Item 1. BUSINESS.
General Description of Business
Georgia Gulf Corporation (the "Company") is a leading manufacturer and marketer of quality chemical and plastic products. The Company's products are manufactured through two highly integrated lines categorized into electrochemicals and aromatic chemicals; and also a third product line, methanol, a natural gas chemical. The Company's electrochemical products include chlorine, caustic soda, sodium chlorate, vinyl chloride monomer ("VCM"), vinyl resins and compounds; the Company's aromatic chemical products include cumene, phenol and acetone. The Company also owns a small oil and gas exploration and production company.
The Company has operated as an independent corporation since its acquisition on December 31, 1984, of a major portion of the business and assets of the chemical division of Georgia-Pacific Corporation ("Georgia-Pacific"). The Company's operations include production units at five locations, several marketing organizations responsible for the sale of the Company's chemicals, a research and development laboratory and a purchasing organization responsible for the acquisition of all major raw materials. In most product areas, the Company's marketing program is supported by an ongoing technical service effort. At the Company's five manufacturing locations, it has twelve plants, six of which are at Plaquemine, Louisiana. The Company also leases storage terminals and warehouses from which a portion of its products are distributed to customers.
The Company's major capital projects during 1994 were a vinyl resin plant expansion and the completion of a methanol plant expansion, both located at the Plaquemine, Louisiana, complex. The Company spends approximately one- fourth of its capital budget, before capital expansion projects, on environmental and safety programs, which enables the Company to continue to meet or exceed various regulatory standards. The remaining expenditures are typically used to expand, modernize and/or improve the efficiency of existing facilities.
The Company is currently expanding the vinyl rigid compound plant at its Gallman, Mississippi, location. The expansion consists of two phases which combined will add 168 million pounds of capacity. Completion of the first phase for approximately 50 percent of the expanded capacity is expected by early 1996. The Company has also begun a modernization and expansion of the cumene plant at Pasadena, Texas, which is expected to be completed in 1996. Additionally, a modernization and expansion has been announced for the Company's VCM plant in Plaquemine, Louisiana. The VCM modernization and expansion will commence in early 1995 and is expected to be completed by the end of 1996.
The Company's long-term strategy is to concentrate its efforts on products and services in the chemical and plastic industries. These efforts include the continuing investment in maintaining and improving the Company's low cost position, as well as selective and prudent capacity additions or expansions that could promote growth in present and closely related product lines.
Electrochemical Products
Chlorine/Caustic Soda/Sodium Chlorate. The Company's facility at Plaquemine, Louisiana, has the annual capacity to produce 452 thousand tons of chlorine and 501 thousand tons of chlorine's co-product, caustic soda, as well as 27 thousand tons of sodium chlorate.
The major raw materials for these products are salt brine and electric power. The Company has a long-term lease on a salt dome near Plaquemine, Louisiana, with sufficient reserves of salt to last nearly 50 years at current rates of production. The lease grants the Company the exclusive use of the salt dome for the production of salt brine.
Electric power is the most significant cost component in the production of chlorine, caustic soda and sodium chlorate. The Company's electrical requirements are supplied by Louisiana Power and Light Company, pursuant to an agreement that terminates September 1998, at rates that recognize the lower cost of supplying a very large, high load-factor customer.
Chlorine is used in the production of various chemicals, including those used to make plastics and vinyl resins. Other applications include drinking water purification, wastewater disinfection, pulp and paper bleaching, agricultural products, laundry aids, and pharmaceuticals.
Chlorine is used by the Company in the production of VCM, which is then used to produce vinyl resins. In 1994, the amount of chlorine consumed in the production of VCM represented a majority of the Company's chlorine production. The Company sells the remaining chlorine principally to the pulp and paper and chemical industries.
The major uses of caustic soda are in the production of pulp and paper, aluminum, oil, soaps and detergents. Caustic soda also has significant applications in the production of other chemicals and chemical processes where caustic is used to control pH levels aiding in waste neutralization. Another use is in the textile industry where it makes fabrics more absorbent and improves the strength of dyes. Caustic soda is also used, to a lesser extent, in food processing and electroplating.
Sodium chlorate has major applications in the bleaching process for pulp and paper. Sodium chlorate is also an ingredient in blasting agents, explosives and solid rocket fuels.
Vinyl Chloride Monomer. The Company produces VCM at its Plaquemine, Louisiana, complex as the feedstock for the production of vinyl resins. The major raw materials used in VCM production are purchased ethylene and Company-produced chlorine. The VCM plant's annual capacity is 1.26 billion pounds. A majority of the VCM production in 1994 was used by the Company's vinyl resins operations with the remainder being sold to other vinyl resins producers.
Vinyl Suspension Resins. The Company operates a vinyl suspension resins plant at Plaquemine, Louisiana. The plant is located adjacent to its major raw material supplier, the Company's VCM facility, thereby minimizing transportation and handling costs. The annual production capacity of the vinyl suspension resins plant is 1.12 billion pounds.
Vinyl suspension resins are some of the most widely used plastics in the world today. After being formulated to desired properties, vinyl resins are heated and shaped into finished products by various extrusion, calendaring and molding processes. Applications are diverse and include pipe, window frames, siding, flooring, shower curtains, packaging, bottles, film, medical tubing and business machine housings. Vinyl resins are also important to the automotive industry for use in seats, trim, floormats and vinyl tops.
Vinyl Emulsion Resins. The Company's Delaware City, Delaware, facility produces special purpose vinyl emulsion resins with an annual capacity of 48 million pounds. Vinyl emulsion resins, once compounded, are generally semi-liquid and are processed with heat. Typical applications include filter gaskets, battery separators, caulking compounds, sealants, surgical gloves, bottle cap liners and squeeze toys.
Vinyl Rigid Compounds. The Company's vinyl compounding plants, which have an aggregate of 290 million pounds of annual capacity, are located in Gallman, Mississippi; Delaware City, Delaware; and Tiptonville, Tennessee. Vinyl compounds are formulated to provide specific end-use properties that allow the material to be thermoformed directly into a finished product. All sales of vinyl compounds are to outside customers. The product line can be segregated into three major product areas according to the following fabrication methods:
Blow Molding -- The Company is a supplier of blow molding compounds, which are primarily used for both food-grade and general purpose bottles. Supplied in both clear and opaque colors, the materials are used to package edible oils, cosmetics, shampoos, charcoal lighter fluid and bottled water.
Injection Molding -- The Company supplies compounds used in the business machine market for computer housings and keyboards. It also supplies compounds to produce electrical outlet boxes. These proprietary compounds, with extensive approval procedures by customers or regulatory bodies, are sold to some of the leading producers of injection molded products. The Company also manufactures compounds for use in pipe and furniture fittings.
Profile Extrusion -- The Company supplies profile extrusion markets, which have applications in window and furniture profiles and extruded sheets for household fixtures and decorative overlays. Profile extrusions are an end-product for both pelletized and powder compounds.
Aromatic Chemical Products
Cumene. Cumene is produced at the Company's Pasadena, Texas, facility located on the Houston ship channel. The Company's cumene plant, the world's largest, has an annual capacity of 1.42 billion pounds. Cumene is produced from benzene and propylene, which are purchased from various suppliers under supply agreements and obtained from the numerous petroleum complexes located in the surrounding area. A large portion of the Company's 1994 cumene output was consumed internally in the production of phenol and its co-product acetone.
Phenol/Acetone. Phenol and acetone are produced at the Company's Plaquemine, Louisiana, plant, which has approximately 440 million pounds of annual phenol capacity and 270 million pounds of annual acetone capacity, as well as at the Pasadena, Texas, plant where annual capacity is 160 million pounds of phenol and 100 million pounds of acetone.
