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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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)
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DELAWARE 58-1563799
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
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400 PERIMETER CENTER TERRACE, SUITE 595, ATLANTA, GEORGIA 30346
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (770) 395-4500
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934:
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Title of each class Name of each exchange on which registered
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COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
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Securities registered pursuant to Section 12(g) of the Act: NONE
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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. / /
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 21, 2000, was $651,551,000.
Indicate the number of shares outstanding of the Registrant's common stock
as of the latest practicable date.
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Class Outstanding at March 21, 2000
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COMMON STOCK, $0.01 PAR VALUE 31,305,762 SHARES
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DOCUMENTS INCORPORATED BY REFERENCE
(To the Extent Indicated Herein)
Proxy Statement for the Annual Meeting of Stockholders to be held on May 16,
2000, in Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I
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PAGE
ITEM NUMBER
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1) Business................................................ 1
2) Properties.............................................. 13
3) Legal Proceedings....................................... 14
4) Submission of Matters to a Vote of Security Holders..... 15
PART II
5) Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters................. 16
6) Selected Financial Data................................. 17
7) Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 18
7A) Quantitative and Qualitative Disclosures about Market
Risk........................................................ 26
8) Financial Statements and Supplementary Data............. 28
9) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 63
PART III
10) Directors and Executive Officers of the Registrant...... 64
11) Executive Compensation.................................. 64
12) Security Ownership of Certain Beneficial Owners and
Management.................................................. 64
13) Certain Relationships and Related Transactions.......... 64
PART IV
14) Exhibits, Financial Statement Schedule and Reports on
Form 8-K.................................................... 65
SIGNATURES.................................................. 68
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PART I
ITEM 1. BUSINESS.
GENERAL
We are a leading North American manufacturer and international marketer of
two highly integrated product lines, chlorovinyls and aromatics. In our
chlorovinyls business, we are:
- the third largest North American producer of vinyl chloride monomer, or
VCM,
- the fourth largest North American producer of polyvinyl chloride, or PVC,
resins and
- the second largest North American producer of PVC compounds.
In our aromatics business, we are:
- one of the two largest North American producers of cumene, and
- a leading North American producer and marketer of phenol.
Our manufacturing processes also generate caustic soda and acetone. The
primary products we sell externally include PVC resins, PVC compounds and
caustic soda in our chlorovinyls business and phenol and acetone in our
aromatics business. These products are used globally in a wide variety of
end-use applications, including construction and renovation, engineered
plastics, pulp and paper production, chemical intermediates, pharmaceuticals and
consumer products. Our integration provides us with the flexibility to shift our
product sales mix towards those products that are experiencing relatively more
favorable market conditions. We believe our vertical integration, world scale
facilities, operating efficiencies, facility locations and the productivity of
our employees provide us with a competitive cost position in our primary
markets.
For selected financial information concerning our chlorovinyls and aromatics
product lines, see Note 19 to our consolidated financial statements included in
Item 8.
ACQUISITIONS AND DISPOSITION
On November 12, 1999, we completed the purchase of substantially all of the
assets and working capital of the vinyls business of CONDEA Vista Company.
Assets acquired in the purchase include:
- one VCM facility with annual capacity of 950 million pounds;
- 50% ownership of PHH Monomers, L.L.C., a joint venture that operates a VCM
facility with capacity to produce 1.15 billion pounds of VCM annually,
which entitles us to one-half of the production capacity, or 575 million
pounds;
- two PVC resin facilities with combined annual capacity of 1.5 billion
pounds; and
- three PVC compound facilities with annual combined capacity of
265 million pounds.
Additionally, we entered into a long-term supply contract with CONDEA Vista for
the supply of ethylene and assumed a chlorine supply contact with PPG
Industries, Inc., our joint venture partner in PHH Monomers, for the acquired
VCM facilities.
On May 11, 1998, we acquired North American Plastics, Inc., a manufacturer
of flexible PVC compounds with two manufacturing locations in Mississippi having
a combined annual production capacity of 190 million pounds.
In July 1997, we sold oil and gas properties representing most of the assets
of Great River Oil & Gas Corporation, one of our subsidiaries. Net proceeds from
this sale were $16.5 million, on which we
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recorded a pretax gain of $8.6 million. Historically, the operating results for
this subsidiary had not been material to our consolidated operating results or
financial condition.
DISCONTINUATION OF METHANOL OPERATION
The methanol market continues to suffer from overcapacity and low-cost
imports as significant increases in global supply have created an imbalance
between supply and demand. As a result, several domestic methanol producers,
including us, idled their methanol plants. We had ceased operating our methanol
plant in December 1998. During 1999, we met our existing contractual obligations
to supply methanol to our customers by purchasing imported methanol. Although
the shutdown of several methanol plants resulted in a supply contraction and an
increase in spot prices during the first half of 1999, several new overseas
methanol plants that were scheduled to start-up later in 1999 added further
pressure on sales prices in the future. As a result of these trends, in
September 1999, we announced that we would exit the methanol business entirely
at the end of 1999. As a result, we incurred a charge against earnings of
$7.6 million, net of tax benefits, during the third quarter of 1999 to write-off
certain methanol assets and to accrue losses related to our methanol buy and
resale program through the end of the year.
PRODUCTS AND MARKETS
The following table shows our total annual production capacities as of
December 31, 1999 in each of our product lines:
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PRODUCT LINE CAPACITY
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Chlorovinyls Products
PVC Compounds.............................. 875 million pounds
PVC Resins................................. 2.7 billion pounds
VCM........................................ 3.1 billion pounds
Caustic Soda............................... 500,000 tons
Chlorine................................... 450,000 tons
Aromatics Products
Phenol..................................... 660 million pounds
Acetone.................................... 408 million pounds
Cumene..................................... 1.5 billion pounds
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CHLOROVINYLS
PVC COMPOUNDS. These formulations provide specific end-use properties that
allow PVC compounds to be processed directly into our customers' finished
products. All of our production is sold to third parties. We produce flexible
and rigid compounds used in the following products and process applications.
FLEXIBLE PVC COMPOUNDS. Our flexible PVC compounds are used in wire and
cable insulation and jacketing, automotive modular window encapsulation,
custom strips and profiles, automotive trim and body side molding, and
flexible tubing.
RIGID PVC COMPOUNDS. Our rigid PVC compounds are used in a wide range of
applications and production processes. Our injection molding compounds
are used in the production of computer housings and keyboards, electrical
outlet boxes and pipe fittings. Our extrusion compounds are used in
window and furniture profiles and sheets for household fixtures and
decorative overlays. Our blow molding compounds are primarily used for
both food-grade and general purpose bottles used to package cosmetics,
shampoos, charcoal lighter fluid, water and
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edible oils. We also supply chlorinated PVC compounds to the extrusion
and injection molding markets, mainly for hot water pipe and pipe
fittings.
PVC RESINS. PVC is among the most widely used plastics in the world today,
and we supply numerous grades of PVC resins to a broad number of end-use
markets. About 72% of our PVC resins are sold to customers who use our resins to
formulate PVC compounds which are then heated and shaped utilizing various
extrusion and molding processes to create finished products. These products
include pipe and pipe fittings, wire and cable coatings, home siding and
windows, electrical wall boxes and apparatus, fencing, home and office
furnishings, consumer products, packaging and containers. We used about 28% of
our PVC resin internally during 1999 in the production of our PVC compounds.
VCM. During 1999, we used about 82% of our VCM production in the
manufacture of our PVC resins. VCM production not used internally is sold to
other PVC resin producers in domestic and international markets.
CHLOR-ALKALI PRODUCTS. Substantially all of the chlorine we produce is used
internally in the production of VCM. As a co-product, caustic soda further
diversifies our revenue base. We sell all of our caustic soda domestically and
overseas to customers in numerous industries, with the pulp and paper and
chemical industries constituting our largest markets. Our other markets for
caustic soda include the alumina, soap and detergent, textile and water
treatment industries. We also manufacture and sell sodium chlorate, which is an
environmentally preferred bleaching agent for the production of pulp and paper.
AROMATICS
PHENOL. Our phenol is primarily sold to producers of phenolic resins and to
manufacturers of engineered plastics. Phenolic resins are used extensively as
adhesives for wood products such as plywood and chipped wood panels. Engineered
plastics are used in compact discs, automobiles, household appliances,
electronics and protective coating applications. We also sell phenol for use in
insulation, electrical parts, oil additives and pharmaceuticals.
ACETONE. As a co-product of phenol, acetone further diversifies our revenue
base. The primary uses for acetone are as a key ingredient in acrylic resins and
as an ingredient for surface coating resins for automotive and architectural
markets. Acetone is also an intermediate for the production of engineered
plastics and several major industrial solvents. Other uses range from solvents
for automotive and industrial applications to pharmaceuticals and cosmetics.
CUMENE. About 79% of our cumene was consumed internally during 1999 to
produce phenol and acetone. Cumene production not used internally is sold to
other phenol and acetone manufacturers.
END-USE MARKETS
We sell our broad array of products to numerous end-use markets. The
following table lists our major end-use markets for all of our products and the
estimated percentage of revenues associated with those markets for 1999:
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INDUSTRY PERCENTAGE OF SALES
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Housing and construction.................................... 37%
Plastics and fibers......................................... 23%
Solvents and chemicals...................................... 12%
Consumer products........................................... 19%
Pulp and paper.............................................. 2%
Miscellaneous............................................... 7%
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PRODUCTION, RAW MATERIALS AND FACILITIES
Our operations are vertically integrated as a result of our production of
some of our key raw materials and intermediates used in the manufacture of our
products. Our operational integration enhances our control over production costs
and capacity utilization rates, as compared to our non-integrated competitors.
It also provides us the flexibility to shift our product sales mix towards those
products that are enjoying relatively more favorable market conditions.
In our chlorovinyls product line, we produce chlorine and its co-product
caustic soda by electrolysis of salt brine. We produce VCM by reacting purchased
ethylene with chlorine produced internally or purchased from third parties; our
internal production of VCM exceeds our internal demand requirements. We produce
PVC resin by polymerization of our internally supplied VCM in a batch reactor
process. We formulate our PVC compounds by blending our PVC resins with various
additives such as plasticizers, impact modifiers, stabilizers and pigments, most
of which are purchased. We also have the capacity to produce ethylene
dichloride, an intermediate in the manufacture of VCM, for external sales. In
our aromatics product line, we produce cumene utilizing benzene and refinery
grade propylene purchased from third parties, which we react using low cost
zeolite catalyst technology. We produce phenol by reacting internally produced
cumene under high temperatures and pressure. We produce acetone as a co-product
in our production of phenol.
The important raw materials we purchase from third parties include chlorine,
natural gas, ethylene, benzene and propylene. The majority of our purchases of
chlorine, ethylene, propylene, and benzene are made under long-term agreements,
and we purchase natural gas both in the open market and under long-term
contracts. We have not experienced a major disruption in our supplies of raw
materials over the past five years, and we believe we have reliable sources of
supply under normal market conditions. We cannot, however, predict the
likelihood or impact of any future raw material shortages. Any shortages could
have a material adverse impact on our results of operations.
PLAQUEMINE, LOUISIANA FACILITY. Our operations at this facility include the
production of chlorine, caustic soda, sodium chlorate, VCM, PVC resins, phenol
and acetone. We produce chlorine and its co-product caustic soda at our
chlor-alkali facility by electrolysis of salt brine. We have a long-term lease
on a nearby salt dome with reserves in excess of twenty years, from which we
supply our salt brine requirements. We use substantially all of our chlorine
production in the manufacture of VCM at this facility and we sell substantially
all of our caustic soda production externally. We also use sodium hypochlorite,
a by-product from our chlor-alkali production process, to produce sodium
chlorate for sale to third parties. All of the ethylene requirements for our VCM
production are supplied by pipeline. About 80% of our Plaquemine VCM production
is consumed on-site in our PVC resin production, and the remainder is shipped to
our other PVC resin facilities and sold to third parties.
Our cumene requirements for the production of phenol and its co-product
acetone are shipped from our Pasadena, Texas facility by dedicated barges. Our
250-megawatt co-generation facility supplies all of the electricity and steam
needs at our Plaquemine facilities, and it also provides us with the capability
to generate excess electricity for sale to the local utility. We also own an
on-site air separation unit, operated by a third party, that provides all of the
facility's nitrogen and oxygen gas requirements.
LAKE CHARLES, LOUISIANA FACILITIES. We produce VCM at our Lake Charles,
Louisiana facility and, through our joint venture with PPG Industries have the
right to 50% of the VCM production of PHH Monomers, which is located in close
proximity to our Lake Charles VCM facility. The chlorine needs of our Lake
Charles VCM facility and the PHH Monomers' facility are supplied by pipeline,
under a long-term contract with PPG Industries, who is also our partner in PHH
Monomers. Ethylene is supplied to both facilities by pipeline from the adjacent
CONDEA Vista ethylene facility and by pipeline from other third parties. The
majority of our ethylene requirements for our Lake Charles VCM facility is
supplied under a seven-year take-or-pay contract, and PHH Monomers is supplied
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under a requirements-based contract. All chlorine and ethylene contracts are
primarily market price-based. VCM from these facilities supplies our Aberdeen,
Mississippi and Oklahoma City, Oklahoma PVC facilities. A portion of VCM
produced at the Lake Charles facilities is sold in domestic and exports markets.
PASADENA, TEXAS FACILITY. At our Pasadena, Texas facility we produce
cumene, phenol, its co-product acetone and alpha-methylstyrene, a saleable
by-product of our phenol production. We produce cumene utilizing purchased
benzene and propylene that we react using low cost zeolite catalyst technology.
Our cumene facility is integrated by pipeline with our phenol and acetone
facility at Pasadena. We consume a portion of our cumene production at this
facility in phenol and acetone production, with the remainder shipped to the
Plaquemine phenol and acetone facility and sold to third parties. We purchase
refinery grade propylene and benzene at market prices from various suppliers
connected by multiple transportation modes to our cumene facility. Our benzene
is supplied under two contracts at market prices, and our propylene is provided
from numerous refineries at market prices. Based on current industry capacity,
we believe we have adequate access to benzene and propylene under normal
conditions.
ABERDEEN, MISSISSIPPI AND OKLAHOMA CITY, OKLAHOMA FACILITIES. We produce
PVC resins at both our Aberdeen, Mississippi and Oklahoma facilities from VCM
supplied by railcar from our VCM facilities and PHH Monomers. In addition, the
Aberdeen facility produces plasticizers, some of which are consumed in internal
PVC compound production and the remainder sold to third parties.
PVC COMPOUND FACILITIES. We operate six compound facilities located in
proximity of our PVC resin operations and one located in Massachusetts. All of
our PVC compound facilities are supplied from our PVC resin facilities by
railcar, pipeline and truck. These operations consumed about 28% of our annual
PVC resin production during 1999. We purchase our remaining additive needs from
various sources at market prices.
SALES AND MARKETING
Our sales and marketing program is aimed at supporting our existing
customers and expanding and diversifying our customer base. Our sales force
consists of over 27 employees managed by national and regional managers. In
addition, distributors are used to market products to our smaller customers.
This sales force is organized by product line and region. We have a product
development and technical service staff that primarily supports our PVC resin
and PVC compound businesses. This staff works closely with customers to qualify
existing Georgia Gulf products for use by our customers. They also work to
develop new products for the customers' existing and new requirements. Our
products are sold primarily to domestic industrial companies, and no single
customer accounted for more than 10% of our sales for the years ended
December 31, 1999, 1998 and 1997. In addition to our domestic sales, we export
some of our products, including our VCM and PVC resins, caustic soda and
aromatics products. Export sales accounted for about 14% of total sales for
1999, 17% for 1998, and 15% for 1997. The principal international markets we
sell into are Canada, Mexico, Latin America, Europe and Asia.
COMPETITION
We experience competition from numerous manufacturers in all of our product
lines. Some of our competitors have substantially greater financial resources
and are more highly diversified than we are. We compete on a variety of factors
such as price, product quality, delivery and technical service. We believe that
we are well-positioned to compete as a result of integrated product lines, the
operational efficiency of our plants and the location of our facilities near
major water and/or rail transportation terminals.
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ENVIRONMENTAL REGULATION
Our 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.
There are several serious environmental issues concerning the VCM facility
we acquired from CONDEA Vista at Lake Charles, Louisiana. Substantial
investigation of the groundwater at the site has been conducted, and groundwater
contamination was first identified in 1981. Groundwater remediation through the
installation of groundwater recovery wells began in 1984. The site currently
contains about 90 monitoring wells and 18 recovery wells. A further
investigation to determine the full extent of the contamination is currently
being planned. It is possible that offsite groundwater recovery will be
required, in addition to groundwater monitoring. Soil remediation could also be
required.
Investigations are currently underway by federal environmental authorities
concerning contamination of an estuary near the Lake Charles VCM facility we
acquired known as the Calcasieu Estuary. It is likely that this estuary will be
listed as a Superfund site and be the subject of a natural resource damage
recovery claim. It is estimated that there are about 200 potentially responsible
parties associated with the estuary contamination. CONDEA Vista is included
among these parties in respect of its Lake Charles facilities, including the VCM
facility we acquired. The estimated cost for investigation and remediation of
the estuary is unknown and could be quite costly. Also, Superfund statutes may
impose joint and several liability for the cost of investigations and remedial
actions on any company that generated the waste, arranged for disposal of the
waste, transported the waste to the disposal site, selected the disposal site,
or presently or formerly owned, leased or operated the disposal site or a site
otherwise contaminated by hazardous substances. Any or all of the responsible
parties may be required to bear all of the costs of cleanup regardless of fault,
legality of the original disposal or ownership of the disposal site. Currently,
we discharge our wastewater to CONDEA Vista who has a permit to discharge
treated wastewater into the estuary.
Additionally, offsite groundwater contamination was identified in 1990 in
the Mossville subdivision located west of the VCM facility we acquired at Lake
Charles. Over 80 lawsuits were filed by the Mossville residents in 1995 and
1996. The lawsuits alleged personal and property damages due to groundwater
contamination. Most of the lawsuits were settled by the end of 1998, and the
vinyls business of CONDEA Vista incurred a charge in 1998 of $42.1 million
relating to these settlements. In addition, many of the residences in the
Mossville subdivision have been purchased by CONDEA Vista.
