<PAGE>
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, 2000 Commission File Number 1-9307
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
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 1, 2000
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Common stock, par value $.01 12,445,914
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GUNDLE/SLT ENVIRONMENTAL, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and
December 31, 1999 3
Consolidated Statements of Income
For the Three Months Ended March 31, 2000
and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000
and 1999 (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
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GUNDLE/SLT ENVIRONMENTAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 16,125 $ 16,873
ACCOUNTS RECEIVABLE, NET 38,150 54,948
CONTRACTS IN PROGRESS 4,153 2,508
INVENTORY 25,342 19,733
DEFERRED INCOME TAXES 4,689 4,948
PREPAID EXPENSES AND OTHER 1,894 804
-------- --------
TOTAL CURRENT ASSETS 90,353 99,814
PROPERTY, PLANT AND EQUIPMENT, NET 33,296 30,881
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED, NET 24,778 25,217
OTHER ASSETS 6,157 5,785
-------- --------
$154,584 $161,697
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 28,047 $ 29,073
ADVANCE BILLINGS ON CONTRACTS
IN PROGRESS 1,151 2,360
CURRENT PORTION OF LONG-TERM DEBT 5,333 5,343
INCOME TAXES PAYABLE 767 2,323
-------- --------
TOTAL CURRENT LIABILITIES 35,298 39,099
LONG-TERM DEBT 25,905 26,017
DEFERRED INCOME TAXES 1,410 1,858
OTHER LIABILITIES 1,376 1,452
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, 18,103,695 AND 18,096,211 SHARE
ISSUED 181 181
ADDITIONAL PAID-IN CAPITAL 69,844 69,358
RETAINED EARNINGS 53,397 55,277
ACCUMULATED OTHER COMPREHENSIVE INCOME 312 627
-------- --------
123,734 125,443
TREASURY STOCK AT COST, 5,652,181 and 5,327,581 SHARES (33,139) (32,172)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 90,595 93,271
-------- --------
$154,584 $161,697
======== ========
</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,
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2000 1999
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<S> <C> <C>
SALES AND OPERATING REVENUE $29,881 $22,448
COST OF PRODUCTS & SERVICES 26,139 19,562
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GROSS PROFIT 3,742 2,886
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,200 6,388
AMORTIZATION OF GOODWILL 341 344
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OPERATING INCOME (2,799) (3,846)
OTHER (INCOME) EXPENSES:
INTEREST EXPENSE 611 812
INTEREST INCOME (278) (367)
OTHER (INCOME) EXPENSE, NET 110 (140)
-------- -------
INCOME BEFORE INCOME TAXES (3,242) (4,151)
PROVISION FOR INCOME TAXES (1,361) (1,743)
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NET INCOME $ (1,881) $(2,408)
======== ========
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ (0.15) $ (0.18)
======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 12,633 13,065
======== ========
</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
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2000 1999
--------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $(1,881) $(2,408)
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION 1,997 2,091
AMORTIZATION 390 351
DEFERRED INCOME TAXES (476) 445
GAIN ON SALE OF ASSETS (5) (3)
INCREASE (DECREASE) IN CASH DUE TO
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE 16,055 14,648
CONTRACTS IN PROGRESS (1,719) (3,291)
INVENTORY (6,015) (3,194)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 465 (5,725)
ADVANCE BILLINGS ON CONTRACTS IN PROGRESS (1,181) (451)
INCOME TAXES PAYABLE (1,475) (2,434)
OTHER (1,454) (3,112)
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NET CASH PROVIDED BY(USED IN)OPERATING ACTIVITIES 4,701 (3,083)
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CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (379) (1,831)
PROCEEDS FROM SALE OF EQUIPMENT 5 31
PAYMENTS FOR THE ACQUISITION OF A BUSINESS, NET OF
CASH ACQUIRED (4,226) 0
OTHER (108) 0
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NET CASH USED IN INVESTING ACTIVITIES (4,708) (1,800)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
REPURCHASE OF COMMON STOCK (967) (344)
PROCEEDS FROM THE EXERCISE OF STOCK OPTIONS AND
PURCHASES UNDER THE EMPLOYEE STOCK PURCHASE PLAN 25 14
RETIREMENT OF LONG-TERM DEBT (97) (110)
OTHER 32 0
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NET CASH USED IN FINANCING ACTIVITIES (1,007) (440)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 266 (8)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (748) (5,331)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 16,873 29,399
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CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $16,125 $24,068
======= =======
</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, 2000, 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, 1999.
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, 1999.
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 life of
the contract. 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 as comprehensive income. The differential paid or received on the
interest rate component is recognized as an adjustment to interest expense.(see
footnote 6)
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.
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,
which approximates the first in, first out cost method. Inventory consisted of
the following (000's):
March 31, December 31,
2000 1999
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Raw materials and supplies $ 5,708 $ 7,101
Finished goods 19,634 12,632
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$25,342 $19,733
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(3) Income Taxes -
The Company's benefit for income taxes is recorded at the statutory rates
adjusted for the effect of any permanent differences.
