<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K A
AMENDMENT TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
ICO, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 0-10068 75-1619554
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
11490 Westheimer, Suite 1000, Houston, Texas 77077
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 721-4200
----------------------------
AMENDMENT NO. 1
The undersigned Registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on Form
8-K dated May 14, 1996 as set forth in the pages attached hereto.
<PAGE> 2
<TABLE>
<CAPTION>
Item 7. Financial Statements and Exhibits PAGE
--------------------------------- ----
<S> <C> <C>
I. Unaudited Pro Forma Combined Financial Statements:
Unaudited Pro Forma Combined Statement of Operations for the year ended
September 30, 1995 F-1
Unaudited Pro Forma Combined Statement of Operations for the six months
ended March 31, 1996 F-2
Unaudited Pro Forma Combined Balance Sheet at March 31, 1996 F-3
Notes to Unaudited Pro Forma Combined Financial Statements F-4
II. Financial Statements of Wedco Technology, Inc.
Independent Auditors' Report F-6
Consolidated Balance Sheets - March 31, 1996 and 1995 F-7
Consolidated Statements of Income for the years ended March 1996,
1995, and 1994 F-9
Consolidated Statements of Changes in Stockholders' Equity for the
years ended March 31, 1996, 1995 and 1994 F-10
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995 and 1994 F-11
Notes to Financial Statements F-13
III. Exhibits F-31
</TABLE>
<PAGE> 3
I. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial information, including the
notes thereto, give effect to the merger of ICO and Wedco and are qualified in
their entirety by reference to, and should be read in conjunction with the
historical consolidated financial statements and the notes thereto of ICO and
Wedco incorporated herein by reference.
The pro forma combined financial statements are based on the purchase
method of accounting. The unaudited pro forma consolidated condensed balance
sheet at March 31, 1996, assumes the merger was consummated as of March 31,
1996 and the unaudited pro forma consolidated condensed statements of
operations assume the merger was consummated as of the beginning of each of the
periods presented.
The pro forma data is presented for informational purposes only and is not
necessarily indicative of the operating results or financial position that
would have occurred had the merger been consummated at the dates indicated, nor
is such data necessarily indicative of future operating results or financial
position. There is no assurance that similar results will be achieved in the
future.
ICO/WEDCO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
ICO WEDCO (1) ADJUSTMENTS COMBINED
--------- --------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales and services revenues . . . . . . . . . $ 87,887 $ 45,408 $ 133,295
--------- --------- ----------
Costs and Expenses:
Cost of sales and services . . . . . . . . . . . 59,885 27,923 87,808
Selling, general and administrative . . . . . . . 17,840 8,020 (1,377)(a) 24,483
--------- --------- ----------
Income before interest, taxes depreciation and
amortization . . . . . . . . . . . . . . . . . 10,162 9,465 21,004
--------- --------- ----------
Depreciation and Amortization . . . . . . . . . . 5,112 3,786 70 (b) 8,968
Interest, net . . . . . . . . . . . . . . . . . . (1,307) 1,434 197 (c) 324
Equity loss of Joint Ventures . . . . . . . . . . (179) (179)
Other, net . . . . . . . . . . . . . . . . . . . 96 96
--------- --------- ----------
Income before income taxes . . . . . . . . . . . 6,357 4,328 11,795
--------- --------- ----------
Current provision for income taxes . . . . . . . 2,200 1,456 98 (d) 3,754
Deferred tax expense (benefit) . . . . . . . . . (1,633) 198 2,853 (d) 1,418
--------- --------- ----------
Total tax expense . . . . . . . . . . . . . . . . 576 1,654 5,172
--------- --------- ----------
Net Income . . . . . . . . . . . . . . . . . . . $ 5,790 $ 2,674 $ 6,623
========= ========= ==========
Earnings per common and common equivalent
share . . . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.74 $ 0.24
========= ========= ==========
Weighted average shares outstanding . . . . . . . 8,709,303 3,616,038 6,525,603 (e) 18,850,944
========= ========= ==========
</TABLE>
- ----------------------------------
(1) Wedco historical amounts were derived from the unaudited quarterly
financial statements of Wedco for the applicable period to conform to ICO's
fiscal year-end.
F-1
<PAGE> 4
ICO/WEDCO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
ICO WEDCO (1) ADJUSTMENTS COMBINED
--------- --------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales and services revenues . . . . . . . . . $ 43,872 $ 20,797 $ 64,669
--------- --------- ----------
Costs and Expenses:
Cost of sales and services . . . . . . . . . . . 30,668 13,464 44,132
Selling, general and administrative . . . . . . . 7,775 4,889 (726) (a) 11,938
--------- --------- ----------
Income before interest, taxes depreciation and
amortization . . . . . . . . . . . . . . . . . 5,429 2,444 8,599
--------- --------- ----------
Depreciation and Amortization . . . . . . . . . . 2,676 2,058 35 (b) 4,769
Interest, net . . . . . . . . . . . . . . . . . . (705) 725 98 (c) 118
Equity in Income of Joint Ventures . . . . . . . (20) (20)
Other, net . . . . . . . . . . . . . . . . . . . 572 572
--------- --------- ----------
Net Income before income taxes . . . . . . . . . 3,458 (891) 3,160
--------- --------- ----------
Current provision for income taxes . . . . . . . 539 (60) 45 (d) 596
Deferred tax expense (benefit) . . . . . . . . . (355) 0 1,424 (d) 997
--------- --------- ----------
Total tax expense . . . . . . . . . . . . . . . . 184 (60) 1,593
--------- --------- ----------
Net Income . . . . . . . . . . . . . . . . . . . $ 3,274 $ (831) $ 1,567
========= ========= ==========
Earnings per common and common equivalent
share . . . . . . . . . . . . . . . . . . . . $ 0.25 $ (0 .23) $ 0.03
========= ========= ==========
Weighted average shares outstanding . . . . . . . 8,918,028 3,637,545 6,525,603 (e) 19,081,176
========= ========= ==========
</TABLE>
F-2
<PAGE> 5
ICO/WEDCO UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA
ICO WEDCO RECLASSIFICATIONS ADJUSTMENTS COMBINED
-------- --------- ----------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents . . . . . . . . . . $ 22,415 $ 593 $ (3,582)(f) $ 19,426
Trade Receivables, net . . . . . . . . . . . 15,952 6,934 22,886
Inventories . . . . . . . . . . . . . . . . . 5,915 1,369 7,284
Prepaid Expenses and Other . . . . . . . . . 2,894 992 3,886
Current deferred tax asset . . . . . . . . . 1,233 (j) 1,940
707 (k)
-------- --------- ----------
Total Current Assets 47,176 9,888 55,422
-------- --------- ----------
Property, Plant and Equipment, net . . . . . 31,537 40,954 2,400 (g) 74,891
Investment in joint ventures . . . . . . . . 4,596 (1,174)(h) 3,422
Due from related parties . . . . . . . . . . 757 757
Goodwill . . . . . . . . . . . . . . . . . . 4,371 25,355 (i) 29,726
Deferred tax asset . . . . . . . . . . . . . 1,989 (2,182)(1) 2,632 (j) 1,608
(831)(k)
Other assets . . . . . . . . . . . . . . . . 2,531 37 400 (l) 1,991
(977)(m)
-------- --------- ----------
TOTAL ASSETS $ 87,604 $ 56,232 $ 167,817
======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable . . . . . . . . . . . . . . . . $ $ 5,054 $ 5,054
Current portion of long-term debt . . . . . . 619 1,807 2,426
Accounts Payable . . . . . . . . . . . . . . 6,283 2,400 8,683
Accrued Expenses and other liabilities . . . 3,714 3,866 1,725 (n) 9,305
-------- --------- ----------
Total Current Liabilities . . . . . 10,616 13,127 25,468
-------- --------- ----------
Long-term debt . . . . . . . . . . . . . . . 1,101 14,146 15,247
-------- --------- ----------
Deferred income taxes . . . . . . . . . . . . 2,182 (2,182)(1)
-------- --------- ----------
Other Liabilities . . . . . . . . . . . . . . 507 507
-------- --------- ----------
Stockholders Equity
Preferred stock . . . . . . . . . . . . 13 13
Common stock . . . . . . . . . . . . . . 35,237 409 101 (o) 35,338
. . . . . . . . . . . . . . . . . . . . (409)(o)
Additional paid-in capital . . . . . . . 55,987 11,159 50,607 (o) 106,594
(11,159)(o)
Cumulative translation adjustment . . . (120) 1,379 (1,379)(o) (120)
Retained earnings (deficit) . . . . . . (15,230) 16,601 (16,601)(o) (15,230)
Treasury Stock . . . . . . . . . . . . . (3,278) 3,278 (o)
-------- --------- --------- -------- ----------
Total Stockholders' Equity . . . . 75,887 26,270 126,595
-------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY . . . . . . . . . . . . . . . . . . $ 87,604 $ 56,232 $ 0 $ 0 $ 167,817
======== ========= ========= ======== ==========
</TABLE>
- --------------
(1) To net deferred tax liabilities with deferred tax assets.
