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Executives

Mark Badger - Vice President, Marketing and Corporate Communications

Edward Schmitt - Chairman, President, and Chief Executive Officer

Mark Buckis - Vice President, Controller and Interim Chief Financial Officer

Paul Carrico - President and Chief Executive Officer

Patrick J. Fleming - Chairman of the Board

Mark Seal - Vice President of Outdoor Building Product

C. Douglas Shannon - Vice President of Procurement

Analyst

Sergay Vasnetsov - Lehman Brothers

Frank Mitsch - BB&T Capital Markets

PJ Juvekar - Citigroup

Mike Judd - Greenwich Consultants

Kevin McCarthy - Bank of America Securities

William Hoffmann - UBS

Charles Neivert - Morgan Stanley

Kristen McDuffy - Goldman Sachs

Tarek Hamid - JP Morgan

Greg Goodnight - UBS

Georgia Gulf Corporation (GGC) Q4 2007 Earnings Call February 15, 2008 10:00 AM ET

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Georgia Gulf Fourth Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speakers remark, you will be invited to participate in a question-and-answer session. (Operator Instructions). As a reminder, ladies and gentleman this conference is being recorded today February 15, 2008. I would now like to turn the call over to Mr. Mark Badger. Sir, you may begin your conference

Mark Badger –Vice President, Marketing and Corporate Communications

Thank you Barbie Joe, and good morning ladies and gentleman. We appreciate you participating in today’s conference call, during which we will discuss Georgia Gulf’s fourth quarter financial results. At the onset of the call, let me remind you that there are slides available on Georgia Gulf’s website which will serve to augment the remarks that we will be making here today.

We will be referencing certain slides in our comments that should help to illustrate the remarks that we will be making. In addition to announcing our financial results last night, we also announced that Paul Carrico has been appointed President and Chief Executive Office, with Patrick J. Fleming, assuming the role of Chairman of the Board, Edward A Schmitt, who has served as Chairman, President and CEO since 1998 will serve in an advisory capacity for both management in the board until July of 2008, at which point he will commence his retirement. Ed will begin the call today with formal remarks of the fourth quarter and operating results, then Mark Buckis, who is Vice President and Controller, also serving as Interim Chief Financial Officer will discuss financial matters with Paul Carrico, concluding the call with remarks about management’s initial plans and objectives for 2008.

As usual, we will be hosting a question-and-answer session following formal remarks. Let me just say that we are going to try and limit the call to about an hour today. So please assure asking questions, let’s try and limit it to a couple of questions from each person and hopefully there will be time for follow up question.

The other members in the management team available to participate in the call include Bill Doherty, Vice President of Custom Products, Mark Seal, Vice President of Outdoor Building Product and Douglas Shannon, Vice President of Procurement.

As usual, I must cautioned, we would be making forward-looking statements during the call as we will appreciate any business projections and assumption about future events are subject to risk and actual results may differ from our current outlook. The listing of factors that could affect future results is included in our 2006 Form-10 K and subsequent Form 10-Q which we filed. Any forward-looking statements made in this call should be considered in light of those factors.

In addition, during this conference call, we may refer to non-GAAP financial measures. We provided a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure on the website located at www.ggc.com. I will now turn the call over to Ed Schmitt, who will begin with the review of the fourth quarter. Ed?

Edward Schmitt – Chairman, President, and Chief Executive Officer

Thanks Mark. Good Morning ladies and gentleman at the offset of this call, I would like to comment on the election of Paul Carrico, position of President and CEO, Patrick Fleming, your new chairman lead the search process on behalf of the board. He did not have an easy job as several well qualified external and internal candidates were vying for the position. Paul is a right person to lead Georgia Gulf going. He has a proven ability to build a team, the steel complex issues, make difficult decisions; Paul is strategic path to lead his team. He is surrounded by executives who respect his abilities and look forward to working with him.

So let’s turn to slide 6 and I want to go through the highlights and the key measures we will endeavor to communicate today. During the most challenging year of our history, I mean our industry has endured sometime; we manage to reduce our debts by $209.5 million. In Q4 ‘07 operating income was $2.9 million excluding those non-cash charges compared to an operating loss of $4.2 million prior to purchase accounting for fair evaluation of inventory in Q4 2006. This improvement was primarily a result in his programs, we have implemented in higher sales levels. I have a difficult industry conditions. High ethylene cost and foreign exchange impact curtailed our progress.

In Q4 of ‘07, our sales were 14% higher than it were during the same quarter last year reflecting the progress we are making with new products in new markets. In 2008, Paul’s team plans a repay over $125 million of debt and to achieve higher EBITDA than in 2007. And finally, actions Paul and his team were taking will allow Georgia Gulf to weather difficult market conditions in a near term while positioning our company to be in a efficient force in the market place going forward.

