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Executives

Martin Jarosick - Executive Director of Investor Relations

Paul D. Carrico – President, Chief Executive Officer

Gregory C. Thompson – Chief Financial Officer

Analysts

Aaron Katz - Citi

Mike Judd - Greenwich Consultants

Frank Mitsch - BB&T Capital Markets

Kevin McCarthy - Bank of America/Merrill Lynch

Roger Spitz - Banc of America Securities

Tarek Hamid - J.P. Morgan

Bill Hoffman - UBS

Barrett Evnon - Brownstone Asset Management

Andrew Chen - Barclays Capital

Cheryl Van Winkle - Independence United

Rob Spork [ph] - Bridgeman Capital

Georgia Gulf Corporation (GGC) F4Q08 Earnings Call February 17, 2009 10:00 AM ET

Operator

Good afternoon. My name is Dennis and I will be your conference operator today. At this time, I would like to welcome everyone to the Georgia Gulf fourth quarter financial results conference call. (Operator Instructions) I will now turn the call over to Mr. Martin Jarosick, Executive Director of Investor Relations. Please go ahead, sir.

Martin Jarosick

Thank you, Dennis and good morning ladies and gentlemen. Thank you for participating in today’s conference call to discuss Georgia Gulf’s fourth quarter 2008 financial results. There are slides available to you on Georgia Gulf’s website. These slides are for your reference and we encourage you to review them but we will not be speaking directly to the bullets on each slide.

Participating on today’s call are Paul Carrico, President and Chief Executive Officer and Greg Thompson, Chief Financial Officer.

During this call we will be making forward-looking statements. As you will appreciate, any business projections and assumptions about future events are subject to risks and other factors that could cause actual results to differ materially from our current outlook. A litany of factors that could affect future results is included in our 2007 Form 10-K. Any forward-looking statements made on this call should be considered in light of those factors.

In addition, during this conference call, we may refer to certain non-GAAP financial measures. We have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure in the press release as well as in an appendix to the slides on our website at www.ggc.com.

I will now turn the call over to Paul to begin our fourth quarter review. Paul?

Paul D. Carrico

Thank you Martin and good morning, ladies and gentlemen.

Our fourth quarter performance varied significantly between the segments. On the positive side, the chlorovinyl segment saw year-over-year EBITDA growth and strong ECU values overcame a drop in volumes. Alternately, our two building product segments declined due to the North American housing and construction markets particularly in the U.S. The aromatics industry faced a dramatic and historically unprecedented decline in feedstock and product prices which severely impacted our performance in this segment.

Excluding the goodwill write-down and the restructuring charges in the fourth quarter, EBITDA for the company was $24 million for the quarter and $179 million for the year. This was below our guidance by about $10 million and the driver for this was the inventory holding loss in aromatics. The inventory holding loss is due to benzene falling from over $4.40 per gallon in September to about $1.07 in December and propylene falling by more than 70% during the same period. These dramatic price declines combined with a time lag between purchasing the raw materials and selling the finished goods led to an inventory holding loss of about $24.8 million in the fourth quarter.

Despite negative industry conditions, we increased our liquidity and paid down debt in 2008. We also took action early and throughout the year to adjust our cost structure to market conditions. Some examples include we reduced our annual PVC capacity by 950 million pounds or more than 25% by closing the Oklahoma City and Sarnia plants. This represented approximately 5% of the North American capacity. In our building products segment, we sold the outdoor storage business and consolidated four plants into other facilities. We reduced SG&A expenses by $57 million. We reduced total headcount by approximately 15%. We raised $80 million through asset sales with the largest being the Pasadena land sale.

We brought Mark Orcutt on board to run the building products businesses. Mark has a proven track record of growing sales and improving profitability and we are pleased to have him join our team.

In 2009, we expect to realize the full benefit of those actions taken in 2008 as well as the benefits of additional actions. Some examples of actions we are taking in 2009 include, first in the first quarter, we announced a permanent headcount reduction of an additional 5% impacting all of our businesses. We have frozen our pension plan and this will avoid $7 million of pension expense in 2009. We have implemented a salary freeze for employees in 2009 and we have shortened work weeks and implemented temporary layoffs at certain facilities and we will address the performance of the aromatics business which was clearly unacceptable in the fourth quarter and the year.

