FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended DECEMBER 31, 1994 Commission File Number 1-9307
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 22-2731074
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
19103 GUNDLE ROAD HOUSTON, TEXAS 77073
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (713)443-8564
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant is required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes \X\ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
CLASS OUTSTANDING AT FEBRUARY 9, 1995
Common stock, par value $.01 10,685,506
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of
December 31, 1994 (Unaudited) and March 31, 1994 3
Consolidated Statements of Income
for the Three and Nine Months Ended
December 31, 1994 and 1993 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Nine Months Ended December 31, 1994
and 1993 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II - OTHER INFORMATION 10
-2-
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
1994 1994
--------- ---------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS .................... $ 7,612 $ 13,264
ACCOUNTS RECEIVABLE .......................... 45,742 25,931
COSTS AND ESTIMATED EARNINGS IN
EXCESS OF BILLINGS ON CONTRACTS
IN PROGRESS ............................... 3,448 2,025
INVENTORY .................................... 11,945 10,868
PREPAID EXPENSES AND OTHER ................... 3,226 2,806
--------- ---------
TOTAL CURRENT ASSETS ...................... $ 71,973 $ 54,894
PROPERTY, PLANT AND EQUIPMENT, NET .............. 33,836 31,864
EXCESS OF PURCHASE PRICE OVER FAIR
VALUE OF NET ASSETS ACQUIRED, NET ............ 23,971 22,300
OTHER ASSETS .................................... 163 3,570
--------- ---------
$ 129,943 $ 112,628
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES ..... $ 23,378 $ 13,746
BILLINGS IN EXCESS OF COSTS AND ESTIMATED
EARNINGS ON CONTRACTS IN PROGRESS ......... 1,664 517
INCOME TAXES PAYABLE ......................... 1,209 111
--------- ---------
TOTAL CURRENT LIABILITIES ................. 26,251 14,374
DEFERRED INCOME TAXES ........................... 3,476 3,167
LONG-TERM DEBT .................................. 26,287 25,000
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, NO PAR VALUE, 1,000 SHARES
AUTHORIZED, NO SHARES ISSUED OR OUTSTANDING -- --
COMMON STOCK, $.01 PAR VALUE, 15,000,000
SHARES AUTHORIZED, 10,685,506 ISSUED AND
OUTSTANDING ............................... 107 107
ADDITIONAL PAID-IN CAPITAL ................... 40,765 40,765
RETAINED EARNINGS ............................ 37,335 33,482
CUMULATIVE TRANSLATION ADJUSTMENT ............ (11) --
--------- ---------
78,196 74,354
TREASURY STOCK AT COST, 500,000 SHARES .......... (4,267) (4,267)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ................... 73,929 70,087
--------- ---------
$ 129,943 $ 112,628
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<TABLE>
<CAPTION>
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT EARNING PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES ................. $ 41,741 $ 31,465 $112,592 $101,479
COST OF SALES ............. 35,228 25,284 91,491 77,956
-------- -------- -------- --------
GROSS PROFIT .............. 6,513 6,181 21,101 23,523
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,356 3,745 12,616 11,949
-------- -------- -------- --------
OPERATING INCOME .......... 2,157 2,436 8,485 11,574
OTHER EXPENSES:
INTEREST EXPENSE, NET .. 549 542 1,621 1,548
AMORTIZATION OF GOODWILL 172 172 516 516
OTHER, NET ............. 110 79 138 4
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,326 1,643 6,210 9,506
PROVISION FOR INCOME TAXES 503 584 2,357 3,442
-------- -------- -------- --------
NET INCOME ................ $ 823 $ 1,059 $ 3,853 $ 6,064
======== ======== ======== ========
EARNINGS PER COMMON SHARE.. $ 0.08 $ 0.10 $ 0.38 $ 0.59
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ..... 10,185 10,254 10,185 10,277
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1994 1993
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ...................................... $ 3,853 $ 6,064
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION ................................. 3,697 3,813
AMORTIZATION ................................. 540 540
DEFERRED INCOME TAXES ........................ 988 665
INCREASE (DECREASE) IN CASH DUE TO
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE ....................... (17,748) (12,438)
COSTS AND ESTIMATED EARNINGS IN EXCESS
OF BILLINGS ON CONTRACTS IN PROGRESS ... (1,423) 1,345
INVENTORY ................................. (510) 1,358
PREPAID EXPENSES AND OTHER ................ (1,602) 1,257
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES .. 8,745 4,345
BILLINGS IN EXCESS OF COSTS AND EARNINGS
ON CONTRACTS IN PROGRESS ............... 1,147 26
INCOME TAXES PAYABLE ...................... 1,711 (130)