Looking to slide 7, just look at Georgia Gulf’s financial performance in fourth quarter before starting non-recurring items. As you can see in the foot notes, these charges total $207.8 million in Q4 of ‘07, which consist of a $155.7 million asset impairment charge and a $52.1 million reduction in deferred tax assets. In Q4 of ‘06, our operating income was negatively impacted by $18 million due to purchase accounting for fair evaluation of inventory. We met these non-recurring items out. Our Q4 ‘07 diluted loss per share would been $0.57 comparing to a diluted loss per share in Q4 last year of $1.05 loss.

Let us turn to slide 8, which brings our progress into better focus. Sales were $94.9 million higher in Q4 2007 than they were in their prior year with each of our segment reporting respectable growth in spite a very challenging North American market conditions. More importantly, adjusted operating income was $2.9 million in Q4 of ‘07 comparing to an operating loss of $4.2 million in Q4 last year. Both increased sales and cost reductions feel the improvement in the operating line. However, rising ethylene costs negatively impacted income by approximately $42 million with foreign exchange negatively impacting us by about $10 million. So, that we have made substantial reductions to the cost structures of the organization and the businesses, our progress have been overshadowed by these difficult market conditions.

And as you can see on slide 9, both US and Canadian new construction markets declined in the fourth quarter. In addition, we have been confronted with some contracting re-modeling activity according to the Harvard Joint Center for Housing Studies.

Lets look Royal Groups sales volumes over the full fiscal year by product line on Slide 10. Now as we alluded on previous calls, we are only able to get some reasonably comparable industry date on a quarterly basis for some of the Royal Groups product lines. But if you look at the theory that we have put on the slide here, you can see that the only product underperforming the market on a volume basis was siding, where we exited profitable product label business arrangement last fall.

If you look at slide 11, you will see how each of our segment performed in Q4 of '07 versus the previous year. Excluding certain non-recurring charges recorded in both areas as noted in the footnotes. Rather than reiterating the details of our news release, allow me to highlight the key drivers of our improved year-over-year operating results.

As I alluded to on our last conference call the aromatic segment is progressing nicely with its turnaround. It posted a $3.5 million operating income compared to an operating loss of $9.6 million last year.

Increased sales volumes and higher pricing for cumene and phenol were primary contributors to this improved performance. For Chlorovinyls, operating income was roughly flat from a year ago, which was achieved in spite of a 31% increase in ethylene feedstock costs. Higher caustic and PVC selling prices helped us to partially offset these higher ethylene costs.

And finally, the impact of savings programs in our two building and home improvement product segments as to window, door profile and moulding and outdoor building products is partially messed by year-over-year change in ray of exchange between the Canadian and US dollar. On average $1 US was worth $0.98 Canadian in the fourth quarter of '07 versus $1.14 Canadian during the fourth quarter of '06.

As I noted earlier, foreign exchange negatively impacted income by approximately $10 million and that’s was the quarter number. So you can imagine where they have been for the year.

Mark Buckis, who will now give you snapshot of the company's financial condition followed by Paul who will provide you with insights for 2008.

Mark Buckis – Vice President, Controller and Interim Chief Financial Officer

Thanks Ed. Good morning ladies and gentlemen. As Ed noted at the beginning of the call, 2007 was one of the toughest years R&D has had in several years. Despite the industry head wins, we paid down debt by 209.5 million as you can see on slide 13.

Now let's turn to slide 14 and let me give you some perspective on our current level liquidity. We had adequate availability under our revolving credit facility to meet our obligations, working capital and capital expenditures requirements. Remember, this is our cash fulltime of year with cash inflow building as we get into the busier spring and summer selling season. We will not (Inaudible) with our debt covenants in the fourth quarter of 2007, shortly I will tell you about our plans to generate significant operating and non-operating cash from 2008.

Let us turn to slide 15; we used our capital expenditures to be between 65 and 75 million in 2008 compared to 84 million spent in 2007. Approximately, half of our planned expenditure for 2008 will be maintenance CapEx with the remainder being productivity improvement and growth projects.

Turning to slide 16; you can see our expectations for interest rates and depreciation and amortization for 2008. Note that these are largely unchanged from last quarter. Now I wanted to provide you with some details surrounding the non-cash charges recorded in the fourth quarter of 2007 as outlined on slide 17.

During the fourth quarter of 2007 the company performed its annual impairment testing for goodwill and other intangible assets in accordance with the accounting standards. Based on the results of the impairment testing, the company recorded a non-cash impairment charge of a $155.7 million primarily as a result of deteriorating US housing construction markets.

As you know, we are not alone in recording these impairment charges as a number of other companies in our industry have recorded similar charges in recent weeks. Our charges impacted the window and door profiles and moulding segment, outdoor building product segment, and chlorovinyl segment.

Further impacting our results in 2007 was a statutory evaluation allowance we established in the fourth quarter against certain deferred tax assets in accordance with Accounting Standards. The deferred tax assets resulted largely from net operating loss carry forwards in Canada.

During the fourth quarter of 2007, we recorded evaluation allowance of 52.1 million against the deferred tax assets in Canada. It is important to note that the non-cash charges previously discussed are added back for purposes of calculating our debt covenants.

