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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 June 30, 1998 Commission File Number 1-9307
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GUNDLE/SLT ENVIRONMENTAL, INC.
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(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) (281) 443-8564
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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 July 24, 1998
- ---------------------------- ------------------------------------------
Common stock, par value $.01 13,225,547
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GUNDLE/SLT ENVIRONMENTAL, INC.
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of
June 30, 1998 (Unaudited) and
December 31, 1997 3
Consolidated Statements of Income
for the Three and Six Months Ended
June 30, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998
and 1997 (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 12
PART IV - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 12
</TABLE>
2
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GUNDLE/SLT ENVIRONMENTAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31,
1998 1997
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 11,722 $ 24,844
ACCOUNTS RECEIVABLE, NET 51,533 53,606
CONTRACTS IN PROGRESS 3,214 2,189
INVENTORY 22,829 22,000
DEFERRED INCOME TAXES 6,481 6,408
PREPAID EXPENSES AND OTHER 1,135 913
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TOTAL CURRENT ASSETS 96,914 109,960
PROPERTY, PLANT AND EQUIPMENT, NET 35,093 35,283
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED, NET 27,448 28,118
OTHER ASSETS 4,830 4,600
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$ 164,285 $ 177,961
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 32,475 $ 39,835
ADVANCE BILLINGS ON CONTRACTS
IN PROGRESS 948 725
CURRENT PORTION OF LONG-TERM DEBT 5,408 5,767
INCOME TAXES PAYABLE 2,397 2,400
DEFERRED INCOME TAXES 766 772
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TOTAL CURRENT LIABILITIES 41,994 49,499
LONG-TERM DEBT 32,579 37,628
DEFERRED INCOME TAXES 3,607 3,297
OTHER LIABILITIES 1,379 1,427
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $1.00 PAR VALUE, 1,000,000 SHARES
AUTHORIZED, NO SHARES ISSUED OR
OUTSTANDING -- --
COMMON STOCK, $.01 PAR VALUE, 30,000,000
SHARES AUTHORIZED, 18,092,336 AND 18,087,111 SHARES
ISSUED 181 180
ADDITIONAL PAID-IN CAPITAL 69,512 69,929
RETAINED EARNINGS 45,345 46,350
ACCUMULATED OTHER COMPREHENSIVE INCOME 709 1,351
UNEARNED COMPENSATION (372) (1,051)
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115,375 116,759
TREASURY STOCK AT COST, 4,866,789 and 4,807,456 SHARES (30,649) (30,649)
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TOTAL STOCKHOLDERS' EQUITY 84,726 86,110
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$ 164,285 $ 177,961
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</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
SALES AND OPERATING REVENUE $ 49,636 $ 48,352 $ 80,955 $ 81,701
COST OF PRODUCTS & SERVICES 40,903 40,076 67,096 67,257
-------- -------- -------- --------
GROSS PROFIT 8,733 8,276 13,859 14,444
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,760 5,842 12,451 12,093
AMORTIZATION OF GOODWILL 341 312 687 615
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OPERATING INCOME 1,632 2,122 721 1,736
OTHER (INCOME) EXPENSES:
INTEREST EXPENSE 921 1,141 1,825 2,152
INTEREST INCOME (253) (534) (551) (1,032)
OTHER (INCOME) EXPENSE, NET (67) (170) (59) (121)
-------- -------- -------- --------
INCOME(LOSS) BEFORE INCOME TAXES 1,031 1,685 (494) 737
PROVISION FOR(BENEFIT FROM) INCOME TAXES 444 708 (212) 310
-------- -------- -------- --------
NET INCOME(LOSS) $ 587 $ 977 $ (282) $ 427
======== ======== ======== ========
BASIC AND DILUTED EARNINGS(LOSS)
PER COMMON SHARE $ 0.04 $ 0.06 $ (0.02) $ 0.03
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 13,246 15,494 13,271 15,714
======== ======== ======== ========
</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)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ (282) $ 427
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION 3,523 3,414
AMORTIZATION 691 714
DEFERRED INCOME TAXES (846) (831)
GAIN ON SALE OF ASSETS (9) (198)
INCREASE (DECREASE) IN CASH DUE TO
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 1,980 5,725
CONTRACTS IN PROGRESS (1,033) (1,408)
INVENTORY (959) (5,684)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (6,978) (644)
ADVANCE BILLINGS ON CONTRACTS IN PROGRESS 211 112
INCOME TAXES PAYABLE (325) (1,126)
OTHER (429) 759
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NET CASH PROVIDED BY(USED IN)OPERATING ACTIVITIES (4,456) 1,260
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CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (3,575) (2,598)
PROCEEDS FROM SALE OF EQUIPMENT 208 291
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NET CASH USED IN INVESTING ACTIVITIES (3,367) (2,307)
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CASH FLOWS FROM FINANCING ACTIVITIES:
REPURCHASE OF COMMON STOCK 0 (14,502)
PROCEEDS FROM THE EXERCISE OF STOCK OPTIONS AND
PURCHASES UNDER THE EMPLOYEE STOCK PURCHASE PLAN 25 486
RETIREMENT OF LONG-TERM DEBT (5,111) (5,449)
OTHER 0 (117)
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NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES (5,086) (19,582)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (213) (149)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,122) (20,778)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 24,844 43,122
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CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 11,722 $ 22,344
======== ========
CASH PAID FOR INTEREST $ 1,863 $ 2,260
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CASH PAID FOR INCOME TAXES $ 244 $ 1,468
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</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, 1998, 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, 1997.