Our plan for Aromatics is to run the business to maximize cash generation. This means looking at all possibilities to extract value from the business in 2009 including cost reductions, additional land and equipment sales, managing working capital even more aggressively, and strategic discussions with other parties.

In conclusion, in all of our businesses, we will continue to take the necessary steps to match our operations to market conditions.

At this time, I’ll turn the call over to Greg to review our financial results in greater detail.

Gregory C. Thompson

Thank you, Paul. Good morning, ladies and gentlemen.

Excluding the non-cash write-downs in both periods, we reported a net loss of $36.3 million or $1.06 per share in the fourth quarter of 2008 compared to a net loss of $21.4 million or $0.62 per share in the previous year. Net sales in the fourth quarter were $536 million, down $241 million from the same quarter last year. The decreased sales were driven by extremely challenging housing and construction markets in North America partially offset by higher ECU values.

For the year, excluding the non-cash write-downs in both periods, we reported a net loss of $75.8 million or $2.20 per share in 2008 compared to a net loss of $56.3 million or $1.64 per share in the pervious year. Net sales for the year were $2.9 billion down $240 million from last year. The decreased sales was driven by extremely challenging housing and construction markets in North America, two hurricanes in the third quarter, and our sale of the outdoor storage business.

Now, let’s look at our performance from continuing operations during the fourth quarter. Georgia Gulf reported an operating loss of $172.7 million for the fourth quarter of 2008 compared to an operating loss of $152.8 million in the fourth quarter of 2007. Excluding the charges in both periods, we reported an adjusted operating loss of $2.3 million in the fourth quarter of 2008 and adjusted operating income of $5.4 million in the fourth quarter of 2007. For the year, Georgia Gulf reported an operating loss of $140.2 million compared to an operating loss of $83.7 million in 2007. Excluding charges, we reported adjusted operating income of $30.5 million compared to adjusted operating income of $80.2 million in 2007.

For the fourth quarter of 2008, we had a $12.8 million tax benefit. Our effective tax rate for the year was 12% in the U.S. and 3% for Canadian operations for an overall blended rate of 7%.

In the chlorovinyls segment, fourth quarter 2008 sales decreased 24% to $271.5 million from $356.4 million during the fourth quarter of 2007. Sales were impacted by market conditions partly offset by strong ECU values. This segment posted an operating loss of $4.5 million compared to an operating loss of $31.9 million during the same quarter in the prior year. The operating loss includes about $45.7 million of non-cash charges plus $8.3 million of cash restructuring costs primarily related to the shutdown of Sarnia announced in December. Those cash costs will be excluded from the covenant calculation as part of a $12 million restructuring cost carve-out we received in the September credit facility amendment.

In the window and door profiling moulding segment, sales were $80.8 million for the fourth quarter of 2008 compared to $126.1 million during the same quarter in the prior year. Sales on a constant currency basis declined 30%. The segment’s operating loss was $121.5 million for the fourth quarter of 2008 compared to an operating loss of $60 million during the same quarter in the prior year. Excluding the charges, the adjusted operating loss was $10.5 million in the fourth quarter of 2008 compared to adjusted operating income of $2.5 million in the fourth quarter of 2007. The increase in adjusted operation loss was primarily the result of lower sales volume partially offset by cost reductions.

In the outdoor building products segment, sales were $80.6 million for the fourth quarter of 2008 compared to $118.8 million during the same quarter in the prior year. Sales on a constant currency basis declined about 22% compared to 2007. The segment reported an operating loss of $12.6 million for the fourth quarter of 2008 compared to an operating loss of $53.6 million during the same quarter in the prior year. Excluding these charges, the adjusted operating loss was $8.2 million in the fourth quarter of 2008 compared to an adjusted operating loss of $13.5 million in the same period of 2007. The operating loss decreased due to the sale of the negative EBITDA outdoor storage business earlier in the year.

