SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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 incorporation or organization) |
(IRS Employer 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 by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act. Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the close of the latest practicable date.
| Class |
Outstanding at April 16, 2003 | |
| Common stock, par value $.01 | 11,546,438 |
GUNDLE/SLT ENVIRONMENTAL, INC.
INDEX
| PAGE | ||
| PART I - FINANCIAL INFORMATION |
||
| ITEM 1: Financial Statements |
||
| Condensed Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003 |
3 | |
| 4 | ||
| Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2004 and 2003 (Unaudited) |
5 | |
| 6 | ||
| ITEM 2: Management’s Discussion and Analysis of Results of Operations and Financial Condition |
9 | |
| ITEM 3: Quantitative and Qualitative Disclosures About Market Risk |
14 | |
| ITEM 4: Controls and Procedures |
14 | |
| PART II - OTHER INFORMATION |
||
| ITEM 1: Legal Proceedings |
15 | |
| ITEM 6: Exhibits and Reports on Form 8-K |
17 | |
| 19 | ||
2
GUNDLE/SLT ENVIRONMENTAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
| MARCH 31, 2004 |
DECEMBER 31, 2003 |
|||||||
| (UNAUDITED) | ||||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| CASH AND CASH EQUIVALENTS |
$ | 21,034 | $ | 47,899 | ||||
| ACCOUNTS RECEIVABLE, NET |
35,290 | 46,560 | ||||||
| CONTRACTS IN PROGRESS |
2,790 | 711 | ||||||
| INVENTORY |
42,645 | 33,231 | ||||||
| DEFERRED INCOME TAXES |
7,092 | 5,587 | ||||||
| PREPAID EXPENSES AND OTHER |
4,531 | 604 | ||||||
| TOTAL CURRENT ASSETS |
113,382 | 134,592 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, NET |
32,681 | 33,131 | ||||||
| EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET |
23,384 | 23,365 | ||||||
| DEFERRED INCOME TAXES |
2,072 | 2,127 | ||||||
| RESTRICTED CASH |
18,056 | 18,056 | ||||||
| OTHER ASSETS |
2,452 | 2,232 | ||||||
| $ | 192,027 | $ | 213,503 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
$ | 32,388 | $ | 33,013 | ||||
| ADVANCE BILLINGS ON CONTRACTS IN PROGRESS |
2,239 | 2,781 | ||||||
| CURRENT PORTION OF LONG-TERM DEBT |
0 | 4,914 | ||||||
| SHORT TERM DEBT |
87 | 0 | ||||||
| INCOME TAXES PAYABLE |
464 | 1,432 | ||||||
| TOTAL CURRENT LIABILITIES |
35,178 | 42,140 | ||||||
| LONG-TERM DEBT |
0 | 11,808 | ||||||
| OTHER LIABILITIES |
1,404 | 1,189 | ||||||
| MINORITY INTEREST |
1,219 | 1,209 | ||||||
| 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, 18,635,699 AND 18,619,668 SHARES ISSUED |
187 | 186 | ||||||
| ADDITIONAL PAID-IN CAPITAL |
72,907 | 72,756 | ||||||
| RETAINED EARNINGS |
116,896 | 119,920 | ||||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME |
1,811 | 1,870 | ||||||
| 191,801 | 194,732 | |||||||
| TREASURY STOCK AT COST, 7,089,261 AND 7,089,261 SHARES |
(37,575 | ) | (37,575 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY |
154,226 | 157,157 | ||||||
| $ | 192,027 | $ | 213,503 | |||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(AMOUNTS IN THOUSANDS EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
| THREE MONTHS ENDED MARCH 31 |
||||||||
| 2004 |
2003 |
|||||||
| SALES AND OPERATING REVENUE |
$ | 35,649 | $ | 39,119 | ||||
| COST OF PRODUCTS & SERVICES |
31,156 | 34,269 | ||||||
| GROSS PROFIT |
4,493 | 4,850 | ||||||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
7,908 | 7,641 | ||||||
| EXPENSES RELATED TO THE SERROT ACQUISITION |
0 | 73 | ||||||
| OPERATING LOSS |
(3,415 | ) | (2,864 | ) | ||||
| OTHER (INCOME) EXPENSES: |
||||||||
| INTEREST EXPENSE |
1,519 | 644 | ||||||
| INTEREST INCOME |
(137 | ) | (102 | ) | ||||
| FOREIGN EXCHANGE (GAIN) LOSS |
215 | (258 | ) | |||||
| MINORITY INTEREST |
11 | (50 | ) | |||||
| OTHER (INCOME) EXPENSE, NET |
(144 | ) | (454 | ) | ||||
| LOSS BEFORE INCOME TAXES |
(4,879 | ) | (2,644 | ) | ||||
| INCOME TAX BENEFIT |
(1,854 | ) | (926 | ) | ||||
| NET LOSS |
$ | (3,025 | ) | $ | (1,718 | ) | ||
| BASIC AND DILUTED NET LOSS PER SHARE |
$ | (0.26 | ) | $ | (0.15 | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC AND DILUTED |
11,539 | 11,458 | ||||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
GUNDLE/SLT ENVIRONMENTAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
| THREE MONTHS ENDED MARCH 31 |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| NET LOSS |
$ | (3,025 | ) | $ | (1,718 | ) | ||
| ADJUSTMENTS TO RECONCILE NET LOSS TO CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: |
||||||||
| DEPRECIATION |
1,920 | 2,192 | ||||||
| AMORTIZATION |
763 | 170 | ||||||
| DEFERRED INCOME TAXES |
(2,184 | ) | 929 | |||||
| MINORITY INTEREST |
11 | (50 | ) | |||||
| GAIN ON SALE OF ASSETS |
(84 | ) | (361 | ) | ||||
| CHANGE IN OPERATING ASSETS AND LIABILITIES, NET OF EFFECTS FROM ACQUISITIONS: |
||||||||
| ACCOUNTS RECEIVABLE |
11,394 | 16,469 | ||||||
| CONTRACTS IN PROGRESS |
(2,082 | ) | (1,195 | ) | ||||
| INVENTORY |
(9,624 | ) | (8,036 | ) | ||||
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
(289 | ) | (149 | ) | ||||
