<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JULY 21, 1997
ICO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS
(STATE OR OTHER JURISDICTION OF INCORPORATION)
<TABLE>
<S> <C>
0-10068 75-1619554
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
11490 WESTHEIMER, SUITE 1000, HOUSTON, TX 77077
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(281) 721-4200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
================================================================================
<PAGE> 2
INFORMATION TO BE
INCLUDED IN REPORT
The registrant hereby amends the following items, financial statements and
exhibits of its Form 8-K report filed August 5, 1997.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Verplast S.p.A. and Subsidiaries
The financial statements of Verplast S.p.A. and Subsidiaries
required to be filed pursuant to Item 7 of Form 8-K are attached
hereto as Item 7(a).
(b) Pro Forma Financial Information
The pro forma financial information required to be filed pursuant
to Item 7 of Form 8-K is attached hereto as Item 7(b).
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, ICO, Inc.
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
ICO, INC.
Date: October , 1997 /s/ Asher O. Pacholder
--------------------------------------
Dr. Asher O. Pacholder
Chairman of the Board and
Chief Financial Officer
<PAGE> 4
ITEM 7(A)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Verplast SpA
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Verplast SpA and its
subsidiaries at 31 December 1996 and 1995, and the results of their operations
and their cash flows for each of the two years in the period ended 31 December
1996, in conformity with accounting principles generally accepted in the United
States of America. 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 auditing standards generally accepted in the
United States of America 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.
Price Waterhouse SpA
/s/ LUIGI MANELLI
- ------------------------------------------------------
Luigi Manelli
(Partner)
Milan, 22 September 1997
3
<PAGE> 5
CONSOLIDATED BALANCE SHEET
(IN MILLIONS OF ITALIAN LIRE)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Current Assets
Cash...................................................... 355 481
Trade receivables (less allowance for doubtful accounts of
Lire 250 million and 192 million respectively)......... 15,823 11,942
Inventories............................................... 5,310 4,454
Prepaid expenses and other................................ 4,248 2,576
------- -------
Total current assets.............................. 25,736 19,453
Property, plant and equipment, at cost...................... 13,937 11,540
Less -- accumulated depreciation and amortization......... (4,194) (2,697)
------- -------
9,743 8,843
Other assets
Goodwill (less accumulated amortization of Lire 17
million)............................................... 663 --
Other..................................................... 194 16
------- -------
36,336 28,312
======= =======
LIABILITIES & SHAREHOLDERS EQUITY
Current liabilities
Short term borrowings..................................... 7,044 1,715
Accounts payable.......................................... 6,270 7,169
Accrued salaries and wages................................ 146 162
Income taxes payable...................................... 4,095 4,126
Accrued expenses.......................................... 758 998
------- -------
Total current liabilities......................... 18,313 14,170
Deferred income taxes..................................... 1,903 1,371
Long-term liabilities (leaving indemnity)................. 619 534
Long-term debt, net of current portion.................... 4,110 3,285
Minority interest in subsidiaries......................... 448 --
------- -------
Total liabilities................................. 25,393 19,360
------- -------
Shareholders' equity
Common Stock (3,800,000 shares authorized and issued)..... 3,800 3,800
Legal reserve............................................. 444 265
Other reserves............................................ 327 52
Retained earnings......................................... 6,372 4,835
------- -------
10,943 8,952
------- -------
Commitments and contingencies (see Note 11)
36,336 28,312
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE> 6
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS OF ITALIAN LIRE)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenue
Product Sales............................................. 44,760 36,164
Sales of services......................................... 4,548 4,493
--------- ---------
Total net revenues.......................................... 49,308 40,657
--------- ---------
Cost and expenses
Cost of sales and services................................ 35,943 29,984
Selling, general and administrative....................... 2,554 1,663
Depreciation and amortization............................. 1,284 808
--------- ---------
39,781 32,455
--------- ---------
Operating income............................................ 9,527 8,202
Other income and expense
Interest income........................................... 68 37
