<PAGE> 1
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 June 30, 1996 Commission File Number 1-9307
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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 August 12, 1996
- ---------------------------- ------------------------------
Common stock, par value $.01 17,836,099
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GUNDLE/SLT ENVIRONMENTAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of
June 30, 1996 (Unaudited) and
December 31, 1995 3
Consolidated Statements of Income
for the Three and Six Months Ended
June 30, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 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 13
</TABLE>
2
<PAGE> 3
GUNDLE/SLT ENVIRONMENTAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 22,431 $ 16,057
ACCOUNTS RECEIVABLE, NET 60,258 68,014
CONTRACTS IN PROGRESS 11,635 10,601
INVENTORY 26,015 19,850
DEFERRED INCOME TAXES 4,904 5,361
PREPAID EXPENSES AND OTHER 3,101 2,045
------------ ------------
TOTAL CURRENT ASSETS 128,344 121,928
PROPERTY, PLANT AND EQUIPMENT, NET 43,311 43,940
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED, NET 30,011 27,916
OTHER ASSETS 1,400 2,237
------------ ------------
$ 203,066 $ 196,021
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 39,252 $ 34,254
ADVANCE BILLINGS ON CONTRACTS
IN PROGRESS 1,467 634
CURRENT PORTION OF LONG-TERM DEBT 5,584 5,426
INCOME TAXES PAYABLE 2,384 206
DEFERRED INCOME TAXES 2,869 1,862
------------ ------------
TOTAL CURRENT LIABILITIES 51,556 42,382
LONG-TERM DEBT 45,401 50,147
DEFERRED INCOME TAXES 4,438 4,598
OTHER LIABILITIES 1,283 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, 17,836,099 AND 17,695,677 SHARES
ISSUED AND OUTSTANDING 178 177
ADDITIONAL PAID-IN CAPITAL 69,141 68,270
RETAINED EARNINGS 33,815 30,154
CUMULATIVE TRANSLATION ADJUSTMENT 2,657 3,216
UNEARNED COMPENSATION (1,136) 0
------------ ------------
104,655 101,817
TREASURY STOCK AT COST, 500,000 SHARES (4,267) (4,267)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 100,388 97,550
------------ ------------
$ 203,066 $ 196,021
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES $ 60,625 $ 68,106 $ 87,732 $ 110,641
COST OF SALES 44,502 54,327 66,083 90,437
---------- ---------- ---------- ----------
GROSS PROFIT 16,123 13,779 21,649 20,204
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,037 7,413 13,101 14,771
AMORTIZATION OF GOODWILL 270 228 498 450
NONRECURRING CHARGES 0 1,910 0 3,504
---------- ---------- ---------- ----------
OPERATING INCOME 8,816 4,228 8,050 1,479
OTHER EXPENSES:
INTEREST EXPENSE, NET 876 1,235 1,856 2,520
FOREIGN EXCHANGE (GAIN) LOSS (84) 43 (205) 155
OTHER EXPENSE, NET 189 131 87 49
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 7,835 2,819 6,312 (1,245)
PROVISION (BENEFIT) FOR INCOME TAXES 3,291 556 2,651 (707)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 4,544 $ 2,263 $ 3,661 $ (538)
========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE $ 0.26 $ 0.13 $ 0.21 $ (0.03)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 17,336 17,192 17,272 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>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 3,661 $ (538)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION 3,568 4,336
AMORTIZATION 545 471
DEFERRED INCOME TAXES 1,905 (2,519)
GAIN ON SALE OF ASSETS (54) (4)
INCREASE (DECREASE) IN CASH DUE TO
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 10,031 4,068
CONTRACTS IN PROGRESS (1,034) (3,270)
INVENTORY (5,509) (9,321)
PREPAID EXPENSES AND OTHER (1,353) 439
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2,342 1,805
ADVANCE BILLINGS ON CONTRACTS IN PROGRESS 833 1,271
INCOME TAXES PAYABLE 2,571 (952)
-------- --------
NET CASH PROVIDED (USED IN) BY OPERATING ACTIVITIES 17,506 (4,214)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (1,255) (3,619)
PROCEEDS FROM SALE OF EQUIPMENT 123 174
PAYMENTS FOR ACQUISITION OF A BUSINESS
NET OF CASH ACQUIRED (4,774) 0
ADVANCES TO AFFILIATES AND OTHER, NET 0 13
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (5,906) (3,432)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
ADDITIONS TO SHORT-TERM DEBT, NET 0 7,785
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 (5,180) (1,221)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,719) 6,602
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (507) 1,580
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,374 536
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 16,057 9,488
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 22,431 $ 10,024
======== ========
CASH PAID FOR INTEREST $ 2,434 $ 2,858
======== ========
CASH PAID FOR INCOME TAXES $ 503 $ 2,015
======== ========
</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 and six months ended June 30, 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
<PAGE> 7
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.
