Attached files

file filename
EX-32 - EX-32 - AXIALL CORP/DE/a2201120zex-32.htm
EX-31 - EX-31 - AXIALL CORP/DE/a2201120zex-31.htm
EX-10 - EX-10 - AXIALL CORP/DE/a2201120zex-10.htm
EX-3.2 - EX-3.2 - AXIALL CORP/DE/a2201120zex-3_2.htm

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)    

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                             to                            

Commission File Number 1-9753

GEORGIA GULF CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  58-1563799
(I.R.S. Employer
Identification No.)

115 Perimeter Center Place, Suite 460,
Atlanta, Georgia

(Address of principal executive offices)

 

30346
(Zip Code)

(770) 395-4500
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes o    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class   Outstanding as of November 17, 2010
Common Stock, $0.01 par value   33,962,291


Table of Contents


GEORGIA GULF CORPORATION FORM 10-Q

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

INDEX

2


Table of Contents

PART I. FINANCIAL INFORMATION.

        

Item 1.    FINANCIAL STATEMENTS.

        


GEORGIA GULF CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value and share data)
  September 30,
2010
  December 31,
2009
(Restated)
 

ASSETS

             

Cash and cash equivalents

  $ 38,650   $ 38,797  

Receivables, net of allowance for doubtful accounts of $14,749 in 2010 and $16,453 in 2009

    330,081     208,941  

Inventories

    292,428     251,397  

Prepaid expenses

    25,160     24,002  

Income tax receivables

    24,539     30,306  

Deferred income taxes

    28,645     13,177  
           
 

Total current assets

    739,503     566,620  

Property, plant and equipment, net

    652,361     687,570  

Goodwill

    205,881     203,809  

Intangible assets, net of accumulated amortization of $11,752 in 2010 and $10,996 in 2009

    14,513     15,223  

Deferred income taxes

    1,556      

Other assets, net

    92,213     116,494  

Non-current assets held for sale

    14,150     14,924  
           
 

Total assets

  $ 1,720,177   $ 1,604,640  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current portion of long-term debt

  $ 47,200   $ 28,231  

Accounts payable

    163,587     124,829  

Interest payable

    13,631     2,844  

Income taxes payable

    4,404     1,161  

Accrued compensation

    30,978     16,069  

Liability for unrecognized income tax benefits and other tax reserves

    8,565     9,529  

Other accrued liabilities

    53,078     43,236  
           
 

Total current liabilities

    321,443     225,899  

Long-term debt

    685,002     710,774  

Liability for unrecognized income tax benefits

    40,448     48,471  

Deferred income taxes

    211,973     188,910  

Other non-current liabilities

    34,234     37,036  
           
 

Total liabilities

    1,293,100     1,211,090  
           

Commitments and contingencies (Note 10)

             

Stockholders' equity:

             
 

Preferred stock—$0.01 par value; 75,000,000 shares authorized; no shares issued

         
 

Common stock—$0.01 par value; 100,000,000 shares authorized; shares issued and outstanding: 33,962,291 in 2010 and 33,718,367 in 2009

    340     337  

Additional paid-in capital

    475,413     472,018  

Accumulated deficit

    (46,876 )   (74,491 )

Accumulated other comprehensive loss, net of tax

    (1,800 )   (4,314 )
           
 

Total stockholders' equity

    427,077     393,550  
           
 

Total liabilities and stockholders' equity

  $ 1,720,177   $ 1,604,640  
           

See accompanying notes to unaudited condensed consolidated financial statements.

3


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
(In thousands, except per share data)
  2010   2009
(Restated)
  2010   2009
(Restated)
 

Net sales

  $ 758,042   $ 556,342   $ 2,125,198   $ 1,488,016  

Operating costs and expenses:

                         
 

Cost of sales

    661,238     472,643     1,926,387     1,313,924  
 

Selling, general and administrative expenses

    43,442     46,864     117,894     129,724  
 

Long-lived asset impairment charges

        4,167         20,357  
 

Restructuring costs

    136     (5,928 )   271     5,927  
 

Loss on sale of assets, net

                62  
                   
 

Total operating costs and expenses

    704,816     517,746     2,044,552     1,469,994  
                   
   

Operating income

    53,226     38,596     80,646     18,022  
                   

Gain on substantial modification of debt

                121,033  

Gain on debt exchange

        400,835         400,835  

Interest expense, net

    (17,333 )   (30,709 )   (52,592 )   (107,229 )

Foreign exchange gain (loss)

    116     (48 )   (318 )   (981 )
                   

Income before income taxes

    36,009     408,674     27,736     431,680  

Provision for income taxes

    11,051     204,018     119     175,877  
                   

Net income

    24,958   $ 204,656   $ 27,617   $ 255,803  
                   

Earnings per share:

                         
 

Basic

  $ 0.72   $ 8.19   $ 0.79   $ 27.38  
 

Diluted

  $ 0.72   $ 8.18   $ 0.79   $ 27.36  

Weighted average common shares:

                         
 

Basic

    33,894     23,355     33,779     8,788  
 

Diluted

    33,894     23,365     33,779     8,794  

See accompanying notes to unaudited condensed consolidated financial statements.

4


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
  Nine Months Ended September 30,  
(In thousands)
  2010   2009
(Restated)
 

Cash flows from operating activities:

             
 

Net income

  $ 27,617   $ 255,803  
 

Adjustments to reconcile net income to net cash provided by operating activities:

             
   

Depreciation and amortization

    75,521     89,147  
   

Loan cost write off

        8,888  
   

Gain on substantial modification of debt

        (121,033 )
   

Gain on debt exchange

        (400,835 )
   

Foreign exchange gain

    (431 )   (627 )
   

Deferred income taxes

    6,049     179,462  
   

Excess tax benefits from share-based payment arrangements

    (4,001 )    
   

Long lived asset impairment charges and loss on sale of assets

    591     20,419  
   

Stock based compensation

    2,436     10,212  
   

Other non-cash items

    5,853     (4,413 )
   

Change in operating assets, liabilities and other

    (75,116 )   11,845  
           

Net cash provided by operating activities

    38,519     48,868  
           

Cash flows from investing activities:

             
 

Capital expenditures

    (31,799 )   (24,958 )
 

Proceeds from sale of property, plant and equipment, and assets held-for sale

    1,603     1,900  
 

Proceeds from insurance recoveries related to property, plant and equipment

        1,980  
           

Net cash used in investing activities

    (30,196 )   (21,078 )
           

Cash flows from financing activities:

             
 

Repayments on revolving line of credit

        (176,895 )
 

Borrowings on revolving line of credit

        147,484  
 

Repayments on ABL revolver

    (481,209 )    
 

Borrowings on ABL revolver

    472,208      
 

Repayment of long-term debt

    (33 )   (19,727 )
 

Stock compensation plan activity

    (145 )   (25 )
 

Fees paid to amend or issue debt facilities

    (3,185 )   (43,256 )
 

Excess tax benefits from share-based payment arrangements

    4,001      
           

Net cash used in financing activities

    (8,363 )   (92,419 )

Effect of exchange rate changes on cash and cash equivalents

    (107 )   2,993  
           

Net change in cash and cash equivalents

    (147 )   (61,636 )

Cash and cash equivalents at beginning of period

    38,797     89,975  
           

Cash and cash equivalents at end of period

  $ 38,650   $ 28,339  
           

See accompanying notes to unaudited condensed consolidated financial statements.

5


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying unaudited condensed consolidated financial statements do reflect all of the adjustments that, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. Such adjustments are of a normal, recurring nature. In our consolidated statement of cash flows certain items for the nine months ended September 30, 2009 are presented in a manner to conform to the presentation for the nine months ended September 30, 2010. Our operating results for the three and nine month periods ended September 30, 2010 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2010 or any other interim period.

        The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to audited consolidated financial statements included in Amendment No. 2 to our Annual Report on Form 10-K/A for the year ended December 31, 2009 (the "2009 Annual Report"). Our financial results as of and for the year ended December 31, 2009 have been restated, including the financial results for the three and nine months ended September 30, 2009. All information and disclosures contained herein have been updated to reflect the effect of such restatements. For a more detailed description of the restatements, see Note 19 of the Notes to these unaudited condensed consolidated financial statements. There have been no material changes in the significant accounting policies followed by us during the three and nine month periods ended September 30, 2010 from those disclosed in the 2009 Annual Report, other than effective January 1, 2010 we changed our segment reporting as described in Note 17.

2. NEW ACCOUNTING PRONOUNCEMENTS

        In June 2009, the Financial Accounting Standards Board ("FASB"), issued Accounting Standards Codification ("ASC") topic 810, Amendments to FASB Interpretation No. 46(R), which amends the consolidation guidance applicable to variable interest entities and the definition of a variable interest entity ("VIE"), and requires enhanced disclosures to provide more information about an enterprise's involvement in a VIE. In addition, it requires an enterprise to perform an analysis to determine whether the enterprise's variable interest gives it a controlling interest in a VIE. The analysis identifies the primary beneficiary of the VIE as the enterprise that has both (a) the power to direct the activities of the VIE and (b) the obligation to absorb losses of the VIE. This statement was effective for us on January 1, 2010. On December 23, 2009, the FASB issued Accounting Standard Update ("ASU") 2009-17. The amendments contained in ASU 2009-17 replace the quantitative-based risks-and-rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a VIE with an approach focused on identifying which reporting entity has the power to direct the activities of a VIE that most significantly affect the entity's economic performance and the obligation to absorb losses of, or the right to receive benefits from, the entity. The ASU also requires additional disclosures about a reporting entity's involvement with VIEs and about any significant changes in risk exposure as a result of that involvement. On February 25, 2010, the FASB issued ASU 2010-10, which amends certain provisions of ASC topic 810. ASU 2010-10 defers the effective date of ASC topic 810 for a reporting enterprise's interest in certain entities and for certain money market mutual funds. In

6


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. NEW ACCOUNTING PRONOUNCEMENTS (Continued)


addition, the ASU amends certain provisions of ASC topic 810 to change how a decision maker or service provider determines whether its fee is a variable interest. We adopted ASC topic 810 and the ASUs noted above as of January 1, 2010, and this guidance did not have a material impact on our consolidated financial statements.

        In June 2009, the FASB issued ASC topic 860, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140, which improves the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor's continuing involvement, if any, in the transferred assets. This statement is effective for financial asset transfers occurring after the beginning of an entity's first fiscal year that begins after November 15, 2009. Early adoption is prohibited. The adoption of ASC topic 860 on January 1, 2010 did not have a material impact on our consolidated financial statements.

        On January 21, 2010, the FASB issued ASU 2010-06, which amends ASC topic 820, Fair Value Measurements and Disclosures, to add new requirements for disclosures about transfers into and out of Levels 1 and 2 of the fair value hierarchy and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements in the fair value hierarchy. This ASU also clarifies existing fair value disclosure requirements about the level of disaggregation and about inputs and valuation techniques used to measure fair value. Further, ASU 2010-06 amends guidance on employers' disclosures about postretirement benefit plan assets under ASC topic 715 to require that disclosures be provided by classes of assets instead of major categories of assets. ASU 2010-06 is effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Early adoption is permitted. The adoption of this ASU did not have a material impact on our consolidated financial statements. We are currently evaluating the Level 3 activity disclosures and do not expect this portion of ASU 2010-06, when effective, to have a material impact on our consolidated financial statements.

        On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the "Act"). The Act is a comprehensive health care reform bill that includes provisions for raising nearly $400 billion in revenue over ten years through tax increases on high-income individuals, excise taxes on high cost group health plans, and new fees on selected health-care-related industries. The Act eliminates the tax deduction for the portion of the prescription drug costs for which an employer receives a Medicare Part D federal subsidy (i.e., it reduces a company's tax deduction). As a result of this enacted legislation, a company may need to reduce its deferred tax asset associated with the deductible temporary differences related to its other postemployment benefit obligation. The Act is not expected to have a material impact on our consolidated financial statements.

