derivative financial instruments, foreign currency
exchange rates and commodity prices. The Company has policies and procedures to
mitigate the potential loss arising from adverse changes in these risk factors.
INTEREST RATE SENSITIVITY--The table below is a "forward-looking" statement
that provides information about the Company's derivative financial instruments
and other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and financing obligations. The Company's policy is
to manage interest rates through use of a combination of fixed and floating rate
debt. The Company does not use interest rate swap agreements or any other
derivatives for trading purposes. For financing obligations, the table presents
principal cash flows and related weighted average interest rates by expected
maturity dates. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected contractual maturity dates. Notional
amounts are used to calculate the contractual payments to be exchanged under the
contracts. Weighted average variable rates are based on implied
7
<PAGE>
forward rates in the yield curve at the reporting date. The information and cash
flows are presented in U.S. dollars, which is the Company's reporting currency.
<TABLE>
<CAPTION>
PRINCIPAL (NOTIONAL) AMOUNTS BY EXPECTED MATURITY DATE FAIR
------------------------------------------------------------------------------ VALUE AT
DOLLARS IN THOUSANDS 1999 2000 2001 2002 2003 THEREAFTER TOTAL 12/31/98
- ----------------------------- --------- --------- --------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM FINANCING
Long-term debt:
Fixed rate principal....... $ -- $ -- $ -- $ -- $ -- $ 107,925 $ 107,925 $ 107,625
Average interest rate...... -- -- -- -- -- 7.54% 7.54% --
Variable rate principal.... -- 223,000 25,000 75,000 -- 28,550 351,550 351,550
Average interest rate...... -- 5.58% 5.78% 5.95% -- 6.56% 5.97% --
INTEREST RATE DERIVATIVES
Interest rate swaps:
Variable to fixed notional
amount................... $ -- $ -- $ -- $ 200,000 $ -- $ -- $ 200,000 $ (6,412)
Average pay rate........... -- -- -- 6.09% -- -- 6.09% --
Average receive rate....... -- -- -- 5.31% -- -- 5.31% --
</TABLE>
FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY--Primarily all of the Company's
sales are denominated in U. S. dollars and it is the Company's policy to
purchase forward contracts to eliminate short-term exchange rate volatility for
foreign currency sales. The foreign currency exchange rate risk relates to
annual sales of less than $10.0 million and, accordingly, foreign currency
forward exchange agreements were not material at December 31, 1998.
COMMODITY PRICE SENSITIVITY--The availability and price of the Company's raw
materials are subject to fluctuations due to unpredictable factors in global
supply and demand. To reduce price risk caused by market fluctuations, the
company from time to time executes raw material purchase contracts, which are
less than one year in duration. As of December 31, 1998, the fair value of these
raw material purchase contracts was a net payable of $704,000.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
The Company has recognized the need to ensure its operations will not be
adversely impacted by the Year 2000 date conversion situation common in many
data processing systems. All of the Company's financial reporting systems have
been acquired or developed within the past seven years. The installation of
these systems is complete, and testing indicates these systems are Year 2000
compliant. Process control software also controls the operation of many of the
Company's plants; this process control software was updated to Year 2000
compliant versions during 1998.
The Company believes its remaining Year 2000 exposure exists primarily in
the areas of personal computers and with external partners. The remaining
exposure related to the personal computers will be addressed during the first
half of 1999. Third parties critical to the Company, both suppliers and
customers, were contacted during the first quarter of 1999 in order to develop
appropriate contingency plans, if necessary. The additional Year 2000 conversion
costs are not expected to be material.
FORWARD-LOOKING STATEMENTS
This Annual Report 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
8
<PAGE>
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 the Annual
Report on Form 10-K and in the Company's other periodic filings with the
Securities and Exchange Commission.
INFLATION
The most significant component of the Company's cost of sales is raw
materials which include basic commodity items. The cost of raw materials is
based primarily on market forces and has not been significantly affected by
inflation. Inflation has not had a material impact on the Company's sales or
income from operations.
ENVIRONMENTAL
The Company's operations are subject to increasingly stringent federal,
state and local laws and regulations relating to environmental quality. These
regulations, which are enforced principally by the United States Environmental
Protection Agency and comparable state agencies, govern the management of solid
hazardous waste, emissions into the air and discharges into surface and
underground waters, and the manufacture of chemical substances.
Management believes that the Company is in material compliance with all
current environmental laws and regulations. The Company estimates that any
expenses incurred in maintaining compliance with these requirements will not
materially affect earnings or cause the Company to exceed its level of
anticipated capital expenditures. However, there can be no assurance that
regulatory requirements will not change, and, therefore, it is not possible to
accurately predict the aggregate cost of compliance resulting from any such
changes.