F-3
<PAGE> 6
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
NOTE 1 - PRO FORMA FINANCIAL STATEMENTS
The total number of shares of ICO common stock issued to Wedco Shareholders
exceeded the ICO common shares outstanding immediately prior to the
consummation of the merger. Nevertheless, management believes the merger is
properly accounted for as a forward merger (i.e., ICO being the acquirer) as
opposed to a reverse merger. This conclusion is based upon the following
factors tht clearly indicate ICO should be treated as the acquirer: (i) the
Chairman and the Chief Executive Officer of ICO prior to the merger will
continue to be the Chairman and the Chief Executive Officer of the combined
company, (ii) the combined Company's board of directors immediately following
the merger consisted of three directors selected by former Wedco controlling
shareholders and six selected by ICO management, (iii) the execution of a
shareholders agreement regarding (i) and (ii) above and (iv) the assets,
revenues, recent net earnings and current market value of ICO prior to the
merger significantly exceeded those of Wedco.
The following summarizes the estimated purchase price (in thousands):
<TABLE>
<S> <C>
ICO Common Stock issued to Wedco shareholders . . . . . . . . . . . . . . . . 50,208
Cash paid to Wedco shareholders . . . . . . . . . . . . . . . . . . . . . . 2,088
Direct acquisition costs incurred by ICO . . . . . . . . . . . . . . . . . . . 1,480
-------
53,776
-------
Assumption of Wedco's Liabilities . . . . . . . . . . . . . . . . . . . . . . 29,962
Liabilities assumed, pro forma adjustments . . . . . . . . . . . . . . . . . . 1,725
-------
Total Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $85,463
=======
</TABLE>
The Company has engaged a valuation consultant to determine a reasonable value
for the common stock issued to Wedco shareholders. A preliminary value of $5
per share has been used for these pro forma financial statements. A final
determination of fair value will be made prior to the combined Company's first
quarterly filing.
NOTE 2 - WEDCO HISTORICAL PRESENTATION
Certain amounts reported in Wedco's historical financial statements have
been reclassified to conform to the ICO presentations in the accompanying
unaudited pro forma financial statements.
NOTE 3 - PRO FORMA ADJUSTMENTS
Statements of Income:
(a) To remove merger costs expensed by Wedco ($440,000 for the twelve
months ended September 30, 1995 and $257,000 for the six months ended March 31,
1996), incremental cost savings for Wedco no longer being a separate public
company ($250,000 per year) and to reflect cost savings resulting from the
retirement of certain Wedco executives ($687,000 per year).
(b) To increase amortization for intangibles (including goodwill) and reduce
depreciation for machinery and equipment. Historically, Wedco depreciated
machinery and equipment over 10 years. Select assets which have useful lives
in excess of this time period will be depreciated over their estimated useful
life after the merger. Goodwill is amortized over a useful life of 40 years
and value allocated to non-compete agreements is amortized over the 10-year
term of the agreement.
ICO has analyzed the past and expected future operating performance of
Wedco, the competitive and
F-4
<PAGE> 7
regulatory environment in which Wedco operates and has assessed the expected
future life of Wedco's basic technology concluding that, as of the acquisition
date, the future life of goodwill is forty years or greater. Accordingly,
goodwill is amortized over an estimated useful life of 40 years, an allowable
life under APB 17. ICO's policy is to periodically review goodwill and other
intangibles to assess recoverability and review the impact of events and
circumstances which may warrant a revision to the estimated useful life.
Impairments would be recognized in operating results if a permanent diminution
in value were to occur.
(c) To reflect the reduced interest income on cash to be used to consummate
the merger.
(d) To reflect the tax effect of pro forma income statement adjustments and
increase income tax expense resulting from pro forma adjustments to deferred
tax balances including the reversal of ICO's valuation allowance on deferred
tax assets at September 30, 1995. In fiscal year 1995, ICO recognized a
$1,633,000 ($.18 per share) tax benefit as a reversal of the valuation
allowance to the extent taxes had been paid. ICO also recognized a tax benefit
of $1,035,000 ($.12 per share) resulting from the utilization of approximately
$2.9 million of net operating loss carry forwards in fiscal year 1995. During
the six months ended March 31, 1996 $.11 of ICO's $.25 earnings per share were
attributable to the recognition of a net operating loss carryforward benefit.
During the same period $.04 of the $.25 was due to the benefit of a change in
the Company's valuation allowance against net tax assets. These amounts are
reversed in the pro forma statement of operations.
While ICO will continue to realize a cash savings from $6,306,000 (i.e., a
tax benefit of $2,207,000) in net operating loss carryforwards (at March 31,
1996) for tax purposes after the merger, future benefits resulting from the
utilization of these loss carry forwards will no longer be recognized in the
income statements prepared in accordance with generally accepted accounting
principles.
(e) To give effect to weighted average shares issued in connection with the
merger, including 100,000 common shares issued to advisers of ICO.
Balance Sheet
(f) To reflect additional cash consideration and expected direct expenses to
be paid by ICO and Wedco in connection with the merger.
(g) To increase Wedco's property, plant and equipment to estimated fair
market value. The adjustment to Wedco's real estate is based upon appraisals
performed after the closing of the merger. Machinery and equipment book value
was increased to replacement value based upon a detailed revaluation, utilizing
historical experience and recent purchase prices.
(h) To decrease Wedco's investment in the WedTech/Canadian joint venture to
estimated fair value.
(i) To reflect the excess purchase price over fair value of net tangible
assets acquired allocated to goodwill.
