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Executives

Martin Jarosick - IR

Paul Carrico - President & CEO

Greg Thomson - CFO

Analysts

Bill Hoffman - RBC Capital Markets

Silke Kueck - JPMorgan

Roger Spitz - Bank of America

Tarek Hamid - JPMorgan

Frank Mitsch - BB&T Capital Markets

Georgia Gulf Corporation (GGC) Q4 2009 Earnings Call February 18, 2010 10:00 AM ET

Operator

Good morning. My name is Morris and I will be your conference operator today. At this time I would like to welcome everyone the Georgia Gulf fourth quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions). Thank you Mr. Martin Jarosick, you may now begin your conference.

Martin Jarosick

Thank you Morris and good morning ladies and gentlemen. Thank you for participating in today's conference call to discuss Georgia Gulf's 2009 fourth quarter financial results. There are slides available to you on the Georgia Gulf website. These slides are for your reference 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 Thomson 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 actual results to differ materially from our current outlook. A listing of factors that could affect future results is included in our 2008 Form 10-K. Any forward-looking statements made on this call should be considered in light of risks 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 measures as an appendix in the slides on our website.

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

Paul Carrico

Thanks Martin and good morning ladies and gentlemen. In December we executed the final step in our financial restructuring. We refinanced the term loan B, the revolver and the asset securitization facility with a new $500 million secured note and a $300 million asset based loan.

With this refinancing we accomplished the following; first, pushed out our debt maturity, the ABL run through January 2014 in our next significant debt maturity is not until 2017; second, reduced our cash interest cost, and finally removed all the maintenance covenants that caused so much distraction over the last couple of years. This refinancing concludes the total restructuring of our capital structure in 2009.

As you will recall, we were able to utilize the new tax deferral rules related to cancellation of debt income to complete multiple bank amendments, our debt for equity exchange and to refinance the secured debt that I just described. We were very pleased that this process is complete as we navigated our way through an unprecedented downturn in the economy. Our capital structure now implies will support the growth of our business.

During the past two years, it was clear that the serious decline in North American GDP and housing starts required operational restructuring to properly size of our manufacturing footprint to the level of the market demand. Reflecting back on the last two years, it is important to note that major changes were made in this area. We reduced our annual PVC capacity by £950 million or more than 25%. We sold the outdoor storage business in consolidated fixed plans into other facilities and building products. We reduced the SG&A expense by about $50 million and we reduced our total headcount by approximately 33%.

Georgia Gulf now moves into the future with the long-term capital structure and a streamlined and flexible asset base that meets the current market demand and also has considerable capacity for growth.

We're well positioned for the long-term in our chemicals and building products businesses. Turning to the fourth quarter results, we delivered $18.3 million of adjusted EBITDA compared to $23.2 million of adjusted EBITDA in the fourth quarter of 2008. For the full year, we generated $161.5 million of adjusted EBITDA compared to $163.1 million of adjusted EBITDA for 2008. This result was achieved during this very challenging year by the significant efforts of our business managers and employees. This exceeded our guidance and was mainly driven by the strong performance in our Aromatics and Building Product segment.

In Aromatics our annual adjusted EBITDA improved by nearly $50 million driven primarily by inventory holding gains in 2009 nearly reversing the inventory holding losses we experienced in 2008. Our Building Product segment generated $9.6 million of adjusted EBITDA in the fourth quarter of 2009 compared to $8.2 million of negative EBITDA for the fourth quarter of 2008. For the year, the Building Product segments generated $36.3 million of adjusted EBITDA compared to $19.2 million in 2008. This large improvement was driven by the cost reductions and profitability improvements that overcame at double digit decline in volumes.

As we move into 2010, we expect continued year-over-year adjusted EBITDA stock growth from our Building Product segments. At this time, I will turn the call over to Greg to review our financial results in greater detail.

Greg Thompson

Thank you, Paul. Good morning ladies and gentlemen. Before I review our financial results I would like to point out a few items in our reported financial statements. On the income statement you should note the number of shares used for calculating earnings per share is based on the weighted average amount of shares that were issued and outstanding during the period. This resulted in weighted average diluted shares outstanding of about 33 million shares for the fourth quarter and 14.9 million shares for the full year 2009. The share count for all periods prior to the debt exchange reflects the one for 25 reverse split, we affected in July 2009 resulting in 1.4 million weighted average diluted shares in the fourth quarter and full year 2008.

