<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
DRAFT
FOR DISCUSSION PURPOSES ONLY
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
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 76-0566682
- ------------------------ ------------------------------------
(State of incorporation) (IRS Employer Identification Number)
11490 Westheimer, Suite 1000, Houston, Texas 77077
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(281) 721-4200
-----------------
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Common stock, without par value 22,406,506 shares
outstanding as of May 10, 2000
<PAGE> 2
ICO, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
September 30, 1999.................................................................................. 3
Consolidated Statements of Operations for the Three and
Six Months ended March 31, 2000 and 1999............................................................ 4
Consolidated Statements of Comprehensive Income for the
Three and Six Months ended March 31, 2000 and 1999.................................................. 5
Consolidated Statements of Cash Flows for the Three and Six
Months Ended March 31, 2000 and 1999................................................................ 6
Notes to Consolidated Financial Statements.......................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risks......................................... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................... 21
Item 2. Changes in Securities (no response required)........................................................ -
Item 3. Defaults upon Senior Securities (no response required).............................................. -
Item 4. Submission of Matters to a Vote of Security Holders................................................. 21
Item 5. Other Information (no response required)............................................................ -
Item 6. Exhibits and Reports on Form 8-K.................................................................... 21
</TABLE>
-2-
<PAGE> 3
ICO, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 30,427 $ 37,439
Trade receivables (less allowance for doubtful accounts of $2,040
and $1,884, respectively) 58,734 53,421
Inventories 29,791 26,592
Deferred tax asset 2,927 3,062
Prepaid expenses and other 4,662 3,524
------------ ------------
Total current assets 126,541 124,038
------------ ------------
Property, plant and equipment, at cost 189,364 188,346
Less - accumulated depreciation and amortization (79,005) (73,760)
------------ ------------
110,359 114,586
------------ ------------
Other assets:
Goodwill 52,768 54,859
Deferred tax asset 5,422 5,359
Debt offering costs 3,411 3,643
Other 2,406 2,709
------------ ------------
Total Assets $ 300,907 $ 305,194
============ ============
LIABILITIES, STOCKHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE LOSS
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 11,087 $ 10,009
Accounts payable 24,811 22,860
Accrued interest 4,167 4,185
Accrued salaries and wages 2,261 3,818
Income taxes payable 1,977 574
Other accrued expenses 12,127 12,390
------------ ------------
Total current liabilities 56,430 53,836
Deferred income taxes 6,374 7,085
Long-term liabilities 1,380 1,671
Long-term debt, net of current portion 138,042 139,652
------------ ------------
Total liabilities 202,226 202,244
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, without par value - 500,000 shares authorized; 322,500
shares issued and outstanding with a liquidation
preference of $32,250 13 13
Junior participating preferred stock, without par value -
50,000 shares authorized; 0 shares issued and outstanding -- --
Common stock, without par value - 50,000,000 shares authorized;
22,406,506 shares issued and outstanding 39,696 39,693
Additional paid-in capital 105,333 105,333
Accumulated other comprehensive loss (8,454) (4,684)
Accumulated deficit (37,907) (37,405)
------------ ------------
Total stockholders' equity 98,681 102,950
------------ ------------
Total liabilities and stockholders' equity $ 300,907 $ 305,194
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Petrochemical processing sales and services $ 54,761 $ 46,223 $ 106,805 $ 90,465
Oilfield sales and services 26,859 17,323 48,836 35,872
--------- --------- --------- ---------
Total net revenues 81,620 63,546 155,641 126,337
--------- --------- --------- ---------
Cost and expenses:
Cost of sales and services 62,515 51,433 118,674 99,426
Selling, general and administrative 10,475 12,463 20,813 22,935
Depreciation 3,513 3,728 6,966 7,265
Amortization of intangibles 657 717 1,303 1,425
Impairment of long-lived assets -- 9,291 -- 9,291
Write-off of fixed assets -- 2,848 -- 2,848
Severance expenses -- 999 -- 999
Write-off of start-up costs -- 867 -- 867
--------- --------- --------- ---------
77,160 82,346 147,756 145,056
--------- --------- --------- ---------
Operating income (loss) 4,460 (18,800) 7,885 (18,719)
--------- --------- --------- ---------
Other income (expense):
Interest income 536 497 963 1,146
Interest expense (3,490) (3,442) (6,972) (6,913)
--------- --------- --------- ---------
(2,954) (2,945) (6,009) (5,767)
--------- --------- --------- ---------
Income (loss) before taxes
and extraordinary item 1,506 (21,745) 1,876 (24,486)
Provision (benefit) for income taxes 941 (5,889) 1,290 (6,216)
--------- --------- --------- ---------
Income (loss) before extraordinary item 565 (15,856) 586 (18,270)
Extraordinary gain -- 399 -- 399
--------- --------- --------- ---------
Net income (loss) $ 565 $ (15,457) $ 586 $ (17,871)
--------- --------- --------- ---------
Preferred dividends 544 544 1,088 1,088
--------- --------- --------- ---------
Net income (loss) applicable to common stock $ 21 $ (16,001) $ (502) $ (18,959)
========= ========= ========= =========
Basic earnings (loss) per share before
extraordinary item (see Note 3) $ .00 $ (.74) $ (.02) $ (.88)
Extraordinary item -- .02 -- .02
--------- --------- --------- ---------
Basic earnings (loss) per share $ .00 $ (.72) $ (.02) $ (.86)
========= ========= ========= =========
Diluted earnings (loss) per share before
extraordinary item (see Note 3) $ .00 (.74) $ (.02) (.88)
Extraordinary item -- .02 -- .02
--------- --------- --------- ---------
Diluted earnings (loss) per share $ .00 $ (.72) $ (.02) $ (.86)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
ICO, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited and in thousands)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31 ENDED MARCH 31
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income (loss) $ 565 $ (15,457) $ 586 $ (17,871)
Other comprehensive loss
Foreign currency translation adjustment (2,011) (3,295) (3,770) (2,877)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ (1,446) $ (18,752) $ (3,184) $ (20,748)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 586 $ (17,871)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 8,269 8,690
Write-off of start-up costs -- 867
Impairment of long-term assets -- 9,291
Write-off of fixed assets -- 2,848
Changes in assets and liabilities, net of the effects of
business acquisitions:
Receivables (6,927) 9,181
Inventories (4,769) 4,041
Prepaid expenses and other assets (922) (137)
Income taxes payable 1,370 901
Deferred taxes (160) (7,244)
Accounts payable 2,741 (353)
Accrued interest (18) --
Accrued expenses (1,568) 829
------------ ------------
Total adjustments (1,984) 28,914
------------ ------------
Net cash provided by (used for) operating activities (1,398) 11,043
------------ ------------
Cash flows used for investing activities:
Capital expenditures (6,195) (9,764)
Acquisitions, net of cash acquired -- (7,575)
Dispositions of property, plant and equipment 84 97
------------ ------------
Net cash used for investing activities (6,111) (17,242)
------------ ------------
Cash flows provided by (used for) financing activities:
Net proceeds from sale of stock -- 11
Payment of dividend on preferred stock (1,088) (1,088)
Payment of dividend on common stock -- (1,216)
Additional debt 3,066 613
Reductions of debt (1,330) (7,728)
------------ ------------
Net cash provided by (used for) financing activities 648 (9,408)
------------ ------------
Effect of exchange rates on cash (151) (153)
------------ ------------
Net decrease in cash and equivalents (7,012) (15,760)
Cash and equivalents at beginning of period 37,439 51,135
------------ ------------
Cash and equivalents at end of period $ 30,427 $ 35,375
============ ============
Supplemental disclosures of cash flow information:
Cash received (paid) during the period for:
Interest received $ 963 $ 1,147
Interest paid (6,970) (7,015)
Income taxes paid (177) (68)
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements," and accordingly do not include all information and footnotes
required under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Annual Report on Form
10-K for the year ended September 30, 1999 for ICO, Inc. (the "Company"). In the
opinion of management, these interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of March 31, 2000, the
results of operations for the three and six months ended March 31, 2000 and 1999
and the changes in its cash position for the three and six months ended March
31, 2000 and 1999. Results of operations for the three and six month periods
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2000. For additional information,
refer to the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1999.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
requires that companies recognize all derivative instruments as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
Due to the Company's limited use of derivative instruments, the impact of
adopting SFAS No. 133 is not expected to be material to the Company's financial
statements. The Company was required to adopt SFAS No. 133 in its financial
statements for the fiscal year ending September 30, 2000. However, SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133," deferred the implementation of SFAS
133 until the fiscal year ending September 30, 2001.