9
<PAGE>
CONSOLIDATED BALANCE SHEETS
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
IN THOUSANDS, EXCEPT SHARE DATA 1998 1997
- ------------------------------------------------------------------------------------------ ---------- ----------
ASSETS
Cash and cash equivalents................................................................. $ 1,244 $ 1,621
Receivables, net of allowance for doubtful accounts of $2,400 in 1998 and 1997............ 70,233 67,553
Inventories............................................................................... 72,301 92,921
Prepaid expenses.......................................................................... 3,562 6,508
Deferred income taxes..................................................................... 6,492 7,409
---------- ----------
Total current assets.................................................................... 153,832 176,012
---------- ----------
Property, plant and equipment, at cost.................................................... 683,495 650,968
Less accumulated depreciation........................................................... 282,346 240,108
---------- ----------
Property, plant and equipment, net.................................................... 401,149 410,860
---------- ----------
Goodwill.................................................................................. 85,154 --
---------- ----------
Other assets.............................................................................. 29,626 25,831
---------- ----------
Total assets.............................................................................. $ 669,761 $ 612,703
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.......................................................................... $ 66,459 $ 92,588
Interest payable.......................................................................... 2,272 2,218
Accrued income taxes...................................................................... -- 564
Accrued compensation...................................................................... 6,814 7,281
Accrued pension........................................................................... 378 2,257
Other accrued liabilities................................................................. 12,833 13,632
---------- ----------
Total current liabilities............................................................... 88,756 118,540
---------- ----------
Long-term debt............................................................................ 459,475 393,040
---------- ----------
Deferred income taxes..................................................................... 92,649 65,520
---------- ----------
Stockholders' equity
Preferred stock-$0.01 par value; 75,000,000 shares authorized; no shares issued......... -- --
Common stock-$0.01 par value; 75,000,000 shares authorized; shares issued and
outstanding: 30,883,754 in 1998 and 32,781,439 in 1997................................ 309 328
Retained earnings....................................................................... 28,572 35,275
---------- ----------
Total stockholders' equity............................................................ 28,881 35,603
---------- ----------
Total liabilities and stockholders' equity................................................ $ 669,761 $ 612,703
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
IN THOUSANDS, EXCEPT SHARE DATA 1998 1997 1996
- ------------------------------------------------------------------------ ------------ ------------ ------------
Net sales............................................................... $875,018 $965,650 $896,186
Operating costs and expenses
Cost of sales......................................................... 702,365 773,129 718,327
Selling and administrative expense.................................... 42,650 45,720 41,586
------------ ------------ ------------
Total operating costs and expenses.................................. 745,015 818,849 759,913
------------ ------------ ------------
Operating income........................................................ 130,003 146,801 136,273
Other income (expense)
Gain on sale of assets................................................ -- 8,600 --
Loss on interest rate hedge agreement................................. (9,500) -- --
Interest expense...................................................... (30,867) (24,693) (20,833)
Interest income....................................................... 49 60 67
------------ ------------ ------------
Income before income taxes.............................................. 89,685 130,768 115,507
Provision for income taxes.............................................. 33,406 49,567 43,887
------------ ------------ ------------
Net income.............................................................. $ 56,279 $ 81,201 $ 71,620
------------ ------------ ------------
Basic earnings per share................................................ $ 1.79 $ 2.41 $ 2.00
------------ ------------ ------------
Diluted earnings per share.............................................. $ 1.77 $ 2.39 $ 1.98
------------ ------------ ------------
Weighted average common shares.......................................... 31,474,072 33,628,875 35,758,587
------------ ------------ ------------
Weighted average common shares and equivalents.......................... 31,786,536 33,946,750 36,247,534
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
IN THOUSANDS 1998 1997 1996
- --------------------------------------------------------------------------- ----------- ----------- -----------
Cash flows from operating activities:
Net income............................................................... $ 56,279 $ 81,201 $ 71,620
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 45,718 37,871 39,431
Gain on sale of assets................................................. -- (8,600) --
Provision for deferred income taxes.................................... 28,046 11,666 4,102
Tax benefit related to stock plans..................................... 1,406 1,252 2,210
Change in operating assets and liabilities, net of effects of
acquisition:
Receivables.......................................................... 8,436 (3,422) 25,283
Inventories.......................................................... 25,416 (3,725) (17,408)
Prepaid expenses..................................................... 3,026 3,426 2,174
Accounts payable..................................................... (33,979) (2,179) 15,906
Interest payable..................................................... 54 (692) 173
Accrued income taxes................................................. (564) (1,475) (1,257)
Accrued compensation................................................. (2,664) 1,644 (9,078)
Accrued pension...................................................... (1,879) 118 (168)
Accrued liabilities.................................................. (1,995) 150 1,552
Other................................................................ (3,397) (8,218) (19,851)
----------- ----------- -----------
Net cash provided by operating activities.................................. 123,903 109,017 114,689
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures..................................................... (25,906) (56,591) (119,895)
Proceeds from the sale of assets......................................... -- 16,477 6,062
Acquisition, net of cash acquired........................................ (99,902) -- --
----------- ----------- -----------
Net cash used in investing activities...................................... (125,808) (40,114) (113,833)
----------- ----------- -----------
Cash flows from financing activities:
Long-term debt proceeds.................................................. 207,485 187,440 268,500
Long-term debt payments.................................................. (141,550) (190,000) (165,300)
Proceeds from issuance of common stock................................... 4,497 4,598 5,084
Repurchase and retirement of common stock................................ (58,880) (59,307) (99,586)
Dividends paid........................................................... (10,024) (10,711) (11,386)
----------- ----------- -----------
Net cash provided by (used in) financing activities........................ 1,528 (67,980) (2,688)
----------- ----------- -----------
Net change in cash and cash equivalents.................................... (377) 923 (1,832)
Cash and cash equivalents at beginning of year............................. 1,621 698 2,530
----------- ----------- -----------
Cash and cash equivalents at end of year................................... $ 1,244 $ 1,621 $ 698
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------- PAID-IN RETAINED STOCKHOLDERS'
IN THOUSANDS, EXCEPT SHARE DATA SHARES AMOUNT CAPITAL EARNINGS EQUITY
- ---------------------------------------------------- ------------ ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......................... 37,240,252 $ 372 $ 31,312 $ 18,944 $ 50,628
Net income.......................................... -- -- -- 71,620 71,620
Dividends paid...................................... -- -- -- (11,386) (11,386)
Tax benefit realized from stock option plans........ -- -- 2,210 -- 2,210
Common stock issued upon exercise of stock
options........................................... 340,770 3 1,662 -- 1,665
Common stock issued under stock purchase plan....... 152,178 2 3,417 -- 3,419
Repurchase and retirement of common stock........... (3,148,400) (31) (38,601) (60,954) (99,586)
------------ ----------- ----------- --------- ------------
Balance, December 31, 1996.......................... 34,584,800 346 -- 18,224 18,570
Net income.......................................... -- -- -- 81,201 81,201
Dividends paid...................................... -- -- -- (10,711) (10,711)
Tax benefit realized from stock option plans........ -- -- 1,252 -- 1,252
Common stock issued upon exercise of stock
options........................................... 185,045 2 1,435 -- 1,437
Common stock issued under stock purchase plan....... 140,694 1 3,160 -- 3,161
Repurchase and retirement of common stock........... (2,129,100) (21) (5,847) (53,439) (59,307)
------------ ----------- ----------- --------- ------------
Balance, December 31, 1997.......................... 32,781,439 328 -- 35,275 35,603
Net income.......................................... -- -- -- 56,279 56,279
Dividends paid...................................... -- -- -- (10,024) (10,024)
Tax benefit realized from stock option plans........ -- -- 1,406 -- 1,406
Common stock issued upon exercise of stock
options........................................... 169,830 2 1,440 -- 1,442
Common stock issued under stock purchase plan....... 228,585 2 3,053 -- 3,055
Repurchase and retirement of common stock........... (2,296,100) (23) (5,899) (52,958) (58,880)
------------ ----------- ----------- --------- ------------
Balance, December 31, 1998.......................... 30,883,754 $ 309 $ -- $ 28,572 $ 28,881
------------ ----------- ----------- --------- ------------
------------ ----------- ----------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GEORGIA GULF CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Georgia Gulf Corporation and its subsidiaries (the "Company").
