-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VhBU+lQzexJX0RuSL7NdC2S2fG+JynWhcT8kZUWNxUCYNtVdSCkZpvUnIW01MlF9 BPukxKEQ0wbZV5tNfF7mTw== 0001047469-99-031460.txt : 19990813 0001047469-99-031460.hdr.sgml : 19990813 ACCESSION NUMBER: 0001047469-99-031460 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA GULF CORP /DE/ CENTRAL INDEX KEY: 0000805264 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 581563799 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09753 FILM NUMBER: 99686044 BUSINESS ADDRESS: STREET 1: 400 PERIMETER CTR TERRACE STREET 2: STE 595 CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 4043954500 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-9753 GEORGIA GULF CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 58-1563799 ------------------------------ --------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 PERIMETER CENTER TERRACE, SUITE 595, ATLANTA, GEORGIA 30346 - --------------------------------------------------------- --------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (770) 395-4500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. OUTSTANDING AS OF CLASS AUGUST 11, 1999 ----- ----------------- Common Stock, $0.01 par value.............. 30,933,924 shares GEORGIA GULF CORPORATION FORM 10-Q QUARTERLY PERIOD ENDED JUNE 30, 1999 INDEX PAGE NUMBERS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998..................................................................... 1 Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 1999 and 1998............................................... 2 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998............................................... 3 Notes to Condensed Consolidated Financial Statements as of June 30, 1999 .................................................................... 4-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 8-12 Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings .......................................................................... 14 Item 4. Submission of Matters to a Vote of Security Holders ........................................ 15 Item 6. Exhibits and Reports on Form 8-K............................................................ 15 SIGNATURES............................................................................................. 16
PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. GEORGIA GULF CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
JUNE 30, DECEMBER 31, 1999 1998 -------------- -------------- ASSETS Cash and cash equivalents $ 752 $ 1,244 Receivables 57,741 61,203 Insurance receivable 31,910 9,030 Inventories 72,855 72,301 Prepaid expenses 4,208 3,562 Deferred income taxes 6,492 6,492 -------------- -------------- Total current assets 173,958 153,832 -------------- -------------- Property, plant and equipment, at cost 690,638 683,495 Less accumulated depreciation 304,417 282,346 -------------- -------------- Property, plant and equipment, net 386,221 401,149 -------------- -------------- Goodwill 83,915 85,154 -------------- -------------- Other assets 32,873 29,626 -------------- -------------- Total assets $ 676,967 $ 669,761 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 225,000 $ -- Accounts payable 73,287 66,459 Interest payable 2,283 2,272 Accrued compensation 4,716 6,814 Accrued pension 742 378 Other accrued liabilities 18,102 12,833 -------------- -------------- Total current liabilities 324,130 88,756 -------------- -------------- Long-term debt 224,925 459,475 -------------- -------------- Deferred income taxes 96,884 92,649 -------------- -------------- Stockholders' equity Common stock - $0.01 par value 309 309 Additional paid-in capital 490 -- Retained earnings 30,229 28,572 -------------- -------------- Total stockholders' equity 31,028 28,881 -------------- -------------- Total liabilities and stockholders' equity $ 676,967 $ 669,761 " -------------- -------------- -------------- -------------- Common shares outstanding 30,930,154 30,883,754 -------------- -------------- -------------- --------------
See notes to condensed consolidated financial statements. GEORGIA GULF CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------- ------------------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Net sales $ 191,472 $ 225,555 $ 379,060 $ 458,260 ------------ ------------ ------------ ------------ Operating costs and expenses Cost of sales 168,031 180,992 333,963 368,691 Selling and administrative 9,674 10,447 20,016 21,192 Total operating costs and expenses 177,705 191,439 353,979 389,883 ------------ ------------ ------------ ------------ Operating income 13,767 34,116 25,081 68,377 Other income (expense) Interest, net (7,359) (7,703) (14,682) (14,829) ------------ ------------ ------------ ------------ Income before income taxes 6,408 26,413 10,399 53,548 Provision for income taxes 2,338 9,907 3,795 20,086 ------------ ------------ ------------ ------------ Net income $ 4,070 $ 16,506 $ 6,604 $ 33,462 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Basic earnings per share $ 0.13 $ 0.52 $ 0.21 $ 1.05 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Diluted earnings per share $ 0.13 $ 0.52 $ 0.21 $ 1.04 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Weighted average common shares Basic 30,922,192 31,603,716 30,910,525 32,018,855 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Diluted 31,032,475 31,799,781 31,032,917 32,263,111 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