3. RESTRUCTURING ACTIVITIES

        In March 2008, our outdoor storage building business was sold for $13.0 million resulting in a loss of approximately $4.6 million recorded in the first quarter of 2008. As part of exiting this business, we initiated a restructuring plan (the "Outdoor Storage Plan"). In connection with the Outdoor Storage Plan, we incurred costs related to termination benefits, operating lease termination costs, asset impairment charges, relocation and other exit costs and have recognized these costs in accordance with

7


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. RESTRUCTURING ACTIVITIES (Continued)


ASC subtopic 420-10 Exit or Disposal Cost Obligations and related accounting standards. During the third quarter of 2009, we reached a favorable settlement on a legal claim which resulted in the reversal of a litigation accrual of $3.1 million and a credit of restructuring costs for the same amount for the three and nine months ended September 30, 2009. No significant costs related to the Outdoor Storage Plan were incurred in the three and nine months ended September 30, 2010, and we do not expect there to be any significant future costs associated with the Outdoor Storage Plan. These costs and recovery are included in restructuring costs in the accompanying unaudited condensed consolidated statement of operations.

        In the fourth quarter of 2008, we initiated a restructuring plan (the "Fourth Quarter 2008 Restructuring Plan") that included the permanent shut down of our 450 million pound polyvinyl chloride ("PVC") manufacturing facility in Sarnia, Ontario, the exit of a recycled PVC compound manufacturing facility in Woodbridge, Ontario, the consolidation of various manufacturing facilities, and elimination of certain duplicative activities in our operations. In connection with the Fourth Quarter 2008 Restructuring Plan, we incurred costs related to termination benefits, including severance, pension and postretirement benefits, operating lease termination costs, asset impairment charges, relocation and other exit costs and have recognized these costs in accordance with ASC subtopic 420-10 and related accounting standards. For the three and nine months ended September 30, 2010, we incurred $0.1 million in restructuring expenses and a recovery of $0.2 million, respectively, related to the Fourth Quarter 2008 Restructuring Plan primarily due to additional termination benefits and exit costs of $1.0 million, offset by a reversal of remediation costs that did not have to be incurred or reimbursed by us. This amount is noted as a reduction in the additions column in the table below. In addition, for the three and nine months ended September 30, 2010, we incurred $nil and $0.1 million in long-lived asset impairment charges. We do not expect there to be any future costs associated with the Fourth Quarter 2008 Restructuring Plan. For the three and nine months ended September 30, 2009, we incurred a net recovery of $2.6 million and restructuring expenses of $3.1 million respectively, related to severance and exit costs. Total restructuring expenses incurred for the three and nine months ended September 30, 2009 include a $4.0 million credit adjustment for the wind up of the Canadian pension plan (see Note 12). The amount is noted as a reduction in the additions column in the table below. These costs and recovery are included in restructuring costs in the accompanying unaudited condensed consolidated statement of operations.

        In May 2009, we initiated plans to further consolidate plants in our window and door profiles business (the "2009 Window and Door Consolidation Plan"). As a result we incurred restructuring costs, including impairment of the plants' fixed assets for the three and nine months ended September 30, 2009. For the three months ended September 30, 2009, we incurred $4.4 million of impairment charges for real estate associated with the further consolidation of these plants. For the three and nine months ended September 30, 2010, we incurred $nil and $0.4 million of additional restructuring expenses, respectively, which are noted in the table below. For the three months and nine months ended September 30, 2009, $0.2 million of restructuring recovery and $1.5 million in restructuring expenses were incurred, respectively, and are noted in the table below.

8


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. RESTRUCTURING ACTIVITIES (Continued)

        A summary of our activities for the three and nine months ended September 30, 2010 and 2009 as it relates to the restructuring activities described above, is detailed by reportable segment as follows:

(In thousands)
  Balance at
June 30,
2010
  Additions   Cash
Payments
  Foreign
Exchange
and Other
Adjustments
  Balance at
September 30,
2010
 

Chlorovinyls

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

  $ 248   $   $ (163 ) $ 4   $ 89  
 

Exit costs

    167     141     (158 )   (7 )   143  

Building Products

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

    1,524         (275 )   42     1,291  
 

Exit costs

                       

2009 Window and Door Consolidation Plan:

                               
 

Involuntary termination benefits

    477     (3 )   (86 )   12     400  
 

Exit costs

                     

Outdoor Storage Plan:

                               
 

Involuntary termination benefits

    90     (2 )       2     90  

Corporate

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

                     
                       

Total

  $ 2,506   $ 136   $ (682 ) $ 53   $ 2,013  
                       

 

(In thousands)
  Balance at
December 31,
2009
  Additions   Cash
Payments
  Foreign
Exchange and Other
Adjustments
  Balance at
September 30,
2010
 

Chlorovinyls

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

  $ 1,030   $ 157   $ (1,154 ) $ 56   $ 89  
 

Exit costs

    1,976     (615 )   (1,080 )   (138 )   143  

Building Products

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

    2,418     230     (1,402 )   45     1,291  
 

Exit costs

        55     (55 )        

2009 Window and Door Consolidation Plan:

                               
 

Involuntary termination benefits

    879     (107 )   (387 )   15     400  
 

Exit costs

    179     460     (639 )        

Outdoor Storage Plan:

                               
 

Involuntary termination benefits

    163     (46 )   (29 )   2     90  

Corporate

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

    48             (48 )    
                       

Total

  $ 6,693   $ 134   $ (4,746 ) $ (68 ) $ 2,013  
                       

9


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. RESTRUCTURING ACTIVITIES (Continued)

        A summary of our restructuring activities recognized as a result of the Fourth Quarter 2008 Restructuring Plan and the Outdoor Storage Plan by reportable segment for the three and nine months ended September 30, 2009 is as follows:

(In thousands)
  Balance at
June 30,
2009
  Additions   Cash
Payments
  Foreign
Exchange
and Other
Adjustments
  Balance at
September 30,
2009
 

Chlorovinyls

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

  $ 1,831   $ (3,817 ) $ (868 ) $ 4,135 (a) $ 1,281  
 

Exit costs

    4,093     271     (733 )   (468 )(b)   3,163  

Building Products

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

    2,225     869     (629 )   215     2,680  
 

Exit costs

    1     (1 )            

2009 Window and Door Consolidation Plan:

                               
 

Involuntary termination benefits

    1,595     (260 )   (150 )   29     1,214  
 

Exit Costs

        60     (60 )        

Outdoor Storage Plan:

                               
 

Involuntary termination benefits

    205     2     (27 )   14     194  
 

Exit costs

    3,685     (3,130 )   (1,826 )   1,271      

Corporate

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

        78     (78 )        
                       

Total

  $ 13,635   $ (5,928 ) $ (4,371 ) $ 5,196   $ 8,532  
                       

10


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. RESTRUCTURING ACTIVITIES (Continued)

 

(In thousands)
  Balance at
December 31,
2008
  Additions   Cash
Payments
  Foreign Exchange and Other Adjustments   Balance at
September 30,
2009
 

Chlorovinyls

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

  $ 3,246   $ (3,552 ) $ (2,588 ) $ 4,175 (a) $ 1,281  
 

Exit costs

    4,185     3,473     (4,229 )   (266 )(b)   3,163  
 

Other

    1,184             (1,184 )    

Building Products

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

    2,755     3,018     (3,722 )   629     2,680  
 

Exit costs

    1     (1 )            
 

Other

    1,967             (1,967 )    

2009 Window and Door Consolidation Plan:

                               
 

Involuntary termination benefits

        1,457     (261 )   18     1,214  
 

Exit costs

        60     (60 )        

Outdoor Storage Plan:

                               
 

Involuntary termination benefits

    523     124     (265 )   (188 )   194  
 

Exit costs

    1,779     (1,244 )   (1,943 )   1,408      

Corporate

                               

Fourth Quarter 2008 Restructuring Plan:

                               
 

Involuntary termination benefits

        123     (123 )        
                       

Total

  $ 15,640   $ 3,458   $ (13,191 ) $ 2,625   $ 8,532  
                       

(a)
Includes a $4.0 million adjustment for the wind up of the Canadian post retirement health and welfare and pension plans that were previously reflected in accumulated other comprehensive income.

(b)
Includes a reclassification of $0.8 million of Other Post Retirement Benefits from Exit Costs to Involuntary Termination Benefits for the Fourth Quarter 2008 Restructuring Plan in the Chlorovinyls segment.

11


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. RESTRUCTURING ACTIVITIES (Continued)

        A summary of impairment of tangible long-lived assets incurred in connection with our restructuring activities, by reportable segment for the three and nine months ended September 30, 2009 is as follows. There were no similar changes in 2010.

(In thousands)
  Three
Months Ended
September 30,
2009
  Nine
Months Ended
September 30,
2009
 

Chlorovinyls

             

Fourth Quarter 2008 Restructuring Plan:

             
 

Impairment of long-lived assets

  $ (277 ) $ 201  

Building products

             

2009 Window and Door Consolidation Plan:

             
 

Impairment of long-lived assets

    4,444     20,156  
           

Total

  $ 4,167   $ 20,357  
           

        In the first quarter of 2009, we engaged the services of several consultants to assist us in performance improvement, and transportation management and indirect sourcing cost reduction initiatives among other areas of the business with the ultimate goal to restructure our businesses and improve and sustain profitability for the long-term. For the three and nine months ended September 30, 2009, we incurred $2.5 million in restructuring costs related to fees paid to these consultants to advise us on the restructuring strategies noted above, which amounts are included in restructuring costs in the accompanying condensed consolidated statement of operations.

4. ACCOUNTS RECEIVABLE SECURITIZATION

        On March 17, 2009, we entered into a new Asset Securitization agreement pursuant to which we sold an undivided percentage ownership interest in a certain defined pool of our U.S. and Canadian trade accounts receivable on a revolving basis through a wholly owned subsidiary to a third party (the "Securitization"). This wholly owned subsidiary was funded through advances on sold trade receivables and collections of those trade receivables and its activities were exclusively related to the Securitization. This Securitization replaced a previous agreement pursuant to which we sold an undivided percentage ownership interest in a certain defined pool of our U.S. trade receivables on a revolving basis through a wholly owned subsidiary to two third parties. Under the Securitization agreement we had the right to sell ownership interests in new receivables to bring the ownership interests sold up to a maximum of $175.0 million. As collections reduced our accounts receivable included in the pool, we had the right to sell ownership interests in new receivables to bring the ownership interests sold up to a maximum of $175.0 million, as permitted by the Securitization. However, as of December 22, 2009 the Securitization was replaced with a four-year term senior secured asset-based revolving credit facility that provides for a maximum of $300 million of revolving credit, subject to borrowing base availability and other terms and conditions (the "ABL Revolver") (see Note 9). As a result of the termination and replacement of our Securitization and the execution of the ABL Revolver, we repurchased $110.0 million of previously sold accounts receivable. The repurchase of these trade receivables did not result in any significant losses and, as of March 31, 2010 these repurchased receivables have been collected.

12


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. INVENTORIES

        The major classes of inventories were as follows:

(In thousands)
  September 30, 2010   December 31, 2009  

Raw materials, work-in-progress, and supplies

  $ 127,619   $ 97,351  

Finished goods

    164,809     154,046  
           

Inventories

  $ 292,428   $ 251,397  
           

6. PROPERTY, PLANT AND EQUIPMENT, NET

        Property, plant and equipment consisted of the following:

(In thousands)
  September 30,
2010
  December 31,
2009
 

Machinery and equipment

  $ 1,371,044   $ 1,346,740  

Land and land improvements

    87,051     86,013  

Buildings

    197,537     195,602  

Construction-in-progress

    26,584     25,629  
           

Property, plant and equipment, at cost

    1,682,216     1,653,984  

Accumulated depreciation

    1,029,855     966,414  
           

Property, plant and equipment, net

  $ 652,361   $ 687,570  
           

7. OTHER ASSETS, NET

        Other assets, net of accumulated amortization, consisted of the following:

(In thousands)
  September 30,
2010
  December 31,
2009
 

Advances for long-term purchase contracts

  $ 53,717   $ 67,257  

Investment in joint ventures

    10,375     12,804  

Debt issuance costs, net

    22,862     25,654  

Long-term receivables

    96     3,714  

Other

    5,163     7,065  
           

Total other assets, net

  $ 92,213   $ 116,494  
           

        The decrease in Advances for long-term purchase contracts is the result of amortizing the prepayments usage over the terms of the related contracts. The amortization of these costs is reflected as other non-cash items in the accompanying unaudited condensed consolidated statement of cash flows.

        Assets Held-For-Sale.    Assets held for sale includes real estate totaling $14.2 million and $14.9 million at September 30, 2010 and December 31, 2009, respectively.

13


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. GOODWILL AND OTHER INTANGIBLE ASSETS

        Goodwill.    The following table provides the detail of the changes made to goodwill by reportable segment during the nine months ended September 30, 2010.