All significant intercompany balances and transactions are eliminated in
consolidation.
NATURE OF OPERATIONS--The Company is a manufacturer and worldwide marketer
of chemical and plastic products. The Company's products are primarily
intermediate chemicals sold for further processing into a wide variety of
end-use applications including plastic pipe and pipe fittings, siding and window
frames, bonding agents for wood products, high-quality plastics, acrylic
sheeting and gasoline additives.
USE OF ESTIMATES--Management of the Company is required to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes prepared in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with an original maturity of three months or less to be the
equivalent of cash for purposes of financial statement presentation.
INVENTORIES--Inventories are valued at the lower of cost (first-in,
first-out) or market. Costs include raw materials, direct labor and
manufacturing overhead. Market is based on current replacement cost for raw
materials and supplies and on net realizable value for finished goods.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Maintenance and repairs are charged to expense as incurred, and major
renewals and improvements are capitalized. Interest expense attributable to
funds used in financing the construction of major plant and equipment is
capitalized. Interest expense capitalized during 1998, 1997 and 1996 was
$667,000, $2,802,000 and $4,826,000, respectively. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets for
book purposes, with accelerated methods being used for income tax purposes.
The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
20-30
Buildings and land improvements................................. years
Machinery and equipment......................................... 3-15 years
</TABLE>
GOODWILL--Goodwill of $86,725,000 was capitalized in connection with the
acquisition of North American Plastics, Inc. in 1998 (see Note 17). The goodwill
is being amortized over a 35-year period. Goodwill amortized to cost of sales
was $1,571,000 during 1998. The Company periodically evaluates goodwill for
impairment. In completing this evaluation, the Company estimates the future
undiscounted cash flows of the businesses to which goodwill relates in order to
ensure that the carrying amount of goodwill has not been impaired.
OTHER ASSETS--Other assets comprised primarily deposits for long-term raw
material purchase contracts and debt issuance costs. Deposits are being
amortized as additional raw material cost over the remaining 16-year life of the
related contracts in proportion to raw material delivery. Debt issuance costs
are amortized to expense using the effective interest rate method over the term
of the related indebtedness.
FINANCIAL INSTRUMENTS--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 (see Note 14). These financial statements do not reflect
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
temporary market gains and losses on derivative financial instruments, although
the estimated fair value is disclosed in Note 14. If subsequent to being hedged,
underlying transactions are no longer likely to occur, the related derivative
gains and losses are recognized currently as income or expense. Amounts paid or
received on the interest rate swap agreements are recorded to interest expense
as incurred. As of December 31, 1998 and 1997, interest rate swap agreements
were the only form of derivative financial instruments outstanding.
ENVIRONMENTAL EXPENDITURES--Environmental expenditures related to current
operations or future revenues are expensed or capitalized consistent with the
Company's capitalization policy. Expenditures that relate to an existing
condition caused by past operations and that do not contribute to future
revenues are expensed. Liabilities are recognized when environmental assessments
or cleanups are probable and the costs can be reasonably estimated.
EARNINGS PER SHARE--Basic earnings per share is computed based on the
weighted average number of common shares outstanding during the respective
periods. Diluted earnings per share is computed based on the weighted average
number of common shares outstanding, adjusted for dilutive potential issuances
of common stock.
STOCK-BASED COMPENSATION--Stock-based compensation is recognized using the
intrinsic value method. Pro forma net income and earnings per share impacts are
presented in Note 9 as if the fair value method had been applied.
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 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." This
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 impact of adopting SFAS No. 133 on the
Company's financial statements.
3. RECEIVABLES
The Company has entered into an agreement pursuant to which it sold a
percentage ownership interest in a defined pool of the Company's trade
receivables. As collections reduce accounts receivable included in the pool, the
Company sells participating interests in new receivables to bring the amount
sold up to the $50,000,000 maximum permitted by the agreement. The receivables
are sold at a discount, which
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
3. RECEIVABLES (CONTINUED)
approximates the purchaser's financing cost of issuing its own commercial paper
backed by these accounts receivable. The ongoing costs of this program of
$2,807,000, $3,045,000 and $2,882,000 for 1998, 1997 and 1996, respectively,
were charged to selling and administrative expense in the accompanying
consolidated statements of income.
4. INVENTORIES
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
IN THOUSANDS 1998 1997
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Raw materials and supplies.............................................. $ 26,462 $ 34,451
Finished goods.......................................................... 45,839 58,470
--------- ---------
Inventories............................................................. $ 72,301 $ 92,921
--------- ---------
--------- ---------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
IN THOUSANDS 1998 1997
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Machinery and equipment............................................... $ 609,965 $ 596,974
Land improvements..................................................... 23,760 23,009
Buildings............................................................. 23,937 20,771
Construction in progress.............................................. 25,833 10,214
---------- ----------
Property, plant and equipment, at cost................................ $ 683,495 $ 650,968
---------- ----------
---------- ----------
</TABLE>
6. OTHER ASSETS
Other assets, net of accumulated amortization, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
IN THOUSANDS 1998 1997
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Deposits for long-term purchase contracts............................... $ 23,635 $ 20,684
Debt issuance costs..................................................... 2,613 3,035
Other................................................................... 3,378 2,112
--------- ---------
Other assets............................................................ $ 29,626 $ 25,831
--------- ---------
--------- ---------
</TABLE>
Debt issuance costs amortized as interest expense during 1998, 1997 and 1996
were $527,000, $448,000 and $440,000, respectively.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
7. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
IN THOUSANDS 1998 1997
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Revolving credit loan..................................................................... $ 223,000 $ 155,000
Term loan................................................................................. 100,000 100,000
7 5/8% notes due 2005..................................................................... 100,000 100,000
Other..................................................................................... 36,475 38,040
---------- ----------
Long-term debt............................................................................ $ 459,475 $ 393,040
---------- ----------
---------- ----------
</TABLE>
The Company's credit agreement provides for an unsecured revolving credit
facility which permits borrowings of up to $350,000,000. The revolving credit
facility terminates and related outstanding loans, if any, are due in March
2000. As of December 31, 1998, the Company had availability to borrow up to
$127,000,000 under the terms of the revolving credit facility. An annual
commitment fee, which ranges from 0.10 percent to 0.25 percent (currently at
0.25 percent), is required to be paid on the revolving credit facility
commitment. The interest rate on the revolving credit facility is based on LIBOR
and averaged 5.97 percent and 5.98 percent for 1998 and 1997, respectively.
