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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | ||
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended March 31, 2011 |
||
OR |
||
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to |
Commission File Number 1-9753
GEORGIA GULF CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
58-1563799 (I.R.S. Employer Identification No.) |
|
115 Perimeter Center Place, Suite 460, Atlanta, Georgia (Address of principal executive offices) |
30346 (Zip Code) |
(770) 395-4500
(Registrant's telephone number, including area code)
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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer ý | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class | Outstanding as of May 2, 2011 | |
---|---|---|
Common Stock, $0.01 par value | 33,968,489 |
GEORGIA GULF CORPORATION FORM 10-Q
QUARTERLY PERIOD ENDED March 31, 2011
INDEX
2
PART I. FINANCIAL INFORMATION.
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value and share data)
|
March 31, 2011 |
December 31, 2010 |
||||||
---|---|---|---|---|---|---|---|---|
Assets |
||||||||
Cash and cash equivalents |
$ | 33,498 | $ | 122,758 | ||||
Receivables, net of allowance for doubtful accounts of $9,974 in 2011 and $10,026 in 2010 |
377,152 | 267,662 | ||||||
Inventories |
351,889 | 261,235 | ||||||
Prepaid expenses |
21,038 | 16,606 | ||||||
Income tax receivables |
778 | 899 | ||||||
Deferred income taxes |
10,470 | 7,266 | ||||||
Total current assets |
794,825 | 676,426 | ||||||
Property, plant and equipment, net |
669,075 | 653,137 | ||||||
Goodwill |
215,465 | 209,631 | ||||||
Intangible assets, net of accumulated amortization of $12,421 in 2011 and $11,873 in 2010 |
48,267 | 14,351 | ||||||
Deferred income taxes |
8,626 | 8,078 | ||||||
Other assets, net |
86,539 | 89,927 | ||||||
Non-current assets held for sale |
14,151 | 14,151 | ||||||
Total assets |
$ | 1,836,948 | $ | 1,665,701 | ||||
Liabilities and Stockholders' Equity |
||||||||
Current portion of long-term debt |
$ | 61,656 | $ | 22,132 | ||||
Accounts payable |
237,308 | 132,639 | ||||||
Interest payable |
13,050 | 22,558 | ||||||
Income taxes payable |
4,865 | 2,910 | ||||||
Accrued compensation |
14,927 | 38,382 | ||||||
Liability for unrecognized income tax benefits and other tax reserves |
2,918 | 8,822 | ||||||
Other accrued liabilities |
51,309 | 48,536 | ||||||
Total current liabilities |
386,033 | 275,979 | ||||||
Long-term debt |
702,213 | 667,810 | ||||||
Liability for unrecognized income tax benefits |
48,692 | 46,884 | ||||||
Deferred income taxes |
199,168 | 189,805 | ||||||
Other non-current liabilities |
38,503 | 40,631 | ||||||
Total liabilities |
1,374,609 | 1,221,109 | ||||||
Commitments and contingencies |
||||||||
Stockholders' equity: |
||||||||
Preferred stock$0.01 par value; 75,000,000 shares authorized; no shares issued |
| | ||||||
Common stock$0.01 par value; 100,000,000 shares authorized; shares issued and outstanding: 33,968,489 in 2011 and 33,962,291 in 2010 |
340 | 340 | ||||||
Additional paid-in capital |
476,920 | 476,276 | ||||||
Accumulated deficit |
(19,686 | ) | (31,814 | ) | ||||
Accumulated other comprehensive income (loss), net of tax |
4,765 | (210 | ) | |||||
Total stockholders' equity |
462,339 | 444,592 | ||||||
Total liabilities and stockholders' equity |
$ | 1,836,948 | $ | 1,665,701 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
Three Months Ended March 31, |
||||||||
---|---|---|---|---|---|---|---|---|---|
(In thousands, except earnings per share data)
|
2011 | 2010 | |||||||
Net sales |
$ | 787,936 | $ | 631,450 | |||||
Operating costs and expenses: |
|||||||||
Cost of sales |
712,228 | 604,371 | |||||||
Selling, general and administrative expenses |
38,485 | 37,858 | |||||||
Restructuring costs (income) |
582 | (305 | ) | ||||||
Total operating costs and expenses |
751,295 | 641,924 | |||||||
Operating income (loss) |
36,641 | (10,474 | ) | ||||||
Interest expense, net |
(16,469 | ) | (17,835 | ) | |||||
Foreign exchange loss |
(600 | ) | (5 | ) | |||||
Income (loss) before income taxes |
19,572 | (28,314 | ) | ||||||
Provision (benefit) for income taxes |
7,444 | (9,283 | ) | ||||||
Net income (loss) |
$ | 12,128 | $ | (19,031 | ) | ||||
Earnings (loss) per share: |
|||||||||
Basic |
$ | 0.35 | $ | (0.56 | ) | ||||
Diluted |
$ | 0.35 | $ | (0.56 | ) | ||||
Weighted average common shares: |
|||||||||
Basic |
33,967 | 33,720 | |||||||
Diluted |
33,981 | 33,720 |
See accompanying notes to unaudited condensed consolidated financial statements.
4
GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
Three Months Ended March 31, |
||||||||
---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
2011 | 2010 | |||||||
Cash flows from operating activities: |
|||||||||
Net income (loss) |
$ | 12,128 | $ | (19,031 | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|||||||||
Depreciation and amortization |
25,449 | 24,887 | |||||||
Foreign exchange gain |
(214 | ) | (531 | ) | |||||
Deferred income taxes |
2,755 | (12,222 | ) | ||||||
Excess tax benefits from share-based payment arrangements |
(13 | ) | (583 | ) | |||||
Stock based compensation |
805 | 712 | |||||||
Other non-cash items |
(157 | ) | 6,188 | ||||||
Change in operating assets, liabilities and other |
(117,355 | ) | (41,429 | ) | |||||
Net cash used in operating activities |
(76,602 | ) | (42,009 | ) | |||||
Cash flows from investing activities: |
|||||||||
Capital expenditures |
(10,869 | ) | (10,955 | ) | |||||
Proceeds from sale of property, plant and equipment, and assets held-for sale |
22 | 770 | |||||||
Acquisition, net of cash acquired |
(71,623 | ) | | ||||||
Net cash used in investing activities |
(82,470 | ) | (10,185 | ) | |||||
Cash flows from financing activities: |
|||||||||
Repayments on ABL revolver |
(72,304 | ) | (132,378 | ) | |||||
Borrowings on ABL revolver |
143,118 | 193,562 | |||||||
Repayment of long-term debt |
| (13 | ) | ||||||
Fees paid to amend or issue debt facilities |
(1,480 | ) | (3,020 | ) | |||||
Excess tax benefits from share-based payment arrangements |
13 | 3,328 | |||||||
Net cash provided by financing activities |
69,347 | 61,479 | |||||||
Effect of exchange rate changes on cash and cash equivalents |
465 | (148 | ) | ||||||
Net change in cash and cash equivalents |
(89,260 | ) | 9,137 | ||||||
Cash and cash equivalents at beginning of period |
122,758 | 38,797 | |||||||
Cash and cash equivalents at end of period |
$ | 33,498 | $ | 47,934 | |||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all of the adjustments that, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. Such adjustments are of a normal, recurring nature. Our financial condition as of, and our operating results for the three month period ended, March 31, 2011 are not necessarily indicative of the financial condition and results that may be expected for the full year ending December 31, 2011 or any other interim period.
On February 9, 2011, we acquired Exterior Portfolio by Crane ("Exterior Portfolio"), a leading U.S. manufacturer and marketer of siding products, for a net purchase price of $71.6 million. The preliminary allocation of the net purchase price and results of Exterior Portfolio's operations are reflected in our condensed consolidated financial statements since that date. The purchase price allocation is preliminary and is subject to, among other things, the final valuation of assets acquired and liabilities assumed, and may be adjusted within twelve months of the closing date of the acquisition.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 (the "2010 Annual Report"). There have been no material changes in the significant accounting policies followed by us during the three month period ended March 31, 2011 from those disclosed in the 2010 Annual Report.
2. NEW ACCOUNTING PRONOUNCEMENTS
On January 21, 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2010-06, which amends Accounting Standards Codification ("ASC") topic 820, Fair Value Measurements and Disclosures, to add new requirements for disclosures about transfers into and out of Levels 1 and 2 of the fair value hierarchy and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements in the fair value hierarchy. This ASU also clarifies existing fair value disclosure requirements about the level of disaggregation and about inputs and valuation techniques used to measure fair value. Further, ASU 2010-06 amends guidance on employers' disclosures about postretirement benefit plan assets under ASC topic 715 to require that disclosures be provided by classes of assets instead of major categories of assets. The adoption of this ASU in 2010 did not have a material impact on our consolidated financial statements.
In December 2010, the FASB issued ASU 2010-29, which amends ASC topic 805, Business Combinations. The amendments in this update specify that if a publicly-traded entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination which occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures under ASC Topic 805 to include a description of
6
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. NEW ACCOUNTING PRONOUNCEMENTS (Continued)
the nature and amount of material, nonrecurring pro forma adjustments directly related to the business combination included in the pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Adoption of this standard on January 1, 2011 did not have a material impact on our consolidated financial statements.
3. RESTRUCTURING ACTIVITIES
In March 2008, our outdoor storage building business was sold and as part of exiting this business, we initiated a restructuring plan (the "Outdoor Storage Plan"). In connection with the Outdoor Storage Plan, we incurred costs related to termination benefits, operating lease termination costs, asset impairment charges, relocation and other exit costs and have recognized these costs in 2008 and 2009 in accordance with ASC subtopic 420-10 Exit or Disposal Cost Obligations and related accounting standards. No significant costs related to the Outdoor Storage Plan were incurred in the three months ended March 31, 2011 or 2010, and we do not expect any future costs associated with the Outdoor Storage Plan.
In the fourth quarter of 2008, we initiated a restructuring plan (the "Fourth Quarter 2008 Restructuring Plan") that included the permanent shut down of our 450 million pound polyvinyl chloride ("PVC") manufacturing facility in Sarnia, Ontario, the exit of a recycled PVC compound manufacturing facility in Woodbridge, Ontario, the consolidation of various manufacturing facilities, and elimination of certain duplicative activities in our operations. In connection with the Fourth Quarter 2008 Restructuring Plan, we incurred costs related to termination benefits, including severance, pension and postretirement benefits, operating lease termination costs, asset impairment charges, relocation and other exit costs and have recognized these costs in accordance with ASC subtopic 420-10 and related accounting standards. For the three months ended March 31, 2011, we incurred $0.6 million related to the settlement of pension and postretirement benefits from our permanently shut down PVC manufacturing facility. For the three months ended March 31, 2010, we realized a recovery of $0.8 million related to the Fourth Quarter 2008 Restructuring Plan primarily due to reversal of remediation costs that did not have to be incurred or reimbursed by us. This amount is noted as a reduction in the additions column in the table below. In addition, we incurred $0.1 million in long-lived asset impairment charges. We do not expect there to be any future costs associated with the Fourth Quarter 2008 Restructuring Plan.
In May 2009, we initiated plans to further consolidate plants in our window and door profiles business (the "2009 Window and Door Consolidation Plan"). As a result we incurred restructuring costs, including fixed asset impairment charges, termination benefits and other exit costs which have been recognized in accordance with ASC subtopic 420-10 and related accounting standards. For the three months ended March 31, 2011, there were no additional restructuring charges. For the three months ended March 31, 2010, an additional $0.4 million of restructuring expenses were incurred and are noted in the table below. We do not expect there to be any future costs associated with the 2009 Window and Door Consolidation Plan.