(In thousands)
  Chlorovinyls   Building Products   Total  

Gross goodwill at December 31, 2009

  $ 239,444   $ 152,058   $ 391,502  

Accumulated impairment losses at December 31, 2009

    (55,487 )   (132,206 )   (187,693 )
               

Goodwill at December 31, 2009

    183,957     19,852     203,809  
               

Gross goodwill at December 31, 2009

    239,444     152,058     391,502  

Foreign currency translation adjustment

    2,072         2,072  
               

Gross goodwill at September 30, 2010

    241,516     152,058     393,574  

Accumulated impairment losses at September 30, 2010

    (55,487 )   (132,206 )   (187,693 )
               

Goodwill at September 30, 2010

  $ 186,029   $ 19,852   $ 205,881  
               

        Indefinite-lived intangible assets.    At September 30, 2010 and December 31, 2009 we held trade names as indefinite-lived intangible assets. The following table provides the summary of indefinite-lived intangible assets by reportable segment as of September 30, 2010 and December 31, 2009.

Indefinite-lived intangible assets-trade names

(In thousands)
  Chlorovinyls   Building Products   Total  

Balance at December 31, 2009

  $ 353   $ 4,137   $ 4,490  
               

Foreign currency translation adjustment

    7     39     46  
               

Balance at September 30, 2010

  $ 360   $ 4,176   $ 4,536  
               

        Finite-lived intangible assets.    At September 30, 2010 and December 31, 2009, we also had customer relationship and technology intangibles. The following tables provide the summary of finite-lived intangible assets by reportable segment as of September 30, 2010 and December 31, 2009.

14


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

    Finite-lived intangible assets

(In thousands)
  Chlorovinyls   Building Products   Total  

Gross carrying amounts at September 30, 2010:

                   
 

Customer relationships

  $ 199   $ 11,422   $ 11,621  
 

Technology

        11,867     11,867  
               
 

Total

    199     23,289     23,488  

Accumulated amortization at September 30, 2010:

                   
 

Customer relationships

    (124 )   (5,121 )   (5,245 )
 

Technology

        (6,507 )   (6,507 )
               
 

Total

    (124 )   (11,628 )   (11,752 )

Foreign currency translation adjustment and other at September 30, 2010:

                   
 

Customer relationships

    (75 )   (1,684 )   (1,759 )
 

Technology

             
               
 

Total

    (75 )   (1,684 )   (1,759 )

Net carrying amounts at September 30, 2010:

                   
 

Customer relationships

        4,617     4,617  
 

Technology

        5,360     5,360  
               
 

Total

  $   $ 9,977   $ 9,977  
               

 

(In thousands)
  Chlorovinyls   Building Products   Total  

Gross carrying amounts at December 31, 2009:

                   
 

Customer relationships

  $ 199   $ 11,422   $ 11,621  
 

Technology

        11,867     11,867  
               
 

Total

    199     23,289     23,488  

Accumulated amortization at December 31, 2009:

                   
 

Customer relationships

    (124 )   (4,868 )   (4,992 )
 

Technology

        (6,004 )   (6,004 )
               
 

Total

    (124 )   (10,872 )   (10,996 )

Foreign currency translation adjustment and other at December 31, 2009:

                   
 

Customer relationships

    (75 )   (1,684 )   (1,759 )
 

Technology

             
               
 

Total

    (75 )   (1,684 )   (1,759 )

Net carrying amounts at December 31, 2009:

                   
 

Customer relationships

        4,870     4,870  
 

Technology

        5,863     5,863  
               
 

Total

  $   $ 10,733   $ 10,733  
               

15


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

        The average estimated useful life for the customer relationships and technology intangible assets are 18 years and 12 years, respectively. Amortization expense for the finite-lived intangible assets for the three and nine months ended September 30, 2010 and September 30, 2009 was as follows:

(In thousands)
  September 30,
2010
  September 30,
2009
 

For the three months ended

  $ 252   $ 253  

For the nine months ended

    756     757  

        Total finite-lived intangible asset estimated annual amortization expense for the next five fiscal years is approximately $1.0 million per year.

9. LONG-TERM DEBT

        Long-term debt consisted of the following:

(In thousands)
  September 30,
2010
  December 31,
2009
 

Senior secured ABL revolving credit facility due 2013

  $ 47,200   $ 56,462  

9.0% senior secured notes due 2017

    496,995     496,739  

7.125% senior notes due 2013

    8,965     8,965  

9.5% senior notes due 2014

    13,159     13,151  

10.75% senior subordinated notes due 2016

    41,398     41,360  

Lease financing obligation

    108,593     106,436  

Other

    15,892     15,892  
           

Total debt

    732,202     739,005  
 

Less current portion

    (47,200 )   (28,231 )
           

Long-term debt

  $ 685,002   $ 710,774  
           

        On December 22, 2009, we refinanced our then-existing senior secured credit facility and our Securitization. At the time of the refinancing, our senior secured credit facility was comprised of a $300 million revolving credit facility and a $347.7 million Term Loan B. We replaced the senior secured credit facility and the Securitization with a four-year term senior secured asset-based revolving credit agreement (the "ABL Revolver") and the issuance of $500.0 million in principal amount of our 9.0 percent senior secured notes.

        The ABL Revolver provides for a maximum of $300 million of revolving credit through December 2013, subject to borrowing base availability, including sub-limits for letters of credit and swing line loans. The borrowing base is equal to specified percentages of our eligible accounts receivable and inventories, less a fixed $15 million availability reserve and other reserves reasonably determined by the co-collateral agents. The borrowings under the ABL Revolver are secured by substantially all of our assets.

        The weighted average interest rate under the ABL Revolver was 5.1 percent and 6.0 percent as of September 30, 2010 and December 31, 2009, respectively. In addition to paying interest on outstanding principal under the ABL Revolver, we are required to pay a commitment fee in respect of the

16


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. LONG-TERM DEBT (Continued)


unutilized commitments and we must also pay customary letter of credit fees equal to the applicable margin on London Interbank Offered Rate ("LIBOR") loans and agency fees.

        The ABL Revolver requires that if excess availability (as defined) is less than $45 million, we maintain a minimum fixed charge coverage ratio (as defined) of 1.10 to 1.00. At September 30, 2010 and December 31, 2009 excess availability was $217.5 million and $134.5 million, respectively. In addition, the ABL Revolver includes affirmative and negative covenants that, subject to significant exceptions, limit our ability and the ability of our subsidiaries to, among other things: incur, assume or permit to exist additional indebtedness or guarantees; incur liens; make investments and loans; pay dividends, make payments or redeem or repurchase capital stock; engage in mergers, acquisitions and asset sales; prepay, redeem or purchase certain indebtedness, including the 9.0 percent senior secured notes; amend or otherwise alter terms of certain indebtedness, including the 9.0 percent senior secured notes; engage in certain transactions with affiliates; and alter the business that we conduct.

        If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the ABL Revolver exceeds the lesser of (i) the commitment amount and (ii) the borrowing base, we will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. If the amount available under the ABL Revolver is less than $60 million for a period of three consecutive business days or certain events of default have occurred, we will be required to deposit cash from our material deposit accounts (including all concentration accounts) daily in a collection account maintained with the administrative agent under the ABL Revolver, which will be used to repay outstanding loans and cash collateralize letters of credit.

        At September 30, 2010 and December 31, 2009, we had $47.2 million and $56.5 million in outstanding principal borrowed under the ABL Revolver and had outstanding letters of credit totaling $20.3 million and $45.2 million, respectively. Over the next twelve months, we expect to repay $47.2 million of borrowings under our ABL Revolver. Therefore, we have classified this debt as current in our consolidated balance sheet as of September 30, 2010.

        On December 22, 2009, we also issued $500.0 million principal amount of 9.0 percent senior secured notes due in 2017. Interest on these notes is payable January 15 and July 15 of each year. On or after January 15, 2014, we may redeem the notes in whole or in part, initially at 104.5 percent of their principal amount, and thereafter at prices declining annually to 100 percent on or after January 15, 2016. During any twelve-month period prior to January 15, 2014 we may make optional redemptions of up to 10 percent of the aggregate principal amount of the 9.0 percent notes at a redemption price of 103.0 percent of such principal amount plus any accrued and unpaid interest. In addition, prior to January 15, 2013, we may redeem up to 35 percent of the aggregate principal amount of the 9.0 percent notes at a redemption price equal to 109.0 percent of such principal amount, plus any accrued and unpaid interest. In addition, we may redeem some or all of the 9.0 percent notes at any time prior to January 15, 2014 at a price equal to the principal amount thereof plus a make-whole premium and any accrued and unpaid interest. The 9.0 percent senior secured notes are secured by substantially all of our assets, and contain certain restrictive covenants including restrictions on debt incurrence, granting of liens, dividends, acquisitions and investments.

        On March 31, 2009, we commenced private exchange offers (the "exchange offers") for our outstanding 7.125 percent senior notes due 2013 (the "2013 notes"), 9.5 percent senior notes due 2014 (the "2014 notes"), and 10.75 percent senior subordinated notes due 2016 (the "2016 notes" and

17


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. LONG-TERM DEBT (Continued)


collectively with the 2013 notes and 2014 notes, the "notes"). After numerous extensions and amendments, on July 29, 2009, we consummated our exchange offers for approximately $736.0 million (principal amount), or 92.0 percent, in aggregate principal amount of the notes. The $736.0 million was comprised of $91.0 million of the $100 million of 2013 notes, $486.8 million of the $500 million of 2014 notes, and $158.1 million of the $200 million of 2016 notes. An aggregate of approximately 30.2 million shares of convertible preferred stock and 1.3 million shares of common stock were issued in exchange for the tendered notes after giving effect to a 1-for-25 reverse stock split, which reduced the outstanding common shares, before the issuance of common shares in the exchange offers, to approximately 1.4 million shares. In exchange for each $1,000 in principal amount of the 2013 notes and 2014 notes, we issued 47.30 shares of convertible preferred stock and 2.11 shares of common stock, and in exchange for each $1,000 in principal amount of the 2016 notes, the company issued 18.36 shares of convertible preferred stock and 0.82 shares of common stock. In September 2009 the 30.2 million preferred shares converted to an equal number of common shares. As of September 30, 2010, we had outstanding $9.0 million of the 2013 notes, $13.2 million of the 2014 notes and $41.4 million of the 2016 notes.

        In accordance with ASC subtopic 470-60, Troubled Debt Restructuring by Debtors, the exchange offers were a troubled debt restructuring and thus an extinguishment of the exchanged notes for which we recognized a net gain of $400.8 million. The $400.8 million net gain from the exchange offers represents diluted earnings per share of approximately $9.72 and $25.99 for the three and nine months ended September 30, 2009, respectively. This gain included $731.5 million of principal debt, net of original issuance discounts, $53.7 million accrued interest, $14.1 million deferred financing fees written off and $12.4 million of third party fees, which was exchanged for the $357.9 million fair value of the common and preferred shares. The $357.9 million fair value of the common and preferred shares was estimated using a combination of discounted future cash flows; market multiples for similar companies and recent comparable transactions. In addition, the resulting fair value of the equity approximates $11.36 per share that was also evaluated relative to the value of the underlying common stock in the public markets and determined to be reasonable. Due to the fact that the determination of the fair value of the equity issued was primarily derived by projected future cash flows, we evaluated the sensitivity of the major assumptions including discount rates and forecasted cash flows. A 100 basis points increase or decrease in the discount rate or a 10% increase or decrease in the annual forecasted cash flows results in an approximately $30.0 million increase or decrease in the estimated fair value of the equity exchanged.

        Lease Financing Transaction.    The lease financing obligation is the result of the sale and concurrent leaseback of certain land and buildings in Canada in 2007. In connection with this transaction, a collateralized letter of credit was issued in favor of the buyer lessor resulting in the transaction being recorded as a financing transaction rather than a sale, and the land and building and related accounts continue to be recognized in the condensed consolidated balance sheet. The future minimum lease payments under the terms of the related lease agreements at September 30, 2010 are $1.7 million in 2010, $7.2 million in 2011, $7.3 million in 2012, $7.5 million in 2013, $7.6 million in 2014, and $17.7 million thereafter. The change in the future minimum lease payments from the December 31, 2009 balance is due to monthly payments and the change in the Canadian dollar exchange rate during the nine months ended September 30, 2010.

