Georgia Gulf Reports Q2 Financial Results

ATLANTA--(BUSINESS WIRE)--Georgia Gulf today announced financial results for its second quarter ended June 30, 2007.

“Our goal remains to keep improving our financial results in spite of any pressure the economy may send our way”

For the second quarter of 2007, Georgia Gulf reported net sales of $851.9 million compared to net sales of $602.2 million in the second quarter of 2006. The primary reason for the increase in sales was the acquisition of Royal Group, which was completed on October 3, 2006. Royal Group contributed $331.3 million to net sales during the quarter, with legacy Georgia Gulf’s chemical sales contributing the remaining $520.6 million.

Georgia Gulf reported a net loss of $4.2 million or $0.12 per diluted share for the second quarter of 2007, compared to net income of $39.4 million or $1.15 per diluted share during the same quarter in the previous year. The Company’s interest expense increased to $33.4 million in the second quarter of 2007 from $3.5 million during the same quarter in the previous year, primarily as a result of increased debt associated with the acquisition of Royal Group.

During the second quarter of 2007, discontinued operations represented a loss of $0.07 per diluted share, with a loss of $0.05 per diluted share from continuing operations. The $0.05 per diluted share loss from continuing operations in the second quarter compares to a loss of $0.77 per diluted share from continuing operations in the first quarter of 2007, representing a $0.72 per share improvement. The loss from discontinued operations decreased from $0.24 per share during the first quarter of 2007 to $0.07 per share during the second quarter of 2007, reflecting divestitures of most of Royal Group’s non-core, non-performing operations earlier this year.

Georgia Gulf reported income from continuing operations before income taxes of $1.7 million during the second quarter of 2007. The Company’s income tax provision during the quarter was $3.6 million, resulting in a net loss for the quarter. The second quarter income tax provision reflects the impact of Financial Accounting Standards Board Interpretation Number 48, which is entitled “Accounting for Uncertainty in Income Taxes” (FIN 48). The FIN 48 impact included interest on the liability for uncertain tax positions accrued during the second quarter of 2007. Approximately half of Georgia Gulf’s uncertain tax positions relates to the previously disclosed Province of Quebec trust tax matter.

Financial results for the second quarter provided further indication of savings resulting from synergies and improvement programs implemented following the Royal Group acquisition. Royal Group’s total payroll expense, inclusive of discontinued operations, decreased to $69.5 million in the second quarter of 2007, versus $91.7 million recorded by Royal Group during the same quarter of the prior year, representing a $22.2 million reduction. Fixed overhead employment cost reductions represent approximately $9 million of the total reduction. Employment costs as a percentage of sales declined to 22% of sales in the second quarter of 2007 from 26% of sales in the same quarter in the prior year.

FIFO accounting for legacy chemical operations positively impacted earnings by approximately $0.04 per share during the second quarter of 2007.

“Increased sales coupled with cost reductions drove the substantial improvement in the bottom line from the first quarter,” commented Ed Schmitt, Georgia Gulf’s Chairman, President and CEO. On a sequential quarterly basis, Georgia Gulf improved its chlorovinyls segment’s operating margin and transitioned from operating losses to operating income in each of its building and home improvement product segments. “However, difficult market conditions for both chlorovinyls and building products, coupled with additional income tax expense, left us short of our net income expectation for the second quarter,” noted Mr. Schmitt. He added that, “rising chlorovinyls raw materials costs driven by energy cost increases continue to put pressure on our margins.”

Window & Door Profiles and Mouldings

In the Window & Door Profiles and Mouldings segment, sales were $137.3 million for the second quarter of 2007, compared to $156.4 million recorded by Royal Group during the same quarter in the prior year. The decline in sales reflects difficult conditions in construction markets. The segment’s operating income was $3.3 million for the second quarter of 2007, compared to operating income of $7.3 million recorded by Royal Group during the same quarter in the prior year. The decrease in operating income is primarily the result of lower sales, which were partially offset by cost reductions.