As Paul mentioned, we completed our refinancing in the fourth quarter. This resulted in a loss on debt modification and extinguishment of $163.8 million. This is primarily just a reversal of the gain from the substantial modification of debt required by GAAP in the first quarter of 2009.

Net sales in the fourth quarter were $502 million down $33 million from the same quarter last year. The decrease in sales is primarily due to lower sales prices partially offset by higher volumes in all segments except for Aromatics. Net sales for the year were $2 billion down $926 million from last year, the decrease in sales is primarily due to lower prices resulting from lower feedstock and energy costs as well as lower volumes.

Now let's look at our performance from continuing operations during the fourth quarter. Georgia Gulf reported a net operating loss of $18.6 million for the fourth quarter of 2009 compared to a net operating loss of $172.7 million during the same quarter in the previous year. We've recorded charges of $2.4 million during the fourth quarter of 2009 and charges of a $170.5 million in the fourth quarter of 2008 related to impairment of goodwill, intangibles and long life assets as well as restructuring costs.

Excluding these charges we recorded a net operating loss of $16.2 million in the fourth quarter of 2009 compared to a net operating loss of $2.2 million for the fourth quarter of 2008. Adjusted EBITDA for the fourth quarter of 2009 was $18.3 million versus $23.2 million in the same quarter last year. The last page of the press release contains a table that reconciles from operating loss determined in accordance with GAAP to adjusted EBITDA.

For the full year, Georgia Gulf reported a net operating loss of $0.6 million in 2009 compared to a net operating loss of $140.2 million during the previous year. We recorded charges of $28.7 million in 2009 and charges of $170.6 million in 2008 related to impairment of goodwill, tangibles or long life of assets as well as restructuring costs.

Excluding these charges, net operating income was $28.1 million in 2009 compared to net operating income of $30.5 million in 2008. Adjusted EBITDA for full year 2009 was $161.5 million versus a $163.1 million in 2008. SG&A expense for the fourth quarter of 2009 was $53.2 million, $15.1 million higher than the same period last year. The increase was primarily driven by higher legal and professional fees of $9.3 million related to our operational and financial restructuring activities and higher equity compensation costs related to the performance investing of the new employee equity incentive plan of $6.2 million.

With the completion of the debt exchange in our continuing cost reduction efforts, we expect our SG&A run rates to average around $38 million to $40 million per quarter going forward in 2010.

Our interest expense for the fourth quarter was $23.3 million compared to $35.3 million last year. Going forward, our cash interest expense will be about $17 million per quarter and our quarterly GAAP interest expense should be in the $18 to $19 million range. You should also note that the AR securitization costs in our previous capital structure were recorded in SG&A as required by GAAP. With our new capital structure in place as of December 2009, the cost of the ABL is recorded as interest expense. If this difference in treatment were applied to the full year 2009, we would have seen interest expense and also EBITDA increase by approximately $11 million.

For fourth quarter of 2009, we had a reported $76.4 million tax benefit due to the tax loss impacts. For the full year which included the gain on debt exchange, we had a reported $79.8 million tax expense. In 2009, we actually paid cash taxes of around $10 million. Our effective tax rate for the quarter was 37% and 35% for the year. For 2010, we expect tax expense on the P&L to be between $3 and $8 million and to pay cash taxes in the range of $8 to $10 million.

As you may recall from our third quarter conference call, we described how the federal tax generated by the gain on debt exchange maybe differed for five years until 2014, then paid out over 5 years. On the third quarter call, I gave you a preliminary estimate of $75 million or $15 million per year. Since then we have continued to refine the estimate and we now believe we will pay a total of approximately $40 million or $8 million per year beginning in 2014.

In the Chlorovinyl segment, fourth quarter 2009 sales decreased 12% to $237.7 million from $271.5 million during the fourth quarter of 2008 driven by lower sales prices partially offset by higher volumes. This segment posted operating income of $4 million compared to an operating loss of $4.5 million during the same quarter in the prior year. The increase in operating income was primarily due to restructuring and impairment charges of $54 million due to the closure of our Sarnia, Ontario PVC manufacturing facility in the fourth quarter of 2008 partially offset by lower ECU values in 2009.