See notes to condensed consolidated financial statements. GEORGIA GULF CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
SIX MONTHS ENDED JUNE 30, -------------------------------- 1999 1998 ---- ---- Cash flows from operating activities: Net income $ 6,604 $ 33,462 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,662 22,235 Change in operating assets, liabilities and other, net of effects of acquisition (9,478) 8,131 ----------- ---------- Net cash provided by operating activities 20,788 63,828 ----------- ---------- Cash flows from financing activities: Long-term debt proceeds 115,000 156,800 Long-term debt payments (124,550) (58,000) Proceeds from issuance of common stock 359 1,212 Purchase and retirement of common stock -- (44,152) Dividends paid (4,946) (5,089) ----------- ---------- Net cash provided by (used in) financing activities (14,137) 50,771 ----------- ---------- Cash flows from investing activities: Capital expenditures (7,143) (12,927) Acquisition, net of cash acquired -- (99,902) ----------- ---------- Net cash used in investing activities (7,143) (112,829) ----------- ---------- Net change in cash and cash equivalents (492) 1,770 Cash and cash equivalents at beginning of period 1,244 1,621 ----------- ---------- $ 752 $ 3,391 Cash and cash equivalents at end of period ----------- ---------- ----------- ----------
See notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report for the year ended December 31, 1998 for Georgia Gulf Corporation and its subsidiaries (the "Company" or "Georgia Gulf"). Operating results for Georgia Gulf for the three- and six-month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. NOTE 2: NEW ACCOUNTING PRONOUNCEMENT During June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows derivative gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. In June 1999, the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133 for fiscal quarters of all fiscal years beginning after June 15, 2000, although earlier adoption is permitted. SFAS No. 133 can not be applied retroactively. Management has not yet quantified the impacts of adopting SFAS No. 133 on the Company's financial statements. NOTE 3: INVENTORIES The major classes of inventories were as follows (in thousands):
June 30, December 31, 1999 1998 --------- ----------- Raw materials and supplies $ 36,957 $ 26,462 Finished goods 35,898 45,839 -------- -------- $ 72,855 $ 72,301 -------- -------- -------- --------
NOTE 4: DERIVATIVE FINANCIAL INSTRUMENTS Georgia Gulf has two interest rate swap agreements for a total notional amount of $100,000,000 maturing in June 2002 to fix the interest rate on a term loan. Also, the Company has an interest rate swap agreement for a notional amount of $100,000,000 as a cash flow hedge for a cogeneration facility operating lease agreement. This interest rate swap agreement will mature August 2002. Georgia Gulf does not use derivatives for trading purposes. Interest rate swap agreements, a form of derivative, are used by the Company to manage interest costs on certain portions of the Company's long-term debt. These financial statements do not reflect temporary market gains and losses on derivative financial instruments. Amounts paid or received on the interest rate swap agreements are recorded to interest expense as incurred. As of June 30, 1999, and December 31, 1998, interest rate swap agreements were the only form of derivative financial instruments outstanding. The fair value of these swap agreements as of June 30, 1999 and December 31, 1998 was a payable of $187,000 and $6,412,000, respectively. NOTE 5: EARNINGS PER SHARE The numerator in basic and diluted earnings per share computations is reported net income. The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the condensed consolidated statements of income (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ------------------------------- 1999 1998 1999 1998 ---- ---- ---- ----- Weighted average common shares - basic 30,922 31,604 30,911 32,019 Plus incremental shares from assumed conversions: Options 93 196 102 244 Employee stock purchase plan rights 17 -- 20 -- ------ ------ ------ ------ Weighted average common shares - diluted 31,032 31,800 31,033 32,263 ------ ------ ------ ------ ------ ------ ------ ------