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ................... (602) 6,845
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT, NET . (3,357) (6,226)
PAYMENTS FOR ACQUISITION OF A BUSINESS,
NET OF CASH ACQUIRED ......................... (880) --
LOANS TO AFFILIATES ............................. (596) --
OTHER, NET ...................................... (206) (281)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ........... (5,039) (6,507)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM THE EXERCISE OF STOCK OPTIONS AND
PURCHASES UNDER THE EMPLOYEE STOCK PURCHASE
PLAN ......................................... -- 116
REPURCHASE OF COMMON STOCK ...................... -- (1,303)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES ........ -- (1,187)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............ (11) --
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS .......... (5,652) (849)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 13,264 19,604
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ..... $ 7,612 $ 18,755
======== ========
CASH PAID FOR INTEREST ............................. $ 2,115 $ 2,095
======== ========
CASH PAID FOR INCOME TAXES ......................... $ 1,181 $ 1,373
======== ========
The Accompanying Notes Are An Integral Part Of
These Condensed Consolidated Financial Statements.
-5-
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation -
General -
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Registrant ("Gundle Environmental Systems, Inc." or
the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission. These condensed consolidated financial statements reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for the fair presentation of such financial statements for the periods
indicated. Certain information relating to the Company's organization and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted in this Form 10-Q pursuant to Rule 10-01 of Regulation S-X for interim
financial statements required to be filed with the Securities and Exchange
Commission. However, the Company believes that the disclosures herein are
adequate to make the information presented not misleading. The results for the
three and nine months ended December 31, 1994, are not necessarily indicative of
future operating results. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended March 31, 1994.
The accounting policies followed by the Company in preparing interim
consolidated financial statements are similar to those described in the "Notes
to Consolidated Financial Statements" in the Company's Annual Report on Form
10-K for the year ended March 31, 1994.
Earnings per common share is based on the weighted average number of
common shares and common share equivalents outstanding. Common share equivalents
(outstanding options to purchase shares of common stock) are computed using the
treasury stock method and were excluded from the earnings per share calculations
as dilution was less than 3%.
Organization -
Gundle Environmental Systems, Inc., a Delaware corporation, through its
wholly owned subsidiaries is primarily engaged in the manufacture, sale and
installation of polyethylene lining systems.
-6-
(2) Inventory -
Inventory is stated at the lower of cost or market. Cost, which includes
material, labor and overhead, is determined by the weighted average cost method.
Inventory consisted of the following:
December 31, March 31,
1994 1994
------------ -----------
Raw materials
and supplies ....................... $ 7,859,000 $ 4,510,000
Finished goods ....................... 4,086,000 6,358,000
----------- -----------
$11,945,000 $10,868,000
=========== ===========
(3) Acquisition -
On December 16, 1994, the Company purchased 99.999% of its partner's 50%
interest in PG Technology Co. for $1,882,000. The Company paid $500,000 in cash
and issued a note payable of $1,382,000. The note is payable over ten years and
bears interest at 8%. The acquisition was recorded using the purchase method of
accounting.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Quarter
For the three months ended December 31, 1994 net sales were $41,741,000
compared with $31,465,000 for the same period last year. The increase in sales
is the result of a 14% increase in unit sales volume and an overall increase in
pricing of 16%. The improved pricing and increased volume was primarily in the
domestic market.
Bidding activity for the quarter was up over 60% when compared to the same
period last year. Backlog at the end of the quarter was $43.0 million compared
with $38.9 million last year.
Gross profit for the quarter was $6,513,000 compared with $6,181,000 last
year. Gross profit as a percentage of sales was 16% versus 20% last year. The
decrease in gross profit is due to raw material costs increasing over 30% when
compared with the prior year combined with poor installation services margins.
