<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 March 31, 1997 Commission File Number 1-9307
GUNDLE/SLT ENVIRONMENTAL, 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) (281) 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 May 9, 1997
- ----------------------------------- ----------------------------------
Common stock, par value $.01 18,064,021
<PAGE> 2
GUNDLE/SLT ENVIRONMENTAL, INC.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of
March 31, 1997 (Unaudited) and
December 31, 1996 3
Consolidated Statements of Income
for the Three Months Ended
March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997
and 1996 (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 10
2
<PAGE> 3
GUNDLE/SLT ENVIRONMENTAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 36,369 $ 43,122
ACCOUNTS RECEIVABLE, NET 39,664 53,506
CONTRACTS IN PROGRESS 3,458 3,948
INVENTORY 28,397 21,430
DEFERRED INCOME TAXES 6,873 6,991
PREPAID EXPENSES AND OTHER 2,169 2,154
------------ ------------
TOTAL CURRENT ASSETS 116,930 131,151
PROPERTY, PLANT AND EQUIPMENT, NET 38,453 40,282
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED, NET 29,277 29,858
OTHER ASSETS 3,591 2,755
------------ ------------
$ 188,251 $ 204,046
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 35,612 $ 33,138
ADVANCE BILLINGS ON CONTRACTS
IN PROGRESS 816 936
CURRENT PORTION OF LONG-TERM DEBT 5,603 5,648
INCOME TAXES PAYABLE 1,646 2,976
DEFERRED INCOME TAXES 1,077 1,868
OTHER CURRENT LIABILITIES 659 0
------------ ------------
TOTAL CURRENT LIABILITIES 45,413 44,566
LONG-TERM DEBT 43,807 44,092
DEFERRED INCOME TAXES 4,367 4,584
OTHER LIABILITIES 1,367 1,291
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, 18,064,021 AND 17,872,174 SHARES
ISSUED 180 179
ADDITIONAL PAID-IN CAPITAL 71,018 69,405
RETAINED EARNINGS 41,251 41,800
CUMULATIVE TRANSLATION ADJUSTMENT 2,400 3,600
UNEARNED COMPENSATION (2,783) (1,204)
------------ ------------
112,066 113,780
TREASURY STOCK AT COST, 2,571,656 SHARES (18,769) (4,267)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 93,297 109,513
------------ ------------
$ 188,251 $ 204,046
============ ============
</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
MARCH 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
SALES AND OPERATING REVENUE $ 33,349 $ 27,107
COST OF SALES 27,181 21,581
---------- ----------
GROSS PROFIT 6,168 5,526
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,251 6,064
AMORTIZATION OF GOODWILL 303 228
---------- ----------
OPERATING INCOME (LOSS) (386) (766)
OTHER EXPENSES:
INTEREST EXPENSE 1,011 1,293
INTEREST INCOME (498) (313)
OTHER (INCOME) EXPENSE, NET 49 (223)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (948) (1,523)
PROVISION (BENEFIT) FOR INCOME TAXES (398) (640)
---------- ----------
NET INCOME (LOSS) $ (550) $ (883)
========== ==========
EARNINGS (LOSS) PER COMMON SHARE $ (0.03) $ (0.05)
========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 15,945 17,200
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (549) $ (883)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION 1,697 1,776
AMORTIZATION 608 228
DEFERRED INCOME TAXES (45) 100
GAIN ON SALE OF ASSETS (148) (28)
INCREASE (DECREASE) IN CASH DUE TO
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 13,841 20,312
CONTRACTS IN PROGRESS 490 3,574
INVENTORY (6,036) (3,381)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 1,705 (7,064)
ADVANCE BILLINGS ON CONTRACTS IN PROGRESS (120) 119
INCOME TAXES PAYABLE (2,162) 73
OTHER 41 575
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,322 15,401
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (717) (697)
PROCEEDS FROM SALE OF EQUIPMENT 188 57
OTHER, NET 396 6
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (133) (634)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
REPURCHASE OF COMMON STOCK (14,502) 0
PROCEEDS FROM THE EXERCISE OF STOCK OPTIONS AND
PURCHASES UNDER THE EMPLOYEE STOCK PURCHASE PLAN 454 22
RETIREMENT OF LONG-TERM DEBT (342) (63)
OTHER 0 439
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (14,390) 398
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,552) (622)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,753) 14,543
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 43,122 16,057
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 36,369 $ 30,600
============ ============
CASH PAID FOR INTEREST $ 1,659 $ 1,636
============ ============
CASH PAID FOR INCOME TAXES $ 1,822 $ 294
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
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, 1997, 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, 1996.