(j) To remove ICO's March 31, 1996 valuation allowance on deferred tax
assets. In accordance with Financial Accounting Standard 109, the need for the
valuation allowance will no longer exist as of the effective date of the
merger.
(k) To increase Wedco's deferred tax balances to reflect purchase price
accounting adjustments.
(l) To reflect the fair value of non-compete agreements with former Wedco
executives.
(m) Consists of capitalized acquisition costs through March 31, 1996.
(n) Consists of severance and consulting costs payable to former Wedco
officers. These costs will be recorded as liabilities assumed and will have
the effect of increasing goodwill.
(o) To eliminate Wedco stockholders' equity accounts and reflect the
estimated value of shares issued in connection with the acquisition.
F-5
<PAGE> 8
II. FINANCIAL STATEMENTS OF WEDCO TECHNOLOGY, INC.
Report of Independent Accountants
To the Stockholders and
Board of Directors of Wedco Technology, Inc.:
We have audited the consolidated balance sheets of Wedco Technology, Inc. and
Subsidiaries as of March 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, a well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wedco Technology,
Inc. and Subsidiaries as of March 31, 1996 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Princeton, New Jersey
June 25, 1996
F-6
<PAGE> 9
WEDCO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 593,452 $ 1,039,760
Accounts receivable, less allowance
for doubtful accounts of $56,781
in 1996 and $52,568 in 1995 6,933,820 7,960,327
Due from related parties-current 246,002 760,686
Inventories 1,369,362 2,031,009
Prepaid expenses and other current assets 745,489 990,303
----------- -----------
Total current assets 9,888,125 12,782,085
----------- -----------
PROPERTY, PLANT AND EQUIPMENT,
less accumulated depreciation of
$29,383,361 in 1996 and $26,324,868
in 1995 38,655,673 37,217,297
----------- -----------
OTHER ASSETS:
Investment in joint ventures 4,595,506 4,801,795
Land 2,298,109 2,298,109
Due from related parties 757,288 833,987
Other 36,831 59,919
----------- -----------
Total other assets 7,687,734 7,993,810
----------- -----------
TOTAL $56,231,532 $57,993,192
=========== ===========
</TABLE>
F-7
<PAGE> 10
WEDCO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 5,054,156 $ 3,103,827
Current maturities of long-term debt 1,806,972 1,761,020
Accounts payable 2,399,876 3,688,585
Accrued payroll 1,395,558 999,229
Accrued expenses 384,895 354,100
Accrual for environmental cleanup 69,000 72,000
Federal, state and foreign income taxes payable 727,193 903,841
Other current liabilities 1,288,974 1,166,260
----------- -----------
Total current liabilities 13,126,624 12,048,862
----------- -----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 14,146,118 15,721,787
----------- -----------
ACCRUAL FOR ENVIRONMENTAL CLEANUP 183,718 249,327
----------- -----------
DEFERRED INCOME TAXES 2,182,073 2,762,546
----------- -----------
DEFERRED COMPENSATION 323,345 100,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, authorized
10,495,000 shares in 1996 and 1995
issued 4,094,891 shares in 1996 and 1995 409,489 409,489
Additional paid-in capital 11,159,205 11,159,205
Retained earnings 16,600,773 16,740,328
Equity adjustment from foreign
currency translation 1,378,547 2,080,008
----------- -----------
Total 29,548,014 30,389,030
Less treasury stock-at cost,
527,106 shares in 1996 and 1995 (3,278,360) (3,278,360)
----------- -----------
Stockholders' equity-net 26,269,654 27,110,670
----------- -----------
TOTAL $56,231,532 $57,993,192
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE> 11
WEDCO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NET REVENUES $42,925,462 $43,575,439 $38,307,235
----------- ----------- -----------
OPERATING EXPENSES:
Costs of services rendered and
products sold 27,354,872 25,728,196 23,172,156
Selling, general and administrative
expenses 8,881,028 7,755,456 6,621,848
Depreciation 4,006,821 3,465,664 3,020,164
----------- ----------- -----------
Total operating expenses 40,242,721 36,949,316 32,814,168
----------- ----------- -----------
OPERATING INCOME 2,682,741 6,626,123 5,493,067
----------- ----------- -----------
OTHER INCOME (EXPENSES):
Equity in income (loss) of joint ventures (70,496) 624,928 821,288
Interest expense - net (1,461,218) (1,367,992) (1,393,191)
Merger costs (668,622)
Other - net (152,044) 176,804 43,120
----------- ----------- -----------
Total other (expenses) (2,352,380) (566,260) (528,783)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 330,361 6,059,863 4,964,284
INCOME TAXES 469,916 2,153,656 1,610,164
----------- ----------- -----------
NET INCOME (LOSS) $ (139,555) $ 3,906,207 $ 3,354,120
=========== =========== ===========
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ (.04) $ 1.08 $ .94
=========== =========== ===========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 3,637,545 3,611,150 3,580,998
=========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-9
<PAGE> 12
WEDCO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
EQUITY
COMMON STOCK ADJUSTMENT
------------------- ADDITIONAL FROM FOREIGN TREASURY STOCK
NUMBER PAID-IN RETAINED CURRENCY NUMBER
OF SHARES AMOUNT CAPITAL EARNINGS TRANSLATION OF SHARES AMOUNT
--------- -------- ----------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1993 3,545,672 $354,567 $ 4,873,609 $15,686,240 $ 760,647 (455,776) $(3,167,702)
Acquisition of treasury stock (32,478) (338,052)
Sale of treasury stock 2,064 (4,077,412) 7,500 52,125
Stock dividend 354,418 35,442 4,040,365 (48,075)
Adjustment resulting from
foreign currency translations (29,353)
Net income 3,354,120
Reduction of guarantee - ESOP debt 50,413
--------------------------------------------------------------------------------------------
Balance, March 31, 1994 3,900,090 390,009 8,916,038 15,013,361 731,294 (528,829) (3,453,629)
Acquisition of treasury stock (121) (1,207)
Sale of treasury stock 22,436 26,958 176,476
Stock dividend 194,801 19,480 2,220,731 (2,242,259) (25,114)
Adjustment resulting from
foreign currency translations 1,348,714
Net Income 3,906,207
Reduction of guarantee - ESOP debt 63,019
--------------------------------------------------------------------------------------------
Balance, March 31, 1995 4,094,891 409,489 11,159,205 16,740,328 2,080,008 (527,106) (3,278,360)
Adjustment resulting from
foreign currency translations (701,461)
Net loss (139,555)
--------------------------------------------------------------------------------------------
Balance, March 31, 1996 4,094,891 $409,489 $11,159,205 $16,600,773 $1,378,547 (527,106) $(3,278,360)
============================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-10
<PAGE> 13
WEDCO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (139,555) $ 3,906,207 $ 3,354,120
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 4,006,821 3,465,664 3,020,164
(Gain) loss on sale of equipment (55,324) 1,061 (6,676)
Equity in (income) loss of joint ventures 70,496 (624,928) (821,288)
Increase (decrease) in deferred income taxes (263,515) 261,864 223,337
Increase in deferred compensation 223,345 100,000
Change in assets and liabilities:
(Increase) decrease in accounts receivable 765,033 (650,526) (1,693,125)
Decrease in other assets 306 10,740 6,333