Finally, I would like to note that the FIFO inventory accounting for the legacy chemical operations positively impacted earnings in the fourth quarter by about $11.5 million. In closing, I would like to recognize the accounting team for their hard work and dedication closing this complex quarter in a very timely fashion.

Now I would like turn the call over to Paul, who will discuss management's initial plans and objectives for 2008. Paul?

Paul Carrico – President and Chief Executive Officer

Thanks Mark. As you all appreciate this is the first day of my new role, so I will make my formal remarks relatively brief. If you will turn to slide 19, we'll discuss our initial objectives for 2008.

First and most importantly, the goal will be to repay a 125 million of term debt. This will be done by reducing working capital, generating cash from the operating sources, and increasing EBITDA for 2008 versus 2007. The increase in EBITDA will come from further cost reduction and an increased market share as we penetrate new market segments.

In particular, we plan to export more chlorovinyls products in 2008. With the introduction of new products and movement into new geographic territories, we expect to gain share of the North American market for certain building and home improvement products.

It is important to note that we've entered the second phase of our plan to integrate the Royal Group in which we will increasingly focus the organization on profitable sales growth opportunities. We focused the organization on cost savings in the first phase of our plan during the past year to integrate Royal. While we have captured significant acquisition-related savings already, we have growth opportunities and can do more.

Slide 20 outlines the corporate-wise savings program categories we continue to pursue as follows: Number one, right sizing the work force and decreasing professional fees. Two, replacing third party suppliers of resins from Royal Group with Georgia Gulf Resin. Three, completion of our Royal Group Plant consolidation initiative, and four temporary idling of PVC production line to improve the operating range.

On slide 21, we outline the source of the cash we will pursue in 2008 as follows: First, working capital reductions in both chemicals and building products businesses. Second, real estate sales on both sides of the border, as well as further sale and leaseback transactions in Canada. And third, income tax reforms relating to overpayment.

In the coming days, the management will be revisiting our plans and goals for 2008 and beyond. Together we will focus on those opportunities with the greatest potential to enhance shareholder value. While I am well aware of the challenges that face us, particularly with the macroeconomic challenges that face the industry, I'm encouraged by the scope of our opportunities and the determination of the team to seize them.

As we know on slide 22, Greg Thompson will join our team as the CFO. He is a welcome addition bringing the company considerable experience with acquisition, integration, and cost reduction. Greg will become CFO of Georgia Gulf subsequent to the Filing of Form 10-K. As you know, our form 10-K is due by February 29.

I would especially like to recognize and thank Mark Buckis for stepping into the role of interim CFO last spring, when our former CFO. Mark has dedicated himself to expediting finical reporting as well as to building the team working under the direction of the corporate controller. Mark will remain Corporate Controller and the Vice President of Georgia Gulf.

As I summarize on slide 23, 2008 will be another challenging year given difficult industry and economic conditions. However, our plan shows that we are capable of overcoming these challenges while at the same time positioning Georgia Gulf as a highly efficient integrated final building and home improvement manufacturer.

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

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Sergay Vasnetsov.

Sergay Vasnetsov

Good morning.

Paul Carrico

Hey, good morning.

Sergay Vasnetsov

Morning, I have a couple of questions. One is on your covenants. You mentioned from slide 14, I believe that you are fine with covenants debt compliance for the fourth quarter 2007. What's your outlook for this year 2008?

Paul Carrico

It was teamwork, extremely mindful of the debt and interest covenants and the need for cash generation and management of the debt. Based upon our current forecast if you look through the reminder of 2008, we expect to meet the covenants

Sergay Vasnetsov

Okay that’s much assuring. And so also on non-core role of assets, are there some additional assets to be monetized from the certain dates? Maybe you can talk about them in aggregates and what the amounts might be?

Paul Carrico

The primary area to speak to is what was alluded to you in our comments real estate and such things. Any assets beyond that we're not prepared to speak to at his time.

Paul Carrico

Okay. And lastly could you comment briefly on outlook for Canadian residential construction et cetera for 2008?

Mark Buckis

Sergay, its Mark. I guess on the resident Canadian. What we have seen during the latter part of 2007 is a bit of softness with respect to new housing starts. It's by no means anywhere near what is being witnessed in the United States. The people that we pay attention to give housing start forecasts for Canada are showing some softening in 2008. But again its no where near the magnitude to which we have seen in the United States. And Sergay just for others, I think you're aware of this, but for others within the outdoor building products business we do get in 2007 about 60% of our revenue. In Canada within the window and door profiles and moulding business we did just under 40% of our revenue in Canada. So we're pleased to be there and we hope it continues to hold up.

Sergay Vasnetsov

Okay, thank you that’s all I have for today, questions resolved. Thank you.

Operator

And you're next question comes from the line of Frank Mitsch of BB&T Capital Markets.

Frank Mitsch

Hi good morning. Just following up on the debt covenant question, can you tell us where the interest coverage ratio was as you calculated for us for the fourth quarter? Because my understanding is that the requirement is 1.75 times. Where did it end up in the fourth quarter?