During April 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities", which requires that companies expense as incurred costs of
start-up activities and organization costs. The Company is required to adopt SOP
98-5 in its financial statements for the fiscal year ending September 30, 2000.
The adoption of this SOP is not expected to be material to the Company's
financial statements.
Certain reclassifications have been made to prior year amounts in order
to conform to current year classifications.
-7-
<PAGE> 8
NOTE 3. EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY
Earnings per share is based on earnings applicable to common
shareholders and is calculated using the weighted average number of common
shares outstanding and in accordance with SFAS 128, "Earnings per Share". During
the three and six months ended March 31, 2000 and March 31, 1999, the
potentially dilutive effects of the Company's exchangeable preferred stock
(would have an anti-dilutive effect) and common stock options, with exercise
prices exceeding fair market value of the underlying common shares, have been
excluded from diluted earnings per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------------
(In thousands, except share data)
Income Shares Amount Income Shares Amount
--------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $ 565 $(15,457)
Less: Preferred stock dividends 544 544
--------- --------
BASIC EPS $ 21 22,406,506 $ .00 (16,001) 22,113,341 $ (.72)
======== ======
EFFECT OF DILUTIVE SECURITIES
Options -- 42,440 -- 1,228
--------- ---------- -------- ----------
DILUTED EPS $ 21 22,448,946 $ .00 $(16,001) 22,114,569 $ (.72)
========= ========== ======== ======== ========== ======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------------
(In thousands, except share data)
Income Shares Amount Income Shares Amount
--------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $ 586 $(17,871)
Less: Preferred stock dividends 1,088 1,088
--------- --------
BASIC EPS $ (502) 22,406,506 $ (.02) $(18,959) 22,112,186 $ (.86)
======== ======
EFFECT OF DILUTIVE SECURITIES
Options -- 42,443 -- 614
--------- ---------- -------- ----------
DILUTED EPS $ (502) 22,448,949 $ (.02) $(18,959) 22,112,800 $ (.86)
========= ========== ======== ======== ========== ======
</TABLE>
NOTE 4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
(In thousands)
<S> <C> <C>
Raw Materials $ 14,172 $ 11,353
Finished Goods 11,261 10,947
Supplies 3,257 3,359
Work in Progress 1,101 933
---------- ---------
$ 29,791 $ 26,592
========== =========
</TABLE>
-8-
<PAGE> 9
NOTE 5. SEGMENT AND FOREIGN OPERATIONS INFORMATION
The Company's two reportable business segments are Petrochemical
Processing Services and Oilfield Services.
The Petrochemical Processing segment provides size reduction,
compounding, concentrates manufacturing, distribution and related services. The
primary customers of the Petrochemical Processing segment include large
producers of petrochemicals, end users such as rotational molders and producers
of bags made of polyethylene, and polymer distributors.
The Oilfield Service business segment provides oilfield tubular and
sucker rod inspection, reconditioning and coating services and also sells
equipment to customers. This segment's customers includes leading integrated oil
companies, large independent oil and gas exploration and production companies,
drilling contractors, steel producers and processors and oilfield supply
companies.
Summarized financial information of the company's reportable segments
for the three and six months ended March 31, 2000 and 1999 is shown in the
following table.
<TABLE>
<CAPTION>
Petrochemical Other
Processing Oilfield Reconciling
Services Services Items* Total
------------------- ------------------ ---------------- -----------------
(in thousands)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
MARCH 31, 2000
Revenues $ 54,761 $ 26,859 $ -- $ 81,620
Operating Income (Loss) 3,402 3,188 (2,130) 4,460
Depreciation 2,048 1,352 113 3,513
Amortization of intangibles 459 68 130 657
THREE MONTHS ENDED
MARCH 31, 1999
Revenues 46,223 17,323 -- 63,546
Operating Income (Loss) (11,061) (3,521) (4,218) (18,800)
Depreciation 2,285 1,303 140 3,728
Amortization of intangibles 524 64 129 717
SIX MONTHS ENDED
MARCH 31, 2000
Revenues 106,805 48,836 -- 155,641
Operating Income (Loss) 7,687 5,147 (4,949) 7,885
Depreciation 4,134 2,609 223 6,966
Amortization of intangibles 920 132 251 1,303
SIX MONTHS ENDED
MARCH 31, 1999
Revenues 90,465 35,872 -- 126,337
Operating Income (Loss) (8,951) (2,604) (7,164) (18,719)
Depreciation 4,468 2,534 263 7,265
Amortization of intangibles 1,070 97 258 1,425
</TABLE>
* Consists primarily of corporate overhead expenses.
-9-
<PAGE> 10
<TABLE>
<CAPTION>
Petrochemical Other
Processing Oilfield Reconciling
Services Services Items* Total
------------------- ------------------ ---------------- -----------------
(in thousands)
<S> <C> <C> <C> <C>
AS OF MARCH 31, 2000
Total Assets $181,630 $76,937 $42,340 $300,907
</TABLE>
** Consists of unallocated corporate assets including: cash, deferred tax
assets, unamortized bond offering expenses, and corporate furniture and
equipment.
A reconciliation of total segment operating income to consolidated
income before taxes and extraordinary item is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Total operating income for reportable segments $ 4,460 $ (18,800) $ 7,885 $ (18,719)
Interest income 536 497 963 1,146
Interest expense (3,490) (3,442) (6,972) (6,913)
------------ ------------ ------------ ------------
Consolidated income (loss) before income taxes
and extraordinary item $ 1,506 $ (21,745) $ 1,876 $ (24,486)
============ ============ ============ ============
</TABLE>
NOTE 6. LEGAL PROCEEDINGS
The Company is a named defendant in five cases involving five
plaintiffs, for personal injury claims alleging exposure to silica resulting in
silicosis-related disease. (The cases, all of which are pending in Texas state
courts, were initiated on May 13, 1991; November 21, 1991; August 25, 1992; June
1, 1999; and January 4, 2000). For the most part, the Company is generally
protected under worker's compensation law from claims under these suits except
to the extent a judgment is awarded against the Company for intentional tort.
