<PAGE> 1
UNITED STATES
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 December 31, 1995
OR
( ) 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 0-10068
ICO, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1619554
- ------------------------ ------------------------------------
(State of incorporation) (IRS Employer Identification Number)
100 Glenborough Drive, Suite 250, Houston, Texas 77067
- ------------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
(713) 872-4994
------------------
(Telephone Number)
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 was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Common stock, without par value: 8,927,361 shares
outstanding as of January 31, 1996
<PAGE> 2
ICO, INC.
INDEX TO QUARTERLY REPORT FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations for the Three
Months Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets as of December 31, 1995 and
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Item 3. Defaults upon Senior Securities
(no response required) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Item 4. Submission of Matters to a Vote of Security Holders
(no response required) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Item 5. Other Information (no response required) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
ICO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Exploration services $ 7,565,000 $ 7,420,000
Production services 4,737,000 4,598,000
Corrosion Control services 4,973,000 4,209,000
Product sales 3,825,000 3,174,000
Other sales and services 651,000 834,000
----------- -----------
21,751,000 20,235,000
----------- -----------
Cost and expenses:
Cost of sales and services 15,145,000 14,292,000
Selling, general and administrative 4,054,000 3,767,000
Depreciation and amortization 1,339,000 1,223,000
----------- -----------
20,538,000 19,282,000
----------- -----------
Operating income 1,213,000 953,000
Interest income, net 376,000 282,000
----------- -----------
Income before income taxes 1,589,000 1,235,000
Income taxes 89,000 30,000
----------- -----------
Net income $ 1,500,000 $ 1,205,000
=========== ===========
Earnings per common and common
equivalent share:
Net income $ .11 $ .08
=========== ===========
Weighted average shares outstanding 8,908,797 8,610,168
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
2
<PAGE> 4
ICO, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
-------------- --------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 24,492,000 $ 24,991,000
Trade receivables (less allowance for
doubtful accounts of $907,000 and
$828,000, respectively) 16,172,000 18,050,000
Inventories 5,277,000 4,873,000
Prepaid expenses and other 2,975,000 2,035,000
-------------- --------------
Total current assets 48,916,000 49,949,000
-------------- --------------
Property, plant and equipment, at cost 85,428,000 83,461,000
Less - accumulated depreciation and
amortization (54,739,000) (53,637,000)
-------------- --------------
30,689,000 29,824,000
-------------- --------------
Other assets:
Goodwill, net 4,401,000 4,474,000
Deferred tax asset 1,633,000 1,633,000
Patents and licenses, net 223,000 229,000
Other 1,996,000 2,074,000
-------------- --------------
$ 87,858,000 $ 88,183,000
============== ==============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
3
<PAGE> 5
ICO, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
---------------- ----------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 598,000 $ 635,000
Accounts payable 7,223,000 5,622,000
Accrued insurance 1,545,000 1,731,000
Accrued salaries and wages 268,000 1,351,000
Income taxes payable 259,000 1,209,000
Accrued expenses 1,801,000 2,117,000
---------------- ----------------
Total current liabilities 11,694,000 12,665,000
---------------- ----------------
Long-term debt, net of current portion 1,059,000 1,047,000
---------------- ----------------
Stockholders' equity:
Preferred stock, without par value -
500,000 shares authorized;
322,500 shares issued and outstanding
with a liquidation preference of $32,250,000 13,000 13,000
Common stock, without par value-
50,000,000 shares authorized; 8,927,361 and
8,883,911 shares issued and outstanding,
respectively 35,237,000 35,042,000
Additional paid in capital 55,988,000 56,058,000
Accumulated deficit (16,133,000) (16,642,000)
---------------- ----------------
75,105,000 74,471,000
---------------- ----------------
Commitments and contingencies (see Notes 5 & 10)
$ 87,858,000 $ 88,183,000
================ ================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
4
<PAGE> 6
ICO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 23,605,000 $ 20,192,000
Cash paid to suppliers and employees (20,369,000) (17,025,000)
Interest received net of interest paid 376,000 278,000
Income taxes paid (1,039,000) ---
-------------- --------------
Net cash provided by operating activities 2,573,000 3,445,000
-------------- --------------
Cash flows from investing activities:
Capital expenditures (2,264,000) (1,296,000)
Acquisitions (11,000) (348,000)
Dispositions of property, plant and equipment 24,000 ---
-------------- --------------
Net cash used in investing activities (2,251,000) (1,644,000)
-------------- --------------
Cash flows from financing activities:
Net proceeds from sale of stock 195,000 15,000
Payment of dividend on preferred stock (544,000) (544,000)
Payment of dividend on common stock (447,000) ---
Additions and refinanced debt --- 142,000
Reductions of debt (25,000) (18,000)
-------------- --------------
Net cash used for financing activities (821,000) (405,000)
-------------- --------------
Net increase (decrease) in cash (499,000) 1,396,000
Cash at beginning of period 24,991,000 24,763,000
-------------- --------------
Cash at end of period $ 24,492,000 $ 26,159,000
============== ==============
</TABLE>
(continued on next page)
The accompanying notes are an integral part of
these financial statements.