Paul Carrico

I don't think we're publishing that information. So if I have to say we meet the covenant in the fourth quarter. And as I said earlier at least based on forecast at this point covenants in both the debt and interest coverage ratios would forecasted to be okay during the reminder of this year.

Frank Mitsch

Alright terrific. So interest covenant ratio is confidential information. Is that correct?

Paul Carrico

Yes.

Frank Mitsch

Okay. And you mentioned that you're looking at various head count reductions or what have you. What are you expectations in term of severance charges cash non-cash here in 2008?

Paul Carrico

The majority of that is behind us from the past year because there was some very significant in that area during 2007. In 2008, we will manage that according to what our needs are both on the production side and to be mindful of where we are on EBITDA basis. So, in terms of forecasting up during the next 12 months, I don't think that is going to be near the significant number it was in 2000. In some states, we were able to move people from one location to another so that's helpful to vary some of that.

Frank Mitsch

Alright, great. Now, Paul you mentioned that you're targeting to pay down over $125 million in debt, a combination of lower working capital, generating cash from non-operating sources and higher EBITDA. Can you give us a rough breakdown in terms of that $125, how we should think about portioning that in terms of your 2008 business plan?

Paul Carrico

You'll have to give me a little more time to work our way through that. We've had meetings on that already couple of times during the past month and we have plans, there is at least a measurable amount associated with the working capital side of it, but beyond that I'd rather study that a little bit more in detail before we give specific.

Frank Mitsch

Alight. And lastly, there is a report that you're looking to monetize some land in Houston, can you give us any details on what specifically that land is and what roughly should we expect that that would fetch?

Paul Carrico

Absolutely, in fact if you would like to buy, I will send you the (inaudible). We have a lot of vacant land next to the acid vinyl plant, that's on the ship channel and has some good value, and so there is I guess, you call it a prospective thought, and we have an active list of people interested in being marketed adversely.

Frank Mitsch

Alright. Thank you.

Operator

And your next question comes from the line of PJ Juvekar of Citigroup.

PJ Juvekar

Yes. Hi! Good morning. Well, I know you paid down some debt last year. And, there was some sale leaseback transactions that helped you pay down debt. If you take out all that non-operational stuff like say leaseback, did you burn cash in the fourth quarter?

Mark Buckis

Could you repeat, PJ?

PJ Juvekar

Yeah, you had some non-operating things like sale and leaseback of buildings in Canada and all that. If you take out all this non-operational stuff out and look at pure operations, did you burn cash in the fourth quarter?

Mark Buckis

No, we did not.

PJ Juvekar

Or, was there any particular mark that you ended up burning cash in 2007?

Paul Carrico

PJ, I think earlier in the year we were cash negative, but we called up in the third quarter and we had a huge working capital recovery in the fourth quarter as we told you we were going to do on Q3 conference call. And so we were able to pay down our debt I think $70 million or so dollars in Q4.

PJ Juvekar

Okay. And just related to that in the fourth quarter alone you rose significant amount of capital out of your inventories and working capital, how much more can you do on inventory and working capital?

Paul Carrico

I think I alluded a little bit to that earlier when I was saying that there is at least a significant portion of the plan, debt plan associated with that. So, there are areas in multiple different places in the businesses both on building products and chemicals, and we actually have a fairly structured plan related to doing that. So, I think I'll leave it at that for the moment.

PJ Juvekar

And, lastly you said you're going to export more vinyl this year. What was it that prevented you from exporting last year and then what change this year?

Paul Carrico

See, there is two things really. First of all, we didn't have a history of exporting and so we really weren't necessarily geared up to it in previous years. Georgia Gulf is always focused on the domestic market. And not to say that we won't continue to focus on the domestic market, but it's obvious in the current market circumstances that exports offer a unique opportunity particularly during periods of slower operating rates for the industry. We've actually started back in the fourth quarter, multiple months there exporting and we're slowly building that up, and we'll continue going into the future by adding the appropriate resources and facilities to do that.

PJ Juvekar

Okay. Thank you.

Operator

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

Mike Judd

Yeah. Just a quick one. Your accounts receivable, securitization, do you have that balance authors, anything in that the end of year please?

Paul Carrico

Yes, we had $147 million.

Mike Judd

Okay. In terms of the leases, what do you expect that those lease payments will be in 2008, please?

Paul Carrico

Just a second.

Mike Buckis

Mike, why don’t we push on to the next question just while we are flipping through and we will comeback at it.

Mike Judd

Okay. Just lastly, the aromatics had a pretty good results especially in a year-over-year basis, is there work going on in that business in terms of perhaps monetizing that or what were your current thoughts about that?

Paul Carrico

I think is as Ed has said in previous calls we are always open to value or creating value as we speak with the things that we describe. So, it essentially depends upon where the most significant value you can get out of it, but right know as we are looking at the business today. We are just seeking to continue to improve it and add to that value in terms of an ongoing basis. It generated fairly nice cash for us during this past year.

Mike Judd

Okay. And just lastly on the export opportunities, are you looking at exporting some of the intermediate VCM as well as PVC, what is the focus? Or is the EDC as well or..?