Interest expense.......................................... (1,099) (859)
Gain on sale of fixed assets.............................. 55 53
Income attributable to minority interest.................. (155) --
Other..................................................... (59) (5)
--------- ---------
Income before taxes......................................... 8,337 7,428
Provision for income taxes.................................. (4,373) (3,940)
--------- ---------
Net income.................................................. 3,964 3,488
========= =========
Earnings applicable to common shares
Net income of the Group (in Italian lire)................. 1,043 918
--------- ---------
Weighted average common shares outstanding................ 3,800,000 3,800,000
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE> 7
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS OF ITALIAN LIRE)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ 3,964 3,488
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization............................. 1,284 808
Gain on disposition of property, plant, and equipment..... (55) (53)
Changes in assets and liabilities, net of the effects of
business acquisitions:
Receivables............................................ (3,151) (1,891)
Inventories............................................ 3,234 808
Prepaid expenses and other assets...................... (1,585) 1,331
Deferred taxes......................................... 532 (144)
Accounts payable....................................... (6,555) 1,867
Accrued expenses and others............................ (26) 86
------- -------
Total Adjustments................................. (6,322) 2,812
------- -------
Net cash provided by (used for) operating activities... (2,358) 6,300
------- -------
Cash flows from investing activities:
Capital expenditures...................................... (1,318) (1,869)
Acquisitions, net of cash acquired........................ (901) (1,757)
Dispositions of property, plant, and equipment............ 57 63
------- -------
Net cash used for investing activities.................... (2,162) (3,563)
------- -------
Cash flows from financing activities:
Payment of dividend on common stock....................... (2,000) (1,800)
Minority Interest......................................... 155 --
Increase (decrease) in short terms borrowings............. 5,329 (1,762)
Additional debt........................................... 1,000 1,300
Increase in leaving indemnity............................. 85 118
Reductions of debt........................................ (175) (173)
------- -------
Net cash provided by (used for) financing activities...... 4,394 (2,317)
------- -------
Net increase (decrease) in cash and equivalents............. (126) 420
Cash at beginning of year................................... 481 61
------- -------
Cash at end of year......................................... 355 481
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash received (paid) during the period for:
Interest received...................................... 68 37
Interest paid.......................................... (1,099) (859)
Income taxes paid...................................... (5,969) (2,083)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE> 8
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN MILLIONS OF ITALIAN LIRE)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ LEGAL OTHER RETAINED
SHARES AMOUNT RESERVE RESERVE EARNINGS TOTAL
--------- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.......... 3,800,000 3,800 188 -- 3,276 7,264
Common stock dividend............... (1,800) (1,800)
Transfer to legal reserve........... 77 (77) --
Transfer to other reserve........... 52 (52) --
Net income.......................... 3,488 3,488
--------- ----- --- --- ------ -------
Balance at December 31, 1995.......... 3,800,000 3,800 265 52 4,835 8,952
Common stock dividend............... (2,000) (2,000)
Transfer to legal reserve........... 179 (179) --
Transfer to other reserve........... 275 (275) --
Other movements..................... 27 27
Net income.......................... 3,964 3,964
--------- ----- --- --- ------ -------
Balance at December 31, 1996.......... 3,800,000 3,800 444 327 6,372 10,943
========= ===== === === ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
7
<PAGE> 9
VERPLAST SPA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Description of business -- Verplast provides compounding, colouring, and
size reduction of thermoplastic polymers to the rotomoulding industry.
Verplast's main operating facility is located in Verolanuova, Italy. In 1996,
Verplast purchased a 70 per cent interest in Tec-Ma, located in Verdellino,
Italy.
Principles of consolidation -- The consolidated financial statements
include the accounts of Verplast SpA and its 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.
Revenue and related cost -- The Company generally recognizes revenue upon
delivery of products and related expenses are generally recognized as incurred.
For product sales, revenues and related expenses are recognized when title is
transferred, generally when the products are shipped.