During the first quarter of 2007, the segment recorded an operating loss of $6.1 million. The $9.4 million improvement in operating income (loss) from the first quarter primarily resulted from seasonally stronger sales in the second quarter, as well as cost reduction programs.

Outdoor Building Products

In the Outdoor Building Products segment, sales were $184.3 million for the second quarter of 2007, compared to $197.8 million recorded by Royal Group during the same quarter in the prior year. The decline in sales dollars reflects difficult conditions in construction markets. The segment reported operating income of $7.3 million for the second quarter of 2007, compared to operating income of $5.1 million recorded by Royal Group during the same quarter in the prior year. The improvement is primarily the result of cost control initiatives.

During the first quarter of 2007, the segment recorded an operating loss of $8.3 million. The $15.6 million improvement in operating income (loss) from the first quarter primarily resulted from seasonally stronger sales in the second quarter, sales of new outdoor storage buildings and cost reduction programs.

Chlorovinyls

In the Chlorovinyls segment, second quarter of 2007 sales declined to $366.3 million from $464.9 million during the second quarter of 2006. The decline in sales dollars resulted from both lower sales volumes and lower selling prices. Operating income declined to $25.9 million from $83.7 million during the same quarter in the prior year. The decline is primarily attributable to lower selling prices and to a smaller degree lower sales volumes, as well as increased feedstock costs.

During the first quarter of 2007, the segment recorded operating income of $14.6 million. The $11.3 million sequential quarterly improvement in operating income resulted from seasonally stronger sales volumes in the second quarter and price increases for PVC resin, which were partially offset by higher feedstock costs on a sequential quarter basis. Georgia Gulf had minimal participation in the export market for PVC resin during the second quarter due to strong contractual domestic demand.

Aromatics

In the Aromatics segment, sales increased to $164.0 million for the second quarter of 2007 from $137.3 million during the second quarter of 2006. The increase in sales dollars resulted from higher phenol and acetone sales volumes, as well as higher selling prices for all products. The segment reported operating income of $4.7 million for the second quarter of 2007, compared to an operating loss of $0.5 million in the same quarter in the prior year.

During the first quarter of 2007, the segment recorded operating income of $5.3 million. The slight decline in operating income from the first quarter to $4.7 million in the second quarter is attributable to increased feedstock costs and lower cumene sales volume, which more than offset higher selling prices for all aromatics products.

Outlook

“Our goal remains to keep improving our financial results in spite of any pressure the economy may send our way,” commented Mr. Schmitt. “We are fortunate to have sizable market positions for our building and home improvement products in Canada, which has been a more stable construction market than the US,” noted Mr. Schmitt. Approximately one third of sales of Royal Group’s building and home improvement products occur in Canada.

Georgia Gulf also announced today that savings from synergies and improvement programs associated with the Royal Group acquisition are now at an annual run rate of approximately $130 million. Earlier this year, Georgia Gulf announced that savings from synergies and improvement programs would be in the range of $81 to $99 million in 2007.

“We are now aiming to achieve annual run rate savings from synergies and improvement programs of $157 million in early 2008, which exceeds our goal at the time of the Royal Group acquisition. We intend to achieve this accelerated goal through further plant consolidations, certain product line rationalizations and additional efficiency improvement initiatives. We will continue to act rapidly to improve operations and increase sales, to deal with the difficult market conditions that confront us in the near-term,” noted Mr. Schmitt.

Conference Call

The Company will discuss second quarter financial results and business developments via conference call and Webcast on Thursday, August 9, 2007, at 10:00 AM ET. To access the Company’s second quarter conference call, please dial 888-552-7928 (domestic) or 706-679-3718 (international). To access the conference call via Webcast, log on to http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=112207 &eventID=1601672. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field.  Remove the extra space if one exists.) Playbacks will be available from 12:00 PM ET Thursday, August 9, to midnight ET Friday, August 17. Playback numbers are 800-642-1687 (domestic) or 706-645-9291 (international). The conference call ID number is 6950389.