The Company has a $100,000,000 unsecured term loan agreement with an average
rate of 6.99 percent for 1998 and 1997. The LIBOR-based variable interest rate
on the term loan has been fixed at a rate ranging from 6.71 percent to 7.04
percent using interest rate swap agreements. Required principal payments under
the term loan are $25,000,000 in June 2001 and $75,000,000 in June 2002.
The Company has $100,000,000 principal amount of unsecured 7 5/8 percent
notes outstanding, which are due in November 2005. Interest on the notes is
payable semiannually on May 15 and November 15 of each year. The notes are not
redeemable prior to maturity.
Under the credit agreement, term loan and notes, the Company is subject to
certain restrictive covenants, the most significant of which require the Company
to maintain certain financial ratios and to limit the amount of dividends and
repurchases of common stock. The Company's limit for dividends and repurchases
of common stock was $62,476,000 as of December 31, 1998.
Cash payments for interest during 1998, 1997 and 1996 were $30,398,000,
$27,739,000 and $22,945,000, respectively.
8. STOCKHOLDERS' EQUITY
In April 1990, the Company's stockholders approved a plan of
recapitalization, which resulted in a distribution to stockholders of
$864,733,000. The distribution for the recapitalization, net of certain tax
benefits, was charged against retained earnings.
During 1998 and 1997, the Company repurchased 2,296,100 shares of its common
stock for $58,880,000 and 2,129,100 shares for $59,307,000, respectively. As of
December 31, 1998, the Company had authorization to repurchase up to 5,225,600
additional shares under the current common stock repurchase program, subject to
certain restrictions as described in Note 7.
Each outstanding share of common stock is accompanied by a preferred stock
purchase right, which entitles the holder to purchase from the Company 1/100th
of a share of Junior Participating Preferred
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
8. STOCKHOLDERS' EQUITY (CONTINUED)
Stock for $45.00, subject to adjustment in certain circumstances. The rights
expire on April 27, 2000 and may be redeemed by the Company for $0.01 per right
until ten days following the earlier to occur of the announcement that a person
or group beneficially owns 15 percent or more of the Company's outstanding
shares of common stock or the commencement of or announcement by any person or
group of an intent to commence a tender or exchange offer which would result in
any person or group beneficially owning 15 percent or more of the Company's
outstanding shares of common stock (the earliest of any such date, the
"Distribution Date"). The rights first become exercisable on the Distribution
Date. Subject to certain conditions, if a person or group becomes the beneficial
owner of 15 percent or more of the Company's outstanding shares of common stock,
each right will entitle its holder (other than certain acquiring persons) to
receive, upon exercise, common stock having a value equal to two times the
right's exercise price. In addition, subject to certain conditions, if the
Company is involved in a merger or certain other business combination
transactions, each right will entitle its holder (other than certain acquiring
persons) to receive, upon exercise, common stock of the acquiring company having
a value equal to two times the right's exercise price.
In connection with the stock purchase rights described above, 30,000,000 of
the authorized shares of preferred stock are designated Junior Participating
Preferred Stock. If issued, the Junior Participating Preferred Stock would be
entitled, subject to the prior rights of any senior preferred stock, to a
dividend equal to the greater of $0.01 or that which is paid on the common
shares.
9. STOCK OPTION AND PURCHASE PLANS
Options to purchase common stock of the Company have been granted to
employees under plans adopted in 1990 and 1998. Under the 1998 Equity and
Performance Incentive Plan approved by the Company's stockholders, the Company
may grant up to 2,000,000 options to employees and non-employee directors.
Option prices are equal to the closing price of the Company's common stock on
date of grant. Options vested ratably over a five-year period for the 1990
option plan and vest over a one- or three-year period for the 1998 Equity and
Performance Incentive Plan from the date of grant and expire no more than ten
years after grant.
The following is a summary of all stock option information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Options outstanding at beginning of year.......................... 768,116 956,561 1,299,031
Granted at $17.75-$35.25 per share.............................. 440,000 -- --
Exercised....................................................... (169,830) (185,045) (340,770)
Forfeited or canceled........................................... (85,900) (3,400) (1,700)
-------------- -------------- --------------
Options outstanding at year end................................... 952,386 768,116 956,561
-------------- -------------- --------------
-------------- -------------- --------------
Option exercise price per share range............................. $7.75-$36.50 $7.75-$36.50 $6.36-$36.50
Weighted average exercise price................................... $ 25.75 $ 16.13 $ 14.54
Weighted average remaining contractual life (in years)............ 5.4 3.6 4.4
Options exercisable............................................... 519,386 684,116 830,561
Options available for grant....................................... 1,664,827 18,927 15,527
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
9. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The Company's stockholders have approved a qualified, non-compensatory
employee stock purchase plan, which allows employees to acquire shares of common
stock through payroll deductions over a twelve-month period. The purchase price
is equal to 85 percent of the fair market value of the common stock on either
the first or last day of the subscription period, whichever is lower. Purchases
under the plan are limited to 15 percent of an employee's base salary. In
connection with this stock purchase plan, 278,543 shares of common stock are
reserved for future issuances. Under this plan and similar plans, 228,585,
140,694 and 152,178 shares of common stock were issued at $13.36, $22.47 and
$22.47 per share during 1998, 1997 and 1996, respectively.
The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with SFAS No. 123, "Accounting for Stock-Based
Compensation," for disclosure purposes. Under these provisions, no compensation
was recognized in 1998, 1997 and 1996 for the Company's stock option plans or
its stock purchase plans.
In accordance with the disclosure requirements of SFAS No. 123, the Company
is required to calculate the pro forma compensation cost of all stock options
and purchase rights granted after December 31, 1994, using an option pricing
model. Stock options granted in 1998 and stock purchase rights granted in
connection with the Company's stock purchase plan are subject to this
calculation.