7
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. RESTRUCTURING ACTIVITIES (Continued)
A summary of our restructuring activities recognized as a result of the Fourth Quarter 2008 Restructuring Plan, the Outdoor Storage Plan and the 2009 Window and Door Consolidation Plan, by reportable segment for the three months ended March 31, 2011 and 2010 is as follows:
(In thousands)
|
Balance at December 31, 2010 |
Additions | Cash Payments |
Foreign Exchange and Other Adjustments |
Balance at March 31, 2011 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Chlorovinyls |
|||||||||||||||||
Fourth Quarter 2008 Restructuring Plan: |
|||||||||||||||||
Involuntary termination benefits |
$ | 108 | 634 | (789 | ) | 136 | $ | 89 | |||||||||
Exit costs |
130 | | | 4 | 134 | ||||||||||||
Building Products |
|||||||||||||||||
Fourth Quarter 2008 Restructuring Plan: |
|||||||||||||||||
Involuntary termination benefits |
1,168 | (52 | ) | (179 | ) | 21 | 958 | ||||||||||
2009 Window and Door Consolidation Plan: |
|||||||||||||||||
Involuntary termination benefits |
29 | | (24 | ) | | 5 | |||||||||||
Outdoor Storage Plan: |
|||||||||||||||||
Involuntary termination benefits |
57 | | | 1 | 58 | ||||||||||||
Corporate |
|||||||||||||||||
Fourth Quarter 2008 Restructuring Plan: |
|||||||||||||||||
Involuntary termination benefits |
156 | | | 5 | 161 | ||||||||||||
Total |
$ | 1,648 | $ | 582 | $ | (992 | ) | $ | 167 | $ | 1,405 | ||||||
(In thousands)
|
Balance at December 31, 2009 |
Additions | Cash Payments |
Foreign Exchange and Other Adjustments |
Balance at March 31, 2010 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Chlorovinyls |
|||||||||||||||||
Fourth Quarter 2008 Restructuring Plan: |
|||||||||||||||||
Involuntary termination benefits |
$ | 1,030 | | (991 | ) | 10 | $ | 49 | |||||||||
Exit costs |
1,976 | (1,088 | ) | (223 | ) | (123 | ) | 542 | |||||||||
Building Products |
|||||||||||||||||
Fourth Quarter 2008 Restructuring Plan: |
|||||||||||||||||
Involuntary termination benefits |
2,418 | 225 | (613 | ) | 73 | 2,103 | |||||||||||
Exit costs |
| 55 | (55 | ) | | ||||||||||||
2009 Window and Door Consolidation Plan: |
|||||||||||||||||
Involuntary termination benefits |
879 | (68 | ) | (184 | ) | 24 | 651 | ||||||||||
Exit costs |
179 | 456 | (635 | ) | | | |||||||||||
Outdoor Storage Plan: |
|||||||||||||||||
Involuntary termination benefits |
163 | (21 | ) | (19 | ) | 4 | 127 | ||||||||||
Corporate |
|||||||||||||||||
Fourth Quarter 2008 Restructuring Plan: |
|||||||||||||||||
Involuntary termination benefits |
48 | | | 1 | 49 | ||||||||||||
Total |
$ | 6,693 | $ | (441 | ) | $ | (2,720 | ) | $ | (11 | ) | $ | 3,521 | ||||
8
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVENTORIES
The major classes of inventories were as follows:
(In thousands)
|
March 31, 2011 |
December 31, 2010 |
|||||
---|---|---|---|---|---|---|---|
Raw materials |
$ | 135,283 | $ | 98,815 | |||
Work-in-progress and supplies |
6,154 | 5,104 | |||||
Finished goods |
210,452 | 157,316 | |||||
Inventories |
$ | 351,889 | $ | 261,235 | |||
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following:
(In thousands)
|
March 31, 2011 |
December 31, 2010 |
|||||
---|---|---|---|---|---|---|---|
Machinery and equipment |
$ | 1,420,812 | $ | 1,395,455 | |||
Land and land improvements |
91,593 | 89,042 | |||||
Buildings |
209,570 | 201,228 | |||||
Construction-in-progress |
27,400 | 21,573 | |||||
Property, plant and equipment, at cost |
1,749,375 | 1,707,298 | |||||
Accumulated depreciation |
(1,080,300 | ) | (1,054,161 | ) | |||
Property, plant and equipment, net |
$ | 669,075 | $ | 653,137 | |||
6. OTHER ASSETS, NET and NON-CURRENT ASSETS HELD FOR SALE
(In thousands)
|
March 31, 2011 |
December 31, 2010 |
|||||
---|---|---|---|---|---|---|---|
Advances for long-term purchase contracts |
$ | 44,690 | $ | 49,204 | |||
Investment in joint ventures |
8,457 | 9,691 | |||||
Deferred financing costs, net |
22,565 | 21,926 | |||||
Other |
10,827 | 9,106 | |||||
Total other assets, net |
$ | 86,539 | $ | 89,927 | |||
The decrease in Advances for long-term purchase contracts is the result of amortizing the prepayments usage over the terms of the related contracts. The amortization of these costs is reflected as other non-cash items in the accompanying unaudited condensed consolidated statement of cash flows.
Assets Held-For-Sale. Assets held-for-sale includes real estate totaling $14.2 million at both March 31, 2011 and December 31, 2010.
9
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. GOODWILL AND OTHER INTANGIBLE ASSETS
In February 2011 we acquired Exterior Portfolio which is now a part of our building products segment. We have performed preliminary estimates of the fair value of the acquired assets and liabilities and a related preliminary allocation of the net purchase price to goodwill and other intangible assets as follows: $24.1 million customer relationships, $6.0 million technology, $4.3 million trade names and the residual $2.9 million was attributed to goodwill. These allocations are preliminary and are subject to, among other things, the final valuation of the assets acquired and liabilities assumed and may be adjusted within twelve months of the closing date of this acquisition.
Goodwill. The following table provides the detail of the changes made to goodwill by reportable segment during the quarter ended and as of March 31, 2011 and as of December 31, 2010.
(In thousands)
|
Chlorovinyls | Building Products | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Gross goodwill at December 31, 2010 |
$ | 245,266 | $ | 152,058 | $ | 397,324 | ||||
Accumulated impairment losses at December 31, 2010 |
(55,487 | ) | (132,206 | ) | (187,693 | ) | ||||
Net goodwill at December 31, 2010 |
$ | 189,779 | $ | 19,852 | $ | 209,631 | ||||
Gross goodwill at December 31, 2010 |
$ | 245,266 | $ | 152,058 | $ | 397,324 | ||||
Preliminary additionExterior Portfolio |
| 2,891 | 2,891 | |||||||
Foreign currency translation adjustment |
2,943 | | 2,943 | |||||||
Gross goodwill at March 31, 2011 |
248,209 | 154,949 | 403,158 | |||||||
Accumulated impairment losses at March 31, 2011 |
(55,487 | ) | (132,206 | ) | (187,693 | ) | ||||
Net goodwill at March 31, 2011 |
$ | 192,722 | $ | 22,743 | $ | 215,465 | ||||
Indefinite-lived intangible assets. At March 31, 2011 and December 31, 2010 our indefinite-lived assets consisted of trade names. The following table provides a summary of the indefinite-lived intangible assets by reportable segment as of March 31, 2011 and December 31, 2010.
Indefinite-lived intangible asset-trade names
(In thousands)
|
Chlorovinyls | Building Products | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2010 |
$ | 372 | $ | 4,247 | $ | 4,619 | ||||
Preliminary additionExterior Portfolio |
$ | | $ | 4,300 | $ | 4,300 | ||||
Foreign currency translation adjustment |
10 | 55 | 65 | |||||||
Balance at March 31, 2011 |
$ | 382 | $ | 8,602 | $ | 8,984 | ||||
Finite-lived intangible assets. At March 31, 2011 and December 31, 2010, we had customer relationship and technology intangible assets that relate to our building products segment. As noted above, an additional $24.1 million for customer relationships and $6.0 million for technology are included in the March 31, 2011 building products segment balances relating to the preliminary allocation from the Exterior Portfolio acquisition.
10
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
Finite-lived intangible assets
(In thousands)
|
Building Products | ||||
---|---|---|---|---|---|
Gross carrying amounts at March 31, 2011: |
|||||
Customer relationships |
$ | 35,522 | |||
Technology |
17,867 | ||||
Total |
53,389 | ||||
Accumulated amortization at March 31, 2011: |
|||||
Customer relationships |
(5,450 | ) | |||
Technology |
(6,971 | ) | |||
Total |
(12,421 | ) | |||
Foreign currency translation adjustment and other at March 31, 2011: |
|||||
Customer relationships |
(1,685 | ) | |||
Technology |
| ||||
Total |
(1,685 | ) | |||
Net carrying amounts at March 31, 2011: |
|||||
Customer relationships |
28,387 | ||||
Technology |
10,896 | ||||
Total |
$ | 39,283 | |||
(In thousands)
|
Building Products | ||||
---|---|---|---|---|---|
Gross carrying amounts at December 31, 2010: |
|||||
Customer relationships |
$ | 11,422 | |||
Technology |
11,867 | ||||
Total |
23,289 | ||||
Accumulated amortization at December 31, 2010: |
|||||
Customer relationships |
(5,199 | ) | |||
Technology |
(6,674 | ) | |||
Total |
(11,873 | ) | |||
Foreign currency translation adjustment and other at December 31, 2010: |
|||||
Customer relationships |
(1,684 | ) | |||
Technology |
| ||||
Total |
(1,684 | ) | |||
Net carrying amounts at December 31, 2010: |
|||||
Customer relationships |
4,539 | ||||
Technology |
5,193 | ||||
Total |
$ | 9,732 | |||
Amortization expense for the finite-lived intangible assets was $0.5 million and $0.2 million for the three months ended March 31, 2011 and March 31, 2010, respectively. Total finite-lived intangible asset
11
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
estimated annual amortization expense for the next five fiscal years is approximately $3.3 million per year.
8. LONG-TERM DEBT
Long-term debt consisted of the following:
(In thousands)
|
March 31, 2011 |
December 31, 2010 |
||||||
---|---|---|---|---|---|---|---|---|
Senior secured ABL revolving credit facility due 2016 |
$ | 70,830 | $ | | ||||
9.0% senior secured notes due 2017 |
497,175 | 497,085 | ||||||
7.125% senior notes due 2013 |
8,965 | 8,965 | ||||||
9.5% senior notes due 2014 |
13,165 | 13,162 | ||||||
10.75% senior subordinated notes due 2016 |
41,425 | 41,412 | ||||||
Lease financing obligation |
115,380 | 112,385 | ||||||
Other |
16,929 | 16,933 | ||||||
Total debt |
763,869 | 689,942 | ||||||
Less current portion |
(61,656 | ) | (22,132 | ) | ||||
Long-term debt |
$ | 702,213 | $ | 667,810 | ||||
The senior secured asset-based revolving credit facility (the "ABL Revolver") provides for a maximum of $300 million of revolving credit through January 2016, subject to borrowing base availability, including sub-limits for letters of credit and swing line loans. The borrowing base is equal to specified percentages of our eligible accounts receivable and inventories, less other reserves reasonably determined by the co-collateral agents. The borrowings under the ABL Revolver are generally secured by substantially all of our assets; at March 31, 2011, however, we had not yet completed the process pursuant to which Exterior Portfolio will become a guarantor of our obligations under the ABL Revolver and its assets will be pledged as collateral to secure the obligations thereunder. We expect this process to be completed prior to the end of the second quarter of 2011.
On January 14, 2011, we entered into an amendment to the ABL Revolver. The amendment extends the maturity date of the ABL Revolver by two years to January 13, 2016, eliminates the $15 million availability block, reduces the unused commitment fees, reduces the applicable margins for borrowings under the ABL Revolver and amends the average excess availability amounts to which those margins apply.
The weighted average interest rate under the ABL Revolver was 4.8 percent and 5.1 percent as of March 31, 2011 and December 31, 2010, respectively. In addition to paying interest on outstanding principal under the ABL Revolver, we are required to pay a commitment fee in respect of the unutilized commitments and we must also pay customary letter of credit fees equal to the applicable margin on London Interbank Offered Rate ("LIBOR") loans and agency fees.
The ABL Revolver requires that if excess availability is less than $45 million, we must maintain a minimum fixed charge coverage ratio of 1.10 to 1.00. At March 31, 2011 and December 31, 2010 excess availability was $213.0 million and $264.8 million, respectively. In addition, the ABL Revolver includes affirmative and negative covenants that, subject to significant exceptions, limit our ability and the ability of our subsidiaries to, among other things: incur, assume or permit to exist additional indebtedness or
12
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. LONG-TERM DEBT (Continued)
guarantees; incur liens; make investments and loans; pay dividends, make payments or redeem or repurchase capital stock; engage in mergers, acquisitions and asset sales; prepay, redeem or purchase certain indebtedness, including the 9.0 percent senior secured notes due 2017 (the "9.0 percent senior notes"); amend or otherwise alter terms of certain indebtedness, including the 9.0 percent senior secured notes; engage in certain transactions with affiliates; and alter the business that we conduct.
If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL Revolver exceeds the lesser of (i) the commitment amount and (ii) the borrowing base, we will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. If the amount available under the ABL Revolver is less than $60.0 million for a period of three consecutive business days or certain events of default have occurred, we will be required to deposit cash from our material deposit accounts (including all concentration accounts) daily in a collection account maintained with the administrative agent under the ABL Revolver, which will be used to repay outstanding loans and cash collateralize letters of credit.
At March 31, 2011 and December 31, 2010, we had $70.8 million and nil in outstanding principal borrowed under the ABL Revolver and had outstanding letters of credit totaling $16.2 million and $20.2 million, respectively. On April 4, 2011, we redeemed all of our 7.125% Senior Notes due 2013 and 9.5% Senior Notes due 2014 that remained outstanding for the aggregate principal amount of $22.1 million. In addition, our other note payable of $16.9 million is due in January 2012, and over the next twelve months, we expect to repay approximately $22.7 million of borrowings under our ABL Revolver. Therefore, we have classified these debts as current in our consolidated balance sheet as of March 31, 2011.