Reclassifications -
The accompanying condensed consolidated financial statements for 1995
contain certain reclassifications to conform with the current year
presentation.
(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>
Six Months Ended June 30, 1995
----------------------------------
Gundle SLT Combined
------ --- --------
<S> <C> <C> <C>
Sales $57,233 $53,408 $110,641
Net Income (Loss) $ (876) $ 338 $ (538)
</TABLE>
(3) Nonrecurring Charges -
As a result of the merger with SLT, the Company recorded nonrecurring
charges of $3,504,000 in the first six months 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
7
<PAGE> 8
average cost method. Inventory consisted of the following (000's):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- -----------
<S> <C> <C>
Raw materials and supplies $ 4,520 $ 3,893
Finished goods 21,495 15,957
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$26,015 $19,850
======= =======
</TABLE>
(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 six months of 1995 was impacted by the nondeductibility of certain merger
related expenses.
(6) Acquisition -
On April 30, 1996, the Company acquired SGS Geosystems, Ltd. (SGS), a UK
geomembrane manufacturer, for $4,774,000 net cash plus the assumption of
certain obligations of SGS in the amount of $600,000. The acquisition was
accounted for as a purchase and, accordingly, the results of operations of SGS
have been included in the consolidated results of operations of the Company
from the date of acquisition. Pro forma financial information for SGS has not
been presented as it is not significant to the overall consolidated operating
results of the Company.
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 June 30, 1996, sales were $60,625,000 compared
with $68,106,000 for the same period last year. This 11%
8
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decrease in sales is the result of the decrease in the overall unit sales price
which followed lower raw material costs. Unit sales volume was comparable with
the prior year. Sales in the U.S. were down $4,389,000 while foreign sales were
down nearly $3,100,000. The decrease in sales in the U.S. is largely
attributable to a reduction in installation contract revenues as the start of
many installation projects were delayed by the unusually long winter season.
The reduction in foreign sales resulted from the delay of certain large
projects in South America combined with lower sales in Asia partially offset by
increased sales in Europe.
Gross profit for the quarter was $16,123,000 which represents an increase
of 17% from the prior year. This increase was driven by improved profitability
of the Company's European operations, in particular Germany and the
contribution from SGS. As a percentage of sales, gross profit increased from
20% to 27%. The improvement in gross profit percentage was generated by both
the U.S. and European operations. These margin percentage improvements were the
result of the Company benefiting from lower raw material costs and a reduced
overall cost structure.
Selling, general and administrative expenses were $7,037,000 compared with
$7,413,000 in the second quarter of 1995. This decrease of $376,000 or 5% was
driven by continued cost reductions in the U.S. of over $1,000,000 partially
offset by increased expenses in the Company's German operations combined with
the additional expenses of SGS.
Nonrecurring charges of $1,910,000 in the second quarter of 1995 relate to
the merger with SLT.
Net interest expense fell $359,000 from last year 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.
The quarterly provision for income taxes was $3,291,000 compared with
$556,000 in the same period last year. The tax provision for both periods was
recorded at the statutory rates adjusted for certain nondeductible expenses.
Year to Date -
Sales for the six months ended June 30, 1996 were $87,732,000 compared
with $110,641,000 last year. Overall unit sales volume was down 14% while
pricing was 8% lower. Sales in the U.S. were down $12,774,000 versus the same
period last year. This decrease relates
9
<PAGE> 10
to lower product pricing and delays in installation projects caused by the
unusually long winter season which reduced installation contract revenue.