NOTE 6: SEGMENT INFORMATION SFAS No. 131 - "Disclosures about Segments of an Enterprise and Related Information" became effective for fiscal year 1998 and for all succeeding interim reporting periods. In accordance with the requirements of SFAS No. 131, the Company has identified three reportable segments through which it conducts its operating activities: chlorovinyls, aromatics and gas chemicals. These three segments reflect the organization used by Company management for internal reporting. The chlorovinyls segment is a highly integrated chain of products which includes chlorine, caustic soda, vinyl chloride monomer and vinyl resins and compounds. The aromatics segment is also vertically integrated and includes cumene and the co-products phenol and acetone. The third product segment, gas chemicals, includes methanol. Earnings of industry segments exclude interest income and expense, unallocated corporate expenses and general plant services, provision for income taxes, and income and expense items reflected as "other income (expense)" on the Company's consolidated statements of income. Intersegment sales and transfers are insignificant.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Segment net sales: Chlorovinyls $ 132,462 $ 133,475 $ 253,270 $ 260,299 Aromatics 48,252 81,334 106,708 169,896 Gas chemicals 10,758 10,746 19,082 28,065 ---------- ----------- ---------- ---------- Net sales $ 191,472 $ 225,555 $ 379,060 $ 458,260 ---------- ----------- ---------- ---------- ---------- ----------- ---------- ---------- Segment operating income: Chlorovinyls $ 15,325 $ 22,717 $ 27,218 $ 39,002 Aromatics 3,588 20,107 10,237 40,454 Gas chemicals (2,990) (4,549) (7,013) (3,170) Corporate and general plant services (2,156) (4,159) (5,361) (7,909) ---------- ----------- ---------- ---------- Total operating $ 13,767 $ 34,116 $ 25,081 $ 68,377 income ---------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
NOTE 7: ACQUISITION On May 11, 1998, the Company acquired all the issued and outstanding common stock (the "Stock") of North American Plastics, Inc. ("North American Plastics"), a privately-held manufacturer of flexible polyvinyl chloride ("PVC") compounds with a production capacity of 190,000,000 pounds. North American Plastics has two manufacturing locations in Mississippi, with revenues for 1997 of approximately $90,000,000. Its PVC compounds are used in wire and cable for construction, automobiles and appliances, as well as various other consumer and industrial products. The Stock was acquired in exchange for net cash consideration of $99,902,000 plus the assumption of $500,000 in debt. The cash portion of the acquisition was financed with proceeds from the Company's existing revolving credit loan. The transaction was accounted for as a purchase and the consideration exchanged exceeded the fair market value of the net tangible assets of North American Plastics by approximately $87,000,000. This excess was allocated to goodwill and is being amortized on a straight-line basis over a period of 35 years. The results of operations of the acquired business have been included in Georgia Gulf's condensed consolidated financial statements from the date of acquisition. Pro forma results of operations have not been presented because the effect of this acquisition was not significant. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS INDUSTRY OVERVIEW Georgia Gulf manufactures and markets products through two highly integrated lines categorized into chlorovinyls and aromatic chemicals; and also a third product line, methanol, a natural gas chemical. The Company's chlorovinyl products include chlorine, caustic soda, sodium chlorate, vinyl chloride monomer ("VCM"), and polyvinyl chloride ("PVC") resins and compounds; the Company's primary aromatic chemical products include cumene, phenol and acetone. For chlorovinyls, increased domestic chlorine/caustic capacity in the first half of 1999, together with additional capacity scheduled to come on line later this year and in 2000, have resulted in a significant decline in pricing for co-products, chlorine and caustic soda, from prior year levels. Recent strengthening in the PVC resin market has resulted in a stronger demand for chlorine while continued weakness in the pulp and paper industry has reduced the demand for caustic soda. In the first half of 1999, the combination of increased capacity and higher chlorine demand has led to a further deterioration in caustic soda pricing. Georgia Gulf consumes most of its chlorine production internally in the manufacture of VCM, which is further processed into PVC resins and compounds. The PVC resin market continued to recover in the second quarter of 1999 as a surge in demand resulted in a sold out market for much of the quarter. Upward pricing trends are expected to continue as no new domestic resin capacity is expected for the next several years. The market demand for PVC compounds, which are more specialized products, has remained strong in early 1999, benefitting from the continued good overall domestic business environment. For aromatics, cumene prices increased during the second quarter of 1999 following the price trends for raw materials benzene and propylene. However, prices were basically flat as compared to the second quarter last year. Industry operating rates for cumene are estimated to be around 80 percent as the industry continues to absorb capacity expansions added during the last several years. Phenol industry operating rates were high in the first half of 1999. Although demand for phenol was strong due to continued strength in the polycarbonate and phenolic resin markets, prices declined significantly from the prior year in anticipation of large capacity increases scheduled for the second half of 1999 and 2000. Although demand for phenol's co-product, acetone, recently began to strengthen, prices are still considerably lower than in the second quarter and first half of 1998. The methanol market continues to suffer from overcapacity as significant increases in global supply have created