18


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. COMMITMENTS AND CONTINGENCIES

        Legal Proceedings.    In August 2004 and January and February 2005, the United States Environmental Protection Agency ("the USEPA") conducted environmental investigations of our manufacturing facilities in Aberdeen, Mississippi and Plaquemine, Louisiana, respectively. The USEPA informed us that it identified several "areas of concern," and indicated that such areas of concern, may in its view, constitute violations of applicable requirements, thus warranting monetary penalties and possible injunctive relief. In lieu of pursuing such relief through its traditional enforcement process, the USEPA proposed that the parties enter into negotiations in an effort to reach a global settlement of the areas of concern and that such global settlement also cover our manufacturing facilities in Lake Charles, Louisiana and Oklahoma City, Oklahoma. During the second quarter of 2006, we were informed by the USEPA that its regional office responsible for Oklahoma and Louisiana desired to pursue resolution of these matters on a separate track from the regional office responsible for Mississippi, with which we reached a settlement agreement. We have not yet achieved a settlement with the USEPA regional office responsible for Oklahoma and Louisiana. However, on November 17, 2009, we received a unilateral administrative order ("UAO") from this USEPA regional office. The UAO, issued pursuant to Section 3013(a) of the Resource Conservation and Recovery Act ("RCRA"), requires us to take certain monitoring and assessment activities in and around several of our wastewater and storm water conveyance systems.

        We have also recently received several compliance orders and notices of potential penalties from the Louisiana Department of Environmental Quality (LDEQ). On December 17, 2009, we received a Notice of Potential Penalty (NOPP) from LDEQ containing allegations of violations of Louisiana's hazardous waste management regulations. On October 7, 2010, we received a Consolidated Compliance Order (CCO) from LDEQ addressing the same allegations as were contained in the December 17, 2009 NOPP. On October 1, 2010, we received Consolidated Compliance Orders and Notices of Potential Penalties (CCONPPs) for both the Plaquemine, Louisiana and Lake Charles, Louisiana facilities. These CCONPPs allege violations of reporting, recordkeeping, and other requirements contained in Louisiana's air pollution control regulations.

        Some of the allegations contained in these compliance orders and notices of potential penalties may potentially be similar to the "areas of concern" raised by USEPA that are discussed above. These compliance orders and notices of potential penalties do not identify specific penalty amounts. It is likely that any settlement, if achieved, will result in the imposition of monetary penalties, capital expenditures for installation of environmental controls and/or other relief. We are not able to forecast the total cost of any monetary penalties, environmental projects, or other relief that would be imposed in any settlement or order. While we expect that such costs will exceed $100,000, we do not expect that such costs will have a material effect on our financial position, results of operations, or cash flows.

        In addition, we are currently, and may in the future become, subject to other claims and legal actions that arise in the ordinary course of business. We believe that the ultimate liability, if any, with respect to these other known claims and legal actions will not have a material effect on our financial position or on our results of operations.

        Environmental Regulation.    Our operations are subject to increasingly stringent federal, state and local laws and regulations relating to environmental quality. These regulations, which are enforced principally by the USEPA and comparable state agencies and Canadian federal and provincial agencies, govern the management of solid hazardous waste, emissions into the air and discharges into surface

19


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. COMMITMENTS AND CONTINGENCIES (Continued)


and underground waters, and the manufacture of chemical substances. In addition to the matters involving environmental regulation above, we have the following potential environmental issues.

        In the first quarter of 2007, the USEPA informed us of possible noncompliance at our Aberdeen, Mississippi facility with certain provisions of the Toxic Substances Control Act. Subsequently, we discovered possible non-compliance involving our Plaquemine, Louisiana and Pasadena, Texas facilities, which were then disclosed. We expect that all of these matters will be resolved in one settlement agreement with USEPA. While the penalties, if any, for such noncompliance may exceed $100,000, we do not expect that any penalties will have a material effect on our financial position, results of operations, or cash flows.

        There are several serious environmental issues concerning the VCM facility at Lake Charles, Louisiana we acquired from CONDEA Vista Company ("CONDEA Vista" is now Sasol North America, Inc.) on November 12, 1999. Groundwater contamination was first identified in 1981 and substantial investigation of the groundwater at the site has been conducted. Groundwater remediation through the installation of groundwater recovery wells began in 1984. The site currently contains an extensive network of monitoring wells and recovery wells. Investigation to determine the full extent of the contamination is ongoing. It is possible that offsite groundwater recovery will be required, in addition to groundwater monitoring. Soil remediation could also be required.

        Investigations are currently underway by federal environmental authorities concerning contamination of an estuary near the Lake Charles VCM facility, known as the Calcasieu Estuary. It is likely that this estuary will be listed as a Superfund site and will be the subject of a natural resource damage recovery claim. It is estimated that there are about 200 potentially responsible parties ("PRPs") associated with the estuary contamination. CONDEA Vista is included among these parties with respect to its Lake Charles facilities, including the VCM facility we acquired. The estimated cost for investigation and remediation of the estuary is unknown and could be significant. Also, Superfund statutes may impose joint and several liabilities for the cost of investigations and remedial actions on any company that generated the waste, arranged for disposal of the waste, transported the waste to the disposal site, selected the disposal site, or presently or formerly owned, leased or operated the disposal site or a site otherwise contaminated by hazardous substances. Any or all of the responsible parties may be required to bear all of the costs of cleanup regardless of fault, legality of the original disposal or ownership of the disposal site. Currently, we discharge our wastewater to CONDEA Vista, which has a permit to discharge treated wastewater into the estuary.

        CONDEA Vista has agreed to be responsible for substantially all environmental liabilities and remediation activity relating to the vinyls business we acquired from it, including the Lake Charles VCM facility. For all matters of environmental contamination that were known at the time of acquisition (November 1999), we may make a claim for indemnification at any time. For environmental matters that were then unknown, we must generally have made such claims for indemnification before November 12, 2009.

        At our Lake Charles VCM facility, CONDEA Vista continued to conduct the ongoing remediation at its expense until November 12, 2009. We are now responsible for remediation costs up to about $150,000 per year, as well as costs in any year in excess of this annual amount up to an aggregate one-time amount of about $2.3 million. As part of our ongoing assessment of our environmental contingencies, we determined these remediation costs to be probable and estimable and therefore have a $1.4 million accrual remaining in non-current liabilities at September 30, 2010.

20


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. COMMITMENTS AND CONTINGENCIES (Continued)

        As for employee and independent contractor exposure claims, CONDEA Vista is responsible for exposures before November 12, 2009, and we are responsible for exposures after November 12, 2009, on a pro rata basis determined by years of employment or service before and after November 12, 1999, by any claimant.

        In May 2008, our management was informed that further efforts to remediate a spill of styrene reducer at our Royal Mouldings facility in Atkins, Virginia would be necessary. The spill was the result of a supply line rupture from an external holding tank. As a result of this spill, the facility entered into a voluntary remediation agreement with the Virginia Department of Environmental Quality ("VDEQ") in August 2003 and began implementing the terms of the voluntary agreement shortly thereafter. In August 2007, the facility submitted a report on the progress of the remediation to the VDEQ. Subsequently, the VDEQ responded by indicating that continued remediation of the area impacted by the spill is required. While the additional remediation costs may exceed $100,000, we do not expect such costs will have a material effect on our financial position, results of operations or cash flows.

        We believe that we are in material compliance with all current environmental laws and regulations. We estimate that any expenses incurred in maintaining compliance with these requirements will not materially affect earnings or cause us to materially exceed our level of anticipated capital expenditures. However, there can be no assurance that regulatory requirements will not change, and it is not possible to accurately predict the aggregate cost of compliance resulting from any such changes.

11. EARNINGS PER SHARE

        We calculate earnings per share in accordance with ASC subtopic 260-10, Earnings per Share, using the two-class method. The two-class method requires that share-based awards with non-forfeitable dividends be classified as participating securities. In calculating basic earnings per share, this method requires net income to be reduced by the amount of dividends declared in the current period for each participating security and by the contractual amount of dividends or other participation payments that are paid or accumulated for the current period. Undistributed earnings for the period are allocated to participating securities based on the contractual participation rights of the security to share in those current earnings assuming all earnings for the period are distributed. Recipients of restricted stock awards have contractual participation rights that are equivalent to those of common stockholders. Therefore, we allocate undistributed earnings to restricted stock units and common stockholders based on their respective ownership percentage as of the end of the period.

        Diluted earnings per share includes the additional share equivalents from the assumed conversion of stock options calculated using the treasury stock method, subject to the anti-dilution provisions of ASC subtopic 260-10.

21


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. EARNINGS PER SHARE (Continued)

        The following table presents the computation of earnings per share:

Basic and Diluted Earnings Per Share—Two-class Method

 
  Three months ended
September 30,
  Nine months ended
September 30,
 
In thousands, except per share data
  2010   2009   2010   2009  

Basic earnings per share

                         

Undistributed income

 
$

24,958
 
$

204,656
 
$

27,617
 
$

255,803
 

Restricted stock ownership interest in undistributed income

    3 %   7 %   3 %   6 %
                   

Restricted stock interest in undistributed income

  $ 699   $ 13,435   $ 876   $ 15,193  
                   

Weighted average restricted shares—Basic

    977     1,641     1,107     555  

Total restricted stockholders' basic earnings per share

  $ 0.72   $ 8.19   $ 0.79   $ 27.38  

Undistributed income

 
$

24,958
 
$

204,656
 
$

27,617
 
$

255,803
 

Common stock ownership interest in undistributed income

    97 %   93 %   97 %   94 %
                   

Common stockholders' interest in undistributed income

  $ 24,259   $ 191,221   $ 26,741   $ 240,610  
                   

Weighted average common shares—Basic

    33,894     23,355     33,779     8,788  

Total common stockholders' basic earnings per share

  $ 0.72   $ 8.19   $ 0.79   $ 27.38  
                   

Diluted earnings per share

                         

Undistributed income

  $ 24,958   $ 204,656   $ 27,617   $ 255,803  

Deduct: Undistributed earnings—Restricted stock

    699     13,435     876     15,193  
                   

Common stockholders' interest in undistributed income used in diluted earnings per share

  $ 24,259   $ 191,221   $ 26,741   $ 240,610  
                   

Weighted average common shares—Basic

    33,894     23,355     33,779     8,788  
 

Stock options

        10         6  
                   

Weighted average common shares—Diluted

    33,894     23,365     33,779     8,794  
                   

Total diluted earnings per share

  $ 0.72   $ 8.18   $ 0.79   $ 27.36  
                   

        On July 28, 2009 we affected a 1-for-25 reverse stock split of our common stock. This reverse stock split has been reflected in share data and earnings per share data contained herein for all periods presented. On July 29, 2009, in connection with the exchange offers we issued 1.3 million common shares and 30.2 million convertible preferred shares to our bond holders that tendered their notes. These newly issued common shares are included in the above three and nine months ended September 30, 2009 earnings per share on a weighted average basis from the date of issuance. On September 17, 2009, the preferred shares were converted to common shares on a one for one basis. These newly issued shares of preferred stock that converted to common shares are eligible to participate in any dividends that we issue and thus were treated as common share equivalents from the period issued until the date they formally converted to common shares in the calculations above. Common stock outstanding prior to the exchange offers, retroactively adjusted for the stock split, was approximately 1.4 million shares. As a result of the common stock issued and preferred stock issued and converted, in connection with the exchange offers, 32.9 million shares of common stock were

22


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. EARNINGS PER SHARE (Continued)


outstanding at September 30, 2009. Since the newly issued common shares and preferred stock that converted to common shares were issued in July 2009, they are only included in the number of common shares outstanding for August and September 2009, resulting in a weighted average of 23.4 million common shares outstanding for the three months ended September 30, 2009. On September 17, 2009, the convertible preferred shares were converted to common shares.

        In computing diluted loss per share for the three months ended September 30, 2010 and for the nine months ended September 30, 2010, options to purchase common stock totaling 0.2 million shares and 0.2 million shares, respectively, were not included as a result of their anti-dilutive effect. For the three months ended September 30, 2009 and for the nine months ended September 30, 2009, options to purchase common stock totaling 0.1 million shares and 0.2 million shares, respectively, were not included in the computation of diluted earnings per share as a result of their anti-dilutive effect.

