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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
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 OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11490 WESTHEIMER, SUITE 1000 77077
HOUSTON, TX (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER (281) 721-4200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, no par value NASDAQ Stock Market
Preferred Stock, no par value NASDAQ Stock Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes No X
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The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of December 20, 1996 was $108,075,242.
The number of shares outstanding of the registrant's Common Stock, as of
December 20, 1996: Common Stock, no par value--20,900,678
DOCUMENTS INCORPORATED BY REFERENCE
Certain information has been included by reference. See index at Part IV, Item
14, (c)(2) of this Annual Report. Portions of the Registrant's Annual Report
to Shareholders for 1996 furnished to the commission pursuant to Rule 14a- 3(b)
and portions of the Registrant's Proxy Statement filed with the commission for
its Annual Meeting are incorporated in Parts I, II and III as specified.
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ICO, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . 14
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . . . . . 16
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . . . . . . 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 24
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . 24
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 24
Item 12. Security Ownership of Certain Beneficial
Owners and management . . . . . . . . . . . . . . . . . . . 24
Item 13. Certain Relationships and Related Transactions . . . . . . . 24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 25
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P A R T I
ITEM 1. BUSINESS
GENERAL
The Company operates in two business segments. The oilfield services
segment provides inspection, reconditioning and coating services for new and
used tubular goods and sucker rods utilized in the oil and gas industry. ICO
is the leading provider of sucker rod services and one of the two largest
providers of inspections, reconditioning and coating services for tubular goods
in the United States. Through the Company's wholly-owned subsidiaries, Wedco
Technology ("Wedco"; acquired April 1996), Polymer Service ("PSI"; acquired
July 1996), and Bayshore Industrial ("Bayshore"; acquired December 1996) the
Company's petrochemical processing segment is a world leader in serving the
petrochemical industry providing size reduction technology for plastics and
other heat-sensitive materials.
This material contains "Forward-Looking Statements" within the meaning of
section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve substantial risks and uncertainties. When
words such as "anticipate", "believe", "estimate", intend", "expect", "plan"
and similar expressions are used, they are intended to identify the statements
as forward-looking. Actual results, performance or achievements can differ
materially from results suggested by these forward-looking statements.
OILFIELD SERVICES
The Company's inspection, reconditioning and coating services for new and
used tubular goods and sucker rods include a variety of processes, many of
which are patented, designed to reduce the customer's operating costs by
extending the useful lives and reduce the downhole failure of sucker rods and
tubular goods. These services are performed on casing, tubing, drill pipe and
line pipe. The Company also sells equipment and supplies used in the
inspection, reconditioning and coating of tubular goods and sucker rods.
Casing is used to seal off fluids and prevent collapse of the bore holes of
oil and natural gas wells. After production casing is set, a string of tubing
is suspended from the surface inside the casing to serve as a conduit for the
extraction of oil and natural gas. Drill pipe is heavy seamless pipe used to
rotate the drill bit and circulate drilling fluids. Line pipe is used for
waste disposal lines, flow lines, gathering systems and pipelines through which
oil, natural gas and liquid hydrocarbons are transported. Removal of casing or
tubing for repair or replacement is expensive and results in an interruption of
production and loss of revenues to the well owner. Sucker rods are steel rods
which are joined together in a "string" by couplings to form a mechanical link
from a downhole pump at the bottom of an oil well to the pumping unit on the
surface. Removal of a sucker rod string for repair or replacement of rods,
couplings or the downhole pump requires a well to be shut down and the entire
string of sucker rods to be removed, resulting in additional expenses and loss
of revenues to the well owner due to interruption of production.
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The Company's oilfield services are designed to reduce the customer's cost
of drilling and production by (1) preventing faulty material from being placed
downhole (exploration services), (2) reclaiming tubular goods and sucker rods
used downhole and restoring them to near their original condition, on a cost
effective basis (production services) and (3) preventing premature failure of
tubular goods and sucker rods from occurring due to the downhole environment
(corrosion control services).
EXPLORATION SERVICES
The Company provides inspection services for new tubular goods to identify
tubular goods which are defective or which do not meet American Petroleum
Institute ("API") standards or other specifications set by the customer. These
services are used by customers as a quality assurance and control measure to
reduce the risk of costs associated with defective tubular goods and to reduce
the risk of downhole failure, which is especially important when drilling deep
oil and natural gas wells with high downhole temperatures and pressures and
when drilling in environmentally sensitive areas such as offshore. Although
inspection of new tubular goods at well sites and storage yards has been
performed for many years, the Company was a pioneer in providing in-plant
inspection. The Company's in-plant inspection facilities for new tubular goods
provide a controlled environment which permits more efficient and consistent
inspection procedures, facilitates supervision of personnel and electronic
equipment, avoids problems associated with inclement weather and reduces
transportation and handling costs to the customer. The Company provides these
services at eleven operating facilities in five states: Colorado, Louisiana,
Texas, Ohio and Alabama. The Company also has the capability to provide mobile
inspection services in the field. ICO also manufactures inspection and quality
control equipment which is sold or leased to steel producers and processors.
ICO offers a full range of tubular services including electro-magnetic
inspection ("EMI"), ultrasonic inspection, tubular maintenance and storage,
inventory management and associated services such as threading and hydrostatic
testing, providing "one-stop shopping" for customers. EMI is a process which
identifies flaws through magnetic flux leakage. The AGS system is an EMI
system capable of identifying and visually displaying natural and man-made
flaws that are not identifiable using conventional EMI methods. Ultrasonic
inspection identifies flaws, using high frequency sound waves, which are
virtually undetectable by other means. The Company expanded its ultrasonic
technology and engineering expertise with the acquisitions of Baker Hughes
Tubular Services, Inc. ("BHTS") in September 1992 and Tubular Ultrasound
Corporation in November 1993.
PRODUCTION SERVICES
The Company reconditions and inspects used casing, tubing, drill pipe and
line pipe using a process known as "Total Concept Tubing Services", which
provides a complete package of tubular inspection and maintenance services.
The Company pioneered the process of Total Concept Tubing Services, which
includes the testing, cleaning, reconditioning and electronic inspection of
tubular goods. Such services are performed in a controlled environment at the
Company's facilities, which provides the same advantages previously described
for in-plant inspection facilities (see "Exploration Services"). This process
reduces the customer's well operating costs because reconditioning used tubular
goods is less expensive than the purchase of new tubular goods. Reconditioned
tubular
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goods generally must meet the same API or customer standards as new tubular
goods. The Company performs these services at nine Company facilities located
in California, Mississippi, Oklahoma, Texas, Wyoming, North Dakota and New
Mexico.
The Company has entered into a program in which it purchases used tubular
goods and sucker rods from certain customers, reconditions and grades the pipe
and sucker rods for varying degrees of usage and resells the pipe and sucker
rods to other customers in the marketplace.
The Company also operates mobile inspection units utilizing a system known
as Wellhead Scanalog ("WHS"). The Company acquired the rights to WHS for use
in the United States pursuant to a license granted to it in connection with the
acquisition of BHTS. WHS is designed to perform tubular inspection while the
tubing is being removed from the well and does not interfere with the normal
operation of the rig. WHS inspection is unique because it is not affected by
scale, mud, paraffin and water. Prior to the acquisition of BHTS, the Company
had no comparable service.
The Company pioneered and is the dominant North American provider of the
reconditioning and inspection of used sucker rods using a patented in-house
process, which involves a number of steps designed to clean, straighten,
inspect and apply protective coating to sucker rods to guard against corrosion.
This process reduces the customer's well operating costs because reconditioning
used sucker rods is less expensive than purchasing new sucker rods. The
Company also inspects new sucker rods before they are placed in service to
reduce the risk of downhole failure, which requires expensive pulling services
and results in loss of production. The Company's sucker rod reconditioning and
inspection services are provided at seven Company facilities located in
California, Oklahoma, Texas, Wyoming and Canada. The Canadian operations were
acquired in the February 1994 acquisition of Shearer Supply Ltd. located in
Edmonton, Alberta.
CORROSION CONTROL SERVICES
Corrosive conditions exist inside most wells. Such conditions are
particularly extreme in high temperature gas wells and in oil producing regions
where secondary and tertiary recovery techniques are utilized. Secondary and
tertiary recovery techniques are methods by which natural forces in an oil
reservoir are supplemented by means such as water flooding to increase ultimate
oil recovery. Under highly corrosive conditions, even a microscopic uncoated
area of steel can result in a tubular or rod failure or damage. To combat
these conditions, the Company offers a variety of corrosion control services to
its customers, using several of the Company's patented processes. The
Company's corrosion control services reduce well operating costs by extending
the useful life of downhole tubular goods and sucker rods and by improving the
well's hydraulic efficiency and pipe integrity.
The Company internally coats new and used casing, tubing, drill pipe and
line pipe with a variety of powder and liquid coatings. In the coating
process, tubular goods are placed in large burnout ovens to remove foreign
substances. The tubular goods are then grit blasted, primed with phenolic,
preheated, coated internally and subjected to a final baking process. The
tubular goods are then inspected visually and electronically to make certain
the coating uniformly covers the entire interior of the pipe and that no bare
spots or thin coverings exist. A similar process is utilized for cleaning,
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priming and coating tubular couplings. The selection of the proper coating for
downhole tubular goods requires knowledge and considerable effort by the
Company's experienced coating managers and technicians. The key to the process
is gathering complete facts concerning the well, its environment, test
procedures and all related conditions planned for the life of the well. The
Company has four coating facilities located in Louisiana and Texas.
The Company's patented sucker rod coating process involves applying a
special formula stainless steel to the sucker rods and then coating them with a
phenolic primer and fusion bonded modified epoxy. Sucker rods used in less
corrosive conditions are usually coated only with the phenolic primer and
fusion bonded modified epoxy. The Company's sucker rod coating services are
provided at its facility in Odessa, Texas.
ICO expanded its corrosion control services with the acquisition of Permian
Enterprises, Inc. ("Permian") in April 1994. Permian provides internal cement
lining for small diameter tubing through 24' line pipe. Cement provides an
increased barrier between corrosive fluids and the tubular product which allows
the customer to use a larger portion of its used pipe with a welded connection,
when weight and torsion strength are not a primary issue. Permian also applies
an external fusion bonded tape which forms a tough protective corrosion barrier
for critical line pipe. The addition of Permian has afforded the Company
expanded flexibility and product offerings in small diameter pipe used in
production applications.
In fiscal 1995, ICO introduced five new corrosion control products,
including the industry's first successful powder coatings for drill pipe and
high temperature production tubing. These powder coatings have better
mechanical and protective capabilities as compared to liquid coatings without
the environmental control expenses normally associated with their liquid
counterparts. The five new products ICO introduced in fiscal 1995 are as
follows: IPC 100 - a powdered, internal protective coating for drill pipe,
IPC 800 - the first high temperature powder coating for production tubing,
Nose-Gard(TM) - a metalizing process for the end area of tubing, Weld-Gard(TM)
- - a metalizing process for the end area of line pipe, and Fiber-Line(TM) - an
internal fiberglass lining for tubing. During 1996, the Company added a deep
water drilling choke and kill line unit to the Louisiana coating facility. ICO
is now the only company with the ability to apply baked on coatings to 75'
choke and kill lines, used to control well pressures.
COMPETITION
The principal competitive factors in the Company's oilfield services
business are price, availability and quality of service. The consolidation in
the tubular inspection, reconditioning and coating industry has resulted in the
elimination of many of the Company's competitors and reduced the Company's
competition in many markets. Notwithstanding the industry's consolidation, the
tubular inspecting, reconditioning and coating industry continues to be highly
competitive. The Company's ability to compete effectively is dependent upon
timely, reliable performance and quality of its services at competitive rates.
Management believes that the Company will continue to compete effectively
because of its efficient and cost-effective processes and the strong
relationships which it maintains with its customers.
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The Company is the leading provider of sucker rod services and one of the
two largest providers of inspection, reconditioning and coating services for
tubular goods in the United States. The Company's customers include the major
oil and gas companies, as well as independent oil and gas companies, drilling
contractors and steel producers and processors. No single customer accounted
for over 10% of the Company's revenues in 1994, 1995 or 1996.
Few competitors provide services similar to the Company's "Total Concept
Tubing Services", nor do they provide in- plant inspection of new tubular goods
outside Houston, Texas. The Company and Tuboscope Vetco International
Corporation compete with each other and a number of smaller companies in most
domestic markets. Capital and other requirements for entry into the tubular
inspection business are relatively low. Consequently, competition is vigorous
in all of the Company's tubular inspection markets.
Much of the Company's business is seasonal in nature and reflects the
general pattern of oilfield drilling and workovers, with the first and fourth
quarters of the fiscal year generally having higher levels of activity and the
second and third quarters generally having lower levels of activity.
PETROCHEMICAL PROCESSING SERVICES
ICO entered the petrochemical processing service business via the Wedco
Technology, Polymer Service and Bayshore Industrial acquisitions (see
"Acquisitions"). The Company operates ten domestic processing service plants
located in New Jersey, Tennessee, Illinois, Indiana, Texas, and California.
The Company also operates plants in three European countries: The Netherlands,
England and Sweden. Additionally, Wedco owns 50% of WedTech, Inc., a Canadian
company, which provides similar services in Brantford, Ontario and Calgary,
Alberta. WedTech, Inc. also operates a research and development facility in
Dewey, Oklahoma. Wedco Europe B.V. a wholly owned subsidiary of Wedco,
headquartered in 's-Gravendeel, Holland, serves as the holding company for all
of Wedco's European operations. Wedco Europe B.V. also owns 50% of a French
company, Micronyl-Wedco S.A., which provides similar services in Beaucaire and
Montereau, France. Customers' materials are shipped by rail or truck to
Wedco's plants for processing according to customer specifications. After
processing, materials are packaged in bags, drums, boxes, super sacks, bulk
trucks or rail hopper cars and shipped via rail or truck to the customer or end
user.
The size-reduction of plastics can normally be performed with the
conventional line of Wedco-manufactured equipment, but in some cases, due to
the physical characteristics of the materials, cryogenic grinding is required.
Wedco has developed specifically designed equipment and techniques for
cryogenic grinding and has been actively involved in this type of grinding of
heat sensitive plastic materials in its New Jersey facility for approximately
20 years. Wedco began providing cryogenic grinding services at its
's-Gravendeel plant in 1988, at its Tennessee plant in 1990 and at its
Gainsborough, England plant in 1991. In 1981, Wedco entered the field of
ultra-fine size reduction, utilizing air-jet milling equipment. This
size-reduction technique utilizes high-velocity, compressed air to process
materials to sizes between 0.5 and 50 microns. Wedco's New Jersey and
's-Gravendeel operations currently utilize the air-jet milling process.
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Materials processed within the petrochemical processing business line
include polyethylene, polyester, polypropylene, nylon, fluorocarbons, cellulose
acetate, vinyls, phenolics, polyurethane, acrylics, epoxies and many others.
The powders resulting from the Company's grinding services are used in the
manufacture of paint and metal coatings, fabric coating and in certain
processes such as rotational molding, blending and compounding. Materials that
are air-jet milled include additives for printing ink, plastics and paint, as
well as a variety of other applications requiring very fine particle size. The
Company provides a broad range of processing services, including granulating,
compounding, de-agglomerating, blending, mixing, heat treating, separating and
screening, as well as packaging, warehousing and certain distribution services,
which are integrated with the primary size-reduction services discussed above.
In conjunction with its principal size-reduction and equipment
manufacturing activities, the Company provides research and development
services for its customers by testing and processing new materials in small
quantities until the size-reduction and any related processes are perfected.
In addition, by using internally developed machinery in their research and
development laboratories, or using the Company's custom grinding service, prime
producers may develop new products. Consequently, when research and
development and marketing efforts combine to successfully introduce a new
material or product, the Company usually benefits from orders for its services.
Prior to its acquisition by ICO in April 1996, Wedco operated in the U.S.
without a formal sales and marketing group. Since the acquisition, Wedco has
built a sales team strategically located throughout the U.S. dedicated to
selling the Company's petrochemical processing services and equipment.
CONSOLIDATION PLANS
In order to decrease fixed costs and increase economies of scale, during
the fourth quarter of 1996, management determined that three petrochemical
grinding plants should be closed. The Company will discontinue petrochemical
grinding operations at the Houston, Texas, Maywood, Illinois, and the Long
Beach, California facilities, during fiscal year 1997. During the first
quarter of 1997, management informed the employees working in the Houston and
Long Beach facilities of the closures. The decision to consolidate was driven
by the redundancy of other company facilities providing the same services in
the same area; in part due to the July 1996 acquisition of Polymer Service.
Another factor is the current trend within the rotational molding industry of
customers buying equipment and grinding in-house. Management intends to combat
this trend with aggressive marketing efforts. The Company anticipates that
future expenses relating to the plant closures will not be material.
MANUFACTURER OF RELATED PROCESSING EQUIPMENT
Wedco manufactures a substantial amount of the equipment used in providing
size-reduction services. This equipment primarily includes pulverizers and
grinders designed specifically for plastic materials. In addition, Wedco
manufactures accessory equipment, such as high production and high intensity
blenders. Wedco also sells the size- reduction machinery it manufactures
directly to customers who wish to do the tasks performed by this equipment
in-house.
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Wedco's line of equipment ranges in price from $13,000 for a small
laboratory mill to approximately $500,000 for a turn key system with
high-volume capacity. It is more economical, in many cases, for customers to
use the custom size- reduction services of the Company than to own and operate
their own equipment. In the past, several companies have reverted to custom
service after acquiring their own grinding capability.
COMPETITION
In the basic business of plastics grinding, primary competitors in the U.S.
are smaller, local firms that lack the multiple plant locations, technology
and/or production capacity of the Company and customers who decide to purchase
machinery and grind their material in-house. Increased competition in
size-reduction services of plastics exists in Europe; however, Wedco has not
been materially adversely affected by this competition. Due to ICO's technical
expertise and equipment manufacturing capabilities, management believes that
the Company can provide plastics grinding services at a lower cost than most of
its customers and competitors. In addition, the Company's ability to provide
convenient service to customers is greatly enhanced due to the Company's
network of facilities throughout North America and Europe. Although greater
competition is experienced in other major processing service sectors, such as
cryogenic grinding, air- jet milling and compounding, the Company has been
successful in gaining market share since entering these fields. The
acquisition of Bayshore Industrial in fiscal year 1997 will greatly increase
the Company's domestic compounding revenues.