The standard of liability applicable to all except one of the Company's pending
personal injury cases alleging exposure to silica is intentional tort, a
stricter standard than the gross negligence standard applicable to wrongful
death cases. Although one suit against the Company involves negligence claims
that, in theory, could circumvent the Company's immunity protections under the
workers' compensation law, even if such circumvention occurred, the Company
believes that this litigation, referred to as the Roark litigation, should not
have a material adverse effect on the financial condition, results of operations
and/or cash flow of the Company. As described in more detail below, the Roark
litigation names the Company and Baker Hughes, Inc. ("Baker Hughes"), among
others, as defendants and falls within the provisions of an agreement between
the Company and Baker Hughes that limits the Company's obligations in the
litigation.
The Company currently has one pending silicosis-related suit in which
wrongful death is alleged. This case was filed in a Texas state court on April
4, 2000. In fiscal 1993, the Company settled two other silicosis-related suits,
both of which alleged wrongful death caused by silicosis-related diseases, which
resulted in a total charge of $605,000. In 1994, the Company was dismissed
without liability from two suits alleging intentional tort against the Company
for silicosis-related disease. In 1996, the Company obtained a non-suit in two
other intentional tort cases and in early 1997 was non-suited in an additional
tort case. During the second quarter of fiscal 1998, three cases involving
alleged silicosis-related deaths were settled. The Company was fully insured for
all three cases and, as a result, did not incur any settlement costs. During the
second quarter of fiscal 1998, the Company was non- suited in one intentional
tort case, and during the fourth quarter of fiscal 1998, the Company was
non-suited in two additional tort cases. During the second quarter of fiscal
1999, the Company was non-suited in one
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<PAGE> 11
intentional tort case, and during the fourth quarter of fiscal 1999, the Company
was non-suited in an additional intentional tort case. During the first quarter
of fiscal 2000, the Company was non-suited in two additional intentional tort
cases. The Company and its counsel cannot at this time predict with any
reasonable certainty the outcome of any of the remaining suits or whether or in
what circumstances additional suits may be filed. Except as described below, the
Company does not believe, however, that such suits will have a material adverse
effect on its financial condition, results of operations or cash flows. The
Company has in effect, in some instances, general liability and employer's
liability insurance policies applicable to the referenced suits; however, the
extent and amount of coverage is limited and the Company has been advised by
certain insurance carriers of a reservation of rights with regard to policy
obligations pertaining to the suits because of various exclusions in the
policies. Except for the Roark litigation, if an adverse judgment is obtained
against the Company 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, results of operations
and/or cash flows of the Company.
The Company's agreement with Baker Hughes, pursuant to which Baker
Hughes Tubular Services ("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 $2,000,000 (current BHTS obligation is $1,650,000).
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 ("CERCLA"). Under CERCLA, 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 sites where BHTS is a
responsible party are the French Limited site northeast of Houston, Texas, and
the Sheridan site near Hempstead, Texas. Remediation of the French Limited site
has been completed, with only natural attenuation of contaminants in groundwater
occurring at this time. Remediation has not yet commenced at the Sheridan site.
Current plans for cleanup of this site, as set forth in the federal Record of
Decision, call for on-site bioremediation of the soils in tanks and natural
attenuation of contaminants in the groundwater. However, treatability studies to
evaluate possible new remedies for the soils, such as in-place bioremediation,
are being conducted as part of a Remedial Technology Review Program. Based on
the completed status of the remediation at the French Limited site and BHTS's
minimal contribution of wastes at both of the sites, the Company believes that
its future liability under the agreement with Baker Hughes with respect to these
two sites will not be material.
During December 1996, an 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 with regard to future occupational health claims, the
parties shall share costs equally with the Company's obligations being limited
to $500,000 for each claim and a maximum contingent liability of $5,000,000
($4,500,000 net of current accruals) in the aggregate, for all claims. This
agreement governs the Company's liability with respect to the Roark litigation,
which involves occupational health claims arising out of Roark's employment at
BHTS. Based on the limitation on the Company's obligations provided for in the
agreement, the Company does not believe the Roark litigation will have a
material adverse effect on the financial condition, results of operations and/or
cash flow of the Company.
On November 21, 1997, in an action initiated by the Company in October
1994, a Texas state court jury awarded the Company approximately $13,000,000 in
the trial of its case against John Wood Group PLC relating to the 1994 contract
for the purchase of the operating assets of NDT Systems, Inc. and certain
related entities. The trial court subsequently entered a judgment for
$15,750,000 in the Company's favor, which includes pre-judgment interest on the
jury award. The Wood Group appealed the judgment. On March 9, 2000, the Court of
Appeals for the First District of Texas reversed the judgment entered by the
trial court and, as to all but one of ICO's claims, ordered that ICO have no
recovery. As to that remaining breach of contract claim seeking recovery of a
contract payment of $500,000, the Court of Appeals remanded the cause to the
trial court for further proceedings. On April 7, 2000, ICO filed with the Court
of Appeals its motion for rehearing and rehearing en
-11-
<PAGE> 12
banc. That motion is still pending. Depending upon the Court of Appeals ruling
on that motion for rehearing, ICO may seek further review in the Texas Supreme
Court.
ICO Tubular Services, Inc., a now-defunct subsidiary of the Company,
has been named as a Respondent in an arbitration claim made on August 7, 1998,
by Oil Country Tubular Limited ("OCTL"), a company based in India. OCTL alleges
that its claim, which it has brought in the Court of Arbitration of the
International Chamber of Commerce, arises in connection with a Foreign
Collaboration Agreement ("FCA") entered into between it and Baker Hughes Tubular
Services, Inc.("BHTS"), a corporation whose name was changed to ICO Tubular
Services, Inc. after acquisition by the Company in 1992. OCTL claims that under
the FCA, BHTS agreed to provide certain services and/or technical assistance in
return for total payments of $2.4 million. OCTL claims, among other items, that
it did not receive its bargained-for technical assistance, spare parts, and
certain raw materials necessary for its oilfield tubular services plant in
India. OCTL seeks damages in excess of $96,000,000, calculated in part based on
lost profit projections over a number of years and in part on punitive damages.
The Company believes this damage claim is exaggerated. The Company had only
peripheral knowledge of the dispute between OCTL and Baker Hughes, Inc. ("Baker
Hughes") prior to the filing of OCTL's claim. The arbitration proceeding is at
an early stage. The Company and Baker Hughes objected to the arbitration
tribunal's jurisdiction over them. On March 15, 2000, the arbitration tribunal
entered an order overruling the Company's objection, but sustaining Baker
Hughes' objection. While the outcome of this arbitration matter cannot be
predicted, the Company plans to contest the claims vigorously.
The Company is also named as a defendant in certain other lawsuits
arising in the ordinary course of business. While the outcome of these lawsuits
cannot be predicted with certainty, ICO does not expect these matters to have a
material adverse effect on its financial condition.
-12-
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in all parts of this document, including, but
not limited to, timing of new services or facilities, ability to compete,
effects of compliance with laws, effects of the Euro, matters relating to
operating facilities, effect and cost of litigation and remediation, future
liquidity, future capital expenditures, future acquisitions, future market
conditions, reductions in expenses, derivative transactions, effects of the Year
2000 issue, marketing plans, demand for the Company's products and services,
future growth plans, financial results and any other statements which are not
historical facts are 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 due to a
number of factors, including those described in the Company's annual report Form
10-K for the fiscal year ended September 30, 1999.