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories -- Inventories are stated at the lower of cost or market, cost
being determined by the first-in, first-out method.
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>
Buildings................................................... 25
Machinery and equipment..................................... 3-14
Transportation equipment.................................... 4
</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 straightline basis over 40 years. The
goodwill amortization charged against earnings in 1995 and 1996 was zero and
Lire 17 million, respectively.
Assessment of impairment of long-lived assets -- 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.
Income taxes -- The Company and its subsidiaries each file a separate
income tax return. Investment tax credits are recognized using the flow-through
methods, whereby, in the year 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.
8
<PAGE> 10
VERPLAST SPA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings per share -- Earnings per share is based on earnings applicable to
common shareholders and is computed using the weighted average number of common
and common equivalent shares outstanding during the year.
Concentration of credit risk -- The Company's accounts receivable, its
major financial asset, is not subject to significant concentration of credit
risk. A large portion of receivables are spread over a large number of small
clients. The Company regularly evaluates the financial structure of its
customers which is generally considered sound.
Fair Value of Financial Instruments -- The Company's financial instruments
consist of cash, accounts receivable, accounts payable, and long-term debt. The
carrying amounts of cash, 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 borrowing with similar terms. The fair value of
longterm debt approximates the carrying amount as of December 31, 1996.
2 ACQUISITIONS
Consolidated financial statements include Verplast SpA, Gestimo Srl and
Tec-ma Srl (70% since 1996).
1995 Acquisition
On 8 September 1995, the Company acquired 100 per cent of the outstanding
shares of Gestimo Srl for a consideration of Lire 1,880 million. The only
activity of Gestimo is represented by the property of the building which, for
the calendar years 1995 and 1996 was partially leased to Verplast SpA and
partially to another manufacturing company. The 1995 consolidated financial
statements include Gestimo profit for the whole year, due to its immateriality.
1996 Acquisition
On 31 January 1996, the Company acquired 70 per cent of the outstanding
shares of Tec-Ma Srl for a consideration of Lire 1,080 million. On 16 July 1997,
the Company bought an additional 5 per cent of the outstanding common stock of
Tec-Ma Srl. The 1996 consolidated financial statements include Tec-Ma profit for
the whole year.
All acquisitions were accounted for under the purchase method of
accounting.
The following unaudited proforma financial information assumes Tec-Ma was
acquired on the first day of 1995:
<TABLE>
<CAPTION>
1995
------
<S> <C>
Revenue..................................................... 49,853
Income before taxes......................................... 7,724
Net income.................................................. 3,740
Earnings applicable to common shares outstanding (In Italian
lire)..................................................... 984
</TABLE>
9
<PAGE> 11
VERPLAST SPA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3 INVENTORIES
Inventories at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Raw Material................................................ 2,822 2,912
Work in Process............................................. 101 134
Finished Goods.............................................. 2,387 1,408
----- -----
5,310 4,454
===== =====
</TABLE>
4 PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Land........................................................ 675 675
Buildings................................................... 4,223 4,223
Machinery and equipment..................................... 8,187 5,984
Furniture and fixtures...................................... 343 258
Data processing............................................. 277 168
Vehicles.................................................... 232 232
------ ------
13,937 11,540
====== ======
</TABLE>
Depreciation expense of Property , Plant & Equipment was Lire 1,260 million
and Lire 806 million for the years ended December 31, 1996 and 1995
respectively.
5 LONG TERM DEBT
In December 1990 the company signed a capital lease contract with a third
party financial institution to finance the purchase of the land and buildings in
which the company operates. The financial lease was Lire 1,500 million payable
through 1995 in monthly installments.
In September 1992 the contract was amended and the loan was increased to
the Lire 2,207 million. After the amendment, the loan is now repayable in 96
monthly installments of Lire 37.7 million including interest.
The reimbursement of the loan will be due as follows:
<TABLE>
<S> <C>
1998........................................................ 258
1999........................................................ 315
2000........................................................ 501
</TABLE>
The interest rates applied to the leasing contract are in the range from 21
to 24 percent.
