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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 March 31, 1996 Commission File Number 1-9307
GUNDLE/SLT ENVIRONMENTAL, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 22-2731074
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
19103 Gundle Road Houston, Texas 77073
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(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 April 19, 1996
- ---------------------------- ----------------------------------------------
Common stock, par value $.01 17,699,999
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GUNDLE/SLT ENVIRONMENTAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of
March 31, 1996 (Unaudited) and
December 31, 1995 3
Consolidated Statements of Income
for the Three Months Ended
March 31, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1996
and 1995 (Unaudited) 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
PART II - OTHER INFORMATION 11
</TABLE>
2
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GUNDLE/SLT ENVIRONMENTAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 30,600 $ 16,057
ACCOUNTS RECEIVABLE, NET 47,702 68,014
CONTRACTS IN PROGRESS 7,027 10,601
INVENTORY 23,231 19,850
DEFERRED INCOME TAXES 5,098 5,361
PREPAID EXPENSES AND OTHER 1,719 2,045
--------- ---------
TOTAL CURRENT ASSETS 115,377 121,928
PROPERTY, PLANT AND EQUIPMENT, NET 42,393 43,940
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED, NET 27,629 27,916
DEFERRED INCOME TAXES 663 681
OTHER ASSETS 1,304 1,556
--------- ---------
$ 187,366 $ 196,021
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 27,190 $ 34,254
ADVANCE BILLINGS ON CONTRACTS
IN PROGRESS 753 634
CURRENT PORTION OF LONG-TERM DEBT 5,460 5,426
INCOME TAXES PAYABLE 295 206
DEFERRED INCOME TAXES 1,772 1,862
--------- ---------
TOTAL CURRENT LIABILITIES 35,470 42,382
LONG-TERM DEBT 50,050 50,147
DEFERRED INCOME TAXES 4,507 4,598
OTHER LIABILITIES 1,331 1,344
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $1.00 PAR VALUE, 1,000,000 SHARES
AUTHORIZED, NO SHARES ISSUED OR
OUTSTANDING - -
COMMON STOCK, $.01 PAR VALUE, 30,000,000
SHARES AUTHORIZED, 17,699,999 AND 17,695,677 SHARES
ISSUED AND OUTSTANDING 177 177
ADDITIONAL PAID-IN CAPITAL 68,292 68,270
RETAINED EARNINGS 29,271 30,154
CUMULATIVE TRANSLATION ADJUSTMENT 2,535 3,216
--------- ---------
100,275 101,817
TREASURY STOCK AT COST, 500,000 SHARES (4,267) (4,267)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 96,008 97,550
--------- ---------
$ 187,366 $ 196,021
========= ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
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<S> <C> <C>
SALES $ 27,107 $ 42,535
COST OF SALES 20,817 35,597
-------- --------
GROSS PROFIT 6,290 6,938
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,828 7,871
AMORTIZATION OF GOODWILL 228 222
NONRECURRING CHARGES 0 1,594
-------- --------
OPERATING INCOME (LOSS) (766) (2,749)
OTHER EXPENSES:
INTEREST EXPENSE, NET 980 1,285
FOREIGN EXCHANGE (GAIN) LOSS (121) 112
OTHER (INCOME) EXPENSE, NET (102) (82)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (1,523) (4,064)
PROVISION (BENEFIT) FOR INCOME TAXES (640) (1,263)
-------- --------
NET INCOME (LOSS) $ (883) $ (2,801)
======== ========
EARNINGS (LOSS) PER COMMON SHARE $ (0.05) $ (0.16)
======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 17,200 17,191
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (883) $ (2,801)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION 1,776 2,198
AMORTIZATION OF GOODWILL 228 222
DEFERRED INCOME TAXES 100 (257)
GAIN ON SALE OF ASSETS (28) (65)
INCREASE (DECREASE) IN CASH DUE TO
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 20,312 16,475
CONTRACTS IN PROGRESS 3,574 840
INVENTORY (3,381) (9,811)
PREPAID EXPENSES AND OTHER 575 (1,027)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (7,064) (1)
ADVANCE BILLINGS ON CONTRACTS IN PROGRESS 119 290
INCOME TAXES PAYABLE 73 (1,045)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,401 5,018
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CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (697) (2,516)
PROCEEDS FROM SALE OF EQUIPMENT 57 65
ADVANCES TO AFFILIATES AND OTHER, NET 6 12
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (634) (2,439)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
ADDITIONS TO SHORT-TERM DEBT, NET 0 1,999
PROCEEDS FROM THE EXERCISE OF STOCK OPTIONS AND
PURCHASES UNDER THE EMPLOYEE STOCK PURCHASE PLAN 22 38
SUBSIDIES RECEIVED 439 0
RETIREMENT OF LONG-TERM DEBT (63) 0
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NET CASH PROVIDED BY FINANCING ACTIVITIES 398 2,037
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (622) 1,557
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NET INCREASE IN CASH AND CASH EQUIVALENTS 14,543 6,173
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 16,057 9,488
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CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 30,600 $ 15,661
============= =============
CASH PAID FOR INTEREST $ 1,636 $ 1,393
============= =============
CASH PAID FOR INCOME TAXES $ 294 $ 997
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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GUNDLE/SLT ENVIRONMENTAL, 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/SLT Environmental, 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 months ended March 31, 1996, 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 December 31, 1995.