INTRODUCTION
The Company's revenue is classified into two operating segments:
petrochemical processing and oilfield services. Petrochemical processing
revenues are derived from (1) distributing plastic powders, (2) grinding
petrochemicals into powders (size reduction) using a variety of methods,
including ambient grinding, cryogenic grinding and jet milling, providing
ancillary services and selling grinding equipment manufactured by the Company,
and (3) compounding sales and services, which include the manufacture and sale
of concentrates. The Company's distribution operations typically utilize the
Company's size reduction and compounding facilities to process petrochemical
products prior to sale. Oilfield services revenues include revenues derived from
(1) exploration sales and services (new tubular goods inspection), (2)
production sales and services (reclamation, reconditioning and inspection of
used tubular goods and sucker rods), (3) corrosion control services (coating of
tubular goods and sucker rods), and (4) other sales and services (oilfield
engine sales and services in Canada). Service revenues in both of the Company's
business segments are recognized as the services are performed or, in the case
of product sales, revenues are generally recognized upon shipment to third
parties.
Cost of sales and services for the petrochemical processing and
oilfield services segments is primarily comprised of compensation and benefits
to non-administrative employees, occupancy costs, repair and maintenance,
electricity and equipment costs and supplies, and, in the case of concentrate
manufacturing operations and the Company's distribution business, purchased raw
materials. Selling, general and administrative expenses consist primarily of
compensation and related benefits to the sales and marketing, executive
management, management information system support, accounting, legal, human
resources and other administrative employees of the Company, other sales and
marketing expenses, communications costs, systems costs, insurance costs and
legal and accounting professional fees.
Gross profit as a percentage of revenue for the distribution and
concentrate manufacturing businesses generally are significantly lower than
those generated by the Company's size reduction services. Several of the
Company's petrochemical processing subsidiaries, including the Company's
concentrate manufacturing and distribution operations, typically buy raw
materials, improve the material and then sell the finished product. In contrast,
many of the Company's size reduction operations, particularly the U.S.
locations, typically involve processing customer-owned material (referred to as
toll processing).
The demand for the Company's oilfield products and services depends
upon oil and natural gas prices and the level of oil and natural gas production
and exploration activity. In addition to changes in commodity prices,
exploration and production activities are affected by worldwide economic
conditions, supply and demand for oil and natural gas, seasonal trends and the
political stability of oil-producing countries. The oil and gas industry has
been highly volatile over the past several years, due primarily to the
volatility of oil and natural gas prices. During
-13-
<PAGE> 14
fiscal 1996 and 1997, the oil and gas service industry generally experienced
increased demand and improved product and service pricing as a result of
improved commodity prices and greater levels of oil and gas exploration and
production activity, due largely to a strong world economy. In fiscal 1998,
however, oil prices declined significantly versus fiscal 1997 levels. While gas
prices also declined during this period, they declined to a lesser extent. These
trends were attributed to, among other factors, an excess worldwide oil supply,
lower domestic energy demand resulting from an unseasonably warm winter and a
decline in demand due to the economic downturn in Southeast Asia. As oil and, to
a lesser extent, natural gas prices declined during this period, demand for
oilfield products and services, including those provided by the Company,
softened.
Oil and gas prices continued to fall sharply in the first half of
fiscal 1999, with oil prices (as measured by the spot market price for West
Texas Intermediate Crude) reaching a low of less than $11.00 per barrel and
natural gas prices (as measured by the spot market price at the Henry Hub)
reaching a low of $1.65 per mcf during the first quarter of fiscal 1999. This
25-year low, in real dollar terms, resulted in extremely depressed levels of
oilfield exploration and production activity. The Company's oilfield service
revenues and income were adversely impacted by these factors. More recently, the
price of oil has risen to above $25 per barrel and natural gas prices have risen
to above $3.00 per mcf. These increases have resulted in a significant recovery
of energy related activity, particularly production activity. Exploration
activity has only recently begun to recover. These trends have resulted in a
strong recovery in demand for oilfield services generally, including those
provided by the Company, especially production-related products and services.
The Company is optimistic that, if oil and gas prices remain at or near their
present levels, market conditions will continue to improve for all of the
Company's oilfield services.
LIQUIDITY AND CAPITAL RESOURCES
The following are considered by management as key measures of liquidity
applicable to the Company:
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Cash and cash equivalents $30,427,000 $ 37,439,000
Working capital 70,111,000 70,202,000
Current ratio 2.2 2.3
Debt-to-capitalization .60 to 1 .59 to 1
</TABLE>
Cash and cash equivalents decreased $7,012,000 during the six months
ended March 31, 2000 due to the factors described below. The Company's net
working capital decreased only slightly during the six months ended March 31,
2000 from $70,202,000 at September 30, 1999 to $70,111,000 at March 31, 2000 as
a result of the factors described below.
For the six months ended March 31, 2000, cash provided by (used for)
operating activities decreased to uses of $(1,398,000) from cash provided by
operating activities of $11,043,000 for the six months ended March 31, 1999. The
decrease occurred despite higher net income due to the various changes in
working capital accounts (particularly changes of accounts receivable,
inventory, accounts payable, accrued interest, and accrued liabilities).
Capital expenditures totaled $6,195,000 during the six months ended
March 31, 2000, of which $1,626,000 related to the oilfield services business,
and the remaining $4,569,000 related to the petrochemical processing business.
The Company anticipates that available cash and/or existing credit facilities
will be sufficient to fund remaining fiscal 2000 capital expenditure
requirements.
Cash flows used for financing activities increased to cash provided of
$648,000 during the six months ended March 31, 2000 from uses of $(9,408,000)
during the first six months of fiscal 1999. The increase was the result of lower
debt repayments, increased borrowings, and lower common stock dividends ($0
common stock dividends during fiscal 2000 compared to $1,216,000 in fiscal 1999)
during the first half of fiscal 2000, compared to the comparable 1999 period.
-14-
<PAGE> 15
As of March 31, 2000, the Company had approximately $8,000,000 of
additional borrowing capacity available under various foreign credit
arrangements. Currently, the Company does not have a domestic credit facility.
The Company anticipates that existing cash balances and the additional borrowing
capacity provided by the foreign credit facilities will be an adequate source of
liquidity for the remainder of fiscal 2000.
The terms of the Company's Senior Notes limit the amount of liens and
additional indebtedness incurred by the Company. The Company's foreign
facilities are generally secured by assets owned by subsidiaries of the Company
and also carry various financial covenants.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
------------------------------------------ ------------------------------------------
% of % of % of % of
NET REVENUES (000'S) 2000 Total 1999 Total 2000 Total 1999 Total
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution $ 22,122 40 $ 21,599 47 $ 44,889 42 $ 41,357 46
Size Reduction Services and
Other Sales and Services 11,948 22 11,741 25 23,154 22 24,120 26
Compounding Sales and Services 20,691 38 12,883 28 38,762 36 24,988 28
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Petrochemical Processing 54,761 100 46,223 100 106,805 100 90,465 100
---------- ---------- ---------- ----------
Exploration Sales and Services 8,731 33 6,456 37 15,357 31 12,975 37
Production Sales and Services 8,947 33 6,018 35 17,373 36 13,111 34
Corrosion Control Sales and
Services 5,505 20 3,838 22 10,297 21 8,274 24
Other Sales and Services 3,676 14 1,011 6 5,809 12 1,512 5
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Oilfield Services Revenues 26,859 100 17,323 100 48,836 100 35,872 100
---------- ---------- ---------- ----------
$ 81,620 $ 63,546 $ 155,641 $ 126,337
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
--------------------------------------------- --------------------------------------------
% of % of % of % of
OPERATING PROFIT (LOSS) (000'S) 2000 Total 1999 Total 2000 Total 1999 Total
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Petrochemical Processing $ 3,402 52 $ (11,061) 76 $ 7,687 60 $ (8,951) 77
Oilfield Services 3,188 48 (3,521) 24 5,147 40 (2,604) 23
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Operations 6,590 100 (14,582) 100 12,834 100 (11,555) 100
General Corporate Expenses (2,130) (4,218) (4,949) (7,164)
---------- ---------- ---------- ----------
$ 4,460 $ (18,800) $ 7,885 $ (18,719)
========== ========== ========== ==========
</TABLE>
-15-
<PAGE> 16
REVENUES.