(4) Equity -
In September 1998, the Company announced a stock repurchase program, which
authorizes the repurchase of up to 1,000,000 shares of its common stock. As of
March 31, 2000, the company had repurchased 718,957 shares of common stock at
prices ranging from $2.50 to $4.625 per share under this program. All of these
transactions were funded with the Company's available cash. At March 31, 2000,
the Company had 12,451,514 shares outstanding.
(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 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.
During the first quarter of 2000 and 1999, other comprehensive income (losses),
representing foreign currency translation adjustments amounted to $(314,000) and
$(379,000) respectively.
7
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(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 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 as is the US Dollar interest expense.
On April 7, 2000, the Company terminated the above derivative financial
instrument. The Company received $2,100,000 as the termination value of this
instrument. The purpose of the initial transaction was to hedge a portion of
the Company's net investment in Germany, which has since been reduced by more
than the face amount of the instrument.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Quarter:
For the three months ended March 31, 2000, sales and operating revenue was
$29,881,000 compared with $22,448,000 for the same period last year. This 33%
increase in sales and operating revenue from last year was driven by 32% higher
unit shipments. U.S. sales and operating revenue was $11,969,000, 29% higher
than for the same period last year. U.S. volume was 18% higher and overall
weighted value per unit was 9% higher resulting from a change in the mix of
products sold with installation services. Foreign sales and operating revenue
was $17,912,000 this quarter, 36% higher than the same period last year. Foreign
volume was up 41%. The overall weighted value per unit was down 3%. A decrease
in the US dollar value of the Company's German Deutsche Mark and British Pound
functional currency sales resulted in approximately $800,000 of the lower
foreign sales.
Gross profit for the quarter was $3,742,000, 30% better than the prior
year. Gross profit margin, as a percentage of sales and operating revenue,
decreased to 12.5% from 12.9% last year. This decrease was primarily due to
increases in resin costs which was somewhat offset by lower production costs.
Selling, general and administrative (SG&A) expenses were $6,200,000
compared with $6,388,000 in the first quarter of 1999. Decreases in first
quarter 2000 SG&A were in the Company's European operations and were due to the
impact of lower foreign currency rates in 2000 as compared to 1999.
Interest expense was $201,000 less than last year primarily due to a
decrease in outstanding debt resulting from scheduled repayments.
8
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Other income/(loss) was $251,000 less than last year primarily due to
timing of income from the Company's unconsolidated Egyptian joint venture.
The quarterly benefit from income taxes was $1,361,000 compared with
$1,743,000 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, 2000, the Company had working capital of $60,388,000,
including cash and temporary investments of $16,125,000. 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 $31,238,000
in debt and $90,595,000 in stockholders' equity as of March 31, 2000.
On September 27, 1999, the Company amended its credit facility (the
"Revolver") with Bank of America, formerly NationsBank of Texas, as agent. The
amendment included changing the facility from $35,000,000 to $25,000,000 (at the
Company's request) and extending the credit commitment date to September 30,
2002. Under the terms of the revolving credit agreement, the Company is required
to maintain certain financial ratios and a specific level of consolidated net
worth. At March 31, 2000, there was no balance outstanding on the Revolver, but
$975,000 in letters of credit issued under this facility reduced the balance
available to $24,025,000. The letter of credit issued under this facility
secures self-insurance programs.
On April 7, 2000, the Company terminated its DM cross currency swap
discussed above. The Company received $2,100,000 as the termination value of
this instrument.
The Company believes that its cash balance, cash generated by operations
and the balance expected to be available under the Revolver will be 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.
9
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Pricing for the Company's products and services is primarily driven by
worldwide manufacturing capacity in the industry, and by 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.
The Company has experienced raw material price increases in the first three
months of 2000 and has been notified of more price increases later in the year.
As the Company has a number of fixed price contracts, these raw material price
increases are expected to lower the Company's gross profit margin in later
quarters. The Company is attempting to increase its prices on all new orders to
offset the effect of these raw material price increases.
* * *
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
None
10
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SIGNATURE
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 5, 2000 BY /S/ Roger J. Klatt
ROGER J. KLATT,
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,125
<SECURITIES> 0
<RECEIVABLES> 41,482
<ALLOWANCES> 3,332
<INVENTORY> 25,342
<CURRENT-ASSETS> 90,352
<PP&E> 87,937
<DEPRECIATION> 54,681
<TOTAL-ASSETS> 154,584
<CURRENT-LIABILITIES> 35,298
<BONDS> 25,905
0
0
<COMMON> 181
<OTHER-SE> 90,414
<TOTAL-LIABILITY-AND-EQUITY> 154,584
<SALES> 29,881
<TOTAL-REVENUES> 29,881
<CGS> 26,139
<TOTAL-COSTS> 32,680
<OTHER-EXPENSES> 110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 611
<INCOME-PRETAX> (3,242)
<INCOME-TAX> (1,361)
<INCOME-CONTINUING> (1,881)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,881)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