Paul Carrico

The primary focus is on VCM and PVC, both is opportunistic based upon where prices go or where we can get the best margin.

Mike Judd

And, is there is a focus on Latin America or Europe or Asia what where your finding that there are opportunities?

Paul Carrico

We are really flexible, we will go any place for opportunities and that’s kind of a way we approaches, and then, as yo might know it moves around. So we’ve got a little bit in multiple different areas.

Mike Judd

Thanks a lot.

Operator

And your next comes from our line of David Krusik of Georgia Gulf.

Mark Buckis

Something tells me Bobby Joe that that’s not a question. He is one of our employees. So we will move to the next question.

Operator

And your next question comes from our line of Kevin McCarthy of Bank of America Securities.

Kevin McCarthy

Yes, good morning and congrats to Paul and Greg on the new roles. Paul you mentioned your intentions to reduce that by $125 million in 2008. Can you comment on how much of that debt reduction would be attributable to three areas? #1) EBITDA improvement, #2) working capital improvement, and #3) Non-operating issues such as the real estate sales and income tax refunds?

Paul Carrico

Paul: No I think that there was asking around about way earlier and all I can tell you is that all of them play a part in it and we don’t want to put numbers specifically to each of those areas at this point, because some of these plans are still being worked out and put in place. We have the list of items, but to give you some specific numbers to each is a difficult at this time. So frankly to say they are all important to the number.

Kevin McCarthy

Do you have sense of which of those three will be the largest and which might be the smallest in terms you know ordinal contribution Paul, are that equal?

Paul Carrico

You know, if I review, if you just going to take the best shot. I have said they are all important, and again I will rather not put out specific numbers right know. I need more time to work through this.

Kevin McCarthy

Fair enough. You have done it on day one of your job. Fair enough.

Paul Carrico

But I am at the number three. So you know, little more time.

Kevin McCarthy

Sure, this cost savings you mentioned you know right sizing the work force, lower professional fees, and I guess sourcing more resident internally versus externally. I guess the similar question, do you have a sense for what these savings could amount to in the aggregate for 2008.

Paul Carrico

They contribute in various different ways. So the workforce fees I have mentioned before a lot that was done last year. I don’t think you should look in that as a huge number, but it is an important piece. The resident is the result of some contract dropping off and having availability internally, that’s an important part. In general, all of them have the same interest. Previous they are all significant enough for us to make sure we focus on the individual.

Kevin McCarthy

Okay. Finally to qualify for covenants. Did you receive or would you expect to receive in the first quarter any waivers to remain in compliance or are you in compliance without any waivers?

Paul Carrico

We have forecast and we are watching that extremely closely as we go forward, and as I said earlier, based on the forecast at this point, we expect to meet those covenants.

Kevin McCarthy

Thank you very much.

Operator

Your next question comes from the line of Maina Connelly of Credit Suisse.

Unidentified Analyst

Good morning this is Neil (Swallen) sitting in for Mark. My question relate to the Q4 ‘06 reported results and the non-recurring charges for comparison purposes. While I think the charge has remained relatively same. How those charges have been allocated to the different, segments have changed since the first time you report at Q4, and then, when you had your Q1 results in your 8-K in ’07, and now your Q4 ‘07 results, would you help me understand what’s causing the charges that occurred a year ago to be allocated differently at different times in the year?

Mark Buckis

What’s different from the 8-K that went down? In this view we are trying to just show charges that were non-cash, that were unusual non-recurring, we didn’t show all the non-recurring charges that were shown in the previous 8-K, so this was just to show the non-cash portions of these charges, not all the non-cash and non-recurring items.

Unidentified Analyst

No, no, no. What I meant was the total absolute number has remained a same, but the allocation to different segments have changed?

Mark Buckis

We will have get back to you.

Unidentified Analyst

No, no, no problem. In terms of -- you speak about cost reduction you had in the fourth quarter, although its SG&A is down year-over-yea, it did move up about a 100 basis points as a percent of sales sequentially as well as about 9%, just on a total number. Is there – what’s going on this making it higher, is it just a one time fact of seasonality, could you give me some guidance on -- you don’t want to use that number as something carrying forward/

Paul Carrico

There is still moving parts in that area, both on the cost side as well as the fourth quarter was an unusual period in this past year because we did things a little differently on production and sales have been some of the previous years. So, I guess I can’t give you a forecast going into this coming year for that as thing point.

Unidentified Analyst

Okay. And then finally FIFO benefit of $11.5 million. Would you be able to tell us -- I think that mainly occurs in your legacy chemicals business, aromatics, and chlorovinyls, would you be able to tell us how we split out between those two businesses?

Mark Buckis

So, what we are looking for is the approximate split in the FIFO impact between aromatics and chemicals. Yes, we’re just looking pages.

Paul Carrico

Aromatics the amount was $2.2 million.

Unidentified Analyst

Okay.

Paul Carrico

And for Chlorovinyls it was $9.3 million.

Unidentified Analyst

Okay. Thank you very much.