For SFAS No. 123 purposes, the fair value of each stock option and stock
purchase right for 1998, 1997 and 1996 has been estimated as of the date of the
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for 1998, 1997 and 1996, respectively: risk-free interest
rates of 5.44 percent, 5.66 percent and 5.09 percent; dividend yields of 1.00
percent, 1.20 percent and 1.04 percent; and expected volatilities of 0.32, 0.23
and 0.30. The expected life of a right and option was assumed to be one year and
three years, respectively, for all years. Using these assumptions, the fair
market value of the stock option grants for 1998 was $3,493,000. Also using
these assumptions, the fair values of the stock purchase plan rights for 1998,
1997 and 1996 were $1,224,000, $977,000 and $1,062,000, respectively. Had
compensation cost been determined consistently with SFAS No. 123, utilizing the
assumptions detailed above, the Company's net income and earnings per common
share would have been the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1998 1997 1996
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net income
As reported.................................................................... $ 56,279 $ 81,201 $ 71,620
Pro forma...................................................................... 53,317 80,594 70,962
Basic earnings per share
As reported.................................................................... $ 1.79 $ 2.41 $ 2.00
Pro forma...................................................................... 1.69 2.40 1.98
Diluted earnings per share
As reported.................................................................... $ 1.77 $ 2.39 $ 1.98
Pro forma...................................................................... 1.68 2.37 1.96
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
10. EMPLOYEE BENEFIT PLANS
The Company has certain pension, savings and profit sharing plans that cover
substantially all of its employees. The expense incurred for these plans was
approximately $2,434,000, $3,798,000 and $4,522,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
Most employees are covered by defined contribution plans under which the
Company makes contributions to individual employee accounts and by defined
benefit plans for which the benefits are based on years of service and the
employee's compensation or for which the benefit is a specific monthly amount
for each year of service. The Company's policy on funding the defined benefit
plans is to contribute an amount within the range of the minimum required and
the maximum tax-deductible contribution.
During 1998, the Company restructured several of its executive benefit plans
whereby certain plan benefits were replaced by new retirement agreements funded
by life insurance contracts. The elimination of the benefits under the previous
plans resulted in a reduction to pension expense for 1998 of $1,520,000. The
total expense related to the new agreements in 1998 was $693,000, which
represented the current year cost of the insurance contracts, net of the
increase in the cash surrender value of the contracts.
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The Statement standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable.
On a weighted average basis, the following assumptions were used in the
accounting for the net periodic benefit costs and for the defined benefit plans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
WEIGHTED AVERAGE RATES 1998 1997 1996
- ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Discount rate.................................................... 7.00% 7.25% 7.50%
Expected return on plan assets................................... 9.00% 9.00% 9.00%
Rate of compensation increase.................................... 5.50% 5.50% 5.50%
</TABLE>
The amount of net periodic benefit cost recognized includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
IN THOUSANDS 1998 1997 1996
- -------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Components of periodic benefit cost:
Service cost................................................ $ 1,946 $ 1,765 $ 2,060
Interest cost............................................... 3,156 2,867 2,730
Expected return on assets................................... (4,808) (4,034) (3,503)
Amortization of:
Transition obligation..................................... 343 343 343
Prior service cost........................................ 103 103 103
Actuarial gain............................................ (634) (478) (185)
--------- --------- ---------
106 566 1,548
Settlement benefit.......................................... (1,520) -- --
--------- --------- ---------
Total net periodic benefit (income) cost...................... $ (1,414) $ 566 $ 1,548
--------- --------- ---------
--------- --------- ---------
</TABLE>
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The reconciliation of the beginning and ending balances of the benefit
obligation for the Company's defined benefit plans and the fair value of plan
assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
IN THOUSANDS 1998 1997
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Change in benefit obligation:
Net benefit obligation at beginning of year........................... $ 42,590 $ 37,729
Service cost.......................................................... 1,946 1,765
Interest cost......................................................... 3,156 2,867
Actuarial loss........................................................ 721 1,220
Settlements........................................................... (2,410) --
Gross benefits paid................................................... (918) (991)
--------- ---------
Net benefit obligation at end of year................................... $ 45,085 $ 42,590
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year........................ $ 53,705 $ 45,093
Actual return on plan assets.......................................... 8,567 9,369
Employer contributions................................................ 282 234
Gross benefits paid................................................... (918) (991)
--------- ---------
Fair value of plan assets at end of year................................ $ 61,636 $ 53,705
--------- ---------
--------- ---------
</TABLE>
The funded status of the Company's defined benefit plans and the amounts
recognized in the statement of financial position were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
IN THOUSANDS 1998 1997
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Reconciliation of funded status:
Funded status at end of year.......................................... $ 16,551 $ 11,115
Unrecognized net actuarial gain....................................... (18,847) (15,941)
Unrecognized prior service cost....................................... 264 754
Unrecognized net transition obligation................................ 2,227 2,571
--------- ---------
Net amount recognized at end of year.................................... $ 195 $ (1,501)
--------- ---------
--------- ---------
Amounts recognized in the statement of financial position:
Prepaid benefit cost.................................................. $ 4,702 $ 4,047
Accrued benefit cost.................................................. (4,507) (5,548)
Additional minimum liability.......................................... (574) (672)
Intangible asset...................................................... 574 672
--------- ---------
Net amount recognized at end of year.................................... $ 195 $ (1,501)
--------- ---------
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
11. INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
IN THOUSANDS 1998 1997 1996
- ------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................... $ 6,057 $ 34,320 $ 35,903
State...................................................... (697) 3,581 3,882
--------- --------- ---------
5,360 37,901 39,785
--------- --------- ---------
Deferred:
Federal.................................................... 24,497 10,141 2,884
State...................................................... 3,549 1,525 1,218
--------- --------- ---------
28,046 11,666 4,102
--------- --------- ---------
Provision for income taxes................................... $ 33,406 $ 49,567 $ 43,887
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the statutory federal income tax rate and the
Company's effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
IN THOUSANDS 1998 1997 1996
- ------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate....................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.............................. 2.1 2.5 2.9
Other................................................................... 0.1 0.4 0.1
--- --- ---
Effective income tax rate............................................... 37.2% 37.9% 38.0%
--- --- ---
--- --- ---
</TABLE>
Cash payments for income taxes during 1998, 1997 and 1996 were $11,004,000,
$38,124,000 and $28,685,000, respectively.