The Company is aware of one manufacturer within the United States, other
than itself, of high speed, size-reduction mills specifically designed for the
size-reduction of heat sensitive plastic materials. The Company is aware of
two such manufacturers in Europe that also market their equipment throughout
the U.S. and Canada. Although other manufacturers produce general purpose
machinery capable of grinding such materials, management believes that its
machinery, which is specifically designed for the size-reduction of heat
sensitive plastics and backed by over 30 years of the Company's manufacturing
experience, has the highest capacity, with the greatest energy and cost
efficiency in the field.
ACQUISITIONS
In November 1993, ICO acquired substantially all the assets of Tubular
Ultrasound Corporation ("TUC"), a tubular inspection company with low cost
ultrasonic inspection technology, located in Houston, Texas, for a total
consideration of $1,100,000. The TUC acquisition provided ICO with additional
engineering and product development expertise in the ultrasonic area.
In February 1994, ICO acquired Shearer Supply Ltd. ("Shearer") located in
Edmonton, Alberta, for a total consideration of $1,900,000. The Shearer
acquisition provided ICO with a presence in the Canadian market. Shearer is
the largest provider of sucker rod inspection and reclamation services in
Canada. In addition, Shearer services and sells pump engines used in the
oilfield.
In April 1994, the Company acquired all of the outstanding capital stock of
Permian for a total consideration of $2,498,000. As part of the transaction,
the Company funded a pre-acquisition
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dividend to Permian shareholders by making a $2,100,000 loan to Permian.
Permian provides cement and fiberglass lining for tubing and casing and also
applies an external fusion bonded wrap.
In April 1994, ICO acquired Frontier Inspection Services, Inc. ("Frontier")
located in Farmington, New Mexico for a total consideration of $1,500,000.
Frontier is the leading provider of tubular inspection services in New Mexico
and the lower Rocky Mountain area.
In October 1994, the Company purchased all of the outstanding stock of B&W
Equipment Sales and Mfg., Inc. ("B&W") for $700,000 consisting of $350,000 cash
and 66,666 shares of ICO common stock. B&W designs and manufacturers parts and
components for nondestructive testing and inspection of equipment for use in
the tubular market. The acquisition enabled the Company to lower repair and
maintenance expenses for the Company's inspection units.
In March 1995, the Company acquired substantially all of the operating
assets, excluding real estate, of Kebco Pipe Services, Inc. ("Kebco"), which
provides testing, inspecting and reconditioning services for oil country
tubular goods in the West Texas area. Kebco was acquired for a total
consideration of $616,000, consisting of approximately $574,000 cash and a
$42,000 note.
In June 1995, the Company purchased all of the outstanding capital stock of
R.J. Dixon, Inc. d/b/a Spinco ("Spinco") for $1,000,000, consisting of a
$490,000 note and 94,884 shares of ICO common stock. Spinco provides
inspection and reclamation services for drill pipe and other oil country
tubular goods in the Gulf Coast area.
In March 1996, the Company acquired the operating assets, excluding real
estate, of Rainbow Inspection Company of Mississippi, Inc. ("Rainbow") for
$203,000 cash (including transaction expenses) and the assumption of $125,000
in liabilities. Rainbow provides inspection and reclamation services for oil
country tubular goods in the southern United States.
In April 1996, the Company acquired, via merger, Wedco Technology, Inc.
Wedco serves the petrochemical industry by providing plastics grinding services
and related machinery. The consideration paid consisted of 10,232,609 ICO
common shares, approximately $4,637,000 in cash (including transaction fees and
expenses) and the assumption of approximately $29,947,000 in total liabilities.
In July 1996, the Company acquired Polymer Service, Inc. located in
Beaumont, Texas and Polymer Service of Indiana, Inc. located in East Chicago,
Indiana for consideration consisting of 431,826 shares of ICO common stock,
$1,984,000 cash (including transaction expenses) and the assumption of
$2,073,000 in liabilities. The Polymer Service companies provide size
reduction and related processing services for the petrochemical industry.
During December 1996, the Company acquired Bayshore Industrial, Inc.
located in LaPorte, Texas for consideration of approximately $6,300,000 in
cash and 1,171,566 shares of ICO common stock, subject to certain adjustments.
Bayshore is a provider of concentrates and compounds to resin producers in the
United States.
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See unaudited proforma information regarding the above acquisitions in Notes 2
and 19 to the Company's financial statements for the year ended September 30,
1996.
ENVIRONMENTAL REGULATION
The Company is subject to numerous local, state, and federal laws and
regulations concerning the use and handling of hazardous materials and
restricting releases of pollutants and contaminants into the environment. Many
of these laws and regulations provide for strict liability for the costs of
cleaning up contamination resulting from releases of regulated materials into
the environment. Management believes that the Company is in substantial
compliance with these laws and regulations, and continued compliance with
existing laws and regulations will not have a material adverse effect on the
Company's results of operations or financial condition. Management believes
that estimated capital expenditures for environmental remediation also will not
be material. The Company's oilfield services routinely involve the handling of
chemical substances and waste materials, some of which may be considered to be
hazardous wastes. The Company's insurance policies do provide coverage for
environmental or other damages caused as a result of defective casing or tubing
inspected by the Company.
The foregoing discussion of environmental regulations involves
Forward-Looking Statements as previously defined. Compliance with local, state
and federal laws regulating the environment cannot always be assured for many
reasons, including the possibility of industrial accidents or the failure of
design, processes and equipment utilized to meet environmental standards due to
changing interpretations of these laws and regulations.
RAW MATERIALS AND BACKLOGS
Management believes that materials used in the Company's operations are
available from numerous sources and are readily available to meet its needs.
Backlogs are not material to the Company's overall operation.
PATENTS AND LICENSES
The Company holds six United States patents and has one patent application
still pending covering the proprietary technology utilized in its
reconditioning, inspecting, spraymetal and epoxy coating of sucker rods and its
services for used tubular goods. The expiration dates on these patents range
from April 1998 to February 2009. The Company's petrochemical processing
operations are not materially dependent upon any patents or trademarks. The
Company believes that its patents and licenses are valid. However, no
assurance can be given that one or more of the Company's competitors may not be
able to develop or produce a process or system of comparable or greater quality
to those covered by the Company's patents or licenses. No single patent is
considered essential to the overall successful operation of the Company's
business.
In connection with the acquisition of BHTS, the Company acquired
royalty-free exclusive licenses to use WHS, PipeImage(TM) and other proprietary
technology. Pursuant to the terms of such
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licenses, the Company generally is prohibited from using such proprietary
technology in foreign markets.
EMPLOYEES
As of December 26, 1996, the Company had approximately 1,150 full-time
employees, and approximately 260 full-time contract employees. The Company's
employees working at the facility located in 's-Gravendeel are parties to a
collective bargaining agreement. None of the other employees are represented
by a union. The Company has experienced no strikes or work stoppages and
considers its relations with its employees to be satisfactory. The Company
provides many of its employees with stock options and year-end bonuses.
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ITEM 2. PROPERTIES
The location and approximate acreage of the Company's operating facilities
at September 30, 1996, together with an indication of the services performed at
such facilities are set forth below. All facilities have storage areas for
customer goods and materials.
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OWNERSHIP
OR LEASE
LOCATION SERVICES ACRES EXPIRATION
-------- -------- ----- ----------
<S> <C> <C> <C>
OILFIELD SERVICES
Odessa, Texas Sucker rod reconditioning and inspecting 13 (1)
Odessa, Texas Sucker rod storage 7 Owned
Odessa, Texas Spraymetal and epoxy coating of sucker rods 3 Owned
Odessa, Texas Used tubular goods services 13 Owned
Odessa, Texas Internal coating of tubular goods 15 Owned
Odessa, Texas Trucking yard 14 Owned
Odessa, Texas Used tubular goods services 22 Owned
Odessa, Texas Facility sub-leased to third party 22 Owned
Odessa, Texas Cement lining/external coating 20 (2)
Denver City, Texas Sucker rod reconditioning and inspecting 10 Owned
Farmington, Inspection of new and used tubular goods 14 1997
New Mexico
Oklahoma City, Sucker rod reconditioning and inspecting 8 Owned
Oklahoma
Oklahoma City, Inspection of new and used tubular goods 22 Owned
Oklahoma
Casper, Wyoming Sucker rod reconditioning and inspecting; 29 (3)
inspection of new and used tubular goods
Bakersfield, California Sucker rod reconditioning and inspecting 30 Owned
Williston, Used tubular goods services 2 1997
North Dakota
Corpus Christi, Texas Inspection of new and used tubular goods 10 Owned
Houston, Texas Inspection of new tubular goods 199 Owned
Houston, Texas Internal coating of tubular goods 49 Owned
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
OWNERSHIP
OR LEASE
LOCATION SERVICES ACRES EXPIRATION
-------- -------- ----- ----------
<S> <C> <C> <C>
Lone Star, Texas Inspection of new tubular goods 80 Owned
Amelia, Louisiana Internal coating and inspection of new and used 31 1998
tubular goods
Edmonton, Alberta Inspection of new and used sucker rods. 10 2005
Canada Sales and service of new and used oilwell engines
Brookhaven, Mississippi Inspection of tubular goods 12 2001
Brookhaven, Mississippi Inspection of tubular goods 3 2008
PETROCHEMICAL PROCESSING SERVICES
Bloomsbury, New Jersey Plastics grinding 15 Owned
Lovelady, Texas Plastics grinding 12 Owned
Houston, Texas Plastics grinding 22 Owned
Beaumont, Texas Sales office 2 1997
China, Texas Plastics grinding 12 Owned
Maywood, Illinois Plastics grinding 3 Owned
East Chicago, Indiana Plastics grinding 4 1999
Grand Junction, Tennessee Plastics grinding 5 Owned
Memphis, Tennessee Engineering N/A 1997
Long Beach, California Plastics grinding 2 Owned
Fontana, California Plastics grinding 7 Owned
's-Gravendeel, The Plastics grinding 5 Owned
Netherlands
Gainsborough, England Plastics grinding 5 Owned
Stenungsund, Sweden Plastics grinding N/A 2000
</TABLE>
(1) Three acres are leased on a month-to-month basis; the remaining ten acres
are owned by the Company.
(2) Eighteen acres are owned; the remaining two acres are leased on a
month-to-month basis.
(3) Seventeen acres are owned; ten acres are leased through 1997; remaining two
acres are leased on a month-to-month basis.
12
<PAGE> 15
The Company's facilities and equipment, owned and leased, are considered by
management to be well maintained and adequate for the company's operations.
The Company also leases various sales and administrative offices with various
lease expiration dates through 2002. Utilization of the Company's oilfield
service facilities is subject to fluctuations based in part on oil and gas
exploration and production levels. The Company is currently operating most of
its facilities below full capacity. Most facilities are operating no more than
one shift per day. The Company does not presently intend to close any of its
significant operating facilities other than the Maywood, Illinois; Houston,
Texas and Long Beach, California petrochemical grinding facilities. Management
considers its properties to be suitable for its present needs.
ITEM 3. LEGAL PROCEEDINGS
ICO is a named defendant in twelve cases involving twelve plaintiffs, filed
between June 1988 and February 1996, for personal injury claims alleging
exposure to silica resulting in silicosis-related disease. ICO is generally
protected under workers' compensation law from claims under these suits except
to the extent a judgment is awarded against ICO for intentional tort. In 1994,
ICO was dismissed without liability from two suits alleging intentional tort
against ICO for silicosis-related disease. In fiscal 1993, ICO settled two
other suits, both of which alleged wrongful death caused by silicosis-related
diseases, which resulted in a total charge of $605,000. Three of the pending
personal injury cases involve three alleged silicosis-related deaths, which are
premised upon allegations of gross negligence. The standard of liability
applicable to the remainder of the pending cases is intentional tort, a
stricter standard than the gross negligence standard applicable to the wrongful
death cases. ICO and its counsel cannot at this time predict with any
reasonable certainty the outcome of any of the remaining suits. Except as
described below, ICO does not believe, however, that such suits will have a
material adverse effect on the financial conditions or results of operations of
ICO. ICO does have in effect general liability and employer's liability
insurance policies applicable to the referenced suits, however, ICO has been
advised by each of the involved insurance carriers of a reservation of rights
with regard to policy obligations pertaining to the suits because of various
exclusions in the policies. If an adverse judgment is obtained against ICO in
any of the referenced suits which is ultimately determined not to be covered by
insurance, the amount of such judgment could have a material adverse effect on
the financial condition or results of operations of ICO.
The Company's agreement with Baker Hughes, Incorporated ("Baker Hughes")
pursuant to which BHTS was acquired by the Company, provides that Baker Hughes
will reimburse the Company for 50% of the BHTS environmental remediation costs
in excess of $318,000, with Baker Hughes' total reimbursement obligation being
limited to $1,000,000. BHTS is a responsible party at two hazardous waste
disposal sites that are currently undergoing remediation pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act,
frequently referred to as "Superfund". Under Superfund, persons who were
responsible for generating the hazardous waste disposed of at a site where
hazardous substances are being released into the environment are jointly and
severally liable for the costs of cleaning up environmental contamination, and
it is not uncommon for neighboring landowners and other third parties to file
claims for personal injuries and property damage allegedly caused by hazardous
substances released into the environment. The two
13
<PAGE> 16
sites where BHTS is a responsible party are the French Limited site northeast
of Houston, Texas, and the Sheridan site near Hempstead, Texas. Based on the
relatively advanced status of the remediation at these sites and BHTS's minimal
contribution of wastes at each site, management believes that the Company's
future liability under the agreement with Baker Hughes with respect to these
two sites will not be material.
During November of 1996, a preliminary agreement was signed by the Company
and Baker Hughes to settle the litigation of a dispute concerning the
assumption of certain liabilities in connection with the acquisition of BHTS in
1992. The agreement stipulates that ICO will pay $846,000 to reimburse Baker
Hughes for various occupational health claims offset by their reimbursement of
the Company's environmental remediation expenses relating to former BHTS
properties. With regard to future occupational health claims, the parties have
agreed to share costs 50/50 with ICO's obligations being limited to $500,000
for each claim and a maximum contingent liability of $4,500,000 (net of
current accruals) in the aggregate, for all claims.
The Company is also named as a defendant in certain lawsuits arising in the
ordinary course of business. While the outcome of these lawsuits cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial condition or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on October 7,
1996 for the following purposes:
1) To elect three Class II Directors to serve until the 1999 Annual
Meeting of Shareholders and one Class III Director to serve until the
1997 Annual Meeting of Shareholders and until their respective
successors are elected and qualified;
2) To approve the ICO, Inc. 1996 Stock Option Plan;
3) To approve the amendment and restatement of the 1993 Stock Option Plan
for Non-employee Directors;
4) To ratify and approve the selection of Price Waterhouse LLP as the
Company's independent accountants for the ensuing fiscal year; and
5) To consider and act upon any matters incidental to the foregoing
purposes and transact such other business as may properly come before
the meeting or any adjournment thereof.
Holders of shares of Common Stock of record on the books of the Company at
the close of business on August 23, 1996 were entitled to vote at the meeting.
William J. Morgan, Sylvia A. Pacholder and William E. Willoughby were
elected as Class II
14
<PAGE> 17
Directors at the annual meeting with 18,066,462, 17,976,641 and 18,050,578
votes for; and 193,381, 283,202 and 209,265 shares withheld, respectively.
James E. Gibson was elected as a Class III Director at the annual meeting
with 18,055,962 votes for, and 203,881 shares withheld.
The ICO, Inc. 1996 Stock Option Plan was approved by the following votes:
17,047,514 votes for, 1,098,497 votes against, 88,114 abstentions and 25,718
broker non-votes.
The amendment and restatement of the ICO, Inc. 1993 Stock Option Plan for
Non-employee Directors was approved by the following votes: 17,586,900 votes
for, 554,710 votes against, 92,515 abstentions and 25,718 broker non-votes.
The selection of Price Waterhouse LLP as the Company's auditors for the
1996 fiscal year was approved by the following vote: 18,181,512 votes for,
43,776 votes against, and 34,555 abstentions.
15
<PAGE> 18
P A R T II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has been traded on the NASDAQ Stock Market under
the symbol ICOC since July 19, 1988. There were approximately 970 shareholders
of record of the Company's common stock at December 20, 1996.
On November 1, 1995 the Company established a quarterly dividend of $.05
per share on its common stock. The first dividend was paid on December 31,
1995 and has been paid every subsequent quarter. While currently all dividends
due to the preferred shareholders have been paid, unless full cumulative
dividends on all outstanding shares of the Preferred Stock have been paid, no
dividends may be paid, declared or set aside for payment, or any other
distributions made on the Common Stock.
The following table sets forth the high and low sales prices for the common
stock as reported on the NASDAQ Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C>
1995 First Quarter 5 3/8 3 3/4
Second Quarter 6 3 3/4
Third Quarter 6 1/4 5 1/8
Fourth Quarter 5 7/8 4 5/8
1996 First Quarter 5 3/4 4 1/2
Second Quarter 5 7/8 4 7/8
Third Quarter 7 5/8 5 1/8
Fourth Quarter 6 1/4 4 7/8
1997 First Quarter (1) 6 7/8 5 3/4
</TABLE>
Since October 1, 1995 the Company has issued the following unregistered common
shares which were exempt pursuant to Section 4(2) of the Securities Act of
1933:
<TABLE>
<CAPTION>
Number of Shares
Date of Common Stock Transaction
---- --------------- -----------
<S> <C> <C>
April 30, 1996 100,000 Issued to consultants in connection with the acquisition of Wedco(2)
May 21, 1996 20,000 Issued to institutional warrant holder in connection with
warrant exercise
July 19, 1996 431,826 Issued to former shareholders of Polymer Service (2)
December 10, 1996 1,171,566 Issued to former shareholders of Bayshore Industrial (2)
</TABLE>
(1) Reflects trading activity through December 20, 1996.
(2) See "Acquisitions" - Item 1.