In June 1995, Verplast SpA issued a Lire 3,000 million shareholders bond
payable to the bearer. This bond has been subscribed for Lire 2,000 million in
1995 and Lire 1,000 million in 1996. Reimbursement is due on June 2000 and the
redemption at par. For the period July 1995 through June 1996, the interest rate
was fixed at 12 per cent. For the duration of the bond period, interest is at a
floating rate in line with market rate payable in June and December.
10
<PAGE> 12
VERPLAST SPA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6 CREDIT ARRANGEMENTS
As of 31 December 1996, the Company had lines of credit totalling Lire
18,900 million. Borrowings under these agreements are refundable on first demand
and classified as short term debts. At the date the Company had Lire 11,856
million of unused credit lines available, not utilized.
The interest rates are based on the A.B.I. (the official association of the
Italian bankers) prime rate, and range from 6.50 per cent to 12.25 per cent.
7 LEAVING INDEMNITY
The reserve for employee termination pay represents amounts payable to
employees upon termination of employment for any reason. The amount payable is
calculated in accordance with existing legal requirements and national labor
contracts. The amount payable is calculated as a percentage of gross salary
revalued annually in accordance with the revaluation index published by the
Italian Government. This liability is fully provided for and has been charged to
income in the year in which it was incurred. A major part of this liability is
long-term in nature.
8 SHAREHOLDERS' EQUITY
In accordance with Italian law not less than 5 per cent of each year's net
earnings should be appropriated to a legal reserve until it is equal to
one-fifth of the issued share capital. This reserve may only be applied to
reduce a deficit and then only after all disclosed free reserves have been
utilised.
Reserve distributable to the shareholders include the reserves, other than
legal reserve, resulting from the statutory financial statements of Verplast SpA
as a stand alone company and prepared in accordance with the Italian Civil Code.
In addition to the net profit of the year of Lire 3,330 million at 31 December
1996, Lire 1,523 million was available for distribution to shareholders of which
an amount of Lire 576 million is subject to normal income tax.
The reserve resulting from the adjustments made to comply with the
accounting principles generally accepted in the United States of America
totaling to about Lire 1,840 million will be distributable when reversed in the
local statutory accounts.
9 INCOME TAX
As the Group maintains its operations in Italy, all income before taxes is
attributable to domestic (Italian) operations.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
31 DECEMBER
--------------
1996 1995
----- -----
<S> <C> <C>
Current..................................................... 3,887 4,084
Deferred.................................................... 486 (144)
----- -----
Total............................................. 4,373 3,940
===== =====
</TABLE>
11
<PAGE> 13
VERPLAST SPA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the income tax expense at the statutory rate of 53.2
per cent to the Company's effective rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
31 DECEMBER
--------------
1996 1995
----- -----
<S> <C> <C>
Tax expense at statutory rate............................... 4,435 3,962
Not-deductible expenses..................................... 45 21
Others...................................................... (107) (43)
----- -----
4,373 3,940
===== =====
</TABLE>
Deferred tax 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>
YEARS ENDED
31 DECEMBER
----------------
1996 1995
------ ------
<S> <C> <C>
Depreciation................................................ 1,351 982
Lifo/Fifo difference........................................ 317 199
Capital Lease............................................... 235 190
------ ------
1,903 1,371
====== ======
</TABLE>
The Company has no net losses carried forward for tax return purposes.
10 RELATED PARTY TRANSACTIONS
No significant third party transactions occurred in the period except for
the directors and former shareholders remuneration (Lire 600 million, in 1996
and 1995).
11 COMMITMENTS AND CONTINGENCIES
The Company leases certain machinery & equipment under operating leases
which expires at various dates through fiscal year ending 31 December 2000.
