Date: November 2, 2006
Source: Gundle/SLT Environmental, Inc.
Gundle/SLT Environmental, Inc. (GSE) today reported net income of $4,665,000 for the quarter ended September 30, 2006, compared with net income of $4,873,000 for the comparable period in 2005. Net loss for the first nine months of 2006 was $4,170,000, compared to net income of $1,046,000 for the first nine months of 2005.
"Although our revenue and units shipped for the third quarter were higher than those for the same period last year, our operating income for the quarter was not in line with our expectations. The decline in operating income was due primarily to the world-wide competitive nature of our business, our contractual inability to raise our selling prices to keep pace with the numerous increases in raw material prices, and the negative results from our installation services in the United Kingdom. We have decided to no longer offer installation services in the United Kingdom starting in 2007," said Samir T. Badawi, President and Chief Executive Officer.
Revenues for the third quarter of 2006 were $122.8 million, up from $97.6 million for the same quarter of 2005. The increase in revenues was primarily due to a 17.3% increase in shipments and a 7.2% increase in prices. U.S. shipments increased 18.3% and foreign shipments increased 16.4% in the third quarter of 2006 compared to the same period in 2005. The Company's newly acquired Chilean operations accounted for 59% of the increase in foreign revenues. For the first nine months of 2006, revenues were $269.7 million, up from $244.2 million for the first nine months of 2005. The increase in revenues was primarily due to a 9.1% increase in sales prices, due to higher raw material costs. U.S. shipments were 4.4% lower and foreign shipments were up 5.8% in the first nine months of 2006 compared to the same period in 2005. The increase in volumes from the newly acquired Chilean operations offset lower U.S. and European shipments. Backlog as of September 30, 2006 was $103.1 million compared with $82.8 million at the same time last year. Backlog was $8.0 million higher in the U.S. and $12.3 million higher in foreign markets.
Gross profit for the third quarter of 2006 was $18.6 million, compared with $21.3 million in the third quarter of 2005. Gross profit as a percentage of sales and operating revenues, was 15.1% for the third quarter of 2006, compared to 21.8% for the third quarter of 2005. The decline resulted primarily from the Company's inability to raise sales prices soon enough to match the increase in raw material costs. Gross profit on a dollar per unit basis in the third quarter of 2006 was $0.065 lower than the same period in 2005. Gross profit for the first nine months of 2006 was $37.6 million compared to $42.5 million in the first nine months of 2005. The decline in profit was primarily due to lower margins on a dollar per unit basis in the first nine months of 2006 compared to the same period in 2005.
Selling, general and administrative expenses were $8.3 million for the third quarter of 2006, compared to $8.5 million in the third quarter of 2005. The decline in SG&A expenses in the third quarter of 2006 was due to lower bad debt expenses when compared to the same period in 2006. The increase of $717,000 related to the newly acquired Chilean operations was partially offset by expenses of $623,000 for legal and professional fees and out-of-pocket expenses related to the investigation of a potential acquisition candidate during the third quarter of 2005. For the first nine months of 2006, selling, general and administrative expenses were $27.8 million compared to $25.4 million for the same period in 2005. The increase was primarily due to the newly acquired Chilean operations, the increase in legal reserves, and stock option compensation recorded in the first quarter of 2006.
Interest expense for the third quarter of 2006 of $5.7 million was up $852,000, compared to the prior year third quarter primarily from higher interest rates, increased levels of debt and accretion of the fair market value adjustment recorded due to hedge accounting being discontinued at the beginning of 2006. As the result of a recently issued SFAS 133 Interpretation, the Company recorded in other income $1,974,000 for the change in the market value of the interest rate swap during the third quarter of 2006. Prior to this interpretation, we classified the swap as a hedge.
Earnings before interest, taxes, depreciation and amortization, or EBITDA, as adjusted in accordance with the terms of the Company's credit agreement for its senior credit facility, was $16.1 million for the third quarter of 2006, compared to $17.6 million for the comparable period in 2005. For the first nine months of 2006, adjusted EBITDA was $27.2 million compared to $31.1 million for the same period in 2005.
GSE recently acquired the operating assets, patent and other intangible assets of ProGreen Sport Surfaces, LLC, who was in the business of marketing, selling and installing synthetic turf for athletic fields. In addition, the Company acquired the exclusive rights to a patent pending storm water detention system from GeoStorage Corporation. Both of these acquisitions show potential for providing above average market growth. "These two new markets are consistent with GSE's ongoing diversification strategy. We now have the opportunity to combine our current environmental geosynthetic products and installation services business with the artificial turf business of ProGreen and the storm water detention system of GeoStorage", said Samir T. Badawi, GSE CEO and President.
Third Quarter Conference Call
The Company will host a conference call on Friday, November 3, 2006, at 10:00am (ET). This call will discuss results of operations for the third quarter of 2006 and answer questions from participants.
Note holders may join in the conference call by dialing 800.946.0705 or, if calling from outside the United States, 719.457.2637, and enter conference ID# 9748708. The conference call will also be broadcast live over the internet. To access the webcast, go to www.gseworld.com, the investor relations page, at least 15 minutes prior to the start of the call to register and to download and install any necessary audio software. If you are unable to participate in the live call, the webcast of the conference call will be available at the Web site listed above following the event and will be available until the close of business November 27, 2007.
About Gundle/SLT Environmental, Inc.
Gundle/SLT Environmental, Inc., headquartered in Houston, is a global manufacturer and marketer of geosynthetic lining solutions, products and services used in the containment and management of solids, liquids and gases for organizations engaged in waste management, mining, water and wastewater treatment, and aquaculture.
For more information contact
Kelvin R. Collard (281) 230-2512
www.gseworld.com/investor-relations.htm.
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