16
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1996(2) 1995(2) 1994(2) 1993 1992(1)
-------------- ------------ ------------ ---------- ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oilfield Sales and Services
Exploration Sales and Services $ 34,545 $ 34,953 $ 30,096 $ 25,290 $ 12,171
Production Sales and Services 31,087 28,745 28,919 24,936 18,569
Corrosion Control Services 21,591 20,562 14,549 9,991 3,895
Other sales and services 2,167 3,623 2,406 -- --
----------- ---------- ---------- ---------- ----------
89,390 87,883 75,970 60,217 34,635
Petrochemical Processing Sales
and Services 19,273 -- -- -- --
----------- ---------- ---------- ---------- ----------
Total revenues $ 108,663 $ 87,883 $ 75,970 $ 60,217 $ 34,635
=========== ========== ========== ========== ==========
Gross Profit $ 33,959 $ 27,998 $ 21,779 $ 17,355 $ 10,482
Selling, general & administrative
expenses 19,996 17,736 15,202 12,730 8,055
Impairment of long-term assets 5,025 -- -- -- --
Non-recurring compensation
arrangements 1,812 -- -- -- --
Writedown of inventories 868 104 -- -- --
----------- ---------- ---------- ---------- ----------
Income before interest, taxes,
depreciation & amortization, unusual
and extraordinary items 6,258 10,158 6,577 4,625 2,427
Depreciation and amortization 7,230 5,112 4,357 3,669 2,616
Interest (income) expense, net (608) (1,307) (431) 2,352 740
Other (income) expense, net 216 (4) -- -- --
Unusual items 1,112 -- -- 605 (467)
----------- ---------- ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary items $ (1,692) $ 6,357 $ 2,651 $ (2,001) $ (462)
=========== ========== ========== ========== ==========
Net income (loss) $ (1,060) $ 5,790 $ 1,225 $ (2,001) $ (383)
=========== ========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) before extraordinary
items $ (.24) $ .41 $ .09 $ (.49) $ (.15)
Net income (loss) $ (.24) $ .41 $ (.07) $ (.49) $ (.12)
Weighted average shares outstanding 13,327,855 8,709,303 8,299,559 4,052,325 3,093,964
</TABLE>
(1) Due to the completion of the acquisition of BHTS on September 30, 1992, the
result of such acquisition is reflected in the balance sheet data at
September 30, 1992, but not in the income statement data for the year ended
September 30, 1992.
(2) See discussion of fiscal year acquisitions in Item 1.
17
<PAGE> 20
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------ -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 29,882 $ 37,284 $ 37,656 $ 17,787 $ 3,321
Property, plant & equipment, net 72,585 29,824 27,513 24,431 25,435
Total assets 163,391 88,183 78,969 51,353 40,713
Long-term debt, net of current portion 15,422 1,047 456 10,676 19,376
Stockholders' equity 120,594 74,471 69,402 32,293 10,304
OTHER FINANCIAL INFORMATION:
Capital expenditures(3) $ 8,712 $ 5,838 $ 4,782 $ 2,252 $ 642
</TABLE>
(3) Consists of cash used for capital expenditures, excluding property, plant
and equipment obtained in acquisitions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In November 1993, the Company completed an offering of Convertible
Exchangeable Preferred Stock ("Preferred Stock"). The shares of Preferred
Stock are evidenced by Depositary Shares, each representing one-quarter of a
share of Preferred Stock. A total of 1,290,000 Depositary Shares were sold at
a price of $25 per share. Each preferred share is convertible into 10.96
common shares (equivalent to 2.74 common shares per Depositary Share) at a
conversion price of $9.125 per common share subject to adjustment upon the
occurrence of certain events. The Company realized net proceeds from the
offering of approximately $30,600,000. The Company utilized approximately
$10,707,000 of the net proceeds to reduce its outstanding indebtedness. The
remaining proceeds were used for working capital, capital expenditures to fund
future growth, and for acquisitions of assets or existing businesses. At
September 30, 1996, the balance of cash equivalents was approximately
$13,000,000. The Company has increased debt and its credit arrangements by
$17,600,000 which has primarily been utilized to finance the Wedco acquisition.
Subsequent to year end, the Company refinanced approximately $10,000,000 of
Wedco's debt, fixing the interest rates and extending the maturities to between
seven and ten years.
During the last three fiscal years and subsequent to September 30, 1996,
ICO has acquired eleven companies, eight within the oilfield services business
and three within the petrochemical processing segment (see Item 1 -
"Acquisitions"). The Wedco acquisition in April 1996 was the most significant
reason for the fiscal year end 1996 Balance Sheet changes.
Capital expenditures for 1996 were $8,712,000, excluding property, plant
and equipment of $42,797,000 acquired in connection with the acquisitions.
These expenditures were funded through cash generated from operations and
existing cash. Approximately 70% of the capital expenditures were incurred
for new property, plant and equipment and the remaining expenditures were
incurred for major repairs and enhancements of existing facilities. For fiscal
1997, capital expenditures for major repairs and enhancements of existing
facilities and manufacture of equipment are planned to be approximately
18
<PAGE> 21
$12,000,000 and are expected to be financed through cash generated from
operations, existing cash and additional borrowings, as needed.
On December 20, 1996, the Company had approximately $15,100,000 in
additional borrowing capacity available under various domestic and foreign
credit arrangements. The Consolidation of three petrochemical processing
plants may be interpreted as an event of default under the loan agreement
relating to $8,500,000 of the Company's term debt (See "Consolidation Plans" -
Item 1.) Based upon preliminary discussion with banking personnel, management
believes the bank will provide the necessary consents or waivers to maintain
compliance with the loan agreement.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
NET REVENUES (000'S) 1996 % of Total 1995 % of Total 1994 % of Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Exploration Sales and Services $ 34,545 32 $ 34,953 40 $ 30,096 40
Production Sales and Services 31,087 28 28,745 33 28,919 38
Corrosion Control Services 21,591 20 20,562 23 14,549 19
Other Sales and Services 2,167 2 3,623 4 2,406 3
-------- ---- -------- ---- -------- ---
Total Oilfield Services Revenues 89,390 82 87,883 100 75,970 100
Petrochemical Processing 19,273 18 -- -- -- --
-------- ---- -------- ---- -------- ---
Total $108,663 100 $ 87,883 100 $ 75,970 100
======== ======== ========
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------
OPERATING PROFIT (000'S) 1996 % of Total 1995 % of Total 1994 % of Total
----------------------------------------------------------------------------------------------------------------------
Oilfield Services $ 11,541 154 $ 12,085 100 $ 8,934 100
Petrochemical Processing (4,070) (54) -- -- -- --
-------- --- -------- --- ------- ---
Total Operations 7,471 100 12,085 100 8,934 100
General Corporate Expenses (9,555) (7,039) (6,714)
------- -------- -------
Total $ (2,084) $ 5,046 $ 2,220
======== ======== =======
</TABLE>
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
Revenues. Revenues increased $20,780,000, or 23.6%, from the year ended
September 30, 1996 to the same period in 1995. The increase was primarily the
result of the Company's entry into the petrochemical processing business via
the acquisitions of Wedco Technology, Inc. (April 1996) and Polymer Service,
Inc. (July 1996).
Exploration revenues decreased $408,000, or 1.2%. The decrease is
primarily due to a shift in the classification of the services provided to
customers within the Company's Lone Star, Texas facility. Historically, the
Lone Star facility provided mostly new pipe inspection. During late fiscal
year 1995, the Company began providing mostly used pipe inspection in this
area. Accordingly, in fiscal year 1996, Lone
19
<PAGE> 22
Star revenues were classified as production services revenues versus fiscal
year 1995, where these revenues were included in exploration services revenues.
After eliminating the effect of this reclassification, fiscal year 1996
revenues increased $1,280,000 or 3.7% versus fiscal year 1995. Demand for
Exploration Services is affected by domestic drilling activity. The domestic
rig count averaged approximately 762 for the year ended September 30, 1996
versus 738 during fiscal year 1995, an increase of 3.3%. In addition, the
Company's exploration revenues increase in fiscal year 1996 was due in part to
the full-year effect of the Spinco acquisition in June 1995.
Production revenues increased $2,342,000, or 8.1%, primarily due to the
reclassification of Lone Star, Texas revenues discussed above. The remaining
revenue increase resulted from generally high oil prices in 1996 which
increased the demand for Production Services. Oil prices ranged from a high of
approximately $25 per barrel to a low of approximately $17 per barrel during
fiscal year 1996 compared to a high of $21 and a low of $17 per barrel during
1995.
Revenues from Corrosion Control Services increased $1,029,000, or 5.0%, in
fiscal year 1996 versus 1995. The increase resulted primarily from greater
demand for the Company's services in the Louisiana and West Texas Corrosion
Control markets.
Revenues from other services decreased $1,456,000, or 40.2%. Half the
decrease resulted from a decline in oilfield engine sales and reconditioning
revenues in Canada, due to a slowdown in oilfield activity in Western Canada.
The remaining decrease was the result of recognizing an equipment sale in 1995,
with no comparable sale in 1996.
Costs and Expenses. Cost of sales and services as a percentage of net
revenues increased to 68.7% during 1996 versus 68.1% for the same period in
1995. Within the oilfield service business, costs of sales and services
increased to 70.3% versus 68.1% in fiscal year 1995. The gross margin decline
within the oilfield services segment is due to (in order of magnitude): a
softening of prices in the Houston inspection and West Texas coating markets,
the recognition of a $2.1 million in product sales during 1995 which carried
gross margins greater than the Company's traditional oilfield sales and
services and the reclassification of certain employee expenses to cost of sales
during 1996 which were recognized as sales, general and administrative expenses
during fiscal year 1995. The reclassification of the employee expenses was
based upon the applicable employees' job functions. The effects of lower
margins in the Company's oilfield service business were partially offset by the
higher margins generated by the petrochemical processing business. This
business generally generates higher gross margins than the Company's oilfield
services business.
Selling, general and administration expenses increased from $17,736,000
during fiscal year 1995 to $19,996,000 during 1996. Sales, general and
administrative cost as a percentage of revenues, decreased to 18.4% in 1996
versus 20.2% in 1995. These changes are primarily due to the Wedco and PSI
acquisitions which increased revenues and sales, general and administrative
costs, but had the effect of lowering these costs as a percentage of revenues.
The Company also incurred the following lower expenses for the fiscal year 1996
versus fiscal year 1995 (in order of magnitude): lower insurance costs, lower
moving expenses (primarily related to several employee relocations in 1995) and
lower payroll costs due to the reclassification of certain employee costs
explained above. These lower costs were offset by $490,000 in expenses
relating to litigation costs incurred in 1996. The $490,000 in costs relate to
litigation reserves established because, during the fourth quarter and
subsequent to year-end, management determined that it was probable that certain
legal matters of the Company would result in a charge to income and that these
charges could be reasonably estimated.
20
<PAGE> 23
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. SFAS No. 121 established "accounting
standards for the impairment of the long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of." The
new statement requires the value of long-lived assets, certain identifiable
intangibles, and goodwill to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If this change in circumstances or other initial indication
has occurred, the next step in determining whether an asset has been impaired
is performed using the expected future undiscounted cash flows of assets,
grouped at the lowest level for which there are identifiable cash flows,
compared to the carrying value of those assets. If the undiscounted cash flow
value is less than the net carrying value, the amount of impairment is then
measured by comparing the discounted cash flows with the corresponding carrying
values of the assets evaluated. The Company's previous policy was to evaluate
the realizability of long-term assets on an aggregate basis based on
undiscounted cash flows. Management accumulated cash flow information at the
lowest asset grouping levels for which there were identifiable cash flows.
These levels were represented by separate operating locations. Based on the
data, the Company's adoption of SFAS No. 121 during fiscal year 1996,
resulted in a write-down of long-lived assets of $5,025,000. The SFAS No. 121
write-down related entirely to the Wedco facilities which, during the fourth
quarter of 1996, management decided to close in fiscal year 1997 (see
"Consolidation Plans" - Item 1). More than two-thirds of the write-down
reduced the carrying value of Goodwill created by the April 1996 acquisition of
Wedco Technology, Inc. The remaining charge related to machinery and equipment
within the facilities to be closed.
Charges of $1,812,000 related to previous acquisitions made by the Company.
Most of the expense consists of severance and consulting fee obligations,
resulting from the Wedco acquisition. During the fourth quarter of 1996,
management determined these expenses would not benefit the Company in the
future. Inventory writedowns of $868,000 consisted of a reduction in the
carrying value of inventory, within the oilfield service operations, which
partially related to the 1992 Baker Hughes Tubular Services acquisition.
Depreciation and amortization increased from $5,112,000 for the year ended
September 30, 1995 to $7,230,000 for the year ended September 30, 1996. The
increase was primarily due to increases in property, plant and equipment and
goodwill due to the Wedco acquisition as well as capital expenditures made
during the year.
Net interest income decreased from $1,307,000 in 1995 to $608,000 during
the fiscal year ended September 30, 1996. This change resulted from the debt
assumed in connection with the Wedco acquisition, a lower average cash balance
and lower yields on the Company's high-quality commercial paper portfolio.
Unusual Items. In 1996 the Company incurred $1,112,000 in non-recurring
litigation charges. During the fourth quarter and subsequent to year-end,
management determined that it was probable that certain legal matters of the
Company would result in a charge to income and that these charges could be
reasonably estimated. Approximately 85% of the charge relates to the
settlement of the litigation of a dispute concerning the assumption of certain
liabilities in connection with the acquisition of Baker Hughes Tubular
Services, Inc. in September, 1992. (See "Legal Proceedings" - Item 3).
Provision (Benefit) for Income Taxes. The Company decreased its valuation
allowance through the fiscal year 1996 provision to reflect its ability to
benefit from temporary differences. In connection with the
21
<PAGE> 24
purchase price accounting for the Wedco acquisition, the Company reversed the
remaining valuation allowance against net tax assets expected to be realized,
resulting in a decrease of acquired goodwill. As a result of the reversal of
the valuation allowance, provisions for income taxes in future years will
increase as a percentage of net income and will be greater than the Company's
effective tax rate. See the income tax footnote to the fiscal year 1996
financial statements for the detail of temporary differences between income for
financial reporting purposes and income for federal income tax purposes.
The Company has for tax return purposes $6,306,000 and $1,078,000 in net
operating and capital loss carryforwards, respectively, which expire between
2000 and 2008 and $1,532,000 in investment, alternative minimum and other tax
credit carryforwards. All of the tax credits are expected to expire unused
except $104,000 in alternative minimum tax credits, which have no expiration.
Operating Income. Operating Income (Loss) decreased from $5,046,000 for
the year ended September 30, 1995 to ($2,084,000) for the year ended September
30, 1996. The decrease is due to the changes in revenues, selling, general and
administrative, depreciation and amortization and unusual items during fiscal
year 1996 versus 1995 as explained above.
Net income. For the year ended September 30, 1996, the Company had a net
loss of $1,060,000 as compared to net income of $5,790,000 for the year ended
September 30, 1995 due to the factors described above.
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
Revenues. Revenues increased $11,917,000 or 16% from the year ended
September 30, 1994 to the same period in 1995. Exploration revenues increased
$4,857,000 or 16% from the year ended September 30, 1994 to the same period in
1995. Demand for Exploration services was affected by domestic drilling
activity. The domestic rig count averaged approximately 738 for the year ended
September 30, 1995 compared to an average of approximately 785 for the year
ended September 30, 1994. The adverse impact of the lower domestic rig count,
however, was more than offset by the Company's increased success in providing
in-plant, new pipe inspection services to steel mill and processing customers.
Production revenues decreased $174,000 or less than 1% from the year ended
September 1994 to the same period in 1995. Demand for these services was
affected by changes in oil prices which remained relatively stable in 1995
versus 1994. Oil prices ranged from a high of approximately $21 per barrel to
a low of approximately $17 per barrel for the year ended September 30, 1995
compared to a high of approximately $21 per barrel to a low of approximately
$14 per barrel for the year ended September 30, 1994. The impact of fiscal
year 1994 acquisitions of Frontier, Kebco and Shearer had a positive impact on
production revenues. The effect of the acquisitions, however, was offset by a
temporary decline in services in the Oklahoma and Wyoming markets. The
decrease in California was the result of production delays following the
relocation of the Company's operating facility to Bakersfield, California, from
The City of Industry, California.
Revenues from Corrosion Control services increased $6,013,000 or 41% from
the year ended September 1994 to the same period in 1995. The increase was due
to the full year effect of the April 1994 Permian acquisition and an increased
demand for the Company's corrosion control services at all of its facilities.
22
<PAGE> 25
Costs and Expenses. Cost of sales and services as a percentage of net
revenues decreased from 71% for the year ended September 30, 1994 to 68% for
the year ended September 30, 1995. This was due to the cost reduction program
implemented at the beginning of the 1994 third quarter and the increased sales
volume of the Company's exploration sales and services in fiscal year 1995
versus fiscal year 1994.
Selling, general and administrative expenses increased from $15,202,000 for
the year ended September 30, 1994 to $17,736,000 for the year ended September
30, 1995. The change is due to increased sales activity, the 1994 acquisitions
of TUC, Shearer, Permian and Frontier and the 1995 acquisitions of B&W and
Spinco. Selling, general and administrative costs as a percentage of revenues
have remained relatively consistent for the fiscal year ended September 30,
1994 as compared to the same period in 1995.
Depreciation and amortization expense increased from $4,357,000 for the
year ended September 30, 1994 to $5,112,000 for the year ended September 30,
1995. The increase resulted from the additions of property, plant and
equipment during the year including the property, plant and equipment included
in the fiscal year 1995 and 1994 acquisitions.
Net interest income increased from $431,000 for the year ended September
30, 1994 to $1,307,000 for the year ended September 30, 1995. This change
resulted from the retirement of indebtedness in early fiscal year 1994 and
increasing yields on the Company's high-quality commercial paper portfolio in
fiscal year 1995 versus 1994.
Provision (Benefit) For Income Taxes. The Company reduced its valuation
allowance during fiscal year 1995 to reflect its ability to benefit from
temporary differences to the extent that regular federal taxes have been paid.
See the income tax footnote to the fiscal year 1995 financial statements for
the detail of temporary differences between income for financial reporting
purposes and federal income tax purposes.
