Georgia Gulf Corporation Business Information, Profile, and History

Company Perspectives:

Georgia Gulf's mission is to continue to be an efficient, integrated manufacturer and marketer of quality chemical and plastic products to users worldwide and to grow responsibly in present and closely related businesses. We are dedicated to continuous improvement of the processes, products and services required to meet our customers' changing needs. We will strive to earn a superior long-term return for our shareholders while providing meaningful work for our employees and always operating with the highest regard for environmental protection, safety and overall well-being in the communities where we live and work.

History of Georgia Gulf Corporation

Georgia Gulf Corporation is a major manufacturer of two highly integrated product lines, chlorovinyls and aromatic chemicals. The company is the third largest producer of both vinyl chloride monomer and vinyl suspension resins in North America, as well as the continent's number two producer of vinyl compounds; it is among the largest North American manufacturers of both cumene and phenol and also produces caustic soda, chlorine, and acetone. Manufacturing plants are operated in nine U.S. cities, mainly in the Southeast. Export sales generated about 12 percent of 2002 revenues, with the company serving markets in Canada, Mexico, Latin America, Europe, and Asia. Established in 1984 as a leveraged buyout of Georgia-Pacific Corporation, a large forest products manufacturer, Georgia Gulf began as an extremely successful corporation and was able to take advantage of increases in the demand for salt and petrochemical products.

Development of the Georgia-Pacific Chemicals Business in the 1970s

The assets that form Georgia Gulf Corporation today were built up by Georgia-Pacific Corporation over a period of 14 years. In 1971 Georgia-Pacific established the first of several chemical plants, phenol/acetone and methanol manufacturing facilities at Plaquemine, Louisiana. Both products are used to make plywood and a wide variety of granulate, wood fiber boards.

Georgia-Pacific added a caustic/chlorine plant at Plaquemine in 1975. There salt mined from large salt domes located nearby was converted into salt brine. Electricity passed through the solution and chlorine, caustic soda, and hydrogen were formed. Chlorine was used in pulp and paper manufacturing and to make vinyl chloride monomer (VCM), an intermediate to vinyl or plastic resins. Caustic soda, the coproduct of chlorine, was key to the manufacture of aluminum and pulp and paper as well as being a key element in the production of other chemicals.

Later that year a polyvinyl chloride (PVC) resin plant was completed at the site. This facility converted purchased VCM into vinyl resins. These resins are one of the most widely used plastics today and can be found in pipe, window frames, siding, flooring, shower curtains, bottles, medical tubing, and many other end-use products. The vinyl resin facility positioned Georgia-Pacific to eventually produce value-added vinyl compounds.

In 1978 Georgia-Pacific added an ammonia plant adjacent to the methanol plant. This enabled the company to use excess hydrogen, a byproduct of the methanol and chlorine manufacturing processes, in the production of ammonia, a key ingredient in the manufacture of fertilizers.

The company built a cumene facility in Pasadena, Texas, in 1979. Cumene, a petroleum product made from benzene and propylene, is used to make phenol and acetone. In addition to resin adhesives, phenol is also a precursor to high-performance plastics used in automobiles, household appliances, electronics, and protective coating applications. Acetone is a precursor to methyl methacrylate, which is used to produce acrylic sheeting and in surface coating resins for automotive and architectural markets. It is also an intermediate for the production of engineering plastics and several major industrial solvents.

Georgia-Pacific again expanded the Plaquemine complex in 1979 to include sodium chlorate production. Along with chlorine, the uses for sodium chlorate are primarily industrial. It has major applications in the bleaching process for pulp and paper, and it is also an ingredient in blasting agents, explosives, and solid rocket fuels. In 1980 the Plaquemine facility began producing its own VCM, which integrated the company from raw material to finished vinyl resins.

The company's chemical operations were extended to the northeastern United States in 1981, when Georgia-Pacific purchased a phenol/acetone facility in Bound Brook, New Jersey. Two years later, the company added three resin compounding facilities producing specialty resins. The addition of these plants, in Tennessee, Mississippi, and Delaware, further integrated Georgia-Pacific's vinyl resins into value-added products.

Creation of Georgia Gulf Through Management-Led Leveraged Buyout in 1984

Many companies, spurred on by growth in chemical markets, simply overbuilt capacity, and the limits of this expansion were not discovered until recessionary pressures had already shrunk the market. Companies were left with massive production facilities, but few sales. Georgia-Pacific was no different. After several years of consideration, the company decided to spin off the chemical operations and return its focus to core businesses in the paper and lumber industries.

The first group to organize a plan to take over Georgia-Pacific's chemical interests consisted of five senior executives of the operation, led by James R. Kuse, a senior vice-president of Georgia-Pacific who had been in charge of the division for several years.

Kuse and his associates risked long and successful careers with Georgia-Pacific, and set out to raise the necessary capital. Together, the group managed to collect the asking price of $275 million, representing about 20 percent of the asset value. These assets included some of the most technically advanced and efficient plants in the industry.