12. EMPLOYEE RETIREMENT PLANS

        The following table provides the components of the net periodic benefit (income) for all of our pension plans:

 
  Three months ended
September 30,
  Nine months ended
September 30,
 
In thousands
  2010   2009   2010   2009  

Components of net periodic benefit (income) cost:

                         

Service cost

  $   $ (30 ) $   $ 1,243  

Interest cost

    1,882     2,036     5,809     5,858  

Expected return on assets

    (2,463 )   (1,900 )   (7,388 )   (6,123 )

Amortization of:

                         
 

Prior service credit

    3         3     (129 )
 

Curtailment gain

        (1,566 )       (5,868 )
 

Actuarial loss

    187     337     595     1,263  
                   

Total net periodic benefit (income)

  $ (391 ) $ (1,123 ) $ (981 ) $ (3,756 )
                   

        Our major assumptions used to determine the net periodic benefit (income) for our U.S. pension plans are presented as follows:

 
  Nine months ended
September 30,
 
  2010   2009

Discount rate

  6.00%   6.50/6.75%(1)

Expected return on assets

  8.75%   8.75%

Rate of compensation increase

  N/A(3)   4.51%/NA(2)

(1)
Fiscal 2009 retirement plan pension cost was based on costs as of the following two measurement dates, January 1 and March 31, 2009, due to the mid-year plan freeze.

(2)
Due to the mid-year plan freeze, the rate of compensation increase was no longer applicable as of the March 31, 2009 remeasurement date.

23


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. EMPLOYEE RETIREMENT PLANS (Continued)

(3)
Due to the pension plans being frozen (see below), the rate of compensation increase is no longer applicable.

        In connection with the closure of our Sarnia, Ontario PVC resin manufacturing facility in December 2008, we decided to wind up the Canadian Pension and Other Post-retirement Benefits Plans. For the Canadian Pension Plan, curtailment gains of $1.6 million were recognized as of September 30, 2009 when the remaining employees were released and the plant decommissioning was complete. We will recognize ongoing benefit costs for the Canadian Pension Plan until the wind up deficit is fully funded over the period through 2014. All future benefit obligations in the Canadian Other Post-retirement Benefits Plan were fully settled as of September 30, 2009. We recognized benefit income for this plan of $2.6 million for the nine months ended September 30, 2009, which included a curtailment gain of $0.9 million and a settlement gain of $1.7 million as of September 30, 2009.

        In February 2009, upon approval by the Board of Directors, we announced to our U.S. employees that we were freezing the benefits for the Georgia Gulf Corporation Retirement Plan (the "Plan") as of March 31, 2009. No future benefits accrued under the Plan after March 31, 2009. As a result, we recognized a curtailment gain of $4.3 million during the nine months ended September 30, 2009 due to accelerated recognition of prior service credits. In addition, as a result of freezing the Plan on March 31, 2009, we changed the amortization method for gains and losses from the average expected future service period for active Plan participants to the average expected future lifetime for all Plan participants. This change in amortization method is reflected in net periodic benefit costs after March 31, 2009 including the three and nine months ended September 30, 2010 and 2009.

        For the three and nine months ended September 30, 2010, we made no contributions to the U.S. pension plan trust and we made contributions of $nil and $0.5 million, respectively to the Canadian pension plan trust. We made contributions in the form of direct benefit payments for the U.S. pension plans in the three months and nine months ended September 30, 2010 of approximately $nil and $0.4 million, respectively.

13. STOCK-BASED COMPENSATION

        On September 17, 2009, our stockholders approved the 2009 Equity and Performance Incentive Plan (the "2009 Plan"). The 2009 Plan provides for the issuance of up to 3,033,000 (post the 1-for-25 reverse split) shares of our common stock. On July 27, 2009, the 2009 Plan was adopted in connection with the completion of our exchange offers described in Note 9. Additionally, on July 27, 2009 restricted share units for 2,274,745 shares in the aggregate were granted under the 2009 Plan.

        Under the 1998, 2002, and 2009 Equity and Performance Incentive Plans, we have been authorized by our stockholders to grant various awards for up to 3,313,000 shares of our common stock to employees and non-employee directors. As of September 30, 2010, we had entered into various types of share-based payment arrangements with our employees and non-employee directors, including restricted and deferred stock units, and employee stock options.

        Stock Options.    During the nine months ended September 30, 2010 we granted no options to purchase shares. We granted options to 52,108 shares to employees and non-employee directors during the first nine months of 2009. Option prices are equal to the closing price of our common stock on the date of grant. Options vest over a one or three-year period from the date of grant and expire no more than ten years after the date of grant.

24


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. STOCK-BASED COMPENSATION (Continued)

        A summary of stock option activity under all plans for the nine months ended September 30, 2010 is as follows:

 
  Nine months ended September 30, 2010  
 
  Shares   Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Terms (Years)
  Aggregate
Intrinsic Value
 
 
   
   
   
  (In thousands)
 

Outstanding on January 1, 2010

    159,114   $ 348.52              

Granted

                     

Exercised

                     

Expired

    (60 )   682.81              

Forfeited

    (3,241 )   735.27              
                         

Outstanding on September 30, 2010

    155,813     340.34     6.2   $ 11  
                         

Vested or expected to vest at September 30, 2010

    155,451     341.02     6.2     10  

Exercisable on September 30, 2010

    109,960     460.02     5.4     4  

Shares available on September 30, 2010 for options that may be granted

    614,182                    

        Stock-based Compensation Related to Stock Options.    The fair value of stock options granted has been estimated as of the date of grant using the Black-Scholes option-pricing model. The use of a valuation model requires us to make certain assumptions with respect to selected model inputs. We use the historical volatility for our stock, as we believe that historical volatility is more representative than implied volatility. The expected life of the awards is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on our history and expectation of dividend payouts. The use of a different model or different assumptions may result in a materially different valuation. There were no options granted during the nine months ended September 30, 2010. The weighted average fair value derived from the Black-Scholes model and the related weighted-average assumptions used in the model for the nine months ended September 30, 2009 are as follows:

 
  Stock Option Grants
 
  Nine months ended
September 30, 2009

Grant date fair value

  $16.77

Assumptions:

   
 

Risk-free interest rate

  2.13%
 

Expected life

  6.0 years
 

Expected volatility

  101%
 

Expected dividend yield

  —%

        Compensation expense, net of tax, for the nine months ended September 30, 2010 and 2009 due to stock options was approximately $0.3 million and $0.8 million, respectively.

25


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. STOCK-BASED COMPENSATION (Continued)

        Restricted and Deferred Stock.    During the nine months ended September 30, 2010 and 2009, we granted 154,048 and 2,274,745 restricted stock units, and shares of restricted stock and deferred stock units, respectively, to our key employees and non-employee directors. The restricted stock units granted in 2009 under the 2009 Plan vest 50 percent over a three-year period with the other 50 percent having vested based on the achievement of certain specific performance metrics in the fourth quarter 2009. The restricted stock units and shares of restricted stock granted other than under the 2009 Plan generally vest over a three-year period. The weighted average grant date fair value per share of restricted stock and deferred stock unit granted during the nine months ended September 30, 2010 and 2009 was $16.37 and $8.75, respectively, which grant date fair values are equal to the stock price as of the date of grant. Compensation expense, net of tax, for the nine months ended September 30, 2010 and 2009 from restricted stock units, restricted stock and deferred stock units was $1.2 million and $5.8 million, respectively. The compensation expense, net of tax, from the 2009 Plan grants on July 27, 2009 was $5.4 million and is included in the $5.8 million above. A summary of restricted stock and deferred stock units and related changes therein during the nine months ended September 30, 2010 is as follows:

 
  Nine months ended September 30, 2010  
 
  Shares   Weighted
Average
Remaining
Contractual
Terms (Years)
  Weighted
Average
Grant Date
Fair Value
  Aggregate
Intrinsic Value
 
 
   
   
   
  (In thousands)
 

Outstanding on January 1, 2010

    1,133,426         $ 10.82        
 

Granted

    154,048           16.37        
 

Vested

    (372,578 )         13.21        
 

Forfeited

    (5,524 )         16.35        

Outstanding on September 30, 2010

    909,372     2.16     10.75   $ 14,859  
                     

Vested or expected to vest at September 30, 2010

    888,091     2.16     10.76   $ 14,511  
                     

        As of September 30, 2010 and 2009, we had approximately $5.8 million and $13.8 million of total unrecognized compensation cost related to nonvested share-based compensation, which we will record in our statements of operations over a weighted average recognition period of approximately two years. The unrecognized compensation cost from the 2009 Plan grants on July 27, 2009 was approximately $11.6 million as of September 30, 2009. The total fair value of shares vested during the nine months ended September 30, 2010 and 2009 was $7.0 million and $6.4 million, respectively. For additional information about our share-based payment awards, refer to Note 12 of the Notes to Consolidated Financial Statements in Amendment No. 2 to our 2009 Annual Report on Form 10-K/A.

26


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. COMPREHENSIVE INCOME INFORMATION

        Our comprehensive income includes foreign currency translation of assets and liabilities of foreign subsidiaries, effects of exchange rate changes on intercompany balances of a long-term nature, unrealized gains and losses on derivative financial instruments designated as cash flow hedges, and adjustments to pension liabilities as required by ASC subtopic 715-30, Compensation—Retirement Benefits—Defined Benefit Plans—Pensions. The components of accumulated other comprehensive loss and total comprehensive income are shown as follows:

Accumulated other comprehensive loss—net of tax

In thousands
  September 30, 2010   December 31, 2009  

Unrealized (loss) gain on derivative contracts

  $ (272 ) $ 160  

Pension liability adjustment including effect of ASC topic 715

    (22,991 )   (23,377 )

Currency translation adjustment

    21,463     18,903  
           
 

Total accumulated other comprehensive loss

  $ (1,800 ) $ (4,314 )
           

        The components of total comprehensive income are as follows:

Total comprehensive income

 
  Three months ended
September 30,
  Nine months ended
September 30,
 
In thousands
  2010   2009   2010   2009  

Net income

  $ 24,958   $ 204,656   $ 27,617   $ 255,803  

Unrealized (loss) gain on derivative contracts

    (787 )   730     (432 )   1,359  

Pension liability adjustment including effect of ASC topic 715

    133     (3,762 )   386     (3,048 )

Currency translation adjustment

    4,234     8,962     2,560     14,654  
                   
 

Total comprehensive income

  $ 28,538   $ 210,586   $ 30,131   $ 268,768  
                   

15. INCOME TAXES

        Our effective income tax rates for the three and nine months ended September 30, 2010 were 30.7 percent and 0.4 percent, respectively, as compared to 49.9 percent and 40.7 percent, as reported for the three and nine months ended September 30, 2009, respectively. The difference in the rate as compared to the U.S. statutory federal income tax rate in 2010 was primarily due to a benefit from the resolution of certain uncertain tax positions in Canada and the lapsing of the statute of limitations on certain other uncertain tax positions in Canada and the release of a valuation allowance against certain deferred tax assets in Canada. The difference in the rate as compared to the U.S. statutory federal income tax rate in 2009 was primarily due to federal and state income tax credits including credits earned from the timely repayment of the Mississippi Industrial Development Bond described below, and the valuation allowance in Canada. In 1994, we entered into an Industrial Revenue Bond agreement with the state of Mississippi. The terms of the bond provided that repayment of the bond principal and interest would create state income tax credits. The bond was fully repaid in May 2009 resulting in significant state income tax credits being generated in 2009. These credits do not expire.

27


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

        Financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, long-term debt, and natural gas swap contracts. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value because of the nature of such instruments. The fair values of our 9.0 percent senior secured notes and our natural gas forward purchase contracts are based on quoted market prices.

        The FASB ASC 820-10, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that prioritizes observable and unobservable inputs to valuation techniques used to measure fair value. These levels, in order of highest to lowest priority are described below:

        Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.

        Level 2—Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

        Level 3—Prices that are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the company's own data.