Georgia Gulf

Georgia Gulf Corporation is a leading, integrated North American manufacturer of two chemical lines, chlorovinyls and aromatics, and manufactures vinyl-based building and home improvement products. The Company’s vinyl-based building and home improvement products, marketed under Royal Group brands, include window and door profiles, mouldings, siding, pipe and pipe fittings, deck, fence and rail and outdoor storage buildings. Georgia Gulf, headquartered in Atlanta, Georgia, has manufacturing facilities located throughout North America to provide industry-leading service to customers.

Safe Harbor

This news release contains forward-looking statements subject to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s assumptions regarding business conditions, and actual results may be materially different. Risks and uncertainties inherent in these assumptions include, but are not limited to difficulties in integrating the recently acquired business of Royal Group, Inc., uncertainties relating to Royal Group’s business and liabilities, uncertainties regarding asset sales, synergies, operating efficiencies and competitive conditions, future global economic conditions, economic conditions in the industries to which our products are sold, industry production capacity, raw materials and energy costs and other factors discussed in the Securities and Exchange Commission filings of Georgia Gulf Corporation, including our annual report on Form 10-K for the year ended December 31, 2006.

GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
In Thousands	June 30, 2007			December 31, 2006
ASSETS
Cash and cash equivalents	$	4,870		$	9,641
Receivables, net of allowance		350,268			237,496
Inventories		365,234			339,405
Prepaid expenses		42,086			29,577
Income tax receivables		748			37,143
Deferred income taxes		27,350			30,664
Current assets held for sale		-			11,080
Total current assets		790,556			695,006
Property, plant and equipment, net		1,006,700			1,023,004
Goodwill		384,195			377,124
Intangible assets, net		91,580			88,361
Other assets, net		213,467			204,813
Non-current assets held for sale		54,670			69,919
Total assets	$	2,541,168		$	2,458,227
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt	$	95,477		$	32,495
Accounts payable		298,589			215,282
Interest payable		18,240			21,290
Accrued compensation		32,154			37,218
Liability for unrecognized income tax benefits and other tax reserves		12,957			88,338
Other accrued liabilities		56,653			97,428
Total current liabilities		514,070			492,051
Long-term debt, less current portion		1,420,611			1,465,639
Liability for unrecognized income tax benefits		91,138			-
Deferred income taxes		99,492			88,476
Other non-current liabilities		22,673			18,538
Stockholders' equity		393,184			393,523
Total liabilities and stockholders' equity	$	2,541,168		$	2,458,227
Common shares outstanding		34,396			34,390

GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
In Thousands (except per share data)			2007				2006				2007				2006
Net sales		$	851,865			$	602,159			$	1,565,561			$	1,170,032
Operating costs and expenses
Costs of sales			760,463				509,590				1,424,020				998,474
Selling, general and administrative expenses			59,012				17,217				117,129				37,431
Total operating costs and expenses			819,475				526,807				1,541,149				1,035,905
Operating income			32,390				75,352				24,412				134,127
Interest expense, net			(33,382	)			(3,473	)			(65,456	)			(7,809	)
Foreign exchange gains (losses)			2,679				(11,387	)			5,510				(11,387	)
Income (loss) from continuing operations before income taxes
			1,687				60,492				(35,534	)			114,931
Provision (benefit) for income taxes			3,561				21,102				(7,150	)			41,860
(Loss) income from continuing operations			(1,874	)			39,390				(28,384	)			73,071
Loss from discontinued operations, net of tax			(2,346	)			-				(10,407	)			-
Net (loss) income		$	(4,220	)		$	39,390			$	(38,791	)		$	73,071
(Loss) earnings per share:
Basic:
(Loss) income from continuing operations		$	(0.05	)		$	1.16			$	(0.83	)		$	2.14
Loss from discontinued operations			(0.07	)			-				(0.30	)			-
Net (loss) income		$	(0.12	)		$	1.16			$	(1.13	)		$	2.14
Diluted:
(Loss) income from continuing operations		$	(0.05	)		$	1.15			$	(0.83	)		$	2.12
Loss from discontinued operations			(0.07	)			-				(0.30	)			-
Net (loss) income		$	(0.12	)		$	1.15			$	(1.13	)		$	2.12
Weighted average common shares:
Basic			34,359				34,101				34,332				34,075
Diluted			34,359				34,397				34,332				34,387