On December 22, 2009, we issued $500.0 million principal amount of 9.0 percent senior secured notes that are due in 2017. Interest on these notes is payable January 15 and July 15 of each year. On or after January 15, 2014, we may redeem the notes in whole or in part, initially at 104.5 percent of their principal amount, and thereafter at prices declining annually to 100.0 percent on or after January 15, 2016. During any twelve-month period prior to January 15, 2014 we may make optional redemptions of up to 10 percent of the aggregate principal amount of the 9.0 percent senior secured notes at a redemption price of 103.0 percent of such principal amount plus any accrued and unpaid interest. In addition, prior to January 15, 2013, we may redeem up to 35 percent of the aggregate principal amount of the 9.0 percent senior secured notes at a redemption price equal to 109.0 percent of such principal amount, plus any accrued and unpaid interest. In addition, we may redeem some or all of the 9.0 percent senior secured notes at any time prior to January 15, 2014 at a price equal to the principal amount thereof plus a make-whole premium and any accrued and unpaid interest. The 9.0 percent senior secured notes are generally secured by substantially all of our assets, and contain certain restrictive covenants including restrictions on debt incurrence, granting of liens, dividends, acquisitions and investments. At March 31, 2011, however, we had not yet completed the process pursuant to which Exterior Portfolio will become a guarantor of our obligations under the 9.0 percent senior secured notes and its assets will be pledged as collateral to secure the obligations thereunder. We expect this process to be completed prior to the end of the second quarter of 2011.
Lease Financing Obligation. The lease financing obligation is the result of the sale and concurrent leaseback of certain land and buildings in Canada in 2007. In connection with this transaction, a collateralized letter of credit was issued in favor of the buyer lessor resulting in the transaction being
13
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. LONG-TERM DEBT (Continued)
recorded as a financing transaction rather than a sale, and the land and building and related accounts continue to be recognized in the condensed consolidated balance sheets. The future minimum lease payments under the terms of the related lease agreements at March 31, 2011 are $5.8 million in 2011, $7.7 million in 2012, $8.0 million in 2013, $8.0 million in 2014, $8.3 million in 2015, and $10.5 million thereafter. The change in the future minimum lease payments from the December 31, 2010 balance is due to monthly payments and the change in the Canadian dollar exchange rate during the three months ended March 31, 2011.
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings. In August 2004 and January and February 2005, the United States Environmental Protection Agency (USEPA) conducted environmental investigations of our manufacturing facilities in Aberdeen, Mississippi and Plaquemine, Louisiana, respectively. The USEPA informed us that it identified several "areas of concern," and indicated that such areas of concern may, in its view, constitute violations of applicable requirements, thus warranting monetary penalties and possible injunctive relief. In lieu of pursuing such relief through its traditional enforcement process, the USEPA proposed that the parties enter into negotiations in an effort to reach a global settlement of the areas of concern and that such a global settlement cover our manufacturing facilities at Lake Charles, Louisiana and Oklahoma City, Oklahoma as well. During the second quarter of 2006, we were informed by the USEPA that its regional office responsible for Oklahoma and Louisiana desired to pursue resolution of these matters on a separate track from the regional office responsible for Mississippi. During the second quarter of 2007, we reached agreement with the USEPA responsible for Mississippi on the terms and conditions of a consent decree that would settle USEPA's pending enforcement action against our Aberdeen, Mississippi facility. All parties have executed a consent decree setting forth the terms and conditions of the settlement. The consent decree has been approved by the federal district court in Atlanta, Georgia. Under the consent decree, we were required to, among other things, undertake certain other environmental improvement projects. While the cost of such additional projects will likely exceed $1 million, we do not believe that these projects will have a material effect on our financial position, results of operations, or cash flows.
We have not yet achieved a settlement with the USEPA regional office responsible for Oklahoma and Louisiana. However, on November 17, 2009, we received a unilateral administrative order (UAO) from this USEPA regional office. The UAO, issued pursuant to Section 3013(a) of the Resource Conservation and Recovery Act ("RCRA"), requires us to take certain monitoring and assessment activities in and around several of our wastewater and storm water conveyance systems.
We have also recently received several compliance orders and notices of potential penalties from the Louisiana Department of Environmental Quality (LDEQ). On December 17, 2009, we received a Notice of Potential Penalty (NOPP) from LDEQ containing allegations of violations of Louisiana's hazardous waste management regulations. On October 7, 2010, we received a Consolidated Compliance Order (CCO) from LDEQ addressing the same allegations as were contained in the December 17, 2009 NOPP. On October 1, 2010, we received Consolidated Compliance Orders and Notices of Potential Penalties (CCONPPs) for both the Plaquemine, Louisiana and Lake Charles, Louisiana facilities. These CCONPPs allege violations of reporting, recordkeeping, and other requirements contained in Louisiana's air pollution control regulations.
14
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
Some of the allegations contained in these compliance orders and notices of potential penalties may potentially be similar to the "areas of concern" raised by USEPA that are discussed above. These compliance orders and notices of potential penalties do not identify specific penalty amounts. It is likely that any settlement, if achieved, will result in the imposition of monetary penalties, capital expenditures for installation of environmental controls and/or other relief. We are not able to forecast the total cost of any monetary penalties, environmental projects, or other relief that would be imposed in any settlement or order. While we expect that such costs will exceed $100,000, we do not expect that such costs will have a material effect on our financial position, results of operations, or cash flows.
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 known claims and legal actions will not have a material effect on our financial position or on our results of operations.
Environmental Regulation. 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 USEPA and comparable state agencies and Canadian federal and provincial 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. In addition to the matters involving environmental regulation above, we have the following potential environmental issues.
In the first quarter of 2007, the USEPA informed us of possible noncompliance at our Aberdeen, Mississippi facility with certain provisions of the Toxic Substances Control Act. Subsequently, we discovered possible non-compliance involving our Plaquemine, Louisiana and Pasadena, Texas facilities, which were then disclosed. We expect that all of these disclosures will be resolved in one settlement agreement with USEPA. While the penalties, if any, for such noncompliance may exceed $100,000, we do not expect that any penalties will have a material effect on our financial position, results of operations, or cash flows.
There are several serious environmental issues concerning the VCM facility at Lake Charles, Louisiana we acquired from CONDEA Vista Company ("CONDEA Vista" is now Sasol North America, Inc.) on November 12, 1999. 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 an extensive network of monitoring wells and recovery wells. Investigation to determine the full extent of the contamination is ongoing. 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 will be the subject of a natural resource damage recovery claim. It is estimated that there are about 200 Potentially Responsible Parties (PRPs) associated with the estuary contamination. CONDEA Vista is included among these parties with respect to 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 significant. Also, Superfund statutes may impose joint and several liabilities 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
15
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
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, which has a permit to discharge treated wastewater into the estuary.
CONDEA Vista has agreed to retain responsibility for substantially all environmental liabilities and remediation activity relating to the Chlorovinyls business we acquired from it, including the Lake Charles, Louisiana VCM facility. For all matters of environmental contamination that were known at the time of acquisition (November 1999), we may make a claim for indemnification at any time. For environmental matters that were then unknown, we must generally have made such claims for indemnification before November 12, 2009. No such material claims were made.
At our Lake Charles VCM facility, CONDEA Vista continued to conduct the ongoing remediation at its expense until November 12, 2009. We are now responsible for remediation costs up to about $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 about $2.3 million. As part of our ongoing assessment of our environmental contingencies, we determined these remediation costs to be probable and estimable and therefore maintained a $1.3 million accrual in non-current liabilities at March 31, 2011.
As for employee and independent contractor exposure claims, CONDEA Vista is responsible for exposures before November 12, 2009, and we are responsible for exposures after November 12, 2009, on a pro rata basis determined by years of employment or service before and after November 12, 1999, by any claimant.
In May 2008, our corporate management was informed that further efforts to remediate a spill of styrene reducer at our Royal Mouldings facility in Atkins, Virginia would be necessary. The spill was the result of a supply line rupture from an external holding tank. As a result of this spill, the facility entered into a voluntary remediation agreement with the Virginia Department of Environmental Quality ("VDEQ") in August 2003 and began implementing the terms of the voluntary agreement shortly thereafter. In August 2007, the facility submitted a report on the progress of the remediation to the VDEQ. Subsequently, the VDEQ responded by indicating that continued remediation of the area impacted by the spill is required. While the additional remediation costs may exceed $100,000, we do not expect such costs will have a material effect on our financial position, results of operations or cash flows.
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.
16
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. EARNINGS (LOSS) PER SHARE
We calculate earnings per share in accordance with ASC subtopic 260-10, Earnings per Share, using the two-class method. The two-class method requires that share-based awards with non-forfeitable dividends be classified as participating securities. In calculating basic earnings per share, this method requires net income to be reduced by the amount of dividends declared in the current period for each participating security and by the contractual amount of dividends or other participation payments that are paid or accumulated for the current period. Undistributed earnings for the period are allocated to participating securities based on the contractual participation rights of the security to share in those current earnings assuming all earnings for the period are distributed. Recipients of our restricted stock awards have contractual participation rights that are equivalent to those of common stockholders. Therefore, we allocate undistributed earnings to holders of restricted stock and common stock based on their respective ownership percentage.
The two-class method also requires the denominator to include the weighted average number of shares of restricted stock units when calculating basic earnings per share. At March 31, 2011 and 2010 there are 0.9 million and 1.2 million, respectively, weighted average restricted stock units. Diluted earnings per share also include the additional share equivalents from the assumed conversion of stock options calculated using the treasury stock method, subject to the anti-dilution provisions of ASC subtopic 260-10.
In computing diluted earnings per share for the quarters ended March 31, 2011 and 2010, options to purchase 0.2 million shares and 0.1 million shares, respectively, were not included due to their anti-dilutive effect.
Computations of common stock basic and diluted earnings (loss) per share are presented in the following table:
|
Three months ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
In thousands, except per share data
|
2011 | 2010(a) | ||||||
Basic earnings (loss) per share |
||||||||
Undistributed income (loss) |
$ | 12,128 | $ | (19,031 | ) | |||
Deduct: Undistributed earningsRestricted stock |
315 | | ||||||
Common stockholders' interest in undistributed income (loss) |
$ | 11,813 | $ | (19,031 | ) | |||
Weighted average common sharesBasic |
33,967 | 33,720 | ||||||
Total common stockholders' basic earnings (loss) per share |
$ | 0.35 | $ | (0.56 | ) | |||
Diluted earnings (loss) per share |
||||||||
Common stockholders' interest in undistributed income (loss) used in diluted earnings per share |
$ | 11,813 | $ | (19,031 | ) | |||
Weighted average common sharesBasic |
33,967 | 33,720 | ||||||
Stock options |
14 | | ||||||
Weighted average common sharesDiluted |
33,981 | 33,720 | ||||||
Total common stock diluted earnings (loss) per share |
$ | 0.35 | $ | (0.56 | ) | |||
17
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. EMPLOYEE RETIREMENT PLANS
The following table provides the components of the net periodic benefit cost (income) for all of our pension plans:
|
Three Months Ended March 31, |
||||||||
---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
2011 | 2010 | |||||||
Components of net periodic benefit cost (income): |
|||||||||
Interest cost |
$ |
1,877 |
$ |
1,963 |
|||||
Expected return on assets |
(2,389 | ) | (2,458 | ) | |||||
Amortization of: |
|||||||||
Prior service credit |
1 | | |||||||
Actuarial loss recognized due to settlement |
591 | | |||||||
Actuarial loss |
247 | 204 | |||||||
Total net periodic benefit cost (income) |
$ | 327 | $ | (291 | ) | ||||
Our major assumptions used to determine the net periodic benefit cost (income) for our U.S. pension plans are presented as follows:
|
Three Months Ended March 31, |
||||||
---|---|---|---|---|---|---|---|
(In thousands)
|
2011 | 2010 | |||||
Discount rate |
5.55 | % | 6.00 | % | |||
Expected return on assets |
8.50 | % | 8.75 | % |
In connection with the closure of our Sarnia, Ontario PVC resin manufacturing facility in December 2008, we decided to wind up the Canadian Pension Plan. All future benefit obligations for this pension plan were fully funded in February 2011 with a contribution of approximately $0.8 million with a corresponding restructuring charge recognized in the three months ended March 31, 2011.
For the three months ended March 31, 2011, we made no contributions to the U.S. pension plan trust. We made contributions in the form of direct benefit payments for the U.S. pension plans in each of the three month periods ended March 31, 2011 and 2010 of approximately $0.4 million.