CONDEA Vista has agreed to retain responsibility for substantially all
environmental liabilities and remediation activity relating to the vinyls
business we acquired from them, including the Lake Charles, Louisiana VCM
facility. For all matters of environmental contamination that are currently
known, we may make a claim for indemnification at any time; for environmental
matters that are unknown, we must generally make claims for indemnification
within 10 years from closing of the acquisition. Further, Georgia Gulf's
agreement with CONDEA Vista provides that CONDEA Vista will be subject to the
presumption that all later discovered on-site environmental contamination arose
before closing, and is therefore CONDEA Vista's responsibility; this presumption
may only be rebutted if CONDEA Vista can show that we caused the environmental
contamination by a major, unaddressed release.
At the Lake Charles VCM facility, CONDEA Vista will continue to conduct the
ongoing remediation at its expense for ten years. After ten years, we will be
responsible for remediation costs up to $150,000 of expense per year, as well as
costs in any year in excess of this annual amount up to an aggregate one-time
amount of $2,250,000. We will be responsible for remediation costs at the other
acquired facilities, until the level of expense we incur meets the specified
amount for each facility which in the aggregate equals $700,000. The indemnity
given by CONDEA Vista also includes pre-closing
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off-site contamination, including CONDEA Vista's contribution to any claim based
upon contamination of the Calcasieu Estuary.
The property owned by CONDEA Vista in Mansfield, Massachusetts, which we now
lease, has been the subject of ongoing environmental investigations under an
order with the Massachusetts Department of Environmental Protection. Groundwater
investigations continue at the Mansfield property to address identified on-site
groundwater contamination and investigate the possible off-site migration of
contaminated groundwater. It is also possible that the United States
Environmental Protection Agency may list the property as a Superfund site. The
environmental investigations and actions are associated with the past operations
at the property and were not assumed in our lease of the property. In addition,
CONDEA Vista has indemnified us for claims related to this environmental
contamination beyond an aggregate threshold amount of $250,000, including
coverage for potential joint and several liability under the environmental
statutes.
As for employee and independent contractor exposure claims, CONDEA Vista is
responsible for pre-closing exposure, and we are responsible for post-closing
exposure on a pro rata basis determined by years of employment or service before
and after closing by any claimant. There is, however, a presumption for claims
brought in the first five years after closing by current or former CONDEA Vista
employees and contractors that, absent a showing of new acute exposure after
closing, all responsibility will be deemed to have arisen before closing and
will be solely CONDEA Vista's.
Except as described above, we believe that we are in material compliance
with all current environmental laws and regulations. We estimate that any
expenses incurred in maintaining compliance with these requirements will not
materially affect earnings or cause us to exceed our level of anticipated
capital expenditures. However, there can be no assurance that regulatory
requirements will not change, and it is not possible to accurately predict the
aggregate cost of compliance resulting from any such changes.
EMPLOYEES
As of December 31, 1999, we had 1,440 full-time employees. Approximately 179
of our employees are unionized under two collective bargaining agreements that
expire in 2002 and 2003. We believe our relationships with our employees are
good.
RISK FACTORS
THE CHEMICAL INDUSTRY IS CYCLICAL AND VOLATILE, WHICH AFFECTS OUR PROFITABILITY.
- OUR INDUSTRY EXPERIENCES ALTERNATING PERIODS OF TIGHT SUPPLY AND
OVERCAPACITY.
Our historical operating results reflect the cyclical and volatile nature of
the chemical industry. Historically, periods of tight supply have resulted in
increased prices and profit margins and have been followed by periods of
substantial capacity addition, resulting in oversupply and declining prices and
profit margins. As a result of changes in demand for our products, our earnings
fluctuate significantly, not only from year to year but also from quarter to
quarter. Capacity expansions or the announcement of these expansions have
generally led to a decline in the pricing of our products in the affected
product line. We cannot assure you that future growth in product demand will be
sufficient to utilize any additional capacity.
- RAW MATERIAL COSTS AND OTHER EXTERNAL FACTORS BEYOND OUR CONTROL CAN CAUSE
WIDE FLUCTUATIONS IN OUR MARGINS.
The cost of our raw materials and other costs may not correlate with changes
in the prices we receive for our products, either in the direction of the price
change or in absolute magnitude. Raw materials costs represent a substantial
part of our manufacturing costs. Most of the raw materials we
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use are commodities and the price of each can fluctuate widely for a variety of
reasons, including changes in availability because of major capacity additions
or significant facility operating problems. Other external factors beyond our
control can cause volatility in raw material prices, demand for our products,
product prices, sales volumes and margins. These factors include general
economic conditions, the level of business activity in the industries that use
our products, competitors' actions, international events and circumstances, and
governmental regulation in the United States and abroad. These factors can also
magnify the impact of economic cycles on our business. A number of our products
are highly dependent on markets that are particularly cyclical, such as the
construction, paper and pulp, and automotive markets.
- THE CYCLICALITY AND VOLATILITY OF THE CHEMICAL INDUSTRY AFFECTS OUR
CAPACITY UTILIZATION AND CAUSES FLUCTUATIONS IN OUR RESULTS OF OPERATIONS.
The operating rates at our facilities will impact the comparison of
period-to-period results. Different facilities may have differing operating
rates from period to period depending on many factors, such as feedstock costs,
transportation costs, and supply and demand for the product produced at the
facility during that period. As a result, individual facilities may be operated
below or above rated capacities in any period. We may idle a facility for an
extended period of time because an oversupply of a certain product or a lack of
demand for that product makes production uneconomical. The expenses of the
shut-down and restart of facilities may adversely affect quarterly results when
these events occur. In addition, a temporary shut-down may become permanent,
resulting in a write-down or write-off of the related assets.
THE CHEMICAL INDUSTRY IS HIGHLY COMPETITIVE, WITH SOME OF OUR COMPETITORS HAVING
GREATER FINANCIAL RESOURCES THAN WE HAVE; COMPETITION MAY ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS.
The chemical industry is highly competitive; we compete with many chemical
companies, a substantial number of whom are larger and have greater financial
resources than Georgia Gulf. Moreover, barriers to entry, other than capital
availability, are low in most product segments of our business. Capacity
additions or technological advances by existing or future competitors also
create greater competition, particularly in pricing. We cannot assure you we
will have access to the financing necessary to upgrade our facilities in
response to technological advances or other competitive developments.
EXTENSIVE ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND REGULATIONS IMPACT OUR
OPERATIONS AND ASSETS; COMPLIANCE WITH THESE REGULATIONS COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.
Our operations on and ownership of real property are subject to extensive
environmental, health and safety regulation at both the national and local
level. The nature of the chemical industry exposes Georgia Gulf to risks of
liability under these laws and regulations due to the production, storage,
transportation and sale of materials that can cause contamination or personal
injury if released into the environment. Environmental laws may have a
significant effect on the costs of transportation and storage of raw materials
and finished products, as well as the costs of the storage and disposal of
wastes. We may incur substantial costs, including fines, damages, criminal or
civil sanctions, remediation costs, or experience interruptions in our
operations for violations arising under these laws.
Also, Superfund statutes may impose joint and several liability for the cost
of investigations and remedial actions on any company that generated the waste,
arranged for disposal of the waste, transported the waste to the disposal site,
selected the disposal site, or presently or formerly owned, leased or operated
the disposal site or a site otherwise contaminated by hazardous substances. Any
or all of the responsible parties may be required to bear all of the costs of
cleanup, regardless of fault, legality of the original disposal or ownership of
the disposal site. A number of environmental liabilities have been associated
with the facilities at Lake Charles, Louisiana and Mansfield, Massachusetts that
we acquired or leased as part of the acquisition of the vinyls business of
CONDEA Vista Company and
8
<PAGE>
which may be designated as Superfund sites as described in "Environmental
Regulation" above. Any or all responsible parties, including us, may be required
to bear all of the costs of cleanup regardless of fault, legality of the
original disposal, or ownership of the disposal site. Although CONDEA Vista
retained substantially all financial responsibility for environmental
liabilities that relate to the facilities we acquired from them and which arose
before the closing of that acquisition, we cannot assure you that CONDEA Vista
will be able to satisfy its obligations in this regard, particularly in light of
the long period of time in which environmental liabilities may arise under the
environmental laws. If CONDEA Vista fails to do so, then we could be held
responsible.
Our policy is to accrue costs relating to environmental matters when it is
probable that these costs will be required and can be reasonably estimated.
However, estimated costs for future environmental compliance and remediation may
be too low or we may not be able to quantify the potential costs. We expect to
continue to be subject to increasingly stringent environmental and health and
safety laws and regulations. It is difficult to predict the future
interpretation and development of these laws and regulations or their impact on
our future earnings and operations. We anticipate that compliance will continue
to require increased capital expenditures and operating costs. Any increase in
these costs could adversely affect our financial performance.
HAZARDS ASSOCIATED WITH CHEMICAL MANUFACTURING MAY OCCUR, WHICH WOULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS.
The usual hazards associated with chemical manufacturing and the related
storage and transportation of raw materials, products and wastes may occur in
Georgia Gulf's operations. These hazards could lead to an interruption or
suspension of operations and have an adverse effect on the productivity and
profitability of a particular manufacturing facility or on Georgia Gulf as a
whole. These hazards include:
- pipeline and storage tank leaks and ruptures;
- explosions and fires;
- inclement weather and natural disasters;
- mechanical failure;
- unscheduled downtime;
- labor difficulties;
- transportation interruptions;
- remediation complications; and
- chemical spills and other discharges or releases of toxic or hazardous
substances or gases.
These hazards may cause personal injury and loss of life, severe damage to
or destruction of property and equipment, and environmental damage; any of these
could lead to claims under the environmental laws. In addition, individuals
could seek damages for alleged personal injury or property damage due to
exposure to chemicals at our facilities or to chemicals otherwise owned or
controlled by Georgia Gulf. Furthermore, Georgia Gulf is also subject to present
and future claims with respect to workplace exposure, workers' compensation and
other matters. Although we maintain property, business interruption and casualty
insurance of the types and in the amounts that we believe are customary for the
industry, we are not fully insured against all potential hazards incident to our
business.
WE RELY HEAVILY ON THIRD PARTY TRANSPORTATION, WHICH SUBJECTS US TO RISKS THAT
WE CANNOT CONTROL; THESE RISKS MAY ADVERSELY AFFECT OUR OPERATIONS.
9
<PAGE>
We rely heavily on railroads and shipping companies to transport raw
materials to our manufacturing facilities and to ship finished product to our
customers. Rail and shipping operations are subject to various hazards,
including extreme weather conditions, work stoppages and operating hazards. If
we are delayed or unable to ship finished product or unable to obtain raw
materials as a result of the railroads' or shipping companies' failure to
operate properly, or if there were significant changes in the cost of these
services, we may not be able to arrange efficient alternatives and timely means
to obtain raw materials or ship our goods, which could result in an adverse
effect on our revenues and costs of operations.
YEAR 2000 DISRUPTIONS IN OPERATIONS OF GEORGIA GULF OR THIRD PARTIES COULD
ADVERSELY AFFECT OUR OPERATIONS AND THE VALUE OF THE NOTES.
Although we did not experience any impact to our business as a result of the
date change from 1999 to 2000, it is possible that the full impact of the date
change has not been fully recognized. If any year 2000 disruptions arise, we
believe they would be minor and correctable; accordingly we have not developed
any contingency plans beyond our normal business interruption plans. We cannot
assure you that all of our systems, or the systems of third parties upon which
we rely, such as utilities, telecommunications providers and banks, will
continue to function properly. If a failure in any of our or a third party
provider's systems were to occur, our operations and financial performance could
be disrupted. In addition, we could still be negatively affected if our
customers or suppliers are adversely affected by year 2000 or similar issues.
Currently we are not aware of any significant year 2000 or similar problems that
have arisen for our customers and suppliers. Expenditures related to year 2000
compliance efforts were not material.
WE HAVE A SUBSTANTIAL AMOUNT OF INDEBTEDNESS, WHICH COULD LIMIT OUR BUSINESS AND
OPERATIONS.
At December 31, 1999, we had approximately $771.2 million of indebtedness
outstanding. In addition, we had approximately $87.0 million of additional
credit available under our revolving credit facility. As a result, Georgia Gulf
is highly leveraged. This high level of indebtedness could have important
consequences to our operations, including:
- we may have difficulty borrowing money in the future for working capital,
capital expenditures, acquisitions or other purposes;
- we will need to use a large portion of our available cash for debt
service, which will reduce the amount of money available to finance our
operations and other business activities;
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<PAGE>
- some of our debt, including the debt under our senior credit facility, has
variable rates of interest, which exposes us to the risk of increased
interest rates;
- we may have a much higher level of debt than some of our competitors,
which may put us at a competitive disadvantage; make us more vulnerable to
economic downturns and adverse developments in our business; and reduce
our flexibility in responding to changing business and economic
conditions.
We expect to obtain the money to pay our expenses and to pay principal and
interest on our debt from our cash flow and from additional loans under our
senior credit facility. Our ability to meet these requirements will depend on
our future financial performance. We cannot be sure that our cash flow will be
sufficient to allow us to pay principal and interest on our debt as well as meet
our other obligations. If we do not have enough money to do so, we may be
required to refinance all or part of our debt, sell assets or borrow more money.
We cannot assure you that we will be able to do so on commercially reasonable
terms, if at all. In addition, the terms of our existing or future debt
agreements, including our senior credit facility and the indenture related to
our 10 3/8% senior subordinated notes, may restrict us from pursuing any of
these alternatives.
WE MAY ENCOUNTER DIFFICULTIES IN INTEGRATING THE ASSETS OF BUSINESSES WE
ACQUIRE, WHICH MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
We cannot be sure that we will be able to successfully complete the
integration of the vinyls business of CONDEA Vista Company into our operations
without substantial costs, delays or other problems. We may face similar
problems with future acquisitions. The integration of any business we acquire
may be disruptive to our business and may result in a significant diversion of
management attention and operational resources. In addition, we may suffer a
loss of key employees, customers or suppliers, loss of revenues, increases in
costs or other difficulties.
OUR PARTICIPATION IN JOINT VENTURES EXPOSES US TO RISKS OF SHARED CONTROL.
As part of the vinyls business we acquired from CONDEA Vista Company, we
purchased a 50% interest in a joint venture, the remainder of which is
controlled by PPG Industries, Inc., which also supplies chlorine to the facility
operated by the joint venture. We may enter into additional joint ventures in
the future. The nature of a joint venture requires us to share control with
unaffiliated third parties. If our joint venture partners do not fulfill their
obligations, the affected joint venture may not be able to operate according to
its business plan. In that case, our operations may be adversely affected or we
may be required to increase our level of commitment to the joint venture. Also,
differences in views among joint venture participants may result in delayed
decisions or failures to agree on major issues. Any differences in our views or
problems with respect to the operations of our joint ventures could have a
material adverse effect on our business, financial condition, results of
operations or cash flows.
WE RELY ON OUTSIDE SUPPLIERS FOR SPECIFIED FEEDSTOCKS AND SERVICES.
In connection with our acquisition of the vinyls business of CONDEA Vista
Company, we entered into agreements with CONDEA Vista to provide specified
feedstocks for the Lake Charles facility. Moreover, this facility is dependent
upon CONDEA Vista's infrastructure for services such as waste water and ground
water treatment, site remediation, fire water supply and rail car management.
Any failure of CONDEA Vista to perform those agreements could adversely affect
the operation of the affected facilities and our results of operations. The
agreements relating to these feedstocks and services have initial terms of one
to ten years. Although most of these agreements provide for automatic renewal,
they may be terminated after specified notice periods. If we were required to
obtain an alternate source for these feedstocks or services, we may not be able
to obtain pricing on as favorable terms. Additionally, we may be forced to pay
additional transportation costs or to invest in
11
<PAGE>
capital projects for pipelines or alternate facilities to accommodate railcar or
other delivery or to replace other services.
We also obtain a significant portion of our other raw materials from a few
key suppliers. If any of these suppliers is unable to meet its obligations under
present supply agreements, we may be forced to pay higher prices to obtain the
necessary raw materials. Any interruption of supply or any price increase of raw
materials could have an adverse effect on our business and results of
operations.
SALES MADE IN INTERNATIONAL MARKETS EXPOSE US TO RISKS THAT MAY ADVERSELY AFFECT
OUR OPERATIONS OR FINANCIAL CONDITION.
During 1999, 14% of our revenues were generated in international markets.
Substantially all of our international sales are made in U.S. dollars and, as a
result, any increase in the value of the U.S. dollar relative to foreign
currencies will increase the effective price of our products in international
markets. Our international sales are also subject to other risks, including
differing and changing legal and regulatory requirements in local jurisdictions;
export duties and import quotas; domestic and foreign customs and tariffs or
other trade barriers; potentially adverse tax consequences, including
withholding taxes or taxes on other remittances; and foreign exchange
restrictions. We cannot assure you that these factors will not have an adverse
effect on our financial condition or results of operations.
OUR SENIOR CREDIT FACILITY AND THE INDENTURE FOR OUR 10 3/8% SENIOR SUBORDINATED
NOTES IMPOSE SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS, WHICH MAY PREVENT
US FROM CAPITALIZING ON BUSINESS OPPORTUNITIES AND TAKING SOME ACTIONS.
Our senior credit facility and the indenture for our 10 3/8% senior
subordinated notes impose significant operating and financial restrictions on
us. These restrictions will limit our ability to:
- incur additional indebtedness and liens;
- make capital expenditures;
- make investments and sell assets, including the stock of subsidiaries;
- make payments of dividends and other distributions;
- purchase Georgia Gulf stock;
- use the proceeds of the sale of specified assets;
- engage in business activities unrelated to our current business;
- enter into transactions with affiliates; or
- consolidate, merge or sell all or substantially all of our assets.