(Increase) decrease in inventories 612,972 (496,195) (44,029)
(Increase) decrease in prepaid expenses
and other current assets 246,100 (133,457) 157,306
Increase (decrease) in accounts payable (1,136,093) 755,507 (395,390)
Increase (decrease) in accrued expenses 935,589 567,912 (209,598)
Increase in other current liabilities 71,244 42,838 221,124
Increase (decrease) in federal, state and
foreign income taxes payable (408,938) 74,999 378,454
Decrease in accrual for environmental
cleanup (68,609) (229,856) (105,820)
------------ ----------- -----------
Net cash provided by operating activities 4,859,872 7,051,830 4,084,912
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant
and equipment 13,700 75,401 23,618
Purchases of property, plant and equipment (6,955,468) (7,198,597) (4,103,601)
Repayment of capital by joint venture 242,719 246,142
Advances to related parties (79,108) (201,748) (744,065)
Repayments received from related parties 418,808 576,093 1,138,736
Increase in notes receivable reserve 251,684
------------ ----------- -----------
Net cash used in investing activities (6,350,384) (6,506,132) (3,439,170)
------------ ----------- -----------
</TABLE>
F-11
<PAGE> 14
WEDCO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under credit
facilities 1,052,198 (502,859) (310,378)
Purchase of treasury stock (1,207) (338,052)
Proceeds from sale of treasury stock - net 198,912 54,189
Dividend payment in lieu of issuing
fractional shares (2,052) (1,605)
---------- ---------- ----------
Net cash provided by (used in) financing
activities 1,052,198 (307,206) (595,846)
---------- ---------- ----------
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH (7,994) 2,000 (36)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH (446,308) 240,492 49,860
CASH AT BEGINNING OF YEAR 1,039,760 799,268 749,408
---------- ---------- ----------
CASH AT END OF YEAR $ 593,452 $1,039,760 $ 799,268
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,457,000 $1,323,000 $1,419,000
Income taxes $ 783,000 $1,768,000 $1,239,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-12
<PAGE> 15
WEDCO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation - The accompanying Consolidated Financial
Statements include the accounts of the Company and its wholly-owned
subsidiaries, Wedco, Inc., Wedco DISC Texas, Inc., Wedco
International, Inc., and Wedco Europe B.V., which includes Wedco
Holland B.V., Wedco Technology U.K. Limited and Willoughby
Engineering and Development Corporation A.B. All significant
intercompany balances and transactions have been eliminated in
consolidation.
B. Management's Use of Estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
C. Joint Ventures - Joint ventures included in the Company's financial
statements, as of March 31, 1996, are: Micronyl-Wedco S.A., a
size-reduction and custom compounding company with locations in
Beaucaire and Montereau, France, 50% owned by Wedco Europe B.V.; and
WedTech Inc., a size-reduction and custom compounding company which
is 50% owned by the Company and has production facilities in
Brantford, Ontario, and Calgary, Alberta, Canada, as well as a
research and development facility in Dewey, Oklahoma. (See Note 4).
These investments are accounted for under the equity method. Under
the equity method, investments are recorded at cost and adjusted by
the Company's share of undistributed earnings or losses.
D. Translation of Foreign Currencies - Foreign subsidiaries' assets,
liabilities and operations are measured using the currency of the
primary economic environment in which each subsidiary operates.
Assets and liabilities are translated at the exchange rate as of the
balance sheet date. Operations are translated at the average
exchange rate for the period. Translation adjustments, resulting
from the process of translating the foreign subsidiaries' financial
statements from their currencies into U.S. dollars, are recorded
directly as a separate component of stockholders' equity.
Translation gains and losses, resulting from exchange rate changes on
transactions denominated in currencies other than that of the
Company, are included in the Consolidated Statement of Income in the
year in which the gain or loss occurs. For the years presented, such
gains and losses were immaterial to the Company's Consolidated
Financial Statements.
E. Accounts Receivable - Accounts receivable are included in the
Company's Consolidated Financial Statements net of the allowance for
doubtful accounts. During each of the fiscal years ended March 31,
1996, 1995 and 1994, the Company's provisions for doubtful accounts
were $25,351, $12,279 and $18,902, respectively. Write-offs against
the allowance for doubtful accounts amounted to $21,138, $127,399 and
$18,283 during these same periods, respectively.
F-13
<PAGE> 16
F. Inventories - Inventories are stated at the lower of cost (last-in,
first-out method) or market.
G. Property, Plant and Equipment - Capital additions, improvements and
major renewals are capitalized and carried at cost. Maintenance and
repairs are charged to expense as incurred. For financial reporting
purposes, depreciation is calculated principally on the straight-line
basis over the estimated useful lives of the related assets. For
income tax purposes, depreciation is calculated principally on a
declining balance method and in certain cases by the use of shorter
recovery periods.
H. Income Taxes - The Company and its domestic subsidiaries file a
consolidated federal income tax return. United States income taxes,
which would result from the distribution of unremitted earnings of
the Company's foreign subsidiaries and joint ventures, have not been
provided because it is management's intention to retain such earnings
for an indefinite period as an investment in such operations.
I. Revenue Recognition - Revenue from grinding services is recognized at
the time processing of the customers' product is completed.
Machinery sales revenue is recognized at the time equipment is
shipped.
J. Warranties - Historically, the costs associated with reworking
customer material or equipment warranty defects have been immaterial.
Accordingly, the Company accounts for these costs by expensing them
as they are incurred.
K. Net Income Per Common and Common Equivalent Share - Net income per
common and common equivalent share is based on the weighted average
number of common and common equivalent shares outstanding each year.
All prior period per share amounts have been retroactively restated
to reflect the 5% and 10% stock dividends distributed on September 30
and March 24, 1994, respectively.
L. Treasury Stock - Treasury stock transactions are accounted for under
the cost method, which requires the cost of treasury shares to be
recorded as a deduction from stockholders' equity. Any gains or
losses on subsequent sales of treasury stock are treated as additions
or reductions in additional paid-in capital.
M. Reclassifications - Certain 1995 and 1994 amounts have been
reclassified to conform to the current presentation.
N. Recently Issued Accounting Pronouncements - In March 1995, the
Financial Accounting Standards Board issued Opinion Number 121
(Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of). The Company anticipates no
material effect on financial condition or results of operations from
adoption, effective April 1, 1996.