Having succeeded in making the deal, the owners needed a name for the new company. Locating its headquarters in Atlanta, the name Georgia was linked with Gulf, which represented the company's substantial assets in Louisiana and Texas.

Georgia Gulf came into existence as a privately owned company on December 31, 1984. The first priority of Kuse and his team was to lower costs and increase sales. Already in possession of a viable, integrated chemical enterprise, Kuse only needed a recovery in his company's markets.

This began only months after Georgia Gulf came into existence. The recession ended and demand made its way back through the production cycle to the products manufactured by Georgia Gulf. In fact, demand was so strong that the company's plants operated at more than 90 percent of capacity.

Very strong sales provided an unforecasted increase in available funds, almost all of which were devoted to paying down the company's substantial debt. The debt, which was a result of the leveraged buyout, was not planned to be eliminated until about 1992, but the strength of sales growth virtually eliminated the debt four years later.

This placed the company in an excellent position to go public. The initial offering of eight million shares on the NASDAQ went off successfully in December 1986. The following April, a secondary offering of an additional 4.8 million shares was completed. In November 1987 Georgia Gulf gained a listing on the New York Stock Exchange and was listed on the Fortune 500. During 1987, Georgia Gulf shares recorded a 183 percent return.

Through this period of economic growth, Georgia Gulf captured market share as it was one of the low-cost producers because of the efficiency of its operations. In addition, falling oil and natural gas prices helped to further strengthen Georgia Gulf's financial position. Georgia Gulf closed its Bound Brook facility in 1987, later relocating the plant to Pasadena, Texas, where it was closer to raw materials.

With the debt nearly eliminated, Georgia Gulf began to expand by acquiring Freeman Chemical Corporation from H.H. Robertson Co. for about $67.2 million. Headquartered in Port Washington, Wisconsin, and operating six plants, Freeman added a new line of polyurethane specialty resins and brought revenues up to $1 billion. Also that year, Georgia Gulf purchased the Great River Oil and Gas Corporation, a Louisiana-based petroleum company. Great River provided Georgia Gulf with a potential source for hedging future supplies of natural gas. Georgia Gulf also diverted significant operating income toward the repurchase of shares. The repurchase program was initiated in 1987 and continued for three years.

In 1989 Jerry Satrum, a team member of Kuse's 1985 purchase of the Georgia-Pacific assets, succeeded Kuse as president of the company. Kuse remained chairman and CEO until 1990, when Satrum took over as CEO.

Blocking a Takeover Attempt via Recapitalization in the Early 1990s

The year 1990 was an extremely difficult one for Georgia Gulf. Although the company had virtually no debt and was well positioned to weather the anticipated economic downturn, the company was forced to defend itself from a hostile takeover. The takeover attempt by billionaire corporate raider Harold C. Simmons, which began in July 1989, was brought to a resolution through a plan of recapitalization, which the stockholders approved in April 1990. The recapitalization plan was a combination of cash distributions, senior subordinated notes, and a new issue of common stock. The company borrowed approximately $746 million and used $65 million from the sale of Freeman Chemical to fund the recapitalization.

The emphasis, therefore, necessarily shifted to sales growth and cost reduction. Already one of the most efficient companies in the chemical industry, there were few costs to cut. While lean, Georgia Gulf still managed to trim nearly 300 jobs.

On the other side of the equation, sales growth was tied directly to the economy, which continued to languish through 1991 and, when recovery seemed imminent, "double-dipped" in 1992. Sales, which hit an all-time high of $1.1 billion in 1989, decreased, with the sale of Freeman, to $932 million in 1990, $838 million in 1991, and $779 million in 1992.

While sales were depressed, Georgia Gulf continued to operate efficiently, maximizing opportunities. By all accounts the company succeeded in preserving itself through the recession, although it was saddled with substantial debt. The company was nevertheless able to service its debt obligations and maintain profitability. The company made significant progress in this direction in 1992, reducing its debt to $444 million in 1992.

In an attempt to de-emphasize the sharp effects of the American markets on its business, Georgia Gulf intensified an effort to boost export sales in 1992. This was made more difficult by lingering weaknesses in the world economy. Still, the company managed to make significant sales in European and Asian markets.

In early 1993, demand had begun to recover in the key vinyl resins market. In addition, the provisions of the federal Clean Air Act came into force, dictating the use of cleaner fuels that increased demand for methanol, which was used as an oxygenate for gasoline.

Expansion Program and Acquisitions in the Mid- to Late 1990s

During the mid-1990s, between 1994 and mid-1997, Georgia Gulf undertook a $360 million capital program designed to modernize and increase the capacity of its production facilities, cut costs, and improve compliance with environmental standards. Capacity was expanded in the production of phenol, acetone, alpha-methylstyrene (AMS), cumene, VCM, and PVC. An improved financial position enabled the firm to undertake this major expansion; Georgia Gulf had had a negative net worth since the recapitalization thanks to the hefty debt load, but by the end of 1994 total debt had been reduced to $314.1 million and the company returned to positive net worth territory. At the same time, the resurgent economy helped drive the company's revenues back over the $1 billion mark by 1995, with net income reaching a record $186.5 million that year. The next two years were not nearly as strong, but Georgia Gulf remained solidly profitable.