In addition, our senior credit facility also requires us to maintain
specified financial ratios. We cannot assure you that these covenants will not
adversely affect our ability to finance our future operations or capital needs
or to pursue available business opportunities. A breach of any of these
covenants could result in a default in respect of the related indebtedness. If a
default occurs, the relevant lenders could elect to declare the indebtedness,
together with accrued interest and other fees, to be immediately due and payable
and proceed against any collateral securing that indebtedness.
FORWARD-LOOKING STATEMENTS
This Form 10-K and other communications to stockholders may contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to, among other things,
our outlook for future periods, supply and demand, pricing trends and market
forces within the chemical industry, cost reduction strategies and their
results,
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<PAGE>
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, those contained in the
"Risk Factors" section above as well as changes in the general economy, changes
in demand for our products or increases in overall industry capacity that could
affect production volumes and/or pricing, changes and/or cyclicality in the
industries to which our 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 our other periodic filings with the
Securities and Exchange Commission.
ITEM 2. PROPERTIES.
Our 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. There
was also the purchase of the Bound Brook, New Jersey, phenol/acetone facility
which was subsequently relocated to Pasadena, Texas, and modernized in 1990. In
1996, we sold our vinyl emulsion business including the property and buildings
at the Delaware City location. In 1997, we completed construction of
cogeneration and air separation plants in Plaquemine, Louisiana, in order to
supply all of our requirements for electricity, oxygen and nitrogen at that
location. The cogeneration plant was leased under an operating lease agreement
until we purchased it in 1999. In 1998, we purchased North American
Plastics, Inc., a manufacturer of flexible vinyl compounds with production
facilities in Aberdeen and Madison, Mississippi. In 1999, we purchased
substantially all of the assets of the vinyls business of CONDEA Vista Company,
an integrated producer of VCM, PVC resins and PVC compounds with production
facilities in Aberdeen, Mississippi, Lake Charles, Louisiana, Jeffersontown,
Kentucky, Mansfield, Massachusetts, and Oklahoma City, Oklahoma.
We continue to explore ways to expand both our plant capacities and product
lines. We believe current and additional planned capacity will adequately meet
anticipated demand requirements. Average capacity utilization of our production
facilities, including those acquired from CONDEA Vista from the date of
acquisition, was 91% in 1999.
The following table sets forth the location of each chemical manufacturing
facility we own, the products manufactured at each facility and the approximate
processing capability of each, assuming normal plant operations, as of
December 31, 1999:
<TABLE>
<CAPTION>
LOCATION PRODUCTS ANNUAL CAPACITY SEGMENT
- ------------------------- ------------------------- ------------------------- ------------
<S> <C> <C> <C>
Aberdeen, MS PVC Resins 1.0 billion pounds Chlorovinyls
Vinyl Compounds 185 million pounds Chlorovinyls
(two locations) 20 million pounds Chlorovinyls
Plasticizers
Gallman, MS PVC Compounds 310 million pounds Chlorovinyls
Jeffersontown, KY PVC Compounds 40 million pounds Chlorovinyls
Lake Charles, LA VCM 1.5 billion pounds(1) Chlorovinyls
(two locations)
Madison, MS PVC Compounds 140 million pounds Chlorovinyls
Mansfield, MA(2) PVC Compounds 100 million pounds Chlorovinyls
Oklahoma City PVC Resins 450 million pounds Chlorovinyls
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
LOCATION PRODUCTS ANNUAL CAPACITY SEGMENT
- ------------------------- ------------------------- ------------------------- ------------
<S> <C> <C> <C>
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
VCM 1.6 billion pounds Chlorovinyls
PVC Resins 1.2 billion pounds Chlorovinyls
Phenol 500 million pounds Aromatics
Acetone 308 million pounds Aromatics
Tiptonville,TN PVC Compounds 100 million pounds Chlorovinyls
</TABLE>
- ------------------------
(1) Reflects 100 percent of the production at our owned facility in Lake Charles
and our 50 percent share of PHH Monomers' 1,150 million pounds of total VCM
capacity.
(2) The property on which the Mansfield facility is located is leased under a
five year lease from CONDEA Vista Company, which is renewable at our option.
Our 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, we have a fleet of about
3,798 railcars of which about 626 are owned and the remainder leased pursuant to
operating leases with varying terms through the year 2014. The total lease
expense for these railcars and other transportation equipment was approximately
$10,887,000 for 1999.
We lease office space for our 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, and Lawrenceville, New
Jersey. Space for numerous storage terminals is leased throughout the United
States, and in the Netherlands, Canada, Mexico and South Korea.
ITEM 3. LEGAL PROCEEDINGS.
LEGAL PROCEEDINGS
We are a party to numerous individual and several class-action lawsuits
filed against it, among other parties, arising out of an incident that occurred
in September 1996 in which workers were exposed to a chemical substance on our
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 our
ordinary operations but instead occurred as a result of an unforeseen chemical
reaction. All of the actions claim one or more forms of compensable damages,
including past and future wages and past and future physical and emotional pain
and suffering. The lawsuits were originally filed in Louisiana State Court in
Iberville Parish.
Discovery has been occurring in these cases. We continue to develop
information relating to the extent of damages suffered as well as evaluate 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 we had engaged in intentional conduct against the
plaintiffs. These additional allegations raised a coverage issue under our
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.
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As a result of the arbitration relating to the insurance issue, as permitted
by federal statute, the insurers removed the cases to United States District
Court in December 1998. By order entered March 2, 1999, the federal court
refused the plaintiff's request to send the cases back to state court and
retained federal jurisdiction.
We have settled the claims of all but eighteen worker plaintiffs (and their
collaterals) who had filed suit prior to removal. These settlements included the
vast majority of those claimants believed to be the most seriously injured. The
settled cases are in the final processes of being dismissed with prejudice.
Negotiations regarding the remaining claims of the eighteen worker plaintiffs
are ongoing.
Following these settlements, we have been sued by approximately 300
additional plaintiff workers (and their collaterals) who claim that they were
injured as a result of the incident. We believe that most, if not all, of these
new plaintiffs have no valid basis to claim exposure and have filed suit only as
a result of their knowledge of the previous settlements. We believe we have
significant defenses to these new claims, including that most of the new
plaintiffs were statutory employees who are barred from bringing tort claims
against us, the claims are proscribed by the applicable statute of limitations
and the plaintiffs have no injuries causally related to their claimed exposure.
We intend to vigorously defend against these new claims.
Notwithstanding the foregoing, we are asserting and pursuing defenses to the
claims. Based on the present status of the proceedings, we believe the liability
ultimately imposed on us will not have a material effect on our financial
position or on our results of operations.
In addition, we are subject to other claims and legal actions that may arise
in the ordinary course of business. We believe that the ultimate liability, if
any, with respect to these other claims and legal actions will not have a
material effect on our financial position or on our results of operations.
Pursuant to the asset purchase agreement with us, CONDEA Vista has agreed to
indemnify us for any liabilities and obligations relating to any litigation,
action, suit, claim, investigation or proceeding against the vinyls business
pending on the closing date of the sale.
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 1999.
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<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Georgia Gulf Corporation's common stock is listed on the New York Stock
Exchange under the symbol "GGC." At March 21, 2000, there were 766 stockholders
of record. The following table sets forth the New York Stock Exchange high, low
and closing stock prices and dividend payments for Georgia Gulf's common stock
for the periods indicated.
<TABLE>
<CAPTION>
IN DOLLARS HIGH LOW CLOSE DIVIDENDS
- ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
1999
FIRST QUARTER............................................... 18 1/4 10 11 3/16 .08
SECOND QUARTER.............................................. 17 1/16 10 1/2 16 7/8 .08
THIRD QUARTER............................................... 19 3/8 11 13/16 17 5/8 .08
FOURTH QUARTER.............................................. 31 1/8 16 7/16 30 7/16 .08
1998
First quarter............................................... 36 3/4 27 27 1/8 .08
Second quarter.............................................. 27 11/16 22 1/4 22 13/16 .08
Third quarter............................................... 23 1/4 14 1/2 15 5/8 .08
Fourth quarter.............................................. 19 11/16 14 11/16 16 1/16 .08
</TABLE>
We intend, from time to time, to pay cash dividends on our common stock as
our board of directors deems appropriate. Our ability to pay dividends may be
limited by covenants in our senior credit facility (see "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources"). Dividends on our common stock are
usually declared quarterly by the board of directors and paid shortly after
declaration.
RECENT SALE OF UNREGISTERED SECURITIES
On November 12, 1999, we sold $200,000,000 principal amount of our 10 3/8%
senior subordinated notes due 2007. Chase Securities Inc. acted as placement
agent and received about $5 million in fees in connection with the sale of these
notes. The transaction was effected as a private placement pursuant to the
exemption of Section 4(2) of the Securities Act of 1933 in reliance upon the
representations of the placement agent.
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA, RATIOS & EMPLOYEES 1999 1998 1997 1996 1995
- ------------------------------------------------------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS(1)
Net sales.......................................... $ 857,774 $825,292 $871,384 $829,374 $976,694
Cost of sales...................................... 714,123 652,347 710,114 666,176 660,203
Selling and administrative expense................. 40,845 42,455 45,401 41,305 48,080
---------- -------- -------- -------- --------
Operating income................................... 102,806 130,490 115,869 121,893 268,411
Gain on sale of assets............................. -- -- 8,600 -- --
Loss on interest rate hedge agreement.............. -- (9,500) -- -- --
Interest expense................................... (34,978) (30,867) (24,693) (20,833) (25,114)
Interest income.................................... 141 49 60 67 244
---------- -------- -------- -------- --------
Income before taxes................................ 67,969 90,172 99,836 101,127 243,541
Provision for income taxes......................... 24,808 33,587 37,813 38,423 93,661
---------- -------- -------- -------- --------
Income from continuing operations.................. 43,161 56,585 62,023 62,704 149,880
(Loss) earnings from discontinued operation, net of
tax.............................................. (2,525) (306) 19,178 8,916 36,614
Loss on disposal of discontinued operation, net of
tax.............................................. (7,631) -- -- -- --
---------- -------- -------- -------- --------
Net income......................................... $ 33,005 $ 56,279 $ 81,201 $ 71,620 $186,494
========== ======== ======== ======== ========
Basic earnings per share from continuing operations.. $ 1.39 $ 1.80 $ 1.84 $ 1.75 $ 3.87
Diluted earnings per share from continuing
operations....................................... 1.38 1.78 1.83 1.73 3.80
Dividends per common share......................... 0.32 0.32 0.32 0.32 0.32
FINANCIAL HIGHLIGHTS
Working capital.................................... $ 95,624 $ 61,729 $ 54,309 $ 48,470 $ 72,467
Property, plant and equipment, net................. 671,550 388,193 396,741 379,111 296,163
Total assets....................................... 1,098,008 665,588 601,560 575,800 498,881
Total debt......................................... 771,194 459,475 393,040 395,600 292,400
Stockholders' equity............................... 57,233 28,881 35,603 18,570 50,628
Cash provided by operating activities.............. 102,032 123,371 108,971 113,500 277,621
Depreciation and amortization...................... 49,598 44,023 36,318 37,495 30,012
Capital expenditures............................... 14,427 25,374 56,545 118,706 85,258
Maintenance expenditures........................... 50,950 49,299 54,638 53,117 48,518
OTHER SELECTED DATA
Earnings before interest, taxes, depreciation and
amortization (EBITDA)(2)......................... $ 151,729 $173,986 $151,739 $158,948 $298,003
Weighted average common shares..................... 30,947 31,474 33,629 35,759 38,728
Weighted average common shares and equivalents..... 31,107 31,787 33,947 36,248 39,428
Common shares outstanding.......................... 31,291 30,884 32,781 34,585 37,240
Return on sales.................................... 3.8% 6.8% 9.3% 8.6% 19.1%
Ratio of operating income to interest expense...... 2.9 3.2 4.7 5.9 10.7
Employees.......................................... 1,440 1,050 1,041 1,030 1,143
</TABLE>
- ------------------------
(1) The selected data above includes the results of the vinyls business of
CONDEA Vista Company from November 12, 1999 and the results of North
American Plastics, LLC from May 11, 1998, the dates of acquisition, as well
as the discontinuance of our methanol business. See "Item 1--Business."
(2) EBITDA is commonly used by 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 and ratio of operating income to interest expense. For 1997, the
pretax gain on the sale of Great River Oil & Gas Corporation has been
excluded from earnings for the computation of EBITDA.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Georgia Gulf is a leading manufacturer and marketer of two highly integrated
chemical product lines, chlorovinyls and aromatics. Our primary chlorovinyl
products include chlorine, caustic soda, vinyl chloride monomer ("VCM"),
polyvinyl chloride ("PVC") resins and PVC compounds. For the year ended December
31, 1999, we consumed most of our chlorine production, sold all of our caustic
soda production and used approximately 82 percent of our VCM production
internally in the production of PVC resins, with the remainder of our VCM sold
to third parties. Approximately 72 percent of our PVC resin production was sold
to third parties, with the remainder used in the production of our PVC
compounds, all of which is sold to third parties. Our primary aromatic products
include cumene, phenol and acetone. For the year ended December 31, 1999, we
sold approximately 21 percent of our cumene production to third parties and used
the remainder internally in the production of phenol and acetone. All of our
phenol and acetone production is sold to third parties.
Our business, and the commodity chemical industry in general, is cyclical in
nature and is affected by domestic and, to a lesser extent, worldwide economic
conditions. The level of domestic chemical sales tends to reflect fluctuations
in downstream markets that are affected by consumer spending for durable goods
and construction spending. Global capacity also materially affects the prices of
chemical products. Generally, in periods of high operating rates, prices rise,
and as a result, new capacity is announced. Since world-scale size plants are
generally the most cost-competitive, new increases in capacity tend to be on a
large scale and are often undertaken by existing industry participants.
Generally, as new capacity is added, prices decline until increases in demand
improve operating rates and the new capacity is absorbed or, in certain cases,
until less efficient producers withdraw from the market. As this supply is
absorbed and operating rates rise, prices increase and the cycle repeats. In
addition, our profitability and margins are materially impacted by the cost of
our raw materials and other important supplies. Our primary raw materials
include salt, natural gas, ethylene, chlorine, benzene and propylene.
Our chlorovinyls business was adversely impacted in 1997 and 1998 by
increased industry capacity as well as a decline in demand resulting from the
Asian economic downturn. However, the PVC industry has generally experienced
price increases since the fourth quarter of 1998. This improvement in market
conditions has been the result of continued increases in demand which have
improved operating rates, although this improvement in market conditions has
been partially offset by increases in the cost of ethylene. No announced
capacity increases for VCM or PVC resins are expected to enter production until
2001.
Since 1996, our markets for caustic soda have also been adversely impacted
as a result of higher chlorine and caustic soda production, increased capacity,
lower demand in the pulp and paper markets and the Asian economic downturn.
There was some improvement in caustic soda pricing during the fourth quarter of
1999.
Our aromatic business in 1997 and 1998 benefitted from continued strong
demand and limited new capacity. However, despite continued growth in demand,
phenol and acetone prices and margins began to decline in the fourth quarter of
1998 in anticipation of the then pending start-up of announced capacity
additions expected through 2000. Although phenol and acetone prices have
stabilized recently, industry sources expect pricing pressure to persist, and
prices for benzene and propylene are expected to rise.
18
<PAGE>
ACQUISITION OF THE VINYLS BUSINESS OF CONDEA VISTA COMPANY
On November 12, 1999, we completed the purchase of substantially all of the
assets of the vinyls business of CONDEA Vista Company. Consideration for the
purchase included $260.0 million in cash and a $10.0 million two-year
noninterest-bearing note to the seller. The purchase price is subject to an
adjustment for actual working capital acquired. We have recorded a payable to
CONDEA Vista Company of approximately $18.6 million representing a preliminary
estimate of the adjustment for working capital. The acquisition was accounted
for as a purchase, and the purchase price approximated the fair market value of
the assets acquired. The vinyls business is an integrated producer of VCM, PVC
resins and PVC compounds. Assets acquired in the purchase include: one VCM
facility with an annual capacity of 950 million pounds; 50 percent ownership of
PHH Monomers, L.L.C., a joint venture that operates a VCM facility with capacity
to produce 1.15 billion pounds of VCM annually, which entitles the vinyls
business to one-half of the production capacity, or 575 million pounds; two PVC
resin facilities with combined annual capacity of 1.5 billion pounds; and three
PVC compound facilities with combined annual capacity of 265 million pounds.
Additionally, we entered into a long-term supply contract with CONDEA Vista
for the supply of ethylene and assumed a chlorine supply contract with PPG
Industries, Inc., our joint venture partner in PHH Monomers, for the acquired
VCM facilities. We have included the results of operations for the vinyls
business in our consolidated financial statements since the date of acquisition.
NORTH AMERICAN PLASTICS ACQUISITION
On May 11, 1998, we acquired North American Plastics, Inc., a privately held
manufacturer of flexible PVC compounds with two manufacturing locations in
Mississippi having a combined annual production capacity of 190 million pounds.
Total consideration consisted of $99.9 million in cash and the assumption of
$0.5 million in debt. We financed the cash portion of the acquisition through
borrowings under our previous 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 $86.7
million. We allocated this excess to goodwill which is being amortized on a
straight-line basis over a period of 35 years. We have included the results of
operations for North American Plastics in our consolidated financial statements
since the date of acquisition.
DISCONTINUATION OF METHANOL OPERATION
During 1999, the methanol market continued to suffer from overcapacity and
low-cost imports as significant increases in global supply created an imbalance
between supply and demand. As a result, several domestic methanol producers,
including Georgia Gulf, idled their methanol plants. We had ceased operating our
methanol plant in December 1998. During 1999, we met our contractual obligations
to supply methanol to our customers by purchasing imported methanol. Although
the shutdown of several methanol plants resulted in a supply contraction and an
increase in spot prices during the first half of 1999, several new overseas
methanol plants began production late in the year. This additional supply added
further pressure on the sales price of methanol. As a result of these trends, in
September 1999, we announced that we would exit the methanol business entirely
at the end of 1999. As a result, Georgia Gulf incurred a charge against earnings
of $7.6 million, net of tax benefits, during the third quarter of 1999 to write
off certain methanol assets and to accrue losses related to our methanol buy and
resale program through the end of the year.