Consolidated revenues increased $18,074,000 (28%) and $29,304,000 (23%)
during the three and six months ended March 31, 2000, respectively, compared to
the same periods of fiscal 1999. The increases were due to revenue improvements
in both the Petrochemical Processing and Oilfield Service business segments.
Petrochemical Processing revenues increased from $46,223,000 during the
second quarter of fiscal 1999 and $90,465,000 during the first six months of
fiscal 1999 to $54,761,000 and $106,805,000 for the three and six months ended
March 31, 2000, respectively. These increases of 18%, during both periods, were
mostly the result of an increase in compounding revenues and, to a lesser
extent, an increase in distribution revenues.
Distribution revenues rose $523,000 (2%) during the three months ended
March 31, 2000 and rose $3,532,000 (9%) during the six months ended March 31,
2000, compared to the same periods of fiscal 1999. Distribution revenues rose
due to an increase in volumes sold in the United States and Europe, reduced by
lower volumes sold in the Company's Southeast Asian markets. The Company's
European and Southeast Asia distribution revenues benefitted from the generally
higher resin prices in fiscal 2000 compared to fiscal 1999. Additionally, the
European revenue increases would have been greater had the Euro not depreciated
12% relative to the U.S. Dollar, during the first two quarters of fiscal 2000
compared to the comparable quarters of fiscal 1999. Size reduction services and
other sales and services revenues increased $207,000 (2%) to $11,948,000 during
the second quarter of fiscal 2000, compared to the same quarter of fiscal 1999.
The small increase was driven by greater domestic size reduction revenues,
partially offset by lower European revenues, which declined primarily due to the
depreciation of the Euro versus the U.S. Dollar. During the six months ended
March 31, 2000, size reduction revenues declined $966,000 (4%) to $23,154,000
due to lower European revenues, also resulting primarily from the depreciation
of the Euro. Compounding revenues rose dramatically from $12,883,000 during the
second quarter of fiscal 1999 to $20,691,000 during the second quarter of fiscal
2000 and from $24,988,000 during the six months ended March 31, 1999 to
$38,762,000 during the six months ended March 31, 2000. These increases of
$7,808,000 (61%) during the quarter and $13,774,00 (55%) during the six month
period, were primarily the result of the fiscal 1999 capacity expansion at the
Company's Bayshore Industrial concentrate manufacturing facility in LaPorte,
Texas. In addition, demand for the Company's compounding products and services
in Europe increased in fiscal 2000 compared to fiscal 1999.
Oilfield service revenues increased $9,536,000 (55%) to $26,859,000
during the second quarter of fiscal 2000 compared to the second quarter of
fiscal 1999 and increased $12,964,000 (36%) to $48,836,000 during the first half
of fiscal 2000, compared to the first half of fiscal 1999. Of these increases,
31% and 42% of the increases, respectively, are attributable to the February
1999 acquisition of MilCorp. The remaining increase is due to a strong rebound
within all the Company's oilfield service product lines due to increased volumes
as a result of greater customer demand. For the first time in many quarters, the
Company's exploration and corrosion control product lines also experienced a
surge in revenues, as the oilfield service recovery now appears to be broadening
to include more exploration activity, including more expensive drilling projects
that require greater levels of inspection and corrosion control services. The
recovery is being driven by higher oil and gas prices which rose from a
quarterly average of $13.03/barrel and $1.70/mcf, respectively, during the
quarter ended March 31, 1999 to $28.74/barrel and $2.62/mcf during the quarter
ended March 31, 2000. As a result, the North American rig count has risen
substantially from prior year levels.
COST AND EXPENSES
Consolidated gross margins (calculated as the difference between net
revenues and total costs of sales and services divided by revenues), excluding
fiscal 1999 inventory write-downs ($1,507,000 recognized in the second quarter
of fiscal 1999), increased to 23.4% and 23.8% for the three and six months ended
March 31, 2000, respectively, compared to 21.4% and 22.5% for the three and six
months ended March 31, 1999, respectively. Gross margins increased primarily due
to an improvement in Oilfield Service gross margins during fiscal 2000, which
have risen due to improved capacity utilization.
-16-
<PAGE> 17
Petrochemical gross margins were 20.7% during the second quarter of
fiscal 2000 compared to 20.6% (excluding the effect of inventory write-downs)
during the second quarter of fiscal 1999. Gross margins were consistent as an
improvement of domestic petrochemical gross margins (due to increased processing
volumes) was offset by lower European gross margins. Lower European gross
margins were due, in part, to declining resin prices during the quarter. During
the six months ended March 31, 2000, Petrochemical gross margins were 21.7%
compared to 21.2% for the same period of fiscal 1999. This slight increase
resulted from higher gross margins within the Company's domestic (also due to
increased volumes) and Southeast Asian (more favorable revenue mix)
petrochemical operations, partially offset by lower European gross margins (due
to resin prices falling during the second fiscal quarter 2000 and a less
favorable revenue mix).
Oilfield Service gross margins increased to 28.9% and 28.3% for the
three and six months ended March 31, 2000, respectively. Excluding fiscal 1999
inventory write-downs, during the three and six months ended March 31, 1999,
Oilfield Service gross margins were 22.2% and 24.2%, respectively. Higher
volumes due to strengthening market conditions resulted in increased capacity
utilization and improved gross margins.
Selling, general and administrative costs decreased $1,988,000 (16%)
during the three months ended March 31, 2000 and declined $2,122,000 (9%) during
the six months ended March 31, 2000, compared to the same periods of fiscal
1999. These declines are primarily due to lower litigation related expenses and
cost controls at the corporate level, partially offset by an increase in expense
due to the February 1999 acquisition of MilCorp in Canada.
Depreciation and amortization expenses decreased from $4,445,000 during
the second quarter of fiscal 1999 to $4,170,000 during the same quarter of
fiscal 2000 and from $8,690,000 during the six months ended March 31, 1999 to
$8,269,000 during the six months ended March 31, 2000. This decrease was the
result of the effects of the 1999 charges relating to fixed assets and goodwill,
offset, in part, by the impact of capital expenditures and the acquisition of
MilCorp.