F-14
<PAGE> 17
2. INVENTORIES
Inventories at March 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials, parts and supplies $1,239,963 $1,696,840
Work in process 129,399 334,169
---------- ----------
Total $1,369,362 $2,031,009
========== ==========
</TABLE>
If all of the Company's inventories were costed on the first-in, first-out
method, inventories would have been approximately $692,000 and $624,000
higher at March 31, 1996 and 1995, respectively.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land and land improvements $ 5,191,150 $ 5,090,297
Buildings 19,573,622 19,049,840
Machinery and equipment 38,417,058 34,735,517
Furniture and fixtures 3,138,804 2,967,330
Construction in progress 1,718,400 1,699,181
----------- -----------
Total 68,039,034 63,542,165
Less: Accumulated depreciation 29,383,361 26,324,868
----------- -----------
Property, plant and equipment - net $38,655,673 $37,217,297
=========== ===========
</TABLE>
F-15
<PAGE> 18
4. INVESTMENT IN JOINT VENTURES
The following table summarizes the status and results of the Company's
investment in joint ventures for the three- year period ended March 31,
1996:
<TABLE>
<CAPTION>
Micronyl-
WedTech Inc. Wedco S.A. Total
------------ ------------ ----------
<S> <C> <C> <C>
Balance, April 1, 1993 $3,105,681 $1,145,963 $4,251,644
Repayment of capital (246,141) (246,141)
Equity in income 625,948 195,340 821,288
Adjustment due to foreign
currency translation (1,394) (1,394)
---------- ---------- ----------
Balance, March 31, 1994 3,485,488 1,339,909 4,825,397
Repayment of capital (242,720) (242,720)
Equity in income 379,665 245,263 624,928
Sale of Class D shares (732,269) (732,269)
Adjustment due to foreign
currency translation 326,459 326,459
---------- ---------- ----------
Balance, March 31, 1995 2,890,164 1,911,631 4,801,795
Equity in income (loss) (183,897) 113,401 (70,496)
Adjustment due to foreign
currency translation (135,793) (135,793)
---------- ---------- ----------
Balance, March 31, 1996 $2,706,267 $1,889,239 $4,595,506
========== ========== ==========
</TABLE>
Undistributed earnings of the joint ventures were approximately
$2,968,000, $2,674,000 and $2,236,000 at March 31, 1996, 1995 and 1994,
respectively.
The following table presents summarized financial information
(unaudited) of the joint ventures on a combined basis as of March 31,
1996, 1995 and 1994. Amounts presented include the accounts of WedTech
Inc. and Micronyl-Wedco S.A.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current Assets $ 9,617,609 $ 7,866,648 $ 6,923,338
Noncurrent Assets 18,478,610 18,378,745 14,144,997
Current Liabilities 8,389,485 7,019,379 5,502,028
Noncurrent Liabilities 9,767,360 8,922,523 7,580,360
Net Revenues 28,106,358 26,418,982 19,265,888
Cost of Sales 23,708,245 21,912,712 15,295,975
Net Income (Loss) (103,708) 1,160,291 1,465,777
</TABLE>
F-16
<PAGE> 19
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Long-term debt at March 31, 1996 and 1995 consists of the following:
Domestic 7.0% fixed-rate term loan, repayable in monthly installments
of principal and interest in the amount of $75,281, through May 2002,
at which time a final installment of remaining principal and interest
is due. $ 4,471,245 $ 5,034,370
Domestic floating-rate term loan, repayable in ninety-five monthly
principal installments of $21,053, plus interest at the lending bank's
base rate plus 0.25%, (8.5% at March 31, 1996), with a final principal
payment of approximately $3.0 million due on May 1, 2002. 4,315,781 4,568,417
Domestic mortgage loan repayable in monthly principal installments of
a varying amount through September 1999, at which time the remaining
principal balance is due. Interest is payable monthly at a variable
rate, (8.0% at March 31, 1996). This loan is collateralized by a
mortgage on certain domestic property which has a net book value of
$1,705,262 at March 31, 1996. 1,459,873 1,521,149
Mortgage loans payable of the Company's British subsidiary, collateralized
by a mortgage on all of the assets of that subsidiary as well as a keepwell
letter duly signed by the Company. Principal payments on each of these
loans amount to $38,193 and $18,035 at March 31, 1996 exchange rates
and are payable in quarterly and monthly installments, respectively, through
August 1997. Interest is payable quarterly at a variable rate
(7.75% at March 31, 1996) and monthly at a fixed rate of 9.15%. 1,253,351 1,721,637
Mortgage loans payable of the Company's Dutch subsidiary, collateralized
by mortgages on certain fixed assets of the subsidiary which have a net
book value of $8.7 million at March 31, 1996 exchange rates. Principal
payments on each of these loans amount to $90,720 and $94,500 at
March 31, 1996 exchange rates and are payable in annual and quarterly
installments, respectively. Interest is payable in quarterly installments
at fixed rates ranging from 6.80% to 7.25%. 2,638,440 3,337,834
Borrowings under the Company's Dutch subsidiary's revolving lines of
credit which, effective April 16, 1996, were converted into a fixed-rate
term loan collateralized by a mortgage on certain fixed assets of the sub-
sidiary. Principal is repayable in semi-annual installments of $181,440
at March 31, 1996 exchange rates through April 2001. Interest is payable
semi-annually at 6.5%. 1,814,400 1,299,400
----------- -----------
Total 15,953,090 17,482,807
Less current maturities 1,806,972 1,761,020
----------- -----------
Long-term debt less current maturities $14,146,118 $15,721,787
=========== ===========
</TABLE>
F-17
<PAGE> 20
The Company has pledged as collateral its domestic accounts receivable,
inventories, machinery and equipment and the majority of its real property
for borrowings under the domestic fixed and floating rate term loans
discussed above. Furthermore, these loan agreements contain among other
matters, provisions relative to the maintenance of tangible net worth and
certain financial statement ratios with respect to the Company's
consolidated and domestic operations. Additionally, the availability of
borrowings may be adjusted by the lender based on the Company's "Excess
Cash Flow," as defined. Under covenants contained in these agreements,
domestic capital expenditures are limited according to a fixed formula,
and the payment of cash dividends, if any, are restricted to 50% of
"Excess Cash Flow" as defined.
Maturities of the above debt over the next five years and thereafter are
as follows, based upon the amortization schedules set forth in the
respective loan agreements:
<TABLE>
<CAPTION>
Fiscal Year
Ending March 31 Amounts
--------------- -------
<S> <C>
1997 $1,806,972
1998 2,879,333
1999 1,797,246
2000 2,930,018
2001 1,802,556
Thereafter 4,736,965
</TABLE>
6. CREDIT ARRANGEMENTS
As of March 31, 1996, the Company also maintains the following credit
arrangements with several lending institutions:
A domestic revolving line of credit for $2.0 million subject to renewal on
an annual basis and collateralized by the Company's domestic accounts
receivable. Borrowings under this facility bear interest at the lending
bank's base rate (8.25% at March 31, 1996), and must be repaid prior to
the annual renewal date. Borrowings under this agreement, classified as
Notes Payable on the Consolidated Balance Sheets totalled $1,900,000 at
March 31, 1996.
A domestic capital expenditure line of credit for $5.0 million which
permits the Company to borrow up to $5.0 million through March 31, 1997 in
order to finance domestic capital expenditures. Borrowings under this
facility can be converted into term loans, amortized over a period not to
exceed seven years, with interest payable at the bank's base rate plus
0.375%, (8.625% at March 31, 1996). As of March 31, 1996, there were no
outstanding borrowings under this credit facility.
A credit facility of the Company's British subsidiary, provided by a Dutch
bank, in the amount
F-18
<PAGE> 21
of B.P.S. 400,000 (approximately $611,100 at March 31, 1996 exchange
rates), subject to renewal on an annual basis. Borrowings under this
facility bear interest at the lending bank's base rate plus 1.5%, (8.0% at
March 31, 1996), and principal can be repaid at the Company's discretion.
This facility is collateralized by a first security interest in all of the
subsidiary's assets, as well as a keepwell letter duly signed by the
Company. Borrowings under this agreement, included in Notes Payable on
the Consolidated Balance Sheets, totalled $599,762 at March 31, 1996.
