Back to GetFilings.com
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-10068
ICO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1619554
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 GLENBOROUGH DRIVE, STE. 250,
77067
HOUSTON, TX (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER (713) 872-4994
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, no par value Boston Stock Exchange
NASDAQ National Market System
Preferred Stock, no par value NASDAQ National Market System
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K / /.
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of November 15, 1995 was $38,557,160.
The number of shares outstanding of the registrant's Common Stock, as of
November 15, 1995: Common Stock, no par value--8,923,911
DOCUMENTS INCORPORATED BY REFERENCE
Certain information has been included by reference. See index at Part IV, Item
14, (c)(2) of this Annual Report.
2
ICO, INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . . 9
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . . . . . 10
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data . . . . . . . . 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 16
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . 17
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . 23
Item 13. Certain Relationships and Related Transactions . . . . . . . 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 26
3
P A R T I
ITEM 1. BUSINESS
GENERAL
The Company provides inspection, reconditioning and coating services for
new and used tubular goods and sucker rods utilized in the oil and gas
industry. The Company's inspection, reconditioning and coating services for new
and used tubular goods and sucker rods are performed through a variety of
processes, many of which are patented, designed to extend the useful lives and
reduce the downhole failure of sucker rods and tubular goods. These services
are performed on casing, tubing, drill pipe and line pipe. The Company also
sells equipment and supplies used in the inspection, reconditioning and coating
of tubular goods and sucker rods.
Casing is used to seal off fluids and prevent collapse of the bore holes of
oil and natural gas wells. After production casing is set, a string of tubing
is suspended from the surface inside the casing to serve as a conduit for the
extraction of oil and natural gas. Drill pipe is heavy seamless pipe used to
rotate the drill bit and circulate drilling fluids. Line pipe is used for waste
disposal lines, flow lines, gathering systems and pipelines through which oil,
natural gas and liquid hydrocarbons are transported. Removal of casing or
tubing for repair or replacement is expensive and results in an interruption of
production and loss of revenues to the well owner. Sucker rods are steel rods
which are joined together in a "string" by couplings to form a mechanical link
from a downhole pump at the bottom of an oil well to the pumping unit on the
surface. Removal of a sucker rod string for repair or replacement of rods,
couplings or the downhole pump requires a well to be shut down and the entire
string of sucker rods to be removed, resulting in additional expenses and loss
of revenues to the well owner due to interruption of production.
The Company's services are designed to reduce our customers' cost of
drilling and production by (1) preventing faulty material from being placed
downhole (exploration services), (2) reclaiming tubular goods and sucker rods
used downhole and restoring them to near their original condition, on a cost
effective basis (production services) and (3) preventing premature failure of
tubular goods and sucker rods from occurring due to downhole environment
(corrosion control services).
EXPLORATION SERVICES
The Company provides inspection services for new tubular goods to identify
tubular goods which are defective or which do not meet American Petroleum
Institute ("API") standards or other specifications set by the customer. These
services are used by customers as a quality assurance and control measure to
reduce the risk of paying for defective tubular goods and to reduce the risk of
downhole failure, which is especially important when drilling deep oil and
natural gas wells with high downhole temperatures and pressures and when
drilling in environmentally sensitive areas such as offshore. Although
inspection of new tubular goods at well sites and storage yards has been
performed for many years, the Company was a pioneer in providing in-plant
inspection. The Company's in-plant inspection facilities for new tubular goods
provide a controlled environment which permits more efficient and consistent
inspection procedures, facilitates supervision of personnel and electronic
equipment, avoids problems associated with inclement weather and reduces
transportation and handling costs to the customer. The Company provides these
services at nine Company facilities in seven states: Colorado, Louisiana,
Oklahoma, Texas, Wyoming, Ohio and Alabama. The Company also has the capability
to provide mobile inspection services in the field and manufactures inspection
and quality control equipment which is sold or leased to steel producers and
processors.
1
4
The Company's facilities offer both electro-magnetic inspection ("EMI") and
ultrasonic inspection services. EMI is a process which identifies flaws
through magnetic flux leakage. The PipeImage(TM) system is an EMI system
capable of identifying natural and man-made flaws that are not identifiable
using conventional EMI methods. Ultrasonic inspection is able to identify
flaws, using high frequency sound waves, which are virtually undetectable by
other means. The Company expanded its ultrasonic technology and engineering
expertise with the acquisitions of Baker Hughes Tubular Services, Inc. ("BHTS")
in September 1992 and Tubular Ultrasound Corporation in November 1993. The
Company acquired rights to the PipeImage(TM) system through the BHTS
acquisition (See "Patents and Licenses").