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 December 31, 1995.
Earnings per common share are 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%.
6
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Organization -
Gundle/SLT Environmental, Inc., a Delaware corporation, through GSE
Lining Technology, Inc. and the Company's other wholly owned subsidiaries, is
primarily engaged in the manufacture, sale and installation of polyethylene
lining systems.
(2) Merger with SLT Environmental, Inc. -
On July 27, 1995, the Company merged with SLT Environmental, Inc.
(SLT). In the merger, SLT's sole stockholder received 7,000,000 shares of the
Company's common stock in exchange for all issued and outstanding shares of SLT
common stock. The merger was accounted for as a pooling of interests.
Accordingly, the Company's financial statements have been restated to include
the results of SLT for all periods presented.
Combined and separate results of Gundle and SLT during the period
preceding the merger were as follows (000's):
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995
----------------------------------------------------
Gundle SLT Combined
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<S> <C> <C> <C>
Sales $21,188 $21,347 $42,535
Net Loss $(2,352) $ (449) $(2,801)
</TABLE>
(3) Nonrecurring Charges -
As a result of the merger with SLT, the Company recorded nonrecurring
charges of $1,594,000 in the first quarter of 1995.
(4) 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 (000's):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
Raw materials and supplies $ 3,614 $ 3,893
Finished goods 19,617 15,957
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$23,231 $19,850
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</TABLE>
7
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(5) Income Taxes -
The Company's provision for income taxes is recorded at the statutory
rates adjusted for any permanent differences. The tax benefit recorded in the
first quarter of 1995 was impacted by the nondeductibility of certain merger
related expenses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
General -
On July 27, 1995, the Company merged with SLT Environmental, Inc.
(SLT). The stockholder of SLT received 7,000,000 shares of the Company's
common stock for all issued and outstanding shares of SLT common stock. The
merger was accounted for as a pooling of interests. Accordingly, the Company's
financial statements have been restated to include the results of SLT for all
periods presented.
Quarter -
For the three months ended March 31, 1996 sales were $27,107,000
compared with $42,535,000 for the same period last year. The decrease in sales
is the result of an overall reduction in unit sales volume. Of the $15,428,000
or 36% reduction in revenue, $13,665,000 was the result of decreased sales from
the U.S. operations. This decrease is largely attributable to a reduction in
installation revenues when compared with the prior year. Many domestic
installation projects were delayed during the first quarter of 1996 due to the
unusually long winter season in the U.S. while in the prior year, several large
projects were underway in warm weather regions. Sales from the Company's
European operations were down 21% from the first quarter of last year. This
reduction in revenues is also the result of reduced installation activity due
to inclement weather conditions in Europe during the quarter. Sales from the
Company's operations in Australia and Singapore were comparable with the prior
year.
Gross profit for the quarter was $6,290,000 which represents a
decrease of 9% when compared with the prior year. The reduction in gross
profit is the result of the decreased sales volume for the quarter. As a
percentage of sales, gross profit was 23% in the current quarter versus 16%
last year. Included in gross profit for the first quarter of 1996 is an
insurance settlement of approximately $1,100,000 as reimbursement for lost
profits due to a fire in one of
8
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the Company's manufacturing facilities in 1995. The remaining 3% improvement in
gross profit percentage is the result of reduced costs, particularly in the
Company's U.S. operations.