Rental expense was approximately Lire 148 million in 1996 and in 1995. Future
minimum rental payments as of 31 December 1996 are as follows
<TABLE>
<CAPTION>
MILLIONS
OF LIRE
--------
<S> <C>
1997........................................................ 104
1998........................................................ 94
1999........................................................ 88
2000........................................................ 16
</TABLE>
On 28 February 1997 the Company has entered into an agreement with a third
parties supplier by which Verplast SpA agreed to commit itself to buy from the
above supplier 80 per cent of its annual demand of certain strategic raw
materials at a cost in line with the market. The purpose of the agreement is to
obtain more favorable average purchase price in the market place.
There are no significant claims pending to the Business operation of this
company. In the opinion of the Group companies' management, no accrual is
necessary in the consolidated financial statements for this purpose.
12
<PAGE> 14
VERPLAST SPA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12 SUPPLEMENTAL CASH FLOW INFORMATION
As more fully discussed in Note 2, the following is a schedule of assets
acquired and liabilities assumed in conjunction with acquisitions in 1996 and
1995:
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
1996 -- TECMA 1995 -- GESTIMO
-------------- ----------------
<S> <C> <C>
Accounts receivable................................. 730 --
Inventories......................................... 4,090 --
Prepaid expenses.................................... 87 --
Building............................................ -- 1,805
Machinery and equipment............................. 678 --
Intangibles......................................... 345 --
Goodwill............................................ 663 --
Account payable..................................... (5,190) --
Accrued liabilities................................. (209) (29)
Tax debts........................................... -- (19)
Minority interest................................... (293) --
------ -------
Cash paid, net of cash acquired..................... (901) (1,757)
====== =======
</TABLE>
13 SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected financial information for each
quarter in the fiscal years ended 31 December 1996 and 31 December 1995,
respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
31 MARCH 30 JUNE 30 SEPTEMBER 31 DECEMBER
1996 1996 1996 1996
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales................................. 12,124 13,291 11,728 12,165
Gross profit.............................. 3,565 3,402 3,361 3,037
Operating income.......................... 2,793 2,486 2,443 1,805
Net income................................ 1,165 935 926 938
Earnings per share (in Italian lire)...... 306 246 244 247
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
31 MARCH 30 JUNE 30 SEPTEMBER 31 DECEMBER
1995 1995 1995 1995
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales................................. 9,918 12,367 9,195 9,177
Gross profit.............................. 2,564 3,197 2,376 2,536
Operating income.......................... 2,060 2,569 1,910 1,663
Net income................................ 863 1,076 800 749
Earnings per share (in Italian lire)...... 227 283 211 197
</TABLE>
14 SUBSEQUENT EVENTS
Dividends of Lire 2 billion were paid on 17 April 1997, the date the
shareholders approved the 1996 financial statements.
On 16 July 1997, the Company has acquired an additional 5 per cent interest
in the outstanding shares of Tec-Ma Srl.
On 21 July 1997 ICO Group has acquired 100 per cent of total outstanding
shares of Verplast SpA.
During an extra ordinary shareholders' meeting held on 1 September 1997, a
change in fiscal year end from 31 December to 30 September was approved.
13
<PAGE> 15
ITEM 7(B)
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements, including the notes
thereto, give effect to the acquisition of Verplast SpA ("Verplast") by ICO and
are qualified in their entirety by reference to, and should be read in
conjunction with the historical consolidated financial statements and the notes
thereto of ICO and Verplast.
The pro forma combined financial statements are based on the purchase method of
accounting. Purchase accounting values have been assigned on a preliminary basis
and will be adjusted upon the completion of a valuation study. The unaudited pro
forma combined condensed balance sheet at June 30, 1997 assumes the merger was
consummated as of June 30, 1997 and the unaudited pro forma combined condensed
statements of operations assume the acquisition was consummated as of the
beginning of each period presented.
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred had the acquisition been consummated as of the dates
indicated, nor is such data necessarily indicative of future operating results
or financial position. There can be no assurance that similar results will be
achieved in the future.