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, 1997.
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaces the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the Statement 128
requirements.
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.
6
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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>
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June 30, December 31,
1998 1997
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Raw materials and supplies $ 5,483 $ 6,812
Finished goods 17,346 15,188
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$22,829 $22,000
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(3) Income Taxes -
The Company's provision for income taxes is recorded at the statutory
rates adjusted for the effect of 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. On
December 16, 1997, the Company purchased 2,200,000 shares of its common stock at
a price of $5.40 per share for a total cost of $11,880,000. Both of these
transactions were funded with the Company's available cash. At June 30, 1998,
the Company had 13,225,547 shares outstanding.
7
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(5) Comprehensive Income -
On January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments to be
included in other comprehensive income. Prior to adoption these amounts were
reported separately in shareholders' equity. Prior year financial statements
have been reclassified, where appropriate, to conform to the requirements of
Statement 130.
During the second quarter of 1998 and 1997, total comprehensive income (losses),
representing foreign currency translation adjustments, amounted to $219,000 and
$(96,000) respectively.
(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 Deutsche
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 is
included in long-term debt and is marked to market as the U.S. dollar/DM
exchange rate changes. These adjustments are included as a component of
accumulated other comprehensive income in shareholders' equity. Interest
payments and receipts are semi-annual on February 1 and August 1. The DM
interest payment is also subject to exchange rate fluctuations. Interest expense
is also impacted by these exchange rate fluctuations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Quarter:
For the three months ended June 30, 1998, sales were
$49,636,000 compared with $48,352,000 for the same period last year. This 3%
increase in sales resulted from 13% more units shipped partially offset by lower
prices and approximately $900,000 lower U.S. dollar value of German (DM) and
Australian dollar(A$)functional currency sales. United States and Canadian sales
of $26,135,000 were similar to the prior years sales on a 7% increase in volume.
Unit selling prices in the United States and Canada were 7% lower than last
year. Foreign sales of $23,501,000 were up $1,453,000, or 7% from the same
quarter last year on 18% higher volume. The primary reason for the higher
foreign sales was higher volume to the Latin and South American markets; which
was partially offset by lower volume to Southeast Asia and the Middle East,
lower US dollar value of DM's and A$ functional currency sales, and a 10%
reduction in selling prices.
8
<PAGE> 9
Gross profit for the quarter was $8,733,000, up 6% from the prior year.
As a percentage of sales, gross profit increased to 17.6% from 17.1%. The
primary cause of this increase was a decrease in resin cost per unit.
Selling, general and administrative (SG&A) expenses were $6,760,000
compared with $5,842,000 in the second quarter of 1997. Of this difference,
approximately $1,000,000 resulted from contractually required severance paid to
the former President and CEO who left the company in April.
Interest expense was $220,000 less than last year primarily due to a
decrease in outstanding debt resulting from scheduled repayments.
Interest income was $281,000 less than last year primarily due to lower
amounts of invested cash. The Company used $11,880,000 of it's surplus cash to
repurchase 2,200,000 shares of its common stock in December 1997.
The quarterly expense for income taxes was $444,000 compared with
$708,000 in the same period last year. The tax expense for both periods was
recorded at the statutory rates adjusted for certain nondeductible expenses.
Year-to-Date:
For the six months ended June 30, 1998, sales were $80,955,000 compared
with $81,701,000 for the same period last year. This 1% decrease in sales
resulted from a 6% reduction in selling prices, approximately $1,863,000 lower
US dollar value of DM and A$ functional currency sales, which was partially
offset by a 10% increase in units shipped. Sales into the United States and
Canada of $39,911,000 increased by $1,799,000 from the prior year sales, on a
10% increase in volume. Selling prices of U.S. and Canadian products and
services were 5% lower than last year. Foreign sales of $41,044,000 were down
$2,545,000, or 6%, from the same period last year on 3% higher volume. The
primary reasons for the lower foreign sales were the lower US dollar value of
the Company's DM and A$ functional currency sales and 8% lower selling prices.