The Company has for tax purposes $9,068,000 and $306,000 in net operating
and capital loss carryforwards, respectively, which expire between 2000 and
2008, and $2,078,000 in investment, alternative minimum, and other tax credit
carryforwards. All of the tax credits are expected to expire unused except
$104,000 in alternative minimum tax credits, which have no expiration.
Net Income. For the year ended September 30, 1995 the Company had net
income of $5,790,000 as compared to net income of $1,225,000 for the year ended
September 30, 1994 due to the factors described above. Included in the net
income for the year ended September 30, 1994 is an extraordinary loss of
$1,371,000 resulting from the retirement of indebtedness previously recorded on
the consolidated balance sheet at a discounted value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report. See index to this information on Page F-1 of this Annual Report on
Form 10-K.
23
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
P A R T III
Items 10, 11, 12 and 13 of Part III are incorporated by reference into the
Registrant's Proxy Statement for its 1997 Annual Shareholders' Meeting to be
filed with the Commission pursuant to Regulation 14A.
24
<PAGE> 27
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The response to this portion of Item 14 is submitted as a separate section
of this report on page F-1.
(b) Reports on Form 8-K: 8-KA filed July 15, 1996 regarding the acquisition of
Wedco Technology, Inc.
(c) Exhibits Required by Item 601 of S-K:
(1) The following exhibits are filed as a separate section of this Form
10-K Annual Report:
10 Loan Agreement dated April 17, 1996 between the Registrant and
Bank of America Texas, N.A.
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Coopers and Lybrand L.L.P.
27 Financial Data Schedule
(2) The following exhibits are incorporated herein by reference:
2 Merger Agreement dated December 8, 1995, as amended, among
ICO, Inc., W Acquisition Corp. and Wedco Technology, Inc.
(Annex A of Registrant's Registration Statement Number
333-00831 on Form S-4)
3(i) Articles of Incorporation of Registrant, as amended. (Exhibit
4 to Registrant's Form S-3 dated September 13, 1993)
3(ii) Bylaws of Registrant, as amended (incorporated by reference to
Registrant's 10-Q for the quarter ended June 30, 1996)
4(a) Indenture for 10% Senior Notes due 2002, dated as of September
1, 1992, between Registrant and Ameritrust Texas N.A.,
Trustee. (Exhibit 4 to Registrant's Form 10-K Annual Report
for 1992)
4(b) Warrant Agreement - Series A, dated as of September 1, 1992,
between Registrant and Society National Bank. (Exhibit 4 to
Registrant's Form 10-K Annual Report for 1992)
4(c) Warrant Agreement - Series B, dated as of September 1, 1992,
between Registrant and Society National Bank. (Exhibit 4 to
Registrant's Form 10-K Annual Report for 1992)
25
<PAGE> 28
MANAGEMENT COMPENSATORY AGREEMENTS
10(a) ICO, Inc. Tax Credit Employee Stock Ownership Plan, as
amended.
10(b) ICO, Inc. 1985 Stock Option Plan, as amended. (Exhibit B to
Registrant's definitive proxy statement dated April 27, 1987
for the Annual Meeting of Shareholders)
10(c) Agreement for the purchase and sale of all of the outstanding
shares of capital stock of Baker Hughes Tubular Services, Inc.
and certain related non-U.S. assets by and between ICO, Inc.
and Baker Hughes, Incorporated. (Exhibit 2(a) to Registrant's
Form 8-K Current Report dated September 30, 1992)
10(d) 1993 Stock Option Plan for Non-Employee Directors of ICO,
Inc., as amended and restated (Exhibit B to Registrant's
definitive proxy statement dated August 29, 1996 for the
annual Meeting of Shareholders)
10(e) ICO, Inc. 1994 Stock Option Plan (Exhibit A to Registrant's
definitive proxy statement dated June 24, 1994 for the Annual
Meeting of Shareholders)
10(f) ICO, Inc. 1995 Stock Option Plan (Exhibit A to Registrant's
definitive proxy statement dated August 10, 1995 for the
Annual Meeting of Shareholders)
10(g) ICO, Inc. 1996 Stock Option Plan (Exhibit A to Registrant's
definitive proxy statement dated August 29, 1996 for the
Annual Meeting of Shareholders)
(d) The response to this portion of Item 14 is submitted as a separate section
of this report on page F-1.
26
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ SYLVIA A. PACHOLDER
--------------------------------------
Sylvia A. Pacholder, President and
Chief Executive Officer
(Principal Executive Officer)
Date: December 27, 1996
Pursuant to the requirements of the securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
------------------- ----
/s/ SYLVIA A. PACHOLDER December 27, 1996
- -----------------------------------------------
Sylvia A. Pacholder, President and
Chief Executive officer
(Principal Executive Officer)
/s/ ASHER O. PACHOLDER December 27, 1996
- -----------------------------------------------
Asher O. Pacholder, Chairman of the Board
and Chief Financial Officer
(Principal Financial Officer)
/s/ JON C. BIRO December 27, 1996
- -----------------------------------------------
Jon C. Biro, Senior Vice President
and Treasurer
(Principal Accounting Officer)
/s/ ROBIN E. PACHOLDER December 27, 1996
- -----------------------------------------------
Robin E. Pacholder, Senior Vice President
and General Counsel
/s/ WILLIAM E. CORNELIUS December 27, 1996
- ---------------------------------------------
William E. Cornelius, Director
27
<PAGE> 30
/s/ JAMES E. GIBSON December 27, 1996
- ----------------------------------------------
James E. Gibson, Director
/s/ WALTER L. LEIB December 27, 1996
- ----------------------------------------------
Walter L. Leib, Director
/s/ WILLIAM J. MORGAN December 27, 1996
- ----------------------------------------------
William J. Morgan, Director
/s/ GEORGE S. SIRUSAS December 27, 1996
- ----------------------------------------------
George S. Sirusas, Director
/s/ JOHN F. WILLIAMSON December 27, 1996
- ----------------------------------------------
John F. Williamson, Director
/s/ WILLIAM E. WILLOUGHBY December 27, 1996
- ------------------------------------------
William E. Willoughby, Director
28
<PAGE> 31
ICO, INC. AND SUBSIDIARIES
FORM 10-K
INDEX OF FINANCIAL STATEMENTS AND SCHEDULE
The following financial statements of ICO, Inc. and subsidiaries are required
to be included by Item 14(a):
Financial Statements: PAGE
Report of Independent Accountants . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet at September 30, 1996 and 1995 . . . F-3
Consolidated Statement of Operations for the three years ended
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for the three years ended
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity for the three
years ended September 30, 1996 . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . F-8
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted or
the information is presented in the consolidated financial statements or
related notes.
F-1
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ICO, Inc.
In our opinion, the consolidated financial statements listed in the Index
appearing on page F-1 present fairly, in all material respects, the financial
position of ICO, Inc. and its subsidiaries at September 30, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 1 and 15 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 121 - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
Due to a change in circumstances pursuant to this statement, the Company
recognized a charge of $5,025,000 for the year ended September 30, 1996.
PRICE WATERHOUSE LLP
Houston, Texas
December 20, 1996
F-2
<PAGE> 33
ICO, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------
1996 1995
------------------ --------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 13,414,000 $ 24,991,000
Trade receivables (less allowance for doubtful accounts of
$972,000 and $828,000, respectively) 25,279,000 18,050,000
Inventories 7,556,000 4,873,000
Income tax receivable 16,000 --
Deferred tax asset - current 4,052,000 --
Prepaid expenses and other 3,023,000 2,035,000
-------------- -------------
Total current assets 53,340,000 49,949,000
-------------- -------------
Property, plant and equipment, at cost 126,170,000 83,461,000
Less - accumulated depreciation and amortization (53,585,000) (53,637,000)
-------------- -------------
72,585,000 29,824,000
Other assets:
Goodwill (less accumulated amortization of
$4,039,000 and $196,000, respectively) 29,915,000 4,474,000
Deferred tax asset -- 1,633,000
Investment in joint ventures 4,619,000 --
Other 2,932,000 2,303,000
-------------- -------------
$ 163,391,000 $ 88,183,000
============== =============
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
Current liabilities:
Short term borrowings and current portion of long-term debt $ 3,880,000 $ 635,000
Accounts payable 8,538,000 5,622,000
Accrued insurance 1,613,000 1,731,000
Accrued salaries and wages 2,001,000 1,351,000
Accrued litigation costs 2,071,000 500,000
Income taxes payable -- 1,209,000
Accrued expenses 5,355,000 1,617,000
-------------- --------------
Total current liabilities 23,458,000 12,665,000
Deferred income taxes 1,648,000 --
Long-term liabilities 2,269,000 --
Long-term debt, net of current portion 15,422,000 1,047,000
-------------- -------------
Total liabilities 42,797,000 13,712,000
-------------- -------------
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;
19,682,494 and 8,883,911 shares issued and outstanding, respectively 35,822,000 35,042,000
Additional paid-in capital 102,429,000 56,106,000
Cumulative translation adjustment 32,000 (48,000)
Accumulated deficit (17,702,000) (16,642,000)
-------------- -------------
120,594,000 74,471,000
-------------- -------------
Commitments and contingencies (see Note 13)
$ 163,391,000 $ 88,183,000
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 34
ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1996 1995 1994
-------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Oilfield sales and services $ 89,390,000 $ 87,883,000 $ 75,970,000
Petrochemical processing sales and services 19,273,000 -- --
-------------- --------------- ---------------
Total net revenues 108,663,000 87,883,000 75,970,000
-------------- --------------- ---------------
Cost and expenses:
Cost of sales and services 74,704,000 59,885,000 54,191,000
Selling, general and administrative 19,996,000 17,736,000 15,202,000
Depreciation and amortization 7,230,000 5,112,000 4,357,000
Impairment of long-term assets 5,025,000 -- --
Non-recurring compensation arrangements 1,812,000 -- --
Non-recurring litigation charges 1,112,000 -- --
Writedown of inventories 868,000 104,000 --
-------------- --------------- ---------------
110,747,000 82,837,000 73,750,000
-------------- --------------- ---------------
Operating income (loss) (2,084,000) 5,046,000 2,220,000
-------------- --------------- ---------------
Other income and expense:
Interest income 1,277,000 1,424,000 902,000
Interest expense (669,000) (117,000) (471,000)
Equity in income of joint ventures 80,000 -- --
Gain (loss) on sale of fixed assets (313,000) 4,000 --
Other 17,000 -- --
-------------- --------------- ---------------
Income (loss) before taxes and extraordinary item (1,692,000) 6,357,000 2,651,000
Provision (benefit) for income taxes (632,000) 567,000 55,000
-------------- --------------- ---------------
Income (loss) before extraordinary item (1,060,000) 5,790,000 2,596,000
Extraordinary item - loss on repayment of debt -- -- (1,371,000)
-------------- --------------- ---------------
Net income (loss) $ (1,060,000) $ 5,790,000 $ 1,225,000
============== =============== ===============
Earnings (loss) applicable to common
and common equivalent shares:
Income (loss) before extraordinary item $ (.24) $ .41 $ .09
Extraordinary item -- -- (.16)
-------------- --------------- ---------------
Net income (loss) $ (.24) $ .41 $ (.07)
============== =============== ===============
Weighted average common and common
equivalent shares outstanding 13,327,855 8,709,303 8,299,559
============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 35
ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1996 1995 1994
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,060,000) $ 5,790,000 $ 1,225,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,230,000 5,112,000 4,357,000
Loss on extinguishment of debt -- -- 1,371,000
Loss on disposition of property, plant, and equipment 313,000 (4,000) --
Writedown for impairment of long-term assets 5,025,000 -- --
Writedown of inventories 868,000 104,000 --
Equity in income of joint ventures (80,000) -- --
Changes in assets and liabilities, net of the effects
of business acquisitions:
Receivables (179,000) (3,279,000) (1,067,000)
Inventories (2,062,000) 193,000 (515,000)
Prepaid expenses and other assets 1,604,000 (340,000) (302,000)
Deferred taxes (1,661,000) (1,634,000) --
Accounts payable 953,000 400,000 (51,000)
Accrued expenses 159,000 2,687,000 (272,000)
------------- ------------- -------------
Total adjustments 12,170,000 3,239,000 3,521,000
------------- ------------- -------------
Net cash provided by operating activities 11,110,000 9,029,000 4,746,000
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (8,712,000) (5,838,000) (4,782,000)
Acquisitions, net of cash acquired (5,953,000) (939,000) (3,194,000)
Dispositions of property, plant and equipment 199,000 137,000 533,000
------------- ------------- -------------
Net cash used for investing activities (14,466,000) (6,640,000) (7,443,000)
------------- ------------- -------------
Cash flows from financing activities:
Net proceeds from sale of stock 474,000 622,000 31,418,000
Payment of dividend on preferred stock (2,178,000) (2,176,000) (1,826,000)
Payment of dividend on common stock (2,830,000) -- --
Additional debt 491,000 142,000 --
Reductions of debt (4,178,000) (749,000) (11,582,000)
------------- ------------- -------------
Net cash provided by (used for) financing activities (8,221,000) (2,161,000) 18,010,000
------------- ------------- -------------
Net increase (decrease) in cash and equivalents (11,577,000) 228,000 15,313,000
Cash and equivalents at beginning of year 24,991,000 24,763,000 9,450,000
------------- ------------- -------------
Cash and equivalents at end of year $ 13,414,000 $ 24,991,000 $ 24,763,000
============= ============= =============
Supplemental Disclosures of Cash Flow Information:
Cash received (paid) during the period for:
Interest received $ 1,278,000 $ 1,430,000 $ 805,000
Interest paid (688,000) (127,000) (710,000)
Income taxes paid (2,709,000) (992,000) --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 36
ICO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
PREFERRED ------------------------ PAID-IN TRANSLATION ACCUMULATED
STOCK SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT
---------- --------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 -- 7,298,077 $26,431,000 $26,119,000 $ (1,000) $(20,256,000)
Issuance of shares in
connection with acquisitions -- 832,894 5,550,000 -- -- --
Issuance of shares in
connection with the exercise
of warrants -- 349,143 1,095,000 -- -- --
Issuance of shares in
connection with the exercise
of employee stock options -- 32,680 124,000 -- -- --
Issuance of shares to the ICO
Employee Stock Ownership Plan -- 38,780 194,000 -- -- --
Issuance of 322,500 shares of
convertible Exchangeable
Preferred Stock $ 13,000 -- -- 30,588,000 -- --
Convertible Exchangeable
Preferred Stock Dividend -- -- -- (601,000) -- (1,225,000)
Translation adjustment -- -- -- -- (52,000) --
Net income -- -- -- -- -- 1,225,000
---------- --------- ----------- ----------- ---------- ------------
Balance at September 30, 1994 13,000 8,551,574 33,394,000 56,106,000 (53,000) (20,256,000)
Issuance of shares in
connection with acquisitions -- 161,550 843,000 -- -- --
Issuance of shares in
connection with the exercise
of employee stock options -- 133,330 622,000 -- -- --
Issuance of shares to the ICO
Employee Stock Ownership Plan -- 37,457 183,000 -- -- --
Convertible Exchangeable
Preferred Stock Dividend -- -- -- -- -- (2,176,000)
Translation adjustment -- -- -- -- 5,000 --
Net income -- -- -- -- -- 5,790,000
---------- --------- ----------- ----------- ---------- ------------
Balance at September 30, 1995 13,000 8,883,911 35,042,000 56,106,000 (48,000) (16,642,000)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 37
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CON'T.)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
PREFERRED ------------------------ PAID-IN TRANSLATION ACCUMULATED
STOCK SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT
---------- --------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ 13,000 8,883,911 $35,042,000 $ 56,106,000 $ (48,000) $(16,642,000)
Issuance of shares in
connection with acquisitions -- 10,664,435 107,000 51,331,000 -- --
Issuance of shares in
connection with the exercise
of warrants -- 20,000 100,000 -- -- --
Issuance of shares in
connection with the exercise
of employee stock options -- 79,499 374,000 -- -- --
Issuance of shares to the ICO
Employee Stock Ownership Plan -- 34,649 199,000 -- -- --
Convertible Exchangeable
Preferred Stock Dividend -- -- -- (2,178,000) -- --
Common Stock Dividend -- -- -- (2,830,000) -- --
Translation adjustment -- -- -- -- 80,000 --
Net income -- -- -- -- -- (1,060,000)
---------- ---------- ----------- ------------ ---------- ------------
Balance at September 30, 1996 $ 13,000 19,682,494 $35,822,000 $102,429,000 $ 32,000 $(17,702,000)
========== ========== =========== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of ICO, Inc. and its wholly-owned subsidiaries (the
"Company"). Intercompany accounts and transactions have been eliminated in
consolidation.
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, if any, at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
JOINT VENTURES - Joint ventures included in the Company's financial
statements, as of September 30, 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. The
investment in Micronyl-Wedco S.A. is 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. Due to the legal action
against WedTech, Inc., management no longer exercises influence over WedTech,
Inc. and, accordingly, the equity method has not been applied for the period
ended September 30, 1996. The application of the equity method will be further
reviewed as the circumstances surrounding this joint venture investment change.
SEGMENT INFORMATION - The Company operates in two industry segments.
The Company serves the energy and steel industries by providing testing,
inspection, reconditioning, and coating services and equipment, operating in
many of the significant oil and gas producing regions and active exploration
areas of the Continental United States. Through its wholly owned subsidiaries,
Wedco Technology and Polymer Service, the Company serves the petrochemical
industry by providing customers with size-reduction and other related services
for heat sensitive thermo-plastic materials and also manufactures certain
machinery used for those services. The Company operates in the petrochemical
industry in the United States, Europe and Canada. The Company operates in
Europe through Wedco Europe B.V., the holding company for Wedco Technology's
foreign operations.
REVENUE AND RELATED COST - The Company generally recognizes revenue
upon completion of its services and related expenses are generally recognized
as incurred. For product and machinery sales, revenues and related expenses
are recognized when title is transferred, generally when the products are
shipped.
INVENTORIES - Inventories are stated at the lower of cost or market,
cost being determined by the first-in, first-out method with the exception of
certain spare part inventories used in the petrochemical processing business
which are stated at the lower of cost or market, cost determined using the
last-in first-out method.