SECOND QUARTER FISCAL 1999 CHARGES
Impairment of long-lived assets. During the second quarter of fiscal
1999, the Company recognized a $9,291,000 charge for the impairment of
long-lived assets. Of this charge, $748,000 relates to the oilfield services
business, of which $310,000 of the write-down related to the impairment of
goodwill and the remaining to machinery and equipment. $8,543,000 of the total
charge relates to the petrochemical business and reflects the impairment of four
underperforming facilities. $4,812,000 of the petrochemical charge includes the
impairment of goodwill and $3,489,000 consists of machinery and equipment
impairment. The amount of the machinery and equipment impairments were
determined by comparing fair values with the corresponding carrying values of
the assets evaluated. Fair value was determined as the estimated current market
value of the assets evaluated.
Write-down of property, plant and equipment. During the second quarter
of fiscal 1999, the Company reduced the carrying value of property, plant and
equipment primarily due to assets which were obsolete or were not in working
order and would not be used in the future. Of the $2,848,000 write-down,
$2,207,000 related to the petrochemical business and $641,000 related to the
oilfield service segment.
Write-downs of inventory. During the second quarter, the Company wrote
down $1,507,000 of inventories to estimated market selling prices (mostly within
the oilfield service business), to reflect current market conditions. This
charge was included in cost of sales and services.
Severance expenses. During the second quarter of fiscal 1999, the
Company recognized severance expenses of $999,000 relating to terminated
employees.
Write-off of start-up costs. The write-off of start-up costs primarily
relates to the closure, during the second quarter of fiscal 1999, of an
operation which had incurred capitalized start-up costs. This operation had an
-17-
<PAGE> 18
immaterial impact on the Company's financial results prior to the write-off of
capitalized start-up costs.
OPERATING INCOME
Operating income increased from a loss of $(18,800,000) for the three
months ended March 31, 1999, to income of $4,460,000 for the three months ended
March 31, 2000, and from a loss of $(18,719,000) for the six months ended March
3, 1999, to income of $7,885,000 for the six months ended March 31, 2000. The
increases were due to the changes in revenues and costs and expenses discussed
above.
NET INTEREST EXPENSE
Net interest expense was $2,954,000 and $6,009,000 during the three and
six months ended March 31, 2000. For the three and six months ended March 31
1999, the Company had net interest expense of $2,945,000 and $5,767,000,
respectively. These changes were primarily the result of declining cash balances
and increased rates of return on cash investments.
INCOME TAXES
The Company's effective income tax rate increased to 62% and 69% during
the three and six months ended March 31, 2000, respectively, compared to 27% and
25% during the three and six months ended March 31, 1999, respectively. These
tax rate increases are the result of the amount of permanent differences
(including the goodwill impairment charges recognized in fiscal 1999), relative
to book pre-tax income or loss, as well as a change in the mix of pre-tax income
or loss generated by the Company's operations in various taxing jurisdictions.
NET INCOME
For the three and six months ended March 31, 2000, the Company had net
income of $565,000 and $586,000, respectively, compared to net losses of
$(15,457,000) and $(17,871,000) for the same periods in fiscal 1999, due to the
factors described above.
FOREIGN CURRENCY TRANSLATION
The fluctuations of the U.S. dollar against the Euro, Swedish krona,
British pound, Canadian dollar, New Zealand dollar, and the Australian dollar
have impacted the translation of revenues and expenses of the Company's
international operations. The table below summarizes the impact of changing
exchange rates for the above currencies between the fiscal 2000 and 1999
periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 2000 MARCH 31, 2000
------------------ ---------------
<S> <C> <C>
Net revenues $(2,495,000) $(5,063,000)
Operating income (139,000) (347,000)
Pre-tax income (97,000) (266,000)
Net income (65,000) (160,000)
</TABLE>
-18-
<PAGE> 19
YEAR 2000 ISSUE
The Year 2000 problem arose because some computer programs used only
the last two digits of a year as a reference date, causing the program to
improperly recognize a year that does not begin with "19."
The Company completed its Year 2000 readiness project in the first
quarter of fiscal year 2000. The implementation of the Year 2000 readiness
project did not result in any other IT projects being deferred, except for a
delay in non-Year-2000-related upgrades of the Oilfield operation's business
software program. The Company began making these upgrades in the fourth quarter
of fiscal 1999, and expects to complete making them by the third quarter of
fiscal 2000.
To date, the Company has not experienced any material disruptions of
its business operations that were attributable to the Year 2000 problem.
-19-
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures include debt obligations
carrying variable interest rates, and forward currency contracts intended to
hedge accounts payable obligations denominated in currencies other than a given
operation's functional currency.
The Company's strategy has typically been to finance only working
capital with variable interest rate debt and to fix interest rates for the
financing of long-term assets. Forward currency contracts are used by the
Company as a method to establish a fixed functional currency cost for raw
material purchases denominated in non- functional currency (usually the U.S.
dollar).
The following table summarizes the Company's market sensitive financial
instruments. These transactions are considered non-trading activities.
<TABLE>
<CAPTION>
ON-BALANCE SHEET
FINANCIAL INSTRUMENTS MARCH 31, 2000
- --------------------- ------------------------------------------------------------------------
US$ EQUIVALENT WEIGHTED AVERAGE
Variable interest rate debt: IN THOUSANDS YEAR-END INTEREST RATE EXPECTED MATURITY
-------------- ---------------------- -----------------
CURRENCY DENOMINATION
- ---------------------
<S> <C> <C> <C>
Dutch Guilders $1,820 4.64% less than one year
British Pounds Sterling 2,158 7.25% less than one year
French Francs 31 4.54% 2001
Italian Lira 4,040 3.71% less than one year
Canadian Dollar 3,523 8.25% various through 2004
New Zealand Dollar 190 5.75% less than one year
</TABLE>
ANTICIPATED TRANSACTIONS AND RELATED DERIVATIVES
Forward Exchange Agreements (000s):
<TABLE>
<S> <C>
RECEIVE US$/PAY NZ$:
Contract Amounts US$825
Average Contractual Exchange Rate (NZ$/US$) .5042
Expected Maturity Dates April 2000 through July 2000
RECEIVE US$/PAY AUSTRALIAN $:
- -----------------------------
Contract Amounts US$1,215
Average Contractual Exchange Rate (A$/US$) .6303
Expected Maturity Dates April 2000 through May 2000
RECEIVE US$/PAY DUTCH GUILDER
- -----------------------------
Contract Amounts US$18
Average Contractual Exchange Rate (NLG/US$) .4385
Expected Maturity Dates April 1, 2000
</TABLE>
-20-
<PAGE> 21
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 6 to the Consolidated Financial Statements included in Part I,
Item 1, of this quarterly report on Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on March 10,
2000 for the following purposes:
1) The election of four Class III Directors to serve until the 2003
Annual Meeting of Shareholders and until their respective successors
are elected and qualified;
2) To ratify and approve the selection of PricewaterhouseCoopers LLP as
the Company's independent accountants for the ensuing fiscal year; and
3) 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 January 18, 2000 were entitled to vote at the meeting.
Asher O. Pacholder, John F. Williamson, Walter L. Leib and James E. Gibson
were elected as Class III Directors at the annual meeting with 18,691,157,
18,710,357, 18,720,927, and 18,709,586 votes for, and 288,930, 269,730, 259,160,
and 270,501 votes withheld, respectively. There were zero abstentions.
In addition to the Class III Directors, the board of Directors is comprised
of three Class I Directors (William E. Cornelius, Robin E. Pacholder, and George
S. Sirusas) whose terms will expire 2001 and three Class II Directors (William
J. Morgan, Sylvia A. Pacholder, and William E. Willoughby) whose terms will
expire 2002.