COGENERATION AND AIR SEPARATION FACILITIES
In 1997, construction was completed on a cogeneration facility and an air
separation plant, both located at our Plaquemine, Louisiana complex. These
facilities have reduced the cost of electricity, nitrogen and oxygen that we use
in the production of our products and that we previously purchased
19
<PAGE>
from third parties. Prior to November 12, 1999, we operated the cogeneration
facility under an operating lease arrangement. On that date, we terminated the
lease by exercising our option to purchase the cogeneration facility for
approximately $103.3 million.
SALE OF GREAT RIVER OIL & GAS CORPORATION
In July 1997, we sold oil and gas properties representing most of the assets
of Great River Oil & Gas Corporation, one of our subsidiaries. Net proceeds from
this sale were $16.5 million, on which we recorded a pretax gain of $8.6
million. Historically, the operating results for this subsidiary had not been
material to our operating results or financial condition. Prior to the
disposition, the results of this subsidiary were included in the segment "Gas
Chemicals."
RESULTS OF OPERATIONS -- GEORGIA GULF
The following table sets forth our statement of operations data for the
three years ended December 31, 1999, 1998 and 1997 and the percentage of net
sales of each line item for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
DOLLARS IN MILLIONS 1999 1998 1997
- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................................ $857.8 100.0% $825.3 100.0% $871.4 100.0%
Cost of sales.................................... 714.2 83.3% 652.3 79.0% 710.1 81.5%
Selling, general and administrative expenses..... 40.8 4.7% 42.5 5.1% 45.4 5.2%
------ ------ ------ ------ ------ ------
Operating income................................. 102.8 12.0% 130.5 15.8% 115.9 13.3%
Gain on sale of assets........................... -- 0.0% -- 0.0% 8.6 1.0%
Loss on interest rate hedge agreement............ -- 0.0% 9.5 1.1% -- 0.0%
Net interest expense............................. 34.9 4.1% 30.8 3.7% 24.7 2.8%
Provision for income taxes....................... 24.8 2.9% 33.6 4.1% 37.8 4.3%
------ ------ ------ ------ ------ ------
Income from continuing operations................ 43.1 5.0% 56.6 6.8% 62.0 7.1%
Earnings (loss) from discontinued operation,
net............................................ (2.5) 0.3% (0.3) 0.0% 19.2 2.2%
Loss on disposal of methanol business, including
provision for net operating losses during the
phase-out period, net.......................... (7.6) 0.9% -- 0.0% -- 0.0%
------ ------ ------ ------ ------ ------
Net income....................................... $ 33.0 3.8% $ 56.3 6.8% $ 81.2 9.3%
====== ====== ====== ====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
NET SALES -- For the year ended December 31, 1999, Georgia Gulf reported net
sales of $857.8 million, an increase of 4 percent compared to $825.3 million for
the same period in 1998. This increase was due to a 9 percent increase in the
overall average selling price, offset in part by a 4 percent decrease in overall
sales volumes.
Net sales for chlorovinyls were $633.5 million for the year ended
December 31, 1999, an increase of 23 percent from $515.4 million for the same
period of 1998. The average selling price in 1999 for chlorovinyl products
increased 21 percent over 1998. Strong demand for vinyl products, particularly
VCM and PVC resins, resulted in higher average selling prices, which were
partially offset by a 43 percent decrease in the price of caustic soda.
Chlorovinyl sales volumes remained essentially the same for 1999 and 1998.
Higher sales volumes for PVC resins and PVC compounds were offset by a decrease
in caustic soda and chlorine sales volumes. Sales volumes for 1999 included a
full year of sales for North American Plastics, acquired in May 1998, and the
inclusion of the vinyls business of
20
<PAGE>
CONDEA Vista Company acquired in November 1999. The chlorovinyls segment also
benefitted from increased electricity sales during certain peak demand periods
in 1999.
Net sales for aromatics for the year ended December 31, 1999 were $224.2
million, a decrease of 28 percent from $309.9 million for the same period last
year. This decrease was primarily attributable to a decrease of 18 percent in
the average selling price for aromatic products and a 13 percent decrease in
sales volumes. Cumene sales volumes for 1999 were 48 percent lower than 1998.
New capacity additions, which created an oversupply of phenol, caused the
average selling price of phenol to decline 31 percent from the prior year.
Cost of Sales -- Cost of sales for the year ended December 31, 1999 was
$714.2 million, an increase of 9 percent compared to $652.3 million in 1998.
This increase was due to increases in prices for all major raw materials. As a
percentage of net sales, cost of sales increased to 83.3 percent in 1999
compared to 79.0 percent in 1998. This increase in cost of sales as a percentage
of net sales was due to higher raw material costs along with reduced operating
rates.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were $40.8 million for the year ended December 31, 1999,
a decrease of 4 percent from $42.5 million in the same period of 1998. This
decrease was due primarily to lower legal and environmental expenses.
OPERATING INCOME -- Operating income for the year ended December 31, 1999
was $102.8 million, a decrease of 21 percent compared to $130.5 million for the
same period last year. This decrease was primarily the result of lower operating
income in aromatics, offset in part by higher operating income for chlorovinyls.
Chlorovinyls operating income for 1999 was $98.8 million, an increase of 34
percent compared to $73.7 million for the same period in 1998. This increase was
attributable to average selling price increases outpacing raw material price
increases, the sale of electricity during peak demand periods, the inclusion of
North American Plastics for the full year and the inclusion of the vinyls
business purchased in November 1999. Aromatics operating income for the year
ended December 31, 1999 was $15.2 million, a decrease of 79 percent compared to
$71.4 million for 1998. This decrease in operating income was due to reduced
operating rates, lower cumene sales volumes, increased raw material cost and a
decrease in the average selling price for phenol. As a percentage of net sales,
operating income decreased to 12.0 percent of net sales in 1999 compared to 15.8
percent in 1998. This decrease in operating income as a percentage of net sales
was primarily the result of higher raw material costs across all product lines
and reduced pricing in aromatics, which together outpaced average selling price
increases in chlorovinyls, resulting in reduced overall margins.
OTHER EXPENSE -- During 1998, we incurred other expenses of $9.5 million,
$6.0 million net of taxes, related to the termination of an interest rate hedge
agreement.
NET INTEREST EXPENSE -- Net interest expense increased to $34.9 million for
the year ended December 31, 1999 compared with $30.8 million for the same period
in 1998. This increase was largely attributable to the increased debt issued in
November 1999 to fund the acquisition of the vinyls business and purchase the
assets related to the cogeneration operating lease.
PROVISION FOR INCOME TAXES -- Provision for income taxes was $24.8 million
for the year ended 1999, a decrease of 26 percent compared to $33.6 million for
the same period in 1998. This decrease was due to lower taxable income. Our
effective tax rate for 1999 was 36.5 percent compared to 37.2 percent for 1998.
INCOME FROM CONTINUING OPERATIONS -- Income from continuing operations for
1999 was $43.1 million, a decrease of 24 percent compared to $56.6 million for
the same period in 1998. This decrease was due to the factors discussed above.
LOSS FROM DISCONTINUED OPERATION -- The discontinued methanol operation
incurred a net loss of $2.5 million for 1999 as compared to a loss of $0.3
million for the same period in 1998. Additionally,
21
<PAGE>
during 1999, Georgia Gulf recognized a one-time charge of $7.6 million, net of
taxes, in connection with the write-off of certain methanol assets and future
losses on servicing the remaining methanol contracts through the end of 1999.
NET INCOME -- Net income for the year ended 1999 was $33.0 million, a
decrease of 41 percent compared to $56.3 million for the same period in 1998.
This decrease was primarily due to the factors discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
NET SALES -- Net sales in 1998 were $825.3 million, a decrease of 5 percent
compared to $871.4 million in 1997. This decrease was due to a price decline for
all products, with the exception of caustic soda, resulting in a 9 percent
decrease in the overall average selling price, offset in part by a 4 percent
increase in overall sales volume.
Net sales of chlorovinyls in 1998 were $515.4 million, an increase of 5
percent compared to $492.7 million in 1997. This increase was the result of a 10
percent increase in overall sales volume, offset by an overall decline in prices
of 5 percent. The volume increase was primarily the result of the inclusion of
the sales of North American Plastics, acquired in May 1998, and, to a lesser
extent, continued strong demand for PVC resins and PVC compounds. Price declines
in chlorovinyls were the result of industry overcapacity and a decline in demand
in Asia due to the economic downturn in that region. Prices for caustic soda
were up 52 percent over 1997; however, prices did begin to weaken in the second
half of 1998 due to increased production and a decline in demand from the pulp
and paper industry.
Net sales of aromatics in 1998 were $309.9 million, a decrease of 17 percent
compared to $373.7 million in 1997. This decrease was the result of a 4 percent
decrease in volume and a 14 percent decline in prices. The volume decrease was
the result of a decline in cumene sales volumes that was not fully offset by
increases in phenol and acetone sales volumes. Price declines in aromatics were
attributable to a 22 percent decline in cumene prices resulting primarily from
excess industry capacity and lower raw material costs which were passed on to
customers. Also contributing to the decline was a 13 percent decline in phenol
prices resulting primarily from market positioning by other producers in
anticipation of significant capacity expansions.
COST OF SALES -- Cost of sales in 1998 was $652.3 million, a decrease of 8
percent compared to $710.1 million in 1997. The decrease in cost of sales was
due to a decline in prices of major raw materials purchased, offset in part by
an increase in raw material consumption and an increase in overall sales volume
of 4 percent. As a percentage of net sales, cost of sales decreased to 79.0
percent in 1998 compared to 81.5 percent in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were $42.5 million in 1998, a decrease of 6 percent from
1997. This decrease was due to reduced pension costs, lower expenses from
profit-sharing plans and reduced employee head count, which more than offset the
addition of selling, general and administrative expenses of North American
Plastics. As a percentage of net sales, selling, general and administrative
expenses were 5.1 percent for 1998 compared to 5.2 percent for 1997.
OPERATING INCOME -- Operating income in 1998 was $130.5 million, an increase
of 13 percent compared to $115.9 million in 1997. This increase was the result
of increased operating profit in both chlorovinyls and aromatics. Our
chlorovinyls operating profit in 1998 was $73.7 million, an increase of 12
percent compared to $65.7 million in 1997. This increase was due to the increase
in sales volumes and lower raw material prices discussed above. Our aromatics
operating income in 1998 was $71.4 million, an increase of 3 percent compared to
$69.1 million in 1997. This increase in operating income was due to high
phenol/acetone operating rates, resulting from continued strong demand for
phenol, and lower raw material prices, which together more than offset the
pricing decline in aromatics
22
<PAGE>
discussed above. As a percentage of net sales, operating income increased to
15.8 percent of net sales in 1998 compared to 13.3 percent in 1997. This
increase in operating income as a percentage of sales was primarily attributable
to lower raw material costs which declined more than average selling prices.
OTHER INCOME/EXPENSE -- We incurred other expenses of $9.5 million, $6.0
million net of taxes, related to the termination of an interest rate hedge
agreement during the third quarter of 1998. In 1997, certain oil and gas
properties were sold resulting in a pre-tax gain of $8.6 million, $5.3 million
net of taxes.
NET INTEREST EXPENSE -- Net interest expense increased to $30.8 million for
1998 compared with $24.7 million in 1997. This increase reflects higher average
debt balances in 1998, resulting from the acquisition of North American
Plastics.
PROVISION FOR INCOME TAXES -- Provision for income taxes was $33.6 million
in 1998, a decrease of 11 percent compared to $37.8 million in 1997. Our
effective tax rate in 1998 declined to 37.2 percent from 37.9 percent in 1997
primarily as a result of a lower combined state tax effective rate.
INCOME FROM CONTINUING OPERATIONS -- Income from continuing operations for
1998 was $56.6 million, a decrease of 9 percent compared to $62.0 million for
1997. This decrease was primarily a result of the termination of the interest
rate hedge agreement and higher interest expense in 1998, which more than offset
the gain on the sale of the Great River Oil & Gas assets in 1997 and higher
operating income in 1998.
(LOSS) EARNINGS FROM DISCONTINUED OPERATION -- The discontinued methanol
operation incurred a net loss of $0.3 million for 1998 as compared to net
earnings of $19.2 million for 1997. A substantial increase in global supply
created a significant imbalance between supply and demand, resulting in a 40
percent decline in methanol sales prices for 1998 as compared to 1997.
NET INCOME -- Net income in 1998 was $56.3 million, a decrease of 31 percent
compared to $81.2 million in 1997. This decrease was due to the factors
discussed above.
LIQUDITY AND CAPITAL RESOURCES
On November 12, 1999, we entered into a new loan agreement and issued
$200,000,000 of eight-year unsecured 10 3/8 percent notes. The net proceeds from
these transactions were used to fund the acquisition of the vinyls business of
CONDEA Vista Company, replace the prior unsecured revolving credit facility and
term loan, purchase assets leased pursuant to the cogeneration facility lease
and to pay related fees and expenses.
For the year ended December 31, 1999, we generated $102.0 million of cash
flow from operating activities as compared with $123.4 million during the year
ended December 31, 1998. Major sources of cash flow from operating activities in
1999 were income from continuing operations of $43.2 million, noncash provisions
of $49.6 million for depreciation and amortization and $4.6 million for deferred
income taxes. Total working capital at the end of 1999 was $95.6 million versus
$61.7 million at the end of 1998. The increase in working capital was primarily
attributable to the working capital purchased in connection with the acquisition
of the vinyls business, offset in part by an increase in the current portion of
long-term debt in 1999.
Financing activities provided $281.9 million of cash during 1999. Primary
sources of cash flows from financing activities included borrowings of $438.0
million under the new senior credit facility and the issuance of $200.0 million
of eight-year unsecured 10 3/8 percent notes. Cash flows used in financing
activities were primarily the payoff of the prior unsecured revolving credit
agreement and the $100.0 million term loan.
Our new senior credit facility provides for a $100.0 million revolving
credit facility, a $225.0 million term loan A and a $200.0 million term loan B.
The term loans were fully drawn at December 31, 1999,
23
<PAGE>
and borrowings under the revolving credit facility were $13.0 million. As of
December 31, 1999, we had availability to borrow an additional $87.0 million
under the revolving credit facility.
At December 31, 1999, our debt portfolio consisted of $438.0 million under
the senior credit facility, $100.0 million principal amount of 7 5/8 percent
notes, $200.0 million principal amount of 10 3/8 percent notes and $33.2 million
in other debt agreements. Debt under the senior credit facility and the existing
7 5/8 percent senior notes are secured by substantially all of our assets,
including our real and personal property, inventory, accounts receivable and
other intangibles.
We declared dividends of $0.32 per share, or $9.9 million, during 1999. We
anticipate continuing to pay dividends to our stockholders of approximately
$10.0 million annually. As of December 31, 1999, we had authorization to
repurchase up to 5.2 million shares under a common stock repurchase program;
however, we have suspended the stock repurchase program and we did not
repurchase any shares during 1999.
For the year ended December 31, 1999, we used $380.7 million of cash in
investing activities, compared to $125.3 million used in 1998. Capital
expenditures for the year ended December 31, 1999 were $14.4 million as compared
to $25.4 million for the same 1998 period. In 1999, we invested $263.0 million,
including related fees and expenses, in the purchase of the vinyls business of
CONDEA Vista Company and $103.3 million to purchase the assets previously
covered by the cogeneration operating lease. In 1998, we invested $99.9 million
in the purchase of North American Plastics. As in 1999, capital expenditures for
2000 will be directed toward increasing efficiency of existing operations and
certain environmental projects. We estimate total capital expenditures for 2000
will approximate $30.0 million.
We lease railcars, storage terminals, computer equipment, automobiles and
warehouse and office space under noncancelable operating leases with varying
maturities through the year 2014. Future minimum payments under these
noncancelable operating leases as of December 31, 1999 were $20.0 million in
2000, $14.8 million in 2001, $12.5 million in 2002, $9.0 million in 2003, $5.8
million in 2004 and $30.5 million thereafter.
We have take-or-pay agreements for the purchase of ethylene, 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, 1999
was $7.1 million for each of the years from 2000 through 2007 and $4.6 million
for 2008. Additionally, in connection with the acquisition of the vinyls
business of CONDEA Vista, we have agreed to purchase 600 million pounds of
ethylene on a take-or-pay basis at market prices from CONDEA Vista each year for
three years, followed by an optional reduction in required purchases of 100
million pounds per year for the final four years of the agreement.
Our ability to satisfy our debt obligations and to pay principal and
interest on our debt, fund working capital, and make anticipated capital
expenditures will depend on our future performance, which is subject to general
economic conditions and other factors, some of which are beyond our control. We
believe that based on current and anticipated levels of operations and
conditions in our markets, cash flow from operations will be adequate for the
foreseeable future to make required payments of principal and interest on our
debt and fund our working capital and capital expenditure requirements. There
can be no assurance, however, that our business will generate sufficient cash
flow from operations or that future borrowings will be available under the new
revolving credit facility in an amount sufficient to enable us to service our
debt or to fund our other liquidity needs. Further, any future acquisitions,
joint ventures, arrangements or similar transactions will likely require
additional capital, and there can be no assurance that this capital will be
available to us.
We are essentially a holding company and, accordingly, must rely on
distributions, loans and other intercompany cash flows from our wholly owned
subsidiaries to generate the funds necessary to satisfy
24
<PAGE>
the repayment of our existing debt. Provisions in our senior credit facility
limit payments of dividends, distributions, loans or advances to us by our
subsidiaries.
In 1998, Georgia Gulf generated $123.4 million from operating activities, up
$14.4 million from 1997. Major sources of cash flow from operating activities in
1998 were income from continuing operations of $56.6 million, noncash provisions
of $44.0 million for depreciation and amortization and $28.2 million for
deferred income taxes. Total working capital at the end of 1998 was $61.7
million versus $54.3 million at the end of 1997.