12. STOCK-BASED COMPENSATION
Under our 2009 Equity and Performance Incentive Plan, we have been authorized by our stockholders to grant various awards for up to 3,033,000 shares of our common stock to employees and non-employee directors. We have various types of share-based payment arrangements with our employees and non-employee directors including restricted stock units, deferred stock units, and stock options. We issue new shares upon the exercise of stock options and the issuance of deferred stock units and restricted stock units. As of March 31, 2011, there were 614,182 shares available for future grant to employees and non-employee directors under our 2009 Plan.
18
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. STOCK-BASED COMPENSATION (Continued)
Total after-tax share-based compensation cost by type of program was as follows:
|
Three months ended March 31, |
||||||
---|---|---|---|---|---|---|---|
In thousands
|
2011 | 2010 | |||||
Restricted and deferred stock units expense |
$ | 690 | $ | 579 | |||
Stock options expense |
115 | 133 | |||||
Before-tax share-based compensation expense |
805 | 712 | |||||
Income tax benefit |
(215 | ) | (281 | ) | |||
After-tax share-based compensation expense |
$ | 590 | $ | 431 | |||
The amount of share-based compensation cost capitalized in periods represented was not material.
As of March 31, 2011 and 2010, we had approximately $4.3 million and $5.6 million of total unrecognized compensation cost related to nonvested share-based compensation, which we will record in our statements of operations over a weighted average recognition period of approximately two years. The total fair value of shares vested during the three months ended March 31, 2011 and 2010 was $1.5 million and $3.5 million, respectively.
Stock Options. During the three months ended March 31, 2011 and 2010, we granted no options to purchase shares. Option prices are equal to the closing price of our common stock on the date of grant. Options vest over a three-year period from the date of grant and expire no more than ten years after the date of grant.
A summary of stock option activity under all plans for the three months ended March 31, 2011 is as follows:
|
Three Months Ended March 31, 2011 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares | Weighted Average Remaining Contractual Terms (Years) |
Weighted Average Exercise Price |
Aggregate Intrinsic Value |
|||||||||
|
|
|
|
(In thousands) |
|||||||||
Outstanding on January 1, 2011 |
155,693 | $ | 340.48 | ||||||||||
Granted |
| ||||||||||||
Exercised |
| ||||||||||||
Expired |
(6,980 | ) | 422.50 | ||||||||||
Forfeited |
(220 | ) | 717.18 | ||||||||||
Outstanding on March 31, 2011 |
148,493 | 6.0 years | $ | 336.06 | $ | 799 | |||||||
Vested or expected to vest at March 31, 2011 |
128,756 | 5.7 years | $ | 383.97 | $ | 508 | |||||||
Exercisable on March 31, 2011 |
148,275 | 6.0 years | $ | 336.53 | $ | 795 |
Stock-based Compensation Related to Stock Options. The fair value of stock options granted has been estimated as of the date of grant using the Black-Scholes option-pricing model. The use of a valuation model requires us to make certain assumptions with respect to selected model inputs. We use
19
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. STOCK-BASED COMPENSATION (Continued)
the historical volatility for our stock, as we believe that historical volatility is more representative than implied volatility. The expected life of the awards is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on our history and expectation of dividend payouts. The use of a different model or different assumptions may result in a materially different valuation.
Restricted and Deferred Stock. During the three months ended March 31, 2011 and 2010, we granted nil and 31,800 restricted stock and deferred stock units, respectively, to non-employee directors. The restricted stock units and shares of restricted stock granted generally vest over a three-year period. The weighted average grant date fair value per share of restricted stock and deferred stock units granted during the three months ended March 31, 2011 and 2010 was nil and $17.62, respectively, which is based on the stock price as of the date of grant. A summary of restricted stock and deferred stock units and related changes therein during the three months ended March 31, 2011 is as follows:
|
Three Months Ended March 31, 2011 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares | Weighted Average Remaining Contractual Terms (Years) |
Weighted Average Grant Date Fair Value |
Aggregate Intrinsic Value |
||||||||||
|
|
|
|
(In thousands) |
||||||||||
Outstanding on January 1, 2011 |
909,358 | $ | 10.75 | |||||||||||
Granted |
| | ||||||||||||
Vested and released |
(7,217 | ) | 86.07 | |||||||||||
Forfeited |
| | ||||||||||||
Outstanding on March 31, 2011 |
902,141 | 1.6 Years | $ | 10.14 | $ | 33,379 | ||||||||
Vested or expected to vest at March 31, 2011 |
899,429 | 1.6 Years | $ | 10.14 | $ | 33,279 |
13. COMPREHENSIVE INCOME (LOSS) INFORMATION
Our comprehensive income includes foreign currency translation of assets and liabilities of foreign subsidiaries, effects of exchange rate changes on intercompany balances of a long-term nature, unrealized gains and losses on derivative financial instruments designated as cash flow hedges, and adjustments to pension liabilities as required by ASC subtopic 715-30, CompensationRetirement
20
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. COMPREHENSIVE INCOME (LOSS) INFORMATION (Continued)
BenefitsDefined Benefit PlansPensions. The components of accumulated other comprehensive income (loss) and total comprehensive income (loss) are shown as follows:
Accumulated other comprehensive income (loss)net of tax
(In thousands)
|
March 31, 2011 | December 31, 2010 | ||||||
---|---|---|---|---|---|---|---|---|
Unrealized gain on derivative contracts |
$ | 180 | $ | 264 | ||||
Pension liability adjustment including effect of ASC topic 715 |
(26,652 | ) | (27,641 | ) | ||||
Currency translation adjustment |
31,237 | 27,167 | ||||||
Total accumulated other comprehensive income (loss), net of tax |
$ | 4,765 | $ | (210 | ) | |||
The components of total comprehensive income are as follows:
Total comprehensive income (loss)
|
Three Months Ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
(In thousands)
|
2011 | 2010 | ||||||
Net income (loss) |
$ | 12,128 | $ | (19,031 | ) | |||
Unrealized loss on derivative contracts |
(84 | ) | (255 | ) | ||||
Pension liability adjustment including effect of ASC topic 715 |
989 | 147 | ||||||
Currency translation adjustment |
4,070 | 4,338 | ||||||
Total comprehensive income (loss) |
$ | 17,103 | $ | (14,801 | ) | |||
14. INCOME TAXES
Our effective income tax rate for the three months ended March 31, 2011 was 38.0% as compared to 32.8% for the three months ended March 31, 2010. The difference in the effective tax rate as compared to the U.S. statutory federal income tax rate in 2011 was primarily due to provisions for state tax, various permanent differences, the release of a portion of the valuation allowance against certain deferred tax assets in Canada, and the impact of various uncertain tax positions. The difference in the rate as compared to the U.S. statutory federal income tax rate in 2010 was primarily due to a tax benefit from percentage depletion offset by a deferred tax asset valuation allowance in Canada.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, long-term debt, and commodity forward purchase contracts. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value because of the nature of such instruments. The fair values of our 9.0 percent senior secured notes and our natural gas forward purchase contracts are based on quoted market values. Due to limited trading activity for our 7.125 percent senior notes due 2013, our 9.5 percent senior notes due 2014, and our 10.75 percent senior subordinated notes due 2016, the fair
21
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
values of those notes are estimated based on a weighted average of trading activity before and after March 31, 2011. Our ABL Revolver is fair valued using comparable recent third party transactions. Our natural gas forward purchase contracts are fair valued with Level 2 inputs.
The FASB ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs to valuation techniques used to measure fair value. These levels, in order of highest to lowest priority are described below:
Level 1Quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.
Level 2Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3Prices that are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the company's own data.
|
March 31, 2011 | December 31, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In thousands)
|
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||||
Level 1 |
||||||||||||||
Long-term debt: |
||||||||||||||
9.0% senior secured notes due 2017 |
$ | 497,175 | $ | 555,000 | $ | 497,085 | $ | 538,750 | ||||||
Level 2 |
||||||||||||||
Long-term debt: |
||||||||||||||
10.75% senior subordinated notes due 2016 |
41,425 | 44,785 | 41,412 | 43,644 | ||||||||||
7.125% senior notes due 2013 |
8,965 | 9,072 | 8,965 | 8,885 | ||||||||||
9.5% senior notes due 2014 |
13,165 | 13,841 | 13,162 | 13,235 | ||||||||||
ABL Revolver due 2016 |
70,830 | 70,830 | | | ||||||||||
Derivative instruments: |
||||||||||||||
Natural gas forward purchase contracts liability (asset) |
(286 | ) | (286 | ) | (425 | ) | (425 | ) |
16. SEGMENT INFORMATION
We report the following three reportable segments: (i) chlorovinyls; (ii) aromatics; and (iii) building products. The chlorovinyls segment is a highly integrated chain of products, which includes chlorine, caustic soda, vinyl chloride monomers and vinyl resins and compounds. The aromatics segment is also integrated and includes cumene and the co-products phenol and acetone. Our vinyl-based building and home improvement products, including window and door profiles, mouldings, siding, pipe and pipe fittings and deck, fence and rail products are marketed under the Royal Group brand names, and are managed within the building products segment.
Earnings of our segments exclude interest income and expense, unallocated corporate expenses and general plant services, and provision for income taxes. Transactions between operating segments are valued at market-based prices. The revenues generated by these transfers are provided in the following table.
22
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. SEGMENT INFORMATION (Continued)
The accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K.
(In thousands)
|
Chlorovinyls | Aromatics | Building Products | Eliminations, Unallocated and Other |
Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended March 31, 2011: |
|||||||||||||||||
Net sales |
$ | 326,319 | $ | 304,113 | $ | 157,504 | $ | | $ | 787,936 | |||||||
Intersegment revenues |
64,261 | | 3 | (64,264 | ) | | |||||||||||
Restructuring costs (income) |
635 | (53 | ) | 582 | |||||||||||||
Operating income (loss) |
37,740 | 19,782 | (12,066 | ) | (8,815 | ) | 36,641 | ||||||||||
Depreciation and amortization |
14,599 | 360 | 9,359 | 1,131 | 25,449 | ||||||||||||
Three months ended March 31, 2010: |
|||||||||||||||||
Net sales |
$ | 287,711 | $ | 190,689 | $ | 153,050 | $ | | $ | 631,450 | |||||||
Intersegment revenues |
57,440 | | | (57,440 | ) | | |||||||||||
Restructuring costs (income) |
(952 | ) | | 647 | | (305 | ) | ||||||||||
Operating income (loss) |
(8,652 | ) | 9,645 | (3,673 | ) | (7,794 | ) | (10,474 | ) | ||||||||
Depreciation and amortization |
14,798 | 380 | 8,463 | 1,246 | 24,887 |
The table below summarizes sales by product. Our electrovinyls products are primarily comprised of chlorine/caustic soda, VCM and vinyl resins. Our compound products are comprised of vinyl compounds, compound additives and plasticizers. Our outdoor building products are comprised of siding, pipe and pipe fittings, deck, fence, and rail.
|
Three Months Ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
(In thousands)
|
2011 | 2010 | ||||||
Chlorovinyls |
||||||||
Electrovinyl products |
$ | 218,769 | $ | 195,257 | ||||
Compound products |
107,550 | 92,454 | ||||||
Total |
326,319 | 287,711 | ||||||
Aromatics |
||||||||
Cumene products |
180,746 | 133,909 | ||||||
Phenol/acetone products |
123,367 | 56,780 | ||||||
Total |
304,113 | 190,689 | ||||||
Building Products |
||||||||
Window & door profiles and moulding products |
65,173 | 69,255 | ||||||
Outdoor building products |
92,331 | 83,795 | ||||||
Total |
157,504 | 153,050 | ||||||
Total net sales |
$ | 787,936 | $ | 631,450 | ||||
23
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUPPLEMENTAL GUARANTOR INFORMATION
Our payment obligations under the indenture for our 9.0 percent senior secured notes are guaranteed by Georgia Gulf Lake Charles, LLC, Georgia Gulf Chemicals & Vinyls, LLC, Royal Mouldings Limited, Royal Plastics Group (USA) Limited, Rome Delaware Corporation, Plastic Trends, Inc., Royal Group Sales (USA) Limited, Royal Outdoor Products, Inc., Royal Window and Door Profiles Plant 13 Inc., and Royal Window and Door Profiles Plant 14 Inc., all of which are wholly-owned subsidiaries (the "Guarantor Subsidiaries") of Georgia Gulf Corporation. In addition, the company is in the process of making Exterior Portfolio, LLC one of the Guarantor Subsidiaries, and expects that addition to be effective during the second quarter of 2011. The guarantees are full, unconditional and joint and several. Georgia Gulf is in essence a holding company for all of its wholly and majority owned subsidiaries. Investments in subsidiaries in the following tables reflect investments in wholly owned entities within Georgia Gulf Corporation. The Company's Guarantor Subsidiaries and Non-Guarantor Subsidiaries are not consistent with the Company's business groups or geographic operations; accordingly this basis of presentation is not included to present the Company's financial condition, results of operations or cash flows for any purpose other than to comply with the specific requirements for subsidiary guarantor reporting. We are required to present condensed consolidating financial information in order for the subsidiary guarantors of the Company's public debt to be exempt from reporting under the Securities Exchange Act of 1934.