an imbalance between supply and demand. As a result, several domestic methanol producers, including Georgia Gulf, have idled their methanol plants. While these shutdowns, which began in 1998, have resulted in a supply contraction and an increase in spot prices during the first half of 1999, several new overseas methanol plants are scheduled to start-up later this year. This additional supply will add further pressure on sales prices in the future. SECOND QUARTER OF 1999 COMPARED WITH THE SECOND QUARTER OF 1998 For the second quarter ended June 30, 1999, diluted earnings per share were $0.13 on net income of $4.1 million and net sales of $191.5 million. This compares with diluted earnings per share of $0.52, net income of $16.5 million and net sales of $225.6 million for the second quarter of 1998. Operating income for the second quarter of 1999 was $13.8 million, a decrease of 60 percent from $34.1 million for the same period in 1998. The average sales price of Georgia Gulf's products declined 5 percent for the period-to-period comparison as almost all products experienced lower pricing. Raw material prices were slightly higher during the second quarter of 1999 which further reduced margins. Additionally, total sales volumes declined by 10 percent for the period-to-period comparison. In chlorovinyls, operating income for the second quarter of 1999 was $15.3 million, a decrease of 33 percent from the same period in 1998. With the exception of VCM, pricing was down for all chlorovinyl products in the second quarter of 1999 as compared to the second quarter of 1998. The significant decline in caustic soda pricing was primarily responsible for the decline in operating income; however, higher ethylene raw material prices also contributed to lower results for 1999. Operating income from aromatics was $3.6 million for the second quarter of 1999 compared to $20.1 million for the second quarter of 1998. Although raw material costs were lower for the second quarter of 1999, this benefit was more than offset by a significant decline in pricing, particularly for phenol and acetone. As a result of continued excess capacity and weakening demand in the global methanol market, Georgia Gulf's methanol plant remained idle during the second quarter of 1999. Georgia Gulf continues to supply customers with purchased methanol. The operating loss for gas chemicals was $3.0 million for the second quarter of 1999 compared with an operating loss of $4.5 million for the same period last year when the methanol plant was operating. The loss for the second quarter of 1999 is attributable to ongoing fixed costs associated with the idled methanol plant and losses related to the buy/resell program. Interest expense decreased to $7.4 million for the second quarter of 1999, compared with $7.7 million for the same period in 1998. SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1998 For the six months ended June 30, 1999, diluted earnings per share were $0.21 on net income of $6.6 million and sales of $379.1 million. This compares with diluted earnings per share of $1.04, net income of $33.5 million and sales of $458.3 million for the first six months of 1998. Operating income for the first six months of 1999 was $25.1 million, a decrease of 63 percent from $68.4 million for the same period in 1998. Total sales volumes declined 10 percent over the prior year for the six-month comparison. Average sales price declined by 9 percent when comparing the two periods. Although lower raw material prices helped offset a portion of the decline in average sales price, the net result was a lower profit margin. In chlorovinyls, operating income for the first half of 1999 was $27.2 million, a decrease of 30 percent from $39.0 million for the same period last year. Lower sales prices, particularly for caustic soda and vinyl resins, in the first half of 1999, more than offset lower raw material costs and improved results from vinyl compounds, as well as the impact of North American Plastics which was acquired in May 1998. Operating income from aromatics was $10.2 million for the first six months of 1999 as compared to $40.5 million for the same period in 1998. Lower raw material prices in the first half of 1999 were unable to offset lower sales prices, particularly for phenol and acetone. Cumene production rates and sales volumes were lower in the first half of 1999 as cumene remains in an over-supplied position. Georgia Gulf's methanol plant remained idled during the first half of 1999. The operating loss for gas chemicals was $7.0 million for the first six months of 1999 compared with an operating loss of $3.2 million for the same period last year when the methanol plant was operating. The loss for the first half of 1999 is attributable to ongoing fixed costs associated with the idled methanol plant and losses related to the buy/resell program. Interest expense decreased to $14.7 million for the first six months of 1999, compared with $14.8 million for the same period in 1998. LIQUIDITY AND CAPITAL RESOURCES Many of Georgia Gulf's commodity products have faced continued pricing pressure during 1999. As management anticipates lower cash flow from operations, investment in capital projects and stock repurchases will continue to be curtailed in order to