Selling, general and administrative expenses were $6,828,000 compared
with $7,871,000 in the first quarter of 1995. This decrease of $1,043,000 or
13% was driven by continued cost reductions in the U.S. of over $1,400,000
partially offset by increased expenses in the Company's German operations. The
increase in Germany was primarily a result of increased expenses due to the
acquisition of a product line during the first quarter of 1995.
Nonrecurring charges of $1,594,000 in the first quarter of 1995 relate
to the merger with SLT.
Net interest expense fell $305,000 from quarter to quarter due to
lower interest rates on the debt restructured in conjunction with the merger,
the decreased level of debt outstanding and the increase in invested cash
balances.
A foreign exchange gain of $121,000 was recorded in the first quarter
of 1996 versus a loss of $112,000 in the prior year. The gain in 1996 is
attributable to the Company's Australian and German operations.
The quarterly benefit for income taxes was $640,000 compared with a
benefit of $1,263,000 in the same period last year. The tax benefit for both
periods was recorded at the statutory rates adjusted for certain nondeductible
expenses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $79,907,000,
including cash and temporary investments of $30,600,000. 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 $50,050,000
in long-term debt and $96,008,000 in stockholders' equity as of March 31, 1996.
The Company has a $35,000,000 multi-currency revolving credit facility
(the "Revolver") with NationsBank of Texas which matures on September 30, 2000.
Under the terms of the revolving line of credit agreement, the Company is
required to maintain certain financial ratios and a specific level of
consolidated tangible net worth. At March 31, 1996, there was no balance
outstanding on the Revolver. However, letters of credit issued under this
facility totaled $2,858,000, thereby reducing the balance available to
$32,142,000.
9
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The letters of credit issued under this facility secure performance of
installation projects and self-insurance programs.
In January 1996, the Company announced that it had signed a letter of
intent to acquire SGS Geosystems, Ltd. (SGS), a UK geomembrane manufacturer.
This acquisition is expected to close during the second quarter and will
require approximately $5,000,000 in cash. The Company is also required to make
a $5,000,000 principal payment on its 11.17% Notes on June 15, 1996.
The Company believes that its cash balance, cash generated by
operations and the balance available under the Revolver are adequate to meet
these and any other foreseeable cash requirements during 1996.
The Company's operations are subject to seasonal fluctuation with the
greatest volume of product deliveries and installations typically occurring in
the summer and fall months. In particular, the Company's operating results are
most impacted in the first quarter as both product deliveries and installations
are at their lowest levels due to the inclement weather experienced in the
Northern Hemisphere.
In connection with contracts performed outside of the United States,
the Company routinely bids contracts that are denominated in currencies
different than the functional currency of the applicable subsidiary performing
the work. The Company recognizes that such bidding practices, in the context
of international operations, are subject to the risk of foreign currency
fluctuations not present in domestic operations. Currency losses to date have
not been material to the Company's operations as a whole.
Pricing for the Company's products and services are 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
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 operations. Inflation has not had a significant impact on the
Company's operations.
10
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PART II - OTHER INFORMATION
ITEM 6 - Exhibits and reports on Form 8-K
(a) 11 -- Computation of earnings per share - see Note 1 to the Notes to
Condensed Consolidated Financial Statements
27 -- Financial Data Schedule
11
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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/SLT ENVIRONMENTAL, INC.
DATE April 19, 1996 BY /s/ Roger J. Klatt
--------------------------- ----------------------------------------
ROGER J. KLATT,
SENIOR VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
DATE April 19, 1996 BY /s/ Keith E. St. Clair
--------------------------- ----------------------------------------
KEITH E. ST. CLAIR,
CORPORATE CONTROLLER
12
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EXHIBIT INDEX
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 30,600
<SECURITIES> 0
<RECEIVABLES> 52,291
<ALLOWANCES> 4,589
<INVENTORY> 23,231
<CURRENT-ASSETS> 115,377
<PP&E> 85,386
<DEPRECIATION> 42,993
<TOTAL-ASSETS> 187,366
<CURRENT-LIABILITIES> 35,470
<BONDS> 50,050
<COMMON> 177
0
0
<OTHER-SE> 95,831
<TOTAL-LIABILITY-AND-EQUITY> 187,366
<SALES> 27,107
<TOTAL-REVENUES> 27,107
<CGS> 20,817
<TOTAL-COSTS> 20,817
<OTHER-EXPENSES> 7,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 980
<INCOME-PRETAX> (1,523)
<INCOME-TAX> (640)
<INCOME-CONTINUING> (883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (883)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