The following condensed consolidating balance sheet information, statements of operations information and statements of cash flows information present the combined financial statements of the parent company, and the combined financial statements of our 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.
24
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Georgia Gulf Corporation and Subsidiaries
Supplemental Condensed Consolidating Balance Sheet Information
March 31, 2011
(Unaudited)
(In thousands)
|
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets |
|||||||||||||||||
Cash and cash equivalents |
$ | | $ | 29,356 | $ | 4,142 | $ | | $ | 33,498 | |||||||
Receivables, net |
| 634,864 | 86,727 | (344,439 | ) | 377,152 | |||||||||||
Inventories |
| 228,765 | 123,124 | | 351,889 | ||||||||||||
Prepaid expenses |
108 | 15,941 | 4,989 | | 21,038 | ||||||||||||
Income tax receivable |
| 658 | 120 | | 778 | ||||||||||||
Deferred income taxes |
| 10,806 | (336 | ) | | 10,470 | |||||||||||
Total current assets |
108 | 920,390 | 218,766 | (344,439 | ) | 794,825 | |||||||||||
Property, plant and equipment, net |
219 | 406,230 | 262,626 | | 669,075 | ||||||||||||
Long term receivablesaffiliates |
469,516 | | | (469,516 | ) | | |||||||||||
Goodwill |
| 97,572 | 117,893 | | 215,465 | ||||||||||||
Intangibles, net |
| 11,647 | 36,620 | | 48,267 | ||||||||||||
Deferred income taxes |
| | 8,626 | | 8,626 | ||||||||||||
Other assets |
18,715 | 55,528 | 12,296 | | 86,539 | ||||||||||||
Non-current assets held for sale |
| 14,151 | | | 14,151 | ||||||||||||
Investment in Subsidiaries |
1,117,112 | 69,407 | | (1,186,519 | ) | | |||||||||||
Total assets |
$ | 1,605,670 | $ | 1,574,925 | $ | 656,827 | $ | (2,000,474 | ) | $ | 1,836,948 | ||||||
Liabilities and Stockholders' Equity |
|||||||||||||||||
Current portion of long-term debt |
$ | 59,626 | $ | | $ | 2,030 | $ | | $ | 61,656 | |||||||
Accounts payable |
330,991 | 200,100 | 50,656 | (344,439 | ) | 237,308 | |||||||||||
Interest payable |
13,047 | | 3 | | 13,050 | ||||||||||||
Income taxes payable |
(14 | ) | 3,584 | 1,295 | | 4,865 | |||||||||||
Accrued compensation |
1,976 | 3,246 | 9,705 | | 14,927 | ||||||||||||
Liability for unrecognized income tax benefits and other tax reserves |
| 2,918 | | | 2,918 | ||||||||||||
Other accrued liabilites |
419 | 20,037 | 30,853 | | 51,309 | ||||||||||||
Total current liabilities |
406,045 | 229,885 | 94,542 | (344,439 | ) | 386,033 | |||||||||||
Long-term debt |
586,834 | | 115,379 | | 702,213 | ||||||||||||
Long-term payablesaffiliates |
| | 469,516 | (469,516 | ) | | |||||||||||
Liability for unrecognized income tax benefits |
| 7,322 | 41,370 | | 48,692 | ||||||||||||
Deferred income taxes |
23,823 | 176,208 | (863 | ) | | 199,168 | |||||||||||
Other non-current liabilities |
126,629 | 44,398 | 2,136 | (134,660 | ) | 38,503 | |||||||||||
Total liabilities |
1,143,331 | 457,813 | 722,080 | (948,615 | ) | 1,374,609 | |||||||||||
Total stockholders' equity (deficit) |
462,339 | 1,117,112 | (65,253 | ) | (1,051,859 | ) | 462,339 | ||||||||||
Total liabilities and stockholders' equity (deficit) |
$ | 1,605,670 | $ | 1,574,925 | $ | 656,827 | $ | (2,000,474 | ) | $ | 1,836,948 | ||||||
25
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Georgia Gulf Corporation and Subsidiaries
Supplemental Condensed Consolidating Balance Sheet Information
December 31, 2010
(In thousands)
|
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash and cash equivalents |
$ | | $ | 93,681 | $ | 29,077 | $ | | $ | 122,758 | |||||||
Receivables, net |
72 | 580,625 | 66,537 | (379,572 | ) | 267,662 | |||||||||||
Inventories |
| 174,231 | 87,004 | | 261,235 | ||||||||||||
Prepaid expenses |
147 | 12,712 | 3,747 | | 16,606 | ||||||||||||
Income tax receivables |
| 844 | 55 | | 899 | ||||||||||||
Deferred income taxes |
| 7,266 | | | 7,266 | ||||||||||||
Total current assets |
219 | 869,359 | 186,420 | (379,572 | ) | 676,426 | |||||||||||
Property, plant and equipment, net |
228 | 413,137 | 239,772 | | 653,137 | ||||||||||||
Long-term receivablesaffiliates |
457,500 | | | (457,500 | ) | | |||||||||||
Goodwill |
| 97,572 | 112,059 | | 209,631 | ||||||||||||
Intangibles, net |
| 11,875 | 2,476 | | 14,351 | ||||||||||||
Deferred income taxes |
| | 8,078 | | 8,078 | ||||||||||||
Other assets, net |
18,572 | 61,265 | 10,090 | | 89,927 | ||||||||||||
Non-current assets held-for-sale |
| 14,151 | | | 14,151 | ||||||||||||
Investment in subsidiaries |
1,081,369 | | | (1,081,369 | ) | | |||||||||||
Total assets |
$ | 1,557,888 | $ | 1,467,359 | $ | 558,895 | $ | (1,918,441 | ) | $ | 1,665,701 | ||||||
Current portion of long-term debt |
$ | 22,128 | $ | 4 | $ | | $ | | $ | 22,132 | |||||||
Accounts payable |
375,604 | 112,422 | 24,185 | (379,572 | ) | 132,639 | |||||||||||
Interest payable |
22,528 | | 30 | | 22,558 | ||||||||||||
Income taxes payable |
| 1,683 | 1,227 | | 2,910 | ||||||||||||
Accrued compensation |
| 23,863 | 14,519 | | 38,382 | ||||||||||||
Liability for unrecognized income tax benefits and other tax reserves |
| 2,897 | 5,925 | | 8,822 | ||||||||||||
Other accrued liabilities |
419 | 23,162 | 24,955 | | 48,536 | ||||||||||||
Total current liabilities |
420,679 | 164,031 | 70,841 | (379,572 | ) | 275,979 | |||||||||||
Long-term debt |
555,425 | | 112,385 | | 667,810 | ||||||||||||
Long-term payablesaffiliates |
| | 457,500 | (457,500 | ) | | |||||||||||
Liability for unrecognized income tax benefits |
| 6,919 | 39,965 | | 46,884 | ||||||||||||
Deferred income taxes |
19,144 | 170,661 | | | 189,805 | ||||||||||||
Other non-current liabilities |
118,048 | 44,379 | 2,913 | (124,709 | ) | 40,631 | |||||||||||
Total liabilities |
1,113,296 | 385,990 | 683,604 | (961,781 | ) | 1,221,109 | |||||||||||
Total stockholders' equity (deficit) |
444,592 | 1,081,369 | (124,709 | ) | (956,660 | ) | 444,592 | ||||||||||
Total liabilities and stockholders' equity (deficit) |
$ | 1,557,888 | $ | 1,467,359 | $ | 558,895 | $ | (1,918,441 | ) | $ | 1,665,701 | ||||||
26
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Georgia Gulf Corporation and Subsidiaries
Supplemental Condensed Consolidating Statement of Operations Information
Three Months Ended March 31, 2011
(Unaudited)
(In thousands)
|
Parent Company |
Guarantor Subsidiaries |
Non- Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales |
$ | | $ | 706,845 | $ | 128,748 | $ | (47,657 | ) | $ | 787,936 | |||||
Operating costs and expenses: |
||||||||||||||||
Cost of sales |
| 642,156 | 117,729 | (47,657 | ) | 712,228 | ||||||||||
Selling, general and administrative expenses |
8,616 | 16,606 | 13,263 | | 38,485 | |||||||||||
Restructuring costs |
| | 582 | | 582 | |||||||||||
Total operating costs and expenses |
8,616 | 658,762 | 131,574 | (47,657 | ) | 751,295 | ||||||||||
Operating (loss) income |
(8,616 | ) | 48,083 | (2,826 | ) | | 36,641 | |||||||||
Other (expense) income |
||||||||||||||||
Interest (expense) income, net |
(19,165 | ) | 8,480 | (5,784 | ) | | (16,469 | ) | ||||||||
Foreign exchange gain (loss) |
54 | 12 | (666 | ) | | (600 | ) | |||||||||
Equity in income (loss) of subsidiaries |
29,310 | (2,949 | ) | | (26,361 | ) | | |||||||||
Income (loss) before income taxes |
1,583 | 53,626 | (9,276 | ) | (26,361 | ) | 19,572 | |||||||||
(Benefit) provision for income taxes |
(10,545 | ) | 17,710 | 279 | | 7,444 | ||||||||||
Net income (loss) |
$ | 12,128 | $ | 35,916 | $ | (9,555 | ) | $ | (26,361 | ) | $ | 12,128 | ||||
27
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Georgia Gulf Corporation and Subsidiaries
Supplemental Condensed Consolidating Statement of Operations Information
Three Months Ended March 31, 2010
(Unaudited)
(In thousands)
|
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales |
$ | 3,876 | $ | 552,426 | $ | 117,888 | $ | (42,740 | ) | $ | 631,450 | ||||||
Operating costs and expenses: |
|||||||||||||||||
Cost of sales |
| 542,567 | 100,669 | (38,865 | ) | 604,371 | |||||||||||
Selling, general and administrative expenses |
7,071 | 19,271 | 15,391 | (3,875 | ) | 37,858 | |||||||||||
Restructuring costs (income) |
| 544 | (849 | ) | (305 | ) | |||||||||||
Total operating costs and expenses |
7,071 | 562,382 | 115,211 | (42,740 | ) | 641,924 | |||||||||||
Operating (loss) income |
(3,195 | ) | (9,956 | ) | 2,677 | | (10,474 | ) | |||||||||
Other income (expense): |
|||||||||||||||||
Interest expense, net |
(22,275 | ) | 8,270 | (3,830 | ) | | (17,835 | ) | |||||||||
Foreign exchange gain (loss) |
12 | | (17 | ) | | (5 | ) | ||||||||||
Equity in income (loss) of subsidiaries |
(2,614 | ) | (283 | ) | | 2,897 | | ||||||||||
Intercompany interest income (expense) |
1,032 | | (1,032 | ) | | | |||||||||||
(Loss) income before income taxes |
(27,040 | ) | (1,969 | ) | (2,202 | ) | 2,897 | (28,314 | ) | ||||||||
(Benefit) provision for income taxes |
(8,009 | ) | (1,903 | ) | 629 | | (9,283 | ) | |||||||||
Net (loss) income |
$ | (19,031 | ) | $ | (66 | ) | $ | (2,831 | ) | $ | 2,897 | $ | (19,031 | ) | |||
28
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Georgia Gulf Corporation and Subsidiaries
Supplemental Condensed Consolidating Statement of Cash Flows Information
Three Months Ended March 31, 2011
(Unaudited)
(In thousands)
|
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash provided by (used in) operating activities |
$ | 4,262 | $ | (55,458 | ) | $ | (25,406 | ) | $ | | $ | (76,602 | ) | ||||
Cash flows from investing activities: |
|||||||||||||||||
Capital expenditures |
| (9,468 | ) | (1,401 | ) | | (10,869 | ) | |||||||||
Proceeds from sale of assets |
| 16 | 6 | | 22 | ||||||||||||
Acquisition, net of cash acquired |
| (71,623 | ) | | | (71,623 | ) | ||||||||||
Net cash used in investing activities |
| (81,075 | ) | (1,395 | ) | | (82,470 | ) | |||||||||
Cash flows from financing activities: |
|||||||||||||||||
Net change in ABL revolver |
68,800 | (4 | ) | 2,018 | | 70,814 | |||||||||||
Fees paid to amend or issue debt facilities |
(863 | ) | | (617 | ) | (1,480 | ) | ||||||||||
Intercompany financing to fund acquisition |
(72,212 | ) | 72,212 | | | | |||||||||||
Tax benefits from employee share-based exercises |
13 | | | | 13 | ||||||||||||
Net cash (used in) provided by financing activities |
(4,262 | ) | 72,208 | 1,401 | | 69,347 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | 465 | | 465 | ||||||||||||
Net change in cash and cash equivalents |
| (64,325 | ) | (24,935 | ) | | (89,260 | ) | |||||||||
Cash and cash equivalents at beginning of period |
| 93,681 | 29,077 | | 122,758 | ||||||||||||
Cash and cash equivalents at end of period |
$ | | $ | 29,356 | $ | 4,142 | $ | | $ | 33,498 | |||||||
29
GEORGIA GULF CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)
Georgia Gulf Corporation and Subsidiaries
Supplemental Condensed Consolidating Statement of Cash Flows Information
Three Months Ended March 31, 2010
(Unaudited)
(In thousands)
|
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash provided by (used in) operating activities |
$ | (46,265 | ) | $ | 24,426 | $ | (20,170 | ) | $ | | $ | (42,009 | ) | ||||
Cash flows from investing activities: |
|||||||||||||||||
Capital expenditures |
| (8,068 | ) | (2,887 | ) | | (10,955 | ) | |||||||||
Proceeds from sale of assets |
| | 770 | | 770 | ||||||||||||
Net cash used in investing activities |
| (8,068 | ) | (2,117 | ) | | (10,185 | ) | |||||||||
Cash flows from financing activities: |
|||||||||||||||||
Net change in ABL revolver |
45,730 | | 15,454 | | 61,184 | ||||||||||||
Long-term debt payments |
| (13 | ) | | | (13 | ) | ||||||||||
Fees paid to amend or issue debt facilities |
(2,793 | ) | | (227 | ) | | (3,020 | ) | |||||||||
Tax benefits from employee share based exercises |
3,328 | | | | 3,328 | ||||||||||||
Net cash (used in) provided by financing activities |
46,265 | (13 | ) | 15,227 | | 61,479 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (148 | ) | | (148 | ) | ||||||||||
Net change in cash and cash equivalents |
| 16,345 | (7,208 | ) | | 9,137 | |||||||||||
Cash and cash equivalents at beginning of period |
| 24,880 | 13,917 | | 38,797 | ||||||||||||
Cash and cash equivalents at end of period |
$ | | $ | 41,225 | $ | 6,709 | $ | | $ | 47,934 | |||||||
30
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We are a leading North American manufacturer and an international marketer of chlorovinyl and aromatics chemicals and also manufacture and market vinyl-based building and home improvement products. Our chlorovinyl and aromatic chemicals products are 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. Our building products segment manufactures window and door profiles, mouldings, siding, pipe and pipe fittings and deck, fence, and rail products and markets vinyl-based building and home improvement products under the Royal Group brand names.