Raw material costs are expected to increase over the remainder of the year. The
Company continues to aggressively pass on raw material cost increases to its
customers. However, much of the Company's backlog is at fixed prices, therefore
continued increases in these costs may adversely affect future operating
results.
-7-
Selling, general and administrative expenses were $4,356,000 compared with
$3,745,000 in the prior year. The increase in these expenses from year to year
primarily relates to the addition of our U.K. installation subsidiary earlier
this year and the non-recurring severance costs associated with reorganizing our
installation business this quarter. This reorganization will reduce the costs
and improve the effectiveness of our installation operations.
The quarterly provision for income taxes was $503,000 compared with
$584,000 in the same period last year. The tax provision in both quarters was
provided at statutory rates adjusted for certain permanent differences.
Year to Date
Net sales of $112,592,000 for the nine months ended December 31, 1994
exceeded sales in the prior year of $101,479,000 by 11%. Overall, pricing
increased 6% when compared with last year and unit sales volumes were up 5%.
Unit sales volumes increased from year to year in both the domestic and
international markets. The improved pricing was in the domestic market.
Gross profit was $21,101,000 or 19% of sales versus $23,523,000 or 23% of
sales last year. The decrease in gross profit and gross profit percentage was
due to higher raw material costs and lower installation services margins.
Selling, general and administrative expenses of $12,616,000 were $667,000
or 6% greater than last year due to the addition of our U.K. installation
company and the reorganization of our installation business.
The Company's provision for income taxes was $2,357,000 compared with
$3,442,000 for the same period last year. The tax provision in both years was
provided at the statutory rates adjusted for certain permanent differences.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994, the Company had working capital of $45,722,000,
including cash and temporary investments of $7,612,000. The Company's cash,
inventory and receivable balances fluctuate from quarter to quarter due to the
seasonality of sales. The Company's capital structure consists of $26,287,000 in
long term debt and $73,929,000 stockholders' equity as of December 31, 1994.
The Company has a $20,000,000 revolving credit facility with NationsBank
of Texas. As of December 31, 1994, there was no balance outstanding on the
revolving line of credit. However, letters of credit issued under this facility
totaled $4,856,000 thereby reducing the balance available to $15,144,000. The
letters of credit issued under this facility secure bid and performance bonds
pursuant to construction contracts, in addition to certain other commitments.
The Company believes that its current cash balance, cash generated by
operations, and the balance available under its revolving
-8-
credit facility are adequate to meet its foreseeable near term cash
requirements.
The results of operations for the three and nine months ended December 31,
1994 are not necessarily indicative of future operating results. Pricing for the
Company's products and services is principally driven by worldwide manufacturing
capacity in the industry and raw material pricing. The Company's primary raw
material occasionally is in short supply and is subject to substantial price
fluctuation in response to market demand. Any additional increase in worldwide
manufacturing capacity, interruption in raw material supply or abrupt raw
material price increase could have an adverse effect upon the Company's
operating results. Inflation has not had a significant impact on the Company's
operations.
-9-
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) None
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GUNDLE ENVIRONMENTAL SYSTEMS, INC.
DATE FEBRUARY 9, 1995 BY /S/ ROGER J. KLATT
ROGER J. KLATT,
SENIOR VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
DATE FEBRUARY 9, 1995 BY /S/ KEITH E. ST. CLAIR
KEITH E. ST. CLAIR,
CORPORATE CONTROLLER
-11-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 7,612
<SECURITIES> 0
<RECEIVABLES> 45,742
<ALLOWANCES> 0
<INVENTORY> 11,945
<CURRENT-ASSETS> 71,973
<PP&E> 33,836
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,943
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<BONDS> 0
<COMMON> 107
0
0
<OTHER-SE> 73,822
<TOTAL-LIABILITY-AND-EQUITY> 129,943
<SALES> 112,592
<TOTAL-REVENUES> 112,592
<CGS> 91,491
<TOTAL-COSTS> 91,491
<OTHER-EXPENSES> 12,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,621
<INCOME-PRETAX> 6,210
<INCOME-TAX> 2,357
<INCOME-CONTINUING> 3,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,853
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