In the Window and Door Profiles and Mouldings segment sales were $82 million for the fourth quarter of 2008 compared to $80.8 million during the same quarter in the prior year. Sales on a constant currency basis declined 4%. The decrease in sales reflects difficult conditions in the North America housing and construction markets particularly related to new home construction. The segment's operating loss was $2.2 million for the fourth quarter of 2009 compared to an operating loss of $121.5 million during the same quarter in the prior year. The reduction in operating losses is primarily the result of non cash charges of $111 million related to impairment of goodwill and intangibles taken in the fourth quarter of 2008 as well as the benefit in 2009 of further cost reductions

In the Outdoor Building Products segment, sales were $89 million for the fourth quarter of 2008 compared to $80.6 million during the same quarter in the prior quarter.

Sales on a constant currency basis increased about 1% compared to the same period in 2008. The increase in sales on a constant currency basis reflects improved Canadian market conditions partially offset by the difficult conditions in US housing infrastructure markets.

The segment reported operating income of $0.8 million for the fourth quarter of 2009 compared to an operating loss of $12.6 million during the same quarter in the prior year. The increase in operating income is primarily related to $4.4 million of restructuring and impairment charges taken in the fourth quarter of 2008 and additional benefits from cost reductions in 2009.

In the Aromatics segment, sales decreased to $93.3 million for the fourth quarter of 2009 from $102.7 million during the fourth quarter of 2008. Sales decreased due to lower volumes and prices. During the fourth quarter of 2009, the segment recorded an operating loss of $0.8 million compared to operating loss of $27.6 million during the same quarter in 2008. The decrease in operating loss was driven by stronger margins as we did not see a repeat of the significant inventory holding losses created by the significant decrease in benzene and propylene prices in the fourth quarter of last year.

The improvement in the fourth quarter of 2009 compared to fourth quarter of 2008 was also due to cost reductions partially offset by lower volumes than the same quarter last year. The total vital impact for the fourth quarter was a positive $7.9 million compared to a negative $46.4 million FIFO impact in the same period last year. For the full year the FIFO impact was a positive $27.4 million compared to a negative FIFO impact of $48.2 million in 2008.

Now let's discuss working capital. As you review our balance sheet ended December 31, 2009 you will see the increase in accounts receivable over last year. This is mainly due to our refinancing in December 2009 of the old asset securitization agreement which was off balance sheet with an asset based loan which is now on balance sheet financing. To constantly compare account receivable before and after this change, the AR securitized of a $111 million as of December 31, 2008 should be added back to controllable working capital.

Controllable working capital defined as on balance sheet and off balance sheet accounts receivable plus inventory last accounts payable decreased by about $28 million compared to December 31, 2008. Compared sequentially, controllable working capital dropped by $51 million compared to September 30, 2009. The improvement both year-over-year and sequentially was due to lower total AR balances as well as higher AT balances and somewhat offset by higher inventory.

Since completing our debt exchange, we have steadily improved our vendor terms and this is moving our accounts payable back toward a more normal level. As we mentioned on the third quarter call, our inventory balance was higher than normal at the end of this year as we built inventory in advance of a turnaround in January.

On the cash flow statement, you will note that we used $48 million of cash in operating activities as compared with generating $56 million for the fourth quarter of 2008. If you adjust for the $97 million use of cash to pay off the AR securitization as part of the previously mentioned refinancing, we actually generated about positive operating cash flow of $49 million in the quarter.

We continue to tightly manage our capital expenditures while supporting the maintenance requirements and growth opportunities of our businesses. Capital expenditures were $5.1 million for the fourth quarter and $30 million for the year. For 2010 we are planning capital expenditures of $45 to $50 million and depreciation of about 90 million.

Now I will turn the call back over to Paul for the 2010 outlook.