5
<PAGE> 7
(continued from prior page)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 1,500,000 $ 1,205,000
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,339,000 1,223,000
Gain on disposition of property, plant, and equipment (18,000) ---
Change in assets and liabilities:
(Increase) decrease in receivables 1,872,000 (457,000)
(Increase) decrease in inventories (348,000) 240,000
(Increase) decrease in prepaid expenses
& other current assets (940,000) 174,000
(Increase) decrease in other assets 77,000 (90,000)
Increase (decrease) in accounts payable 1,596,000 1,582,000
Increase (decrease) in accrued expenses (2,505,000) (432,000)
------------ ------------
Total adjustments 1,073,000 2,240,000
------------ ------------
Net cash provided (utilized) by operating activities $ 2,573,000 $ 3,445,000
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
6
<PAGE> 8
ICO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements," and accordingly do not include all information and footnotes
required under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the ICO, Inc. (the Company)
Annual Report on Form 10-K for the year ended September 30, 1995. In the
opinion of management, these interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of December 31, 1995,
the results of its operations for the three months ended December 31, 1995 and
1994 and the changes in its cash position for the three months ended December
31, 1995 and 1994. Results of operations for the three month period ended
December 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1996. For additional information,
refer to the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1995.
Certain revenue reclassifications have been made for the quarter ended December
31, 1994 to enhance comparability with the same quarter of 1995.
NOTE 2. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS' EQUITY
Cumulative translation adjustment of $(118,000) has been included in
accumulated deficit.
Earnings per share is based on earnings applicable to common shareholders and
is calculated using the weighted-average number of common shares outstanding.
At December 31, 1995 and 1994, outstanding options and warrants did not have a
materially dilutive effect. Reacquired shares are excluded from the weighted
average calculation from the date of their acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
For the three months ended December 31, 1995 cash provided by operating
activities decreased from $3,445,000 for the quarter ended December 31, 1994 to
$2,573,000 for the quarter ended December 31, 1995. The decrease resulted
primarily from increased taxes paid during the quarter ended December 31, 1995
relative to the same quarter in 1994. The Company had working capital of
$37,222,000 at December 31, 1995.
Expenditures for property, plant and equipment totaled $2,264,000 during the
quarter. The expenditures were incurred to enhance existing facilities and to
purchase and manufacture inspection equipment related
7
<PAGE> 9
ICO, INC.
to new inspection contracts with customers. For the remainder of fiscal 1996,
capital expenditures, exclusive of expenditures related to the merger with
Wedco Technology Inc., are planned to be approximately $3,500,000 and are
expected to be financed through cash generated from operations and existing
cash.
During fiscal year 1995, the Company made three acquisitions which included: R.
J. Dixon, Inc. - "Spinco" (June 1995), the assets of Kebco Pipe Inspection,
Inc. (March 1995) and B&W Equipment Sales and Mfg., Inc. (October 1994). The
1995 acquisitions were accounted for under the purchase method of accounting.
The pro forma effects of these acquisitions are not material, and, as such, are
not presented.
The Company and Wedco Technology, Inc. ("Wedco") have entered into a definitive
merger agreement for the merger of Wedco into a subsidiary of ICO. In the
proposed merger, Wedco shareholders will receive the choice of either (i) 2.2
ICO common shares and $3.50 cash or (ii) 2.84 ICO common shares for each Wedco
share. After the merger, the Board of Directors of ICO will have nine members,
six designated by ICO and three designated by Wedco and the issuance of ICO
common shares pursuant to the merger is subject to shareholder approval by ICO
shareholders. The merger is subject to approval by Wedco shareholders. Both
companies expect to hold shareholder meetings in April 1996 to consider the
merger.