Gross profit for the period was $13,859,000, down 4% from the prior
year. As a percentage of sales, gross profit decreased to 17.1% from 17.7%. The
primary cause of this decrease was a decrease in selling prices not completely
offset by decreases in material costs.
Selling, general and administrative (SG&A) expenses were $12,451,000
compared with $12,093,000 in the first half of 1997. Of this difference,
approximately $1,000,000 resulted from contractually required severance paid to
the former President and CEO who left the company in April offset by a decrease
in the US Dollar value of expenses paid in DM's ($200,000), the savings
generated by scaling back of the Singapore operations ($225,000) and a reduction
in the costs related to the Restricted Stock Plan ($125,000).
9
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Interest expense was $327,000 less than last year primarily due to a
decrease in outstanding debt resulting from scheduled repayments.
Interest income was $481,000 less than last year primarily due to lower
amounts of invested cash. The Company used $11,880,000 of surplus cash to
repurchase 2,200,000 shares of it's common stock in December 1997.
The benefit for income taxes was $212,000 compared with a $310,000
expense in the same period last year. The tax expense for both periods was
recorded at the statutory rates adjusted for certain nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had working capital of $60,328,000,
including cash and temporary investments of $11,722,000. The Company's cash,
inventory and receivable balances fluctuate from quarter-to-quarter due to the
seasonality of sales. The Company's capital structure consisted of $37,987,000
in debt and $84,726,000 in stockholders' equity as of June 30, 1998.
The Company has a $35,000,000 multi-currency revolving credit facility
(the "Revolver") with NationsBank of Texas, as agent, that was amended to extend
the credit commitment date to September 30, 1999. Under the terms of the
revolving credit agreement, the Company is required to maintain certain
financial ratios and a specific level of consolidated tangible net worth. At
June 30, 1998, there was no balance outstanding on the Revolver, but $975,000 in
letters of credit issued under this facility reduced the balance available to
$34,025,000. The letters of credit issued under this facility secure
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
its cash requirements over the next year.
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.
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. The conversion by most
European countries to the European Monetary Union and the Euro currency is not
expected to have a significant effect on the Company's operations.
10
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At December 31, 1997, the Company had a U.S. dollar receivable of
$3,666,000 from an Indonesian customer secured by an irrevocable letter of
credit issued by an Indonesian bank. As a result of the economic and currency
difficulties in Indonesia, there existed a potential for non-performance under
the terms of the letter of credit by the Indonesian bank. As of July 31, 1998,
the Company has received $3,051,000 from the Indonesian Bank. The Company
believes based on information available at this time, that the remaining amount
due under this letter of credit should be collected before the end of the year.
The Company is in the process of implementing the JDEdwards suite of
systems to replace all U.S. legacy systems that are not year 2000 compliant.
This implementation will be completed by the end of 1998. The Company is
considering the use of this and other systems in its German operations. The
implementation of a new system in Germany will occur during 1999. The systems in
use at the Company's other foreign operations are year 2000 compliant.
Pricing for the Company's products and services is primarily driven by
worldwide manufacturing capacity in the industry, and raw material costs. The
Company's primary raw material, polyethylene, is occasionally in short supply
and subject to substantial price fluctuation in response to 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.
Due to a very competitive market the Company has been forced to lower
the prices of its products. Even with slight year-to-year resin purchase price
reductions, the Company has had difficulty maintaining its material margin
similar to 1997. Earnings compared to 1997 will continue to be negatively
impacted if this trend continues.
11
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* * *
Forward-looking information:
This Form 10-Q contains certain forward-looking statements as such is
defined in the Private Securities Litigation Reform Act of 1995, and information
relating to the Company and its subsidiaries that are based on beliefs of the
Company's management, as well as assumptions made by and information currently
available to the Company's management. When used in this report, the words,
"anticipate", "believe", "estimate", "expect", "intend" and words of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive market factors, world-wide
manufacturing capacity in the industry, general economic conditions around the
world, raw material pricing and supply, governmental regulation and supervision,
seasonality, distribution networks, and other factors described herein. Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended.
PART II - OTHER INFORMATION
Resignation of Director:
Samir T. Badawi, Chairman of the Board of Directors, has assumed the
role of acting President and CEO effective April 27, 1998 following the
resignation of William P. Reid, the former President, CEO and Director. Roger J.