Paul Carrico

Thanks Greg, before we begin the question-and-answer portion of the call, I would like to give you some prospective on our view of 2010. The early feedback we get from our customers is that 2010 will be a modest improvement over 2009. We developed our plans which are based on the following macro assumptions. A slight recovery in US and Canadian housing starts, growth in the US and Canadian GDP are greater than 2%. A continuation of PVC exports base on a favorable oil to natural gas ratio. Natural gas cost average in the $6 per million Btu area and finally the assumption that the ECU value has bottomed out.

Given these macro assumptions we are projecting 2010 adjusted EBITDA of $140 to $160 million. Compared to our 2009 results, our guidance incorporates the following; lower ECU values especially compared to the first quarter of 2009. Higher natural gas cost in the roughly $4.50 average for 2009. Two plant turnarounds compared to one in 2009 and a significant reduction in EBITDA from Aromatics simply based on the assumption that they will not be a repeat of the inventory holding gains we saw in 2009.

On the positive side, we expect improvement in PVC margins from the historically low levels we saw last year and especially in the fourth quarter. The benefit of cost reduction efforts initiated in 2009 and fully realized in 2010 and higher building product volumes tied to a modest increase and housing starts and renovation spending.

Additionally, our 2010 adjusted EBITDA will benefit as the AR securitization expense from our old capital structure was recorded as SG&A but its part of the ABL, it will be booked as interest.

As you can see in our guidance, we expect the market recovery to start slow in 2010, but if it comes back faster than expected we have plenty of capacity to handle a more robust recovery. In closing, it is clear that we would not have been able to accomplish the financial restructuring and operational restructuring without the hard work of our dedicated employees. I want to personally thank them for their efforts and sacrifices made during the past year to position Georgia Gulf for future growth.

I'll now turn the call over to the operator, so we can take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question will come from the line of Bill Hoffman of RBC Capital Markets.

Bill Hoffman - RBC Capital Markets

Paul, I was wondering if you could talk a little bit about the general market conditions, and a couple things I want to sort of focus on. One, we know the Canadian market is a little bit better than the US continues to be, and I'd like to get a sense of where you guys are after all the restructuring of your downstream, converting assets, how much of your sales are in Canada versus the US and maybe whether you're seeing any early season, better than expected demands in the end markets, and maybe if we can start with that.

Paul Carrico

Okay, well first of all, talking about the markets, what we're seeing early this year is and we kind of look at this on a weekly basis, a pickup in activity that is above last year's numbers. Typically, in this time of the year, it's difficult to make any projections about what the spring will bring you. But, based upon the current numbers, we'd say that this year is going to be a step up from last year. To say that it's robust would be an overstatement but what helps this year is the, and particularly on the PVC side is the export availability that's out there for PVC and we expect that to continue on for some period of time.

Bill Hoffman - RBC Capital Markets

And how much PVC export do you expect to be able to do this year on a relative basis?

Paul Carrico

Well its going to fluctuate from quarter-to-quarter, I guess I saw a number the other day that I think the preliminary January numbers were in the range of 30% to 40% for the industry, a rather amazing number when you look at things from the past. My guess is its going to settle down more to the 20% to 25% range after we get through a high export period in the first quarter and probably of a much reduced level by the Industry in the second and third quarters and again pick it back up in the fourth quarter.

Bill Hoffman - RBC Capital Markets

And if just I could continue on that track for a minute, those export markets, what do you see as the risk there, because I know there's capacity coming on the Middle East. Are you hitting those kinds of markets with product, or is this more going sort of Latin America?

Paul Carrico

More of South America, India and Asia it's really going to be a function I think as whether the oil to gas ratio will stay where it is at the current ratio we are well above the historical numbers and that should allow for some exports going out of the country from the US side.

Bill Hoffman - RBC Capital Markets

Thank you and the other question was really just splitting your business between US and Canada right now?

Paul Carrico

Yeah, we are roughly in 55% range on Canadian and 45% on the US if you just look at the Building Product segment.

Bill Hoffman - RBC Capital Markets

And I have a question for Greg, if I can. Just the word capital obviously seems to have stabilized here in the fourth quarter, except for the turnaround build of inventory. Can you talk a little bit about your thoughts for working capital cash burn this year? Do you expect much at all given the fact it will be running at lower ACUs all year?