F-8
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CASH AND EQUIVALENTS - The Company considers all highly-liquid debt
securities with a maturity of three months or less when purchased to be cash
equivalents.
PROPERTY, PLANT AND EQUIPMENT - The costs of property, plant and
equipment, including renewals and improvements which extend the life of
existing properties, are capitalized and depreciated using the straight-line
method over the estimated useful lives of the various classes of assets as
follows:
<TABLE>
<CAPTION>
CLASSIFICATION YEARS
-------------- -----
<S> <C>
Site improvements . . . . . . . . . . . . 2-25
Buildings . . . . . . . . . . . . . . . . 2-25
Machinery and equipment . . . . . . . . . 2-15
Transportation equipment . . . . . . . . 2-10
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
lesser of the economic life of the asset or the lease term. Expenditures for
normal maintenance and repairs are expensed as incurred. The cost of property,
plant and equipment sold or otherwise retired and the related accumulated
depreciation are removed from the accounts and any resultant gain or loss is
included in operating results.
GOODWILL - The excess purchase price over fair value of net tangible
assets, goodwill, is being amortized on a straight-line basis over 40 years.
The goodwill amortization charged against earnings in 1994, 1995 and 1996 was
$67,000, $129,000 and $456,000, respectively.
PATENTS AND LICENSES - The cost of patents, patent rights and license
agreements is generally amortized over the remaining legal lives of the patents
or agreements on a straight-line basis, averaging approximately ten years.
Total accumulated amortization associated with such patents and agreements at
September 30, 1995 and 1996 was $1,267,000 and $1,335,000, respectively.
ASSESSMENT OF IMPAIRMENT OF LONG-LIVED ASSETS - As discussed in Note 15,
the Company reviews property, plant and equipment, goodwill and other
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable.
FOREIGN CURRENCY TRANSLATION - Exchange adjustments resulting from
foreign currency transactions are generally recognized in net earnings, whereas
adjustments resulting from the translation of financial statements are
reflected as a separate component of stockholders' equity. Net foreign
currency transaction gains or losses are not material in any of the periods
presented.
ENVIRONMENTAL - Environmental expenditures that relate to current
operations are expensed as incurred. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are also expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the costs
can be reasonably estimated. Generally, the timing of these accruals coincides
with the earlier of completion of a feasibility study or the Company's
commitment to a formal plan of action.
INCOME TAXES - The Company and its wholly-owned subsidiaries file a
consolidated federal income tax return. Investment tax credits are recognized
using the flow-through methods, whereby, in the year
F-9
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
available for utilization, they are applied as a reduction of income tax
expense. Deferred income taxes are determined utilizing a liability approach.
This method gives consideration to the future tax consequences associated with
existing differences between financial accounting and tax bases of assets and
liabilities. This method also gives immediate effect to changes in income tax
laws upon enactment. Deferred income tax expense is derived from changes in
deferred income taxes on the balance sheet.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per share is based on earnings
(loss) applicable to common shareholders and is computed using the weighted
average number of common and common equivalent shares outstanding during the
year including stock options and warrants which may have a dilutive effect.
Outstanding options, warrants and Exchangeable Preferred Stock had no material
dilutive effect for the three years ended September 30, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments
consist of cash and equivalents, accounts receivable, accounts payable, and
long-term debt. The carrying amounts of cash and equivalents, accounts
receivable, and accounts payable approximate fair value due to the highly
liquid nature of these short-term instruments. The fair value of long-term
debt was determined based upon interest rates currently available to the
Company for borrowings with similar terms. The fair value of long-term debt
approximates the carrying amount as of September 30, 1996.
RECLASSIFICATION - Certain reclassifications have been made to the prior
year amounts in order to conform to the current year classifications.
NOTE 2 - ACQUISITIONS
1994 ACQUISITIONS
In April 1994, the Company acquired all of the outstanding capital stock of
Permian Enterprises, Inc. ("Permian") located in Midland, Texas, for $2,498,000
consisting of 399,600 shares of the Company's common stock. As part of this
transaction, the Company funded a pre-acquisition dividend to Permian
shareholders by making a $2,100,000 loan to Permian. Permian provides cement
and fiberglass lining for tubing and casing.
In April 1994, the Company purchased all of the outstanding capital stock
of Frontier Inspection Services, Inc. ("Frontier") for $1,495,000 consisting
of 230,000 shares of the Company's common stock. Frontier, which is based in
Farmington, New Mexico, provides inspection and reclamation services for tubing
and casing.
In February 1994, the Company purchased all of the outstanding capital
stock of Shearer Supply Ltd. ("Shearer") of Canada for $1,900,000, consisting
of $1,300,000 cash and 98,294 shares of the Company's common stock. Shearer
inspects and reconditions sucker rods and reconditions engines utilized in
connection with pumping units of oil wells.
In November 1993, the Company acquired substantially all of the property,
plant and equipment of Tubular Ultrasound Corporation, Inc. ("TUC"), a
pipe-inspection company, located in Houston, Texas for a total consideration of
$1,100,000 consisting of 105,000 shares of the Company's common stock and
F-10
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the payment of $170,000 of TUC indebtedness.
1995 ACQUISITIONS
In June 1995, the Company purchased all of the outstanding capital stock of
R.J. Dixon, Inc. (DBA "Spinco") for a $490,000 note and 94,884 shares of ICO
common stock. Spinco is a Louisiana corporation that provides inspection and
reclamation services for drill pipe and other oil country tubular goods in the
Gulf Coast area.
In March 1995, the Company acquired substantially all of the operating
assets, excluding real estate, of Kebco Pipe Services, Inc. ("Kebco"), which
provides testing, inspecting and reconditioning services for oil country
tubular goods in the West Texas area. Kebco was acquired for a total
consideration of approximately $671,000, consisting of approximately $629,000
cash and a $42,000 note.
In October 1994, the Company purchased all of the outstanding capital stock
of B&W Equipment Sales and Mfg., Inc. ("B&W") for approximately $745,000,
consisting of $395,000 cash and 66,666 shares of ICO common stock. B&W is a
Texas corporation that designs and manufactures parts and components for
nondestructive testing and inspection of equipment for use in the tubular
market.
1996 ACQUISITIONS
In July 1996, the Company acquired Polymer Service, Inc. located in
Beaumont, Texas and Polymer Service of Indiana, Inc. located in East Chicago,
Indiana (collectively referred to as "Polymer Service"). The consideration
paid consisted of 431,826 shares of ICO common stock, $1,984,000 in cash
(including transaction expenses) and the assumption of $2,073,000 in
liabilities. These companies provide size reduction, compounding and related
processing services for the petrochemical industry.
In April 1996, the Company acquired Wedco Technology, Inc. Wedco serves
the petrochemical industry by providing plastics grinding services and related
machinery. The consideration paid consisted of 10,232,609 ICO common shares,
$4,637,000 in cash (including transaction fees and expenses) and the assumption
of $29,947,000 in total liabilities. As part of the transaction, the Company
and Wedco's former Chairman, President and Chief Executive Officer entered into
a consulting agreement and top management of Wedco executed non-competition
agreements. The acquisition also had an effect on the Company's valuation
allowance against net deferred tax assets (See Note 10 - Income Taxes).
In March 1996, the Company acquired the operating assets, excluding real
estate, of Rainbow Inspection Company of Mississippi, Inc. ("Rainbow") for
$203,000 cash (including transaction expenses) and the assumption of $125,000
in liabilities. Rainbow provides inspection and reclamation services for oil
country tubular goods in the Gulf Coast area.
All acquisitions were accounted for under the purchase method of
accounting.
The following unaudited pro forma information includes the acquisition for
the period in which the transaction occurred and the immediately preceding
period. All acquisitions made during the three years
F-11
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ended September 30, 1996 are included, with the exception of the Rainbow
purchase, which is considered immaterial.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
Revenues $ 136,877,000 $ 138,838,000 $ 84,394,000
Income (loss) before extraordinary item (1,250,000) 7,344,000 3,761,000
Net income (loss) earnings applicable to
common and common equivalent share $ (.17) $ .27 $ .23
</TABLE>
NOTE 3 - INVENTORIES
Inventories at September 30 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Finished goods $ 3,220,000 $ 1,941,000
Raw materials and work in process 4,336,000 2,932,000
----------- -----------
$ 7,556,000 $ 4,873,000
=========== ===========
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following at
September 30:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Land and site improvements $ 24,034,000 $19,133,000
Buildings 22,374,000 10,171,000
Machinery and equipment 72,335,000 46,228,000
Transportation equipment 2,187,000 2,389,000
Leasehold improvements 1,797,000 1,668,000
Construction in progress 3,443,000 3,872,000
------------ -----------
$126,170,000 $83,461,000
============ ===========
</TABLE>
Depreciation expense was $6,634,000, $4,908,000 and $4,290,000 for the three
years ended September 30, 1996, respectively.
F-12
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
NOTE 5 - LONG-TERM DEBT 1996 1995
---------- ----------
<S> <C> <C>
Long-term debt at September 30, 1996 and 1995 consists of the
following:
Various secured loan agreements collateralized by certain assets of
the Company and containing restrictions relating to, among other
things, additional borrowings, selling assets except in the
ordinary course of business, and investments or guarantees. The
loan agreements carry various maturities and interest rates ranging
from 7.0% to 12.5%. $1,592,000 $1,192,000
Long-term debt incurred with the acquisition of Spinco which bears
interest at 5% and is due January 1997. 523,000 490,000
Domestic 7.0% fixed-rate term loan, payable 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. 4,175,000 --
Domestic floating-rate term loan payable in ninety-five monthly
principal installments of $21,053 plus interest at the lending
bank's base rate plus 0.25%, (8.5% at September 30, 1996), with a
final principal payment of approximately $2.8 million due on May 1,
2002. 4,189,000 --
Domestic mortgage loan payable 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 September 30, 1996). This loan is
collateralized by a mortgage on certain domestic property which has
a net book value of $1,255,000 at September 30, 1996. 1,411,000 --
Mortgage loan 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 Wedco.
Principal payment on the loan amounts to $13,044 at September 30,
1996 exchange rates and is payable in monthly installments through
June 2006. Interest is payable monthly at a fixed rate of 8.90%. 1,527,000 --
</TABLE>
F-13
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Mortgage loan payable of the Company's Dutch subsidiary,
collateralized by mortgages on certain fixed assets of the
subsidiary up to Dfl 4,000,000 ($2,336,000 at September 30, 1996
exchange rates) which have a net book value of $3,188,000 at
September 30, 1996 exchange rates as well as a keepwell letter duly
signed by Wedco. Principal payment on the loan amounts to $59,303
at September 30, 1996 exchange rates and is payable in quarterly
installments. Interest is payable in quarterly installments at a
fixed rate of 7.20%. 2,313,000 --
Mortgage loans payable of the Company's Dutch subsidiary,
collateralized by mortgages on certain fixed assets of the
subsidiary up to Dfl 2,350,000 ($1,460,000 at September 30, 1996
exchange rates) which have a net book value of $1,750,000 at
September 30, 1996 exchange rates as well as a keepwell letter duly
signed by Wedco. Principal payments on these loans are $87,585 at
September 30, 1996 exchange rates and are payable in semi-annual
and annual installments, respectively. Interest is payable in
quarterly installments at a fixed rate of 6.80%. 1,927,000 --
----------- ----------
Total 17,657,000 1,682,000
Less current maturities 2,235,000 635,000
----------- ----------
Long-term debt less current maturities $15,422,000 $1,047,000
=========== ==========
</TABLE>
Effective October 1, 1996, the Company converted the domestic floating rate
mortgage loan, with a balance of $1,411,000 at September 30, 1996, into a 9.2%
fixed rate loan with monthly payments of principal and interest of $18,026
through October 1, 2006.
Effective October 28, 1996, the Company consolidated its domestic fixed and
variable term loans which total $8,364,000 at September 30, 1996, into a new
$8,577,000 fixed rate (8%) term loan with monthly payments of principal and
interest of $83,123 through November 1, 2003 plus a final balloon payment. The
loan is collateralized by certain real estate of Wedco.
Maturities of the debt (including the effect of the refinancing
transactions made subsequent to September 30, 1996), are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30, AMOUNTS
------------- -------
<S> <C>
1997 $ 2,235,000
1998 1,107,000
1999 1,143,000
2000 1,170,000
2001 1,195,000
Thereafter 11,020,000
</TABLE>
F-14
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 - CREDIT ARRANGEMENTS
As of September 30, 1996, the Company also maintains the following credit
arrangements with several lending institutions:
In April 1996, the Company established a $15 million revolving line of
credit to be repaid on or before the facility's expiration date of April 17,
1998. Borrowings under the line of credit bear interest at prime or Libor +
1.25%. As of September 30, 1996, there were no borrowings under this credit
facility.
The Company maintained two domestic lines of credit through its wholly
owned subsidiary, Wedco Technology, Inc., which totaled $7 million. Borrowings
under these facilities bore interest at the lending bank's base rate with
various repayment dates. As of September 30, 1996, there were no outstanding
borrowings under these credit facilities. Subsequent to year end, the lines of
credit were reduced to one which totals $500,000.
The Company maintains several foreign lines of credit through its wholly
owned subsidiary, Wedco Technology, Inc. These facilities totaled $4,592,000
at September 30, 1996 current exchange rates. The facilities are
collateralized by certain assets of the foreign subsidiaries. All the
facilities can be repaid at the Company's discretion. Borrowings under these
agreements, classified as short term borrowings on the consolidated balance
sheet totaled $1,645,000 at September 30, 1996 exchange rates.
The weighted average interest rates charged on short-term borrowings under
the Company's various credit facilities during the fiscal year ended September
30, 1996 was 6.61%.
NOTE 7 - INVESTMENT IN JOINT VENTURES
On February 16, 1996, Wedco commenced legal action against WedTech, Inc., a
Canadian corporation, which is owned 50% by Wedco and 50% by Polyvector
Corporation, a Canadian corporation, which is also a defendant in the action.
The Company alleges, among other things, that the various defendants have
breached the terms of the shareholders' agreement among Wedco and the
defendants. The defendants have also filed counterclaims in the action
alleging that ICO and Wedco have breached the shareholders' agreement. Due to
the circumstances, including this current litigation, management no longer
exercises influence over WedTech and, accordingly, the equity method has not
been applied for the five month period ended September 30, 1996. The
application of the equity method will be further reviewed as the circumstances
surrounding this joint venture investment change.
NOTE 8 - PREFERRED STOCK
In November 1993, the Company completed an offering of Convertible
Exchangeable Preferred Stock ("Preferred Stock"). The shares of Preferred
Stock are evidenced by Depositary Shares, each representing one-quarter of a
share of Preferred Stock. A total of 1,290,000 Depositary Shares were sold at
a price of $25 per share. Each preferred share is convertible into 10.96
common shares (equivalent to 2.74 common shares per Depositary Share) at a
conversion price of $9.125 per common share subject to
F-15
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
adjustment upon the occurrence of certain events. The Board of Directors
approved the recording of the Preferred Stock offering by allocating $.01 per
Depositary Share to Preferred Stock and the remainder to additional paid-in
capital. Preferred Stock dividends of $1.68 per depositary share are paid
annually.
NOTE 9 - STOCK OPTION PLANS AND COMMON STOCK WARRANTS
The ICO, Inc. 1985 Stock Option Plan provided for the grant of options to
purchase an aggregate of 310,000 shares of the Company's common stock during
the ten-year period commencing January 2, 1985. The ICO, Inc. 1993
Non-employee Directors Stock Option Plan provides for the grant of options to
purchase an aggregate of 80,000 shares of the Company's common stock during the
ten-year period commencing June 16, 1993. The 1993 Non-employee Directors
Stock Option Plan was amended, effective October 7, 1996, to increase the
aggregate shares available for grant to 160,000. The ICO, Inc. 1994 Stock
Option Plan provides for the grant of options to purchase an aggregate of
400,000 shares of the Company's common stock during the ten-year period
commencing July 1, 1994. The ICO, Inc. 1995 Stock Option Plan ("1995 Plan")
provides for the grant of options to purchase an aggregate of 400,000 shares of
the Company's common stock during the ten year period commencing August 15,
1995. Shares of common stock are reserved for grant to certain officers, key
employees and non-employee Directors at a price not less than 100% of the fair
market value of the stock at the date of grant. There were 55,400, 49,700 and
101,775 shares available for grant at September 30, 1996, 1995 and 1994,
respectively. The following is a summary of stock option activity for the
three years ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Options outstanding at beginning of year 486,562 213,041 215,772
Options granted 469,600 469,550 44,000
Options exercised (79,499) (128,844) (32,680)
Options canceled or expired (103,027) (67,185) (14,051)
-------- -------- -------
Options outstanding at end of year 773,636 486,562 213,041
======== ======== =======
Price range of options granted $4.88 - 6.88 $4.75 - 6.13 $5.75 - 8.25
Price range of options exercised $3.75 - 5.75 $3.75 - 5.75 $3.75 - 5.00
Price range of options outstanding at end of year $3.75 - 12.20 $3.75 - 12.20 $3.75 - 12.20
</TABLE>
The ICO, Inc. 1996 Stock Option Plan ("1996 Plan") was approved by the
stockholders at the Annual Meeting held on October 7, 1996 and provides for the
grant of options to purchase an aggregate of 800,000 shares of the Company's
common stock during the ten year period commencing August 29, 1996. Shares of
common stock are reserved for grant to certain officers and key employees at a
price not less than 100% of the fair market value of the stock at the date of
grant. As of September 30, 1996 no options had been granted under the 1996
Plan.
In connection with the Company's debt restructurings, 31,625 (expiring June
1997) and 801,750 (expiring July 2002) Common Stock Purchase Warrants were
issued and are outstanding and currently exercisable at $5.00 as of September
30, 1996.