Operator

Your next question comes from line of (Belhert), Bank of America.

Unidentified Analyst

Hi guys, I was hoping you could comment – I just start off -- how the aromatic is performing in the first quarter relative to your fourth quarter levels?

Paul Carrico

Aromatics like the other business is a bit seasonal and so, it’s always little bit of slow start, but based upon what we see right now it seems to be continuing as we were.

Unidentified Analyst

So, you think it’s going to look more like -- 2008 might look more like 2007 then for example previous years?

Paul Carrico

Certainly, I hope so. But, that’s our plan. Yes.

Unidentified Analyst

Alright. Fair enough.

Paul Carrico

It’s generated cash for this year.

Unidentified Analyst

Okay. And in your cash flow statement, you had an item note, looked at a lot that historically as other non-cash items on the operating side. Could you comment on what's in that?

Mark Buckis

One more time on the question, please.

Unidentified Analyst

Sure. I made a little fast there, if you go to the cash flow statements, your cash from operations, you have an item called other non-cash items, it was 30 million for the full year, that’s up pretty significantly from '06 and it was 12 and 12.4 in the fourth quarter. I was wondering what's in that?

Unidentified Company Representative

(Inaudible) talking about.

Unidentified Analyst

If that’s just area?

Mark Buckis

Yeah, I think that that’s a good suggestion. We are kind of backing up in terms of answering some of the lingering question. So I appreciate it, if we could take it off line.

Unidentified Analyst

That’s fair enough. And it sounds like you have some pretty significant working capital initiatives in place for '08, I was just wondering if any of these and how much of so is related to Royal inventories and if we’re going to anticipate any margin pressure due to higher fixed cost absorption?

Paul Carrico

In terms of our plans for '08 and again our purpose is by saying are all preliminary, but it can split between Royal and chemicals.

Unidentified Analyst

Okay. Thank you very much guys.

Operator

The next question comes from the line of (Roger Schmitz) of Merrill Lynch.

Roger Schmitz

Good morning. Can you describe the deductibles for business interruptions and rebuilding are cost related to your Lake Charles VCM plant in the current status of that facility?

Paul Carrico

Could you repeat that one more time?

Roger Schmitz

Sure. The Lake Charles VCM plant, could you describe the deductible for the – I guess there is an incident there, the deductible for the business interruption and rebuilding cost on that facility?

Paul Carrico

I don’t have the exact number, but the deductible is about 4 million, and we are in the process of recurring that plant and at this point that all factored into our thinking for this year.

Roger Schmitz

Great. And in Q4 '07 look like you had about 25 million of sale leaseback, will that be capitalized or operating lease?

Paul Carrico

Operating lease.

Roger Schmitz

And what would be impact going forward on that, maybe you said it earlier?

Mike Buckis

Okay. It’s really good time to circle back for Mike Judd question. Going forward, our operating lease payments are going to be about $31 million. And then, our sale lease back transactions ends up in the interest line is about 7 million going forward for 2008.

Roger Schmitz

Okay. And beside the Sarnia PVC plant where is your other ideal PVC capacity, would that be at (Aberdeen)?

Paul Carrico

No, what we’ve done is back in December we ideal Sarnia and since then we have ideal various trains depending upon where the circumstance is projected to be the best opportunity. And so, the trains have mostly been in Aberdeen other than Sarnia. However, we do plan to ideal Oak City later this month for a period of time. So generally speaking, what we are trying to do is gear towards where the sales opportunities are and where the product needs to be moved around.

Roger Schmitz

Shall I take it then, taking these plans up and down is fairly easy and doesn’t cost too much by implication.

Paul Carrico

The operators would say it's not fairly easy, but the cost is not that great to go up and down, it’s more of the sustaining cost for maintenance and things. So it’s still efficient for us to run plans as high as possible rate and then ideal the other ones.

Roger Schmitz

Thank you very much guys.

Operator

Your next question comes from the line of William Hoffman of UBS.

William Hoffman

Hi good morning. Just a follow up on the same questions with regard to the capacity outages, I am wondering if you could just give us some context of where your operating rates are or at least running production capacity in the PVC business given the first quarter versus fourth quarter. And then, just a sort of taking one step further, any thoughts on late hurdles in brining that back up and what your plans are just to be there?

Paul Carrico

Yeah, In terms of the operating export, we are probably not that far off of where the industry is? I guess there is a basis in terms of what you are assuming we are operating, but in general we are operating a fairly reduced rates as of the industry that occurred in the fourth quarter and in the first quarter. And of course that is the purpose of oiling the plant. So I don’t know what you would be canning, but the plants were running and railing fairly high, the plants that are ideal, they’re ideal.

William Hoffmann

I guess, the real thing that we are just trying to get the color, obviously, with Shintec adding capacity into the market this Spring and I know, we have just gone through the seasonal week period, but if we don’t get the normal seasonal demand pick up, I am just wondering your thoughts on keeping the market balanced into the spring and whether you feel like you are going have to take more pain than some of the other?