| ADVANCE BILLINGS ON CONTRACTS IN PROGRESS |
(545 | ) | (1,428 | ) | ||||
| INCOME TAXES PAYABLE |
(887 | ) | (2,295 | ) | ||||
| OTHER ASSETS AND LIABILITIES |
(4,313 | ) | (7,334 | ) | ||||
| RESTRICTED CASH |
0 | (14,704 | ) | |||||
| NET CASH USED IN OPERATING ACTIVITIES |
(8,945 | ) | (17,510 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT |
(1,544 | ) | (1,474 | ) | ||||
| PROCEEDS FROM SALE OF EQUIPMENT |
95 | 361 | ||||||
| CASH PAID FOR ACQUISITIONS, NET OF CASH ACQUIRED |
0 | (3,747 | ) | |||||
| NET CASH USED IN INVESTING ACTIVITIES |
(1,449 | ) | (4,860 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| PROCEEDS FROM SHORT TERM DEBT |
87 | 0 | ||||||
| PROCEEDS FROM THE EXERCISE OF STOCK OPTIONS AND PURCHASES UNDER THE EMPLOYEE STOCK PURCHASE PLAN |
100 | 252 | ||||||
| RETIREMENT OF LONG-TERM DEBT |
(16,722 | ) | (1,181 | ) | ||||
| NET CASH USED IN FINANCING ACTIVITIES |
(16,535 | ) | (929 | ) | ||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH |
64 | (151 | ) | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS |
(26,865 | ) | (23,450 | ) | ||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD |
47,899 | 42,264 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF THE PERIOD |
$ | 21,034 | $ | 18,814 | ||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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 accounting principles generally accepted in the United States 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, 2004, 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, 2003.
The accounting policies followed by the Company in preparing interim condensed 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, 2003.
Organization -
Gundle/SLT Environmental, Inc., a Delaware corporation, through GSE Lining Technology, Inc. and the Company’s other operating subsidiaries, is primarily engaged in the manufacture, sale and installation of geosynthetic lining systems.
Stock-Based Compensation -
In accordance with the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation, the Company has elected to continue to follow the Accounting Principles Board Opinion (“APB”) 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock-based compensation plans. Under APB 25, if the exercise price of employee stock options equals or exceeds the fair value of the underlying stock on the date of grant, no compensation expense is recognized.
6
The following table illustrates the effect on net income (loss) and earnings (loss) per share as if the fair value method, in accordance with Statement of Financial Accounting Standards No. 123, had been applied to all outstanding and unvested awards in each period.
| Three Months Ended |
||||||||
| March 31, 2004 |
March 31, 2003 |
|||||||
| Net income (loss) applicable to common stockholders |
||||||||
| As reported |
$ | (3,025 | ) | $ | (1,718 | ) | ||
| Total stock-based employee compensation expense under fair value based method for all awards, net of tax |
180 | 217 | ||||||
| Pro forma net income (loss) applicable to common stockholders |
$ | (3,205 | ) | $ | (1,935 | ) | ||
| Basic and diluted earnings (loss) per share |
||||||||
| As reported |
$ | (.26 | ) | $ | (.15 | ) | ||
| Pro forma |
$ | (.28 | ) | $ | (.17 | ) | ||
Reclassifications -
The accompanying consolidated 2003 financial statements contain certain reclassifications to conform to the presentation used in 2004.
(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, 2004 |
December 31, 2003 | |||||
| Raw materials and supplies |
$ | 8,586 | $ | 6,197 | ||
| Finished goods |
34,059 | 27,034 | ||||
| $ | 42,645 | $ | 33,231 | |||
(3) Income Taxes -
The Company’s provision for income taxes is recorded at the statutory rates adjusted for the effect of any permanent differences. The Company has various tax holidays in Thailand through 2014.
7
(4) Warranty Reserve -
The Company accrues a warranty reserve based on estimates for warranty claims. This estimate is based on historical claims and current business activities and is accrued as a cost of sales in the period such business activity occurs. The table below reflects a summary of activity of the Company’s continuing operations for warranty obligations through March 31, 2004 (in thousands):
| Balance at December 31, 2003 |
$ | 3,618 | ||
| Application/reduction of warranty obligations |
(129 | ) | ||
| Provision/addition of warranty obligations |
34 | |||
| Balance at March 31, 2004 |
$ | 3,523 | ||
(5) Equity -
On September 18, 1998, the Company’s board of directors adopted a stock repurchase plan under which the Company was authorized to repurchase up to 1,000,000 shares of its outstanding common stock in open market transactions depending on market conditions. This amount was increased to 3,000,000 shares as of December 31, 2000. As of March 31, 2004, stockholders’ equity included 1,404,357 shares repurchased under this program. All of these transactions were funded with the Company’s available cash. At March 31, 2004, the Company had 11,546,438 shares outstanding.