Phenol is a major ingredient in phenolic resins, which are used extensively as bonding agents and adhesives for wood products such as plywood and granulated wood panels, as well as in insulation and electrical parts. Phenol is also a precursor to high performance plastics used in automobiles, household appliances, electronics and protective coating applications. Phenol serves as an important building block for other familiar products such as nylon carpeting, oil additives and pharmaceuticals.
The largest use for acetone is as a key ingredient to methyl methacrylate, which is used to produce acrylic sheeting and in surface coating resins for automotive and architectural markets. Acetone is also an intermediate for the production of engineering plastics and several major industrial solvents. Other uses range from wash solvents for automotive and industrial applications to pharmaceuticals and cosmetics.
Also as a result of the phenol/acetone manufacturing process, the Company produces a by-product, alpha-methylstyrene ("AMS"), which is primarily used as a polymer modifier and as a chemical intermediate.
Natural Gas Product
Methanol. Methanol is produced at the Company's plant at Plaquemine, Louisiana, with an annual capacity of 160 million gallons. Natural gas represents the majority of the cost of methanol. The Plaquemine facility is located in the center of Louisiana's oil and gas producing region and has three separate pipeline systems delivering gas to the plant. The natural gas is purchased by the Company under long-term contracts at market prices from gas pipeline companies and directly from gas producers.
A key use for methanol is in the production of methyl tertiary-butyl ether, or MTBE, a gasoline additive that promotes cleaner burning by adding oxygen. Methanol is also used as a raw material in the manufacture of formaldehyde, which is an ingredient in bonding agents for building materials such as granulated wood panels and plywood. Other applications for methanol include windshield washer fluid, solvents, and components of acrylic sheeting, coatings, fibers and household adhesives.
Great River Oil & Gas Corporation
The Company owns Great River Oil & Gas Corporation, a small oil and gas exploration company, with activities centered in southern Louisiana. This subsidiary enhances the reliability of a small portion of the natural gas requirements at the Company's Plaquemine, Louisiana, complex.
Georgia-Pacific Contract
The Company has contracts to supply, subject to certain limitations, a substantial percentage of Georgia-Pacific's requirements for certain chemicals at market prices. These supply contracts have various expiration dates (depending on the product) from 1995 through 1999 and may be extended year-to-year upon expiration. The sales to Georgia-Pacific under these supply contracts for the years ended December 31, 1994, 1993 and 1992 amounted to approximately 15%, 15% and 14% of the Company's sales, respectively.
Marketing
The Company markets its products primarily to industrial customers throughout the United States. The Company's products are sold by its sales force, which is organized by product line. The sales organization, which is located predominantly in the eastern and midwestern United States, is supported by the Company's technical service staff.
The Company's marketing program has been aimed at expanding and diversifying its customer base both domestically and internationally. Other than Georgia-Pacific, no single customer represents more than 10% of the Company's net sales. Export sales accounted for approximately 13%, 14% and 15% of the Company's net sales for the years ended December 31, 1994, 1993 and 1992, respectively. The principal international markets served by the Company include Canada, Mexico, Latin America, Europe and Asia.
Raw Materials
The most important raw materials purchased by the Company are salt, electricity, ethylene, benzene, propylene and natural gas. Raw materials used for production of the Company's products are usually purchased from various suppliers under supply contracts. Since raw materials account for a significant portion of the Company's total production costs, the Company's ability to pass on increases in these costs to its customers has a significant impact on operating results which is, to a large extent, related to market conditions. Management believes the Company has a reliable supply base of raw materials under normal market conditions. The impact of any future raw material shortages cannot be accurately predicted.
Competition
The Company experiences competition from numerous manufacturers in all of its product lines. In some product areas, the Company's competitors have substantially greater financial resources and are more highly diversified than the Company. The Company competes on a variety of factors such as price, product quality, delivery and technical service.
Management believes that the Company is well-positioned to compete as a result of integrated product lines, the operational efficiency of its plants and the location of its facilities near major water and rail transportation terminals.
Employees
As of December 31, 1994, the Company had 1,146 full-time employees. The Company also utilizes approximately 379 workers supplied by outside contractors. The Company has one collective bargaining agreement, which covers 55 employees at its Tiptonville, Tennessee, facility as of December 31, 1994.
Environmental Regulation
The Company's operations are subject to various federal, state and local laws and regulations relating to environmental quality. These regulations, which are enforced principally by the United States Environmental Protection Agency and comparable state agencies, govern the management of solid and hazardous waste; emissions into the air and discharges into surface and underground waters; and the manufacture of chemical substances. All of the plants operated by the Company meet current environmental standards. In addition, Georgia-Pacific has agreed to indemnify the Company for certain environmental liabilities. See Item 3 -- "Legal Proceedings."
Management believes that the Company is in material compliance with all current environmental laws and regulations. The Company estimates that any expenses incurred in maintaining compliance with these requirements will not materially affect earnings or cause the Company to exceed its level of anticipated capital expenditures. However, there can be no assurance that regulatory requirements will not change, and therefore it is not possible to accurately predict the aggregate cost of compliance resulting from any such changes.
Item 2.
Item 2. PROPERTIES
The Company's asset base was established from 1971 to the present with construction of the Plaquemine, Louisiana, complex, the construction of the Pasadena, Texas, cumene plant; the purchase of the three vinyl resin and/or compound plants and the purchase of the Bound Brook, New Jersey, phenol/acetone facility subsequently relocated to Pasadena, Texas, and modernized in 1990. The Company continues to explore ways to expand both its plant capacities and product lines. The Company believes current and planned capacity will adequately meet anticipated demand requirements. The average capacity utilization percentage of the Company's production facilities operating in 1994 was approximately 97%.
The following table sets forth the location of each chemical manufacturing facility owned by the Company, the products manufactured at each facility and the approximate processing capability of each, assuming normal plant operation, as of December 31, 1994:
Location Products Annual Capacity
Delaware City, DE Vinyl Emulsion Resins, in million pounds 48
Delaware City, DE Vinyl Rigid Compounds, Gallman, MS in million pounds 290 Tiptonville, TN
Pasadena, TX Cumene, in billion pounds 1.42 Phenol, in million pounds 160 Acetone, in million pounds 100
Plaquemine, LA Chlorine, in thousand tons 452 Caustic Soda, in thousand tons 501 Sodium Chlorate, in thousand tons 27 Vinyl Chloride Monomer, in billion pounds 1.26 Vinyl Suspension Resins, in billion pounds 1.12 Phenol, in million pounds 440 Acetone, in million pounds 270 Methanol, in million gallons 160
The Company's manufacturing facilities are located near major water and rail transportation terminals facilitating efficient delivery of raw materials and prompt shipment of finished products. In addition, the Company has a fleet of 2,405 railcars of which 753 are owned and the remainder leased pursuant to operating leases with varying terms through the year 2010. The total lease expense for the Company's railcars and other transportation equipment was approximately $8,408,000 for 1994.
The Company leases office space for its principal executive offices in Atlanta, Georgia. The Company also leases office space for data processing in Baton Rouge, Louisiana; sales offices in Houston, Texas; Schaumburg, Illinois; and Lawrenceville, New Jersey; as well as numerous storage terminals located across the country.
Item 3.
Item 3. LEGAL PROCEEDINGS.
The Company is subject to claims and legal actions that arise in the ordinary course of its business. Management believes that the ultimate liability, if any, with respect to these claims and legal actions will not have a material effect on the financial position or on the results of operations of the Company.