Late in 1997, Edward A. Schmitt, who had helped spearhead the expansion program as vice-president of operations, was named president and chief operating officer. Schmitt was promoted to president and CEO in April 1998, with the retiring Satrum retaining a seat on the board of directors; company cofounder Kuse remained board chairman. Also in 1997, Georgia Gulf sold Great River Oil and Gas, thereby exiting from the oil and gas exploration sector.

Revenues and profits declined in both 1998 and 1999 as commodity chemicals suffered from another downturn in the industry cycle, with a key contributing factor being the economic difficulties in Asia and elsewhere. Georgia Gulf took advantage of the downturn, however, by making two significant acquisitions at bargain prices. In May 1998 the corporation expanded its downstream pipeline by purchasing North American Plastics, Inc. for about $100 million. North American Plastics was a $90 million per year manufacturer of flexible PVC compounds for such products as wire and cable coatings, automotive interiors, and vinyl sheeting. It had compounding facilities in Aberdeen and Madison, Mississippi. Georgia Gulf next spent approximately $270 million to acquire the vinyls business of CONDEA Vista Company, the U.S. chemicals arm of Germany's RWE-DEA. The acquired assets included a VCM plant, two PVC resin plants, three PVC compounding facilities, and a 50 percent stake in PHH Monomers, L.L.C., a VCM manufacturing joint venture with PPG Industries, Inc. The deal made Georgia Gulf the third largest North American maker of both PVC and VCM. Together, these two acquisitions significantly expanded the firm's presence in the more highly profitable and less cyclical downstream side of the business. Georgia Gulf simultaneously focused more tightly on its two core chemical lines--chlorovinyls and aromatics--by closing down its methanol business late in 1999.

Struggles in the Early 2000s

After achieving net income of $64.2 million on record sales of $1.58 billion in 2000, Georgia Gulf suffered the full effects of the economic downturn of the following year, experiencing a 24 percent decline in sales and recording a net loss of $12 million. Poor demand for the company's products domestically was coupled with high energy costs that left it at a competitive disadvantage compared with overseas rivals. Cost-cutting efforts were undertaken, including the closure of two of the vinyl compounding facilities acquired via the CONDEA Vista deal. Georgia Gulf also strived to improve productivity through such efforts as a 50 million pound expansion of its Oklahoma City resin plant. Also that year, Kuse died and Schmitt took over as company chairman.

Georgia Gulf returned to profitability in 2002, although revenues were flat. Its aromatics business, which had been operating at a loss for some time, continued to suffer, leading to a temporary shutdown of the phenol and acetone production plant in Pasadena, Texas. Higher sales prices during 2003 helped turn the aromatics segment profitable for the first nine months of 2003. The chlorovinyls operations, meantime, were reporting a drop in profits thanks to significantly higher raw materials and natural gas costs and a fall in demand.

Principal Subsidiaries: GG Terminal Management Corporation; Georgia Gulf Europe, ApS (Denmark); Georgia Gulf Chemicals & Vinyls, L.L.C.; Georgia Gulf Lake Charles, L.L.C.; Great River Oil and Gas Corporation; GGRC Corporation.

Principal Competitors: OxyVinyls, LP; Shintech, Inc.; Formosa Plastics Corporation; PolyOne Corporation; The Dow Chemical Company.

Chronology

• Key Dates:
• 1971: Georgia-Pacific Corporation establishes phenol/acetone and methanol manufacturing facilities in Plaquemine, Louisiana.
• 1975: The Plaquemine site is expanded to include the manufacture of caustic soda, chlorine, and polyvinyl chloride.
• 1979: Georgia-Pacific builds a cumene plant in Pasadena, Texas.
• 1980: The Plaquemine complex begins producing its own vinyl chloride monomer (VCM), further integrating the product lines.
• 1984: Georgia-Pacific spins off its chemical operations through a management-led leveraged buyout; the executives call their new company Georgia Gulf Corporation.
• 1986: Georgia Gulf is taken public with a listing on the NASDAQ.
• 1987: Company stock begins trading on the New York Stock Exchange.
• 1990: A hostile takeover attempt is blocked via a plan of recapitalization, which saddles the firm with debt of $746 million.
• 1998: North American Plastics, Inc. is acquired for approximately $100 million.
• 1999: Georgia Gulf spends about $270 million to acquire the vinyls business of CONDEA Vista Company; it exits from the methanol business to focus exclusively on chlorovinyls and aromatics.
• 2000: The company achieves net income of $64.2 million on record sales of $1.58 billion.
• 2001: An economic downturn results in a 24 percent decline in sales and a net loss of $12 million, necessitating cost-cutting measures; company cofounder James R. Kuse dies and President and CEO Edward A. Schmitt becomes company chairman.
• 2002: The company returns to profitability.