A foreign revolving line of credit facility for the Company's Dutch
subsidiary in the amount of Dfl 2,000,000 ($1,209,600 at March 31, 1996
exchange rates). This credit facility is collateralized by a first
mortgage on the subsidiary's land and buildings up to Dfl 4,000,000
($2,419,200 at March 31, 1996 exchange rates). Borrowings under this
facility bear interest at 4.75% and principal can be repaid at the
Company's discretion. Borrowings under this agreement, classified as
Notes Payable on the Consolidated Balance Sheets, totalled $1,310,884 at
March 31, 1996.
A foreign revolving line of credit facility for the Company's Dutch
subsidiary in the amount of Dfl 2,500,000 ($1,512,000 at March 31, 1996
exchange rates). This credit facility is collateralized by a first
mortgage on certain buildings of the subsidiary up to Dfl 2,350,000
($1,421,280 at March 31, 1996 exchange rates). Borrowings under this
facility bear interest at 4.5% and principal can be repaid at the
Company's discretion. Borrowings under this agreement, classified as
Notes Payable on the Consolidated Balance Sheets, totalled $998,583 at
March 31, 1996.
A foreign credit facility of the Company's Swedish subsidiary for S.E.K.
5,000,000 ($748,500 at March 31, 1996 exchange rates). This facility is
collateralized by a first mortgage on the subsidiary's machinery and
equipment, as well as a keepwell letter duly signed by the Company.
Borrowings under this facility bear interest at 9.0% and principal can be
repaid at the Company's discretion. Borrowings under this agreement,
classified as Notes Payable on the Consolidated Balance Sheets, totalled
$244,927 at March 31, 1996.
The weighted average interest rates charged on short-term borrowings under
the Company's various credit facilities during the fiscal years ended
March 31, 1996 and 1995 were 5.99% and 6.89%, respectively.
F-19
<PAGE> 22
7. INCOME TAXES
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ (93,000) $ 926,485 $ 902,000
State 14,000 270,000 244,000
Foreign 685,062 681,122 296,164
Deferred:
Federal (194,000) (39,000) 149,400
State (73,000) (20,000) 23,800
Foreign 130,854 335,049 (5,200)
--------- ---------- ----------
Total income taxes $ 469,916 $2,153,656 $1,610,164
========= ========== ==========
</TABLE>
The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States $(2,775,392) $2,772,002 $3,136,386
Foreign 3,105,753 3,287,861 1,827,898
----------- ---------- ----------
Total $ 330,361 $6,059,863 $4,964,284
=========== ========== ==========
</TABLE>
The tax effects of the various temporary differences entering into the
provision for deferred income taxes were as follows:
<TABLE>
<CAPTION>
For the Years Ended March 31
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Inventory Reserve $ (49,680)
Accelerated depreciation -
U. S. and foreign 279,293 $220,000 $195,000
Investment (income) loss 1,931 (1,000) (2,000)
Accrual for environmental cleanup 28,530 78,000 36,100
Accrual for health claims (68,139) (12,800) (47,300)
Vacation accrual (27,324) (24,500) (54,400)
Reinstatement of deferred taxes
previously eliminated 33,000 34,200
Accrual for product liability
State taxes 23,800 (13,200) (4,600)
Allowance for doubtful accounts 965 39,000
Deferred compensation (311,312) (42,500) (4,250)
Other - net (14,210) 49 15,250
--------- -------- -------
Total deferred income tax provision $(136,146) $276,049 $168,000
========= ======== ========
</TABLE>
F-20
<PAGE> 23
A reconciliation between the theoretical provision for income taxes,
computed by applying the statutory U.S. Federal income tax rate to income
before income taxes, and the actual provision for income taxes follows:
<TABLE>
<CAPTION>
For the Years Ended March 31
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax at U.S. Federal
statutory rate $ 112,323 $2,060,353 $1,687,857
Foreign tax rate differential (240,040) (101,702) (325,322)
State taxes, net of federal benefit (40,652) 158,200 161,040
Equity in (income) loss on
investment in joint venture
not federally taxable 95,759 (13,327) (95,900)
Non-Deductible Costs 496,471
Other-net 46,055 50,132 182,489
--------- ----------- ----------
Total provision for income taxes $ 469,916 $2,153,656 $1,610,164
========= ========== ==========
</TABLE>
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 109, "Accounting for Income Taxes." Because
the Company had previously adopted SFAS 96, the adoption of SFAS 109 did
not have a material affect on the Company's Consolidated Financial
Statements during the current period. Under SFAS 109, deferred taxes are
determined based upon the cumulative differences in basis between
financial statement and income tax assets and liabilities. The
measurement of deferred taxes resulting from these differences is based on
currently enacted tax rates.
As of March 31, 1996 and 1995, the Company's net deferred tax liability
was approximately $2,182,000 and $2,762,500, respectively. This amount
was comprised of the following deferred tax assets and liabilities:
<TABLE>
<CAPTION>
Deferred Tax
Assets (Liabilities)
----------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Depreciation - U. S. and foreign $ (1,536,522) $(1,499,600)
Deferred land gain (588,656) (715,400)
Accrual for environmental cleanup 85,798 132,800
Accrual for future insurance claims 256,793 244,100
Allowance for doubtful accounts 16,662 21,200
State income taxes - federal benefit (68,652) 59,200
Uniform capitalization adjustment 40,800
Foreign currency translation (844,916) (1,274,800)
Vacation accrual 101,320 95,900
Deferred compensation 313,937 70,800
Other - net 41,363 103,300
------------ -----------
Total $ (2,182,073) $(2,762,500)
============ ===========
</TABLE>
F-21
<PAGE> 24
8. PENSION PLANS
The Company maintains an employee salary deferral plan which covers all
domestic employees. Under the provisions of this plan, as amended,
eligible employees may elect to reduce their compensation by amounts
ranging from 1% to 18% of their earnings, subject to Internal Revenue
Service regulations. The Company makes an equal matching contribution for
the benefit of each contributing employee, to a maximum of six percent of
such employee's compensation. An employee's interest in the Company's
contributions and earnings thereon are 20% vested upon completion of one
year of service, and vesting increases by 20% annually, with full vesting
upon completion of five years of service.
Wedco Holland B.V. maintains a contributory defined benefit pension plan,
in which all employees of Wedco Holland B.V. who are at least 25 years of
age and have completed one year of service, are eligible to participate.
Participants contribute 4% of the cost associated with their individual
pension basis. The plan provides retirement benefits at the normal
retirement age of 65 in an annual amount equal to the difference between
the employees' average salary and their governmental franchise benefits,
multiplied by 1.75% for each year of credited service. No credit for back
service was designed into the plan.
Total pension expense for all plans, included in consolidated net income
for the years ended March 31, 1996, 1995 and 1994 was approximately
$617,000, $512,000 and $433,000 respectively.
9. RELATED-PARTY TRANSACTIONS
During fiscal 1989, the Company sold certain assets of its former
subsidiary, Tri-Delta Technology, Inc., for $750,000 to TDT, Inc. (TDT).