Pursuant to the Company's acquisition agreement with Georgia-Pacific, the Company is entitled to be indemnified by Georgia-Pacific, generally for liabilities to third parties relating to activities of the chemical division of Georgia-Pacific prior to October 1, 1984, including environmental liabilities, liabilities for antitrust claims and similar liabilities. This indemnification extends to activities prior to December 31, 1984, in the case of liabilities attributable to claims, including certain claims for violation of environmental and workplace laws, to the extent not covered by, or in excess of, insurance coverage. Generally, indemnification under the acquisition agreement is limited to claims with respect to which notice was given to Georgia-Pacific before December 31, 1991.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of 1994.
PART II
Item 5.
Item 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information set forth under the captions "Corporate Information- -Common Stock Data" and Notes 5 and 6 of the "Notes to Consolidated Financial Statements" of the Company's 1994 Annual Report to Stockholders is hereby incorporated by reference herein in response to this item.
Item 6.
Item 6. SELECTED FINANCIAL DATA.
The information set forth under the caption "Five-Year Selected Financial Data" of the Company's 1994 Annual Report to Stockholders is hereby incorporated by reference herein in response to this item.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information set forth under the caption "Management's Discussion and Analysis" of the Company's 1994 Annual Report to Stockholders is hereby incorporated by reference herein in response to this item.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information set forth on pages 22 through 35 of the Company's 1994 Annual Report to Stockholders is hereby incorporated by reference herein in response to this item.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has not changed its independent public accountants and has had no disagreements with its independent public accountants on accounting and financial disclosure during the Registrant's two most recent fiscal years prior to, or in any period subsequent to, the date of the most recent financial statements included herein.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "Election of Directors" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 16, 1995, is hereby incorporated by reference in response to this item.
The following is certain information regarding the executive officers of the Company who are not Directors:
Richard B. Marchese, 53, has served as Vice President --Finance, Chief Financial Officer and Treasurer of the Company since May 1989, and prior thereto served as Controller from its inception.
Thomas G. Swanson, 53, has served as Vice President -- Supply and Corporate Development since August 1993. Mr. Swanson served as Vice President -- Commodity Chemicals Group from December 1989 to August 1993; as General Manager -- Commodity Chemicals Group from November 1988 until December 1989; and as Director of Corporate Development for the Company from July 1987. Prior thereto, Mr. Swanson was Manager -- Supply and Distribution for the Company since its inception.
Mark J. Seal, 43, has served as Vice President -- Polymer Group since August 1993. Mr. Seal served as Business and Manufacturing Director -- Vinyl Resins from May 1992 until August 1993 and as Business Manager PVC Resins and Compounds from May 1989 until May 1992. Prior thereto, Mr. Seal served as Business Manager -- Electrochemicals from January 1987 until May 1989 and as Midwest Regional Sales Manager for the Company since its inception.
Gary L. Elliott, 50, has served as Vice President -- Marketing and Sales Commodity Chemicals Group since August 1993. Mr. Elliott served as Business Manager -- Electrochemicals and Midwest Regional Sales Manager from June 1989 until August 1993. Prior thereto, Mr. Elliott served as Northeast Regional Sales Manager from May 1987 until June 1989; as VCM Product Manager from November 1985 to May 1987; and as a Sales Representative for the Company since its inception.
Edward A. Schmitt, 49, has served as Vice President -- Operations Commodity Chemicals Group since August 1993. Mr. Schmitt served as General Manager -- Chemical Operations from March 1992 until August 1993; as General Manager -- Plaquemine Division from May 1989 until March 1992; and as Plant Manager - Plaquemine Division from February 1988 until May 1989. Prior thereto, Mr. Schmitt served as Manufacturing Manager from October 1985 until February 1988 and as VCM Production Manager for the Company since its inception.
Joel I. Beerman, 45, has served as Vice President, General Counsel and Secretary since February 1994 and as General Counsel since February 1992. Prior thereto, Mr. Beerman served as Associate General Counsel for the Company since its inception.
Executive officers are elected by, and serve at the pleasure of, the Board of Directors.
Item 11.
Item 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Election of Directors" and "Executive Compensation" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 16, 1995, is hereby incorporated by reference in response to this item.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the captions "Principal Stockholders" and "Security Ownership of Management" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 16, 1995, is hereby incorporated by reference in response to this item.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has not had any transactions required to be reported under this item for the calendar year 1994, or for the period from January 1, 1995, to the date of this report.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Annual Report for Georgia Gulf Corporation:
(1) The Consolidated Financial Statements, the Notes to Consolidated Financial Statements, the Report of Management and the Report of Independent Public Accountants listed below are incorporated herein by reference from pages 22 through 35 of the Company's 1994 Annual Report to Stockholders:
Consolidated Balance Sheets as of December 31, 1994 and 1993
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1994, 1993 and
Notes to Consolidated Financial Statements
Report of Management
Report of Independent Public Accountants.
(2) Financial Statement Schedules:
Report of Independent Public Accountants on Financial Statement Schedule
The following financial statement schedule is for the years ended December 31, 1994, 1993 and 1992:
II Valuation and Qualifying Accounts
Schedules other than the one listed above are omitted because they are not required and are inapplicable or the information is otherwise shown in the Consolidated Financial Statements or notes thereto.
(3) Exhibits. Each management contract or compensatory plan or arrangement is preceded by an asterisk.
The following exhibits are filed as part of this Form 10-K Annual Report:
EXHIBIT NO. DESCRIPTION
10 Georgia Gulf Corporation 1995 Employee Stock Purchase Plan
13 Portions of the 1994 Annual Report to Stockholders
23 Consent of Independent Public Accountants
The following exhibit is incorporated by reference to the Company's 1994 Form 10-Q Quarterly Report for the period ending March 31, 1994 filed May 12, 1994.
EXHIBIT NO. DESCRIPTION
10 Credit Agreement, dated April 27, 1994, between the Company and The Chase Manhattan Bank (National Association) as Administrative Agent.
The following exhibits are incorporated herein by reference to the Company's 1991 Form 10-K Annual Report filed March 30, 1992.
EXHIBIT NO. DESCRIPTION
22 Subsidiaries of the Registrant 3(a) Certificate of Amendment of Certificate of Incorporation 3(b) Amended and Restated By-Laws *10 Georgia Gulf Corporation 1990 Incentive Equity Plan
The following exhibit is incorporated herein by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed May 11, 1990, as amended:
EXHIBIT NO. DESCRIPTION
4 Amended and Restated Rights Agreement effective as of August 31,
The following exhibit is incorporated herein by reference to Amendment 3 to the Company's Rule 13e-3 Transaction Statement filed March 16, 1990:
EXHIBIT NO. DESCRIPTION
4 Indenture, dated April 25, 1990, between the Company and LaSalle National Bank, as trustee.
The following exhibits are incorporated herein by reference to the Company's Registration Statement on Form S-1 (file No. 33-9902) declared effective on December 17, 1986:
EXHIBIT NO. DESCRIPTION
3(a) Certificate of Agreement of Merger, with Certificate of Incorporation of Company as Exhibit A thereto, dated December 31, 1984, and amendments thereto 10(e) Stock Purchase Agreement between the Company and Georgia-Pacific dated December 31, 1984, and Letter re: Stock Purchase Agreement dated December 31, 1984 10(f) Chemical Sales Agreement between the Company and Georgia-Pacific dated December 31, 1984 and Letter re: Chemical Sales Agreement dated December 31, 1984 10(g) Agreement re: Liabilities among Georgia-Pacific, Georgia-Pacific Chemicals, Inc. and others dated December 31, 1984 10(o) Georgia Gulf Savings and Capital Growth Plan 10(p) Georgia Gulf Salaried Employees Retirement Plan 10(q) Georgia Gulf Hourly Employees Retirement Plan *10(u) Executive Retirement Agreements 10(v) Salt Contract
(b) Reports on Form 8-K
No report on Form 8-K was filed with the Securities and Exchange Commission during the last quarter of 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GEORGIA GULF CORPORATION (Registrant)
Date: March 31 , 1995 By: /s/ Jerry R. Satrum Jerry R. Satrum, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Jerry R. Satrum Jerry R. Satrum President, Chief Executive Officer March 31, 1995 and Director (Principal Executive Officer)
/s/ Richard B. Marchese Richard B. Marchese Vice President - Finance, Chief Financial Officer March 31, 1995 and Treasurer (Principal Financial and Accounting Officer)
/s/ James R. Kuse James R. Kuse Chairman of the Board and Director March 31, 1995
/s/ John D. Bryan John D. Bryan Director March 31, 1995
/s/ Dennis M. Chorba Dennis M. Chorba Director March 31, 1995
/s/ Alfred C. Eckert III Alfred C. Eckert III Director March 31, 1995
/s/ Robert E. Flowerree Robert E. Flowerree Director March 31, 1995
/s/ Holcombe T. Green, Jr. Holcombe T. Green, Jr. Director March 31, 1995
/s/ Edward S. Smith Edward S. Smith Director March 31, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To Georgia Gulf Corporation:
We have audited in accordance with generally accepted auditing standards, the financial statements included in Georgia Gulf Corporation's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 14, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP Atlanta, Georgia February 14, 1995
NOTES:
(1) Accounts receivable balances written off during the period.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE (1)
10 Georgia Gulf Corporation 1995 Employee Stock Purchase Plan . ___
13 Portions of the 1994 Annual Report to Stockholders . . . . ___
23 Consent of Independent Public Accountants . . . . . . . . . . ___
(1) Page numbers appear on the manually signed Form 10-K's only.
EXHIBIT 10
GEORGIA GULF CORPORATION
1994 Employee Stock Purchase Plan
1. The Plan. This Plan dated as of November 1, 1993 shall be known as the "1994 Employee Stock Purchase Plan." The purpose of this Plan is to permit certain employees of Georgia Gulf Corporation (the "Company") to obtain or increase a proprietary interest in the Company by permitting them to purchase shares of the Company's Common Stock on a discount basis.
2. The Offering. The Company shall offer an aggregate of 300,000 shares of its Common Stock, of the par value of $0.01 each, for subscription in the manner and on the terms hereinafter provided by those persons who are Eligible Employees on November 1, 1993 (the "Offering Date"). The purchase price per share shall be the lower of
(i) 85% of the mean between the high and low sales prices of the Common Stock (as reported in the record of Composite Transactions for New York Stock Exchange listed securities and printed in The Wall Street Journal) on the Offering Date (or on the next regular business date on which shares of the Common Stock of the Company shall be traded in the event that no shares of the Common Stock shall have been traded on the Offering Date); or
(ii) 85% of the mean between the high and low sales prices of the Common Stock (as reported in the record of Composite Transactions for New York Stock Exchange listed securities and printed in The Wall Street Journal) on December 30, 1994 (or on the preceding regular business date on which shares of the Common Stock shall be traded in the event that no shares of the Common Stock shall have been traded on such date).
The purchase price per share shall be subject to adjustment in accordance with the provisions of Section 11(a). The shares of Common Stock that may be purchased under this Plan may be authorized but unissued shares, treasury shares or shares acquired on the open market.
3. Eligible Employees. The "Eligible Employees" shall be those persons, and only those persons, who are employees of the Company on the Offering Date, and whose customary employment is more than 20 hours per week, with the exception of any person who immediately prior to the Offering Date would be deemed for purposes of Section 423(b)(3) of the Internal Revenue Code of 1986 (the "Code") to own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company. The term "employees of the Company" in the immediately preceding sentence shall include employees of any corporation in which the Company owns, directly or indirectly, 50% or more of the combined voting power of all classes of stock and which has been designated by the Board of Directors of the Company as a corporation whose employees may participate in the Plan. Notwithstanding anything to the contrary in this Section 3, no officer of the Company subject to Section 16 of the Securities Exchange Act of 1934 who is a "highly compensated employee" within the meaning of Section 414(q) of the Code shall be eligible to participate in this Plan.
4. Subscriptions. (a) As soon as practicable after the Company has satisfied the requirements of the applicable federal and state securities laws relating to the offer and sale of Common Stock to Eligible Employees pursuant to this Plan, each Eligible Employee shall (subject to the terms of this Plan) be entitled to subscribe, in the manner and on the terms herein provided, for the number of whole shares of Common Stock of the Company designated by him which can be purchased, at the purchase price on the Offering Date, with equal installments of not less than $10 nor more than 15% of his periodic rate of compensation (weekly or semi-monthly, as the case may be), determined as hereinafter provided.
(b) In the case of all Eligible Employees, the periodic rate of compensation (excluding any bonus or other special compensation) shall be computed on the basis of the rate of compensation in effect immediately prior to the Offering Date.
(c) This Plan shall be submitted for approval by the stockholders of the Company prior to September 1, 1994. Subscriptions shall be subject to the condition that prior to such date this Plan shall be approved by the stockholders of the Company in the manner contemplated by Section 423(b)(2) of the Internal Revenue Code of 1986. If not so approved prior to such date, this Plan shall terminate, all subscriptions hereunder shall be canceled and be of no further force and effect, and all persons who shall have subscribed for shares pursuant to this Plan shall be entitled to the prompt refund in cash of all sums withheld from or paid by them pursuant to this Plan and subscriptions hereunder, together with simple interest, also in cash, on the amount of such refund computed from the respective dates of withholding, at the rate of 6% per annum.
(d) Subscriptions pursuant to this Plan shall be evidenced by the completion and execution of a subscription agreement in the form provided by the Company and the delivery thereof to the Company, at the place designated by the Company, prior to December 31, 1993. Subscription agreements shall not be subject to termination or reduction after the full purchase price of all shares covered by such agreement has been withheld or paid as provided herein.
(e) In the event that upon the termination of the subscription period under this Plan the aggregate number of shares subscribed for pursuant to this Plan shall exceed 300,000, then all subscriptions shall be reduced proportionately, but disregarding fractions of shares, to the extent necessary so that the aggregate number of shares covered by all such subscriptions pursuant to this Plan will not exceed 300,000.
5. Payment of Purchase Price. Except to the extent provided in Sections 7, 8, 9, and 10, the purchase price of all shares purchased pursuant to this Plan shall be paid in equal installments withheld from the subscribing employee's compensation (weekly or semi-monthly, as the case may be) during the period of 12 consecutive calendar months commencing with January 1994.
In the event of a change in an employee's payment schedule, an appropriate change shall be made in the schedule of installments to be withheld so that the portion of the purchase price not theretofore withheld will be withheld in equal installments over the remainder of such 12 month period. No amount shall be withheld or paid after December 30, 1994.