Among the conditions to the consummation of the merger are the execution and
delivery of certain ancillary agreements; including a shareholders agreement
("Shareholders Agreement") between certain shareholders of ICO, who in the
aggregate own approximately 14% of ICO's outstanding common shares, and certain
shareholders of Wedco, who in the aggregate own approximately 54.6% of Wedco's
outstanding common shares. The shareholders will agree to take all actions
necessary or appropriate to cause the election of William E. Willoughby, Walter
L. Leib and George S. Sirusas to the Board of Directors of the combined company
for terms beginning immediately after the effective time of the merger and
ending on the date of the combined company's annual shareholders meeting in
1996 in the case of Mr. Willoughby, the date of its annual shareholders meeting
in 1997 in the case of Mr. Leib and the date of its annual shareholders meeting
in 1997 in the case of Mr. Sirusas and to cause the reelection of Messrs.
Willoughby and Leib to the Board of Directors of the combined company for
additional three year terms when their respective initial terms expire. The
shareholders will also agree that after the foregoing terms of Messrs.
Willoughby, Leib and Sirusas have expired, they will continue to take all
actions necessary or appropriate to cause their reelections to the Board of
Directors of the combined company until the earlier of the time the Wedco
shareholders who are parties to the Shareholders Agreement, taken as a whole,
beneficially own less than 1,500,000 shares of Common Stock of the combined
company (or as adjusted) or there is a "change in control" of the combined
company (as defined), when the ICO shareholders who are parties to the
Shareholders Agreement shall no longer be obligated to cause the reelection of
such persons to its Board of Directors ("Termination Date"). In addition, if
Mr. Willoughby, Mr. Leib or Mr. Sirusas shall cease to serve as a director of
the combined company at any time prior to the Termination Date, the
shareholders will agree to take all actions necessary or appropriate to ensure
that the vacancy created shall be filled by a person nominated by the others,
subject to the consent of a majority of the full board of Directors of the
combined company.
In addition to the foregoing, all the ICO shareholders who are parties to the
Shareholders Agreement will grant irrevocable proxies coupled with an interest
to Mr. Leib and Edward N. Barol to vote their shares of Common Stock of the
combined company in favor of the slate of nominees for its Board of Directors
selected by the then incumbent members of the Board of Directors of the
combined company (the
8
<PAGE> 10
ICO, INC.
"Nominated Slate") and all the Wedco shareholders who are parties to the
Shareholders Agreement will grant substantially identical proxies to Sylvia A.
Pacholder and Dr. Asher O. Pacholder to vote their shares of Common Stock of
the combined company also in favor of the Nominated Slate.
The Shareholders Agreement also provides that after the Merger and with respect
to Wedco, Sylvia A. Pacholder will be its President and Chief Executive Officer
and Dr. Asher O. Pacholder will be its Chairman of the board and Chief
Operating Officer. Wedco's Articles of Incorporation will be amended to
provide that the Chairman of the Board, President, CEO, COO or any person who
shall hold any other office, position or title having similar functions or
authority to the functions of the Chairman of the board, President, CEO or COO
or who shall have equivalent operating authority of Wedco will be elected by an
unanimous vote of the Wedco board of Directors. In addition, the combined
company will elect Mr. Willoughby as a director of Wedco. If he is unable or
ceases to serve, it will elect Mr. Leib. If he is unable or ceases to serve,
it will elect Mr. Barol. If he is unable or ceases to serve, a person
nominated by Messrs. Willoughby, Leib and Sirusas and/or their respective
successors on the Board of Directors of the combined company will be elected.
Wedco's principal business is providing size-reduction services, such as the
grinding of plastic pellets to powder, and related processing services
primarily to the petrochemical industry and also to other industries that
require powder in their operations. Wedco is the largest provider of
size-reduction services for new petrochemicals in the United States and one of
the largest providers of such services in Western Europe. Wedco also
manufactures equipment designed to provide grinding and other ancillary
services.
RESULTS OF OPERATIONS:
For the three months ended December 31, 1995 the Company had net income of
$1,500,000 compared to net income of $1,205,000 during the corresponding
period of the prior year. The Company's earnings before interest, taxes and
depreciation for the quarter ended December 31, 1995 were $2,552,000 compared
to $2,176,000 for the quarter ended December 31, 1994, an increase of 17%.