F-16
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10 - INCOME TAXES
The amounts of income (loss) before income taxes attributable to domestic
and foreign operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Domestic $ (4,592,000) $ 5,297,000 $ 1,323,000
Foreign 2,900,000 1,060,000 (43,000)
------------- ----------- -----------
$ (1,692,000) $ 6,357,000 $ 1,280,000
============== =========== ===========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal $ 161,000 $ 1,633,000 $ 55,000
State 165,000 208,000 --
Foreign 839,000 359,000 --
------------- ----------- -----------
1,165,000 2,200,000 55,000
------------- ----------- -----------
Deferred:
Federal (1,479,000) (1,633,000) --
State (318,000) -- --
Foreign 0 -- --
------------- ----------- -----------
(1,797,000) (1,633,000)
------------- ----------- -----------
Total:
Federal (1,318,000) -- 55,000
State (153,000) 208,000 --
Foreign 839,000 359,000 --
------------- ----------- -----------
$ (632,000) $ 567,000 $ 55,000
============= =========== ===========
</TABLE>
A reconciliation of the income tax expense (benefit) at the federal
statutory rate (35% for 1995 and 34% for prior years) to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate $ (592,000) $ 2,225,000 $ 435,000
Change in the deferred tax assets valuation
allowance (1,365,000) (1,695,000) (495,000)
Non-deductible expenses and other, net 189,000 (7,000) 92,000
Foreign tax rate differential (192,000) -- --
Amortization and write-down of Goodwill 1,328,000 44,000 23,000
------------- ----------- -----------
$ (632,000) $ 567,000 $ 55,000
============= =========== ===========
</TABLE>
F-17
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred tax assets (liabilities) result from the cumulative effect of
temporary differences in the recognition of expenses (revenues) between tax
returns and financial statements. The significant components of the balances
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss carryforwards $ 2,268,000 $ 3,299,000
Tax credit carryforward 1,532,000 2,078,000
Depreciation -- 966,000
Insurance accruals 674,000 733,000
Other accruals 619,000 382,000
Bad debt allowance 394,000 338,000
Compensated absence accruals 857,000 91,000
Legal accruals 606,000 --
Joint Venture accruals 697,000 --
Inventory 182,000 --
Other -- 70,000
------------ ------------
7,829,000 7,957,000
------------ ------------
Deferred tax liabilities:
Depreciation and land (1,816,000) --
Foreign currency translation adjustment (664,000) --
Deferred revenue (279,000) (361,000)
Other -- (20,000)
------------ ------------
(2,759,000) (381,000)
------------ ------------
Valuation allowance on deferred tax assets (2,666,000) (5,943,000)
------------ ------------
Net deferred tax assets $ 2,404,000 $ 1,633,000
------------ ------------
</TABLE>
The Company changed its assessment of the deferred tax assets valuation
allowance in the fourth quarter of fiscal 1995 to recognize its ability to
benefit from the reversal of temporary differences between financial and
taxable income to the extent that regular federal income taxes have been paid
on taxable income. During 1996, the Company recognized $1,365,000 as a tax
benefit realized as a reduction of income tax expense to reflect the
utilization of net operating loss carryforwards ("NOLs") and to recognize a tax
benefit to the extent regular federal income taxes have been paid on taxable
income.
Upon the acquisition of Wedco, the Company changed its assessment of the
valuation allowance to only reserve against capital losses, expiring NOLs,
expiring credit carryforwards and a portion of the joint venture reserves, all
of which are not expected to be utilized. The valuation allowance was further
reduced by $545,000 to reflect the expiration of certain federal tax credits.
Upon this revaluation, the Company recognized $1,328,000 as a change in net
operating loss carryforwards realized as a reduction of goodwill attributable
to the Wedco acquisition.
The Company has for tax return purposes $6,306,000 and $1,078,000 in net
operating and capital loss carryforwards, respectively, which expire between
2000 and 2008, and $1,532,000 in investment,
F-18
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
alternative minimum and other tax credit carryforwards which if utilized will
result in a cash savings. The capital loss carryforward includes $772,000
which was generated by Wedco prior to the acquisition by the Company;
accordingly, any subsequent utilization of this loss carryover will be treated
as an adjustment to the purchase price and a reduction to goodwill. All other
tax credits are expected to expire unused except $104,000 in alternative
minimum tax credits, which have no expiration.
A stock offering in 1993 resulted in a change in ownership that
consequently limited the Company's ability to utilize the carryforwards and
credits to approximately $2,800,000 each year. In addition, an earlier change
in ownership further limits the utilization of a majority of the NOLs and all
of the credits to approximately $677,000 each year through their expiration.
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company maintains several benefit plans which cover all domestic
employees that meet certain eligibility requirements related to age and service
time with the Company. The plan in which each employee is eligible to
participate depends upon the subsidiary the employee works for. All plans have
a salary deferral feature which allow employees to contribute up to a certain
percentage of their earnings, subject to governmental regulations. The Company
matches the employee's contribution with ICO stock or a monetary contribution.
An employee's interest in the Company's contributions and earnings are vested
at 20% per year over service dates ranging from one year of service to seven
years of service, depending on the plan.
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.
Wedco UK maintains a Group Personal Pension Scheme, in which all employees
of Wedco UK that have completed six months of service are eligible to
participate. Under the provisions of the plan, the Company contributes 5% of
eligible earnings for all eligible employees. In addition, each eligible
employee may contribute any amount as a percentage of earnings up to the legal
maximum for Approved Personal Pension Plans which will be matched by the
Company up to 5% of eligible earnings.
Total expense for all employee benefit plans, included in consolidated net
income for the years ended September 30, 1996, 1995 and 1994 was approximately
$419,000, $183,000 and $194,000 respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
During fiscal 1989, Wedco sold certain assets of its former subsidiary,
Tri-Delta Technology, Inc., for $750,000 of which $548,000 is outstanding as of
September 30, 1996, to TDT, Inc. (TDT). TDT is an affiliate of William E.
Willoughby, who is currently a director of ICO. Interest is charged monthly
F-19
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
at a rate equivalent to the U.S. prime rate plus 1% (9.25% at September 30,
1996). TDT is required to make monthly payments of principal and interest in
the amount of $11,000 through December 2001, at which time any remaining
principal and interest is due; TDT is current on all payments. All amounts
owed to the Company by TDT are personally guaranteed by William E. Willoughby
and are collateralized by 497,000 shares of ICO common stock.
Amounts due from related parties which are included in other assets at
September 30, 1996 were as follows:
<TABLE>
<S> <C>
Note receivable - TDT, Inc. $ 548,000
Advances receivable (1) 66,000
Note receivable(2) 502,000
Other 7,000
------------
1,123,000
Less - allowance for doubtful accounts (502,000)
current portion (159,000)
------------
Due from related parties - non-current $ 462,000
============
</TABLE>
(1) Repaid subsequent to fiscal year end 1996
(2) Due from an affiliate of a 50% shareholder of WedTech, Inc.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company leases certain transportation equipment, office space and
other machinery and equipment under operating leases which expire at various
dates through fiscal 2002. Rental expense was approximately $2,951,000 in
1996, $2,679,000 in 1995 and $2,508,000 in 1994. Future minimum rental
payments, as of September 30, 1996 are due as follows:
<TABLE>
<S> <C>
1997 $3,396,000
1998 2,708,000
1999 1,979,000
2000 1,454,000
2001 873,000
Thereafter 686,000
</TABLE>
The Company is a defendant in twelve lawsuits for personal-injury
claims for exposure to silica resulting in silicosis-related disease. The
Company has in effect general liability and employer's liability insurance
policies applicable to such suits; however, the Company has been advised by
each of the involved insurance carriers of a reservation of rights with regard
to policy obligations pertaining to the suits because of various exclusions in
the policies. Additionally, the Company is generally protected under workers'
compensation law against such claims except to the extent a judgment is awarded
based on claims alleging intentional tort. If an adverse judgment is obtained
against the Company in any such suit, which is ultimately determined not to be
covered by insurance, the amount of such judgment could have a material adverse
effect on the financial condition or results of operations of the Company.
F-20
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During November of 1996, a preliminary agreement was signed by the
Company and Baker Hughes to settle the litigation of a dispute concerning the
assumption of certain liabilities in connection with the acquisition of BHTS in
1992. The agreement stipulates that ICO will pay $846,000 to reimburse Baker
Hughes for various occupational health claims offset by their reimbursement of
the Company's environmental remediation expenses, relating to former BHTS
properties. With regard to future occupational health claims, the parties have
agreed to share costs 50/50 with ICO's obligations being limited to $500,000
for each claim and a maximum contingent liability of $4,500,000 (net of
current accruals) in the aggregate for all claims.
There are various other claims and pending actions incidental to the
business operations of the Company. In the opinion of the Company's
management, the Company's potential liability in these matters has been accrued
in the financial statements, in all material respects.
In conjunction with the sale of the mill inspection equipment for
which a security interest was perfected, the Company is guarantor of amounts
due a third party totaling $949,000 as of September 30, 1996. Related revenues
of $1,782,000 and costs of $892,000 have been recognized in the 1994
Consolidated Statement of Operations.
NOTE 14 - UNUSUAL ITEMS
In 1994, the Company repaid debt with a face value of $11,380,000 and
recorded an extraordinary loss of $1,371,000 resulting from the elimination of
discounts from face value which originated at the inception of the debt. The
Company retired the 10% Notes at 107% of the principal amount thereof.
In 1996, the Company recognized $1,812,000 in expense related to
severance and consulting fee obligations, resulting from the Wedco acquisition,
which, during the fourth quarter, management determined would not benefit the
Company in the future.
During 1996, the Company recognized unusual charges of $868,000 due to
obsolescence of inventory within the oilfield service operations, partially
related to the 1992 Baker Hughes Tubular Services acquisition.
During 1996, the Company incurred $1,112,000 in non-recurring
litigation charges. During the fourth quarter and subsequent to year-end,
management determined that it was probable that certain legal matters of the
Company would result in a charge to income and that these charges could be
reasonably estimated. Over 85% of the charge relates to the settlement of the
litigation of a dispute concerning the assumption of certain liabilities in
connection with the acquisition of Baker Hughes Tubular Services in September
1992 (See Note 13 -- Commitments and Contingencies).
NOTE 15 - ADOPTION OF SFAS NO. 121
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (SFAS No. 121). SFAS No. 121 established
"accounting standards for the impairment of the long-lived
F-21
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of." The statement requires the value of long-lived
assets, certain identifiable intangibles, and goodwill to be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If this change in
circumstances or other initial indication has occurred, the next step in
determining whether an asset has been impaired is to compare the expected
future undiscounted cash flows of assets, grouped at the lowest level for which
there are identifiable cash flows, to the carrying value of those assets. If
the undiscounted cash flow value is less than the net carrying value, the
amount of impairment is then measured by comparing the discounted cash flows
with the corresponding carrying values of the assets evaluated. The Company's
previous policy was to evaluate the realizability of long-term assets on an
aggregate basis based on undiscounted cash flows. The current policy is to
accumulate cash flow information at the lowest asset grouping levels for which
there were identifiable cash flows, represented by separate operating
locations.
During the fourth quarter of 1996, management determined that three
petrochemical processing facilities should be closed. The decision to
consolidate was driven by the redundancy of other Company facilities performing
identical services in the same area, in part due to the acquisition of Polymer
Service in July 1996. As a result of this decision and in accordance with FAS
121, management accumulated cash flow information and based upon the data, the
Company's adoption of SFAS No. 121 during fiscal year 1996 resulted in a
write-down of long-lived assets of $5,025,000. Approximately $3.4 million of
the writedown is associated with impairment of goodwill with the remaining
portion applicable to machinery and equipment of the three locations.
NOTE 16 - SUPPLEMENTAL CASH FLOW INFORMATION
As more fully discussed in Note 2, the following is a schedule of
assets acquired, liabilities assumed, and common stock issued in conjunction
with the April 1996 acquisition of Wedco Technology, Inc.:
<TABLE>
<S> <C>
Trade receivables $ 6,196,000
Related party receivables 645,000
Inventories 1,353,000
Prepaid expenses and other assets 2,456,000
Property, plant and equipment 39,809,000
Goodwill 27,490,000
Investments in joint ventures 4,538,000
Deferred tax asset 156,000
Accounts payable (1,874,000)
Accrued liabilities (6,471,000)
Deferred tax liability (688,000)
Long-term debt (19,914,000)
Common stock issued (49,709,000)
------------
Cash paid, net of cash acquired $ 3,987,000
============
</TABLE>
F-22
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As more fully discussed in Note 2, the following is a schedule of assets
acquired, liabilities assumed, and common stock issued in conjunction with all
other acquisitions in 1996 and 1995:
_
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1996 1995
------------- -----------
<S> <C> <C>
Trade receivables $ 815,000 $ 462,000
Inventories -- 107,000
Prepaid expenses and other assets 271,000 42,000
Property, plant and equipment 2,988,000 1,439,000
Goodwill 1,817,000 885,000
Accounts payable (88,000) (102,000)
Accrued liabilities (418,000) (154,000)
Deferred tax liability (367,000) --
Long-term debt (1,325,000) (897,000)
Common stock issued (1,727,000) (843,000)
------------- -----------
Cash paid, net of cash acquired $ 1,966,000 $ 939,000
============= ===========
</TABLE>
In 1996 and 1995 the Company purchased real estate by issuing debt of
$80,000 and $500,000, respectively.
During fiscal years 1994, 1995 and 1996, the Company issued to
employees $194,000, $183,000 and $199,000 worth of common stock, respectively,
in connection with the Company's Employee Stock Ownership Plan.
F-23
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 - SEGMENT AND FOREIGN OPERATIONS INFORMATION
The Company operates in two industry segments. Through Wedco
Technology, Inc. (a subsidiary acquired April 30, 1996), the Company serves the
petrochemical industry by providing customers with size reduction and other
related services for heat sensitive thermo-plastic materials and also
manufactures certain machinery used for those services. The Company's second
business segment serves the energy and steel industries by providing testing,
inspection, reconditioning, and coating services and equipment. Transactions
between the two business segments do not materially affect the information
presented below.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUES
Oilfield services and sales $ 89,390,000 $ 87,883,000 $ 75,970,000
Petrochemical processing sales
and services 19,273,000 -- --
------------ ------------ ------------
Total consolidated $108,663,000 $ 87,883,000 $ 75,970,000
============ ============ ============
OPERATING INCOME (LOSS), as defined below
Oilfield services and sales $ 11,541,000 $ 12,085,000 $ 8,934,000
Petrochemical processing sales
and services (4,070,000) -- --
------------ ------------ ------------
Total operations 7,471,000 12,085,000 8,934,000
General corporate expenses (9,555,000) (7,039,000) (6,714,000)
------------ ------------ ------------
Total consolidated $ (2,084,000) $ 5,046,000 $ 2,220,000
============ ============ ============
IDENTIFIABLE ASSETS
Oilfield services and sales $ 62,191,000 $ 61,558,000
Petrochemical processing sales
and services 83,717,000 --
Corporate assets 17,483,000 26,625,000
------------ ------------
Total consolidated $163,391,000 $ 88,183,000
============ ============
</TABLE>
F-24
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information regarding the Company's operations in different
geographical areas is presented below. The European Operations consist
entirely of size reduction services and sales of Wedco Technology, Inc.'s
various European subsidiaries.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
NET REVENUES
Europe $ 9,934,000 -- --
United States 92,077,000 $ 80,101,000 $ 70,152,000
Other 6,652,000 7,782,000 5,818,000
------------- ------------ ------------
Total consolidated $ 108,663,000 $ 87,883,000 $ 75,970,000
============= ============ ============
OPERATING INCOME (LOSS), as defined below
Europe $ 2,079,000 -- --
United States 4,474,000 $ 10,624,000 $ 8,980,000
Other 918,000 1,461,000 (46,000)
------------- ------------ ------------
Total operations 7,471,000 12,085,000 8,934,000
General corporate expenses (9,555,000) (7,039,000) (6,714,000)
------------- ------------ ------------
Total consolidated $ (2,084,000) $ 5,046,000 $ 2,220,000
============= ============ ============
IDENTIFIABLE ASSETS
Europe $ 30,306,000 --
United States 112,995,000 $ 57,401,000
Other 2,607,000 4,157,000
Corporate assets 17,483,000 26,625,000
------------- ------------
Total consolidated $ 163,391,000 $ 88,183,000
============= ============
</TABLE>
Operating income reflected above includes net revenues, less cost and
expenses of operations, including unusual items discussed more fully in Note 14
- - Unusual Items. In computing operating income, other income (expenses),
including interest, and income taxes on the Consolidated Statements of
Operations have been excluded. Corporate expenses include general corporate
expense including the cost of corporate officers and all legal expenses.
Corporate identifiable assets consist of cash, cash equivalents, deferred tax
assets and total income taxes receivable.
F-25
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected financial information for each
quarter in the fiscal years ended September 30, 1996 and September 30, 1995,
respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
---------------------------------------------------------------
1995 1996 1996 1996(1)
<S> <C> <C> <C> <C>
Net sales $21,751,000 $22,121,000 $29,658,000 $ 35,133,000
Gross profit 6,606,000 6,598,000 9,276,000 11,479,000
Operating income 1,213,000 1,539,000 1,851,000 (6,687,000)
Net income 1,500,000 1,773,000 1,428,000 (5,761,000)
Earnings per share $0.11 $0.14 $0.06 $(0.55)
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
---------------------------------------------------------------
1994 1995 1995 1995
<S> <C> <C> <C> <C>
Net sales $20,235,000 $20,856,000 $21,964,000 $24,828,000
Gross profit 5,943,000 6,748,000 7,047,000 8,260,000
Operating income 953,000 990,000 1,352,000 1,751,000
Net income 1,205,000 1,174,000 1,451,000 1,960,000
Earnings per share $0.08 $0.07 $0.10 $0.16
</TABLE>
(1) The fourth quarter ended September 30, 1996 includes charges for the
Unusual Items discussed in Note 14 and a charge in accordance with SFAS No.
121, as discussed in Note 15.
NOTE 19 - SUBSEQUENT EVENTS
During December 1996, the Company acquired Bayshore Industrial, Inc.
("Bayshore") located in LaPorte, Texas for approximately $6,300,000 in cash and
1,171,566 shares of ICO common stock, subject to certain adjustments. Bayshore
is a provider of concentrates and compounds to resin producers in the United
States. The Company will account for this acquisition under the purchase
method of accounting.