6. Issuance of Shares; Delivery of Stock Certificates. Shares covered by a subscription agreement entered into pursuant to this Plan shall, except to the extent set forth in Section 8(a), be deemed to have been issued and sold on December 30, 1994. Prior to that time, no person shall have any rights as a holder of any shares covered by such a subscription agreement. No adjustment shall be made for dividends or other rights for which the record date is prior to that time except as provided in Section 11(a). Promptly after the full purchase price of all shares covered by a subscription agreement shall have been so withheld or paid, the Company shall issue and deliver a stock certificate or certificates therefor. In the event the amount of accumulated payroll deductions is greater than the full purchase price of all shares covered by a subscription agreement, such excess shall be promptly returned in cash (without interest) to the subscribing employee.
7. Right to Terminate Subscription or to Reduce Number of Shares Subscribed For. (a) Subject to the provisions of Section 4(d), each subscribing employee shall have the right, at any time before the full purchase price of all shares then covered by his subscription agreement shall have been withheld or paid, to terminate his subscription agreement or to reduce the number of shares covered thereby by notice in writing delivered to the Company.
(b) A subscribing employee who shall terminate his subscription agreement shall be entitled to request the prompt refund, in cash, of the full amount theretofore withheld from and paid by him pursuant to this Plan and such subscription agreement.
(c) A subscribing employee who shall reduce the number of shares covered by his subscription agreement shall be entitled, at his option (i) to the prompt refund, in cash, of the amount by which the amount theretofore withheld from and paid by him pursuant to this Plan and such subscription agreement exceeds that which would have been so withheld and paid if the number of shares originally subscribed for had been the number to which he has reduced his subscription or (ii) to apply such excess in equal amounts to the reduction of future installments of the purchase price of the reduced number of shares covered by the subscription agreement.
8(a). Retirement. If a subscribing employee shall retire from the employ of his employer and be eligible at such time to commence, and actually commences, receiving early or normal retirement benefits from the employer's qualified defined benefit plan covering such employee (if no employer-sponsored qualified defined benefit plan covers the employee, then a qualified defined contribution plan), he shall have, during the period of three months following the date of termination (but in no event after December 30, 1994), the right provided in Section 7(b), and if the Plan shall have been approved by the stockholders of the Company pursuant to Section 4(c) prior to the expiration of such three month period, the additional right to receive the number of whole shares which can be purchased at the purchase price on the Offering Date with the full amount theretofore withheld from and paid by him pursuant to this Plan and his subscription agreement, together with cash in an amount equal to any balance of the amount so withheld and paid (without interest on such cash). Such shares shall be delivered to the employee within a reasonable period of time after the employee has notified the Company of his election to exercise this right. Any such retired employee who shall not make a timely election to exercise the foregoing rights shall be deemed to have elected to receive cash in an amount equal to the full amount theretofore withheld pursuant to his subscription agreement.
8(b). Death or Disability. In the event of the death or disability of a subscribing employee prior to the payment in full of the purchase price of the shares subscribed for by him pursuant to this Plan, the disabled employee or the personal representative of the decedent, as the case may be, shall have the rights provided or referred to in Section 8(a). Any such disabled employee or personal representative who shall not make a timely election to exercise such rights shall be deemed to have elected to exercise the right to receive cash as described in Section 8(a). For purposes of this subsection (b), a subscribing employee shall be deemed "disabled" if the employee would be "disabled" pursuant to the standards set forth in the Georgia Gulf Corporation Salaried Long-Term Disability Plan whether or not he or she is covered under that plan.
8(c). Termination of Employment Other Than by Reason of Retirement, Death or Disability. In the event of the voluntary or involuntary termination of employment with the Company of a subscribing employee other than by reason of retirement, death or disability, the employee shall be entitled only to the prompt refund, in cash, of the full amount theretofore withheld from and paid by him pursuant to this Plan (without interest on such cash).
9. Temporary Layoff and Authorized Leave of Absence. (a) Installment payments shall be suspended during a period of inactive service due to temporary layoff or authorized leave of absence without pay. If the subscribing employee shall return to active service prior to December 30, 1994, installment payments shall be commenced or resumed, and he shall be entitled to elect, within 10 days after return to active service but in no event after December 30, 1994, either (i) to make up the deficiency in his account by an immediate lump sum cash payment equal to the aggregate of the installments which would have been withheld had he not been absent, or (ii) to have future installments uniformly increased (to the maximum possible extent) to adjust for such deficiency, or (iii) not to make up such deficiency and to reduce the number of shares under subscription by the number (increased to the next highest whole number) arrived at by dividing the amount of the deficiency by the purchase price per share on the Offering Date. An employee who does not make a timely election pursuant to this Section 9(a) shall be deemed to have elected the alternative described in clause (iii) hereof.
(b) For the purpose of this Plan, a subscribing employee shall be deemed to be terminated from his or her employment with the Company if such layoff or leave of absence exceeds a period of 90 consecutive days, and, in such case, such employee shall have, effective as of the expiration of such 90-day period, only those rights provided in Section 8(c) hereof.
10. Insufficiency of Pay to Permit Withholding of Installment. (a) If in any payroll period, for any reason other than temporary layoff or authorized leave of absence without pay, a subscribing employee shall receive no pay or his pay shall be insufficient (after all other proper deductions) to permit withholding of his installment payment, the employee may make payment of such installment in cash when due.
(b) In the event of any failure by a subscribing employee to make timely payment in cash of any installment which cannot be withheld because of the circumstances contemplated by Section 10(a), the Company shall mail a notice of deficiency to such employee at his last known business or home address. If the employee does not make payment in cash of such deficiency within 10 days after the mailing of such notice, such employee shall forfeit his right to make cash payment of installments under Section 10(a) and his rights thereafter shall be limited to the right to receive the number of whole shares which can be purchased at the purchase price on the Offering Date with the full amount of payroll withholdings (including the amount theretofore withheld and any amounts subsequently withheld from available earnings), together with cash in the amount of the balance of such employee's withholdings (without interest on such cash).
11. Definition of Common Stock; Effect of Certain Transactions. (a) The term "Common Stock" as used in this Plan refers to shares of the Common Stock of the Company as presently constituted and any shares of Common Stock which may be issued by the Company in exchange for or reclassification thereof. If, and whenever, at any time after the Offering Date and prior to the issue and sale by the Company of all of the shares of Common Stock covered by subscription agreements entered into pursuant to this Plan, the Company shall effect a subdivision of shares of Common Stock or other increase (by stock dividend or otherwise) of the number of shares of Common Stock outstanding, without the receipt of consideration by the Company or another corporation in which the Company is financially interested and otherwise than in discharge of the Company's obligation to make further payment for assets theretofore acquired by it or such other corporation or upon conversion of stock or other securities issued for consideration, or shall reduce the number of shares of Common Stock outstanding by a consolidation of shares, then (i) in the event of such an increase in the number of shares outstanding, the number of shares of Common Stock then subject to subscription agreements entered into pursuant to this Plan shall be proportionately increased and the purchase price per share shall be proportionately reduced, and (ii) in the event of such a reduction in the number of such shares outstanding, the number of shares of Common Stock then subject to subscription agreements entered into pursuant to this Plan shall be proportionately reduced and the purchase price per share shall be proportionately increased. Except as provided in this Section 11(a), no adjustment shall be made under this Plan or any subscription agreement entered into pursuant to this Plan by reason of any dividend or other distribution declared or paid by the Company.