The Company's net deferred tax liability consisted of the following major
items:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
IN THOUSANDS 1998 1997
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Deferred tax assets:
Receivables......................................................... $ 710 $ 858
Inventories......................................................... 1,316 1,691
Vacation accruals................................................... 1,403 1,393
Other............................................................... 3,063 3,467
---------- ----------
Total deferred tax assets......................................... 6,492 7,409
Deferred tax liability:
Property, plant and equipment....................................... (89,347) (65,520)
Other............................................................... (3,302) --
---------- ----------
Net deferred tax liability............................................ $ (86,157) $ (58,111)
---------- ----------
---------- ----------
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
11. INCOME TAXES (CONTINUED)
Management believes, based on its history of operating earnings and
expectations for the future, that future taxable income will be sufficient to
fully utilize deferred tax assets at December 31, 1998.
12. COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases railcars, storage terminals, computer equipment,
manufacturing facilities and warehouse and office space under noncancelable
operating leases with varying maturities through the year 2010. Future minimum
payments under these noncancelable operating leases as of December 31, 1998 were
$23,301,000 for 1999, $16,735,000 for 2000, $6,575,000 for 2001, $5,469,000 for
2002, $4,317,000 for 2003 and $14,086,000 thereafter. Total lease expense was
approximately $25,734,000, $16,414,000 and $13,275,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
The Company makes lease payments under an operating lease agreement for a
250-megawatt cogeneration facility at the Company's Plaquemine, Louisiana
complex. The total cost of assets covered by the lease is $115,000,000. The
initial lease term, which began in October 1997, is three years with options to
renew the lease for two one-year periods and to purchase the facility at its
estimated fair market value at any time during the lease term. The lease
provides for substantial residual value guarantees by the Company at the
termination of the lease if the then estimated fair value of the facility is not
recovered by the owner via sale to a third party.
PURCHASE COMMITMENTS--The Company has certain take-or-pay raw material
purchase agreements with various terms extending through 2014. The aggregate
amount of the fixed and determinable portion of the required payments under
these agreements as of December 31, 1998 was $7,143,000 for each of the years
from 1999 through 2007 and 4,648,000 for the year 2008.
LEGAL PROCEEDINGS--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, but instead
occurred as a result of an unforeseen chemical reaction. The Company 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.
Discovery has been occurring in these cases. 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.
In September 1998, the plaintiffs filed amended petitions that added the
additional allegations that the Company had engaged in intentional conduct
against the plaintiffs. These additional allegations raised a coverage issue
under the Company'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.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. The plaintiffs filed motions contesting the jurisdiction
of the federal court and seeking to remand the cases back to state court, and a
hearing on the issue was held in federal court on January 15, 1999. By order
entered March 2, 1999, the federal court denied the plantiff's motion to remand
the cases back to state court and retained federal jurisdiction.
Settlements have been reached with approximately 260 of the original
workers, including the majority of those claimants believed to be the most
severely injured, and the settled cases have been or will be dismissed.
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, the Company is asserting and pursuing
defenses to the claims. Based on the present status of the proceedings, the
Company believes the liability ultimately imposed will not have a material
effect on the financial position or on results of operations of the Company.
In addition, the Company 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 the Company.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
13. SIGNIFICANT CUSTOMER AND EXPORT SALES
SIGNIFICANT CUSTOMER--The Company has supply contracts, subject to certain
limitations, for a substantial percentage of Georgia-Pacific Corporation's
requirements for certain chemicals at prices approximating market. These supply
contracts have various expiration dates (depending on the product) from 1999
through 2003 and may be extended year-to-year upon expiration. The sales to
Georgia-Pacific Corporation under these supply contracts for the years ended
December 31, 1998, 1997 and 1996 amounted to approximately 11 percent, 12
percent and 15 percent of net sales, respectively. Receivables outstanding from
these sales were $6,866,000 and $11,807,000 at December 31, 1998 and 1997,
respectively.
EXPORT SALES--Export sales were approximately 17 percent, 15 percent and 12
percent of the Company's net sales for the years ended December 31, 1998, 1997
and 1996, respectively. The principal international markets served by the
Company include Canada, Mexico, Latin America, Europe and Asia.
14. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company entered into two interest rate swap agreements in June 1995, for
a total notional amount of $100,000,000 maturing in June 2002, to fix the
interest rate on the term loan. The fixed interest rate paid on the two interest
rate swap agreements was 6.31 percent, while the floating interest rate received
averaged 5.68 percent for 1998 and 1997. The Company also entered into an
interest rate swap agreement for a notional amount of $100,000,000 as a cash
flow hedge for the cogeneration facility operating lease agreement. This
interest rate swap agreement became effective in August 1997 and will mature in
August 2002 with a fixed interest rate of 5.88 percent. The floating interest
rate received averaged 5.62 percent and 5.73 percent for 1998 and 1997,
respectively.
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 of 1998,
treasury yields dropped to their lowest levels in 30 years, while at the same
time, investors' preference for treasury bonds and weakened demand for 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 pretax loss of
$9,500,000 in the third quarter of 1998.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
DEBT--The fair value of the 7 5/8% notes was based on quoted market prices.
The carrying amounts of the revolving credit loan and the term loan were assumed
to approximate fair value due to the floating market interest rates to which the
respective agreements are subject.
INTEREST RATE SWAP AGREEMENTS--The fair value of the interest rate swap
agreements was estimated by obtaining quotes from brokers.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
14. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
The estimated fair value of financial instruments was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1998 1997
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
IN THOUSANDS AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt:
Revolving credit loan........................................ $ 223,000 $ 223,000 $ 155,000 $ 155,000
Term loan.................................................... 100,000 100,000 100,000 100,000
7 5/8% notes due 2005........................................ 100,000 99,700 100,000 102,419
Other........................................................ 36,475 36,475 38,040 38,040
Interest rate swap agreements in payable position.............. -- (6,412) -- (971)
---------- ---------- ---------- ----------
</TABLE>
15. EARNINGS PER SHARE
Income available to common stockholders, the numerator in the basic and
diluted earnings per share computations, was $56,279,000, $81,201,000 and
$71,620,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The following table reconciles the denominator for the basic and diluted
earnings per share computations shown on the consolidated statements of income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares................................... 31,474 33,629 35,759
Plus incremental shares from assumed conversions:
Options........................................................ 217 289 446
Employee stock purchase plan rights............................ 96 29 43
--------- --------- ---------
Weighted average common shares and equivalents................... 31,787 33,947 36,248
--------- --------- ---------
--------- --------- ---------
</TABLE>
16. 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 were
$16,477,000, on which the Company recorded a pretax gain of $8,600,000
($5,300,000, net of income taxes). Historically, the operating results for this
subsidiary have not been material to the financial statements of the Company.