We have identified three reportable segments through which we conduct our operating activities: (i) chlorovinyls; (ii) building products; and (iii) aromatics. These three segments reflect the organization used by our management for internal reporting. The chlorovinyls segment consists of a highly integrated chain of electrovinyl products, which includes chlorine, caustic soda, VCM and vinyl resins, and our compound products consisting of compound additives and vinyl compounds. Our vinyl-based building and home improvement products, including window and door profiles and mouldings products and outdoor building products consisting of siding, pipe and pipe fittings and deck, fence and rail products are marketed under the Royal Group brand names, and are managed within the building products segment. The aromatics segment is also integrated and includes the products cumene and the co-products phenol and acetone.
On February 9, 2011, we acquired Exterior Portfolio by Crane from the Crane Group. Exterior Portfolio, headquartered in Columbus, Ohio, is a leading U.S. manufacturer and marketer of siding products with 2010 revenues of approximately $100.0 million. Exterior Portfolio markets siding and related accessories under the CraneBoard®, Portsmouth Shake®, Solid Core Siding® and Architectural Essentials brand names. The aggregate cash consideration paid was $71.6 million and was funded with cash on hand. The Exterior Portfolio financial results are reported in the building products segment.
The following table sets forth our consolidated statement of operations data for each of the three month periods ended March 31, 2011 and 2010, and the percentage of net sales of each line item for the three months presented.
|
Three months ended March 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions)
|
2011 | 2010 | |||||||||||
Net sales |
$ | 787.9 | 100.0 | % | $ | 631.5 | 100.0 | % | |||||
Cost of sales |
712.2 | 90.4 | 604.4 | 95.7 | |||||||||
Gross margin |
75.7 | 9.6 | 27.1 | 4.3 | |||||||||
Selling, general and administrative expenses |
38.5 | 4.9 | 37.9 | 6.0 | |||||||||
Restructuring costs (income) |
0.6 | 0.1 | (0.3 | ) | 0.0 | ||||||||
Operating income (loss) |
36.6 | 4.6 | (10.5 | ) | (1.7 | ) | |||||||
Interest expense, net |
16.5 | 2.1 | 17.8 | 2.8 | |||||||||
Foreign exchange loss |
0.6 | 0.1 | | | |||||||||
Provision for (benefit from) income taxes |
7.4 | 1.0 | (9.3 | ) | (1.5 | ) | |||||||
Net income (loss) |
$ | 12.1 | 1.5 | % | $ | (19.0 | ) | (3.0 | )% | ||||
31
The following table sets forth certain financial data by reportable segment for each of the three month periods ended March 31, 2011 and 2010.
|
Three months ended March 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions)
|
2011 | 2010 | ||||||||||||
Net sales |
||||||||||||||
Chlorovinyls products |
$ | 326.3 | 41.4 | % | $ | 287.7 | 45.6 | % | ||||||
Building products |
157.5 | 20.0 | 153.1 | 24.2 | ||||||||||
Aromatics products |
304.1 | 38.6 | 190.7 | 30.2 | ||||||||||
Total net sales |
$ | 787.9 | 100.0 | % | $ | 631.5 | 100.0 | % | ||||||
Operating income (loss) |
||||||||||||||
Chlorovinyls products |
$ | 37.7 | $ | (8.6 | ) | |||||||||
Building products |
(12.1 | ) | (3.7 | ) | ||||||||||
Aromatics products |
19.8 | 9.6 | ||||||||||||
Unallocated Corporate |
(8.8 | ) | (7.8 | ) | ||||||||||
Total operating income (loss) |
$ | 36.6 | $ | (10.5 | ) | |||||||||
Three Months Ended March 31, 2011 Compared With Three Months Ended March 31, 2010
Net Sales. For the three months ended March 31, 2011, net sales totaled $787.9 million, an increase of 25 percent compared to $631.5 million for the same quarter last year. The net sales increase was primarily a result of an increase in our overall sales volumes of 13 percent and sales prices of 10 percent on a constant currency basis. Our overall sales volume increase was mainly attributable to an increase in domestic contract sales, opportunistic export spot sales, and strong aromatic products demand more than offsetting weak North American housing and construction markets. The seasonally adjusted annual U.S. and Canadian housing starts decreased 13 percent and 9 percent, respectively, from the first quarter of 2010 to the first quarter of this year, according to reports furnished jointly by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development issued in April 2011 and Canada Mortgage and Housing Corporation issued in April 2011. Our overall sales price increase was primarily a result of increases in the prices of most of our electrovinyl products and all of our aromatics products and a favorable Canadian dollar currency impact. The sales price increases reflect higher cost for all of our raw materials and tighter supply as a result of global industry operating issues.
Gross Margin. Total gross margin increased to 9.6 percent of sales for the three months ended March 31, 2011 from 4.3 percent of sales for the three months ended March 31, 2010. This increase in gross margin percentage was primarily due to a margin expansion in our chlorovinyls and aromatics segments from higher sales prices due to industry operating issues in the US and Asia as well as lower manufacturing costs per unit due to a 20 percent increase in our overall operating rates. The $48.6 million gross margin increase was primarily due to an increase in sales volume for most of our chlorovinyls and aromatics products and a favorable Canadian dollar currency impact. Our sales price increases more than offset an increase in our raw material costs. Our primary raw materials and natural gas costs in our chlorovinyls and aromatics segments normally track industry prices. Chemical Market Associates, Incorporated ("CMAI") reported a price increase of 18 percent for benzene, 28 percent for propylene and 1 percent for chlorine from the first quarter of 2010 to the first quarter of this year while ethylene and natural gas prices decreased 6 percent and 23 percent, respectively for the same time period.
Selling, General and Administrative Expenses. Selling, general and administrative expenses totaled $38.5 million for the three months ended March 31, 2011, a 2 percent increase from the $37.9 million
32
for the three months ended March 31, 2010. This selling, general and administrative expense increase of $0.6 million is primarily due to: (i) $3.6 million of additional selling, general and administrative expenses related to the Exterior Portfolio acquisition in our building products segment, (ii) $2.7 million salary and related benefits expense increase due to the company reducing previous hiring restrictions and reinstating various compensation related benefits throughout 2010, (iii) $1.2 million performance based incentive compensation increase primarily related to unallocated corporate expenses, and (iv) $0.6 million in unfavorable currency impact on our costs in Canada resulting from the strengthening of the Canadian dollar against the U.S. dollar in our building products segment, offset by the favorable impact of a $4.4 million non-income tax reserve returned to income primarily in our building products segment during the first quarter of 2011 as the exposure is no longer probable.
Interest Expense, net. Interest expense, net decreased to $16.5 million for the three months ended March 31, 2011 from $17.8 million for the three months ended March 31, 2010. This decrease in interest expense (net) of $1.3 million was primarily attributable to a lower overall debt balance during the three months ended March 31, 2011 compared to the same period in 2010.
Provision for (benefit from) income taxes. The provision for income taxes was $7.4 million for the three months ended March 31, 2011 compared with a benefit for income taxes of $9.3 million for the three months ended March 31, 2010. The increase in the provision for income taxes primarily resulted from a $47.9 million increase in pre-tax income and from the release of a portion of the valuation allowance previously recorded in Canada. Our effective income tax rate for the three months ended March 31, 2011 was 38.0% as compared to 32.8% for the three months ended March 31, 2010. The difference in the effective tax rate as compared to the U.S. statutory federal income tax rate in 2011 was primarily due to provisions for state tax, various permanent differences, the release of a portion of the valuation allowance against certain deferred tax assets in Canada, and the impact of various uncertain tax positions. The difference in the rate as compared to the U.S. statutory federal income tax rate in 2010 was primarily due to a tax benefit from percentage depletion offset by a deferred tax asset valuation allowance in Canada.
Chlorovinyls Segment
Net Sales. Net sales totaled $326.3 million for the three months ended March 31, 2011, an increase of 13 percent compared with net sales of $287.7 million for the same quarter last year primarily from our electrovinyls products group. The net sales increase was a result of an increase in our overall sales prices of 9 percent and sales volume of 4 percent as compared to the three months ended March 31, 2010. Our overall sales price increases were primarily due to the increase in the caustic soda sales price. According to CMAI, the caustic soda industry sales price increased 72 percent from the first quarter of 2010 to the first quarter of this year. The caustic soda sales price increase was primarily attributable to an increase in industrial demand. Our overall chlorovinyls sales volume increase of 4 percent was due to an increase in domestic vinyl resin sales and opportunistic export spot caustic soda sales. Our domestic vinyl resin and vinyl compounds sales volume increased 9 percent and 12 percent, respectively. North American vinyl resin industry sales volume decreased 4 percent as a result of an increase in exports of 31 percent offset by a decrease in domestic sales volume of 4 percent, according to statistics from the American Chemistry Council Plastics Industry Producers Statistics Group ("PIPS") issued in April 2011.
Operating Income (Loss). Operating income increased by $46.3 million to operating income of $37.7 million for the three months ended March 31, 2011 from an operating loss of $8.6 million for the three months ended March 31, 2010. This operating income increase was due to an increase in caustic soda sales prices, increased North American vinyl resins and vinyl compound sales volumes, lower raw material and natural gas costs and lower manufacturing costs per unit due to a 16 percent increase in our overall operating rates. CMAI reported that industry prices of our primary feedstocks ethylene and
33
natural gas decreased 6 percent and 23 percent, respectively from the same 2010 period. Our chlorovinyls operating rate increased from about 74 percent for the first three months of 2010 to about 86 percent for the same period of this year. During the three months ended March 31, 2011, we had no plant turnarounds for maintenance compared to two during the three months ended March 31, 2010.
Net Sales. Net sales totaled $157.5 million for the three months ended March 31, 2011, an increase of 2.9 percent (or 0.3 percent on a constant currency basis), compared to $153.1 million for the same quarter last year. The net sales increase includes the benefit of the acquisition of Exterior Portfolio in February 2011. After adjusting for the impact of the acquisition, volume declined approximately 7% in the quarter as Canadian demand was negatively impacted, in part, by the elimination of 2010 tax incentives. According to PIPS industry data for our products, North America extruded vinyl resin volumes declined 10 percent during the first quarter of 2011 as compared to the same period in 2010. For the first quarter of 2011 our building products segment geographical sales to the U.S. increased to 50% while Canadian sales declined to 49% compared to U.S. sales of 39% and Canadian Sales of 60% for the same period in 2010.