14
<PAGE> 16
ICO/VERPLAST
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL (NOTE 1)
------------------------ ADJUSTMENTS PRO FORMA
ICO VERPLAST(1) (NOTE 2) COMBINED
---------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales and services revenues............. $ 108,663 $32,001 $ 140,664
---------- ------- ----------
Costs and Expenses:
Cost of sales and services................ 74,704 23,327 98,031
Selling, general and administrative....... 19,996 1,658 21,654
Depreciation and amortization............. 7,230 833 931(a) 8,994
Impairment of long-term assets............ 5,025 -- 5,025
Non-recurring compensation arrangements... 1,812 -- 1,812
Non-recurring litigation charges.......... 1,112 -- 1,112
Write-down of inventories................. 868 -- 868
---------- ------- ------- ----------
Operating income (loss)..................... (2,084) 6,183 (931) 3,168
---------- ------- ------- ----------
Interest expense (income), net.............. (608) 674 2,045(b) 2,111
Other expense (income), net................. 216 98 314
---------- ------- ------- ----------
Net income (loss) before income taxes....... (1,692) 5,411 (2,976) 743
Income taxes (benefit)...................... (632) 2,838 (1,091)(c) 1,115
---------- ------- ------- ----------
Net income (loss)........................... (1,060) 2,573 (1,885) (372)
---------- ------- ------- ----------
Preferred stock dividends................... 2,178 -- -- 2,178
---------- ------- ------- ----------
Net income (loss) available for common
shareholders.............................. $ (3,238) $ 2,573 $(1,885) $ (2,550)
========== ======= ======= ==========
Earnings (loss) applicable to common and
common share equivalents.................. $ (0.24) $ (0.19)
========== ==========
Weighted average common and common
equivalent shares outstanding............. 13,327,855 13,327,855
========== ==========
</TABLE>
- ---------------
(1) Verplast historical amounts were derived from the audited financial
statements of Verplast for the twelve months ending December 31, 1996
contained herein, translated from Italian Lira at an average exchange rate
of $.000649.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
15
<PAGE> 17
ICO/VERPLAST
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------ ADJUSTMENTS PRO FORMA
ICO VERPLAST(1) (NOTE 2) COMBINED
---------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales and services revenues............. $ 137,045 $26,625 $ 163,670
---------- ------- ----------
Costs and Expenses:
Cost of sales and services.................. 96,662 19,690 116,352
Selling, general and administrative......... 22,182 1,373 23,555
Depreciation and amortization............... 8,012 562 $ 665(a) 9,239
---------- ------- ------- ----------
Operating income (loss)..................... 10,189 5,000 (665) 14,524
---------- ------- ------- ----------
Interest expense (income) net............... 1,532 431 1,416(b) 3,379
Other expense (income) net.................. (118) 31 (87)
---------- ------- ------- ----------
Net income (loss) before income taxes....... 8,775 4,538 (2,081) 11,232
Income taxes (benefit)...................... 3,568 2,522 (761)(c) 5,329
---------- ------- ------- ----------
Net income (loss)........................... 5,207 2,016 (1,320) 5,903
---------- ------- ------- ----------
Preferred dividends......................... 1,632 -- -- 1,632
---------- ------- ------- ----------
Net income (loss) available for common
shareholders.............................. $ 3,575 $ 2,016 $(1,320) $ 4,271
========== ======= ======= ==========
Earnings applicable to common and common
share equivalents......................... $ 0.17 $ 0.20
========== ==========
Weighted average common and common
equivalent shares outstanding............. 20,911,797 20,911,797
========== ==========
</TABLE>
- ---------------
(1) Verplast historical amounts were derived from the unaudited quarterly
financial statements for Verplast translated from Italian Lira at an average
exchange rate of $.000618.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
16
<PAGE> 18
ICO/VERPLAST
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL (NOTE 1)
----------------------- ADJUSTMENTS PRO FORMA
ICO VERPLAST(3) (NOTE 2) COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents.......................... $102,278 $ 12 $(18,592)d $ 83,698
Trade receivables, net........................ 39,283 13,227 -- 52,510