In the Aromatics segment, sales decreased 41% to $102.7 million for the fourth quarter of 2008 from $175.1 million during the fourth quarter of 2007. The segment reported an operating loss of $27.6 million compared to an operating profit of $3.5 million during the fourth quarter of 2007. As Paul mentioned earlier, the operating loss was primarily due to a $24.8 million inventory holding loss driven by a sharp decline in feedstock and product prices and a time lag between the purchase of raw materials and/or sale as a finished good.

The total FIFO impact for the fourth quarter was -$46.4 million compared to a $7.2 million FIFO benefit in the same period last year. For the full year, the FIFO impact was -$48.2 million compared to a FIFO benefit of $19 million in 2007. To avoid confusion, I want to point out that the $24.8 million of inventory holding losses in Aromatics includes $17 million of the negative FIFO impact for the fourth quarter.

Now, let’s discuss working capital. Controllable working capital defined as accounts receivable plus inventory less accounts payable decreased by about $93 million compared to December 31, 2007. Compared sequentially, controllable working capital dropped by $113 million compared to September 30, 2008. This includes a use of cash due to a reduction in the accounts receivable securitization level from $165 million at September 30, 2008 to $111 million at year-end due to the seasonal drop in accounts receivable balances. The improvements in working capital are due to seasonally lower sales, lower energy and feedstock costs, as well as our continuing focus on managing working capital efficiently. As a result, we generated $56 million of cash in operating activities as compared with $61 million for the fourth quarter of 2007.

We continue to tightly manage our capital expenditures while supporting the maintenance requirements and growth opportunities of our businesses. Capital expenditures were $18.5 million for the fourth quarter and $62.5 million for the year.

Now to financing activities. As you know, the third and fourth quarters are typically a period when we generate operating cash flow and reduce our borrowings. When the uncertainty in the financial markets increased in September, we adjusted our cash management activities to maximize our financial flexibility.

We ended the fourth quarter with $90 million in cash. Under normal circumstances, we would have further reduced borrowings by an additional $80 million. However, as we have previously discussed, Lehman Brothers is a participant in our revolver and represents about 12% of the $375 million facility. Due to their bankruptcy filing and their inability to fund future revolver draws, we now have about $7 million of our revolver that is not available to us. Even with this, at the end of the fourth quarter, we had about $143 million available on our revolver.

A few comments on net reduction: when we discussed our total debt with you in the past, we defined that number as total long-term debt excluding the lease financing obligation plus the accounts receivable securitization balance. Prior to September, we kept our cash balance around $10 million. Now that we are carrying much more cash, we think the right measure is net debt which is total long-term debt excluding the lease financing obligation plus the accounts receivable securitization balance less cash and cash equivalents. On that basis, we reduced total net debt by $83 million during 2008.

The consolidated leverage ratio required covenants was a maximum 7.75X and our actual ratio for the fourth quarter was 6.4X. The consolidated interest coverage ratio required in our covenants was a minimum of 1.5X and our actual ratio for the fourth quarter was 1.8X.

As you recall, we obtained an amendment to our senior credit agreement in September 2008 substantially easing the covenants until June 30, 2009. At that point, the covenants will substantially tighten and necessitate that we seek another amendment. We have begun discussions concerning an amendment to our senior credit agreement with the agent bank. Also, we anticipate we will amend or extend our assets securitization facility and we have held initial discussions with the lead lender for the facility.

Although, there can be no assurance and as further described in our safe harbor and credit agreement update in the supplementary slides for this call, we anticipate being able to procure the necessary amendments to these agreements based on initial discussions and the strength of the company’s cash flow, our collateral and senior secured debt leverage ratio.

Now, we will turn the call back over to Paul for the 2009 outlook.

Paul D. Carrico

Thanks, Greg.

Before we begin the question and answer session, I’d like to provide our view of 2009. I don’t think I’m the first in the industry to comment on the limited visibility in the current environment. To account for that uncertainty, we based our 2009 plan on conservative assumptions and also are developing plans to make further adjustments if conditions deteriorate more than expected.

We have assumed continued softness in the North American housing and construction markets and especially in new home construction through 2009. We forecast that feedstock and energy costs will remain volatile on a percentage basis but due to the lower prices, the magnitude of the impact on our financial results will be less than 2008. We also believe that ECU value has leveled off and will remain healthy due to continued weakness in chlorine derivative demand.