Paul Carrico

I guess at this point it’s unclear as to what Shintec’s plans really are, they still seem to be in a construction mode, they have to get the core authorized VCM and the whole train running. So, I don’t know what the timing is, you have to ask somebody else. But the factor in the market has not been there, it’s been more so the poor condition related to the demand side. So does that continue to spring, certainly there will be a factor, but we are clearly in the mode of planning according to what the needs are and if necessary we’ll ideal those trains during that period.

William Hoffmann

Thank you. Finally can you give us some context on how much you expect to export or like what kind of targets you might have at least as a percentage of the total?

Paul Carrico

In terms of the export going forward?

William Hoffmann

Yes.

Paul Carrico

It will be at least consistent with the industry. If you don’t know the industry numbers in the 8-10% range,

William Hoffmann

Okay. Thank you.

Operator

Your next question comes from line of Charles Neivert – Morgan Stanley.

Charles Neivert

Good morning. Couple of quick questions, on ERP systems, you have been running with one for the Royal and one for Georgia Gulf and I guess, you are going to have to integrate on this. Do you have any idea about what the cost are going to be like over the course of 2008?

Paul Carrico

Well, we are deeply into planning that process, specifically for both sides of the operations and in terms of giving a cost, it’s what you might consider to be typical clause for implementing ERP, but probably on the less expensive side doing it in the mode, we normally do at Georgia Gulf. That’s big process actually there will be freight cost over 2008 and 2009.

Charles Neivert

Okay. And then in terms of the covenants, can you give us any idea about not what you will make in Q1, but what you need to make in Q1in order to be in compliance given it’s a 12 month look back, and you’re going to obviously include the last three quarter plus Q1, you know what that number needs to be?

Paul Carrico

You know, there is well (inaudible) moving parts on the numerator and the denominator in these calculation and there is add back from this and half and so, it would not be prudent for me to say something specific, because there is too many pieces you have to understand them.

Charles Neivert

Okay. And then in the terms of moving more products into export moving product, more product into Georgia Gulf downstream, is that largely a factor of strategy or just because you have lost customers and my understanding is I think, you know, PW Eagle had been a customer and they have gone over into part of JM. So I assume that business has been lost, is there been any other issues like that going into the first quarter of the year?

Paul Carrico

Well we typically don’t speak to who we supply and who we don’t supply, whatever we have done this year has been based upon our strategy of how we want to split the business going forward. And so, I think the market place will continue to be fluid in PVC and is something we are planning for that variation and how the market react. So -- no, I don’t think there is anything specific there that relates to what we are doing.

Charles Neivert

(Inaudible) what in earlier statement you had said was most product has come free from other sources, now you can supply them your own production a little bit better. So that’s, I was trying to get a little bit of a quantification on that?

Paul Carrico

If I did, I misspoke it. It was not that it was free, it was the contract ended for supply that we acquired with the Royal operation. Those contracts were in place and we honored those contracts during the past year or taking resin from other producers. So those contracts being up we cannot choose to use our own resins.

Charles Neivert

That is it from my end. Thank you.

Operator

And your next question comes from the line of Kristen McDuffy of Goldman Sachs.

Kristen McDuffy

I was wondering if you could talk about your outlook for ECE margins in 2008?

Paul Carrico

Yes, I am going to let Doug Shannon comment on that.

Douglas Shannon

This is Doug Shannon, Kristen. The outlook is pretty positive for ECE margin this year. There were more price increases on costing last year, all of which were successfully implemented. There is a first quarter ‘08 increase. There is also a second quarter ‘08 announcement that has happened in the market place. From what we know the domestic market is very tight. There are some new strategies coming up in the second quarter, so we continue to think that margins this year will be on par with last year.

Kristen McDuffy

And then, your thought with Plaquemine PVC project is that up and running, what is the status there?

Paul Carrico

Yes that project is up and running as on January.

Kristen McDuffy

So should we run that at industry rate? That new capacity?

Paul Carrico

Unsure of what the question is.

Kristen McDuffy

Is it running at rates that are comparable to industry rates for PVC, or is it starting out low and rushing up?

Paul Carrico

No. We already started out slow early on but the plant folks did a very nice job of getting it up to speed quickly and clearly that being the newest most modernized operation we have got in PVC; it is running full out as possible.

Kristen McDuffy

Okay. In terms of debt reduction efforts, would you say that would be weighted towards the first half or the second half of 2008?

Paul Carrico

Let me tell you that during the year each quarter has some targets and objectives and so, I can’t give you breakdown because part of it, take an example, the land sale that we are talking about in Pasadena, that is a process you are going to have to go through as the normal real estate process and it takes certain numbers of week. So we are not pinning that down in specific quarters at this point.

Kristen McDuffy

And lastly, you had mentioned $70 to 80 million of synergies. Could you give us a sense for how far long you are here and how many of these have fallen to the bottom line?

Paul Carrico

I am not sure what you are referring to about the $70-80 million in synergies.

Kristen McDuffy

In terms of your restructuring savings since the acquisition of Royal, could you tell us what your target was and how far along you are to achieving these?