Operating Loss. Operating loss increased by $8.4 million to a loss of $12.1 million for the three months ended March 31, 2011 from an operating loss of $3.7 million for the three months ended March 31, 2010. The increase in operating loss was due to the geographic sales mix and higher raw materials, conversion, selling and acquisition costs. The first quarter of 2011 includes net income of $1.2 million relating to a $3.6 million net reversal of a non-income tax reserve as the exposure is no longer probable, partially offset by acquisition costs and one time fair value amortization of inventory of $2.4 million.
Net Sales. Net sales were $304.1 million for the three months ended March 31, 2011, an increase of 59 percent compared to $190.7 million for the same quarter last year. The net sales increase was primarily a result of an increase in our overall sales volume of 38 percent and sales prices of 16 percent as compared to the three months ended March 31, 2010. Our overall aromatics sales volumes increased as a result of increases in the sales volumes of cumene of 12 percent and phenol and acetone of about 97 percent. Our aromatics sales volume increases were due to strong phenol demand in both North America and Asia as well as a tighter supply due to operating issues in the U.S. Our overall average sales prices increased as a result of an increase in the prices of cumene of 21 percent, and phenol and acetone of 11 percent. The sales price increases reflect higher costs for the feedstocks benzene and propylene.
Operating Income. Operating income increased by $10.2 million to $19.8 million for the three months ended March 31, 2011 from $9.6 million for the three months ended March 31, 2010. This increase in operating income was due primarily to an increase in aromatics sales volumes due to strong phenol demand in both North America and Asia as well as cumene industry operating issues in the U.S. Our aromatics operating rate increased from 62 percent for the first three months of 2010 to about 84 percent for the same period of this year. In addition, our operating income improvement was driven by raw material prices rising throughout the first quarter of 2011 as we were able to more than recover previously purchased raw materials costs in an increasing sales price environment due to the time lag between the purchase of raw materials and the sale of the related finished goods. As a result, our sales price increases for all of our aromatics products more than offset a significant increase in our raw materials costs. Overall raw material costs increased 21 percent from the first three months of 2010 to the same period of this year, primarily as a result of increases in benzene and propylene costs. CMAI reported that industry prices of our primary feedstocks, benzene and propylene, increased 18 percent, and 28 percent, respectively from the same period of last year.
34
Liquidity and Capital Resources
Operating Activities. For the three months ended March 31, 2011, we used $76.6 million of cash in operating activities as compared with $42.0 million for the three months ended March 31, 2010, primarily due to the increase in usage of net working capital of $71.4 million. Total working capital used for the three months ended March 31, 2011 was $115.9 million. The usage of cash for working capital included the increase of $100.1 million due to receivables, $73.6 million increase due to inventory, $24.9 million increase due to accrued compensation, $9.5 million due to interest payments and is offset by the increase in cash flow provided by accounts payable of $100.8 million. Net working capital at March 31, 2011 also reflected an increase in short term debt, largely due to the scheduled repayment of our 7.125% Senior Notes due 2013 and 9.5% Senior Notes due 2014 in the aggregate amount of $22.1 million. See Financing Activities for additional information.
The major source of cash for the first three months of 2010 was an increase in accounts payable of $49.1 million. Major uses of cash for the first three months of 2010 were an increase in the accounts receivable of $65.9 million and an increase in inventories of $30.1 million.
Investing Activities. Net cash used in investing activities was $82.5 million and $10.2 million for the three months ended March 31, 2011 and 2010, respectively. The significant change in the current quarter was the $71.6 million acquisition of Exterior Portfolio. Capital expenditures used cash of $10.9 million and $11.0 million in the three months ended March 31, 2011 and 2010, respectively.
Financing Activities. Cash provided by financing activities was $69.3 million for the three months ended March 31, 2011 compared with $61.5 million for the three months ended March 31, 2010. During the three months ended March 31, 2011, we drew a net of $70.8 million under our ABL Revolver primarily to fund the increased working capital demands.
On April 4, 2011, we redeemed all of our 7.125% Senior Notes due 2013 and 9.5% Senior Notes due 2014 that remained outstanding for the aggregate principal amount of $22.1 million. In addition, our other note payable of $16.9 million is due in January 2012, and over the next twelve months, we expect to repay approximately $22.7 million of borrowings under our ABL Revolver. Therefore, we have classified these debts as current in our consolidated balance sheet as of March 31, 2011.
Short-Term Borrowings from Banks. At March 31, 2011, under our ABL Revolver, we had a maximum borrowing capacity of $300.0 million, and net of qualifying accounts receivable and inventory, outstanding letters of credit of $16.2 million, current borrowings of $70.8 million, resulting in remaining availability of $213.0 million under the ABL Revolver at March 31, 2011.
($ in millions)
|
As of and for the quarter ended March 31, 2011 |
|||
---|---|---|---|---|
Short-Term Borrowings from Banks: |
||||
Outstanding amount at period end |
$ | 70.8 | ||
Weighted average interest rate at period end |
4.8 | % | ||
Average daily amount outstanding for the period |
$ | 20.0 | ||
Weighted average daily interest rate for the period |
4.8 | % | ||
Maximum month end amount outstanding during the period |
$ | 70.8 |
Management believes based on current and projected levels of operations and conditions in our markets and cash flow from operations, together with our cash and cash equivalents on hand of $33.5 million and the availability to borrow an additional $213.0 million under our ABL Revolver as of March 31, 2011, the company has adequate funding for the foreseeable future to make required payments of principal and interest on our debt and fund our working capital and capital expenditure requirements and comply with the financial ratios of the ABL Revolver and covenants under our
35
indenture for the 9.0 percent senior secured notes. To the extent our cash flow and liquidity exceeds the levels necessary for us to make our required debt payments, fund our working capital and capital expenditure requirements and comply with our ABL Revolver and the indenture for the 9.0 percent senior secured notes, we may use that excess liquidity to further grow our business through investments or acquisitions, payment of dividends and/or to further reduce our debt through optional prepayments or redemptions of our outstanding debt securities.
Contractual Obligations. Information related to our contractual obligations at December 31, 2010 can be found in our 2010 Annual Report on Form 10-K in Part II. Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our contractual obligations at March 31, 2011, have increased by approximately $15.6 million or 0.5 percent since December 31, 2010. The increase from December 31, 2010 is primarily related to us drawing on the ABL Revolver during the first quarter of 2011 to fund seasonal working capital demands.
We based our 2011 operating plans on conservative macro economic assumptions regarding the main drivers of our businesses. We assume a slight recovery in U.S. housing starts and a slight weakening in Canadian housing starts, gross domestic product ("GDP") growth in both the U.S. and Canada greater than 2 percent over 2010, strong global demand for our chemical products, and natural gas costs similar to 2010.
We expect we will invest $75 million to $85 million of capital expenditures in our businesses in 2011. In our Chlorovinyls and Aromatics segments, we expect we will make the productivity and reliability investments that are required to run the higher operating rates we expect in the coming years. In our Building Products segment, we expect to invest in productivity improvements as well as accelerating our new product development efforts ahead of the expected eventual recovery in these markets.
This Form 10-Q contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the beliefs of management as well as assumptions made by the information currently available to us. When used in this Form 10-Q, the words "anticipate," "believe," "plan," "estimate," "expect," and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. 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, 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:
36
A number of these factors are discussed in this Form 10-Q and in our other periodic filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2010.
During the three months ended March 31, 2011, we did not have any material changes to our critical accounting policies listed in Part II. Item 7. "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2010 (the "2010 Annual Report").
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For a discussion of certain market risks related to Georgia Gulf, see Part II. Item 7A. "Quantitative and Qualitative Disclosures About Market Risk," in our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes with respect to our exposure to market risks from those set out in such report.
37
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of Georgia Gulf management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, due to the material weakness in internal control over financial reporting in the area of accounting for income taxes, the company's disclosure controls and procedures were not effective as of that date.
For additional information regarding this material weakness, see "Item 9A. Controls and Procedures" contained in the company's 2010 Annual Report.
Changes in Internal Control.
Other than as described below, there have not been any changes in the company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting.
There were changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2011 (the "First Quarter") that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As a result of the identification in 2010 of the issues that led to the previously disclosed restatements of certain of our historical financial statements as described in "Item 9A. Controls and Procedures" of the Annual Report, and as a result of the company concluding that it has a material weakness of internal control over financial reporting in the area of accounting for income taxes, the company has implemented, and continued to implement during the First Quarter, a number of remediation steps to address that material weakness and has made significant progress to improve the company's internal control over financial reporting. Specifically, the following remediation steps were taken in the First Quarter:
Subsequent to March 31, 2011, the Company has continued to undertake similar changes to its historical internal control over financial reporting in order to further address and remediate the existing material weakness in internal control over financial reporting in the area of accounting for taxes. The company anticipates that it will complete its implementation and testing of these remediation steps in 2011; however additional measures may be required, which may require additional implementation time. We will continue to assess the effectiveness of our remediation efforts in connection with management's future evaluations of internal control over financial reporting.
38
The first five paragraphs of Note 9 to the accompanying unaudited condensed consolidated financial statements are incorporated by reference herein.
We are involved in certain legal proceedings that are described in Part I. Item 3. "Legal Proceedings" in our 2010 Annual Report. During the quarter ended March 31, 2011, there were no material developments in the status of those proceedings. 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.
There have been no material changes to the information set forth in Part I. Item 1A. "Risk Factors" in our 2010 Annual Report.
Exhibits | |
||
---|---|---|---|
10 | Amendment No. 2, dated as of January 14, 2011 by and among Georgia Gulf Corporation, a Delaware corporation ("U.S. Borrower"), Royal Group, Inc., a Canadian federal corporation ("Canadian Borrower"), General Electric Capital Corporation ("GE Capital), as Administrative Agent, Swingline Lender and Co-Collateral Agent, Wachovia Capital Finance Corporation (New England) ("Wachovia Capital"), as Co-Collateral Agent and L/C Issuer, and the Lenders party hereto, under that certain Credit Agreement, dated as of December 22, 2009 (as the same may be further amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") by and among the U.S. Borrower, the Canadian Borrower, the other Credit Parties party thereto, the Lenders and the L/C Issuers from time to time party thereto, GE Capital, as Administrative Agent, Co-Collateral Agent and Co-Syndication Agent, and Wachovia Capital, as Co-Collateral Agent and Co-Syndication Agent. | ||
31 |
Rule 13a-14(a)/15d-14(a) Certifications. |
||
32 |
Section 1350 Certifications. |
39
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GEORGIA GULF CORPORATION (Registrant) |
||
Date: May 6, 2011 |
/s/ PAUL D. CARRICO Paul D. Carrico President and Chief Executive Officer (Principal Executive Officer) |
|
Date: May 6, 2011 |
/s/ GREGORY C. THOMPSON Gregory C. Thompson Chief Financial Officer (Principal Financial and Accounting Officer) |
40
Exhibit 10
EXECUTION COPY
AMENDMENT NO. 2
TO
REVOLVING CREDIT AGREEMENT
This is AMENDMENT NO. 2, dated as of January 14, 2011 (this Amendment), by and among by GEORGIA GULF CORPORATION, a Delaware corporation (U.S. Borrower), ROYAL GROUP, INC., a Canadian federal corporation (Canadian Borrower), GENERAL ELECTRIC CAPITAL CORPORATION (GE Capital), as Administrative Agent, Swingline Lender and Co-Collateral Agent, Wachovia Capital Finance Corporation (New England) (Wachovia Capital), as Co-Collateral Agent and L/C Issuer, and the Lenders party hereto, under that certain Credit Agreement, dated as of December 22, 2009 (as the same may be further amended, restated, supplemented or otherwise modified from time to time, the Credit Agreement) by and among the U.S. Borrower, the Canadian Borrower, the other Credit Parties party thereto, the Lenders and the L/C Issuers from time to time party thereto, GE Capital, as Administrative Agent, Co-Collateral Agent and Co-Syndication Agent, and Wachovia Capital, as Co-Collateral Agent and Co-Syndication Agent. Capitalized terms used but not defined in this Amendment shall have the meanings that are set forth in the Credit Agreement.