(b) Anything in this Plan or in any subscription agreement entered into pursuant hereto to the contrary notwithstanding (except as provided in Section 12), each subscribing employee shall have the right immediately prior to any merger or consolidation of which the Company is not to be the survivor, or the liquidation or dissolution of the Company, to elect (i) to receive the number of whole shares which can be purchased at the purchase price under this Plan with the full amount theretofore withheld from or paid by him pursuant to this Plan and his subscription agreement, together with cash in an amount equal to any balance of the amount so withheld and paid (without interest on such cash), (ii) to prepay in cash in a lump sum the unpaid balance of the purchase price of the shares covered by his subscription agreement or (iii) to receive a refund, in cash, of the full amount theretofore withheld, together with simple interest, also in cash, on the amount of such refund computed from the respective dates of withholding, at the rate of 6% per annum. The subscription agreement of any subscribing employee who shall not make such an election shall terminate upon such merger, consolidation, liquidation or dissolution and his rights shall be those provided in clause (i) of this Section 11(b), unless the surviving corporation in its absolute and uncontrolled discretion shall offer such subscribing employee the right to purchase its shares in substitution for his rights under such subscription and he shall accept such offer.
12. Limitation on Right to Purchase. Anything in this Plan to the contrary notwithstanding, (i) no shares may be purchased under this Plan to the extent not permitted by Section 423(b)(8) of the Internal Revenue Code of 1986, (ii) if at any time when any person is entitled to complete the purchase of any shares pursuant to this Plan, after taking into account such person's rights, if any, to purchase Common Stock of the Company under all other stock purchase plans of the Company, the result would be that during the then current calendar year, such person would have become entitled to purchase during such calendar year under this Plan and all such other plans a number of shares of Common Stock which would exceed the maximum number of shares permitted by the provisions of Section 423(b)(8) of the Internal Revenue Code of 1986, then the number of shares which such person shall be entitled to purchase pursuant to this Plan shall be reduced by the number which is one more than the number of shares which represents such excess, and (iii) if any person entitled to subscribe for shares hereunder would be deemed for the purposes of Section 423(b)(3) of the Code to own stock (including the maximum number of shares for which such person would be entitled to subscribe pursuant to the foregoing formula) possessing 5% or more of the total combined voting power or value of all classes of stock of the Company which are issued and outstanding immediately after the Offering Date, the maximum number of shares which such person shall be entitled to subscribe for, pursuant to this Plan shall be reduced to that number which, when added to the number of shares of Common Stock of the Company which such person is so deemed to own (excluding the maximum number of shares for which such person would be entitled to subscribe pursuant to the foregoing formula), is one less than such 5%.
13. Non-Assignability; Personal Representative of Deceased Employees. (a) None of the rights of an employee under this Plan or any subscription agreement entered into pursuant thereto shall be transferable by such employee otherwise than by will or the laws of descent and distribution and, during the lifetime of such employee, such rights shall be exercisable only by him. Any such attempted transfer not permitted by this Plan or by the subscription agreements shall be void, and the Company shall treat such transfer as cause for termination of the subscription agreements of the transferor and, if the transferee is then a participant in the Plan, the transferee. Notice of termination shall be effected as provided in paragraph 10(b), and the rights of such transferees and transferors shall be limited the right to the prompt refund, in cash, of the full amounts theretofore withheld and paid by them pursuant to this Plan and their subscription agreements.
(b) References herein, other than in Section 3, hereof, to employees shall be deemed to include the personal representative of a deceased employee.
14. Shares not Subscribed for During the Offering Period or Subscribed for but not Purchased. Shares referred to herein which shall not be subscribed for, and shares which were subscribed for but thereafter cease to be subject to a subscription agreement hereunder, shall be free from any reservation for use in connection with this Plan and shall have the same status as all other unreserved authorized but unissued shares.
15. Construction; Administration. All questions with respect to the construction and application of the Plan and subscription agreements entered into pursuant thereto and the administration of this Plan shall be settled by the determination of the Board of Directors of the Company or of one or more other persons designated by it, which determinations shall be final, binding and conclusive on the Company and all employees and other persons.
16. Notice. Any election or other notice required to be given by a subscribing employee under this Plan shall be in writing and shall be delivered personally or by mail, postage prepaid, addressed to the place designated by the Company for delivery of the subscription agreement. If an election is made which requires the payment of a sum of money, such sum shall accompany the written election.
17. Amendment. The Plan may be amended by the Board of Directors in any way which shall not adversely affect the rights of employees under subscription agreements theretofore entered into pursuant hereto.
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Georgia Gulf's financial performance for 1994 dramatically exceeded the results reported for 1993 as the Company took advantage of the turnaround of several key domestic and international markets. This turnaround was particularly evident in the rebounding pulp and paper, automotive and construction markets where demand for the Company's products resulted in increased sales and margins. Additionally, the expansion of the gasoline-additive market in response to Clean Air Act requirements spurred the demand for methanol, which further elevated profits for 1994.
In order to meet the increased demand for its products, Georgia Gulf operated its facilities at a historically high rate of 97 percent of stated capacity. Efficiencies achieved from these higher production rates, coupled with higher sales prices, boosted the return on sales to 12.8 percent in 1994 from 5.5 percent in 1993. The improved 1994 earnings also enabled the Company to return to positive stockholders' equity, erasing the deficit resulting from the recapitalization of the Company in 1990.
This discussion of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and related notes thereto.
1994 COMPARED WITH 1993
Net income increased 191 percent in 1994 to $122.2 million, or $2.88 per share, compared to net income of $41.9 million, or $1.01 per share for 1993.
Net sales increased 24 percent to $955. 3 million from $768.9 million in 1993. Sales volumes rose 3 percent, surpassing the previous sales volume record set in 1993. Additionally, sales prices were up for nearly all products, with the most significant increases coming from methanol and vinyl resins, followed by caustic soda. International sales increased 19 percent over 1993; however, these sales declined as a percentage of total sales to 13 percent in 1994 from 14 percent in 1993 as a result of stronger growth in domestic sales.
Operating income was $230.2 million in 1994, an increase of 108 percent over 1993 operating income of $110.5 million. Although the strongest earnings contributions came from methanol and caustic soda, substantially all products showed improved results as increases in sales prices outpaced higher raw material costs. Selling and administrative expenses increased to $47.2 million for 1994 from $38.9 million in 1993 primarily as a result of higher compensation expense related to profit sharing programs and stock option plans.
Interest expense continued to decline from prior years to $37.6 million in 1994, a 16 percent decrease from $44.8 million in 1993. The Company's weighted average interest rate increased slightly due to the rising interest rate environment. However, significant reductions in debt over the past couple of years, including a $65.1 million reduction in 1994, enabled the Company to achieve sizable interest savings.
The effective income tax rate was 36.6 percent for 1994 as compared to 35.8 percent for 1993. The 1993 rate included an adjustment of 1.2 percent to revalue deferred income tax balances for the increase in the federal statutory rate during 1993. Excluding the impact of this 1993 adjustment, the tax rate for 1994 increased two percentage points as a result of higher taxable income, which minimized the effect of permanent tax differences.
Results for 1993 reflect an extraordinary charge of $13.3 million relating to an early debt retirement, which was offset by a $13.0 million benefit from a change in method of accounting for income taxes.
1993 COMPARED WITH 1992
Net income of $41. 9 million in 1993 declined 10 percent from $46.3 million in 1992.
Net sales decreased slightly to $768.9 million in 1993 from $779.5 million in 1992 despite overall record sales volume in 1993. The decrease in net sales resulted primarily from a significant decline in the selling price of caustic soda throughout the year, which more than offset sales price increases for other products.
Operating income of $110.5 million in 1993 reflects a decrease of $18.4 million from the amount reported in 1992. This decrease was primarily attributable to the declining selling price for caustic soda. Raw material costs were down slightly for 1993; however, overall cost of sales increased $2.7 million as a result of higher sales volumes. Selling and administrative expense increased to $38.9 million in 1993 from $33.8 million in 1992. This increase was attributable to a bad debt write-off of $1.9 million and to the fact that in 1992, selling and administrative expenses were reduced by approximately $1 million due to nonrecurring insurance claim settlements received during that year.