The following unaudited pro forma information assumes the Bayshore, Wedco
and PSI acquisitions occurred at the beginning of fiscal year 1996.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996
-----------------------------
<S> <C>
Revenues $162,065,000
Net loss (1,158,000)
Net loss attributable to common
and common equivalent share $(.16)
</TABLE>
F-26
<PAGE> 57
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
10 Loan Agreement dated April 17, 1996 between the Registrant and
Bank of America Texas, N.A.
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Coopers and Lybrand L.L.P.
27 Financial Data Schedule
<PAGE> 1
ITEM 14.c(1) 10 LOAN AGREEMENT DATED APRIL 17, 1996
BETWEEN THE REGISTRANT AND BANK OF AMERICA TEXAS, N.A.
[BANK OF AMERICA LETTERHEAD]
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY)
This Agreement dated as of April 17, 1996, is between Bank of America Texas,
N.A. (the "Bank") and ICO, INC. (the "Borrower").
1. DEFINITIONS In addition to the terms which are defined elsewhere in
this Agreement, the following terms have the meanings indicated for the
purposes of this Agreement:
1.1 "BORROWING BASE" means:
(a) the sum of:
(i) 80% of the balance due on Acceptable Receivables; and
(ii) at the Borrower's election and subject to the terms of this
Agreement, 25% of the value of Acceptable Inventory consisting of
domestic finished goods and raw materials.
In determining the value of Acceptable Inventory to be included in the
Borrowing Base, the Bank will use the lowest of (i) the Borrower's cost, (ii)
the Borrower's estimated market value, or (iii) the Bank's independent
determination of the resale value of such inventory in such quantities and on
such terms as the Bank deems appropriate.
1.2 "ACCEPTABLE RECEIVABLE" means an account receivable which satisfies the
following requirements:
(a) The account has resulted from the sale of goods or the performance of
services by the Borrower in the ordinary course of the Borrower's
business.
(b) There are no conditions which must be satisfied before the Borrower is
entitled to receive payment of the account. Accounts arising from COD
sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to payment and
has not asserted any counterclaims or offsets against the Borrower.
(d) The account represents a genuine obligation of the debtor for goods sold
and accepted by the debtor, or for services performed for and accepted
by the debtor.
(e) The Borrower has sent an invoice to the debtor in the amount of the
account.
(f) The account is owned by the Borrower free of any title defects or any
liens or interests of others except the security interest in favor of
the Bank.
(g) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or subsidiary of the Borrower, or
an entity which has common officers or directors with the
Borrower.
(ii) the U.S. government or any agency or department of the U.S.
government unless the Bank agrees in writing to accept the
obligation and the Borrower complies with the procedures in the
Federal Assignment of Claims Act of 1940 with respect to the
obligation.
(iii) any state, county, city, town or municipality.
(iv) any person or entity located in a foreign country, excluding
Canada.
(h) The account is not in default. An account will be considered in default
if any of the following occur:
(i) The account is not paid within the 91 day period starting on its
invoice date;
(ii) The debtor obligated upon the account suspends business, makes a
general assignment for the benefit of creditors, or fails to pay
its debts generally as they come due; or
(iii) Any petition is filed by or against the debtor obligated upon the
account under any bankruptcy law or
S-1
<PAGE> 2
any other law or laws for the relief of debtors;
(i) The account is not the obligation of a debtor who is in default (as
defined above) on 50% or more of the accounts upon which debtor is
obligated.
(j) The account does not arise from the sale of goods which remain in the
Borrower's possession or under the Borrower's control.
(k) The account does not arise from the sale of minerals (including oil and
gas) at the wellhead or minehead;
(l) The account is not evidenced by a promissory note or chattel paper.
(m) The account is otherwise acceptable to the Bank.
1.3 "ACCEPTABLE INVENTORY" means finished goods and raw materials inventory
that satisfies the following requirements:
(a) The inventory is owned by the Borrower free of any title defects or any
liens or interests of others except the security interest in favor of
the Bank.
(b) The inventory is permanently located at locations which the Borrower has
disclosed to the Bank and which are acceptable to the Bank. If the
inventory is covered by a negotiable document of title (such as a
warehouse receipt) that document must be delivered to the Bank.
(c) The inventory is held for sale or use in the ordinary course of the
Borrower's business and is of good and merchantable quality. Inventory
which is obsolete, unsalable, damaged, defective, discontinued or slow-
moving or which has been returned by the buyer, is not acceptable.
Display items, work-in-process and packing and shipping materials are
not acceptable.
(d) The inventory is not placed on consignment.
(e) The inventory is otherwise acceptable to the Bank.
2. LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is equal to the lesser of (a) Fifteen Million and No/100
Dollars ($15,000,000.00) or, (b) the amount of the Borrowing Base,
provided, that the sum of (i) the principal amount outstanding under the
line of credit, plus (ii) the aggregate face amount of all letters of
credit outstanding hereunder, shall not at any time exceed the
Borrowing Base.
(b) This is a revolving line of credit with a within line facility for
letters of credit. During the availability period, the Borrower may
repay principal amounts and reborrow them.
(c) Each advance must be for at least One Hundred Thousand and No/100
Dollars ($100,000.00), or for the amount of the remaining available line
of credit, if less.
(d) The Borrower agrees (i) not to permit the outstanding principal balance
of the line of credit plus the outstanding amounts of any letters of
credit, including amounts drawn on letters of credit and not yet
reimbursed, to exceed the Commitment, and (ii) not to permit the sum of
(A) the principal amount outstanding under the line of credit, plus (B)
the aggregate face amount of all letters of credit outstanding under the
line of credit to exceed the Borrowing Base. If the Borrower exceeds
either such limit, the Borrower will immediately pay the excess to the
Bank upon the Bank's demand. The Bank may apply payments received from
the Borrower under this Paragraph to the obligations of the Borrower to
the Bank in the order and the manner as the Bank, in its discretion, may
determine.
2.2 AVAILABILITY PERIOD. The line of credit is available between the date
of this Agreement and April 17, 1998 (the "Expiration Date") unless the
Borrower is in default.
2.3 INTEREST RATE.
(a) Unless the Borrower elects an Optional interest rate as described below,
the interest rate applicable to the line of credit is the lesser of (a)
the maximum lawful rate of interest permitted under applicable usury
laws, now or
S-2
<PAGE> 3
hereafter enacted (the "Maximum Rate"), or (b) the Reference Rate.
Notwithstanding the foregoing, if at any time the Reference Rate shall exceed
the Maximum Rate and thereafter the Reference Rate shall become less than the
Maximum Rate, the rate of interest payable shall be the Maximum Rate until the
Bank shall have received the amount of interest it otherwise would have
received if the interest payable had not been limited by the Maximum Rate
during the period of time the Reference Rate exceeded the Maximum Rate.
The Reference Rate is the rate of interest publicly announced from time to time
by the Bank in Irving, Texas, as its Reference Rate. The Reference Rate is set
by the Bank based on various factors, including its costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its customers at, above,
or below the Reference Rate. Any change in the Reference Rate will take effect
at the opening of business on the day specified in the public announcement of a
change in the Bank's Reference Rate.
2.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on June 30, 1996, and on the last day of
each September, December, March and June thereafter until payment in
full of all principal outstanding under the line of credit.
(b) The Borrower will repay in full all principal and accrued but unpaid
interest and other charges outstanding under the line of credit no
later than April 17, 1998.
(c) The Borrower may prepay the line of credit in full or in part at any
time without penalty except as described in Section 3 below.
2.5 LETTERS OF CREDIT. This line of credit may be used for financing:
(a) commercial letters of credit with a maximum maturity not to extend
beyond the Expiration Date. Each commercial letter of credit will
require drafts payable at sight.
(b) standby letters of credit with a maximum maturity not to extend beyond
the Expiration Date.
(c) The amount of the letters of credit outstanding at any one time
(including amounts drawn on letters of credit and not yet reimbursed)
may not exceed Five Million and No/100 Dollars ($5,000,000.00).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the Bank,
be added to the principal amount outstanding under the line of credit.
The amount will bear interest and be payable as described elsewhere in
this Section 2.
(b) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary
acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for Commercial Letter
of Credit or Application and Agreement for Standby Letter of Credit as a
condition precedent to the issuance by the Bank of each letter of credit
hereunder.
(e) to pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of credit
for the Borrower.
3. OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower
S-3
<PAGE> 4
may elect to have all or portions of the lines of credit (during the
availability period and during the term repayment period) bear interest at the
rate(s) described below during an interest period agreed to by the Bank and the
Borrower; provided, however, that the Borrower shall not have the option or
right to elect to have all or any portion of the lines of credit bear interest
at the rate(s) described below when such rate(s) exceeds the Maximum Rate.
Each interest rate is a rate per year. Interest will be paid on the last day
of each interest period, and on the last day of each quarter during the
interest period. At the end of any interest period, the interest rate will
revert to the rate based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the portion.
3.1 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance of the lines of credit bear interest at the LIBOR Rate plus
one and one-quarter percent (1.25%) (the "Eurodollar Rate"):
Designation of a Eurodollar Rate portion is subject to the following
requirements:
(a) The interest period during which the Eurodollar Rate will be in effect
will be 30, 60, 90 or 180 days. The last day of the interest period
will be determined by the Bank using the practices of the London
inter-bank market.
(b) Each Eurodollar Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(c) The Borrower shall irrevocably request a Eurodollar Rate portion no
later than 11:00 a.m. Houston time three (3) banking days before the
commencement of the interest period.
(d) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Rate
----------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's London Branch,
London, Great Britain, would offer U.S. dollar deposits for the
applicable interest period to other major banks in the London
inter-branch market at approximately 11:00 a.m. London time two
(2) Banking Days prior to the commencement of the interest
period.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent.
The percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental, special
and other reserve percentages.
(e) The Borrower may not elect a Eurodollar Rate with respect to any portion
of the principal balance of the lines of credit which is scheduled to be
repaid before the last day of the applicable interest period.
(f) Any portion of the principal balance of the lines of credit already
bearing interest at the Eurodollar Rate will not be converted to a
different rate during its interest period.
(g) Each prepayment of a Eurodollar Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount
of accrued interest on the amount prepaid; and a prepayment fee equal to
the amount (if any) by which:
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the London inter-bank
market for a period starting on the date on which it was prepaid
and ending on the last day of the interest period for such
portion.
(h) The Bank will have no obligation to accept an election for a Eurodollar
Rate portion if dollar deposits in the principal amount, and for periods
equal to the interest period, of a Eurodollar Rate portion are not
available in the London inter-bank market.
S-4
<PAGE> 5
(i) If at any time during any applicable interest period the Eurodollar Rate
shall exceed the Maximum Rate and thereafter the Eurodollar Rate shall
become less than the Maximum Rate, the rate of interest payable shall be
the Maximum Rate until the Bank shall have received the amount of
interest it otherwise would have received if the interest payable had
not been limited by the Maximum Rate during the period of time the
Eurodollar Rate exceeded the Maximum Rate.
4. FEES AND EXPENSES
4.1 UNUSED COMMITMENT FEE. Subject to the provisions of Section 4.3 hereof,
the Borrower agrees to pay a fee on any difference between the Commitment and
the amount of credit it actually uses, determined by the weighted average loan
balance maintained during the specified period. The fee will be calculated at
0.25% per year.
This fee is due on June 30, 1996, and on the last day of each quarter
until the expiration of the availability period.
4.2 EXPENSES.
(a) The Borrower agrees to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees.
(b) The Borrower agrees to reimburse the Bank for the cost of periodic
audits and appraisals of the personal property collateral securing this
Agreement, at such intervals as the Bank may reasonably require. The
audits and appraisals may be performed by employees of the Bank or by
independent appraisers.
4.3 NO EXCESS FEES. Notwithstanding anything to the contrary in this
Section 4, in no event shall any sum payable under this Section 4 (to
the extent, if any, constituting interest under any applicable laws),
together with all amounts constituting interest under applicable laws
and payable in connection with the credit evidenced hereby, exceed the
Maximum Rate or the maximum amount of interest permitted to be charged,
taken, reserved, received or contracted for under applicable usury laws.
5. COLLATERAL
5.1 PERSONAL PROPERTY. To the extent required by Section 7.2, the
Borrower's obligations to the Bank under this Agreement will be secured by
"Personal Property Collateral" which shall mean all accounts receivable and
inventory of the Borrower and its consolidated subsidiaries and affiliates. The
Personal Property Collateral will be further defined in security agreement(s)
to be executed by the Borrower.
In addition, all Personal Property Collateral securing this Agreement shall
also secure all other present and future obligations of the Borrower to the
Bank (excluding any consumer credit covered by the federal Truth in Lending
law, unless the Borrower has otherwise agreed in writing). All Personal
Property Collateral securing any other present or future obligations of the
Borrower to the Bank shall also secure this Agreement.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
6.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower will be:
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(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made in immediately available funds, or such other type of funds
selected by the Bank;
(c) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory
notes.
6.3 BANKING DAYS. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in Texas. For amounts bearing interest at an offshore rate (if any),
a banking day is a day other than a Saturday or a Sunday on which the Bank is
open for business in Texas and California and dealing in offshore dollars. All
payments and disbursements which would be due on a day which is not a banking
day will be due on the next banking day. All payments received on a day which
is not a banking day will be applied to the credit on the next banking day.
6.4 TAXES. The Borrower will not deduct any taxes from any payments it
makes to the Bank. If any government authority imposes any taxes on any
payments made by the Borrower, the Borrower will pay the taxes. Upon request by
the Bank, the Borrower will confirm that it has paid the taxes by giving the
Bank official tax receipts (or notarized copies) within 30 days after the due
date. However, the Borrower will not pay the Bank's net income taxes or
intangible taxes.
6.5 INTEREST CALCULATION. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360 day year
and the actual number of days elapsed. This results in more interest or a
higher fee than if a 365-day year is used. Notwithstanding the foregoing,
interest at the Maximum Rate will always be computed on the basis of a 365-day
year and the actual number of days elapsed.
6.6 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at the lesser of (a) the Maximum Rate and (b) a rate
per annum which is 4.00 percentage point(s) higher than the rate of interest
otherwise provided under this Agreement. This will not constitute a waiver of
any default.
7. CONDITIONS
7.1 CONDITIONS TO FIRST ADVANCE. The Bank must receive the following items,
in form and content acceptable to the Bank, before it is required to extend any
credit to the Borrower under this agreement:
(a) AUTHORIZATIONS. Evidence that the execution, delivery and
performance by the Borrower and any guarantor or subordinating
creditor of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
(b) SECURITY AGREEMENTS. If, pursuant to Section 7.2 hereof, the
Borrower's obligations under this Agreement are to be secured,
signed original security agreements, assignments, financing
statements and fixture filings (together with collateral in which
the Bank requires a possessory security interest), which the Bank
requires.
(c) EVIDENCE OF PRIORITY. If, pursuant to Section 7.2 hereof, the
Borrower's obligations under this Agreement are to be secured,
evidence that security interests and liens in favor of the Bank
are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
(d) INSURANCE. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
(e) GUARANTIES. Guaranties signed by ICO International, Inc., ICO
Tubular Services, Inc., Permian Enterprises, Inc., FIS
Acquisition Corp., Shearer Supply Ltd., The Innovation Company,
S.A. de C.V., B&W Equipment Sales and Mfg., Inc., and RJD
Acquisition Corp. on the Bank's standard form in an amount as may
be acceptable, from time to time, to the Bank. The Borrower
further covenants and agrees that, upon the acquisition or
establishment of any Subsidiary (as hereinafter defined) after
the
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date hereof (except Wedco Technology, Inc. and its subsidiaries),
it shall cause such Subsidiary to execute a guaranty, in form and
content acceptable to the Bank, of the Borrower's obligations
under this Agreement as a condition precedent to the Bank's
making of any advance or issuance of any letter of credit
hereunder. As used herein, the term "Subsidiary" shall mean any
corporation fifty percent (50%) or more of the shares of which
are owned, directly or indirectly, by the Borrower, or any other
business entity fifty percent (50%) or more of the ownership
interest of which is owned, directly or indirectly, by the
Borrower.
(f) LEGAL OPINION. A written opinion from the Borrower's legal
counsel, covering such matters as the Bank may require. The
legal counsel and the terms of the opinion must be acceptable to
the Bank.
(g) OTHER ITEMS. Any other items that the Bank reasonably requires.
7.2 FURTHER CONDITIONS. If the Borrower elects to include a percentage of
Acceptable Inventory in the Borrowing Base, then as conditions precedent
thereto:
(a) Borrower shall grant to the Bank, upon terms acceptable to Bank,
a first priority security interest in the Borrower's Accounts
Receivable and Inventory; and
(b) The Bank shall conduct, at the Borrower's expense, an audit of
Borrower's Accounts Receivable and Inventory, the result of which
audit shall be acceptable to the Bank in its sole discretion.
8. REPRESENTATIONS AND WARRANTIES When the Borrower signs this Agreement,
and until the Bank is repaid in full, the Borrower makes the following
representations and warranties. Each request for an extension of credit
constitutes a renewed representation.
8.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed
and existing under the laws of the state where organized.
8.2 AUTHORIZATION. This Agreement, and any instrument or agreement
required hereunder, are within the Borrower's or Guarantor's powers, have been
duly authorized, and do not conflict with any of its organizational papers.
8.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed
and delivered, will be similarly legal, valid, binding and enforceable.
8.4 GOOD STANDING. In Borrower's state of incorporation and in each state
where it is required to do so to conduct its business as presently conducted,
Borrower is properly licensed, in good standing, and, where required, in
compliance with fictitious name statutes.
8.5 NO CONFLICTS. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
8.6 FINANCIAL INFORMATION. All financial and other information that has
been or will be supplied to the Bank, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
8.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
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8.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
8.9 OTHER OBLIGATIONS. To the best of Borrower's knowledge, the Borrower
is not in default on any obligation for borrowed money, any purchase money
obligation or any other material lease, commitment, contract, instrument or
obligation.
8.10 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
8.11 NO EVENT OF DEFAULT. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
8.12 MERCHANTABLE INVENTORY. All inventory which is included in the
Borrowing Base is of good and merchantable quality and free from defects.
8.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
9. COVENANTS The Borrower agrees, so long as credit is available under
this Agreement and until the Bank is repaid in full:
9.1 USE OF PROCEEDS. To use the proceeds of the credit only for working
capital and general corporate purposes.