WITNESSETH:
WHEREAS, the Credit Parties, the Lenders, the Swingline Lender, the L/C Issuer, the Administrative Agent and the Co-Collateral Agents wish to make certain amendments to the Credit Agreement on the terms and subject to the conditions herein provided;
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENT
1.1 Effective as of the Second Amendment Effective Date (as defined in Section 2 hereof) and subject to the satisfaction (or due waiver) of the conditions set forth in Section 2 (Conditions Precedent to Effectiveness) hereof, the Credit Agreement is hereby amended as follows:
(a) Section 1.9 (Fees) is hereby amended by amending and restating clause (b) thereof in its entirety as follows:
(b) Unused Commitment Fee. The Borrowers shall pay to Administrative Agent a fee (the Unused Commitment Fee) for each day in an amount equal to:
(i) the Aggregate Revolving Loan Commitment for such day, less
(ii) the Revolving Loan Commitment for such day of any Non-Funding Lender, less
(iii) the sum of (x) the Revolving Loans outstanding plus (y) the Swing Loans outstanding plus (z) the amount of Letter of Credit Obligations, in each case for such day,
multiplied by (A) 0.50% per annum if the then applicable Utilization is less than 50% and (B) 0.375% per annum if the then applicable Utilization is greater than or equal to 50%. Such fee shall be payable monthly in arrears on the first day of the calendar month following the date hereof and the first day of each calendar month thereafter. The Unused Commitment Fee provided in this subsection 1.9(b) shall accrue at all times from and after mutual execution and delivery of this Agreement. Following receipt of the Unused Commitment Fee, Administrative Agent shall pay to each Revolving Lender (other than the Swingline Lender with respect to any Swing Loans, and other than any Non-Funding Lender from and after the date such Lender became a Non-Funding Lender and regardless of whether such Non-Funding Lenders Commitment has been terminated) from, and to the extent of, the Unused Commitment Fee and interest received by it on the Swing Loans an amount equal to its pro rata share of the Unused Commitment Fee calculated as if the average daily balance of Swing Loans for the preceding calendar month had been zero.
(b) Section 11.1 (Defined Terms) is hereby amended by inserting the following new definition in such section in the appropriate alphabetical order:
Mortgaged Property has the meaning assigned to such term in Schedule 4.16.
(c) The definitions of Availability Block, Canadian Availability Block and Domestic Availability Block shall each be deleted in its entirety.
(d) The Pricing Grid set forth in the definition of Applicable Margin shall be amended and restated in its entirety as follows
Revolving Loans and Swing Loans
|
Average Excess Availability |
|
LIBOR Margin |
|
Base Rate/Canadian Index Rate |
|
|
|
Greater than or equal to $150,000,000 |
|
2.50 |
% |
1.50 |
% |
|
|
Greater than $75,000,000 and less than $150,000,000 |
|
2.75 |
% |
1.75 |
% |
|
|
Less than or equal to $75,000,000 |
|
3.00 |
% |
2.00 |
% |
|
(e) The definition of Canadian Borrowing Base shall be amended by deleting clause (c) in its entirety and re-lettering clauses (d) and (e) thereof as clause (c) and (d), respectively;
(f) The definition of Domestic Borrowing Base shall be amended by deleting clause (c) in its entirety and re-lettering clauses (d) and (e) thereof as clause (c) and (d), respectively;
(g) The definition of Excess Availability shall be amended by deleting the phrase less the Availability Block from clause (a)(i);
(h) The definition of Revolving Termination Date shall be amended and restated in its entirety as follows:
Revolving Termination Date means the earlier to occur of: (a) January 13, 2016 and (b) the date on which the Aggregate Revolving Loan Commitment shall terminate in accordance with the provisions of this Agreement.
SECTION 2. CONDITIONS PRECEDENT TO EFFECTIVENESS
2.1 This Amendment shall become effective as of the date hereof (the Second Amendment Effective Date) upon the following:
(a) The Administrative Agent shall have received counterparts of this Amendment duly executed by the Borrowers, the Administrative Agent, the Lenders, the Swingline Lender and the L/C Issuer;
(b) The Administrative Agent shall have received an opinion of Jones Day, counsel to the Credit Parties, dated as of the Second Amendment Effective Date, in form and substance reasonably satisfactory to the Administrative Agent;
(c) The Administrative Agent shall have received, for the account of each Lender, a consent fee equal to 0.15% of the aggregate principal amount of the Revolving Loan Commitment of such Lender;
(d) The Administrative Agent and Lenders shall have received all fees, costs and expenses due and payable under the Credit Agreement and the other Loan Documents (including without limitation the fees and out-of-pocket expenses of legal counsel to the Administrative Agent);
(e) All representations and warranties contained in Section 3 hereof shall be true and correct as of the Second Amendment Effective Date; and
(f) The Administrative Agent shall have received standard form flood hazard determination certificates for each Mortgaged Property and, if applicable, evidence of Flood Insurance.
SECTION 3. REPRESENTATIONS AND WARRANTIES
On and as of the Second Amendment Effective Date, after giving effect to this Amendment and the transactions contemplated hereby, each Credit Party party hereto represents and warrants to the Administrative Agent and the Lenders, that the following statements are true and correct:
3.1 Corporate Power and Authority. Each Credit Party party hereto has all requisite power and authority to (a) enter into this Amendment and to carry out the transactions contemplated hereby and (b) perform its obligations under each Loan Document to which it is a party and to carry out the transactions contemplated thereby.
3.2 Authorization of Agreements. The execution, delivery and performance of this Amendment and the documents contemplated hereby and thereby have been duly authorized by all necessary action on the part of each Credit Party party hereto.
3.3 Incorporation of Representations and Warranties from the Credit Agreement. The representations and warranties as to each Credit Party made in Article III (Representations and Warranties) of the Credit Agreement are true and correct in all material respects (without duplication of any materiality qualifier contained therein), except to the extent that such representations or warranties expressly relate to an earlier date, in which event such representations and warranties shall be true and
correct in all material respects (without duplication of any materiality qualifier contained therein) as of such earlier date.
3.4 Absence of Default. Before and immediately after giving effect to this Amendment and the transactions contemplated hereby, no Default or Event of Default has occurred and is continuing or will result therefrom.
SECTION 4. POST-SECOND AMENDMENT EFFECTIVE DATE MATTERS
4.1 Post-Second Amendment Effective Date Requirements Relating to the Mortgaged Properties. Within thirty (30) days of the Second Amendment Effective Date (or such later date acceptable to the Administrative Agent in its sole discretion), the Credit Parties shall deliver to the Administrative Agent:
(a) title searches for each Mortgaged Property reasonably satisfactory to the Administrative Agent indicating among other things that the applicable Credit Party has valid legal title to (or in the case of leasehold interests, a valid leasehold in) the Mortgaged Property, free and clear of any Lien except for Permitted Liens, and otherwise containing only such additional exceptions as may be reasonably satisfactory to the Administrative Agent (and to the extent requested by the Administrative Agent, a true and correct copy of any recorded instruments appearing on such search results), provided however, if such title searches show any Lien other than Permitted Liens, the applicable Credit Party shall, within thirty (30) days of notice from the Administrative Agent, cure such Lien to the reasonable satisfaction of the Administrative Agent, the failure to so cure shall, upon further notice from the Administrative Agent following the expiration of such cure period, be an Event of Default; and
(b) evidence that all fees, costs and expenses have been paid in connection with such title searches and other charges incurred in connection with the other matters described in this Section 4.1.
SECTION 5. MISCELLANEOUS
5.1 Ratification by Credit Parties.
(a) Each of the Credit Parties hereby agrees and consents to this Amendment and to the documents and agreements referred to herein. Each of the Credit Parties agrees and acknowledges that (i) notwithstanding the effectiveness of this Amendment, such Credit Partys guarantee (as set forth in the Collateral Documents) shall remain in full force and effect without modification thereto and (ii) nothing herein shall in any way limit any of the terms or provisions of such Credit Partys guarantee or any other Loan Document executed by such Credit Party (as the same may be amended from time to time), all of which are hereby ratified, confirmed and affirmed in all respects. Each of the Credit Parties hereby agrees and acknowledges that no other agreement, instrument, consent or document shall be required to give effect to this Section 5.1. Each of the Credit Parties hereby further acknowledges that the Borrowers, the Administrative Agent and any Lender may from time to time enter into any further amendments, modifications, terminations and/or waivers of any provision of the Loan Documents without notice to or consent from such Credit Party and without affecting the validity or enforceability of such Credit Partys guarantee or giving rise to any reduction, limitation, impairment, discharge or termination of such Credit Partys guarantee.
(b) The Roybridge Financing Trust/La Fiducie De Financement Roybridge hereby ratifies and confirms its agreement with each of the following amendments, waivers and consents in connection with the Credit Agreement as if such entity had been an original signatory to such amendments, waivers and consents on the respective dates of execution: (a) Waiver No. 2, dated as of
August 6, 2010; (b) Amendment No. 1, dated as of October 6, 2010; and (c) Waiver No. 3, dated as of November 19, 2010; and (d) Consent and Waiver No. 4, dated as of December 23, 2010.
5.2 Binding Effect. This Amendment shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of the Lenders.
5.3 Severability. In case any provision in or obligation hereunder shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
5.4 References to Credit Agreement. On and after the Second Amendment Effective Date, each reference in the Credit Agreement to this Agreement, hereunder, hereof, herein or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the Credit Agreement, Revolving Credit Agreement, thereunder, thereof or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment.
5.5 Effect on Credit Agreement. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. The parties agree that in the event of any conflict between this Amendment and the provisions of the Credit Agreement, this Amendment shall control.
5.6 No Waiver. The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Administrative Agent or Lenders under, the Credit Agreement or any of the other Loan Documents. This Amendment shall not constitute an amendment or waiver of, or an indication of the Administrative Agents or the Lenders willingness to amend or waive, any other provisions of the Credit Agreement or any other Loan Documents or the same provisions for any date or purpose.
5.7 Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
5.8 APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.
5.9 Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an executed signature page of this Amendment by facsimile transmission or electronic mail shall be as effective as delivery of a manually executed counterpart hereof.
5.10 Loan Document. This Amendment is a Loan Document.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
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BORROWERS: | |
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GEORGIA GULF CORPORATION | |
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ROYAL GROUP, INC. GROUPE ROYAL, INC. | |
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By |
/s/ Gregory Thomson |
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Name: Gregory Thomson |
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Title: Chief Financial Officer |
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GUARANTORS: | |
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GEORGIA GULF CHEMICALS & VINYLS, LLC | |
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GEORGIA GULF LAKE CHARLES, LLC | |
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ROYAL MOULDINGS LIMITED | |
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ROYAL WINDOW AND DOOR PROFILES PLANT 13 INC. | |
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ROYAL WINDOW AND DOOR PROFILES PLANT 14 INC. | |
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ROYAL OUTDOOR PRODUCTS, INC. | |
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PLASTIC TRENDS, INC. | |
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ROYAL GROUP SALES (USA) LIMITED | |
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ROME DELAWARE CORP. | |
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ROYAL PLASTICS GROUP (U.S.A.) LIMITED | |
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ROME ACQUISITION HOLDING CORP. | |
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By: |
/s/ Gregory Thomson |
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Name: Gregory Thomson |
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Title: Vice President |
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO CREDIT AGREEMENT]
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ALAIN CÔTÉ, acting solely in his capacity as trustee of | |
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By: |
/s/ Alain Côté |
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Name: Alain Côté |
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Title: Sole Trustee |
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO CREDIT AGREEMENT]
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GENERAL ELECTRIC CAPITAL CORPORATION, | |
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By: |
/s/ David C. Johnson |
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Name: |
David C. Johnson |
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Title: |
Duly Authorized Signatory |
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO CREDIT AGREEMENT]
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JPMORGAN CHASE BANK, N.A., as Lender | |
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By: |
/s/ Kevin Chichester |
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Name: |
Kevin Chichester |
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Title: |
Vice President |
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO CREDIT AGREEMENT]
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BARCLAYS BANK PLC, as Lender | |
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By: |
/s/ Michael J. Mozer |
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Name: |
Michael J. Mozer |
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Title: |
Assistant Vice President |
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO CREDIT AGREEMENT]
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WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as Lender | |
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By: |
/s/ Katherine Houser |
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Name: |
Katherine Houser |
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Title: |
Director |
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO CREDIT AGREEMENT]
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WELLS FARGO BANK, NATIONAL ASSOCIATION, as Lender | |
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By: |
/s/ Katherine Houser |
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Name: |
Katherine Houser |
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Title: |
Director |
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO CREDIT AGREEMENT]
Rule 13a-14(a)/15d-14(a) Certifications
I, Paul D. Carrico, certify that:
Date: May 6, 2011 | /s/ PAUL D. CARRICO Paul D. Carrico President and Chief Executive Officer |
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I, Gregory C. Thompson, certify that:
Date: May 6, 2011 | /s/ GREGORY C. THOMPSON Gregory C. Thompson Chief Financial Officer |
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SECTION 1350 CERTIFICATION
In connection with the Quarterly Report of Georgia Gulf Corporation (the "Company") on Form 10-Q for the quarter ended March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul D. Carrico, certify, to the best of my knowledge pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ PAUL D. CARRICO Paul D. Carrico President and Chief Executive Officer |
May 6, 2011
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SECTION 1350 CERTIFICATION
In connection with the Quarterly Report of Georgia Gulf Corporation (the "Company") on Form 10-Q for the quarter ended March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory C. Thompson, certify, to the best of my knowledge pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ GREGORY C. THOMPSON Gregory C. Thompson Chief Financial Officer |
May 6, 2011
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