        The following is a summary of the carrying values and estimated fair values of our fixed-rate long-term debt and natural gas forward purchase contracts as of September 30, 2010 and December 31, 2009:

 
  September 30, 2010   December 31, 2009  
In thousands
  Carrying
Amount
  Fair
Value
  Carrying
Amount
  Fair
Value
 

Level 1

                         

Long-term debt:

                         
 

9.0% senior secured notes due 2017

  $ 496,995   $ 523,125   $ 496,739   $ 506,250  
 

10.75% senior subordinated notes due 2016

            41,360     38,591  
 

7.125% senior notes due 2013

            8,965     8,293  
 

9.5% senior notes due 2014

            13,151     12,157  

Level 2

                         

Long-term debt:

                         
 

10.75% senior subordinated notes due 2016

    41,398     42,513          
 

7.125% senior notes due 2013

    8,965     8,830          
 

9.5% senior notes due 2014

    13,159     13,229          
 

ABL revolver expires 2013

    47,200     47,200     56,462     56,462  

Derivative instruments:

                         
 

Natural gas forward purchase contracts liability (asset)

    436     436     (257 )   (257 )

17. SEGMENT INFORMATION

        At December 31, 2009, we reported four reportable segments: (i) chlorovinyls; (ii) window and door profiles and mouldings products; (iii) outdoor building products; and (iv) aromatics. These four segments reflected the organization used by our management for purposes of allocating resources and assessing performance. Throughout 2009, we undertook various management changes, cost reductions and restructuring strategies to improve the operating results of our building products businesses. This

28


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. SEGMENT INFORMATION (Continued)


resulted in realigning and consolidating the previous window and door profiles and mouldings products segment and the previous outdoor building products segment in one segment, the building products segment. The building products segment is now overseen by one business manager and under one operating structure and further meets the aggregation criteria of ASC topic 280, Segment Reporting.

        Accordingly, beginning January 1, 2010, we report the following three reportable segments: (i) chlorovinyls; (ii) aromatics; and (iii) building products. The information for the three and nine months ended September 30, 2009 has been adjusted to be presented on a comparable basis. The chlorovinyls segment is a highly integrated chain of products, which includes chlorine, caustic soda, vinyl chloride monomers and vinyl resins and compounds. The aromatics segment is also integrated and includes cumene and the co-products phenol and acetone. Our vinyl-based building and home improvement products, including window and door profiles, mouldings, siding, pipe and pipe fittings and deck, fence and rail products are marketed under the Royal Group brand names, and are managed within the building products segment.

        Earnings of our segments exclude interest income and expense, unallocated corporate expenses and general plant services, provision for income taxes and, in the 2009 periods, the costs of our receivables securitization program. Transactions between operating segments are valued at market-based prices. The revenues generated by these transfers are provided in the following table.

        The accounting polices of the reportable segments are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 2009 Annual Report on Form 10-K/A.

In thousands
  Chlorovinyls   Aromatics   Building Products   Eliminations,
Unallocated
and Other
  Total  

Three months ended September 30, 2010:

                               
 

Net sales

  $ 316,749   $ 218,386   $ 222,907   $   $ 758,042  
 

Intersegment revenues

    63,715         141     (63,856 )    
 

Restructuring costs

    141         (5 )       136  
 

Operating income (loss)

    46,137     12,072     5,567     (10,550 )   53,226  
 

Depreciation and amortization

    15,012     337     8,783     1,279     25,411  

Three months ended September 30, 2009:

                               
 

Net sales

  $ 229,133   $ 100,521   $ 226,688   $   $ 556,342  
 

Intersegment revenues

    59,114             (59,114 )    
 

Long-lived asset impairment charges

    (277 )       4,444         4,167  
 

Restructuring costs

    (3,538 )       (2,390 )       (5,928 )
 

Operating income (loss)

    30,573     9,347     16,658     (17,982 )   38,596  
 

Depreciation and amortization

    14,861     1,084     9,897     3,853     29,695  

29


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

17. SEGMENT INFORMATION (Continued)

 

In thousands
  Chlorovinyls   Aromatics   Building Products   Eliminations, Unallocated and Other   Total  

Nine months ended September 30, 2010:

                               
 

Net sales

  $ 905,271   $ 600,720   $ 619,207   $   $ 2,125,198  
 

Intersegment revenues

    199,972         141     (200,113 )    
 

Restructuring costs

    (322 )       593         271  
 

Operating income (loss)

    73,681     13,935     20,632     (27,602 )   80,646  
 

Depreciation and amortization

    44,715     1,067     25,963     3,776     75,521  

Nine months ended September 30, 2009:

                               
 

Net sales

  $ 702,915   $ 227,979   $ 557,122   $   $ 1,488,016  
 

Intersegment revenues

    153,534             (153,534 )    
 

Long-lived asset impairment charges

    201         20,156         20,357  
 

Restructuring costs

    (63 )       3,522     2,468     5,927  
 

Loss on sale of assets, net

            62         62  
 

Operating income (loss)

    75,466     17,709     (25,224 )   (49,929 )   18,022  
 

Depreciation and amortization

    45,532     3,343     29,102     11,170     89,147  

        Chlorovinyls previously reported intersegment revenues for the three months and nine months ended September 2009 of $69,616 and $180,795, respectively. These amounts included revenues to units within the chlorovinyls segment which have been corrected in the table above. Those intrasegment revenues have been eliminated in the restated amounts above.

18. SUPPLEMENTAL GUARANTOR INFORMATION

        Our payment obligations under the indenture for our 9.0 percent senior secured notes are guaranteed by Georgia Gulf Lake Charles, LLC, Georgia Gulf Chemicals & Vinyls, LLC, Royal Mouldings Limited, Royal Plastics Group (USA) Limited, Rome Delaware Corporation, Plastic Trends, Inc., Royal Group Sales (USA) Limited, Royal Outdoor Products, Inc., Royal Window and Door Profiles Plant 13 Inc., and Royal Window and Door Profiles Plant 14 Inc. all of which are wholly owned subsidiaries (the "Guarantor Subsidiaries") of Georgia Gulf Corporation. The guarantees are full, unconditional and joint and several. Georgia Gulf is in essence a holding company for its wholly and majority owned subsidiaries. Investments in subsidiaries in the following tables reflect investments in wholly owned entities of Georgia Gulf Corporation. Investment in wholly owned subsidiaries with a stockholders' deficit have historically been erroneously presented in the investment in subsidiary line item and are now presented on the other non-current liabilities line item in the following tables. Historical information in the following tables have been restated to conform to this current presentation.

        The following condensed consolidating balance sheet information, statements of operations information and statements of cash flows information present the combined financial statements of the parent company, and the combined financial statements of our Guarantor Subsidiaries and our remaining subsidiaries (the "Non-Guarantor Subsidiaries").

30


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

Georgia Gulf Corporation and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet Information

September 30, 2010

(Unaudited)

(In thousands)
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Cash and cash equivalents

  $   $ 24,896   $ 13,754   $   $ 38,650  

Receivables, net

        570,549     108,696     (349,164 )   330,081  

Inventories

        194,882     97,546         292,428  

Prepaid expenses

    36     20,140     4,984         25,160  

Income tax receivables

        24,226     313         24,539  

Deferred income taxes

        28,645             28,645  
                       
 

Total current assets

    36     863,338     225,293     (349,164 )   739,503  

Property, plant and equipment, net

    174     419,646     232,541         652,361  

Long-term receivables—affiliates

    442,189             (442,189 )    

Goodwill

        97,572     108,309         205,881  

Intangibles, net

        12,125     2,388         14,513  

Deferred income taxes

            1,556         1,556  

Other assets, net

    19,346     62,550     10,317         92,213  

Non-current assets held-for-sale

        14,150             14,150  

Investment in subsidiaries

    1,036,016             (1,036,016 )    
                       
 

Total assets

  $ 1,497,761   $ 1,469,381   $ 580,404   $ (1,827,369 ) $ 1,720,177  
                       

Current portion of long-term debt

  $ 35,200   $   $ 12,000   $   $ 47,200  

Accounts payable

    322,769     133,848     56,134     (349,164 )   163,587  

Interest payable

    13,571         60         13,631  

Income taxes payable

        3,200     1,204         4,404  

Accrued compensation

    952     22,020     8,006         30,978  

Liability for unrecognized income tax benefits and other tax reserves

        2,909     5,656         8,565  

Other accrued liabilities

    419     25,285     27,374         53,078  
                       
 

Total current liabilities

    372,911     187,262     110,434     (349,164 )   321,443  

Long-term debt

    576,409     9     108,584         685,002  

Long-term payables—affiliates

            442,189     (442,189 )    

Liability for unrecognized income tax benefits

        8,354     32,094         40,448  

Deferred income taxes

    13,429     198,544             211,973  

Other non-current liabilities

    107,935     39,199     1,823     (114,723 )   34,234  
                       
 

Total liabilities

    1,070,684     433,368     695,124     (906,076 )   1,293,100  
                       

Total stockholders' equity (deficit)

    427,077     1,036,013     (114,720 )   (921,293 )   427,077  
                       

Total liabilities and stockholders' equity

  $ 1,497,761   $ 1,469,381   $ 580,404   $ (1,827,369 ) $ 1,720,177  
                       

31


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)


Georgia Gulf Corporation and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet Information

December 31, 2009

(In thousands)
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Cash and cash equivalents

  $   $ 24,881   $ 13,916   $   $ 38,797  

Receivables, net

    150,321     411,690     59,620     (412,690 )   208,941  

Inventories

        176,891     74,506         251,397  

Prepaid expenses

    604     18,790     4,608         24,002  

Income tax receivables

        28,846     1,460         30,306  

Deferred income taxes

        13,177             13,177  
                       
 

Total current assets

    150,925     674,275     154,110     (412,690 )   566,620  

Property, plant and equipment, net

    196     448,492     238,882         687,570  

Long-term receivables—affiliates

    436,247             (436,247 )    

Goodwill

        97,572     106,237         203,809  

Intangibles, net

        12,885     2,338         15,223  

Other assets, net

    21,330     80,041     15,123         116,494  

Non-current assets held-for-sale

        14,210     714         14,924  

Investment in subsidiaries

    969,180     41         (969,221 )    
                       
 

Total assets

  $ 1,577,878   $ 1,327,516   $ 517,404   $ (1,818,158 ) $ 1,604,640  
                       

Current portion of long-term debt

  $ 27,769   $   $ 462   $   $ 28,231  

Accounts payable

    407,356     100,147     30,016     (412,690 )   124,829  

Interest payable

    2,786         58         2,844  

Income taxes payable

            1,161         1,161  

Accrued compensation

    586     8,844     6,639         16,069  

Liability for unrecognized income tax benefits and other tax reserves

        3,055     6,474         9,529  

Other accrued liabilities

    434     17,208     25,594         43,236  
                       
 

Total current liabilities

    438,931     129,254     70,404     (412,690 )   225,899  

Long-term debt

    604,338     41     106,395         710,774  

Long-term payables—affiliates

            436,247     (436,247 )    

Liability for unrecognized income tax benefits

        8,211     40,260         48,471  

Deferred income taxes

    13,310     177,126     (1,526 )       188,910  

Other non-current liabilities

    127,749     43,629     2,038     (136,380 )   37,036  
                       
 

Total liabilities

    1,184,328     358,261     653,818     (985,317 )   1,211,090  
                       

Total stockholders' equity (deficit)

    393,550     969,255     (136,414 )   (832,841 )   393,550  
                       
 

Total liabilities and stockholders' equity (deficit)

  $ 1,577,878   $ 1,327,516   $ 517,404   $ (1,818,158 ) $ 1,604,640  
                       

        Previously reported investment in subsidiaries for guarantor and eliminations were $608, and $(845,112), respectively and total stockholders' equity (deficit) for the guarantor and eliminations were $981,526, and $(845,112), respectively. These amounts were reported erroneously due to not reflecting a $14,000 elimination of an intra-guarantor investment in subsidiary. These errors have been corrected and the restated amounts are included in the table above.