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, 1996.
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%.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of fully diluted earnings per share for these quarters
is not expected to be material.
6
<PAGE> 7
The Company occasionally enters into forward contracts and cross
currency swaps in its management of foreign currency exposures. As a matter of
policy, the Company does not speculate in financial markets and therefore, does
not hold these contracts for trading purposes. The Company utilizes what it
considers straightforward instruments to accomplish its objectives.
The foreign currency forward contracts are used to hedge specific
transactions. Gains and losses on these contracts are recognized in the same
period as the gains and losses on the underlying position.
The Company is using a cross currency principal and interest rate swap
to effectively convert a portion of its U.S. dollar denominated debt into
German Marks. The objective of this hedging strategy is the management of the
foreign currency exchange risk associated with its net investment in Germany
and is based on the projected foreign currency cash flows from Germany over the
next eight years. The Company's investment in Germany and the foreign currency
portion of its swap are adjusted each period to reflect current foreign
exchange rates with the gains and losses recorded in the equity section of the
balance sheet. The differential paid or received on the interest rate component
is recognized as an adjustment to interest expense.
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) 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,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials and supplies $ 8,587 $ 5,084
Finished goods 19,810 16,346
------------- ------------
$ 28,397 $ 21,430
============= ============
</TABLE>
(3) Income Taxes -
The Company's provision for income taxes is recorded at the statutory
rates adjusted for any permanent differences.
(4) Equity -
On January 23,1997, the Company purchased 2,071,656 shares of its
common stock at a price of $7 per share, for a total cost of $14,502,000. The
transaction was funded with the Company's available cash.
7
<PAGE> 8
(5) 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.
(6) Derivative Financial Instruments -
Effective October 18, 1996, the Company swapped $10,000,000 in
long-term debt with an annual interest rate of 7.34% for 15,380,000 Deutshe
Mark (DM) denominated long-term debt with an annual interest rate of 6.32%,
effectively hedging a portion of its net investment in Germany. The DM swap
agreement requires the Company to re-exchange 3,076,000 DM for $2,000,000 each
August 1 for the five year period beginning August 1, 2001. The DM swap will be
included in long-term debt and will be marked to market as the U.S. Dollar/DM
exchange rate changes. These adjustments will be included as a component of
cumulative translation adjustment in shareholders' equity. Interest payments
and receipts are semi-annual on February 1 and August 1. The DM interest
payment will also be subject to exchange rate fluctuations. Interest expense
will also be impacted by these exchange rate fluctuations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
For the three months ended March 31, 1997, sales were $33,349,000
compared with $27,107,000 for the same period last year. This 23% increase in
sales is the result of an increase in unit sales volume of 32% and an effective
7% decrease in revenue per pound of materials sold. North American sales of
$12,006,000 were up $1,177,000, or 11%, on a 14% unit volume increase. Foreign
sales of $21,343,000 were up $5,065,000, or 31%, on a 68% unit volume increase.
$1.2 million of the foreign sales increase resulted from the acquisition of SGS
Geosystems in April, 1996. The balance of the foreign sales increase was
primarily from improved sales to Latin and South America.
Gross profit for the quarter was $6,168,000 , up 12% from the prior
year. This increase was driven by a 32% increase in unit sales volume, which
was offset by lower per unit margins. As a percentage of sales, gross profit
decreased from 20% to 18%. The primary cause of this decrease was a 35%
increase in U.S. raw materials costs that could not be passed on to customers
as a result of competitors vying for orders to use excess manufacturing
capacity.