Interest expense in 1993 was $44.8 million compared to $61.2 million in 1992. This 27 percent decline was the result of lower interest rates achieved from a first quarter 1993 debt refinancing and a further $65.2 million reduction in debt during the year. As a result of the debt refinancing, the Company incurred an extraordinary charge of $13.3 million, net of an income tax benefit of $6.8 million.
The fiscal 1993 results were also affected by the Company's adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which changed the method of accounting for income taxes from the deferred method to the liability method. The adoption of SFAS 109 resulted in a cumulative one-time benefit of $13.0 million.
The effective income tax rate was 35.8 percent in 1993, as compared to 31.5 percent in 1992. The higher effective rate for 1993 was primarily attributable to the increase in the federal income tax rate of 1 percent and the resulting one-time charge of $800,000 to revalue deferred income tax balances.
Net income per common share decreased to $1.01 per share in 1993 from $1.18 per share in 1992. The earnings per share calculations were impacted by lower net income and the greater number of shares outstanding, which resulted after the May 1992 common stock offering of 6.1 million shares.
Liquidity and Capital Resources
Georgia Gulf generated $111.6 million from operating activities during 1994, up from $88.3 million in 1993. Cash provided from improved earnings was offset in part by increased working capital requirements. As a result of higher sales prices and increased sales volumes, receivables rose to $157.1 million at December 31, 1994, from $96.1 million at the end of 1993. Although receivables increased significantly from 1993 levels, the average collection period actually improved for 1994. Inventories, which had dropped to an abnormally low level at the end of 1993, increased $12.4 million primarily as a result of higher raw material costs. Other changes in working capital components were primarily related to differences in the timing of payments.
Net cash used for financing activities was $54.3 million in 1994, compared with $58.5 million in 1993, as the Company continued to reduce debt and further strengthen its financial position. In February 1995, Georgia Gulf announced it will redeem the Company's $191 million of 15% Senior Subordinated Notes at par in April 1995. Georgia Gulf intends to finance the early redemption with proceeds from a new $350 million revolving credit facility currently being negotiated with the Company's primary lenders. When finalized, the new revolving credit facility will replace the Company's existing $250 million credit facility and is expected to provide more favorable terms and increased financial flexibility.
In late 1994, Georgia Gulf also announced a stock repurchase program to acquire up to 10 percent of its outstanding shares of common stock, and in February 1995, the Company declared a cash dividend of $0.08 per share payable April 7, 1995. The Company's primary focus is to continue to maintain debt at a level it considers to be manageable, regardless of the Company's position in the economic cycle, and to invest capital in incremental expansions of existing product lines.
Cash used for investing activities totaled $59.1 million, up from $29.6 million in 1993. The increase resulted primarily from $33.5 million spent on a vinyl resin expansion and $7.4 million spent on a methanol expansion and its related raw material pipeline. The balance of the expenditures was used to modernize and improve the efficiency of existing facilities.
The Company estimates that actual capital expenditures for 1995 will approximate $75 to $85 million. Planned capital expenditures include the vinyl compound expansion in Gallman, MS, and the cumene upgrade and expansion project at Pasadena, TX, both of which are currently under way. The combined cost for these two projects will be approximately $40 million. A portion of these costs was expended in 1994, and the remaining costs will be spent during 1995 and 1996. An expansion has also been announced for the vinyl chloride monomer plant in Plaquemine, LA, to begin in 1995 and to be completed near the end of 1996 at an estimated cost of $85 million.
Management believes that cash provided by operations of the Company and the availability of borrowings under either the Company's existing or new revolving credit facility will provide sufficient funds to support working capital fluctuations, debt service requirements, equity transactions and planned capital expenditures.
Inflation
The most significant components of the Company's cost of sales are raw materials and energy, which consist of basic commodity items. The cost of raw materials and energy is based primarily on market forces and has not been significantly affected by inflation. Inflation has not had a material impact on the Company's sales or income from operations.
Environmental
The Company's operations are subject to various federal, state and local laws and regulations relating to environmental quality. These regulations, which are enforced principally by the United States Environmental Protection Agency and comparable state agencies, govern the management of solid and hazardous waste; emissions into the air and discharges into surface and underground waters; and the manufacture of chemical substances. All of the plants operated by the Company meet current environmental standards.
Management believes that the Company is in material compliance with all current environmental laws and regulations. The Company estimates that any expenses incurred in maintaining compliance with these requirements will not materially affect earnings or cause the Company to exceed its level of anticipated capital expenditures. However, there can be no assurance that regulatory requirements will not change, and therefore it is not possible to accurately predict the aggregate cost of compliance resulting from any such changes.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Georgia Gulf Corporation and its subsidiaries (the "Company"). All significant intercompany balances and transactions are eliminated in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investment instruments with an original maturity of three months or less to be the equivalent of cash for the purposes of balance sheet and statement of cash flow presentations.
INVENTORIES - Inventories are valued at the lower of cost (first-in, first-out) or market. Costs include raw materials, direct labor and manufacturing overhead. Market is based on current replacement cost for raw materials and supplies and on net realizable value for finished goods.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred, and major renewals and improvements are capitalized. Interest expense attributable to funds used in financing the construction of major plant and equipment is capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets for book purposes, with accelerated methods being used for income tax purposes.
The estimated useful lives of the assets are as follows: Buildings and land improvements 20-30 years Machinery and equipment 3-15 years
OTHER ASSETS - Other assets include debt issuance costs which are amortized to expense using the effective interest method over the term of the related indebtedness. The amount of debt issuance costs amortized to interest expense during 1994, 1993, and 1992 was $792,000, $961,000 and $5,191,000, respectively. Debt issuance costs of $10,169,000 were written off during 1993 as part of the extra-ordinary charge on early retirement of debt (note 4).
ENVIRONMENTAL EXPENDITURES - Environmental expenditures related to current operations or future revenues are expensed or capitalized consistent with the Company's capitalization policy. Expenditures that relate to an existing condition caused by past operations and do not contribute to future revenues are expensed. Liabilities are recognized when environmental assessments or cleanups are probable and the costs can be reasonably estimated.
NET INCOME PER COMMON SHARE - Primary and fully diluted net income per common share is based upon the weighted average common shares and equivalents outstanding during the year.
Note 2: Inventories
The major classes of inventories are as follows (in thousands): December 31, 1994 1993 Raw materials and supplies $25,019 $20,819 Finished goods 45,648 37,442 $70,667 $58,261
Note 3: Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands): December 31, 1994 1993 Machinery and equipment $390,658 $334,175 Land and improvements 23,350 23,246 Buildings 13,006 9,768 Construction in progress 20,972 21,655 Property, plant and equipment, at cost $447,986 $388,844
Note 4: Extraordinary Charge - Early Retirement of Debt
The Company refinanced its senior debt during 1993, replacing an existing term loan and revolving credit facility with a new credit agreement (note 5). As a result of the refinancing, the Company incurred an extraordinary charge in 1993 of $13,267,000, net of an income tax benefit of $6,834,000. The extraordinary charge was related to the recording of interest rate swap agreements at their fair value and the write-off of debt issuance costs and interest rate cap agreements associated with the previous credit agreement. The recording of the interest swap agreements at fair value was reflected as an increase of interest payable. The interest rate swap agreements were terminated in 1994 (note 12).