TDT is 40% owned by Peggy S. Willoughby, wife of the Company's President
and Chairman, William E. Willoughby. William E. Willoughby also serves as
a director of TDT. In conjunction with the sale of these assets and as a
result of subsequent transactions between the Company and TDT, the Company
currently holds a $724,434 promissory note from TDT, of which $587,932 is
outstanding as of March 31, 1996. Under the terms of this promissory note
dated May 1, 1994, interest is charged monthly at a rate equivalent to the
U.S. prime rate plus 1% (9.25% at March 31, 1996), based upon the unpaid
principal balance outstanding at each month-end. Furthermore, TDT is
required to make monthly payments of principal and interest in the amount
of $11,108 through December 2001, at which time any remaining principal
and interest is due. To date, TDT has made all of its scheduled monthly
payments. All amounts owed to Wedco by TDT are personally guaranteed by
Peggy S. Willoughby and William E. Willoughby, and are collateralized by
100,000 and 75,000 shares of Wedco's common stock owned by them,
respectively.
The Company has advanced, from time to time, certain sums to William E.
Willoughby, on an interest-free basis. As of March 31, 1996, Mr.
Willoughby was indebted to the Company for $83,441.
F-22
<PAGE> 25
In the normal course of business, the Company has sold machinery and
certain replacement parts to WedTech Inc. and Micronyl-Wedco, S.A., its
50%-owned joint ventures. Amounts receivable from these joint ventures
resulting from such sales were $80,232 and $128,545 as of March 31, 1996
and 1995, respectively.
Under the terms of a stock purchase agreement dated March 6, 1995, the
Company sold 1,026,305 non-voting, non-cumulative Class D special shares
of its Canadian joint venture, WedTech Inc., to 1119935 Ontario Limited, a
Canadian corporation, 100% owned by John Lefas, President of WedTech Inc.
Originally, over a three year period, these shares would have been
redeemable at their par value, C$1,026,305, which also represented the
Company's original investment in these Class D shares. The Company
received a three-year, non-interest bearing note receivable in the amount
of C$1,026,305, from 1119935 Ontario Limited in exchange for these shares.
Furthermore, the 1,026,305 Class D special shares were pledged by 1119935
Ontario Limited as collateral under the terms of this note receivable.
On April 3, 1995, the Company received its first scheduled payment on this
note receivable in the amount of C$342,101 or $245,800 at April 3, 1995
exchange rates. 1119935 Ontario Limited, however, failed to make on March
31, 1996, its second scheduled payment of C$342,102 ($251,684 at March 31,
1996 exchange rates). As such, the Company established a reserve of
$251,684 related to this uncollected amount. It is uncertain whether
1119935 Ontario Limited is capable of repaying the remaining C$342,102,
($251,684 at March 31, 1996 exchange rates), due Wedco on March 31, 1997
under the terms of this note receivable. Accordingly, until this matter
is resolved, this amount has been classified as non-current as of March
31, 1996.
Amounts due from related parties at March 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note Receivable - TDT, Inc. $ 587,932 $ 660,164
Advances Receivable -
W. E. Willoughby 83,441 73,695
Amounts Receivable - Joint Ventures 80,232 128,545
Note Receivable -
1119935 Ontario Ltd. 503,369 732,269
Note Receivable Reserve (251,684)
---------- ----------
Total 1,003,290 1,594,673
Less Current Portion 246,002 760,686
---------- ----------
Due from Related Parties - Non-Current $ 757,288 $ 833,987
========== ==========
</TABLE>
F-23
<PAGE> 26
10. STOCK OPTION PLANS
The Company currently has six stock option plans in effect: the 1987
Employee 25th Year Stock Option Plan (25th Year Plan), the Directors'
Stock Option Plan (Directors' Plan), the Employee Stock Option Plan
(Employee Plan), the 1992 Directors' Stock Option Plan (1992 Plan), the
1994 Directors' Stock Option Plan (1994 Plan) and the 1994 Employee Stock
Option Plan (1994 Employee Plan) or collectively (the Plans).
The 25th Year Plan issued 92,400 options on a one-time basis to employees
in accordance with a fixed formula. All of these options were immediately
exercisable and were issued at an exercise price of $6.25 per share, the
market price on the date the options were granted.
The Directors' Plan issued options to each of the directors over a five
year period from 1987 to 1991, at an exercise price equal to the market
price of the Company's common stock at the close of business on the date
of issuance. All of the options granted were exercisable within one year
from the date of grant. A total of 86,625 shares of common stock were
authorized and reserved for issuance under the Directors' Plan.
The 1992 Plan issued options to each of the directors over a two year
period from 1992 to 1993, at an exercise price equal to the market price
at the close of business on the date of issuance. All of the options
granted were exercisable within one year from the date of grant. A total
of 86,625 shares of common stock were authorized and reserved for issuance
under the 1992 Plan.
The 1994 Plan provides for the granting of non-qualified stock options to
each of the directors of the Company. On the date six months after the
date of the annual meeting of stockholders, 2,100 options are granted to
each director who is serving in such capacity, at an exercise price
equivalent to the average of the "bid" and "ask" prices of the common
stock on the date of issuance. These options are immediately exercisable
on the date of grant. A total of 105,000 shares of authorized common
stock were reserved for issuance under the 1994 plan.
The Employee Plan and the 1994 Employee Plan were adopted to issue
incentive and non-qualified stock options to management and staff
employees to provide such employees with a direct proprietary interest in
the future of the Company. These plans are administered by a committee
appointed by the Board of Directors which determines who is eligible, the
number of options to be granted, the exercise price, whether they are
incentive or non-qualified stock options and the vesting period of the
options. A total of 173,250 and 367,500 shares of authorized common stock
are reserved for issuance under the Employee Plan and the 1994 Employee
Plan, respectively.
F-24
<PAGE> 27
No compensation expense has been recorded through March 31, 1996 related
to the Plans. The table below summarizes the activity in all of the Plans
for the years ended March 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Options outstanding at April 1 234,782 210,904 207,352
Granted 50,900 55,650 13,860
Exercised (28,307) (8,663)
Expired (4,188) (3,465) (1,645)
-------- -------- --------
Options outstanding at March 31 281,494 234,782 210,904
======= ======== =======
Option price range at March 31 $6.00-$13.375 $6.00-$10.75 $6.00-$10.25
============ =========== ===========
Options exercisable at March 31 281,494 234,782 201,664
======= ======= =======
Options available for grant at
March 31 468,536 519,436 99,908
======= ======= =======
</TABLE>
F-25
<PAGE> 28
11. SEGMENT AND FOREIGN OPERATIONS INFORMATION
The Company operates primarily in one industry segment, namely, providing
size-reduction services and related machinery to worldwide markets. The
Company provides customers with size-reduction and other related services
for heat sensitive thermo-plastic materials and also manufactures certain
machinery used for those services.
Wedco Europe B.V. serves as a holding company for the Company's foreign
operations, which include Wedco Holland B.V., Wedco Technology U.K.
Limited and commencing in 1995, Willoughby Engineering and Development
Corporation A.B. The following information represents the operations of
these entities, in comparison to the consolidated Company, for the years
ended March 31, 1996, 1995 and 1994. Transactions between the Company,
Wedco Holland B.V., Wedco Technology U.K. Limited, Willoughby Engineering
and Development Corporation A.B. and Wedco Europe B.V. do not
significantly affect the information presented. Operating income reflects
net revenues, less costs and expenses of operations. In computing
operating income, other income (expenses) and income taxes on the
Consolidated Statements of Income have not been added or deducted.