Greg Thompson

Well, I think over the year I expect some cash flow generation in working capital resulting from further improvements in the vendor terms. As always we have the seasonal first half of the year cash flow, cash flow burn that unwinds in the second half of the year. I think that for us this year and the first half of the year that going to let seasonal cash flow utilization you won't just given our higher than normal inventory at the end of the year, that won't be as much as normal, but will certainly have some accounts receivable build up the first half of the year based upon that seasonal increases in the business.

But, as I said overall for the year we're making steady progress on improving those vendor terms and that's still going to take some more time and that will generate some cash from working capital over the year.

Bill Hoffman - RBC Capital Markets

Historically, the tables were running $200 million plus right, so theoretically do you think you can get back towards that kind of a number?

Greg Thompson

No. I don't think that kind of number, I think I'll have to go back and double check when those were built, but I suspect they were at higher cost of fees stocked than where we are right now. I guess I tend to look at it more on a days basis which current cost every day I think it's just around $4 million or $5 million of additional payables. And I think we've got at least another four or five days of improvement over the next six months that I'm pretty focused on and then I think we should be able to further improve from there.

Operator

And your next question is from the line of Jeff Zekauskas of JPMorgan.

Silke Kueck - JPMorgan

This is Silke Kueck for Jeff. A couple of questions. Maybe first is that with the outlook for 2010. So if I were to include the benefit in 2010 that you see from having the accounts receivable securitization charges, not flow through EBIT, your guidance really is $130 million to $150 million. This year you reported $162 million EBITDA and Aromatics was a benefit of $21 million. So if I take that out, then we're sort of comparing a $140 million EBITDA in 2009 to $140 million in 2010.

And is that the right way to think about it? Because it seems that Window and Door and Moulding profiles are improving and the Outdoor Building Products business is improving, and is it really the case that you expect EBITDA for Chlorovinyls to go down in 2010?

Paul Carrico

Yeah I guess first of all you also have to factor in some number for turnarounds I think we noted that there was one in 2009 and there will be a couple in 2010 which not only has costs associated with the turnaround but has volume considerations. Chlorovinyls I think that's a moving target right at the moment. There were significantly less price increases in PVC than there should have been from a pure return on capital point of view in November and December last year. And there is now, relatively unprecedented increases on the table because of cost pushed from the feedstocks. And so quite a bit of transition going on at the moment it would be tough to get too specific about where Chlorovinyls will be by the end of this year.

Greg Thompson

You also still have to factor in the really historically high levels of ECU at the beginning of 2009 that we enjoyed for the first really four or five months of 2009 and ECUs have returned back down to more normal levels now.

Silke Kueck - JPMorgan

What are the costs associated with a turnaround? Both the effects of volume and the costs that are related to that? Just like a ballpark figure?

Paul Carrico

I guess we don't typically put those numbers out. I will tell you we are kind of typical of other industry producers and what they do and I don't know some of those are put up numbers but we don't generally put something out there on that.

Silke Kueck - JPMorgan

Is it normally above the single digit million or is it something that's like tens of millions?

Paul Carrico

Its not 10s of millions but you got a couple of weeks, 2-3 weeks of lost production usually for anything you do and then you have got the cost itself.

Silke Kueck - JPMorgan

That's helpful. Secondarily, in the Aromatics business, if this overtime [BPA] gets phased out will that have any effect on the Aromatics business or the phenol division particularly?

Paul Carrico

I think we will look at the Aromatics business is already so punished by operating rates from a industry point of view that the phase out certainly would be another blow to that operating rate but ultimately there has got to be some considerations of where the capacity is related to just where things are in general right now and so we don't look at that as a businesses that generates that much EBITDA other than trying to manage it strictly for cash and its got a relatively limited potential in the current market environment particularly because of the operating rate. So those operating rates are already down so far that further loss would guess be a factor but I am not sure it could get any more difficult than it is right now

Silke Kueck - JPMorgan

And the last question, just for clarification. You may have said this on the call, and I may have missed it. Can you quantify again the magnitude of the inventory holding gain in Aromatics in the fourth quarter and also what the FIFO benefit was if there was one?

Greg Thompson

We don't break that out separately for Aromatics, but still the FIFO benefit in the fourth quarter was about $7 million. As is customer and most of that was related to Chlorovinyls there was a very small portion related to Aromatics but 10% to 20% or so, I'd say.