17. ACQUISITION
On May 11, 1998, the Company acquired all the issued and outstanding common
stock of North American Plastics, Inc., a privately held manufacturer of
flexible vinyl compounds with a production capacity of 190,000,000 pounds. North
American Plastics has two manufacturing locations in Mississippi and generated
approximately $90,000,000 in revenue in 1997. Its vinyl compounds are used in
wire and
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
17. ACQUISITION (CONTINUED)
cable for construction, automobiles and appliances, as well as various other
consumer and industrial products.
The stock of North American Plastics 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 facility. 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 $86,725,000. 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 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.
18. 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 and acetone. The third product segment, gas
chemicals, includes methanol and, prior to July 1997, the Company's oil and gas
exploration activities. See Note 16 for a description of the Company's
disposition of its oil and gas operations.
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.
Identifiable assets consist of plant and equipment used in the operations of
the segment, as well as inventory, receivables and other assets directly related
to the segment. Corporate and general plant service assets include cash, certain
corporate receivables, data processing equipment and spare parts inventory as
well as property (i.e., land) on which the manufacturing plants are located. The
Company has no significant assets located outside of the United States.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
18. SEGMENT INFORMATION (CONTINUED)
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
CORPORATE AND
GAS GENERAL PLANT
IN THOUSANDS CHLOROVINYLS AROMATICS CHEMICALS SERVICES TOTAL
- ------------------------------------------------ ----------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Net sales....................................... $ 515,411 $ 309,881 $ 49,726 $ -- $ 875,018
Operating income (loss)......................... 80,168 73,417 (8,958) (14,624)(1) 130,003
Depreciation and amortization................... 26,488 13,724 1,767 3,739 45,718
Capital expenditures............................ 18,721 3,312 505 3,368 25,906
Total assets.................................... 429,757 144,154 16,116 79,734 669,761
----------- ---------- ----------- ------------- ----------
YEAR ENDED DECEMBER 31, 1997:
Net sales....................................... $ 492,651 $ 373,698 $ 99,301 $ -- $ 965,650
Operating income (loss)......................... 69,786 71,095 24,318 (18,398)(1) 146,801
Depreciation and amortization................... 21,544 10,751 2,463 3,113 37,871
Capital expenditures............................ 23,282 20,431 2,859 10,019 56,591
Total assets.................................... 348,865 172,309 26,994 64,535 612,703
----------- ---------- ----------- ------------- ----------
YEAR ENDED DECEMBER 31, 1996:
Net sales....................................... $ 510,924 $ 306,385 $ 78,877 $ -- $ 896,186
Operating income (loss)......................... 83,166 56,021 9,919 (12,833)(1) 136,273
Depreciation and amortization................... 16,253 11,744 9,110 2,324 39,431
Capital expenditures............................ 88,301 27,937 2,934 723 119,895
----------- ---------- ----------- ------------- ----------
</TABLE>
- ------------------------
(1) Includes shared services, administrative and legal expense, along with the
cost of the Company's receivables program.
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
IN THOUSANDS 1998 1997 1996
- --------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Domestic................................................. $ 727,390 $ 819,152 $ 786,976
Foreign.................................................. 147,628 146,498 109,210
---------- ---------- ----------
Total.................................................... $ 875,018 $ 965,650 $ 896,186
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly financial data for the
periods indicated:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
Net sales........................................................ $ 232,705 $ 225,555 $ 220,465 $ 196,293
Gross margin..................................................... 45,006 44,563 45,643 37,441
Operating income................................................. 34,261 34,116 33,624 28,002
Net income....................................................... 16,956 16,506 10,175(1) 12,642(2)
Basic earnings per share......................................... 0.52 0.52 0.33 0.41
Diluted earnings per share....................................... 0.52 0.52 0.33 0.41
Dividends per common share....................................... 0.08 0.08 0.08 0.08
1997
Net sales........................................................ $ 239,225 $ 258,208 $ 235,915 $ 232,302
Gross margin..................................................... 35,765 51,778 53,640 51,338
Operating income................................................. 24,667 39,904 42,304 39,926
Net income....................................................... 12,061 20,580 27,724(3) 20,836
Basic earnings per share......................................... 0.35 0.61 0.83 0.63
Diluted earnings per share....................................... 0.35 0.60 0.83 0.63
Dividends per common share....................................... 0.08 0.08 0.08 0.08
---------- ---------- ---------- ----------
</TABLE>
- ------------------------
(1) Includes a loss on an interest hedge agreement, which resulted in a decrease
to net income of $6,014,000.
(2) Includes adjustments to reduce maintenance expense by $3,200,000 after-tax
for the deferment of certain plant turnarounds and a reduction of pension
expense by $1,345,000 after-tax primarily for a restructuring of the
executive benefit plan.
(3) Includes a gain from the sale of certain oil and gas properties, which
resulted in an increase to net income of $5,300,000.
29
<PAGE>
REPORT OF MANAGEMENT
GEORGIA GULF CORPORATION
TO THE STOCKHOLDERS OF GEORGIA GULF CORPORATION:
The accompanying consolidated financial statements of Georgia Gulf
Corporation are the responsibility of and have been prepared by the Company in
conformity with generally accepted accounting principles. The financial
information displayed in other sections of this 1998 Annual Report is consistent
with the consolidated financial statements.
The integrity and the objectivity of the data in these consolidated
financial statements, including estimates and judgments relating to matters not
concluded by year-end, are the responsibility of management. The Company and its
subsidiaries maintain accounting systems and related internal controls,
including a budgeting and reporting system, to provide reasonable assurance that
financial records are reliable for preparing the consolidated financial
statements and for maintaining accountability for assets. The system of internal
controls also provides reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition and that transactions are executed in
accordance with management's authorization. Periodic reviews of the systems and
of internal controls are performed by the Company's internal audit department.
The Audit Committee of the Board of Directors, composed solely of outside
directors who are not officers or employees of the Company, has the
responsibility of meeting periodically with management, the Company's internal
auditors and Arthur Andersen LLP, the Company's independent public accountants
that are approved by the stockholders, to review the scope and results of the
annual audit and the general overall effectiveness of the internal accounting
control system. The independent public accountants and the Company's internal
auditors have direct access to the Audit Committee, with or without the presence
of management, to discuss the scope and results of their audits, as well as any
comments they may have related to the adequacy of the internal accounting
control system and the quality of financial reporting.