Revenues increased 7.5 % in the three months ended December 31, 1995 as
compared to the same period last year.
Revenues from exploration services increased $145,000 or 2% from the quarter
ended December 31, 1994 to the same quarter in 1995 despite a decrease in the
domestic rig count which averaged approximately 750 during the quarter ended
December 31, 1995 compared to an average of approximately 820 for the quarter
ended December 31, 1994. The increase in revenues was primarily due to
increased mill and mill processor inspection services, offset by lower new pipe
inspection revenues at the Company's Houston, Texas facility.
Revenues from production services, which include used tubular and sucker rod
services, increased $139,000 or 3% from the quarter ended December 31, 1994 to
the same quarter in 1995. The increase was primarily due to growth in services
revenues within the Company's Texas production services operations (partially
due to the acquisition of Kebco) offset by lower revenues resulting from a
decline in demand for the Company's tubular and sucker rod inspection and
reconditioning services in the Oklahoma and Wyoming markets.
Revenues from corrosion control, which include internal coating and lining
services, increased $764,000
9
<PAGE> 11
ICO, INC.
or 18% for the quarter ended December 31, 1995 when compared to the same
quarter in 1994. This increase was due to revenue increases at all of the
Company's liquid and powder coating facilities during the quarter ended
December 31, 1995 versus the same quarter of 1994.
Product sales increased $651,000 or 21% from the quarter ended December 31,
1994 to the same quarter in 1995. The increase was primarily due to increased
international product sales as well as greater revenues for B&W.
Revenues from other sales and services, which consist of revenues generated by
Shearer Supply Ltd., a wholly owned subsidiary in Canada, related to
reconditioning engines utilized in connection with pumping units of oil wells,
decreased $183,000 or 22% from the quarter ended December 31, 1994 to the same
quarter in 1995.
Gross profits as a percentage of revenues increased to 30.4% during the quarter
ended December 31, 1995 versus 29.4% during the same quarter of 1994. The
increase in gross margin percentage is due primarily to increased sales volume
which increased the utilization of the Company's facilities. Selling, general
and administrative costs as a percentage of net revenues were 18.6% for the
quarters ended December 31, 1995 and 1994.
Depreciation and amortization expense increased from $1,223,000 for the quarter
ended December 31, 1994 to $1,339,000 for the quarter ended December 31, 1995.
The increase resulted from additions of property, plant and equipment during
the twelve months ended December 31, 1995.
Net interest income was $376,000 during the quarter ended December 31, 1995;
for the quarter ended December 31, 1994, the Company had net interest income of
$282,000. This change resulted from increased yields on the Company's high-
quality commercial paper portfolio in the quarter ended December 31, 1995
versus the same quarter in 1994.
Income tax expense reflects the utilization of net operating loss carryforwards
during the quarters ended December 31, 1994 and 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On December 18, 1995 the Company filed a Form 8-K Current Report to announce
that the Company had entered into a definitive merger agreement for the merger
of Wedco Technology, Inc. into a subsidiary of ICO.
10
<PAGE> 12
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.
ICO, Inc.
-----------------------------------
(Registrant)
/s/ Asher O. Pacholder
-----------------------------------
February 13, 1996 Asher O. Pacholder
Chairman and Chief Financial Officer
(Principal Financial Officer)
/s/ Jon C. Biro
-----------------------------------
Jon C. Biro, Controller & Treasurer
(Principal Accounting Officer)
11
<PAGE> 13
INDEX TO EXHIBITS
Exhibit Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY FILING ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 24,492,000
<SECURITIES> 0
<RECEIVABLES> 17,079,000
<ALLOWANCES> 907,000
<INVENTORY> 5,277,000
<CURRENT-ASSETS> 48,916,000
<PP&E> 85,428,000
<DEPRECIATION> 54,739,000
<TOTAL-ASSETS> 87,858,000
<CURRENT-LIABILITIES> 11,694,000
<BONDS> 0
<COMMON> 35,237,000
0
13,000
<OTHER-SE> 39,855,000
<TOTAL-LIABILITY-AND-EQUITY> 87,858,000
<SALES> 21,751,000
<TOTAL-REVENUES> 22,127,000
<CGS> 15,145,000
<TOTAL-COSTS> 20,538,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,589,000
<INCOME-TAX> 89,000
<INCOME-CONTINUING> 1,500,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,500,000
<EPS-PRIMARY> .11
<EPS-DILUTED> 0
</TABLE>