In addition to these macroeconomic assumptions, our projections include the impact of a number of factors related specifically to Georgia Gulf. On the positive side, we will see cost reduction of $47 million related to the actions we took to adjust our operating capacity by closing Sarnia, Oklahoma City and four other facilities in 2008 as well as the headcount, salary and pension changes that I mentioned earlier. On the negative side, we will feel the impact of recently completed turnaround on our chlorine caustic unit and our Plaquemine VCM turnaround scheduled for the second quarter. We are also planning to have less of a contribution from asset sales in 2009 when compared to 2008.

When we combine our conservative macro assumptions with the items I just mentioned, we end up with a forecast that should generate enough cash to cover interest costs, fund normal capital expenditures, and pay down debt in 2009.

Now, I will turn the call over to the operator so we can take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of P.J. Juvekar with Citi.

Aaron Katz - Citi

This is actually Aaron Katz in for P.J. today. Do you anticipate any more significant inventory losses in 1Q or have you worked out in most of your high-cost inventory?

Gregory C. Thompson

The pricing has largely stabilized since the fourth quarter so we don’t really anticipate much more of that if any I would say in the first quarter.

Aaron Katz - Citi

Are you selling your caustic primarily in the U.S. and how much do you have to support Asia if any? Also, will you continue to produce chloroalkaline that was used for the Sarnia PVC plant?

Paul D. Carrico

Generally speaking, we sell the majority in the U.S. We do export some to other parts of the world and I think I’ll leave it at that as far as where we ship to. In terms of the chlorine caustic, we are not fully integrated on our chlorine requirements for the PVC capacity we have so we expect to typically run the chlorine caustic operation at a fairly high rate.

Operator

Your next question is from the line of Mike Judd with Greenwich Consultants.

Mike Judd - Greenwich Consultants

Just a couple questions on the demand side. Can you just, I guess you’ve seen the January information in terms of your volumes, maybe part of February, can you just comment to your businesses, what the current conditions look like, maybe on a sequential basis or a year-over year basis, please?

Paul D. Carrico

As a general comment, year-over-year we are down. I think the magnitude of a slowdown in December was so dramatic across most businesses that that’s really the comparison that we’re looking to at this point. In general, volumes are up a bit in January, a bit in February, but still at somewhat disappointing levels. That’s also not consistency across the businesses. Some businesses are up a little bit more than others and it really depends upon which segments you’re in. In terms of the chlorovinyls, as a general comment, that’s a little bit stronger percentage-wise but again, mostly because we’re not fully integrated in that whole chain so we can operate the chlorine caustic and the primary VCM operation at Plaquemine at fullout.

Mike Judd - Greenwich Consultants

On the aromatics side, if you could comment?

Paul D. Carrico

Aromatics I would say generally speaking is down substantially from last year. I think we’re still in a period where people are trying to sort out where this is all going to lead as we get into the later February, March, April time frame, but the 50%-60%-70% range depending on which period of time we’re talking about. There’s really no clarity as to where that’s headed as we get into the rest of the year.

Mike Judd - Greenwich Consultants

Just lastly on aromatics, the inventory impact that you took in the fourth quarter, that should be much diminished hopefully, you should work through that higher-cost inventory by the first quarter, right?

Paul D. Carrico

Yes, that’s true. The price has really bottomed out for the most part in December, so as we get into January, in fact they have already increased from the levels of December. So we’ll be headed back up the other way depending upon what your perspective is on oil.

Operator

The next question is from the line of Frank Mitsch with BB&T Capital Markets.

Frank Mitsch - BB&T Capital Markets

On the $46 million FIFO impact in the quarter, can you give us an idea as to how that broke out in the various segments?

Gregory C. Thompson

Yes, it’s a bit more related to chlorovinyls than aromatics. I’d say kind of roughly two-thirds, one-third, sort of mix.

Frank Mitsch - BB&T Capital Markets

I actually would have thought it was a bit more on the aromatics side. That’s helpful. With respect to aromatics, your PPE ended the year at 761. How much does aromatics make up for that?

Gregory C. Thompson

Aromatics, are you talking about hard assets, Frank or working capital, or what?