32


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)


Georgia Gulf Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations Information

Three Months Ended September 30, 2010

(Unaudited)

(In thousands)
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Net sales

  $ 4,360   $ 630,738   $ 173,135   $ (50,191 ) $ 758,042  

Operating costs and expenses:

                               
 

Cost of sales

        563,174     143,896     (45,832 )   661,238  
 

Selling, general and administrative expenses

    4,754     24,088     18,959     (4,359 )   43,442  
 

Restructuring costs

            136           136  
                       

Total operating costs and expenses

    4,754     587,262     162,991     (50,191 )   704,816  
                       

Operating (loss) income

    (394 )   43,476     10,144         53,226  

Other income (expense) :

                               
 

Interest expense, net

    (17,030 )   5,247     (5,550 )       (17,333 )
 

Foreign exchange gain (loss)

    143     (2 )   (25 )       116  
 

Equity in income of subsidiaries

    100,667     997         (101,664 )    
                       
 

Income before income taxes

    83,386     49,718     4,569     (101,664 )   36,009  

(Benefit) provision for income taxes

    58,428     (41,979 )   (5,398 )       11,051  
                       

Net income

  $ 24,958   $ 91,697   $ 9,967   $ (101,664 ) $ 24,958  
                       

33


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)


Georgia Gulf Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations Information

Three Months Ended September 30, 2009

(Unaudited)

(In thousands)
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Net sales

  $ 3,737   $ 427,805   $ 166,504   $ (41,704 ) $ 556,342  

Operating costs and expenses:

                               
 

Cost of sales

        379,291     131,162     (37,810 )   472,643  
 

Selling, general and administrative expenses

    15,546     17,137     18,075     (3,894 )   46,864  
 

Long-lived asset impairment charges

        4,444     (277 )       4,167  
 

Restructuring costs

        256     (6,184 )         (5,928 )
                       

Total operating costs and expenses

    15,546     401,128     142,776     (41,704 )   517,746  
                       

Operating (loss) income

    (11,809 )   26,677     23,728         38,596  

Other income (expense):

                               
 

Gain on debt exchange

    400,835                       400,835  
 

Interest expense, net

    (30,304 )   6,259     (6,664 )       (30,709 )
 

Foreign exchange gain (loss)

    48     4     (100 )       (48 )
 

Equity in income of subsidiaries

    76,508     (1,166 )       (75,342 )    
                       
 

Income before income taxes

    435,278     31,774     16,964     (75,342 )   408,674  

Provision for income taxes

    230,622     (27,584 )   980         204,018  
                       

Net income

  $ 204,656   $ 59,358   $ 15,984   $ (75,342 ) $ 204,656  
                       

34


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)

Georgia Gulf Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations Information

Nine Months Ended September 30, 2010

(Unaudited)

(In thousands)
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Net sales

  $ 12,456   $ 1,790,487   $ 479,791   $ (157,536 ) $ 2,125,198  

Operating costs and expenses:

                               
 

Cost of sales

        1,671,110     400,357     (145,080 )   1,926,387  
 

Selling, general and administrative expenses

    18,735     63,605     48,010     (12,456 )   117,894  
 

Restructuring costs

        592     (321 )         271  
                       

Total operating costs and expenses

    18,735     1,735,307     448,046     (157,536 )   2,044,552  
                       

Operating (loss) income

    (6,279 )   55,180     31,745         80,646  

Other income (expense):

                               
 

Interest expense, net

    (55,501 )   18,566     (15,657 )       (52,592 )
 

Foreign exchange gain (loss)

    73         (391 )       (318 )
 

Equity in income of subsidiaries

    89,059     2,437         (91,496 )    
                       
 

Income before income taxes

    27,352     76,183     15,697     (91,496 )   27,736  

(Benefit) provision for income taxes

    (265 )   9,052     (8,668 )       119  
                       

Net income

  $ 27,617   $ 67,131   $ 24,365   $ (91,496 ) $ 27,617  
                       

35


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)


Georgia Gulf Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations Information

Nine Months Ended September 30, 2009

(Unaudited)

(In thousands)
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Net sales

  $ 11,383   $ 1,192,613   $ 393,974   $ (109,954 ) $ 1,488,016  

Operating costs and expenses:

                               
 

Cost of sales

        1,070,103     341,158     (97,337 )   1,313,924  
 

Selling, general and administrative expenses

    35,938     58,089     48,314     (12,617 )   129,724  
 

Long-lived asset impairment charges

        11,610     8,747         20,357  
 

Restructuring costs

    2,468     580     2,879           5,927  
 

Losses (gains) on sale of assets

              62           62  
                       

Total operating costs and expenses

    38,406     1,140,382     401,160     (109,954 )   1,469,994  
                       

Operating (loss) income

    (27,023 )   52,231     (7,186 )       18,022  

Other income (expense):

                               
 

Gain on substantial modification of debt

    121,700         (667 )       121,033  
 

Gain on debt exchange

    400,835                       400,835  
 

Interest expense, net

    (106,258 )   18,159     (19,130 )       (107,229 )
 

Foreign exchange gain (loss)

    31     47     (1,059 )       (981 )
 

Equity in income of subsidiaries

    24,957     (10,098 )       (14,859 )    
                       
 

Income (loss) before income taxes

    414,242     60,339     (28,042 )   (14,859 )   431,680  

Provision for income taxes

    158,439     19,697     (2,259 )       175,877  
                       

Net income (loss)

  $ 255,803   $ 40,642   $ (25,783 ) $ (14,859 ) $ 255,803  
                       

36


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)


Georgia Gulf Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Cash Flows Information

Nine Months Ended September 30, 2010

(Unaudited)

(In thousands)
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Net cash provided by (used in) operating activities

  $ 20,211   $ 22,452   $ (4,144 ) $   $ 38,519  
                       

Cash from investing activities:

                               

Capital expenditures

        (22,403 )   (9,396 )       (31,799 )

Proceeds from sale of property, plant and equipment, and assets held-for sale

            1,603         1,603  
                       

Net cash used in investing activities

        (22,403 )   (7,793 )       (30,196 )

Cash from financing activities:

                               

Repayments on ABL revolver

    (430,943 )       (50,266 )       (481,209 )

Borrowings on ABL revolver

    410,143         62,065         472,208  

Repayment of long-term debt

        (33 )           (33 )

Stock compensation plan activity

    (145 )               (145 )

Fees paid to amend or issue debt facilities

    (3,267 )       82         (3,185 )

Tax benefits from employee share based exercises

    4,001                 4,001  
                       

Net cash (used in) provided by financing activities

    (20,211 )   (33 )   11,881         (8,363 )
                       

Effect of exchange rate changes on cash

            (107 )       (107 )
                       

Net change in cash and cash equivalents

        16     (163 )       (147 )

Cash and cash equivalents at beginning of period

        24,880     13,917         38,797  
                       

Cash and cash equivalents at end of period

  $   $ 24,896   $ 13,754   $   $ 38,650  
                       

37


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. SUPPLEMENTAL GUARANTOR INFORMATION (Continued)


Georgia Gulf Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Cash Flows Information

Nine Months Ended September 30, 2009

(Unaudited)

(In thousands)
  Parent
Company
  Guarantor
Subsidiaries
  Non-Guarantor
Subsidiaries
  Eliminations   Consolidated  

Net cash provided by (used in) operating activities

  $ 96,119   $ (12,454 ) $ (34,797 ) $   $ 48,868  
                       

Cash from investing activities:

                               

Capital expenditures

        (21,638 )   (3,320 )       (24,958 )

Proceeds from sale of property, plant and equipment and assets held for sale

            1,900         1,900  

Proceeds from insurance recoveries

        1,781     199         1,980  
                       

Net cash used in investing activities

        (19,857 )   (1,221 )       (21,078 )

Cash from financing activities:

                               

Net change in revolving line of credit

    (40,333 )       10,922         (29,411 )

Long-term debt payments

    (19,688 )   (39 )           (19,727 )

Purchase and retirement of common stock

    (25 )               (25 )

Fees paid to amend debt

    (36,073 )       (7,183 )       (43,256 )
                       

Net cash (used in) provided by financing activities

    (96,119 )   (39 )   3,739         (92,419 )
                       

Effect of exchange rate changes on cash

            2,993         2,993  
                       

Net change in cash and cash equivalents

        (32,350 )   (29,286 )       (61,636 )

Cash and cash equivalents at beginning of period

        49,724     40,251         89,975  
                       

Cash and cash equivalents at end of period

  $   $ 17,374   $ 10,965   $   $ 28,339  
                       

38


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. RESTATEMENTS

        During 2009, the Company undertook a number of financial restructuring activities, including: 1) amendments to our senior secured credit facility; 2) a debt for equity exchange pursuant to which we issued equity in exchange for a portion of our then-outstanding notes; and 3) a subsequent repayment and replacement of our senior secured credit facility and accounts receivable securitization facility using the proceeds from a new, asset based revolving credit facility and the issuance of $500.0 million of 9.0% senior secured notes due 2017 (collectively, "the 2009 financial restructuring activities"). In connection with the 2009 financial restructuring activities, we recognized Cancellation of Debt Income ("CODI") for tax purposes. The principal effect of the CODI was a reduction in various tax attributes, including a reduction in the tax basis of our assets and our net operating losses. The rules and regulations of the Internal Revenue Code of 1986, as amended (the "IRC"), that apply to our 2009 financial restructuring activities are complex. Due to the complex nature of these transactions and the related tax implications, we engaged a firm of third-party tax professionals to assist us in determining the U.S. federal income tax consequences of these transactions.

        In addition in 2010, we engaged a different third-party firm of tax professionals to assist us with the preparation of our 2009 U.S. federal income tax return ("2009 Tax Return"). During the preparation of that tax return we, with the support of our tax advisors, identified certain issues that caused us to re-evaluate the application of the relevant provisions of the IRC relating to the 2009 financial restructuring activities. Consequently, we determined that a manual input error to a spreadsheet used in the tax calculations relating to the tax impact of our 2009 financial restructuring activities had been made and that certain applications of the relevant provisions of the IRC were incorrect. As a result, the reduction in various tax attributes resulting from the CODI we recognized in 2009 was understated. This error also caused our reported financial information for the three month and nine month periods ended September 30, 2009 to understate the provision for income taxes by $39.2 million, and our net income for such periods to be overstated by $39.2 million. This error caused our provision for income taxes to be understated by $36.4 million and our net income to be overstated by $36.4 million, each for the year ended December 31, 2009. This adjustment did not, however, result in any additional tax liability payable by us to tax authorities in respect of 2009 or earlier periods.

        We also determined that, beginning in 2007 and continuing through March 31, 2010, there were misapplications of FASB ASC Topic 740, Accounting for Income Taxes ("ASC Topic 740"), related to uncertain tax positions. Those misapplications primarily included: 1) the use of an incorrect statute of limitations period for an uncertain tax position, the accrual for which should have been reversed prior to December 31, 2009; 2) the incorporation of the impact of our reserve for uncertain tax positions in our assessment of our valuation allowance for deferred tax assets in Canada as of December 31, 2007; and 3) other general misapplications of accounting for uncertain tax positions.

        The incorrect statute of limitations period caused our long term liability for unrecognized income tax benefits to be overstated as of September 30, 2009 by $11.9 million and as of December 31, 2009 by $12.6 million, and also resulted in an overstatement of our income tax expense for the three and nine months ended September 30, 2009 of $0.4 million and $6.3 million, respectively.

        The other misapplications of ASC Topic 740 that occurred beginning upon adoption on January 1, 2007 related to uncertain tax positions in connection with our acquisition of Royal Group and resulted in a net overstatement of our long-term liability for unrecognized income tax benefits of approximately $5.0 million as of September 30, 2009 and December 31, 2009.

39


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. RESTATEMENTS (Continued)

        As a result of the foregoing, the Company restated its historical consolidated financial statements as of and for the three and nine months ended September 30, 2009, which restatements were contained in Amendment No. 1 on Form 10-Q/A for the quarter ended September 30, 2009 (the "First Amended Form 10-Q"), as filed with the Securities and Exchange Commission ("SEC") on August 16, 2010. We also restated our historical consolidated financial statements as of and for the year ended December 31, 2009, which restatements were contained in Amendment No. 1 on Form 10-K/A for the year December 31, 2009 (the "First Amended Form 10-K/A") as filed with the SEC on August 16, 2010.

        The filings described in the preceding paragraph indicated that: (i) as of September 30, 2009 and December 31, 2009, our liability for unrecognized income tax benefits was overstated by $16.7 million and $17.6 million, respectively; (ii) our deferred income tax liability was understated by $36.9 million as of September 30, 2009 and understated by $33.0 million as of December 31, 2009; (iii) our retained earnings (accumulated deficit) as of September 30, 2009 was overstated by $20.0 million and understated by $16.7 million as of December 31, 2009; (iv) for the three months ended September 30, 2009, our provision for income taxes was understated by $38.7 million and our net income was overstated by $38.7 million; (v) our provision for income taxes was understated by $32.9 million for the nine months ended September 30, 2009; and (vi) our net income was overstated by $32.9 million for the nine months ended September 30, 2009.

        In response to the foregoing, in August 2010, the Company announced that it had taken, and was continuing to take, certain steps (collectively, the "Remediation Steps") in order to address a material weakness in internal control over financial reporting in the area of accounting for income taxes as originally disclosed in the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2010. Those Remediation steps include: (i) requiring the involvement of two third-party subject matter experts for material and complex tax transactions, such as the 2009 financial restructuring activities; (ii) expanding the scope of work performed by third-party tax professionals and increasing the level of review and validation of that work performed by management in the preparation of our provision for income taxes; and (iii) developing and implementing additional procedures to increase the level of review, evaluation and validation of underlying supporting data of our provision for income taxes and reconciliations of tax accounts and uncertain tax positions on a quarterly basis.