Foreign sales were down $10,135,000, primarily in South America and Asia as
European sales were up from year to year.
Gross profit for the six months was $21,649,000 compared with $20,204,000
last year. This 7% increase was generated from the Company's European
operations. As a percentage of sales, gross profit increased from 18% to 25%.
The improvement in gross profit percentage was driven by lower raw material
costs as well as reduced cost structures in the Company's U.S. and German
operations.
Selling, general and administrative expenses were $13,101,000 compared
with $14,771,000 last year. This $1,670,000 or 11% reduction was driven by a
decrease of $2,500,000 in the U.S., partially offset by increased expenses in
the Company's European operations.
Nonrecurring charges of $3,504,000 in 1995 relate to the merger with SLT.
Net interest expense was $1,856,000 compared with $2,520,000 for the same
period last year. The decrease in net interest expense is the result of lower
interest rates on the debt restructured in conjunction with the merger, a
reduced level of average debt outstanding and an increase in the average
invested cash balance compared with last year.
The provision for income taxes for the six months was $2,651,000 versus a
benefit of $707,000 last year. Taxes in both periods were recorded at the
statutory rates adjusted for certain nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $76,788,000,
including cash and temporary investments of $22,431,000. 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 $45,401,000
in long-term debt and $100,388,000 in stockholders' equity as of June 30, 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 June 30, 1996, there was no balance
outstanding on the Revolver.
10
<PAGE> 11
However, letters of credit issued under this facility totaled $2,831,000,
thereby reducing the balance available to $32,169,000. The letters of credit
issued under this facility secure performance of installation projects and
self-insurance programs.
On April 30, 1996, the Company acquired SGS Geosystems, Ltd. (SGS), a UK
geomembrane manufacturer, for $4,774,000 net cash plus the assumption of
certain obligations of SGS in the amount of $600,000. On June 5, 1996, the
Company signed a 50/50 joint venture agreement with Hyma Plastics/Hyma Foam,
the major Egyptian supplier of plastic liner, bags and foam products. The
venture, which will manufacture geomembrane products for the Egyptian market,
will require an investment of approximately, $3,000,000. Also, during the
quarter, the Company made a $5,000,000 principal payment on its 11.17% Notes.
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
11
<PAGE> 12
operations. Additional raw material price increases have been announced by the
Company's major suppliers for the third quarter of 1996. As a result, raw
material prices for the second half of the year are expected to exceed the
levels experienced in the first six months of 1996. Inflation has not had a
significant impact on the Company's operations.
12
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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
(b)(1) Current Report on Form 8-K dated May 13, 1996
(2) Current Report on Form 8-K/A-1 dated July 10, 1996
13
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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 August 12, 1996 BY /S/ Roger J. Klatt
--------------- ---------------------------
ROGER J. KLATT,
SENIOR VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
DATE August 12, 1996 BY /S/ Keith E. St. Clair
--------------- ---------------------------
KEITH E. ST. CLAIR,
CORPORATE CONTROLLER
14
<PAGE> 15
EXHIBIT INDEX
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,431
<SECURITIES> 0
<RECEIVABLES> 65,899
<ALLOWANCES> (5,641)
<INVENTORY> 26,015
<CURRENT-ASSETS> 128,344
<PP&E> 89,013
<DEPRECIATION> (45,702)
<TOTAL-ASSETS> 203,066
<CURRENT-LIABILITIES> 51,556
<BONDS> 45,401
<COMMON> 178
0
0
<OTHER-SE> 100,210
<TOTAL-LIABILITY-AND-EQUITY> 203,006
<SALES> 60,625
<TOTAL-REVENUES> 60,625
<CGS> 44,502
<TOTAL-COSTS> 44,502
<OTHER-EXPENSES> 7,307
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 876
<INCOME-PRETAX> 7,835
<INCOME-TAX> 3,291
<INCOME-CONTINUING> 4,544
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,544
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