9.2 FINANCIAL INFORMATION. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial statements, along with a compliance certificate certified by
an officer of the Borrower. These financial statements must be audited
(with an unqualified opinion) by Price Waterhouse LLP or other
accounting firm acceptable to the Bank in its reasonable discretion.
The statements shall be prepared on a consolidated and, with respect to
Subsidiaries deemed by the Bank to be material, on a consolidating
basis.
(b) Within 45 days of the period's end, with the exception of the last
fiscal quarter of each year, the Borrower's quarterly financial
statements, along with a compliance certificate certified by an officer
of the Borrower. These financial statements may be Borrower prepared.
These statements shall be prepared on a consolidated and, with respect
to Subsidiaries deemed by the Bank to be material, on a consolidating
basis.
(c) Copies of Borrower's Form 10-K Annual Report and 10-Q Quarterly Report
within 15 days after the date of filing with the Securities and Exchange
Commission.
(d) A borrowing certificate setting forth the respective amounts of
Acceptable Receivables and Acceptable Inventory as of the last day of
each month within 30 days after month end.
(e) The covenants described in Paragraphs 9.3, 9.4 and 9.5 shall be
calculated based on the Borrower's consolidated financial statements as
submitted, including and excluding any amounts from Wedco Technology,
Inc. (if acquired).
9.3 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible net
worth equal to at least Sixty Four Million and No/100 Dollars ($64,000,000.00),
which amount shall be increased on the last day of each fiscal year of the
Borrower, beginning September 30, 1997, by an amount equal to 25% of the
positive net income for such fiscal year.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
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development costs, deferred marketing expenses, and other like intangibles and
monies due from affiliates, officers, directors or shareholders of the
Borrower) less total liabilities, including but not limited to accrued and
deferred income taxes, and any reserves against assets.
9.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a
consolidated basis a ratio of Total Liabilities to Tangible Net Worth not
exceeding 0.75:1.00.
"Total Liabilities" means the sum of current liabilities plus long term
liabilities.
9.5 PROFITABILITY. To maintain on a consolidated basis a positive net
income of at least $1,000,000 before taxes and extraordinary items, and a
positive net income of $1,000,000 after taxes and extraordinary items
(excluding non-cash non-recurring items, including the writedown of intangible
assets), for each annual accounting period.
9.6 OTHER DEBTS. That neither the Borrower nor any guarantor shall have
outstanding or incur any direct or contingent debts (other than those to the
Bank), or become liable for the debts of others without the Bank's written
consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Additional debts and capital lease obligations for business purposes
which do not exceed a total principal amount of One Million and No/100
Dollars ($1,000,000.00) outstanding at any one time.
(e) Debts and capital lease obligations in existence on the date of this
Agreement disclosed in writing to the Bank.
9.7 OTHER LIENS. That neither the Borrower nor any guarantor shall create,
assume, or allow any security interest or lien (including judicial liens) on
property the Borrower or any guarantor now or later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Additional liens which secure obligations in a total principal amount
not exceeding One Million and No/100 Dollars ($1,000,000.00).
(d) Liens in existence prior to the date of this Agreement.
9.8 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Six Hundred Thousand and No/100 Dollars ($600,000.00)
in excess of any insurance coverage against the Borrower (or any
guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantor's)
financial condition or operations.
(e) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
9.9 BOOKS AND RECORDS. To maintain adequate books and records.
9.10 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit, and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
9.11 COMPLIANCE WITH LAWS. To comply with the laws, (including any
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business, where a failure to comply would
adversely affect the Borrower's ability to conduct its business as presently
conducted or could subject the Borrower to criminal penalties or other material
penalties.
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9.12 PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrower now have which are material to the
conduct of the Borrower's business as presently conducted.
9.13 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
9.14 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect
its security interests and liens.
9.15 COOPERATION. To take any reasonable action requested by the Bank to
carry out the intent of this Agreement.
9.16 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain adequate property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount reasonably
acceptable to the Bank. The insurance must be issued by an insurance
company acceptable to the Bank and must include a lender's loss payable
endorsement in favor of the Bank in a form acceptable to the Bank. The
Bank has reviewed Borrower's current insurance and considers such
coverage adequate.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for the
business it is in.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, deliver to the
Bank a copy of each insurance policy or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
9.17 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrower's or Wedco Technology, Inc.'s present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pooling of interest, joint
venture, syndicate, or other combination unless provided for elsewhere
in this Section 9.17.
(d) lease, or dispose of all or a substantial part of the Borrower's
business or the Borrower's assets.
(e) acquire or purchase a business or its assets whether by acquisition or
merger, unless (a) the entity being acquired is of a similar business,
(b) the acquisition is not considered hostile, (c) no event of default
exists prior to or results because of such acquisition, and (d) the
acquisition does not entail cash consideration exceeding the greater of
(i) 10% of Borrower's net worth, or (ii) Five Million and No/100 Dollars
($5,000,000.00). Nothing contained in this section 9.17, or in Sections
9.6 and 9.7, prohibits Borrower from acquiring Wedco Technology, Inc.
("Wedco") as a wholly owned subsidiary or transferring cash to Wedco
after such acquisition, provided that the Borrower does not (i) transfer
cash in excess of $17,000,000.00 to consummate such acquisition, (ii)
the transaction closes by July 31, 1996, and (iii) the Borrower is
otherwise in compliance with this Agreement.
(f) sell or otherwise dispose of any assets for significantly less than fair
market value or enter into any sale and leaseback agreement covering any
of its fixed or capital assets of material value.
Nothing contained in this Agreement shall prohibit the ownership of Borrower
and/or Wedco from being transferred to a newly formed corporation that operates
strictly as a holding company to own the capital stock of Borrower and/or
Wedco.
10. HAZARDOUS WASTE INDEMNIFICATION The Borrower will indemnify and hold
harmless the Bank from any loss or liability directly or indirectly arising out
of the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous substance on, under or
about the Borrower's property or operations or property leased to the Borrower.
The indemnity includes but is not limited to attorneys' fees (including the
reasonable estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to the Bank, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns. For
these purposes, the term "hazardous substances" means any substance which is or
becomes designated as "hazardous" or "toxic" under any federal, state or local
law. This indemnity will survive repayment of the Borrower's obligations to
the Bank.
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11. DEFAULT If any of the following events occur, the Bank may do one or
more of the following: (i) declare the Borrower in default, (ii) stop making
any additional credit available to the Borrower, (iii) exercise any and all
rights and remedies as may be available to the Bank under the terms of any
collateral documents, security instruments, debt instruments or any other
document or instrument executed in connection herewith or in any way related
hereto, (iv) exercise any and all rights and remedies as may be available to
the Bank at law or in equity, and (v) declare the entire debt created and
evidenced hereby to be immediately due and payable in full, whereupon the
entire unpaid principal indebtedness evidenced hereby, and all accrued unpaid
interest thereon, shall at once mature and become due and payable without
presentment, demand, protest, grace or notice of any kind (including, without
limitation, notice of intent to accelerate, notice of acceleration or notice of
protest), all of which are hereby severally waived by the Borrower. If a
bankruptcy petition is filed with respect to the Borrower, the entire debt
outstanding under this Agreement will automatically become due immediately.
11.1 FAILURE TO PAY. The Borrower fails to make a payment under this
Agreement within 5 days after the date when due, and has failed to cure such
non-payment within 5 business days after receipt of written notice from the
Bank of such non-payment, provided however, the Bank will not be required to
give such notice more than 2 times in any twelve month period.
11.2 NON-COMPLIANCE. The Borrower or any guarantor fails to meet the
condition of, or fails to perform any obligation under the following
agreements, and has failed to cure such failure(s) within 10 business days
after receipt of written notice from the Bank of such failure.
(a) this Agreement,
(b) any other agreement made in connection with this loan, or
(c) any other agreement the Borrower or any guarantor has with the Bank or
any affiliate of the Bank.
11.3 CROSS-DEFAULT. Any default occurs under any agreement in connection
with any credit the Borrower (or any guarantor) has obtained from anyone else
or which the Borrower (or any guarantor) has guaranteed which with the giving
of notice or passage of time or both would permit the holder of such agreement
to accelerate the indebtedness governed thereby, or demand payment from
Borrower or such guarantor.
11.4 LIEN PRIORITY. The Bank fails to have an enforceable first lien
(except for any prior liens to which the Bank has consented in writing) on or
security interest in any personal property given as security for this loan,
despite the Bank having filed a financing statement describing the collateral.
11.5 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations of a material nature or Borrower's disclosure or
failure to disclose is willful.
11.6 BANKRUPTCY. The Borrower (or any guarantor) or any general partner of
the Borrower files a bankruptcy petition, a bankruptcy petition is filed
against the Borrower (or any guarantor) or any general partner of the Borrower,
or the Borrower (or any guarantor) or any general partner of the Borrower makes
a general assignment for the benefit of creditors.
11.7 RECEIVERS. A receiver or similar official is appointed for the
Borrower's (or any guarantor's) business, or the business is terminated.
11.8 JUDGMENTS. Any final non-appealable judgments or arbitration awards
are entered against the Borrower (or any guarantor), or the Borrower (or any
guarantor) enters into any settlement agreements with respect to any litigation
or arbitration, in an aggregate net amount of One Million and No/100 Dollars
($1,000,000.00) or more in excess of any insurance coverage.
11.9 GOVERNMENT ACTION. Any government authority take action that the Bank
reasonably believes materially adversely affects the Borrower's (or any
guarantor's) financial condition or ability to repay.
11.10 DEFAULT UNDER GUARANTY OR SUBORDINATION AGREEMENT. Any guaranty,
subordination agreement, security agreement, deed of trust, or other document
required by this Agreement is revoked in whole or in part, violated or no
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longer in effect, except as a result of any act or omission by the Bank.
11.11 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's (or any guarantor's) financial condition, properties or prospects,
or ability to repay the loan.
11.12 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article.
12. ENFORCING THIS AGREEMENT; MISCELLANEOUS
12.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made in
accordance with accounting principles applied consistently with those applied
in the preparation of the Borrower's financial statements dated September 30,
1995.
12.2 TEXAS LAW. This Agreement is governed by Texas law.
12.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the
right of set-off against the Borrower.
12.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the bank, including claims for injury to
persons, property or business interests (torts).
(b) At the request of the Borrower or the bank, an such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. THE UNITED STATES ARBITRATION ACT WILL APPLY
EVEN THOUGH THIS AGREEMENT PROVIDES THAT IT IS GOVERNED BY TEXAS LAW.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statutes
of limitations. The arbitrators will have the authority to decide
whether any such claim or controversy is barred by the statute of
limitations and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitratable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to an authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
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(B) additional or supplementary remedies.
(h) The pursuit of a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration of
the other party contests the lawsuit.
12.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default,
it may enforce a later default. Any consent or waiver under this Agreement
must be in writing.
12.6 COSTS. If the Bank incurs any reasonable expenses in connection with
administering or enforcing this Agreement, or if the Bank takes collection
action under this Agreement, it is entitled to costs and reasonable attorneys'
fees, including any allocated costs of in-house counsel.
12.7 ATTORNEYS' FEES. In the event of a lawsuit or arbitration proceeding,
the prevailing party is entitled to recover costs and reasonable attorneys'
fees (including any allocated costs of in-house counsel) incurred in connection
with the lawsuit or arbitration proceeding, as determined by the court or
arbitrator.
12.8 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and
the Borrower may specify from time to time in writing.
12.9 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
12.10 COUNTERPARTS. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
12.11 USURY LAWS. It is the intention of the parties to comply with
applicable usury laws; accordingly, it is agreed that notwithstanding any
provisions to the contrary in this Agreement or in any of the documents
evidencing or securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such instruments or documents require or permit the
payment, contracting for, charging, taking, reserving or receiving any sums
constituting interest, as defined under applicable usury laws, in excess of the
maximum amount permitted by such laws. If any such excess of interest is
contracted for, paid, charged, taken, reserved or received under this Agreement
or under any of the documents evidencing or securing payment hereof or
otherwise relating hereto, on the amount of principal actually outstanding from
time to time shall exceed the maximum amount of interest permitted by
applicable usury laws, then in any such event (i) the provisions of this
Section shall govern and control; (ii) any such excess shall be canceled
automatically to the extent of such excess, and shall not be collected or
collectible; (iii) any such excess which is or has been received shall be
credited against the unpaid principal balance hereof or refunded to the
Borrower, at the Bank's option; and (iv) the effective rate of interest shall
be automatically reduced to the maximum lawful rate allowed under applicable
laws as construed by courts having jurisdiction hereof or thereof. It is
further agreed that without limitation of the foregoing, all calculations of
the rate of interest calculated for, paid, charged, taken, reserved or received
under this Agreement or under such other documents or instruments that are made
for the purpose of determining whether such rate exceeds the maximum lawful
rate of interest, shall be made, to the extent permitted by applicable usury
laws, by amortizing, prorating, allocating and spreading in equal parts during
the period of the full stated term of the indebtedness, all interest at any
time contractor for, paid, charged, taken, reserved or received from the
Borrower or otherwise by the holder or holders thereof. The terms of this
section shall be deemed to be incorporated in every loan document, security
instrument, debt instrument, and communication relating to this Agreement and
the law evidenced hereby. The term "applicable usury laws" shall mean such law
of the State of Texas or the laws of the United States; whichever laws allow
the higher rate of interest, as such laws now exist; provided, however, that if
such laws shall hereafter allow higher rates of interest. then the applicable
usury laws shall be the laws allowing the higher rate to be effective as of the
effective date of such laws. To the extent that TEX. REV. STAT. ANN. art 5069-
1.04, as amended (the "Act"), is relevant to the Bank for the purposes of
determining the Maximum Rate, the parties elect to determine the Maximum Rate
under the Act pursuant to the "indicate rate ceiling" from time to time in
effect, as referred to and defined in article 1.04(a)(1) of the Act; subject,
however, to any right the Bank may have subsequently under applicable law, to
change the method
S-13
<PAGE> 14
of determining the Maximum Rate.
12.12 NO ORAL AGREEMENTS. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
THIS WRITTEN AGREEMENT AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION
HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA TEXAS, N.A.
By: /s/ Victor N. Tekell
------------------------------
Victor N. Tekell
Vice President
Address where notices to the Bank
are to be sent:
Bank of America Texas, N.A.
Attn: Commercial Loan Services
333 Clay Street, Ste. 3600
Houston, Texas 77002
ICO, INC.
By: /s/ Jon C. Biro
------------------------
Jon C. Biro
Treasurer
Address where notices to the Borrower
are to be sent:
100 Glenbourough Drive, Suite 250
Houston, Texas 77067
S-14
<PAGE> 1
ITEM 14. c(1) 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
COMPUTATION OF EARNINGS PER SHARE
The 1996 income per common and common equivalent share was calculated by
dividing: (1) net income less preferred dividends by (2) the shares used in
computing the weighted average shares outstanding for the year ended September
30, 1996 adjusted for the incremental impact of options and warrants considered
common stock equivalents as follows:
<TABLE>
<S> <C>
Net income $ (1,060,000)
Preferred dividends (2,178,000)
------------
Net income related to common shareholders $ (3,238,000)
============
Weighted average shares outstanding 13,327,855
============
Income per common and common
equivalent share $ (.24)
</TABLE>
<PAGE> 1
ITEM 14.c(1) 21 SUBSIDIARIES OF THE REGISTRANT
ICO International, Inc.
ICO Tubular Services, Inc.
(Formerly Baker Hughes Tubular Services, Inc.)
Permian Enterprises, Inc.
Frontier Inspection Services, Inc..
Shearer Supply Ltd.
The Innovation Company, S.A. de C.V.
B&W Equipment Sales and Mfg., Inc.
RJD Corporation
Wedco Technology, Inc.
Wedco International, Inc.
Wedco, Inc.
Wedco Manufacturing Systems, Inc.
Tri-Delta Technology, Inc.
Wedco DISC Texas, Inc.
Wedco Sales, Inc.
Wedco Design & Development, Inc.
ICO Acquisition
ICO Acquisition of Indiana, Inc.
Bayshore Industrial, Inc.
Wedco Europe B.V.
Wedco Holland B.V.
Wedco Technology U.K. Ltd.
Willoughby Engineering and Development Corporation A.B.
<PAGE> 1
ITEM 14. c(1) 23(a) CONSENT OF PRICE WATERHOUSE LLP
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 dated January 26, 1988; September 13, 1993; October 25,
1994 and October 23, 1995 of ICO, Inc. of our report dated December 20,1996
appearing on Page F-2 of this Form 10-K.
Price Waterhouse LLP
Houston, Texas
December 26, 1996
<PAGE> 1
ITEM 14.c(1) 23(b) CONSENT OF COOPERS AND LYBRAND LLP
CONSENT OF COOPERS & LYBRAND LLP
We consent to the incorporation by reference in the Form 8-KA of our report
dated June 25, 1996, on our audits of the consolidated financial statements of
Wedco Technology, Inc. as of March 31, 1996 and 1995, and for the years ended
March 31, 1996, 1995 and 1994, which report is incorporated by reference in
this Annual Report on Form 10-K.
Coopers & Lybrand LLP
Princeton, New Jersey
December 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
FILING ON FORM 10-K FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 13,414,000
<SECURITIES> 0
<RECEIVABLES> 26,251,000
<ALLOWANCES> 972,000
<INVENTORY> 7,556,000
<CURRENT-ASSETS> 53,340,000
<PP&E> 126,170,000
<DEPRECIATION> 53,585,000
<TOTAL-ASSETS> 163,391,000
<CURRENT-LIABILITIES> 23,458,000
<BONDS> 0
0
13,000
<COMMON> 35,822,000
<OTHER-SE> 84,759,000
<TOTAL-LIABILITY-AND-EQUITY> 163,391,000
<SALES> 108,663,000
<TOTAL-REVENUES> 110,037,000
<CGS> 74,704,000
<TOTAL-COSTS> 110,747,000
<OTHER-EXPENSES> 313,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 669,000
<INCOME-PRETAX> (1,692,000)
<INCOME-TAX> (632,000)
<INCOME-CONTINUING> (1,060,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,060,000)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
</TABLE>