The selection of PricewaterhouseCoopers LLP as the Company's independent
accountants for the ensuing fiscal year was approved by the following vote:
18,555,583 votes for, 29,434 abstentions, and 77,283 votes against.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Reference is hereby made to the exhibit index which appears
on page 22.
(b) There were no reports on Form 8-K during the Company's fiscal second
quarter.
-21-
<PAGE> 22
The following instruments and documents are included as Exhibits to this
Form 10-Q. Exhibits incorporated by reference are so indicated by parenthetical
information.
EXHIBIT NO. EXHIBIT
----------- -------
2.1 -- Share Purchase Agreement between Rotec Chemicals Ltd.
and the Registrant (filed as Exhibit 99.2 to Form 8-K
dated May 12, 1997)
2.2 -- Plan of Merger of ICO Merger Sub, Inc. with and into
ICO, Inc. (filed as Exhibit 2.4 to Form 10- Q dated
August 13, 1998)
3.1 -- Articles of Incorporation of the Company dated March
20, 1998. (filed as Exhibit 3.1 to Form 10- Q dated
August 13, 1998)
3.2 -- Statement of Resolution of $6.75 Convertible
Exchangeable Preferred Stock dated March 30, 1998
(filed as Exhibit 3.2 to Form 10-K dated December 23,
1998)
3.3 -- Certificate of Designation of Junior Participating
Preferred Stock of ICO Holdings, Inc. dated March 30,
1998 (filed as Exhibit 3.3 to Form 10-K dated December
23, 1998)
3.4 -- Amended and Restated By-Laws of the Company dated May
12, 1999 (filed as Exhibit 3.4 to Form 10-Q dated May
14, 1999).
4.1 -- Indenture dated as of June 9, 1997 between the Company,
as issuer, and Fleet National Bank, as trustee,
relating to Senior Notes due 2007 (filed as Exhibit 4.1
to Form S-4 dated June 17, 1997)
4.2 -- First Supplemental Indenture and Amendment dated April
1,1998 between the Company, as issuer, and State Street
and Trust Company (formerly Fleet National Bank), as
trustee, relating to Senior Notes due 2007 (filed as
Exhibit 4.2 to Form 10-Q dated May 15, 1998)
4.3 -- Second Supplemental Indenture and Amendment dated April
1, 1998 between ICO P&O, Inc., a wholly owned
subsidiary of the Registrant, and State Street and
Trust Company (formerly Fleet National Bank), as
trustee, relating to Senior Notes due 2007 (filed as
Exhibit 4.3 to Form 10-Q dated May 15, 1998)
4.4 -- Warrant Agreement -- Series A, dated as of September 1,
1992, between the Registrant and Society National Bank
(filed as Exhibit 4 of the Registrant's Annual Report
on Form 10-K for 1992)
4.5 -- Stock Registration Rights Agreement dated April 30,
1996 by and between the Company, a subsidiary of the
Company and the Wedco Shareholders Group, as defined
(filed as Exhibit 4.4 to Form S-4 dated May 15, 1996)
4.6 -- Shareholders' Rights Agreement dated November 20, 1997
by and between the Company and Harris Trust and Savings
Bank, as rights agent (filed as Exhibit 1 to Form 8-A
dated December 22, 1997)
4.7 -- Shareholder Rights Agreement dated April 1, 1998 by and
between the Registrant and Harris Trust and Savings
Bank, as rights agent (filed as Exhibit 4.7 to Form
10-Q for the quarter ended March 31, 1998)
10.1 -- ICO, Inc. 1985 Stock Option Plan, as amended (filed as
Exhibit B to the Registrant's Definitive Proxy
Statement dated April 27, 1987 for the Annual Meeting
of Shareholders)
10.2 -- Second Amended and Restated 1993 Stock Option Plan for
Non-Employee Directors of ICO, Inc. (filed as Exhibit A
to the Registrant's Definitive Proxy Statement dated
January 26, 1999 for the Annual Meeting of
Shareholders)
10.3 -- 1994 Stock Option Plan of ICO, Inc. (filed as Exhibit A
to Registrant's Definitive Proxy Statement dated June
24, 1994 for the Annual Meeting of Shareholders)
-22-
<PAGE> 23
EXHIBIT NO. EXHIBIT
----------- -------
10.4 -- ICO, Inc. 1995 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August
10, 1995 for the Annual Meeting of Shareholders)
10.5 -- ICO, Inc. 1996 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August
29, 1996 for the Annual Meeting of Shareholders)
10.6 -- ICO, Inc. 1998 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated January
23, 1998 for the Annual Meeting of Shareholders)
10.7 -- Willoughby International Stockholders Agreement dated
April 30, 1996 (filed as Exhibit 10.9 to Form S-4 dated
May 15, 1996)
10.8 -- Consulting Agreement-- William E. Willoughby (filed as
Exhibit 10.13 to Form S-4 dated May 15, 1996)
10.9 -- Salary Continuation Agreement-- William E. Willoughby
(filed as Exhibit 10.14 to Form S-4 dated May 15, 1996)
10.10 -- Addendum to Salary Continuation Agreement-- William E.
Willoughby (filed as Exhibit 10.15 to form S-4 dated
May 15, 1996)
10.11 -- Non-Competition Covenant William E. Willoughby (filed
as Exhibit 10.11 to Form S-4 dated May 15, 1996)
10.12 -- Stockholders Agreement respecting voting of shares of
certain former Wedco common shareholders (filed as
Exhibit 10.21 to Form S-4 dated May 15, 1996)
10.13 -- Stockholders Agreement respecting voting of shares of
certain ICO common shareholders (filed as Exhibit 10.22
to Form S-4 dated May 15, 1996)
10.14 -- Employment Agreement dated April 1, 1995 by and between
the Registrant and Asher O. Pacholder and amendments
thereto (filed as Exhibit 10.16 to Form 10-K dated
December 29, 1997)
10.15 -- Employment Agreement dated April 1, 1995 by and between
the Registrant and Sylvia A. Pacholder and amendments
thereto (filed as Exhibit 10.17 to Form 10-K dated
December 29, 1997).
10.16 -- Employment Agreement dated September 4, 1998 by and
between the Registrant and Jon C. Biro (Filed as
Exhibit 10.20 to Form 10-K dated December 23, 1998)
10.17 -- Employment Agreement dated September 4, 1998 by and
between the Registrant and Isaac H. Joseph (Filed as
Exhibit 10.21 to Form 10-K dated December 23, 1998)
10.18 -- Employment Agreement dated September 4, 1998 by and
between the Registrant and Robin E. Pacholder (Filed as
Exhibit 10.18 to Form 10-K dated December 17, 1999)
10.19 -- Employment Agreement dated August 5, 1999 by and
between the Registrant and David M. Gerst (Filed as
Exhibit 10.19 to Form 10-K dated December 17, 1999)
21 -- Subsidiaries of the Company (Filed as Exhibit 21 to
Form 10-K dated December 17, 1999)
27** -- Financial Data Schedule
- -----------------
** Filed herewith
-23-
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ICO, Inc.