Frank Mitsch - BB&T Capital Markets

No, on the plant, property and equipment line for Georgia Gulf as a whole, it dropped down obviously with some of the asset sales and impairment.

Gregory C. Thompson

Yes, we sold off the land in the second quarter. It’s not a huge number, I’d say in round numbers, its $20 million or so.

Frank Mitsch - BB&T Capital Markets

And the expectation is that strategic discussions work out than might actually have a gain on that and if so, that would go towards the calculation of your debt covenants?

Gregory C. Thompson

Yes, that’s correct.

Frank Mitsch - BB&T Capital Markets

CapEx for 2009, what are you looking at and about how much debt do you think you will pay down in 2009?

Gregory C. Thompson

We haven’t put a fine point on that other than Paul’s general remarks that we expect to generate sufficient EBITDA to cover interest in CapEx and pay down some debt. I would say in CapEx, our planning assumption is a similar level for 2009 from what we spent in 2008 at this point.

Operator

Your next question is from the line of Kevin McCarthy with Bank of America/Merrill Lynch.

Kevin McCarthy - Bank of America/Merrill Lynch

I was wondering if you could comment on your outlook for caustic soda pricing. It seems that spot prices have been headed south in recent weeks. I was wondering if you view that business as in cyclical decline at this point or is it a regression to the mean or a regression to a more normalized operating state following the hurricane-related supply restrictions we saw last fall. What is your outlook there for this year?

Paul D. Carrico

Well, in general, we’ve observed the prices particularly in the spot market drift down a little bit. There are all sorts of forces going on in the market right now, similar to some of my comments in the other areas; it’s very difficult to predict where things are headed in general. As we go through the rest of the year, I think you can’t really judge what you see now as being indicative of where we might stabilize as we get into the spring season. My general comment and thought is that chlorine will continue to be under more pressure than caustic which means that the caustic ECU values in general should be good. We’ve seen some softening in the caustic but we’ve seen some increases related to say the PVC end-market side so it’s kind of a balance that moves back and forth depending upon where the pendulum is swinging. But particular for caustic, I guess I view it still as a healthy ECU margin for this year although we will see some decline as we go through the year. In fact, that was assumed by us in our planning for 2009.

Kevin McCarthy - Bank of America/Merrill Lynch

On the chlorovinyls side of the company, Paul, what is your sense of your customers’ inventory levels for both resin and fabricated products?

Paul D. Carrico

I think everybody is dealing on absolute minimums these days. They are very reluctant to take a position which could result in further inventory writedowns and also no one really has clarity in the market as to where this is headed in the spring. I think in general people believe that the remodeling spend will be somewhat picked up from where we are but I don’t think anyone’s too optimistic about new construction. So they’re taking a kind of wait and see attitude at this point and any pickup in demand would absolutely result in some inventory restocking.

Kevin McCarthy - Bank of America/Merrill Lynch

Finally, if I may, what is the magnitude of restructuring charges we should anticipate if any, for 1Q?

Gregory C. Thompson

We haven’t put a specific number on that and I would say certainly in the order of magnitude, Kevin, it would be less than the $13 million that we had in the fourth quarter.

Operator

Your next question comes from the line of Roger Spitz with Banc of America Securities.

Roger Spitz - Banc of America Securities

Can you tell us what your cash turnaround costs would be for both chloroalkaline and VCM turnarounds in Q1 and Q2 respectively? Would you be able to operate your chloralkaline plant at a higher rate ahead of the turnaround for an impact in cost sales or are you operating at an actively full rate so it would just be results in less cost of sale volumes?

Paul D. Carrico

Relative to your first question about the cost, we don’t typically provide that information. They’re not atypical except for some of additional CapEx expenditures we have so that’s the bigger portion of the cost. In terms of the operation of the unit, we actually billed some caustic inventory as we got to the end of the year and the chlorine caustic turnaround has been completed. It was done in January so that’s over and done with at this point.

Operator

Your next question is from the line of Tarek Hamid with J.P. Morgan.

Tarek Hamid - J.P. Morgan

Can you guys talk a little bit about working capital, you’ve done a great job on getting down accounts receivable but can you give us some color on what the borrowing basis is on that securitization now and sort of what the availability is?