GEORGIA GULF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
					Three Months Ended								Six Months Ended
In Thousands					June 30,								June 30,
						2007				2006				2007				2006
Cash flows from operating activities:
	Net (loss) income				$	(4,220	)		$	39,390			$	(38,791	)		$	73,071
	Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
		Depreciation and amortization				38,259				16,066				73,540				31,956
		Foreign exchange loss (gain)				(2,455	)			11,387				(5,170	)			11,387
		Deferred income taxes				3,245				(4,333	)			(11,383	)			(8,541	)
		Excess tax benefit related to stock plans				(54	)			71				(661	)			(231	)
		Stock based compensation				1,664				2,505				7,654				8,075
		Change in operating assets, liabilities and other				(63,229	)			(6,209	)			(52,465	)			10,599
Net cash (used in) provided by operating activities from continuing operations
						(26,790	)			58,877				(27,276	)			126,316
Net cash provided by operating activities from discontinuing operations
						-				-				398				-
Net cash (used in) provided by operating activities:						(26,790	)			58,877				(26,878	)			126,316
Cash flows (used in) from investing activities
	Capital expenditures					(25,658	)			(15,595	)			(53,867	)			(27,558	)
	Proceeds from sale of PP&E, assets held for sale and discontinued operations					8,670				-				74,472				-
Net cash (used in) provided by investing activities						(16,988	)			(15,595	)			20,605				(27,558	)
Cash flows from financing activities:
	Net change in revolving line of credit					36,577				(49,900	)			63,505				(104,200	)
	Repayment of long-term debt					(5,289	)			-				(151,426	)			-
	Proceeds from sale-leaseback financing					-				-				95,865				-
	Proceeds from issuance of common stock					-				291				-				301
	Purchase and retirement of common stock					-				-				(684	)			(1,032	)
	Tax benefits from employee share-based exercises					-				2				-				1,424
	Dividends paid					(2,776	)			(2,749	)			(5,555	)			(5,497	)
Net cash provided by (used in) financing activities						28,512				(52,356	)			1,705				(109,004	)
Effect of exchange rate changes on cash and cash equivalents
						99				-				(203	)			-
Net change in cash and cash equivalents						(15,167	)			(9,074	)			(4,771	)			(10,246	)
Cash and cash equivalents at beginning of period						20,037				13,126				9,641				14,298
Cash and cash equivalents at end of period					$	4,870			$	4,052			$	4,870			$	4,052

GEORGIA GULF CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
In Thousands			2007				2006				2007				2006
Segment net sales:
Chlorovinyls		$	366,314			$	464,865			$	695,910			$	906,465
Window & door profiles and mouldings products			137,274				-				234,824				-
Outdoor building products			184,310				-				291,936				-
Aromatics			163,967				137,294				342,891				263,567
Net sales		$	851,865			$	602,159			$	1,565,561			$	1,170,032
Segment operating income (loss):
Chlorovinyls		$	25,851			$	83,734			$	40,440			$	159,434
Window & door profiles and mouldings products			3,274				-				(2,827	)			-
Outdoor building products			7,252				-				(1,059	)			-
Aromatics			4,711				(466	)			10,059				(5,432	)
Unallocated corporate expenses			(8,698	)			(7,916	)			(22,201	)			(19,875	)
Total operating income		$	32,390			$	75,352			$	24,412			$	134,127