maintain debt and available credit at manageable levels. Management believes that cash provided by operations and the availability under Georgia Gulf's revolving credit facility will provide sufficient funds to support planned capital expenditures, dividends, working capital fluctuations and debt service requirements. For the six months ended June 30, 1999, Georgia Gulf generated $20.8 million of cash flow from operating activities as compared with $63.8 million during the six months ended June 30, 1998. The "change in operating assets, liabilities and other" category for the first six months of 1999 included the payment of $22.9 million in litigation expenses which are expected to be reimbursed by Georgia Gulf's insurance carriers in the third quarter of 1999. Other significant working capital changes included increases in accounts payable and accrued liabilities due to timing of payments. Changes in working capital during the first six months of 1998 were primarily attributable to a decrease in inventories offset by lower accounts payable. Debt decreased by $9.6 million during the six months ended June 30, 1999, to a level of $449.9 million. Georgia Gulf had approximately $135.0 million of availability under its $350.0 million revolving credit loan as of June 30, 1999. The revolving credit loan is scheduled to mature March 30, 2000. Management anticipates refinancing this debt before its maturity date. Capital expenditures for the six months ended June 30, 1999 were down to $7.1 million as compared to $12.9 million for the same 1998 period. Capital expenditures for 1999 will be directed toward certain environmental projects and increased efficiency of existing operations. Georgia Gulf estimates that total capital expenditures for 1999 will approximate $20.0 million. Georgia Gulf declared dividends of $0.16 per share or $4.9 million during the first half of 1999. As of June 30, 1999, Georgia Gulf had authorization to repurchase up to 5.5 million shares under the current common stock repurchase program. YEAR 2000 COMPUTER SYSTEMS COMPLIANCE Georgia Gulf has recognized the need to ensure its operations will not be adversely affected by the Year 2000 date conversion situation common in many data processing systems. Georgia Gulf believes that all mission critical financial reporting and plant systems, hardware and software are currently Year 2000 compliant. The remaining plant systems waiting for final review are classified as low-risk and generally record but do not process dates for either controlling or calculation purposes. None of the critical third-parties contacted by Georgia Gulf, both suppliers and customers, have indicated any anticipation of major difficulties handling Year 2000 issues. Georgia Gulf will continue monitoring its Year 2000 compliance efforts to ensure its compliant status. Expenses related to Year 2000 compliance efforts were not material. FORWARD-LOOKING STATEMENTS This form 10-Q and other communications to stockholders, as well as oral statements made by representatives of Georgia Gulf, may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, Georgia Gulf's outlook for future periods, supply and demand, pricing trends and market forces within the chemical industry, cost reduction strategies and their results, planned capital expenditures, long-term objectives of management and other statements of expectations concerning matters that are not historical facts. Predictions of future results contain a measure of uncertainty and, accordingly, actual results could differ materially due to various factors. Factors that could change forward-looking statements are, among others: - - changes in the general economy; - - changes in demand for Georgia Gulf's products or increases in overall industry capacity that could affect production volumes and/or pricing; - - changes and/or cyclicality in the industries to which Georgia Gulf's products are sold; - - availability and pricing of raw materials; - - technological changes affecting production; - - difficulty in plant operations and product transportation; - - governmental and environmental regulations; and - - other unforseen circumstances. A number of these factors are discussed in this Form 10-Q and in Georgia Gulf's other periodic filings with the Securities and Exchange Commission, including Georgia Gulf's annual report on Form 10-K for the year ended December 31, 1998. Item 3. Quantitative and Qualitative Disclosures About Market Risk. For a discussion of certain market risks related to Georgia Gulf, see Part I, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk", in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. There have been no significant developments with respect to the Company's exposure to market risk except for the change in the fair value of interest rate swaps disclosed in note 4 to the financial statements included herein. PART II. OTHER INFORMATION. Item 1. Legal Proceedings. Georgia Gulf is a party to numerous individual and several class-action lawsuits filed against Georgia Gulf, among other parties, arising out of an incident that occurred in September 1996 in which workers were exposed to a chemical substance on Georgia Gulf's premises in Plaquemine, Louisiana. The substance was later identified to be a form of