Net cash provided by financing activities was $1.5 million in 1998 and came
from borrowings under the revolving credit facility. Cash used by financing
activities funded repurchases of common stock in the amount of $58.9 million and
paid dividends of $10.0 million.
Net cash used in investing activities was $125.3 million in 1998 and was
attributable to the purchase of North American Plastics for $99.9 million and
capital expenditure requirements of $25.4 million.
YEAR 2000 ISSUE UPDATE
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
ongoing business as a result of the year 2000 issue. However, it is possible
that the full impact of the date change has not been fully recognized. We
believe that any such problems are likely to be minor and correctable. In
addition, we could still be negatively affected if our customers or suppliers
are adversely affected by year 2000 or similar issues. Currently we are not
aware of any significant year 2000 or similar problems that have arisen for our
customers and suppliers. Expenditures related to year 2000 compliance efforts
were not material.
INFLATION
The most significant component of our 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 our sales or income from operations.
NEW ACCOUNTING PRONOUNCEMENTS
During June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value and that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows derivative
gains and losses to offset related results on the hedged item in the income
statement and requires that a company formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. In June 1999,
the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133
for fiscal quarters of all fiscal years beginning after June 15, 2000, although
earlier adoption is permitted. SFAS No. 133 cannot be applied retroactively. We
have not yet quantified the impact of adopting SFAS No. 133 on our financial
statements.
FORWARD-LOOKING STATEMENTS
This Annual Report and other communications to stockholders, may contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These
25
<PAGE>
statements relate to, among other things, our 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 our products or increases in
overall industry capacity that could affect production volumes and/or pricing,
changes and/or cyclicality in the industries to which our 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 Annual Report on Form 10-K and in
our other periodic filings with the Securities and Exchange Commission.
ENVIRONMENTAL
Our 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.
We believe that we are in material compliance with all the current
environmental laws and regulations. We estimate that any expenses incurred in
maintaining compliance with these requirements will not materially affect
earnings or cause us to exceed our 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
DISCLOSURES ABOUT MARKET RISK
We are subject to certain market risks related to long-term financing and
related derivative financial instruments, foreign currency exchange rates and
commodity prices. We have policies and procedures to mitigate the potential loss
arising from adverse changes in these risk factors.
INTEREST RATE SENSITIVITY -- The following table is a "forward-looking"
statement that provides information about our derivative financial instruments
and other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and financing obligations. Our policy is to manage
interest rates through use of a combination of fixed and floating rate debt. We
do 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
26
<PAGE>
payments to be exchanged under the contracts. The information and cash flows are
presented in U.S. dollars, which is our reporting currency.
<TABLE>
<CAPTION>
PRINCIPAL (NOTIONAL) AMOUNTS BY MATURITY DATE FAIR
------------------------------------------------------------------ VALUE AT
DOLLARS IN THOUSANDS 2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/99
- -------------------- -------- -------- -------- -------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term financing
Long-term debt:
Fixed rate principal............... $ -- $ -- $ 7,750 $ -- $ -- $308,444 $316,194 $317,944
Average interest rate.............. -- -- 10.88% -- -- 9.38% 9.41% --
Variable rate principal............ 22,000 22,000 42,000 47,000 52,000 270,000 455,000 455,000
Average interest rate.............. 6.5% 7.14% 7.23% 7.24% 7.31% 7.47% 7.35% --
Interest rate derivatives
Interest rate swaps:
Variable to fixed notional
amount........................... $ -- $ -- $200,000 $ -- $ -- $ -- $200,000 $ 3,045
Average pay rate................... -- -- 6.09% -- -- -- 6.09% --
Average receive rate............... -- -- 6.89% -- -- -- 6.89% --
</TABLE>
FOREIGN CURRENCY EXCHANGE RATE SENSITIVITY -- Substantially all of our sales
are denominated in U.S. dollars, and it is our 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 $7.2 million, and accordingly, foreign currency forward exchange agreements
were not material at December 31, 1999.
COMMODITY PRICE SENSITIVITY -- The availability and price of our raw
materials are subject to fluctuations due to unpredictable factors in global
supply and demand. To reduce price risk caused by market fluctuations, from time
to time, we execute raw material purchase contracts, which are generally less
than one year in duration. As of December 31, 1999, there were no forward raw
material purchase contracts open.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... 29
Report of Management........................................ 30
Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 31
Consolidated Statements of Income years ended December 31,
1999, 1998 and 1997....................................... 32
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. 33
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 34
Notes to the Consolidated Financial Statements.............. 35
</TABLE>
28
<PAGE>
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, 1999
and 1998 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, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Atlanta, Georgia
February 18, 2000
29
<PAGE>
REPORT OF MANAGEMENT
GEORGIA GULF CORPORATION
TO THE STOCKHOLDERS OF GEORGIA GULF CORPORATION:
The accompanying consolidated financial statements of Georgia Gulf
Corporation and subsidiaries 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 1999 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. We 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 our internal audit department.
The Audit Committee of the Board of Directors, composed solely of directors
who are not officers or employees of Georgia Gulf, has the responsibility of
meeting periodically with management, our internal auditors and Arthur Andersen
LLP, our 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 our 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 18, 2000
30
<PAGE>
CONSOLIDATED BALANCE SHEETS
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
IN THOUSANDS, EXCEPT SHARE DATA 1999 1998
- ------------------------------- ---------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,424 $ 1,244
Receivables, net of allowance for doubtful accounts
of $2,400 in 1999 and 1998................................ 164,376 69,994
Inventories................................................. 112,844 69,339
Prepaid expenses............................................ 5,440 2,227
Deferred income taxes....................................... 6,172 6,492
---------- --------
Total current assets...................................... 293,256 149,296
---------- --------
Property, plant and equipment, at cost...................... 985,825 656,527
Less accumulated depreciation............................. 314,275 268,334
---------- --------
Property, plant and equipment, net...................... 671,550 388,193
---------- --------
Goodwill.................................................... 82,676 85,154
---------- --------
Other assets................................................ 50,083 29,626
---------- --------
Net assets of discontinued operation........................ 443 13,319
---------- --------
Total assets................................................ $1,098,008 $665,588
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt........................... $ 22,000 $ --
Accounts payable............................................ 143,898 65,270
Interest payable............................................ 5,926 2,272
Accrued income taxes........................................ 494 --
Accrued compensation........................................ 7,682 6,814
Accrued pension............................................. -- 378
Other accrued liabilities................................... 17,632 12,833
---------- --------
Total current liabilities................................. 197,632 87,567
---------- --------
Long-term debt.............................................. 749,194 459,475
---------- --------
Deferred income taxes....................................... 93,949 89,665
---------- --------
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: 31,290,862 in
1999 and 30,883,754 in 1998............................. 313 309
Additional paid-in capital................................ 5,250 --
Retained earnings......................................... 51,670 28,572
---------- --------
Total stockholders' equity.............................. 57,233 28,881
---------- --------
Total liabilities and stockholders' equity.............. $1,098,008 $665,588
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
IN THOUSANDS, EXCEPT SHARE DATA 1999 1998 1997
- ------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................. $ 857,774 $ 825,292 $ 871,384
Operating costs and expenses
Cost of sales....................................... 714,123 652,347 710,114
Selling and administrative expense.................. 40,845 42,455 45,401
----------- ----------- -----------
Total operating costs and expenses................ 754,968 694,802 755,515
----------- ----------- -----------
Operating income...................................... 102,806 130,490 115,869
Other income (expense)
Gain on sale of assets.............................. -- -- 8,600
Loss on interest rate hedge agreement............... -- (9,500) --
Interest expense.................................... (34,978) (30,867) (24,693)
Interest income..................................... 141 49 60
----------- ----------- -----------
Income from continuing operations before income
taxes............................................... 67,969 90,172 99,836
Provision for income taxes............................ 24,808 33,587 37,813
----------- ----------- -----------
Income from continuing operations..................... 43,161 56,585 62,023
Discontinued operation
(Loss)/earnings from discontinued operation, net.... (2,525) (306) 19,178
Loss on disposal of discontinued operation, net..... (7,631) -- --
----------- ----------- -----------
Net income............................................ $ 33,005 $ 56,279 $ 81,201
=========== =========== ===========
Earnings/(loss) per share
Basic
Continuing operations............................. $ 1.39 $ 1.80 $ 1.84
Discontinued operation............................ (0.32) (0.01) 0.57
----------- ----------- -----------
$ 1.07 $ 1.79 $ 2.41
=========== =========== ===========
Diluted
Continuing operations............................. $ 1.38 $ 1.78 $ 1.83
Discontinued operation............................ (0.32) (0.01) 0.56
----------- ----------- -----------
$ 1.06 $ 1.77 $ 2.39
=========== =========== ===========
Weighted average common shares........................ 30,946,784 31,474,072 33,628,895
Weighted average common shares and equivalents........ 31,106,680 31,786,536 33,946,750
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<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, 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
Net income.............................. -- -- -- 33,005 33,005
Dividends paid.......................... -- -- -- (9,907) (9,907)
Tax benefit realized from stock option
plans................................. -- -- 840 -- 840
Common stock issued upon exercise of
stock options......................... 188,655 2 1,494 -- 1,496
Common stock issued under stock purchase
plan.................................. 218,453 2 2,916 -- 2,918
----------- ---- ------- -------- --------
BALANCE, DECEMBER 31, 1999.............. 31,290,862 $313 $ 5,250 $ 51,670 $ 57,233
=========== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
GEORGIA GULF CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
IN THOUSANDS 1999 1998 1997
- ------------ --------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 33,005 $ 56,279 $ 81,201
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 49,598 44,023 36,318
Gain on sale of assets................................ -- -- (8,600)
Provision for deferred income taxes................... 4,604 28,237 11,306
Tax benefit related to stock plans.................... 840 1,406 1,252
Loss on disposal of discontinued operation, net....... 7,631 -- --
Loss (earnings) from discontinued operation, net...... 2,525 306 (19,178)
Change in operating assets and liabilities, net of
effects of acquisitions:
Receivables....................................... 165 2,575 (1,167)
Inventories....................................... (5,322) 23,347 (5,158)
Prepaid expenses.................................. (2,199) 4,361 3,426
Accounts payable.................................. 5,230 (27,764) (1,534)
Interest payable.................................. 3,654 54 (692)
Accrued income taxes.............................. 494 -- (704)
Accrued compensation.............................. (548) (2,664) 1,644
Accrued pension................................... (378) (1,879) 118
Accrued liabilities............................... 4,799 (1,995) 150
Other............................................. (4,786) (3,397) (8,218)
--------- --------- ---------
Net cash provided by continuing operations.................. 99,312 122,889 90,164
Net cash provided by discontinued operation................. 2,720 482 18,807
--------- --------- ---------
Net cash provided by operating activities................... 102,032 123,371 108,971
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures...................................... (14,427) (25,374) (56,545)
Buyout of cogeneration operating lease.................... (103,303) -- --
Proceeds from the sale of assets.......................... -- -- 16,477
Acquisitions, net of cash acquired........................ (263,000) (99,902) --
--------- --------- ---------
Net cash used in investing activities....................... (380,730) (125,276) (40,068)
--------- --------- ---------
Cash flows from financing activities:
Long-term debt proceeds................................... 736,921 207,485 187,440
Long-term debt payments................................... (449,550) (141,550) (190,000)
Proceeds from issuance of common stock.................... 4,414 4,497 4,598
Repurchase and retirement of common stock................. -- (58,880) (59,307)
Dividends................................................. (9,907) (10,024) (10,711)
--------- --------- ---------
Net cash provided by (used in) financing activities......... 281,878 1,528 (67,980)
--------- --------- ---------
Net change in cash and cash equivalents..................... 3,180 (377) 923
Cash and cash equivalents at beginning of year.............. 1,244 1,621 698
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 4,424 $ 1,244 $ 1,621
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<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. All significant
intercompany balances and transactions are eliminated in consolidation.
NATURE OF OPERATIONS -- We are a manufacturer and international marketer of
chemical products. Our 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 coatings for wire and
cable.
USE OF ESTIMATES -- Management 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 -- Marketable securities that are highly liquid
with an original maturity of three months or less are considered 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 1999, 1998 and 1997 was
$948,000, $667,000 and $2,802,000, 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>
Buildings and land improvements............................. 20--30 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 3). The goodwill
is being amortized over a 35-year period. Goodwill amortized to cost of sales
during 1999 and 1998 was $2,478,000 and $1,571,000, respectively.
OTHER ASSETS -- Other assets primarily consist of deposits for long-term raw
material purchase contracts and debt issuance costs (see Note 9). Deposits are
being amortized as additional raw material cost over the remaining 15-year life
of the related contracts in proportion to raw material delivery. Debt issuance
costs are being amortized to interest expense using the effective interest rate
method over the term of the related indebtedness.
LONG-LIVED ASSETS -- We evaluate long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is probable that undiscounted future cash flows
will not be sufficient to recover an asset's carrying amount, the asset will be
written down to its fair value.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS -- We do not use derivatives for trading purposes.
Interest rate swap and cap agreements, forms of derivatives, are used to manage
interest costs on certain portions of our long-term debt (see Note 17). These
financial statements do not reflect temporary market gains and losses on
derivative financial instruments, although the estimated fair value is disclosed
in Note 17. 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, 1999 and 1998, interest rate swap agreements were the only form of
derivative financial instrument outstanding.
ENVIRONMENTAL EXPENDITURES -- Environmental expenditures related to current
operations or future revenues are expensed or capitalized consistent with our
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 are computed based on the
weighted average number of common shares outstanding during the respective
periods. Diluted earnings per share are computed based on the weighted average
number of common shares outstanding, adjusted for dilutive potential issuances
of common stock. A reconciliation of the number of shares used for computing
basic and diluted earnings per share is presented in Note 18.
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 12 as if the fair value method had been applied.
2. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, we 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. We had no comprehensive income amounts for the periods
presented. As a result, the adoption had no impact on our reporting under
generally accepted accounting principles.
During June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value and that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows derivative
gains and losses to offset related results on the hedged item in the income
statement and requires that a company formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. In June 1999,
the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133
for fiscal quarters of all fiscal years beginning after June 15, 2000, although
earlier adoption is permitted. SFAS No. 133 cannot be applied retroactively. We
have not yet quantified the impact of adopting SFAS No. 133 on our financial
statements.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
3. ACQUISITIONS
The Vinyls Business of CONDEA Vista Company -- On November 12, 1999, we
completed the acquisition of the assets of the vinyls business of CONDEA Vista
Company. The purchase included substantially all of the assets and net working
capital of the vinyls business as of the date of acquisition. The acquisition
was accounted for as a purchase, and the results of the vinyls business's
operations have been included in our consolidated financial statements from the
date of acquisition. The purchase price, including related fees and expenses,
consisted of $263,000,000 of cash and the issuance of a $10,000,000 two-year,
noninterest-bearing note payable to CONDEA Vista Company. The note was recorded
at its net present value of $7,750,000 at the date of acquisition. The purchase
price is subject to an adjustment for actual working capital acquired. We have
recorded a payable to CONDEA Vista Company of approximately $18,619,000
representing a preliminary estimate of the adjustment for working capital. This
payable is included in accounts payable on the accompanying balance sheet as of
December 31, 1999. The purchase price approximated the fair market value of the
net assets acquired.
The following unaudited pro forma combined information presents the combined
results of operations as if the acquisition had occurred at the beginning of
fiscal 1999 and 1998. The unaudited pro forma combined information is based upon
the historical consolidated financial statements of Georgia Gulf and the vinyls
business. Pro forma results include interest expense on debt incurred to finance
the acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1999 1998
- ----------------------------------- ---------- ----------
<S> <C> <C>
Statement of income data:
Net sales.......................................... $1,224,167 $1,166,960
Income from continuing operations.................. 31,376 10,569
Earnings per share from continuing operations:
Basic............................................ 1.01 0.34
Diluted.......................................... 1.01 0.33
</TABLE>
In our opinion, the unaudited pro forma combined results of operations are
not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of fiscal 1999 or at the beginning
of fiscal 1998 or of future operations of the combined companies under our
ownership and management.
NORTH AMERICAN PLASTICS -- On May 11, 1998, we 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 of revenue in 1997. The
vinyl compounds produced by North American Plastics are used in wire and cable
for construction, automobiles and appliances as well as various other consumer
and industrial products.
We acquired the stock of North American Plastics in exchange for net cash
consideration of $99,902,000 plus our assumption of $500,000 in debt. The cash
portion of the acquisition was financed with proceeds from our previous
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
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
3. ACQUISITIONS (CONTINUED)
have been included in our 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.
4. DISCONTINUED OPERATION
On September 2, 1999, we announced our decision to exit the methanol
business at the end of 1999. In connection with the discontinuance of the
methanol business, we incurred a one-time charge of $7,631,000, net of income
tax benefits, related to the write-off of the methanol plant assets, net of
expected proceeds, and an accrual for estimated losses during the phase-out
period. The methanol plant remains idle and we intend to dismantle the facility
at some time in the future. A number of methanol sales contracts have been
assigned, and our methanol customer list has been sold. Proceeds from actual and
future sales of the methanol railcars, customer list and other discontinued
plant assets are estimated to be $2,900,000. The disposition of the methanol
operations represents the disposal of a business segment under Accounting
Principles Board ("APB") Opinion No. 30. Accordingly, results of this operation
have been classified as discontinued, and prior periods have been restated,
including the reallocation of fixed overhead charges to other business segments.
For business segment reporting purposes, the methanol business results were
previously classified as the segment "Gas Chemicals."