8
<PAGE> 9
Selling, general and administrative expenses were $6,251,000 compared
with $6,064,000 in the first quarter of 1996. 1997 included $134,000 related to
SGS Geosystems acquired in April, 1996.
Other (Income) Expense, Net was an expense of $49,000 compared with an
income of $223,000 in 1996. The primary cause of this difference was the
adverse effect of foreign exchange losses this year verses gains last year.
Interest expense fell $282,000 from last year due to the decreased
level of debt outstanding, while interest income increased by $185,000 from an
increase in invested cash balances.
The quarterly benefit for income taxes was $398,000 compared with
$640,000 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, 1997, the Company had working capital of $71,517,000,
including cash and temporary investments of $36,369,000. 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 $49,410,000
in long-term debt and $93,297,000 in stockholders' equity as of March 31, 1997.
The Company's $35,000,000 multi-currency revolving credit facility
(the "Revolver") with NationsBank of Texas was amended on September 30, 1996 to
extend the credit commitment date to September 30, 1998. 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, 1997, there was no balance outstanding on the Revolver. However,
letters of credit issued under this facility totaled $1,569,000, thereby
reducing the balance available to $33,431,000. The letters of credit issued
under this facility secure performance of installation projects and
self-insurance programs.
The Company believes that its cash balance, cash generated by
operations and the balance available under the Revolver are adequate to meet
any foreseeable cash requirements during 1997.
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.
9
<PAGE> 10
The Company's foreign subsidiaries routinely accept contracts in
currencies different than their functional currency. The Company recognizes
that such practices are subject to the risk of foreign currency fluctuations
not present in U.S. operations. Foreign exchange gains and losses to date have
not been material to the Company's operations as a whole.
Pricing for the Company's products and services is principally driven
by worldwide manufacturing capacity in the industry and raw material costs. The
Company's primary raw material, polyethylene, occasionally is in short supply
and is subject to substantial price fluctuation in response to its market
demand. Any increase in the industry's worldwide manufacturing capacity,
interruption in raw material supply or abrupt raw material price increases
could have an adverse effect upon the Company's operations and financial
performance. Inflation has not had a significant impact on the Company's
operations.
As a result of very strong demand for polyethylene, the Company's cost
of raw materials continues to increase with announced price increases yet to
take place. Due to a very competitive market for the Company's products, the
Company has not been able to increase it's selling price sufficiently to offset
these increasing costs. Accordingly, the Company expects second quarter profits
to be significantly below those reported in the second quarter of 1996.
* * *
Forward-looking information
The statements regarding future financial performance and results and
the other statements that are not historical facts contained in this report are
forward-looking statements. The words "expect", "project", "estimate",
"predict" and similar expressions are also intended to identify forward-looking
statements. Such statements involve risks and uncertainties, including, but not
limited to, market factors, market prices, industry manufacturing capacity,
availability and cost of raw materials and other factors detailed herein and in
the Company's other Securities and Exchange Commission filings. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
PART II - OTHER INFORMATION
None
10
<PAGE> 11
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 May 13, 1997 BY /s/ Roger J. Klatt
--------------- --------------------
ROGER J. KLATT,
SENIOR VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
DATE May 13, 1997 BY /s/ ERNEST C. ENGLISH, JR.
---------------- ----------------------------
ERNEST C. ENGLISH, JR.,
CORPORATE CONTROLLER
11
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,490
<SECURITIES> 34,879
<RECEIVABLES> 43,349
<ALLOWANCES> 3,685
<INVENTORY> 28,397
<CURRENT-ASSETS> 116,930
<PP&E> 88,708
<DEPRECIATION> 50,255
<TOTAL-ASSETS> 188,251
<CURRENT-LIABILITIES> 45,413
<BONDS> 49,410
0
0
<COMMON> 0
<OTHER-SE> 93,297
<TOTAL-LIABILITY-AND-EQUITY> 188,251
<SALES> 33,349
<TOTAL-REVENUES> 33,349
<CGS> 27,181
<TOTAL-COSTS> 33,735
<OTHER-EXPENSES> 49
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 1,011
<INCOME-PRETAX> (948)
<INCOME-TAX> (398)
<INCOME-CONTINUING> (550)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (550)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