mustard agent, a chemical which is not manufactured as part of Georgia Gulf's ordinary operations, but instead occurred as a result of an unforeseen chemical reaction. Georgia Gulf presently believes there are approximately 2,000 plaintiffs, of which approximately 650 are workers claiming to have been on-site at the time of the incident. All of the actions claim one or more forms of compensable damages, including past and future wages, past and future physical and emotional pain and suffering, and medical monitoring. The lawsuits were originally filed in Louisiana State Court in Iberville Parish. In September 1998, the plaintiffs filed amended petitions that added the additional allegations that Georgia Gulf had engaged in intentional conduct against the plaintiffs. These additional allegations raised a coverage issue under Georgia Gulf's general liability insurance policies. In December 1998, as required by the terms of the insurance policies, the insurers demanded arbitration to determine whether coverage is required for the alleged intentional conduct in addition to the coverage applicable to the other allegations of the case. The date for the arbitration has not yet been established. As a result of the arbitration relating to the insurance issue, as permitted by federal statute, the insurers removed the cases to United States District Court in December 1998. By order entered March 2, 1999, the federal court denied the plaintiff's motion to remand the cases back to state court and retained federal jurisdiction. Settlements have been reached with a majority of the original workers, including those claimants believed to be the most severely injured. Cases for 130 plaintiffs have been dismissed and another 832 plaintiff cases are pending dismissal before the court. Additionally, settlements have been reached or are being negotiated with other parties named as defendants whereby such parties have made, or are being requested to make, contributions to the recoveries made by the plaintiffs. Negotiations for the resolution of the remaining claims are continuing. Notwithstanding the foregoing, Georgia Gulf is asserting and pursuing defenses to the claims. Based on the present status of the proceedings, Georgia Gulf believes the liability ultimately imposed will not have a material effect on the financial position or on results of operations of Georgia Gulf. In addition, Georgia Gulf is subject to other claims and legal actions that may arise in the ordinary course of business. Management believes that the ultimate liability, if any, with respect to these other claims and legal actions, will not have a material effect on the financial position or on results of operations of Georgia Gulf. Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of stockholders was held May 18, 1999 in Atlanta, Georgia for the following purposes: (i) to elect two directors to serve for a term of three years, and (ii) to consider and take action upon the ratification of the selection of Arthur Andersen LLP to serve as independent public accountants for the year ending December 31, 1999. The results of the voting by stockholders at the annual meeting were as follows:
BROKER NON-VOTES DIRECTORS FOR WITHHELD OR ABSTENTIONS - ------------------------ --- -------- ---------------- James R. Kuse 26,233,160 808,014 0 Charles T. Harris III 26,582,861 458,313 0
In addition, the terms of the following directors continued after the meeting: John D. Bryan Dennis M. Chorba Jerry R. Satrum Edward A. Schmitt Edward S. Smith The selection of Arthur Andersen LLP to serve as independent public accountants for the Company for the year ending December 31, 1999, was ratified by the following votes:
FOR AGAINST ABSTAIN BROKER NON-VOTES --- ------- ------- ---------------- 26,954,624 80,785 5,765 0
Item 6. Exhibits and Reports on Form 8-K. a) No exhibits are required to be filed as part of this Form 10-Q. b) No reports on Form 8-K were filed with the Securities and Exchange Commission during the second quarter of 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GEORGIA GULF CORPORATION ---------------------------------------- (Registrant) Date AUGUST 11, 1999 /s/ EDWARD A. SCHMITT ----------------------- ---------------------------------------- Edward A. Schmitt President and Chief Executive Officer (Principal Executive Officer) Date AUGUST 11, 1999 /s/ RICHARD B. MARCHESE ----------------------- ---------------------------------------- Richard B. Marchese Vice President Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GEORGIA GULF CORPORATION ---------------------------------------- (Registrant) Date AUGUST 11, 1999 ----------------------- ---------------------------------------- Edward A. Schmitt President and Chief Executive Officer (Principal Executive Officer) Date AUGUST 11, 1999 ----------------------- ---------------------------------------- Richard B. Marchese Vice President Finance, Chief Financial Officer and Treasurer (Principal Financial Officer)
EX-27 2 EXHIBIT 27
5 1,000 1 6-MOS DEC-31-1998 JAN-01-1999 JUN-30-1999 1 752 0 92,051 2,400 72,855 173,958 690,638 304,417 676,967 324,130 224,925 0 0 309 30,719 676,967 379,060 379,060 333,963 333,963 0 0 14,682 10,399 3,795 6,604 0 0 0 6,604 .21 .21
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