------------------------------------------
(Registrant)
/s/ Asher O. Pacholder
------------------------------------------
May 10, 2000 Asher O. Pacholder
Chairman and Chief Financial Officer
(Principal Financial Officer)
/s/ Jon C. Biro
------------------------------------------
Jon C. Biro
Senior Vice President, Chief Accounting
Officer and Treasurer
(Principal Accounting Officer)
-24-
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 -- Share Purchase Agreement between Rotec Chemicals Ltd.
and the Registrant (filed as Exhibit 99.2 to Form 8-K
dated May 12, 1997)
2.2 -- Plan of Merger of ICO Merger Sub, Inc. with and into
ICO, Inc. (filed as Exhibit 2.4 to Form 10- Q dated
August 13, 1998)
3.1 -- Articles of Incorporation of the Company dated March
20, 1998. (filed as Exhibit 3.1 to Form 10- Q dated
August 13, 1998)
3.2 -- Statement of Resolution of $6.75 Convertible
Exchangeable Preferred Stock dated March 30, 1998
(filed as Exhibit 3.2 to Form 10-K dated December 23,
1998)
3.3 -- Certificate of Designation of Junior Participating
Preferred Stock of ICO Holdings, Inc. dated March 30,
1998 (filed as Exhibit 3.3 to Form 10-K dated December
23, 1998)
3.4 -- Amended and Restated By-Laws of the Company dated May
12, 1999 (filed as Exhibit 3.4 to Form 10-Q dated May
14, 1999).
4.1 -- Indenture dated as of June 9, 1997 between the Company,
as issuer, and Fleet National Bank, as trustee,
relating to Senior Notes due 2007 (filed as Exhibit 4.1
to Form S-4 dated June 17, 1997)
4.2 -- First Supplemental Indenture and Amendment dated April
1,1998 between the Company, as issuer, and State Street
and Trust Company (formerly Fleet National Bank), as
trustee, relating to Senior Notes due 2007 (filed as
Exhibit 4.2 to Form 10-Q dated May 15, 1998)
4.3 -- Second Supplemental Indenture and Amendment dated April
1, 1998 between ICO P&O, Inc., a wholly owned
subsidiary of the Registrant, and State Street and
Trust Company (formerly Fleet National Bank), as
trustee, relating to Senior Notes due 2007 (filed as
Exhibit 4.3 to Form 10-Q dated May 15, 1998)
4.4 -- Warrant Agreement -- Series A, dated as of September 1,
1992, between the Registrant and Society National Bank
(filed as Exhibit 4 of the Registrant's Annual Report
on Form 10-K for 1992)
4.5 -- Stock Registration Rights Agreement dated April 30,
1996 by and between the Company, a subsidiary of the
Company and the Wedco Shareholders Group, as defined
(filed as Exhibit 4.4 to Form S-4 dated May 15, 1996)
4.6 -- Shareholders' Rights Agreement dated November 20, 1997
by and between the Company and Harris Trust and Savings
Bank, as rights agent (filed as Exhibit 1 to Form 8-A
dated December 22, 1997)
4.7 -- Shareholder Rights Agreement dated April 1, 1998 by and
between the Registrant and Harris Trust and Savings
Bank, as rights agent (filed as Exhibit 4.7 to Form
10-Q for the quarter ended March 31, 1998)
10.1 -- ICO, Inc. 1985 Stock Option Plan, as amended (filed as
Exhibit B to the Registrant's Definitive Proxy
Statement dated April 27, 1987 for the Annual Meeting
of Shareholders)
10.2 -- Second Amended and Restated 1993 Stock Option Plan for
Non-Employee Directors of ICO, Inc. (filed as Exhibit A
to the Registrant's Definitive Proxy Statement dated
January 26, 1999 for the Annual Meeting of
Shareholders)
10.3 -- 1994 Stock Option Plan of ICO, Inc. (filed as Exhibit A
to Registrant's Definitive Proxy Statement dated June
24, 1994 for the Annual Meeting of Shareholders)
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.4 -- ICO, Inc. 1995 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August
10, 1995 for the Annual Meeting of Shareholders)
10.5 -- ICO, Inc. 1996 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August
29, 1996 for the Annual Meeting of Shareholders)
10.6 -- ICO, Inc. 1998 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated January
23, 1998 for the Annual Meeting of Shareholders)
10.7 -- Willoughby International Stockholders Agreement dated
April 30, 1996 (filed as Exhibit 10.9 to Form S-4 dated
May 15, 1996)
10.8 -- Consulting Agreement-- William E. Willoughby (filed as
Exhibit 10.13 to Form S-4 dated May 15, 1996)
10.9 -- Salary Continuation Agreement-- William E. Willoughby
(filed as Exhibit 10.14 to Form S-4 dated May 15, 1996)
10.10 -- Addendum to Salary Continuation Agreement-- William E.
Willoughby (filed as Exhibit 10.15 to form S-4 dated
May 15, 1996)
10.11 -- Non-Competition Covenant William E. Willoughby (filed
as Exhibit 10.11 to Form S-4 dated May 15, 1996)
10.12 -- Stockholders Agreement respecting voting of shares of
certain former Wedco common shareholders (filed as
Exhibit 10.21 to Form S-4 dated May 15, 1996)
10.13 -- Stockholders Agreement respecting voting of shares of
certain ICO common shareholders (filed as Exhibit 10.22
to Form S-4 dated May 15, 1996)
10.14 -- Employment Agreement dated April 1, 1995 by and between
the Registrant and Asher O. Pacholder and amendments
thereto (filed as Exhibit 10.16 to Form 10-K dated
December 29, 1997)
10.15 -- Employment Agreement dated April 1, 1995 by and between
the Registrant and Sylvia A. Pacholder and amendments
thereto (filed as Exhibit 10.17 to Form 10-K dated
December 29, 1997).
10.16 -- Employment Agreement dated September 4, 1998 by and
between the Registrant and Jon C. Biro (Filed as
Exhibit 10.20 to Form 10-K dated December 23, 1998)
10.17 -- Employment Agreement dated September 4, 1998 by and
between the Registrant and Isaac H. Joseph (Filed as
Exhibit 10.21 to Form 10-K dated December 23, 1998)
10.18 -- Employment Agreement dated September 4, 1998 by and
between the Registrant and Robin E. Pacholder (Filed as
Exhibit 10.18 to Form 10-K dated December 17, 1999)
10.19 -- Employment Agreement dated August 5, 1999 by and
between the Registrant and David M. Gerst (Filed as
Exhibit 10.19 to Form 10-K dated December 17, 1999)
21 -- Subsidiaries of the Company (Filed as Exhibit 21 to
Form 10-K dated December 17, 1999)
27** -- Financial Data Schedule
</TABLE>
- -----------------
** Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY FILING ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 30,427,000
<SECURITIES> 0
<RECEIVABLES> 60,774,000
<ALLOWANCES> (2,040,000)
<INVENTORY> 29,791,000
<CURRENT-ASSETS> 126,541,000
<PP&E> 189,364,000
<DEPRECIATION> (79,005,000)
<TOTAL-ASSETS> 300,907,000
<CURRENT-LIABILITIES> 56,430,000
<BONDS> 0
13,000
39,696,000
<COMMON> 0
<OTHER-SE> 58,972,000
<TOTAL-LIABILITY-AND-EQUITY> 300,907,000
<SALES> 155,641,000
<TOTAL-REVENUES> 155,641,000
<CGS> 118,674,000
<TOTAL-COSTS> 147,756,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,009,000)
<INCOME-PRETAX> 1,876,000
<INCOME-TAX> 1,290,000
<INCOME-CONTINUING> 586,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 586,000
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