Net sales and income from the discontinued operation are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 1999 1998 1997
- ------------ -------- -------- --------
<S> <C> <C> <C>
Net sales...................................... $ 26,181 $49,726 $ 94,266
-------- ------- --------
Pretax (loss) income from discontinued
operation.................................... $ (3,976) $ (487) $ 30,932
Pretax loss on disposal of business segment.... (12,017) -- --
Income tax benefit (expense)................... 5,837 181 (11,754)
-------- ------- --------
Net (loss) income from discontinued
operation.................................... $(10,156) $ (306) $ 19,178
======== ======= ========
</TABLE>
Assets and liabilities of the discontinued operation were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
IN THOUSANDS 1999 1998
- ------------ -------- --------
<S> <C> <C>
Current assets............................................ $ 3,553 $ 4,536
Property, plant and equipment, net........................ -- 12,956
Current liabilities....................................... (3,110) (1,189)
Long-term liabilities..................................... -- (2,984)
------- -------
Net assets of discontinued operation...................... $ 443 $13,319
======= =======
</TABLE>
5. DISPOSITION OF ASSETS
In July 1997, we completed the sale of certain oil and gas properties
representing substantially all of the assets of Great River Oil & Gas
Corporation, one of our subsidiaries. Net proceeds from this sale were
$16,477,000, on which we recorded a pretax gain of $8,600,000 ($5,300,000 net of
income taxes). The operating results for this subsidiary were not material to
our financial statements.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
6. RECEIVABLES
We entered into an agreement pursuant to which we sold a percentage
ownership interest in a defined pool of our trade receivables. As collections
reduce accounts receivable included in the pool, we sell participating interests
in new receivables to bring the amount sold up to the $50,000,000 permitted by
the agreement. The receivables are sold at a discount, which approximates the
purchaser's financing cost of issuing its own commercial paper backed by these
accounts receivable. The ongoing costs of this program of $2,793,000, $2,807,000
and $3,045,000 for 1999, 1998 and 1997, respectively, were charged to selling
and administrative expense in the accompanying consolidated statements of
income.
7. INVENTORIES
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
IN THOUSANDS 1999 1998
- ------------ -------- --------
<S> <C> <C>
Raw materials and supplies.................................. $ 48,868 $26,462
Finished goods.............................................. 63,976 42,877
-------- -------
Inventories................................................. $112,844 $69,339
======== =======
</TABLE>
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
IN THOUSANDS 1999 1998
- ------------ -------- --------
<S> <C> <C>
Machinery and equipment..................................... $905,470 $583,561
Land and land improvements.................................. 27,646 23,760
Buildings................................................... 32,172 23,937
Construction in progress.................................... 20,537 25,269
-------- --------
Property, plant and equipment, at cost...................... $985,825 $656,527
======== ========
</TABLE>
9. OTHER ASSETS
Other assets, net of accumulated amortization, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
IN THOUSANDS 1999 1998
- ------------ -------- --------
<S> <C> <C>
Deposits for long-term purchase contracts................... $25,302 $23,635
Debt issuance costs......................................... 18,536 2,613
Other....................................................... 6,245 3,378
------- -------
Other assets................................................ $50,083 $29,626
======= =======
</TABLE>
Debt issuance costs amortized as interest expense during 1999, 1998 and 1997
were $675,000, $527,000 and $448,000, respectively.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GEORGIA GULF CORPORATION
10. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
IN THOUSANDS 1999 1998
- ------------ -------- --------
<S> <C> <C>
Senior credit facility
Tranche A term loan................................... $225,000 $ --
Tranche B term loan................................... 200,000 --
Revolving facility.................................... 13,000 --
7 5/8% notes due 2005................................... 100,000 100,000
10 3/8% notes due 2007.................................. 200,000 --
Revolving credit facility............................... -- 223,000
Term loan............................................... -- 100,000
Other................................................... 33,194 36,475
-------- --------
771,194 459,475
Less current portion.................................. 22,000 --
-------- --------
Long-term debt.......................................... $749,194 $459,475
======== ========
</TABLE>
On November 12, 1999, we entered into a new loan agreement (the "Senior
Credit Facility") and issued $200,000,000 of eight-year unsecured 10 3/8 percent
notes. The Senior Credit Facility includes a tranche A term loan of
$225,000,000, a tranche B term loan of $200,000,000 and a revolving credit
facility of up to $100,000,000. The net proceeds from these transactions were
used to fund the acquisition of the vinyls business (see Note 3), replace the
prior unsecured revolving credit facility and term loan, purchase assets leased
pursuant to the cogeneration facility lease (see Note 15) and pay related fees
and expenses of approximately $16,598,000.
Under the Senior Credit Facility, the tranche A term loan and the revolving
credit facility mature November 12, 2005. The tranche B term loan matures
November 12, 2006. As of December 31, 1999, $87,000,000 was available for
borrowing under the terms of the Senior Credit Facility. An annual commitment
fee, which ranges from 0.375 percent to 0.5 percent (currently 0.5 percent), is
required to be paid on the undrawn portion of the commitments under the Senior
Credit Facility. For any of the loans under the Senior Credit Facility, we may
choose to pay interest based on the prime rate of The Chase Manhattan Bank plus
the applicable pricing margin or LIBOR plus the applicable pricing margin. For
1999, the average interest rate for the tranche A term loan was 8.64 percent,
for the tranche B term loan was 8.64 percent and for the revolving credit
facility was 10.23 percent. The Senior Credit Facility is secured by
substantially all of our assets, including real and personal property,
inventory, accounts receivable and intangibles.
We have $100,000,000 principal amount of 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. In accordance with the indenture relating to the 7 5/8 percent notes,
at the closing of the Senior Credit Facility, the 7 5/8 percent notes became
secured equally and ratably with the Senior Credit Facility. The 7 5/8 percent
notes are secured by substantially all of our assets, including real and
personal property, inventory, accounts receivable and intangibles.
In November 1999, we issued $200,000,000 of unsecured 10 3/8 percent notes
which are due November 2007. Interest on the notes is payable on May 1 and
November 1 of each year, commencing
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
10. LONG-TERM DEBT (CONTINUED)
May 1, 2000. Prior to November 1, 2002, we may on any one or more occasions
redeem up to 35 percent of the original principal amount of the notes with the
net cash proceeds of one or more equity offerings at a redemption price of
110.375 percent of the principal amount of the notes. On or after November 1,
2003, we may redeem the notes in whole or part, initially at 105.188 percent of
their principal amount, and thereafter at prices declining annually to 100
percent on or after November 1, 2006.
On November 12, 1999, we terminated our prior unsecured revolving credit
facility and term loan. The interest rate on the revolving credit facility was
based on LIBOR and averaged 5.51 percent and 5.97 percent for 1999 and 1998,
respectively. The average interest rate for the term loan agreement was 7.04
percent and 6.99 percent for 1999 and 1998, respectively. The LIBOR-based
variable interest rate on the term loan was fixed at a rate ranging from 6.71
percent to 7.04 percent using interest rate swap agreements.
Under the Senior Credit Facility and the indentures related to the 7 5/8
percent notes and 10 3/8 percent notes, we are subject to certain restrictive
covenants, the most significant of which require us to maintain certain
financial ratios and limit our ability to pay dividends, make investments, grant
liens, sell our assets and engage in certain other activities. Our limit for
dividends and repurchases of common stock was $25,000,000 as of December 31,
1999.
Scheduled maturities of long-term debt outstanding at December 31, 1999 are
$22,000,000 in 2000, $22,000,000 in 2001, $49,750,000 in 2002, $47,000,000 in
2003, $52,000,000 in 2004 and $578,444,000 thereafter.
Cash payments for interest during 1999, 1998 and 1997, excluding debt
issuance costs, were $31,133,000, $30,398,000 and $27,739,000, respectively.
11. STOCKHOLDERS' EQUITY
During 1998, we repurchased 2,296,100 shares of our common stock for
$58,880,000. During 1999, we did not repurchase any shares of our common stock;
however, as of December 31, 1999, we had authorization to repurchase up to
5,225,600 additional shares under a common stock repurchase program, subject to
certain restrictions as described in Note 10.
Each outstanding share of common stock is accompanied by a preferred stock
purchase right, which entitles the holder to purchase from us 1/100th of a share
of Junior Participating Preferred Stock for $45.00, subject to adjustment in
certain circumstances. The rights expire on April 27, 2000 and may be redeemed
by us 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 our
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 that would
result in such person or group beneficially owning 15 percent or more of our
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 our 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 we are involved
in a merger or certain other business combination transactions,
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
11. STOCKHOLDERS' EQUITY (CONTINUED)
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.
12. STOCK OPTION AND PURCHASE PLANS
Options to purchase our common stock have been granted to employees under
plans adopted in 1990 and 1998. Under the 1998 Equity and Performance Incentive
Plan approved by our stockholders, we may grant options to purchase up to
2,000,000 shares to employees and nonemployee directors. Option prices are equal
to the closing price of our stock on the date of grant. Options vest 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.
A summary of stock option activity under all plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE(1) SHARES PRICE(1) SHARES PRICE(1)
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........... 952,386 $24.75 768,116 $16.13 956,561 $14.54
Granted.................................... 963,000 22.69 440,000 35.19 -- --
Exercised.................................. (188,655) 7.93 (169,830) 8.49 (185,045) 7.77
Forfeited/Expired.......................... (29,000) 25.00 (85,900) 32.91 (3,400) 11.83
--------- ------ --------- ------ --------- ------
Outstanding at year end.................... 1,697,731 $25.46 952,386 $24.75 768,116 $16.13
========= ====== ========= ====== ========= ======
Exercisable at year end.................... 500,900 $25.62 519,386 $16.01 684,116 $13.61
Options available for grant................ 730,827 1,664,827 18,927
</TABLE>
- ------------------------
(1)Weighted average
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
12. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The following table summarizes information about stock options at
December 31, 1999:
<TABLE>
<CAPTION>
EXERCISABLE STOCK
OUTSTANDING STOCK OPTIONS OPTIONS
------------------------------------------ -------------------
EXERCISE REMAINING EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE(1) CONTRACTUAL LIFE(1) SHARES PRICE(1)
------------------------ --------- -------- ------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 7.75 TO $15.00 165,901 $ 7.75 0.50 YEARS 165,901 $ 7.75
$15.01 TO $25.00 471,330 15.53 8.66 YEARS 26,330 17.04
$25.01 TO $35.00 501,500 29.31 9.96 YEARS -- --
$35.00 TO $36.50 559,000 35.64 7.04 YEARS 308,669 35.96
------------------ --------- ------ ---------- ------- ------
TOTAL................ $ 7.75 TO $36.50 1,697,731 $25.46 7.71 YEARS 500,900 $25.62
========= ====== ========== ======= ======
</TABLE>
- ------------------------
(1)Weighted average
Our stockholders have approved a qualified, noncompensatory 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, 60,090 shares of common stock are reserved for future
issuances. Under this plan, 218,453, 228,585 and 140,694 shares of common stock
were issued at $13.36, $13.36 and $22.47 per share during 1999, 1998 and 1997,
respectively.
We account for our stock-based compensation plans in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and comply with SFAS
No. 123, "Accounting for Stock-Based Compensation," for disclosure purposes.
Under these provisions, no compensation was recognized in 1999, 1998 and 1997
for our stock option plans or our stock purchase plan.
For SFAS No. 123 purposes, the fair value of each stock option and stock
purchase right for 1999, 1998 and 1997 has been estimated as of the date of the
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for 1999, 1998 and 1997, respectively: risk-free interest
rates of 5.30 percent, 5.44 percent and 5.66 percent; dividend yields of 1.56
percent, 1.00 percent and 1.20 percent; and expected volatilities of 0.46, 0.32
and 0.23. The expected life of a right and option was assumed to be one year and
three years, respectively, for all years. The weighted average fair value of
options granted was $7.64 and $9.29 for the years ended December 31, 1999 and
1998, respectively. Using these assumptions, the amount of compensation expense
under the fair value method related to the stock option grants in 1999 and 1998
would have been $1,861,000 and $1,056,000 for 1999 and 1998, respectively. There
were no grants in 1997. Also using these assumptions, the compensation expense
under the fair value method for the stock purchase plan rights for 1999, 1998
and 1997 would have been $1,140,000, $1,224,000 and $977,000, respectively. Had
compensation expense been determined consistently with SFAS No. 123, utilizing
the assumptions previously detailed,
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
12. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
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 1999 1998 1997
- ----------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net income
As reported.................................... $33,005 $56,279 $81,201
Pro forma...................................... 31,124 54,848 80,594
Basic earnings per share
As reported.................................... $ 1.07 $ 1.79 $ 2.41
Pro forma...................................... 1.01 1.74 2.40
Diluted earnings per share
As reported.................................... $ 1.06 $ 1.77 $ 2.39
Pro forma...................................... 1.00 1.73 2.37
</TABLE>
13. EMPLOYEE BENEFIT PLANS
We have certain pension, savings and profit-sharing plans that cover
substantially all of our employees. The expense incurred for these plans was
approximately $3,343,000, $2,434,000 and $3,798,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Most employees are covered by defined contribution plans under which we make
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.
Our 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, we restructured several of our 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 for 1999 and 1998 was $130,000 and
$693,000, respectively, which represented the cost of the insurance contracts,
net of the increase in the cash surrender value of the contracts.
In 1998, we 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 of the defined benefit plans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate........................................ 7.75% 7.00% 7.25%
Expected return on plan assets....................... 9.00% 9.00% 9.00%
Rate of compensation increase........................ 5.50% 5.50% 5.50%
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The amount of net periodic benefit cost recognized includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 1999 1998 1997
- ------------ -------- -------- --------
<S> <C> <C> <C>
Components of periodic benefit cost:
Service cost..................................... $2,297 $ 1,946 $1,765
Interest cost.................................... 3,216 3,156 2,867
Expected return on assets........................ (5,512) (4,808) (4,034)
Amortization of:
Transition obligation.......................... 343 343 343
Prior service cost............................. 95 103 103
Actuarial gain................................ (807) (634) (478)
------ ------- ------
(368) 106 566
Settlement benefit................................. -- (1,520) --
------ ------- ------
Total net periodic benefit (income) cost........... $ (368) $(1,414) $ 566
====== ======= ======
</TABLE>
The reconciliations of the beginning and ending balances of the benefit
obligation for our defined benefit plans and the fair value of plan assets were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
IN THOUSANDS 1999 1998
- ------------ -------- --------
<S> <C> <C>
Change in benefit obligation:
Net benefit obligation at beginning of year............. $45,085 $42,590
Service cost............................................ 2,297 1,946
Interest cost........................................... 3,216 3,156
Actuarial (gain) loss................................... (6,474) 721
Settlements............................................. -- (2,410)
Gross benefits paid..................................... (1,099) (918)
------- -------
Net benefit obligation at end of year..................... $43,025 $45,085
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year.......... $61,636 $53,705
Actual return on plan assets............................ 7,589 8,567
Employer contributions.................................. 279 282
Gross benefits paid..................................... (1,099) (918)
------- -------
Fair value of plan assets at end of year.................. $68,405 $61,636
======= =======
</TABLE>
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of our defined benefit plans and the amounts recognized in
the statement of financial position were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
IN THOUSANDS 1999 1998
- ------------ -------- --------
<S> <C> <C>
Reconciliation of funded status:
Funded status at end of year.......................... $ 25,380 $ 16,551
Unrecognized net actuarial gain....................... (26,898) (18,847)
Unrecognized prior service cost....................... 476 264
Unrecognized net transition obligation................ 1,884 2,227
-------- --------
Net amount recognized at end of year.................... $ 842 $ 195
======== ========
Amounts recognized in the statement of financial
position:
Prepaid benefit cost.................................. $ 5,575 $ 4,702
Accrued benefit cost.................................. (4,733) (4,507)
Additional minimum liability.......................... (310) (574)
Intangible asset...................................... 310 574
-------- --------
Net amount recognized at end of year.................... $ 842 $ 195
======== ========
</TABLE>
14. INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 1999 1998 1997
- ------------ -------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................ $18,472 $ 6,046 $24,015
State.......................................... 1,732 (696) 2,492
------- ------- -------
20,204 5,350 26,507
------- ------- -------
Deferred:
Federal........................................ 3,957 24,651 9,825
State.......................................... 647 3,586 1,481
------- ------- -------
4,604 28,237 11,306
------- ------- -------
Provision for income taxes....................... $24,808 $33,587 $37,813
======= ======= =======
</TABLE>
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
14. INCOME TAXES (CONTINUED)
The difference between the statutory federal income tax rate and our
effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate.................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit........... 2.3 2.1 2.5
Other................................................ (0.8) 0.1 0.4
---- ---- ----
Effective income tax rate............................ 36.5% 37.2% 37.9%
</TABLE>
Cash payments for income taxes during 1999, 1998 and 1997 were $6,474,000,
$11,004,000 and $38,124,000, respectively.
Our net deferred tax liability consisted of the following major items:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
IN THOUSANDS 1999 1998
- ------------ -------- --------
<S> <C> <C>
Deferred tax assets:
Receivables........................................... $ 646 $ 710
Inventories........................................... 1,504 1,316
Vacation.............................................. 2,000 1,403
Other................................................. 2,022 3,063
-------- --------
Total deferred tax assets........................... $ 6,172 $ 6,492
Deferred tax liability:
Property, plant and equipment......................... (93,949) (86,363)
Other................................................. -- (3,302)
-------- --------
Net deferred tax liability.............................. $(87,777) $(83,173)
======== ========
</TABLE>
We believe, based on our history of operating expenses and expectations for
the future, that future taxable income will be sufficient to fully utilize the
deferred tax assets at December 31, 1999.
15. COMMITMENTS AND CONTINGENCIES
LEASES -- We lease railcars, storage terminals, computer equipment,
automobiles and warehouse and office space under noncancelable operating leases
with varying maturities through the year 2014. Future minimum payments under
these noncancelable operating leases as of December 31, 1999 were $19,959,000
for 2000, $14,754,000 for 2001, $12,481,000 for 2002, $9,026,000 for 2003,
$5,838,000 for 2004 and $30,477,000 thereafter. Total lease expense was
approximately $22,892,000, $25,734,000 and $16,414,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
On November 12, 1999, we exercised our option to purchase the 250-megawatt
cogeneration facility located at our Plaquemine, Louisiana complex for a net
cash purchase price of approximately $103,303,000. The cogeneration facility was
previously leased under an operating lease. Lease expense relating to the
cogeneration facility was approximately $9,904,000, $11,309,000 and $2,857,000
for 1999, 1998 and 1997, respectively.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PURCHASE COMMITMENTS -- We have 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, 1999 was $7,143,000 for each of the years 2000
through 2007 and $4,648,000 for the year 2008.