        The Company has applied certain of the Remediation Steps to, among other things, the process of finalizing its 2009 Tax Return and the preparation of its financial statements for the quarter ended September 30, 2010, a process which included the review of a complex analysis related to stock and partnership tax basis in certain of our subsidiaries and investments, which analysis is used in calculating the amount of CODI recognized for tax purposes. During the process of reviewing that analysis, we, with the support of our third-party tax advisors, re-evaluated that portion of the calculation related to paid-up capital distributions in 2006 relating to a foreign affiliate (the "Affiliate") of Royal Group, Inc. ("Royal"), one of our subsidiaries. That re-evaluation led us to determine that an error in the calculation had been made, which error resulted in the Company moving from having a net unrealized built-in gain (as defined in the IRC), to having a net unrealized built-in loss (as defined in the IRC) which, in turn, resulted in a reduction of our net operating losses for income tax purposes of $54 million. This error and the resulting reduction of net operating losses for income tax purposes caused our unaudited, condensed consolidated financial statements presented in the First Amended Form 10-Q to be misstated as follows: (i) our deferred tax assets were overstated on our consolidated balance sheet by $19.0 million as of December 31, 2009, and (ii) our accumulated deficit was overstated by $19.0 million as of December 31, 2009.

40


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. RESTATEMENTS (Continued)

        In addition, due to the implementation of certain of the Remediation Steps, we have determined that the tax basis of the Affiliate is greater than the book basis, and therefore, we should not have tax effected our cumulative translation adjustment in other comprehensive income for the Affiliate. This error caused our condensed consolidated financial statements presented in the First Amended Form 10-Q and the First Amended Form 10-K to be misstated as follows: (i) our long-term deferred income tax liability was overstated by $2.9 million as of September 30, 2009 and $1.9 million as of December 31, 2009; (ii) our accumulated other comprehensive loss, net of tax, was overstated by $2.9 million as of September 30, 2009 and $1.9 million as of December 31, 2009; (iii) our other comprehensive loss, net of tax, was overstated by $3.6 million and $6.0 million for the three and nine months ended September 30, 2009, respectively; and (iv) our other comprehensive loss, net of tax, was overstated by $7.0 million for the year ended December 31, 2009.

        In connection with the implementation of certain of the Remediation Steps, we also determined that in 2009 there was a misapplication of Financial Accounting Standards Board, ("FASB") Accounting Standards Codification, ("ASC") Topic 740, Accounting for Income Taxes ("ASC Topic 740"), related to the CODI arising from our 2009 financial restructuring activities that resulted in the incorrect recording of a deferred tax liability in connection with the tax attribute reduction related to the tax basis in the Affiliate. This misapplication caused our deferred tax liabilities to be overstated by $32.3 million and $35.6 million on our condensed consolidated balance sheet as of each of September 30, 2009 and December 31, 2009, respectively, and our liability for unrecognized tax benefits to be understated by $1.7 million as of December 31, 2009 in the First Amended Form 10-Q and the First Amended Form 10-K.

        The results of the above are summarized in the tables below.

        The following tables present the condensed consolidated balance sheet, statements of operations and statements of cash flows accounts reported herein that were impacted by the adjustments to our

41


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. RESTATEMENTS (Continued)


consolidated financial statements, when compared to the First Amended Form 10-Q and the First Amended Form 10-K (all amounts are in thousands, except per share amounts):

 
  As of December 31, 2009  
 
  As
Originally
Reported
  Amendment
No. 1
Adjustments
  As
Restated
August 16,
2010
  Amendment
No. 2
Adjustments
  Cumulative
Adjustments
  As
Restated
 

Consolidated balance sheet accounts impacted by restatement:

                                     

Prepaid expenses

  $ 24,296   $ (294 ) $ 24,002       $ (294 ) $ 24,002  

Deferred income taxes (current)

  $ 14,108   $ (931 ) $ 13,177       $ (931 ) $ 13,177  

Total current assets

  $ 567,845   $ (1,225 ) $ 566,620       $ (1,225 ) $ 566,620  

Total assets

  $ 1,605,865   $ (1,225 ) $ 1,604,640       $ (1,225 ) $ 1,604,640  

Liability for unrecognized income tax benefits (long-term)

  $ 64,371   $ (17,575 ) $ 46,796   $ 1,675   $ (15,900 ) $ 48,471  

Deferred income taxes (long-term)

  $ 174,457   $ 32,971   $ 207,428   $ (18,518 ) $ 14,453   $ 188,910  

Total liabilities

  $ 1,212,537   $ 15,396   $ 1,227,933   $ (16,843 ) $ (1,447 ) $ 1,211,090  

Accumulated deficit

  $ (72,713 ) $ (16,718 ) $ (89,431 ) $ 14,940   $ (1,778 ) $ (74,491 )

Accumulated other comprehensive loss, net of

  $ (6,314 ) $ 97   $ (6,217 ) $ 1,903   $ 2,000   $ (4,314 )

Total stockholders' equity (deficit)

  $ 393,328   $ (16,621 ) $ 376,707   $ 16,843   $ 222   $ 393,550  

Total liabilities and stockholders' equity (deficit)

  $ 1,605,865   $ (1,225 ) $ 1,604,640       $ (1,255 ) $ 1,604,640  

42


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. RESTATEMENTS (Continued)

 

 
  As of September 30, 2009  
 
  As
Originally
Reported
  Amendment
No.1
Adjustments
  August 16,
2010
As Restated
  Amendment
No. 2
Adjustments
  Cumulative
Adjustments
  As
Restated
 

Balance sheet accounts impacted by restatement:

                                     

Deferred income taxes (current)

          $ 21,009   $ 2,246   $ 2,246   $ 23,255  

Total current assets

          $ 495,753   $ 2,246   $ 2,246   $ 497,999  

Total Assets

          $ 1,560,575   $ 2,246   $ 2,246   $ 1,562,821  

Liability for unrecognized income tax benefits and other tax reserves

  $ 61,613   $ (16,714 ) $ 44,899       $ (16,714 )   44,899  

Deferred income taxes (long-term)

  $ 237,065   $ 36,881   $ 273,946   $ (13,942 ) $ 22,939   $ 260,004  

Total liabilities

  $ 1,040,704   $ 20,167   $ 1,060,871   $ (13,942 ) $ 6,225   $ 1,046,929  

Retained earnings (accumulated deficit)

  $ 56,981   $ (19,969 ) $ 37,012   $ 13,240   $ (6,729 ) $ 50,252  

Accumulated other comprehensive loss, net of tax

  $ (9,468 ) $ (198 ) $ (9,666 ) $ 2,949   $ 2,751     (6,717 )

Total stockholders' equity (deficit)

  $ 519,871   $ (20,167 ) $ 499,704   $ 16,189   $ (3,978 ) $ 515,893  

 

 
  For the nine months ended
September 30, 2009
 
 
  As
Originally
Reported
  Amendment
No.1
Adjustments
  August 16,
2010
As Restated
  Amendment
No. 2
Adjustments
  Cumulative
Adjustments
  As
Restated
 

Statement of operations accounts impacted by

                                     

Provision for income taxes

  $ 156,196   $ 32,921   $ 189,117   $ (13,240 ) $ 19,681   $ 175,877  

Net income

  $ 275,484   $ (32,921 ) $ 242,563   $ 13,240   $ (19,681 ) $ 255,803  

Earnings per share—Basic

  $ 29.49   $ (3.53 ) $ 25.96   $ 1.42   $ (2.11 ) $ 27.38  

Earnings per share—Diluted

  $ 29.47   $ (3.53 ) $ 25.94   $ 1.42   $ (2.11 ) $ 27.36  

43


Table of Contents


GEORGIA GULF CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. RESTATEMENTS (Continued)

 

 
  For the three months ended
September 30, 2009
 
 
  As
Originally
Reported
  Amendment
No.1
Adjustments
  August 16,
2010
As Restated
  Amendment
No. 2
Adjustments
  Cumulative
Adjustments
  As
Restated
 

Statement of operations accounts impacted by

                                     

Provision for income taxes

  $ 178,523   $ 38,735   $ 217,258   $ (13,240 ) $ 25,495   $ 204,018  

Net income

  $ 230,151   $ (38,735 ) $ 191,416   $ 13,240   $ (25,495 ) $ 204,656  

Earnings per share—Basic

  $ 9.21   $ (1.55 ) $ 7.66   $ 0.53   $ (1.02 ) $ 8.19  

Earnings per share—Diluted

  $ 9.20   $ (1.55 ) $ 7.65   $ 0.53   $ (1.02 ) $ 8.18  

 

 
  For the nine months ended
September 30, 2009
 
 
  As
Originally
Reported
  Amendment
No.1
Adjustments
  August 16,
2010
As Restated
  Amendment
No. 2
Adjustments
  Cumulative
Adjustments
  As
Restated
 

Statement of cash flows accounts impacted by

                                     

Net income

  $ 275,484   $ (32,921 ) $ 242,563   $ 13,240   $ (19,681 ) $ 255,803  

Deferred income taxes

  $ 153,524   $ 39,178   $ 192,702   $ (13,240 ) $ 25,938   $ 179,462  

Other non-cash items

  $ 1,844   $ (6,257 ) $ (4,413 )     $ (6,257 ) $ (4,413 )

        Historically, any deferred income taxes deficiency related to stock plans was shown as gross. In order to conform to current presentation, this line item is now being shown net in the deferred taxes in all columns above.

        For additional information regarding the overall impact of the restatements on all of our historical financial statements, also see Note 22 of the Notes to Consolidated Financial Statements in Amendment No. 2 to our Annual Report on Form 10-K/A for the year ended December 31, 2009, filed with the Securities and Exchange Commission on November 22, 2010. In addition, see Note 17 Segment Information and Note 18 Supplemental Guarantor Information for the restatement of disclosure errors discovered during the preparation of this Quarterly Report on Form 10-Q, that management considers immaterial.

44


Table of Contents

Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

        Our financial results as of and for the year ended December 31, 2009 have been restated, including our financial results for the three and nine months ended September 30, 2009. All information and disclosures contained in this management's discussion and analysis of financial condition and results of operations have been updated to reflect the effects of such restatements. For a more detailed description of the restatements, see Note 19 of the Notes to the accompanying unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

        We are a leading, integrated North American manufacturer of two chemical product lines, chlorovinyls and aromatics, and a manufacturer of vinyl-based building and home improvement products. Our primary chlorovinyls products are chlorine, caustic soda, vinyl chloride monomer ("VCM"), vinyl resins and vinyl compounds, and our aromatics products are cumene, phenol and acetone. Our vinyl-based building and home improvement products, marketed under Royal Group brands, include window and door profiles, mouldings, siding, pipe and pipe fittings, and deck, fence and rail.

        We have identified three reportable segments through which we conduct our operating activities: (i) chlorovinyls; (ii) aromatics; and (iii) building products.

Results of Operations

        The following table sets forth our condensed consolidated statement of operations data for the three and nine months ended September 30, 2010 and 2009, and the percentage of net sales of each line item for the three and nine months presented.

 
  Three months ended   Nine months ended  
Dollars in Millions
  September 30, 2010   September 30, 2009   September 30, 2010   September 30, 2009  

Net sales

  $ 758.0     100 % $ 556.3     100 % $ 2,125.2     100 % $ 1,488.0     100 %

Cost of sales

    661.2     87.2 %   472.6     85.0 %   1,926.4     90.6 %   1,313.9     88.3 %
                                   

Gross margin

    96.8     12.8 %   83.7     15.0 %   198.8     9.4 %   174.1     11.7 %

Selling, general and administrative expense

    43.4     5.7 %   46.9     8.4 %   117.9     5.5 %   129.7     8.7 %

Long-lived asset impairment charges

        %   4.1     0.7 %       %   20.4     1.4 %

Restructuring costs

    0.1     0.0 %   (5.9 )   (1.1 )%   0.3     0.0 %   5.9     0.4 %

Gain on sale of assets

        %       %       %   0.1     %
                                   

Operating income

    53.3     7.0 %   38.6     6.9 %   80.6     3.8 %   18.0     1.2 %

Gain on substantial modification of debt

        %       %       %   121.0     8.1 %

Gain on debt exchange

        %   400.8     72.1 %       %   400.8     26.9 %

Net interest expense