Identifiable assets are those assets used in each operation. Corporate
assets include cash and cash equivalents.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenues:
Europe $22,211,880 $18,572,485 $14,367,143
United States 20,713,582 25,002,954 23,940,092
----------- ----------- -----------
Total consolidated $42,925,462 $43,575,439 $38,307,235
=========== =========== ===========
Operating income,
as previously defined:
Europe $ 3,577,765 $ 3,604,110 $ 2,270,509
United States 3,343,207 6,193,943 5,942,262
----------- ----------- -----------
Total operations 6,920,972 9,798,053 8,212,771
General corporate expenses (4,238,231) (3,171,930) (2,719,704)
----------- ----------- -----------
Total consolidated $ 2,682,741 $ 6,626,123 $ 5,493,067
=========== =========== ===========
Identifiable assets:
Europe $30,202,693 $30,208,109 $21,384,436
United States 25,435,387 26,745,323 26,026,012
----------- ----------- -----------
Total operations 55,638,080 56,953,432 47,410,448
Corporate assets 593,452 1,039,760 799,268
----------- ----------- -----------
Total consolidated $56,231,532 $57,993,192 $48,209,716
=========== =========== ===========
</TABLE>
F-26
<PAGE> 29
12. COMMITMENTS AND CONTINGENCIES
The Company currently leases machinery and equipment used in its domestic
operations as well as certain real property located in Stenungsund,
Sweden, under the terms of several operating lease agreements. Rental
expense related to these leases was $356,285, $291,099 and $165,777 for
the fiscal years ended March 31, 1996, 1995 and 1994 respectively. These
noncancellable leases expire on various dates through August 2000. The
minimum aggregate rental payments for these leases over the next five
fiscal years are as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending March 31 Amounts
--------------- ---------
<S> <C>
1997 $ 291,928
1998 242,786
1999 208,496
2000 158,495
2001 66,040
</TABLE>
The Company serves as guarantor on a mortgage loan of the Company's
Canadian joint venture, WedTech Inc., in the amount of C$2,553,257
($1,878,431 at March 31, 1996 exchange rates).
In conjunction with the sale of real estate owned by a former subsidiary,
the New Jersey Department of Environmental Protection and Energy
(D.E.P.E.) issued an Administrative Consent Order (A.C.O.) to the Company,
under the Environmental Cleanup Responsibility Act (E.C.R.A.). According
to E.C.R.A., property title cannot pass to a new owner until the D.E.P.E.
is satisfied that the property meets defined environmental standards or an
A.C.O. has been issued.
Inspections have shown that the site contains contaminates which must be
removed. Accordingly, a remediation plan was prepared and approved by the
D.E.P.E. The Company has provided accruals of $1,400,000 for the total
costs related to cleanup activities, of which approximately $1,147,000 has
been paid as of March 31, 1996. Recent sampling results indicate that the
Company's groundwater remediation program is working effectively to reduce
the level of groundwater contamination. Expenses in excess of what the
Company has recorded could be incurred due to the inherent uncertainty
surrounding the extent of contamination, the complexity of governmental
regulations and their interpretations, and the varying costs and
effectiveness of cleanup technologies. The Company believes, however,
that its reserve is sufficient to satisfy current D.E.P.E. requirements.
F-27
<PAGE> 30
13. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
The computations of primary earnings per common and common equivalent
share are based on the weighted average number of common and common
equivalent shares outstanding during the periods. The average number of
common and common equivalent shares outstanding has been retroactively
adjusted to reflect the 5% and 10% stock dividends which were distributed
on September 30 and March 24, 1994, respectively. Information supporting
the computations of earnings per common and common equivalent share for
the years ended March 31, is as follows:
<TABLE>
<CAPTION>
Shares Used in Computing
Primary Earnings Per Share: 1996 1995 1994
-------------------------- ---- ---- ----
<S> <C> <C> <C>
Average number of common
shares outstanding 3,567,785 3,562,012 3,543,103
Exercise of options reduced by the
number of shares purchased with proceeds 69,760 49,138 37,895
--------- --------- ---------
Average number of common and common
equivalent shares outstanding 3,637,545 3,611,150 3,580,998
========= ========= =========
Shares Used in Computing
Fully-Diluted Earnings Per Share:
--------------------------------
Average number of common
shares outstanding 3,567,785 3,562,012 3,543,103
Exercise of options reduced by the
number of shares purchased with proceeds 104,610 49,138 56,938
--------- --------- ---------
Average number of common and common
equivalent shares outstanding 3,672,395 3,611,150 3,600,041
========= ========= =========
</TABLE>
F-28
<PAGE> 31
14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected financial information for each
quarter in the fiscal years ended March 31, 1996 and 1995. Net income per
common share has been restated to reflect the 5% and 10% stock dividends
distributed on September 30 and March 24, 1994, respectively. All amounts
are in thousands, except per share amounts.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
June 30 September 30 December 31 March 31
1995 1995 1995 1996
<S> <C> <C> <C> <C>
Net Revenues $11,209 $10,918 $9,992 $10,806
------- ------- ------- -------
Gross Profit 4,229 4,007 3,414 3,921
------- ------- ------- -------
Operating Income 1,232 1,064 418 (31)(a)
------- ------- ------- -------
Net Income 638 52 3 (833)
======= ======= ======= =======
Net income per
Common Share $ 0.18 $ 0.01 $ 0.00 $ (0.23)
======= ======= ======= =======
</TABLE>
(a) Includes the following accruals or reserves established in the fourth
quarter: a bonus accrual of $600,000 and a note receivable reserve of $251,684.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
June 30 September 30 December 31 March 31
1994 1994 1994 1995
<S> <C> <C> <C> <C>
Net Revenues $9,671 $10,623 $11,548 $11,732
------- ------- ------- -------
Gross Profit 4,204 4,396 4,346 4,901
------- ------- ------- -------
Operating Income 1,601 1,641 1,522 1,862
------- ------- ------- -------
Net Income 954 969 879 1,104
======= ======= ======= =======
Net income per
Common Share $ 0.27 $ 0.27 $ 0.24 $ 0.30
======= ======= ======= =======
</TABLE>
F-29
<PAGE> 32
15. SUBSEQUENT EVENT
On April 30, 1996, the Company completed its merger with ICO, Inc.
("ICO"), in which the Company merged with and into a wholly owned
subsidiary of ICO. Pursuant to the terms of the merger agreement,
each of the Company's shareholders is eligible to receive, at its
option, 2.84 shares of ICO common stock or a combination of 2.2 shares
of such stock and $3.50 in cash for each share of the Company's stock
held. ICO, based in Houston, Texas, serves the energy petrochemical,
and steel industries by providing high technology testing, inspecting,
reconditioning, and coating services and equipment. For its most
recent fiscal year, which ended September 30, 1995, ICO reported net
revenues of $88.9 million, income before federal taxes of $6.4 million
and net income of $5.8 million.
F-30
<PAGE> 33
III. EXHIBITS
Merger agreement dated as of December 8, 1995, as amended, among Wedco
Technology, Inc., W Acquisition Corp. and the registrant incorporated by
reference to registration no. 333-00831.
F-31
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, ICO, Inc.
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
ICO, INC.
Date: July 15, 1996 /s/ Dr. Asher O. Pacholder
-------------------------------
Dr. Asher O. Pacholder
Chairman and Chief Financial
Officer