Klatt, former Senior Vice President and Chief Financial Officer since 1994 has
assumed responsibility for day-to-day operations as Executive Vice President and
Chief Financial Officer.
PART IV - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(3) EXHIBITS
Exhibit
No.
10-K -Employment Agreement dated June 4, 1998, between Samir T. Badawi and
the Company.
10-L -Amendment dated June 4, 1998, to the Employment Agreement dated
March 10, 1997, between Roger J. Klatt and the Company.
12
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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 July 31, 1998 BY /s/ ROGER J. KLATT
------------------ ----------------------------
ROGER J. KLATT,
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
DATE July 31, 1998 BY /s/ ERNEST C. ENGLISH, JR.
------------------ ----------------------------
ERNEST C. ENGLISH, JR.,
CORPORATE CONTROLLER
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 July 31, 1998 BY
------------------ ----------------------------
ROGER J. KLATT,
EXECUTIVE VICE PRESIDENT &
HIEF FINANCIAL OFFICER
DATE July 31, 1998 BY
------------------ ----------------------------
ERNEST C. ENGLISH, JR.,
CORPORATE CONTROLLER
<PAGE> 1
EXHIBIT 10-K
[GUNDLE/SLT ENVIRONMENTAL, INC. LETTERHEAD]
June 4, 1998
PERSONAL AND CONFIDENTIAL
Mr. Samir T. Badawi
Gundle/SLT Environmental, Inc.
19103 Gundle Road
Houston, Texas 77073
Dear Samir:
This is to confirm that at the Compensation Committee Meeting held in
conjunction with the Annual Meeting of Stockholders on April 28, 1998, the
Committee requested that you serve temporarily as acting Chief Executive
Officer, until the Board of Directors appoints a permanent Chief Executive
Officer. The Committee anticipates that your temporary assignment in Houston
will be for six to eight months. You will be compensated for your services as
acting Chief Executive Officer of the Company in the following manner:
1. You will receive base compensation at the rate of $25,000 per month;
2. You will receive full reimbursement for the actual expenses you incur
while temporarily away from your home in Saudi Arabia due to the inherent
hardship and duplication of expenses involved in undertaking a short-term
assignment of this nature. These expenses include, but are not limited to,
lodging, meals, travel, incidental expenses, etc.;
3. You will be reimbursed for any additional U.S. income taxes resulting from
this assignment (anticipated to be none at this time);
4. You will participate in the Company's 1998 bonus program in the same
manner as if you had held the position of Chief Executive Officer from
January 1, 1998 forward, prorated back for your actual period of service
in connection with any bonus otherwise payable;
5. You are to anticipate in all other employee benefit plans (excepting the
stock option and performance share plans) in the same manner as Bill Reid
did prior to his resignation, subject to any plan mandated eligibility
requirements.
This arrangement will continue in effect until the earlier of (i) the employment
of a permanent Chief Executive Officer, (ii) your resignation or removal from
the position of acting Chief Executive
<PAGE> 2
Mr. Samir T. Badawi
June 4, 1998
Page 2
Officer or (iii) the conclusion of a new arrangement with concurrence of the
Board of Directors. As you can appreciate, this compensation arrangement is one
which will need to be reviewed with the full Board at its next meeting on June
24, 1998.
Best personal regards,
/s/ T. WILLIAM PORTER
T. William Porter
Chairman of the Compensation Committee
<PAGE> 1
EXHIBIT 10-L
[GUNDLE/SLT ENVIRONMENTAL, INC. LETTERHEAD]
June 1, 1998
Mr. Roger J. Klatt
Senior Vice President and Chief Financial Officer
Gundle/SLT Environmental, Inc.
19103 Gundle Road
Houston, Texas 77073
Dear Mr. Klatt:
Reference is made to the employment agreement dated March 10, 1997 between
Gundle/SLT Environmental, Inc. (the "Company") and yourself (the "Agreement").
Until the recent resignation of William P. Reid from his position as President
and Chief Executive Officer of the Company, you reported primarily to him and
maintained a good working relationship with him. Since Mr. Reid's resignation,
you have reported to Samir T. Badawi, Acting President and Chief Executive
Officer of the Company, and you also have a good working relationship with him.
You have expressed concern about certain provisions in the Agreement that
could be implicated at such time as the Company designates a permanent
President and Chief Executive Officer to succeed Mr. Badawi.
At present, in the event of a termination under Section 4(e) or 4(g), you
are entitled (among other things) to one year's base pay and one year's bonus,
each as determined in accordance with paragraph (a) of the "Termination
Package" definition (the "Definition") contained in Annex I to the Agreement.