Paul Carrico

Well, we previously outlined savings in various different categories last year and for the most part all of those have been achieved or realized that they have certainly because of the economic environment and housing situation and all have been offset, Canadian exchange, many different factors that have offset some of that. What we are looking for in this current year of 2008 is to build on that and I will say start afresh because we now have one year of Royal behind us and we have the ability to look back each quarter and measure how we have done from the prior year.

Kristen McDuffy

Okay. Thank you.

And your next question comes from the line of Greg Goodnight of UBS.

Greg Goodnight

Good morning gentleman. To be clear on Bill’s question, have you made a decision on restarting of Electrols and if you have, when are you going to restart it? And if you haven’t made a decision, what market indicators are you looking for that would enable you to do that?

Paul Carrico

We have made a decision, at least our intention at this point, is to restart it. It does depend upon market condition and it does depend upon the repair time associated with it. We have chosen to use internal resources to minimize cost on the repair and so we have been moving ahead on that. The indicators would be, does this housing situation continue on, does the export market offer opportunity and a multiple different set of variables that we just evaluate as we get further into the spring.

Greg Goodnight

Okay. So you have made a decision to restart, what is the earliest you could restart the unit?

Paul Carrico

We do not plan to restart it before the summer.

Greg Goodnight

Okay, great. The second question I have is that, you know, looking at your adjusted results, they were in line with my expectations with the exception of outdoor building products on an adjusted basis was about a loss of $15 million. My question to you was there some runoff impacts in that segment that won't repeat. Can you help me understand why the loss in outdoor building products was as high as it was?

Paul Carrico

We have Mark Seal here who will guide you into that question.

Mark Seal

Hey Greg, it is Mark. Look, that business segment contains our outdoor storage business and it contains our retail fence business which – most of that or lot of that is sold in the United States. So what happened to us on a quarter-over-quarter basis is, those things that I was selling to the big box boys from a Canadian Dollar standpoint, went down 15% in prices. So that's where I got clobbered.

Going forward, we do have some plans in place to increase prices in both of those areas. We've got a new (inaudible) shed that we came with this year. And we've got a redo of our older shed which will allow us to hopefully increase our margins.

Greg Goodnight

Okay, if the same situation repeats itself in terms of currency, would you anticipate another loss or have you fixed the problem with pricing?

Paul Carrico

I think we've attempted to address the problem on both sides of the equation in pricing and the cost and we certainly don't plan to continue to lose money in the business.

Greg Goodnight

Okay my last question, you mentioned exports, can you make any profit on exports with your incremental PVC production basically sourced from the purchased ethylene and purchased chlorine. Can you make any profit on exports?

Paul Carrico

We would not be doing it if we couldn't make some cash flow contribution to the businesses.

Greg Goodnight

Okay. I'll get back in the queue. Thank you.

Operator

And your next question comes from the line of Tarek Hamid of JP Morgan.

Tarek Hamid

Good morning. Could you walk us through the timing of any tax refunds, would that be a first quarter event or that should be waited for the back half of this year?

Paul Carrico

We've already received a portion in the first quarter. And the reminder is to come in the third quarter of this year.

Tarek Hamid

Okay. And then, not to beat the dead horse n the bank covenants, the leverage ratio declined 6.25 time at the end of the first quarter. If your asset sale proceeds and your debt reduction targets were met, would you need to grow EBITDA to meet that covenant or if EBITDA was flat year-over-year, would you still be in compliance?

Paul Carrico

There are so many moving parts to the numerator and the denominator that we just can't really describe that to you in a way that would be useful.

Tarek Hamid

Okay, thank you.

Mark Buckis

Barbie Joe, I am showing about an hour into the call and given that we would like to turn the call over to Paul Carrico to make some concluding remarks. Paul?

Paul Carrico

Well, just wanted to close with a thank you to Ed. On behalf of all the employees I would like to thank you him for dedicating himself to improving Georgia Gulf over the 27 years he has served the company in many different capacities. There are many contributions he has made over the years, one of those being dedication to continuous improvement. I can tell you this is totally embedded in the culture of the company and it is due to his leadership and style. He has showed us how performance can always be improved and I can assure we will continue to pursue this goal as we go forward. We wish him the very best in his future and thank him again for the many years of service to the company.

Edward Schmitt – Chairman, President, and Chief Executive Officer

Thank you Paul and thank you ladies and gentleman for joining us on this fourth quarter conference call. We envision reporting our first quarter in early May and look forward to speaking to you at that time. Barbie Joe.

Operator

Thank you for participating in today's Georgia Gulf fourth quarter earnings conference call. This call will be available for replay beginning at 1 pm Eastern Standard Time today through 11:59 pm Eastern Standard Time of February the 22nd 2008. The conference Id number for the replay is 33-11-77-73. Again the conference Id number for the replay is 33-11-77-73. The number to dial for the replay is 1800-642-1687 (Inaudible) 706-645-9291. Thank you.

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Source: Georgia Gulf Corporation, Q4 2007 Earning Call Transcript
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