Richard B. Marchese
VICE PRESIDENT FINANCE,
CHIEF FINANCIAL OFFICER AND TREASURER
February 12, 1999
30
<PAGE>
REPORT OF MANAGEMENT
GEORGIA GULF CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF GEORGIA GULF CORPORATION:
We have audited the accompanying consolidated balance sheets of Georgia Gulf
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Georgia Gulf Corporation and
subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 12, 1999
31
<PAGE>
DIRECTORS
GEORGIA GULF CORPORATION
<TABLE>
<S> <C>
JAMES R. KUSE DENNIS M. CHORBA
CHAIRMAN OF THE BOARD, RETIRED VICE PRESIDENT, GENERAL COUNSEL
Retired Chief Executive Officer Georgia Gulf Corporation
Georgia Gulf Corporation
JERRY R. SATRUM ROBERT E. FLOWERREE*
RETIRED CHIEF EXECUTIVE OFFICER RETIRED CHAIRMAN OF THE BOARD
Georgia Gulf Corporation Georgia-Pacific Corporation
EDWARD A. SCHMITT CHARLES T. HARRIS III
PRESIDENT AND CHIEF EXECUTIVE OFFICER LIMITED PARTNER
Georgia Gulf Corporation Goldman Sachs Group, L.P.
JOHN D. BRYAN EDWARD S. SMITH*
RETIRED VICE PRESIDENT OPERATIONS RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Georgia Gulf Corporation Omark Industries
</TABLE>
* Audit Committee
OFFICERS
GEORGIA GULF CORPORATION
<TABLE>
<S> <C>
EDWARD A. SCHMITT MARK J. SEAL
PRESIDENT AND CHIEF EXECUTIVE OFFICER VICE PRESIDENT, POLYMER GROUP
RICHARD B. MARCHESE THOMAS G. SWANSON
VICE PRESIDENT FINANCE, CHIEF FINANCIAL VICE PRESIDENT, COMMODITY CHEMICALS GROUP
OFFICER AND TREASURER
JOEL I. BEERMAN
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
</TABLE>
32
<PAGE>
CORPORATE INFORMATION
GEORGIA GULF CORPORATION
CORPORATE HEADQUARTERS
400 Perimeter Center Terrace
Suite 595
Atlanta, Georgia 30346
(770) 395-4500
AUDITORS
Arthur Andersen LLP
Atlanta, Georgia
TRANSFER AGENT AND REGISTRAR
Wachovia Shareholder Services
c/o Boston Equiserve, L.P.
P.O. Box 8217
Boston, Massachusetts 02266-8217
1-800-633-4236
Changes of address, questions regarding lost certificates, requests for
changes in registration and other general correspondence concerning
stockholder accounts should be directed to the Transfer Agent.
ANNUAL MEETING
The Annual Meeting of Stockholders of Georgia Gulf Corporation will be held
in the Conference Center of the South Terraces Building, 115 Perimeter Center
Place, Atlanta, Georgia, on Tuesday, May 18, 1999 at 1:30 p.m. Stockholders
are cordially invited to attend.
DIVIDEND POLICY
Dividends on Georgia Gulf Corporation's common stock are usually declared
quarterly by the Board of Directors and paid shortly thereafter.
FINANCIAL INFORMATION
Complimentary copies of Georgia Gulf Corporation's Form 10-K and other
reports filed with the Securities and Exchange Commission are available upon
request. Security analysts, investment managers and others seeking financial
information about the Company are invited to contact:
Nancy O'Donnell
Director, Investor Relations
Phone: (770) 395-4587
Fax: (770) 395-4506
E-mail: [email protected]
COMMON STOCK DATA
Georgia Gulf Corporation's common stock is listed on the New York Stock
Exchange under the symbol "GGC." At December 31, 1998, there were 1,130
stockholders of record. The following table sets forth the New York Stock
Exchange high, low and closing stock prices for the Company's common stock
for the years 1998 and 1997.
<TABLE>
<CAPTION>
-------------------------------------------------
IN DOLLARS HIGH LOW CLOSE
- -----------------------------------------------------------------------------
-------------------------------------------------
<S> <C> <C> <C>
1998
First quarter 36-3/4 27 27-1/8
Second quarter 27-11/16 22-1/4 22-13/16
Third quarter 23-1/4 14-1/2 15-5/8
Fourth quarter 19-11/16 14-11/16 16-1/16
- -----------------------------------------------------------------------------
1997
First quarter 29 24-3/4 25-1/4
Second quarter 29-1/2 23 29-1/16
Third quarter 33-1/2 27-3/4 30-5/8
Fourth quarter 32-3/8 28-1/2 30-5/8
- -----------------------------------------------------------------------------
</TABLE>
FORWARD-LOOKING STATEMENTS
This annual report 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.
[RECYCLE LOGO] This annual report is printed in its entirety on recycled
paper. Design: Critt Graham + Associates, Atlanta. Photography: Peter Vidor,
Deborah Whitlaw
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
GG Terminal Management Corporation
Georgia Gulf Export Corporation
Great River Oil & Gas Corporation
GGRC Corp.
North American Plastics, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in this
Form 10-K, into Georgia Gulf's previously filed Registration Statements on
Form S-8, file no. 33-59433, file no. 33-14696, file no. 33-27365, file no.
33-40952, file no. 33-42008 and file no. 33-64749.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,244
<SECURITIES> 0
<RECEIVABLES> 72,633
<ALLOWANCES> 2,400
<INVENTORY> 72,301
<CURRENT-ASSETS> 153,832
<PP&E> 683,495
<DEPRECIATION> 282,346
<TOTAL-ASSETS> 669,761
<CURRENT-LIABILITIES> 88,756
<BONDS> 459,475
0
0
<COMMON> 309
<OTHER-SE> 28,572
<TOTAL-LIABILITY-AND-EQUITY> 669,761
<SALES> 875,018
<TOTAL-REVENUES> 875,018
<CGS> 702,365
<TOTAL-COSTS> 702,365
<OTHER-EXPENSES> 9,500 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,818
<INCOME-PRETAX> 89,685
<INCOME-TAX> 33,406
<INCOME-CONTINUING> 56,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,279
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.77
<FN>
<F1> Loss on interest rate hedge agreement
</FN>
</TABLE>