In the event (i) you are terminated at any time in the future under Section
4(e), or (ii) you initiate a termination under Section 4(g), then (subject to
your execution and delivery to the Company at the Termination Date of the
Release in the form attached hereto as Exhibit A), paragraphs (a),(b) and (c)
of the Definition shall be the following:
"(a) on or within ten days following an applicable Termination
Date, the Company shall pay to you a lump sum cash amount equal to the sum
of (i) 1 1/2 times the highest annual rate of Base Salary in effect during
the current year or any of the two years preceding the Termination Date and
(ii) 1 1/2 times the greater of (A) the
<PAGE> 2
Mr. Roger J. Klatt
June 1, 1998
Page 2
largest award earned (whether or not paid) under the Bonus Plan in respect
of any of the three years preceding the Termination Date or (B) the target
award you would have been entitled to receive under the Bonus Plan in
respect of the current year regardless of any limitations otherwise
applicable to the Bonus Plan (i.e., the failure to achieve any performance
goal applicable to all or any portion of the measurement period); and
(b) following an applicable Termination Date, you shall receive all
benefits under and in accordance with the terms of the Plans (other than
the Bonus Plan and welfare benefit Plans, for which separate provision is
made herein, and the 401(k) plan as to which your ability to contribute to
the plan will cease with your last regular paycheck prior to the
Termination Date) in which you are at the time a participant, but only to
the extent the same are vested under the terms of such Plans at the
Termination Date; in addition, any options held by you at the Termination
Date will continue to vest during the 18 months following the Termination
Date and continue to be exercisable during the 21 months following the
Termination Date; and
(c) the Company shall maintain in full force and effect, at its sole
expense for the continued benefit of you and your dependents during the
period from the Termination Date through the earlier of (i) eighteen
months from the Termination Date or (ii) the commencement date of
equivalent benefits from a new employer, all insured and self-insured
employee pension, medical, dental, disability, accident and life insurance
welfare benefit Plans in which you were entitled to participate
immediately prior to the Termination Date. If your participation in any
such welfare benefit Plan is barred, the Company, at its sole cost and
expense, shall arrange to have issued for the benefit of you and your
dependents individual policies of insurance providing benefits
substantially similar (on an after-tax basis) to those which you are
entitled to receive under such Plans."
In addition, during the twelve months following the appointment of a new
President and Chief Executive Officer (other that Mr. Badawi), the definition of
"Good Reason" contained in Annex I to the Agreement shall be deemed to include
the following:
"...(ix) your incompatibility or inability to maintain (in your sole
discretion) a good working relationship with a new President and Chief
Executive Officer (other than Mr. Badawi)."
<PAGE> 3
Mr. Roger J. Klatt
June 1, 1998
Page 3
Except in the limited circumstances the Agreement is to be amended by this
letter, the Agreement remains in full force and effect under its existing
terms. If this letter correctly sets forth our understanding with respect to
the particular subject matter covered in this letter, please sign and return
one copy of this letter to the Company.
Sincerely,
GUNDLE/SLT ENVIRONMENTAL, INC.
By: /s/ T. WILLIAM PORTER
-------------------------------------
T. William Porter
Chairman of the Compensation Committee
of the Board
Agreed to as of the 1st
day of June, 1998
/s/ ROGER J. KLATT
- -------------------------------
Roger J. Klatt
<PAGE> 4
EXHIBIT A
RELEASE
For and in consideration of the sum of One Dollar and other good and
valuable consideration in hand paid to Roger J. Klatt ("Employee") by
Gundle/SLT Environmental, Inc. ("Company"), the receipt of which is hereby
acknowledged, and the sufficiency of which is hereby confessed, Employee has
remised, released, and forever discharged and by these presents does remise,
release and forever discharge the said Company and each of its subsidiaries and
affiliates and the directors, officers, agents, representatives, and employees
of each of them, and its and their successors and assigns (collectively, the
"Released Parties") of and from all, and all manner of action, and actions,
cause and causes of action, suits, dues, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, executions, claims and demands
whatsoever, in law or in equity, which against the Released Parties which
Employee ever had, now have or which his assigns, hereafter can, shall or may
have, for, upon or by reason of any matter, cause or thing whatsoever from the
beginning of the world to the day of the date of these presents.
This release shall not, however, affect the obligations of the Company (i)
under that certain Employment Agreement dated as of March 10, 1997 (as amended
on May ___, 1998), by and between Employee and the Company or (ii) under the
Company's charter, bylaws or any preexisting contractual indemnity agreement
between the Company and Employee.
Executed and Effective this ___ day of __________, ____.
_________________________________
Roger J. Klatt
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