Gregory C. Thompson

We try, and I guess overall, let me speak to the securitization first. Given the lower cost of funding, we try to borrow at the maximum level on the securitization. So I think I said that in my remarks that, I know I did, at December 31, we had $111 million outstanding on the securitization facility which is a $165 million facility. It is actually down a bit from where it was at the end of last year. Last year, at year-end, it was $147 million. There’s kind of a backward-looking number as to how that draw is determined. It’s a little bit lower than that now just based upon the declines in the business and in December that Paul spoke of earlier. I’d say overall related to working capital, I think that we’ve done a pretty decent job there particularly in the overall economic conditions and our customers. Certainly a lot of them are in the epicenter related to the housing starts and the overall economy. We continue to pretty tightly manage our credit risks and have actually not gone after some business because we were not comfortable with the credit risk. So I think we done a pretty good job there but that will require vigilance given the continuing economic headwinds that we foresee certainly through the rest of 2009.

On the inventory, again I think we’ve had some good progress but we still have a lot more work that we need to do to stay focused on inventory levels particularly at Royal. Royal has higher inventory levels than it should have still even though we’ve brought them down. We’re still looking for some more progress there.

Tarek Hamid - J.P. Morgan

On the payables side, there is a little bit of a decline which is understandable. Can you discuss about how much of that is driven by product pricing versus just tighter trade terms in general?

Gregory C. Thompson

Yes, Tarek, I would say that trade terms are generally consistent now with where they were back in the middle of this year when we had the dramatic reduction in trade terms when we had the issue with the alleged default by the bond holder. We really lost a number of days in our payables through tightening credit terms then and we’ve had a few pluses and a few minuses since then but overall, I’d say not a big change in our level of trade terms has occurred since that point.

Tarek Hamid - J.P. Morgan

One last question for me. On your 2009 guidance, can you give a sense of the cash interest you are assuming for 2009 is?

Gregory C. Thompson

There’s obviously given my remarks, we have it in the amendment that we will be seeking. There’s nothing locked down on that. Expect some small to moderate increase, I would guess; in the interest level from the current year this year, interest was $133 million so certainly expect something to pick up from that. Nothing specific at this point.

Operator

Your next question comes from the line of Bill Hoffman with UBS.

Bill Hoffman – UBS

I was wondering if you could talk a little bit about the building products businesses, obviously coming off the fourth quarter, volume levels were extremely weak and quite a bit of cash burn in those businesses. What are you doing specifically there early in 2009?

Paul D. Carrico

The building products, particularly, at this time of the year is always very challenging, late fourth quarter and first quarter, usually for almost the whole first quarter. Many of the cost reductions that I mentioned earlier in the beginning of the year were more heavily weighted towards those businesses and basically what we have to do is try to scale it back to where we think that the level of overall business activity is going to get to in the spring. As it stands right now, that is still a little bit difficult to predict but we’re idling plants as needed and just essentially phasing back all costs that we can and taken the things that I mentioned earlier, the headcount reductions, the pensions and other items. So we’re just going to keep watching that and reacting to it as we need to going forward for the spring.

Gregory C. Thompson

Just to build on that Bill, on Paul’s comments related to plant reductions and headcount reductions and rolling work weeks and those things, we also have been working in three additional areas, in Royal to improve the profitability, dealing with some negative EBITDA, plant locations that we have through looking at sku management, pricing, cost controls, all of those kinds of things at the individual plant level and then two other initiatives dealing with centralizing some of indirect spend levels across all Royal. We think that through centralizing some of those areas, say for example, packaging material as one but a lot of other indirect spend areas, we can centralize that, pull that out of individual plant level decisions and save some money there. The third initiative across Royal is in the area of freight reduction. We think we’re just paying too much, too much in freight and we’re looking at ways to reduce that freight cost.

Bill Hoffman – UBS

Of any of the EBITDA plants, have you shut any of those so far this year?

Gregory C. Thompson

One in particular that we talked about this year was the sheds business that we sold. We also had some other small negative EBITDA operations that we shut down that were in the four other facilities that I mentioned or Paul mentioned previously in the 2008 cost reduction activities. But there are still a handful of others that are left that we’re looking at that, we think that there are some solid areas of improvement for EBITDA in those locations that we can get after.