LEGAL PROCEEDINGS -- Georgia Gulf is a party to numerous individual and
several class-action lawsuits filed against it, among other parties, arising out
of an incident that occurred in September 1996 in which workers were exposed to
a chemical substance on our 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 our ordinary operations but instead occurred as a result
of an unforeseen chemical reaction. All of the actions claim one or more forms
of compensable damages, including past and future wages and past and future
physical and emotional pain and suffering. The lawsuits were originally filed in
Louisiana State Court in Iberville Parish.
Discovery has been occurring in these cases. We continue to develop
information relating to the extent of damages suffered as well as evaluate 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 our general liability insurance policies. In December 1998, as required by
the terms of the insurance policies, the insurers demanded arbitration to
determine whether coverage is required for the alleged intentional conduct in
addition to the coverage applicable to the other allegations of the case. The
date for the arbitration has not yet been established.
As a result of the arbitration relating to the insurance issue, as permitted
by federal statute, the insurers removed the cases to United States District
Court in December 1998. By order entered March 2, 1999, the federal court
refused the plaintiff's request to send the cases back to state court and
retained federal jurisdiction.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
We have settled the claims of all but 18 worker plaintiffs (and their
collaterals) who had filed suit prior to removal. These settlements included the
vast majority of those claimants believed to be the most seriously injured. The
settled cases are in the final processes of being dismissed with prejudice.
Negotiations regarding the remaining claims of the 18 worker plaintiffs are
ongoing.
Following these settlements, Georgia Gulf has been sued by approximately 300
additional plaintiff workers (and their collaterals) who claim that they were
injured as a result of the incident. Georgia Gulf believes that most, if not
all, of these new plaintiffs have no valid basis to claim exposure and have
filed suit only as a result of their knowledge of the previous settlements. We
believe we have significant defenses to these new claims, including that most of
the new plaintiffs were statutory employees who are barred from bringing tort
claims against us, the claims are proscribed by the applicable statute of
limitations and the plaintiffs have no injuries causally related to their
claimed exposure. We intend to vigorously defend against these new claims.
Notwithstanding the foregoing, we are asserting and pursuing defenses to the
claims. Based on the present status of the proceedings, we believe the liability
ultimately imposed on us will not have a material effect on our financial
position or on our results of operations.
In addition, we are subject to other claims and legal actions that may arise
in the ordinary course of business. We believe that the ultimate liability, if
any, with respect to these other claims and legal actions will not have a
material effect on our financial position or on our results of operations.
16. EXPORT SALES
Export sales were approximately 14 percent, 18 percent and 17 percent of our
net sales for the years ended December 31, 1999, 1998 and 1997, respectively.
The principal international markets we serve include Canada, Mexico, Latin
America, Europe and Asia.
17. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
We 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 a 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
5.26 percent and 5.68 percent for 1999 and 1998, respectively. We 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. This interest
rate swap agreement became effective in August 1997 and will mature in
August 2002 with a fixed interest rate to be paid of 5.88 percent. The floating
interest rate received averaged 5.66 percent and 5.62 percent for 1999 and 1998,
respectively. In connection with the refinancing of the term loan and the buyout
of the cogeneration operating lease agreement, we have redesignated all of our
interest rate swaps as hedges against our Senior Credit Facility floating rate
debt.
In June 1998, we 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, we entered into an agreement to lock in interest rates on a portion
of the long-term bonds. During the third quarter of 1998 our 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.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
17. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
Following is a summary of financial instruments where the fair values differ
from the recorded amounts as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
IN THOUSANDS AMOUNT VALUE AMOUNT VALUE
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Long-term debt:
7 5/8% notes due 2005............. $100,000 $ 93,000 $100,000 $ 99,700
10 3/8% notes due 2007............ 200,000 208,750 -- --
Interest rate swap agreements in
receivable (payable) position..... -- 3,045 -- (6,412)
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
DEBT -- The fair values of the 7 5/8 percent notes and the 10 3/8 percent
notes were based on quoted market prices. The carrying amounts of the Senior
Credit Facility, 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.
18. EARNINGS PER SHARE
There are no adjustments to "Net income" or "Income from continuing
operations" for the diluted earnings per share computations.
The following table reconciles the denominator for the basic and diluted
earnings per share computations shown on the consolidated statements of income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 1999 1998 1997
- ------------ -------- -------- --------
<S> <C> <C> <C>
Weighted average common shares...................... 30,947 31,474 33,629
Plus incremental shares from assumed conversions:
Options......................................... 109 217 289
Employee stock purchase plan rights............. 51 96 29
------ ------ ------
Weighted average common shares and equivalents...... 31,107 31,787 33,947
====== ====== ======
</TABLE>
19. 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,
we have identified two reportable segments through which we conduct our
operating activities: chlorovinyls and aromatics. These two segments reflect the
organization used
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
19. SEGMENT INFORMATION (CONTINUED)
by our 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. A third product segment, gas chemicals, which included methanol and,
prior to July 1997, our oil and gas exploration activities, was discontinued in
the third quarter of 1999. See Note 5 for a description of the disposition of
our oil and gas operations and Note 4 for a description of the discontinuance of
our methanol operation.
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 our
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. We
have no significant assets located outside of the United States.
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, 1999:
NET SALES.............................. $633,549 $224,225 $ -- $ -- $ 857,774
OPERATING INCOME (LOSS)................ 98,750 15,238 -- (11,182)(1) 102,806
DEPRECIATION AND AMORTIZATION.......... 31,854 13,864 -- 3,880 49,598
CAPITAL EXPENDITURES................... 10,281 735 -- 3,411 14,427
TOTAL ASSETS........................... 867,487 140,681 443 89,397 1,098,008
Year Ended December 31, 1998:
Net Sales.............................. $515,411 $309,881 $ -- $ -- $ 825,292
Operating income (loss)................ 73,737 71,377 -- (14,624)(1) 130,490
Depreciation and amortization.......... 26,488 13,724 -- 3,811 44,023
Capital expenditures................... 18,694 3,312 -- 3,368 25,374
Total Assets........................... 429,757 144,154 13,319 78,358 665,588
Year Ended December 31, 1997:
Net Sales.............................. $492,651 $373,698 $ 5,035 $ -- $ 871,384
Operating income (loss)................ 65,711 69,055 (499) (18,398)(1) 115,869
Depreciation and amortization.......... 21,544 10,751 835 3,188 36,318
Capital expenditures................... 23,282 20,431 2,813 10,019 56,545
</TABLE>
- ------------------------
(1) Includes shared services, administrative and legal expense, along with the
cost of our receivables program.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
19. SEGMENT INFORMATION (CONTINUED)
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
IN THOUSANDS 1999 1998 1997
- ------------ -------- -------- --------
<S> <C> <C> <C>
Net sales:
Domestic.................................... $735,125 $678,245 $726,426
Foreign..................................... 122,649 147,047 144,958
-------- -------- --------
Total......................................... $857,774 $825,292 $871,384
======== ======== ========
</TABLE>
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain quarterly financial data for the
periods indicated:
<TABLE>
<CAPTION>
IN THOUSANDS, FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1999
NET SALES...................................... $179,264 $180,714 $213,277 $284,521
GROSS MARGIN................................... 23,573 24,584 37,975 57,520
OPERATING INCOME............................... 13,280 14,958 28,687 45,881
EARNINGS FROM CONTINUING OPERATIONS............ 3,782 4,827 13,747 20,805
NET LOSS FROM DISCONTINUED OPERATION........... (1,248) (757) (520) --
NET LOSS ON DISPOSAL OF DISCONTINUED
OPERATION.................................... -- -- (7,631) --
NET INCOME..................................... 2,534 4,070 5,596 20,805
BASIC EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS........................ 0.12 0.15 0.44 0.67
DISCONTINUED OPERATION....................... (0.04) (0.02) (0.26) --
-------- -------- -------- --------
TOTAL...................................... 0.08 0.13 0.18 0.67
DILUTED EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS........................ 0.12 0.15 0.44 0.66
DISCONTINUED OPERATION....................... (0.04) (0.02) (0.26) --
-------- -------- -------- --------
TOTAL...................................... 0.08 0.13 0.18 0.66
DIVIDENDS PER COMMON SHARE..................... 0.08 0.08 0.08 0.08
1998
Net sales...................................... $215,386 $214,810 $208,517 $186,579
Gross margin................................... 41,233 47,146 46,636 37,930
Operating income............................... 30,545 36,740 34,672 28,535
Earnings from continuing operations............ 14,596 18,172 10,840(1) 12,976(2)
Net earnings (loss) from discontinued
operation.................................... 2,360 (1,666) (665) (334)
Net income..................................... 16,956 16,506 10,175 12,642
Basic earnings (loss) per share
Continuing operations........................ 0.45 0.57 0.35 0.42
Discontinued operation....................... 0.07 (0.05) (0.02) (0.01)
-------- -------- -------- --------
Total...................................... 0.52 0.52 0.33 0.41
Diluted earnings (loss) per share
Continuing operations........................ 0.45 0.57 0.35 0.42
Discontinued operation....................... 0.07 (0.05) (0.02) (0.01)
-------- -------- -------- --------
Total...................................... 0.52 0.52 0.33 0.41
Dividends per common share..................... 0.08 0.08 0.08 0.08
</TABLE>
- ------------------------
(1) Includes a loss on an interest rate hedge agreement, which resulted in a
decrease to earnings from continuing operations 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.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEORGIA GULF CORPORATION
21. SUPPLEMENTAL GUARANTOR INFORMATION
Our payment obligations under our 10 3/8% senior subordinated notes are
guaranteed by GG Terminal Management Corporation, Great River Oil & Gas
Corporation, North American Plastics, LLC, Georgia Gulf Lake Charles, LLC and
Georgia Gulf Chemicals & Vinyls, LLC, some of our wholly owned subsidiaries (the
Guarantor Subsidiaries). The guarantees are full, unconditional and joint and
several. The following condensed consolidating balance sheets, statements of
income and statements of cash flows present the combined financial statements of
the parent company, Guarantor Subsidiaries and our remaining subsidiaries (the
"Non-guarantor Subsidiaries"). Separate financial statements of the Guarantor
Subsidiaries are not presented because we have determined that they would not be
material to investors.
In connection with the acquisition of the vinyls business from CONDEA Vista
Company on November 12, 1999, we essentially became a holding company by
transferring our operating assets and employees to our wholly owned subsidiary,
Georgia Gulf Chemicals & Vinyls, LLC Provisions in our senior credit facility
limit payment of dividends, distributions, loans and advances to us by our
subsidiaries.
54
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- -------------------------------------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $ 4,151 $ 252 $ 21 $ -- $ 4,424
Receviables........................... 70,008 239,225 125,453 (270,310) 164,376
Inventories........................... -- 112,844 -- -- 112,844
Prepaid expenses...................... -- 4,786 654 -- 5,440
Deferred income taxes................. -- 6,172 -- -- 6,172
-------- ---------- -------- --------- ----------
Total current assets................ 74,159 363,279 126,128 (270,310) 293,256
-------- ---------- -------- --------- ----------
Plant, property and equipment, at
cost................................ -- 985,825 -- -- 985,825
Less accumulated depreciation....... -- 314,275 -- -- 314,275
-------- ---------- -------- --------- ----------
Plant, property and equipment,
net............................. -- 671,550 -- -- 671,550
-------- ---------- -------- --------- ----------
Goodwill.............................. -- 82,676 -- -- 82,676
-------- ---------- -------- --------- ----------
Other assets.......................... 7,906 42,128 49 -- 50,083
-------- ---------- -------- --------- ----------
Investment in subsidiaries............ 513,000 55,588 -- (568,588) --
-------- ---------- -------- --------- ----------
Net assets of discontinued
operation........................... -- 443 -- -- 443
-------- ---------- -------- --------- ----------
Total Assets.......................... $595,065 $1,215,664 $126,177 $(838,898) $1,098,008
======== ========== ======== ========= ==========
Current portion of long-term debt..... $ -- $ 22,000 $ -- $ -- $ 22,000
Accounts payable...................... 200,302 149,019 64,887 (270,310) 143,898
Interest payable...................... 4,336 1,590 -- -- 5,926
Accrued compensation.................. -- 7,682 -- -- 7,682
Other accrued liabilities............. -- 14,046 4,080 -- 18,126
-------- ---------- -------- --------- ----------
Total current liabilities........... 204,638 194,337 68,967 (270,310) 197,632
-------- ---------- -------- --------- ----------
Long-term debt........................ 333,194 416,000 -- -- 749,194
-------- ---------- -------- --------- ----------
Deferred income taxes................. -- 93,949 -- -- 93,949
-------- ---------- -------- --------- ----------
Common stock.......................... 313 6 20 (26) 313
Additional paid-in capital............ 5,250 467,322 55,587 (522,909) 5,250
Retained earnings..................... 51,670 44,050 1,603 (45,653) 51,670
-------- ---------- -------- --------- ----------
Total stockholders' equity.......... 57,233 511,378 57,210 (568,588) 57,233
-------- ---------- -------- --------- ----------
Total liabilities and stockholders'
equity.............................. $595,065 $1,215,664 $126,177 $(838,898) $1,098,008
======== ========== ======== ========= ==========
</TABLE>
55
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- --------------------------------------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.............. $ 788 $ 428 $ 28 $ -- $ 1,244
Receviables............................ 25,791 28,859 60,477 (45,133) 69,994
Inventories............................ 64,323 5,016 -- -- 69,339
Prepaid expenses....................... 1,738 5 484 -- 2,227
Deferred income taxes.................. 6,492 -- -- -- 6,492
-------- ------- ------- --------- --------
Total current assets................. 99,132 34,308 60,989 (45,133) 149,296
-------- ------- ------- --------- --------
Plant, property and equipment, at
cost................................. 646,448 10,079 -- -- 656,527
Less accumulated depreciation........ 268,058 276 -- -- 268,334
-------- ------- ------- --------- --------
Plant, property and equipment,
net.............................. 378,390 9,803 -- -- 388,193
-------- ------- ------- --------- --------
Goodwill............................... 85,154 -- -- -- 85,154
-------- ------- ------- --------- --------
Other assets........................... 29,629 (3) -- -- 29,626
-------- ------- ------- --------- --------
Investment in subsidiaries............. 89,175 -- -- (89,175) --
-------- ------- ------- --------- --------
Net assets of discontinued operation... 13,319 -- -- -- 13,319
-------- ------- ------- --------- --------
Total Assets........................... $694,799 $44,108 $60,989 $(134,308) $665,588
======== ======= ======= ========= ========
Accounts payable....................... $106,666 $ 3,713 $ 24 $ (45,133) $ 65,270
Interest payable....................... 2,272 -- -- -- 2,272
Accrued compensation................... 6,089 725 -- -- 6,814
Accrued pension........................ 378 -- -- -- 378
Other accrued liabilities.............. 2,319 7,395 3,119 -- 12,833
-------- ------- ------- --------- --------
Total current liabilities............ 117,724 11,833 3,143 (45,133) 87,567
-------- ------- ------- --------- --------
Long-term debt......................... 458,975 500 -- -- 459,475
-------- ------- ------- --------- --------
Deferred income taxes.................. 89,219 446 -- -- 89,665
-------- ------- ------- --------- --------
Common stock........................... 309 7 20 (27) 309
Additional paid-in capital............. -- 20,155 55,587 (75,742) --
Retained earnings...................... 28,572 11,167 2,239 (13,406) 28,572
-------- ------- ------- --------- --------
Total stockholders' equity........... 28,881 31,329 57,846 (89,175) 28,881
-------- ------- ------- --------- --------
Total liabilities and stockholders'
equity............................... $694,799 $44,108 $60,989 $(134,308) $665,588
======== ======= ======= ========= ========
</TABLE>
56
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- --------------------------------------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $574,108 $287,569 $6,146 $(10,049) $857,774
Operating Costs and Expenses
Cost of sales........................ 496,020 224,206 -- (6,103) 714,123
Selling and administrative........... 30,809 10,843 3,139 (3,946) 40,845
-------- -------- ------ -------- --------
Total operating costs and expenses... 526,829 235,049 3,139 (10,049) 754,968
-------- -------- ------ -------- --------
Operating income....................... 47,279 52,520 3,007 -- 102,806
Other income (expense)
Interest expense, net................ (29,529) (5,308) -- -- (34,837)
Equity in income of subsidiaries..... 34,941 -- -- (34,941) --
-------- -------- ------ -------- --------
Income from continuing operations
before taxes......................... 52,691 47,212 3,007 (34,941) 67,969
Provision for income taxes............. 9,530 14,329 949 -- 24,808
-------- -------- ------ -------- --------
Income from continuing operations...... 43,161 32,883 2,058 (34,941) 43,161
Loss from discontinued operation,
net.................................. (2,525) -- -- -- (2,525)
Loss on disposal of discontinued
operation, net....................... (7,631) -- -- -- (7,631)
-------- -------- ------ -------- --------
Net income............................. $ 33,005 $ 32,883 $2,058 $(34,941) $ 33,005
======== ======== ====== ======== ========
</TABLE>
57
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- --------------------------------------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $768,651 $ 65,288 $6,353 $(15,000) $825,292
Operating Costs and Expenses
Cost of sales........................ 614,009 49,389 -- (11,051) 652,347
Selling and administrative........... 41,880 1,411 3,113 (3,949) 42,455
-------- -------- ------ -------- --------
Total operating costs and expenses... 655,889 50,800 3,113 (15,000) 694,802
-------- -------- ------ -------- --------
Operating income....................... 112,762 14,488 3,240 -- 130,490
Other income (expense)