Inventories................................... 14,747 3,239 -- 17,986
Deferred tax asset............................ 3,924 -- -- 3,924
Prepaid expenses and other.................... 3,212 245 -- 3,457
-------- ------- -------- --------
Total Current Assets................ 163,444 16,723 (18,592) 161,575
-------- ------- -------- --------
Property, plant and equipment, net............ 84,637 5,799 5,820d 96,256
Goodwill...................................... 41,363 -- 8,800d 50,163
Investment in joint ventures.................. 2,719 -- -- 2,719
Other......................................... 8,498 8 846d 9,352
-------- ------- -------- --------
TOTAL ASSETS.................................. $300,661 $22,530 $ (3,126) $320,065
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings and current portion of
long-term debt.............................. $ 6,164 $ 5,138 $ -- $ 11,302
Accounts payable.............................. 16,247 5,315 -- 21,562
Accrued expenses.............................. 12,938 1,061 -- 13,999
Income taxes payable.......................... 275 544 -- 819
-------- ------- -------- --------
Total Current Liabilities........... 35,624 12,058 47,682
-------- ------- -------- --------
Long-term debt net of current portion......... 131,003 2,360 -- 133,363
Deferred income taxes......................... 2,794 1,298 3,096d 7,188
Other long-term liabilities................... 3,236 592 -- 3,828
-------- ------- -------- --------
Total Liabilities................... 172,657 16,308 3,096 192,061
-------- ------- -------- --------
Stockholders' Equity.......................... 128,004 6,222 (6,222)d 128,004
-------- ------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.... $300,661 $22,530 $ (3,126) $320,065
======== ======= ======== ========
</TABLE>
- ---------------
(3) Verplast historical amounts were derived from the June 30, 1997 unaudited
financial statements of Verplast as of June 30, 1997, translated from
Italian Lira at an exchange rate of $.0005885.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
17
<PAGE> 19
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1 -- VERPLAST'S FISCAL YEAR END
Verplast's audited financial statements for the year ending December 31,
1996 were used to prepare the Unaudited Pro Forma Statement of Operations for
the year ending September 30, 1996. Accordingly, Verplast's results for the
three months ended December 31, 1996 have been included in the Pro Forma
Statements of Operations for both the year ended September 30, 1996 and the nine
months ended June 30, 1997. Revenues and net income for the three months ended
December 31, 1996 were $7,778,000 and $502,000, respectively. Revenues and net
income for the three months ended December 31, 1995 were $5,375,000 and
$470,000, respectively.
NOTE 2 -- PRO FORMA ADJUSTMENTS
Statements of Operations:
(a) To increase amortization relating to goodwill ($249,000 and $178,000
for the year ended September 30, 1996 and nine months ended June 30,
1997, respectively) and amortization of the fair value allocated to
non-compete agreements ($187,000 and $133,000 for the year ended
September 30, 1996 and the nine months ended June 30, 1997,
respectively) and to increase depreciation for machinery and equipment
($495,000 and $354,000 for the year ended September 30, 1996 and the
nine months ended June 30, 1997, respectively) resulting from purchase
price adjustments. Goodwill is amortized over an estimated useful life
of 40 years.
(b) To reflect interest expense on debt incurred to consummate the
acquisition using a rate of 11% which is equivalent to the interest
cost (10 3/8% interest rate plus amortization of debt offering costs)
of the Company's Senior Notes due 2007 issued in June of 1997.
(c) To reflect the tax effect of the pro forma adjustments.
Balance Sheet
(d) To record ICO's purchase of Verplast for $18,592,000 cash, including
transaction costs of approximately $300,000. Purchase price adjustments
include: the step-up of fixed assets of $5,820,000, establishing the
value of the non-compete agreements of $846,000, increase of deferred
tax liabilities of $3,096,000 (due to the step-up of fixed assets),
elimination of Verplast's equity accounts and goodwill of $8,800,000
represented by the excess purchase price over the estimated fair value
of net assets and liabilities acquired.
18