Note 5: Long-Term Debt
Long-term debt consists of the following (in thousands): December 31, 1994 1993 Revolving credit loan, average rates of 5.25% and 4.84% during 1994 and 1993, respectively $122,000 $105,000 Term loan, average rate of 5.14% during 1993 - 83,125 15% Senior Subordinated Notes 191,081 191,081 Other 1,000 - 314,081 379,206
Less current maturities - 14,049 Long-term debt $314,081 $365,157
During 1994, the Company refinanced its credit agreement with a group of financial institutions (the "Credit Agreement") to allow for reduced interest rates, less restrictive covenants and increased financial flexibility. The costs incurred in connection with the refinancing were not material. The Credit Agreement provides for an unsecured revolving credit facility which permits borrowings of up to $250,000,000. The revolving credit facility terminates and related outstanding loans, if any, are due in April 1999.
As of December 31, 1994, the Company had availability to borrow up to $128,000,000 under the terms of the revolving credit facility. An annual commitment fee, which ranges from .20 percent to .375 percent is required to be paid on the revolving credit facility commitment.
The 15% Senior Subordinated Notes ("Notes") are due April 2000. Interest on the Notes is payable semiannually. The Notes are redeemable at par, in whole or in part, at the option of the Company at any time on or after April 15, 1995. In February 1995, the Company declared its intent to exercise its option to redeem the Notes at par on April 15, 1995. The Company plans to finance the early redemption with proceeds from a new revolving credit facility currently being negotiated with the Company's primary lenders.
Under the Credit Agreement and Note indenture, the Company is subject to certain restrictive covenants, the most significant of which require the Company to maintain certain financial ratios and limit the amount the Company can pay for dividends and repurchases of common stock.
Cash payments for interest during 1994, 1993 and 1992 were $43,045,000, $48,391,000 and $56,474,000, respectively.
Note 6: Stockholders' Equity (Deficit)
In April 1990, the Company's stockholders approved a Plan of Recapitalization (the "Recapitalization"), which resulted in an increase of 9,158,660 in the number of outstanding common shares, a net cash distribution to stockholders of $673,652,000 and a distribution to stockholders of Notes with an aggregate face value of $191,081,000. The net distribution for the Recapitalization was charged against retained earnings.
In May 1992, the Company issued 6,095,000 shares of common stock in a public offering. The net proceeds of approximately $143,936,000 were used to retire a portion of the Company's senior debt.
In connection with the stock purchase rights described below, 30,000,000 of the authorized shares of preferred stock are designated Junior Participating Preferred Stock. If issued, the Junior Participating Preferred Stock would be entitled, subject to the prior rights of any senior preferred stock, to a dividend equal to the greater of $0.01 or that which is paid on the common shares.
Each outstanding share of common stock is accompanied by a preferred stock purchase right, which entitles the holder to purchase from the Company 1/100th of a share of Junior Participating Preferred Stock for $45, subject to adjustment in certain circumstances. The rights become exercisable only after a person or group acquires beneficial ownership of 15 percent or more of the Company's outstanding shares of common stock, or commences a tender or exchange offer that would result in such person or group beneficially owning 15 percent or more of the Company's outstanding shares of common stock. The rights expire on April 27, 2000, and may be redeemed by the Company for $0.01 per right until ten days following the earlier to occur of the announcement that a person or group beneficially owns 15 percent or more of the Company's outstanding shares of common stock, or the commencement, or announcement by any person or group of an intent to commence, a tender offer which would result in any person or group beneficially owning 15 percent or more of the Company's outstanding shares of common stock. Subject to certain conditions, if a person or group becomes the beneficial owner of 15 percent or more of the Company's outstanding shares of common stock, each right will entitle its holder (other than certain acquiring persons) to receive, upon exercise, common stock having a value equal to two times the right's exercise price. In addition, subject to certain conditions, if the Company is involved in a merger or certain other business combination transactions, each right will entitle its holder (other than certain acquiring persons) to receive, upon exercise, common stock of the acquiring company having a value equal to two times the right's exercise price.
Note 7: Stock Option and Purchase Plans
STOCK OPTION PLANS - During 1987, the Board of Directors approved a non-qualified stock option plan that provided for granting key employees options to purchase up to 484,820 shares of common stock. All options were granted with related cash awards payable upon exercise to compensate for tax consequences. All stock options related to this plan have vested and expire no more than 10 years after grant. Compensation expense related to the options and accompanying cash awards was $3,827,000 for the year ended December 31, 1994, while no compensation expense was recorded in 1993 or 1992. As of December 31, 1994, 183,580 options under this plan are outstanding.
The 1990 Incentive Equity Plan was approved by the stockholders of the Company as a part of the Recapitalization. This plan authorized the issuance of non-qualified stock options for up to 2,763,027 shares, of which, options for 1,385,665 shares are outstanding as of December 31, 1994. The option price per share may not be less than the fair market value of a share of the Company's common stock on the dates the options are granted. Options vest ratably over a three-year period from the date of grant and expire no more than 10 years after grant. The following is a summary of all stock option information:
Year Ended December 31, 1994 1993 1992 Stock options: Outstanding at beginning of year 2,170,800 2,504,015 2,873,840 Granted at $17.00-$36.50 per share 210,000 179,650 - Exercised (809,605) (450,425) (278,125) Forfeited or canceled (1,950) (62,440) (91,700)
Outstanding at end of year 1,569,245 2,170,800 2,504,015
Option exercise price range per share $3.07-$36.50 $3.07-$18.25 $3.07-$9.25 Options exercisable 1,359,245 1,242,250 913,615 Options available for grant 13,827 221,877 347,627
STOCK PURCHASE PLAN - During 1994, the Board of Directors authorized, subject to stockholder approval, the 1995 Employee Stock Purchase Plan. In connection with the stock purchase plan, approximately 250,000 shares of common stock are reserved for issuance at a subscription price equal to the lower of 85 percent of the fair market price of the Company's common stock on either November 1, 1994 or December 29, 1995. The subscription price is paid through payroll deductions over a twelve-month period ending December 1995. Under similar employee stock purchase plans, 251,940, 207,507 and 209,920 shares of common stock were issued at $15.99, $15.62 and $14.61 per share during 1994, 1993 and 1992, respectively.
Note 8: Employee Benefit Plans
The Company has certain pension, savings and profit sharing plans that cover substantially all of its employees. The expense incurred for these plans was approximately $5,431,000, $5,263,000 and $5,061,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Employees are covered by defined contribution plans under which the Company makes contributions to individual employee accounts and by defined benefit plans for which the benefits are based on years of service and the employee's compensation or for which the benefit is a specific monthly amount for each year of service. The Company's policy on funding the defined benefit plans is to contribute an amount within the range of the minimum required and the maximum tax deductible contribution.
The net pension costs for the defined benefit plans include the following components (in thousands):
Year ended December 31, 1994 1993 1992 Service cost for benefits earned during the year $1,853 $1,530 $1,513 Interest cost on projected benefit obligation 2,229 2,043 1,818 Actual return on assets (304) (1,783) (2,013) Net amortization and deferrals (1,487) 434 1,008 Net pension cost $2,291 $2,224 $2,326
The pension expense was calculated using assumed discount rates of 7 percent in 1994 and 8 percent in 1993 and 1992; assumed long-term compensation increase rates of 5.5 percent in 1994 and 6.5 percent in 1993 and 1992; and assumed long-term rates of return on plan assets of 9 percent in 1994 and 8 percent in 1993 and 1992.
The funded status of the defined benefit plans at December 31, 1994 and 1993 is as follows (in thousands):