Interest expense, net................ (30,818) -- -- -- (30,818)
Loss on interest rate hedge
agreement.......................... (9,500) -- -- -- (9,500)
Equity in income of subsidiaries..... 11,432 -- -- (11,432) --
-------- -------- ------ -------- --------
Income from continuing operations
before taxes......................... 83,876 14,488 3,240 (11,432) 90,172
Provision for income taxes............. 27,291 5,088 1,208 -- 33,587
-------- -------- ------ -------- --------
Income from continuing operations...... 56,585 9,400 2,032 (11,432) 56,585
Loss from discontinued operation,
net.................................. (306) -- -- -- (306)
-------- -------- ------ -------- --------
Net income............................. $ 56,279 $ 9,400 $2,032 $(11,432) $ 56,279
======== ======== ====== ======== ========
</TABLE>
58
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- --------------------------------------- -------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $866,249 $ 22,113 $8,779 $(25,757) $871,384
Operating Costs and Expenses
Cost of sales........................ 711,504 18,833 -- (20,223) 710,114
Selling and administrative........... 46,745 731 3,459 (5,534) 45,401
-------- -------- ------ -------- --------
Total operating costs and expenses... 758,249 19,564 3,459 (25,757) 755,515
-------- -------- ------ -------- --------
Operating income....................... 108,000 2,549 5,320 -- 115,869
Other income (expense)
Interest expense, net................ (24,633) -- -- -- (24,633)
Gain on sale of assets............... -- 8,600 -- -- 8,600
Equity in income of subsidiaries..... 10,662 -- -- (10,662) --
-------- -------- ------ -------- --------
Income from continuing operations
before taxes......................... 94,029 11,149 5,320 (10,662) 99,836
Provision for income taxes............. 32,006 3,791 2,016 -- 37,813
-------- -------- ------ -------- --------
Income from continuing operations...... 62,023 7,358 3,304 (10,662) 62,023
Earnings from discontinued operation,
net.................................. 19,178 -- -- -- 19,178
-------- -------- ------ -------- --------
Net income............................. $ 81,201 $ 7,358 $3,304 $(10,662) $ 81,201
======== ======== ====== ======== ========
</TABLE>
59
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ---------------------------------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income...................... $ 33,005 $ 32,883 $ 2,058 $(34,941) $ 33,005
Adjustments to reconcile net
income to net cash provided by
operating activities, net of
acquired amounts:
Depreciation and
amortization................ 37,860 11,738 -- -- 49,598
Provision for deferred income
taxes....................... 1,196 3,408 -- -- 4,604
Tax benefit related to stock
plans....................... 840 -- -- -- 840
Loss on disposal of
discontinued operations,
net......................... 7,631 -- -- -- 7,631
Loss on discontinued
operations, net............. 2,525 -- -- -- 2,525
Equity in income of
subsidiaries................ (34,941) -- -- 34,941 --
Change in operating assets,
liabilities and other....... 108,556 (108,076) 629 -- 1,109
--------- --------- ------- -------- ---------
Net cash provided by continuing
operations.................... 156,672 (60,047) 2,687 -- 99,312
Net cash used in discontinued
operations.................... (369) 3,089 -- -- 2,720
--------- --------- ------- -------- ---------
Net cash provided by operating
activities...................... 156,303 (56,958) 2,687 -- 102,032
--------- --------- ------- -------- ---------
Cash flows from financing
activities
Long-term debt proceeds......... 304,293 432,628 -- -- 736,921
Long-term debt payments......... (444,550) (5,000) -- -- (449,550)
Proceeds from issuance of common
stock......................... 4,414 -- -- -- 4,414
Dividends paid.................. (9,907) -- (2,694) 2,694 (9,907)
--------- --------- ------- -------- ---------
Net cash (used in) provided by
financing activities............ (145,750) 427,628 (2,694) 2,694 281,878
--------- --------- ------- -------- ---------
Cash flows from investing
activities
Capital expenditures............ (9,884) (4,543) -- -- (14,427)
Buyout of cogeneration operating
lease......................... (103,303) -- -- (103,303)
Dividends received from
subsidiary.................... 2,694 -- -- (2,694) --
Acquisition, net of cash
acquired...................... -- (263,000) -- -- (263,000)
--------- --------- ------- -------- ---------
Net cash used in investing
activities...................... (7,190) (370,846) -- (2,694) (380,730)
--------- --------- ------- -------- ---------
Net change in cash and cash
equivalents..................... 3,363 (176) (7) -- 3,180
Cash and cash equivalents at
beginning of year............... 788 428 28 -- 1,244
--------- --------- ------- -------- ---------
Cash and cash equivalents at end
of year......................... $ 4,151 $ 252 $ 21 $ -- $ 4,424
========= ========= ======= ======== =========
</TABLE>
60
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ---------------------------------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income...................... $ 56,279 $ 9,400 $ 2,032 $(11,432) $ 56,279
Adjustments to reconcile net
income to net cash provided by
operating activities, net of
acquired amounts:
Depreciation and
amortization................ 43,739 284 -- -- 44,023
Provision for deferred income
taxes....................... 28,287 (50) -- -- 28,237
Tax benefit related to stock
plans....................... 1,406 -- -- -- 1,406
Loss on discontinued
operations, net............. 306 -- -- -- 306
Equity in income of
subsidiaries................ (11,432) -- -- 11,432 --
Change in operating assets,
liabilities and other....... (18,483) 9,528 1,593 -- (7,362)
--------- -------- ------- -------- ---------
Net cash provided by continuing
operations.................... 100,102 19,162 3,625 -- 122,889
Net cash used in discontinued
operations.................... 482 -- -- -- 482
--------- -------- ------- -------- ---------
Net cash provided by operating
activities...................... 100,584 19,162 3,625 -- 123,371
--------- -------- ------- -------- ---------
Cash flows from financing
activities
Long-term debt proceeds......... 207,485 -- -- -- 207,485
Long-term debt payments......... (141,550) -- -- -- (141,550)
Parent investment in
subsidiary.................... -- -- 18 (18) --
Proceeds from issuance of common
stock......................... 4,497 -- -- -- 4,497
Purchase and retirement of
common stock.................. (58,880) -- -- -- (58,880)
Dividends paid.................. (10,024) (16,716) (3,650) 20,366 (10,024)
--------- -------- ------- -------- ---------
Net cash provided by (used in)
financing activities............ 1,528 (16,716) (3,632) 20,348 1,528
--------- -------- ------- -------- ---------
Cash flows from investing
activities
Capital expenditures............ (23,265) (2,109) -- -- (25,374)
Parent investment in
subsidiary.................... (18) -- -- 18 --
Dividends received from
subsidiary.................... 20,366 -- -- (20,366) --
Acquisition, net of cash
acquired...................... (99,902) -- -- -- (99,902)
--------- -------- ------- -------- ---------
Net cash used in investing
activities...................... (102,819) (2,109) -- (20,348) (125,276)
--------- -------- ------- -------- ---------
Net change in cash and cash
equivalents..................... (707) 337 (7) -- (377)
Cash and cash equivalents at
beginning of year............... 1,495 91 35 -- 1,621
--------- -------- ------- -------- ---------
Cash and cash equivalents at end
of year......................... $ 788 $ 428 $ 28 $ -- $ 1,244
========= ======== ======= ======== =========
</TABLE>
61
<PAGE>
GEORGIA GULF CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
IN THOUSANDS COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ---------------------------------- --------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income...................... $ 81,201 $ 7,358 $ 3,304 $(10,662) $ 81,201
Adjustments to reconcile net
income to net cash provided by
operating activities, net of
acquired amounts:
Depreciation and
amortization................ 35,723 595 -- -- 36,318
Provision for deferred income
taxes....................... 11,503 (197) -- -- 11,306
Tax benefit related to stock
plans....................... 1,252 -- -- -- 1,252
Gain on sale of assets........ -- (8,600) -- -- (8,600)
Earnings on discontinued
operations, net............. (19,178) -- -- -- (19,178)
Equity in income of
subsidiaries................ (10,662) -- -- 10,662 --
Change in operating assets,
liabilities and other....... 4,154 (15,023) (1,266) -- (12,135)
--------- -------- ------- -------- ---------
Net cash provided by continuing
operations.................... 103,993 (15,867) 2,038 -- 90,164
Net cash used in discontinued
operations.................... 18,807 -- -- -- 18,807
--------- -------- ------- -------- ---------
Net cash provided by (used in)
operating activities............ 122,800 (15,867) 2,038 -- 108,971
--------- -------- ------- -------- ---------
Cash flows from financing
activities
Long-term debt proceeds......... 187,440 -- -- -- 187,440
Long-term debt payments......... (190,000) -- -- -- (190,000)
Proceeds from issuance of common
stock......................... 4,598 -- -- -- 4,598
Purchase and retirement of
common stock.................. (59,307) -- -- -- (59,307)
Dividends paid.................. (10,711) -- (2,006) 2,006 (10,711)
--------- -------- ------- -------- ---------
Net cash used in financing
activities...................... (67,980) -- (2,006) 2,006 (67,980)
--------- -------- ------- -------- ---------
Cash flows from investing
activities
Capital expenditures............ (55,272) (1,273) -- -- (56,545)
Dividends received from
subsidiary.................... 2,006 -- -- (2,006) --
Proceeds from sale of assets.... -- 16,477 -- -- 16,477
--------- -------- ------- -------- ---------
Net cash used in investing
activities...................... (53,266) 15,204 -- (2,006) (40,068)
--------- -------- ------- -------- ---------
Net change in cash and cash
equivalents..................... 1,554 (663) 32 -- 923
Cash and cash equivalents at
beginning of year............... (59) 754 3 -- 698
--------- -------- ------- -------- ---------
Cash and cash equivalents at end
of year......................... $ 1,495 $ 91 $ 35 $ -- $ 1,621
========= ======== ======= ======== =========
</TABLE>
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
63
<PAGE>
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 our proxy statement
for the Annual Meeting of Stockholders to be held May 16, 2000 is hereby
incorporated by reference in response to this item.
The following is additional information regarding our executive officers who
are not directors:
Richard B. Marchese, 58, has served as Vice President Finance, Chief
Financial Officer and Treasurer of Georgia Gulf since May 1989.
Joel I. Beerman, 50, has served as Vice President, General Counsel and
Secretary since February 1994.
William H. Doherty, 45, has served as Vice President, Vinyl Compounds Group
since December 1999. Before then, Mr. Doherty served as General Manager--Vinyl
Compounds since May 1998 and as Business Manager--Vinyl Compounds from May 1992
until May 1998.
David L. Magee, 63, has served as Vice President, Operations, Chemicals and
Polymers Groups since December 1999. Mr. Magee served as Director of
Manufacturing Operations from January 1999 until December 1999, as General
Manager from March 1997 until January 1999 and as Director of Engineering from
February 1995 until March 1997.
C. Douglas Shannon, 48, has served as Vice President, Chemicals Groups since
December 1999. Before then, Mr. Shannon served as Director of Business Area
Management--Commodity Chemicals from July 1998 until December 1999. Since
September 1993, Mr. Shannon has also served as Business
Manager--Electrochemicals and provided services in feedstock purchasing.
Mark J. Seal, 48, has served as Vice President, Polymer Group since
August 1993.
Thomas G. Swanson, 58, has served as Vice President, Logistics since
December 1999. Before then, Mr. Swanson served as Vice President, Commodity
Chemicals Group from February 1999 until December 1999 and from August 1993 to
February 1999, he served as Vice President, Supply and Corporate Development.
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 our proxy statement for the Annual Meeting of
Stockholders to be held on May 16, 2000 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 our proxy statement for the Annual Meeting
of Stockholders to be held on May 16, 2000 is hereby incorporated by reference
in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We have not had any transactions required to be reported under this item for
the calendar year 1999, or for the period from January 1, 2000 to the date of
this report.
64
<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 Form 10-K:
(1) Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
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, 1999, 1998 and 1997:
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 related notes.
(3) Exhibits. Each management contract or compensatory plan or arrangement
is preceded by an asterisk.
The following exhibits are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
</TABLE>
The following exhibits are incorporated herein by reference to Georgia
Gulf's 1999 Form 8-K Current Report dated November 18, 1999, filed November 19,
1999:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
4.1 Indenture dated as of November 12, 1999 between Georgia Gulf
Corporation and SunTrust Bank, Atlanta, as trustee
10.1 Credit Agreement dated as of November 12, 1999 between
Georgia Gulf Corporation, the Eligible Subsidiaries referred
to therein, the Lenders party thereto, and the The Chase
Manhattan Bank as Administrative Agent, Syndication Agent
and Collateral Agent
</TABLE>
65
<PAGE>
The following exhibit is incorporated herein by reference to Georgia Gulf's
1999 Form 10-Q Quarterly Report for the period ending September 30, 1999, filed
October 28, 1999:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
2(a) Asset Purchase Agreement dated as of August 30, 1999,
between CONDEA Vista Company and Georgia Gulf Corporation
</TABLE>
The following exhibit is incorporated herein by reference to Georgia Gulf's
1998 Form 10-Q Quarterly Report for the period ending June 30, 1998, filed
August 13, 1998:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
10(a) Stock Purchase Agreement, dated May 11, 1998, between
Georgia Gulf and North American Plastics, Inc.
</TABLE>
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-8 (File No. 33-59433) filed July 20, 1998:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
*4 Georgia Gulf Corporation 1998 Equity and Performance
Incentive Plan
</TABLE>
The following exhibits are incorporated herein by reference to Georgia
Gulf's 1998 Form 10-Q Quarterly Report for the period ending March 31, 1998,
filed May 8, 1998:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
10(a) Receivables 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 Collection Agent,
and GGRC Corp., as Purchaser
</TABLE>
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-8 (File No. 33-64749) filed December 5, 1995:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
10 Georgia Gulf Corporation Employee Stock Purchase Plan
</TABLE>
The following exhibit is incorporated herein by reference to Georgia Gulf's
Form S-3 (File No. 33-63051) filed September 28, 1995:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
4 Indenture, dated as of November 15, 1995, between Georgia
Gulf and LaSalle National Bank, as trustee (including form
of Notes).
</TABLE>
66
<PAGE>
The following exhibits are incorporated herein by reference to Georgia
Gulf's 1991 Form 10-K Annual Report filed March 30, 1992:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
3(a) Certificate of Amendment of Certificate of Incorporation
3(b) Amended and Restated By-Laws
*10 Georgia Gulf Corporation 1990 Incentive Equity Plan
</TABLE>
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:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
4 Amended and Restated Rights Agreement effective as of August
31, 1990
</TABLE>
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:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10(g) Agreement re: Liabilities among Georgia-Pacific,
Georgia-Pacific Chemicals, Inc., and others dated, December
31, 1984
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
</TABLE>
(b) Reports on Form 8-K
During the fourth quarter of 1999, we filed the following Current Report on
Form 8-K:
Current Report on Form 8-K dated November 12, 1999 (date of earliest
event reported), filed on November 19, 1999, for the purpose of reporting,
under Item 2, Georgia Gulf's acquisition of the vinyls business of CONDEA
Vista Company, and under Item 5, Georgia Gulf's issuance of $200,000,000
aggregate principal amount of its 10 3/8% senior subordinated notes due 2007
and the restatement of our financial statements, reflecting the
discontinuation of the methanol business.
67
<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.
<TABLE>
<S> <C> <C>
GEORGIA GULF CORPORATION
(Registrant)
Date: March 28, 2000 By: /s/ EDWARD A. SCHMITT
-----------------------------------------
Edward A. Schmitt,
CHIEF EXECUTIVE OFFICER
</TABLE>
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
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ EDWARD A. SCHMITT Officer and Director
------------------------------------------- (Principal Executive March 28, 2000
Edward A. Schmitt Officer)
Vice President Finance, Chief
/s/ RICHARD B. MARCHESE Financial Officer and
------------------------------------------- Treasurer (Principal March 28, 2000
Richard B. Marchese Financial and Accounting
Officer)
/s/ JAMES R. KUSE Chairman of the Board and
------------------------------------------- Director March 28, 2000
James R. Kuse
/s/ JOHN E. AKITT Director
------------------------------------------- March 28, 2000
John E. Akitt
Director
-------------------------------------------
John D. Bryan
/s/ DENNIS M. CHORBA Director
------------------------------------------- March 28, 2000
Dennis M. Chorba
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PATRICK J. FLEMING Director
------------------------------------------- March 28, 2000
Patrick J. Fleming
/s/ CHARLES T. HARRIS III Director
------------------------------------------- March 28, 2000
Charles T. Harris III
/s/ JERRY R. SATRUM Director
------------------------------------------- March 28, 2000
Jerry R. Satrum
/s/ EDWARD S. SMITH Director
------------------------------------------- March 28, 2000
Edward S. Smith
</TABLE>
69
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To Georgia Gulf Corporation:
We have audited, in accordance with auditing standards generally accepted in
the United States, the financial statements included in this Form 10-K, and have
issued our report thereon dated February 18, 2000. 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 18, 2000
<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> <C>
1997
Allowance for doubtful
accounts...................... $2,400 $184 $ -- $(184)(1) $2,400
====== ==== ====== ===== ======
1998
Allowance for doubtful
accounts...................... $2,400 $ -- $ -- $ -- $2,400
====== ==== ====== ===== ======
1999
Allowance for doubtful
accounts...................... $2,400 $103 $ -- $(103)(1) $2,400
====== ==== ====== ===== ======
</TABLE>
- ------------------------
NOTES:
(1) Accounts receivable balances written off during the period.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE(1)
- ------- ----------- --------
<S> <C> <C>
21 Subsidiaries of the Registrant..............................
23 Consent of Independent Public Accountants...................
</TABLE>
- ------------------------
(1) Page numbers appear on the manually signed Form 10-K's only.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Jurisdiction of Subsidiary
- ------------------------------- -------------------------------
GG Terminal Management Corporation Delaware
Georgia Gulf Europe, ApS Denmark
Georgia Gulf Export Corporation Barbados
Georgia Gulf Chemicals & Vinyls, L.L.C. Delaware
Georgia Gulf Lake Charles, L.L.C. Delaware
Great River Oil & Gas Corporation Delaware
GGRC Corp. Delaware
North American Plastics, L.L.C. Delaware
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into Georgia Gulf's
previously filed Registration Statements on Form S-3, file no. 333-57301 and
on Form S-8, file no. 333-59433, file no. 33-14696, file no. 33-42008 and
file no. 33-64749.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 24, 2000