Paul D. Carrico

Just one more item, I guess the resin plants, Sarnia and Oklahoma City plants would have been negative for this year and actually Sarnia was negative the last year. Both of those are substantial in improving the EBITDA going into 2009.

Bill Hoffman – UBS

Just a final question, Greg, I was wondering if you could just help us a little bit with normally you’re in a negative working capital period here in the first and second quarters. Maybe just help us quantify a little bit how your ability to manage that more aggressively this year than last year.

Gregory C. Thompson

That’s certainly something we’re very, very focused on. I think Paul in particular mentioned the aromatics business. That’s something we’re going to manage very tightly as last year, that business in the first half, it did consume some working capital. I have the numbers in front of me, Bill, but I think it was probably something like $50 million or so of working capital usage that we had in the first half of last year. Through some of the things that we put in place over the last 12 months or so as well as tightly managing aromatics, I certainly expect that we can do better than that I would hope during the first half of the year.

Operator

Your next question is from the line of Barrett Evnon with Brownstone Asset Management.

Barrett Evnon - Brownstone Asset Management

How much are ECUs down now? How much do you expect them to be down for the full year as you put together your forecast?

Paul D. Carrico

I think internally we’re still working on that for the forecast based upon where we are right now. Generally speaking, we would just be going with the published information as far as the dropoff into the remainder of the year. I don’t have that number handy but it does show tailing off as we get into the early part of the year and then more so in the second half of the year.

Barrett Evnon - Brownstone Asset Management

Down like 10%-20% or not that much?

Paul D. Carrico

I just really don’t have those numbers here so I can’t, I would just say for the moment, we’re consistent with what the general publications are out there in terms of dropoff as we go through the year.

Barrett Evnon - Brownstone Asset Management

For your 2009 outlook, you guys said you expected to see $40 million in cash savings for the year.

Gregory C. Thompson

Yes, that’s correct for those actions that we’ve taken in 2008, Barrett.

Barrett Evnon - Brownstone Asset Management

So you haven’t billed out for those yet, you’re saying, from last year?

Gregory C. Thompson

We realized some of them in 2008 but they really occur throughout the year and for example, the Sarnia action which we announced, I believe it was in December, we would have gotten virtually no benefit in 2008 so that would all be incremental improvement in 2009 from that one cost reduction action. So the $47 million is the incremental benefit that we expect in 2009 over 2008 from those actions that have already been completed.

Barrett Evnon - Brownstone Asset Management

I guess for 2009, you guys mentioned you expect to be able to pay your, fund your debt and CapEx, but does that mean you expect EBITDA to be sort of flat year-over-year? How do you think about that?

Gregory C. Thompson

We’re not going to put a finer point on it than that right now given all the challenging challenges that we and everyone else have for forecasting what the demand level is. We feel good over that overall guidance, that EBITDA will be sufficient to cover interest plus CapEx, working capital and any assets sales, and to still leave some room to pay down some debt in 2009.

Barrett Evnon - Brownstone Asset Management

To ask a question, just looking ahead, you haven’t fully come into it, I know you guys are in discussions to amend and then based on your cap structure with all your bonds are trading between $0 and $0.03 on some levels and then the seniors are $0.13-$0.15, I’m just curious, is there a good reason why you guys wouldn’t address your capital structure and sort of wipe out all the debt below you that hit your debt so you can start with a clean balance sheet as you go into an environment where you have no idea what type of credit is needed?

Gregory C. Thompson

Are you volunteering? That will be part of the amendment process that will be going through and actually it’s June 30, 2009, is when the covenants reset. As part of that amendment process, we would hope to have some flexibility to address that.

Barrett Evnon - Brownstone Asset Management

So there’s no definitive plan on how you expect to address your cap structure that you can publically disclose?

Gregory C. Thompson

Related to the amendment process, there’s no current flexibility that we have to buy that debt back, do debt swaps or anything of that sort under the existing senior secured credit agreement. So that’s something that we would be looking at to gain that flexibility as we go forward.

Barrett Evnon - Brownstone Asset Management

You’re looking for the flexibility to –

Gregory C. Thompson

Say that again?