Paul Carrico

Yes Aromatics pricing did not change like it typically does in the fourth quarter in terms of a decrease. It did drop a bit but much difference than some previous years.

Operator

And your next question will comes from the line of Roger Spitz of Bank of America.

Roger Spitz - Bank of America

Could you provide any year-over-year sequential volume comparisons in terms of PVC raisins or window and door or outdoor building products?

Paul Carrico

Well we could talk about the industry I guess. You're talking 2010 versus 2009 or...

Roger Spitz - Bank of America

No. That is not Q4 '09 versus Q4 '08 or versus Q3 '09. I'm trying to understand what your PVC volumes, resin volumes were doing. What your Window and Door or Outdoor Building Products volumes itself were doing versus those two periods.

Paul Carrico

Okay if you look at Q4 '09 for the industry it was around high 70s in terms of the operating rate Q4 '08 was around 60% for the industry and Q3 '09 was around 85 mid 80s I'll call it for the industry. Q10 is forecasted at this point to be in the low 80s although that might drift up a little bit because of that course being so strong...

Roger Spitz - Bank of America

You're sure you're referring to PVC resin?

Paul Carrico

Yes.

Roger Spitz - Bank of America

Okay. Is there any way to get a handle on what sort of either operating rates or volumes in terms of what you've been doing in Windows and Doors or Outdoor Building Products? Is there some metric we can look at?

Paul Carrico

No I think you to kind of look at the, take the general direction is driven by the GDP and the housing starts being up a bit and as I said earlier, the volumes are up from last year in the first quarter as it stands right now. We had some improvement in the fourth quarter so we kind of expect a continuation of that into the spring. We don't have any reason to believe that it would drop off dramatically unless consumer confidence deteriorates significantly something like that. But percentage wise, the industry window and doors, all of the industries out there in those areas have been operating, had very low operating rates and all I can say is that they seem to be moving up and then you got the rationalization that's occurred both with ourselves and with some of the other players and so that's a moving target right at the moment in terms of what the capacity is and what the operating rates would be.

Roger Spitz - Bank of America

Back in early mid 2009, you filed a presentation that suggested Royals EBITDA could generate $89 million of EBITDA at $1.4 million US housing starts. Based on how the business is operating in the second half of the year, do you have any updated view on what you would expect?

Paul Carrico

No we think if you look back at 2009, at the first quarter was really more or less terrible quarter for ourselves and for the industry, it was just amazing across the board and it wasn't specific to Georgia Gulf. Georgia Gulf had two things going on though, it was the industry conditions and then Georgia Gulf was in a state of transition where we had a considerable change out of the management group and I think what you saw during the year was a progressively improved set of results from first quarter to the last three quarters and I guess all I could say is if we had a repeat of last year we would do better this year because we've gotten systems in place and people in place to react more quickly to what the economic conditions are. In terms of EBITDA in general though, we do expect the billing products out to deliver the kind of returns that other companies in building products deliver and that means we've got some room to grow in that area in this coming year and next year.

Operator

And your next question will comes from the line of Tarek Hamid of JPMorgan.

Tarek Hamid - JPMorgan

Kind of on the last question, obviously cost savings were huge benefits to the Window and Door profiles and the Outdoor Building Products segment in the last quarter. Now how much of those cost saving programs are sort of done and realized in the fourth quarter versus how much have yet to sort of be realized in 2010.

Greg Thompson

We still, let me start off on that Tarek. We still got the continuation of some of the cost reduction programs that we announced in 2009 that are still ramping up. We think as far as the footprint, we don't have a whole lot more left to do there. We feel pretty good about what we've got. We still have plenty of capacity to grow, but things that we've talked about previously like indirect spend and freight cost management programs and those sorts of things as well as more discipline around our costs and pricing management, we expect some incremental improvement in the 2010 results as part of that in building products.

Tarek Hamid - JPMorgan

Then you talked a little bit about PVC, but could you sort of give any color on what you're seeing on caustic markets right now?