Barrett Evnon - Brownstone Asset Management

You’re looking for the flexibility to equitize your unsecure debt.

Gregory C. Thompson

I’m not going to comment on what kinds of structures we might look at.

Barrett Evnon - Brownstone Asset Management

Do you expect to pay your coupons in April?

Gregory C. Thompson

We would, based upon the numbers that I laid out for you as where we finished the year and our expectations going forward, we would expect to have enough liquidity to be able to make that payment.

Barrett Evnon - Brownstone Asset Management

And that would be something that the banks would be okay with given that you need to get an amendment to your credit facility?

Gregory C. Thompson

I guess you’ll have to ask the banks that. I wouldn’t want to speak for them.

Barrett Evnon - Brownstone Asset Management

I thought you mentioned there were ongoing discussions. I figure that would be something you guys would discuss.

Operator

Our next question is from the line of Andrew Chen with Barclays Capital.

Andrew Chen - Barclays Capital

All of my questions have been answered. Thank you.

Operator

The next question is from the line of Eva Yeung with Independence United.

Cheryl Van Winkle - Independence United

Hi, it’s Cheryl Van Winkle. I just wondered if you could remind me, in your two building materials products, for each one, about what percentage of production is in Canada?

Gregory C. Thompson

It varies by the different sectors, was it Cheryl?

Cheryl Van Winkle - Independence United

Yes.

Gregory C. Thompson

It is from windows and doors profiles and mouldings around 60% or so U.S. and 40% or so Canada. On the outdoor building products sector, it’s kind of the reverse of that, more Canadian, 60% Canadian and 40% or so U.S. They vary greatly in each of those sectors. For example, pipe is 80%-90% a Canadian business within the outdoor building products sector. So on average and I don’t have the numbers in front of me, but on average it’s close to 50-50, the way all of that averages out, something in that kind of range between the U.S. and Canada.

Cheryl Van Winkle - Independence United

For the most part, do you say where you produce is where you sell in terms of the two countries?

Gregory C. Thompson

No, actually we have more production in Canada relative to our sales in Canada and the U.S. than anywhere else. We do have, on balance we have more manufacturing that we do in Canada than we do some shipping into the U.S. than the other way around.

Cheryl Van Winkle - Independence United

So you probably get some benefit in the fourth quarter from the Canadian dollar?

Gregory C. Thompson

There’s a lot of foots and pegs to that but I would say that certainly to the extent that the U.S. dollar strength is relative to the Canadian dollar. It makes our Canadian manufacturing facilities more competitive against U.S.-based manufacturers.

Cheryl Van Winkle - Independence United

And that would have flowed through at least to a fair extent in the fourth quarter?

Gregory C. Thompson

Yes, but all be it, like we spoken of previously, Paul in particular, the volumes were pretty disappointing in the fourth quarter so based upon those lower volumes, we didn’t get a lot there.

Operator

Your next question is from the line of Rob Spork with Bridgeman Capital.

Rob Spork - Bridgeman Capital

Just one quick question. How much of your natural gas purchases are hedged for the year?

Paul D. Carrico

We typically don’t do a significant amount of hedging in the current environment with the prices down where they were, we get a little ahead but not in a major way.

Rob Spork - Bridgeman Capital

I guess for Q1 should we expect that any of that was hedged at higher prices or you guys will benefit from prices where we are seeing at now?

Paul D. Carrico

Some of it had been hedged but generally in the range of where the trading values were. It was hedged just to be sure we got those numbers. They’re cleared out at this point.

Operator

At this time, there are no further questions.

Paul D. Carrico

Just some closing comments from me. 2008 was shaped by a steep decline in demand and volatile energy and feedstock costs. The magnitude of these changes was really unprecedented. We expect the economic outlook to continue to be challenging through 2009 and we think we are well prepared. In 2008, we took many steps to adjust our operations and cost structure to meet those challenges. We entered 2009 with a much leaner cost structure and strong liquidity compared to 2008. We will focus on adjusting our cost structure to match the market conditions we expect and improving the productivity of our assets, address our capital structure and reduce debt. Thank you for joining us today and we look forward to speaking with you in May.

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Source: Georgia Gulf Corporation F4Q08 Earnings Call Transcript
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