Paul Carrico

The general color I would add to that would be that much like I talked about the early part of the year being difficult to translate what the demand side would be as you get into the spring, I think the same holds true of caustic, but there is certainly price push on caustic at the moment, I believe there is a $75 increase that was already on the table and we have heard some people comment that there is another increase behind that one being pushed. So the ECU value just in general needs to be improved and so you got that push from all players whether they are selling chlorine or caustic or whether they are focused more on one or the other.

Tarek Hamid - JPMorgan

Then a final one on the PVC export side. Is there functionally any guidance on what sort of the limit towards the percentage basis of your capacity that you could reasonably export? Any kind of color you can give us, any guidance?

Paul Carrico

For the industry or for Georgia Gulf?

Tarek Hamid - JPMorgan

Either or both would be appreciated.

Paul Carrico

Shouldn't have asked about both. Yes, the industry, I was kind of amazed by the 40% in January or the high 30s in January, so I can't see it going much above that just because of domestic demand which surely be significant enough to limit that at some point. In terms of ourselves, we've already dramatically changed. We were roughly a zero a couple of years ago and now we tend to go along with the industry. We were down a bit in this first quarter just because of some turnarounds we had, so we didn't quite participate at the industry level, but I'd say I kind of see is in instantaneous basis, on a monthly side at 40% level for the industry. I suppose it could go higher but I don't think it will be possible because the domestic market but generally speaking I do think that on average it will fall back into the low 20s for the year with the second and third quarters I stated stayed earlier being much smaller because I believe that the spring demand will be decent at this point on a North American side.

Tarek Hamid - JPMorgan

So, domestic demand is going to heat up a lot of those exports you think in the second quarter?

Paul Carrico

Yes, because typically the level of activities are so strong in the second and third quarter not just for Georgia Gulf but for most building products companies that you got this big disparity between the two middle quarters and the two outside quarters there.

Operator

(Operator Instructions). Your next question is from the line of Frank Mitsch of BB&T Capital Markets.

Frank Mitsch - BB&T Capital Markets

I jumped a little bit late but I heard that Paul you mentioned that you got less price increase in the fourth quarter, in the PVC market than you would have liked and clearly with ethylene running up, you suffered a little bit of a margin compression there. Was there something anomalous going on in the industry overall. I know that you guys are not the price makers and you are taking price here but was there something in the competitive dynamics that really torpedoed the segment because obviously the results were the worst in recent memory.

Paul Carrico

Yes, when you describe it as a little bit of a margin hit, I would like to think of it was an amazingly high margin hit because of the increases that occurred in ethylene. There was just really no reason not for the industry to have increases that stuck. There was mass increases in November and December but they didn't stick. And the only thing I can attribute that to is that there was competitive market environment and people were positioning themselves for the first quarter contracts coming into this year, the 2010 contract and effectively that's what you are seeing those increases didn't occur but now there is roughly $0.15 on the table in the first quarter of this year and never seeing that kind of an increase but its recovering all those cost they are in the system right now, not just for ourselves but I think for everybody

Frank Mitsch - BB&T Capital Markets

I guess the question is that obviously there were increases on the table in the fourth quarter that didn't get realized. You're suggesting that they were repositioned to actually when you have some volume recovery? So, from your perspective, of that I guess it's an unfair question. You're not going to answer it any way, of that $0.15 what do you actually expect to realize?

Paul Carrico

The typical expectation on our part is all of it, but honestly it has to be, if you look at the return in the industry, realized in the fourth quarter, its just not sustainable. People are not going to operate highly intensive capital assets like we have in the chemical side, but kind of returns and I'll say that the industry got, not just Georgia Gulf, and so there has to be a pretty significant push unless somehow the cost side where the ethylene and all that pouring in the ECU comes out to be lower and all we see is further increases right now and that's sad. So I have to believe that there is going to be substantial realization of those prices into the future.

Frank Mitsch - BB&T Capital Markets

I agree with your assessment and hopefully the competition is listening to what you're saying. Thank you

Operator

(Operator Instructions). And thus there are no questions at this time.

Martin Jarosick

Great, thanks Morris and thanks everybody for joining us and we look forward to talking you when we report first quarter earnings.

Operator

And this does conclude today's conference call. You may now disconnect.

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Source: Georgia Gulf Corporation Q4 2009 Earnings Call Transcript
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