PRODUCTION SERVICES
The Company reconditions and inspects used casing, tubing, drill pipe and
line pipe using a process known as "Total Concept Tubing Services." The Company
pioneered this process of providing a complete package of tubular inspection
and maintenance services, which includes the testing, cleaning, reconditioning
and electronic inspection of tubular goods. Such services are performed in a
controlled environment at the Company's facilities, which provides the same
advantages previously described for in-plant inspection facilities (see
"Exploration Services"). This reduces the customer's well operating costs
because reconditioning used tubular goods is less expensive than the purchase
of new tubular goods. Tubular goods reconditioned by the Company must generally
meet the same API or customer standards as new tubular goods. The Company
performs these services at eight Company facilities in California, Louisiana,
Oklahoma, Texas, Wyoming and New Mexico.
For certain customers, the Company has entered into a program in which it
purchases used tubular goods and sucker rods from the customers, reconditions
and grades the pipe and sucker rods for varying degrees of usage and resells
the pipe and sucker rods to customers in the marketplace.
The Company also operates mobile inspection units utilizing a system known
as Wellhead Scanalog ("WHS"). The Company acquired the rights to WHS for use in
the United States pursuant to a license granted to it in connection with the
acquisition of BHTS (See "Patents and Licenses"). WHS is designed to perform
tubular inspection while the tubing is being removed from the well and does not
interfere with the normal operation of the rig. WHS inspection is unique in
that it is not affected by scale, mud, paraffin and water. Prior to the
acquisition of BHTS, the Company had no comparable service.
The Company reconditions and inspects used sucker rods using a patented
process. This in-plant process involves a number of steps designed to clean,
straighten, inspect and apply protective coating to sucker rods to guard
against corrosion. This reduces the customer's well operating costs because
reconditioning used sucker rods is less expensive than purchasing new sucker
rods. The Company also inspects new sucker rods before they are placed in
service to reduce the risk of downhole failure, which requires expensive
pulling services and results in loss of production. The Company's sucker rod
reconditioning and inspection services are provided at six Company facilities
in California, Oklahoma, Texas, Wyoming and Canada. The Canadian operations
were acquired in the February 1994 acquisition of Shearer Supply Ltd. located
in Edmonton, Alberta.
CORROSION CONTROL SERVICES
Corrosive conditions exist inside most wells. Such conditions are
particularly extreme in high temperature gas wells and in oil producing regions
where secondary and tertiary recovery techniques are utilized. Secondary and
tertiary recovery techniques are methods by which natural forces in an oil
reservoir are supplemented by means such as water flooding to increase ultimate
oil recovery. Under highly corrosive conditions, even a microscopic uncoated
area of steel can result in a tubular or rod failure or damage. To combat
these conditions, the Company offers a variety of corrosion control services to
its
2
5
customers, using several Company patented processes. The Company's corrosion
control services reduce well operating costs by extending the useful life of
downhole tubular goods and sucker rods and by improving the well's hydraulic
efficiency.
The Company internally coats new and used casing, tubing, drill pipe and
line pipe with a variety of powder and liquid coatings. In the coating
process, tubular goods are placed in large burnout ovens to remove foreign
substances. The tubular goods are then grit blasted with garnet, primed with
phenolic, preheated, coated internally and subjected to a final baking process.
The tubular goods are then inspected visually and electronically to make
certain the coating uniformly covers the entire interior of the pipe and that
no bare spots or thin coverings exist. A similar process is utilized for
cleaning, priming and coating tubular couplings. The selection of the proper
coating for downhole tubular goods requires considerable knowledge and effort
by the Company's experienced coating managers and technicians. The key process
is gathering complete facts concerning the well, its environment, test
procedures and all related conditions planned for the life of the well. The
Company has three coating facilities located in Louisiana and Texas.
The Company's patented sucker rod coating process involves applying a
special formula stainless steel to the sucker rods and then coating them with a
phenolic primer and a fusion bonded modified epoxy. Sucker rods used in less
corrosive conditions are usually coated only with the phenolic primer and
fusion bonded modified epoxy. The Company's sucker rod coating services are
provided at its facility in Odessa, Texas.
ICO expanded its corrosion control services with the acquisition of Permian
Enterprises, Inc. ("Permian") in April 1994. Permian provides internal cement
lining for small diameter tubing through 24" line pipe. Permian also applies
an external fusion bonded tape which forms a tough protective corrosion barrier
for critical line pipe. Cement provides an increased barrier between corrosive
fluids and the tubular product which allows the customer to use a larger
portion of its used pipe with a welded connection, when weight and torsion
strength are not a primary issue. The addition of Permian has afforded the
Company expanded flexibility and product offerings in small diameter pipe used
in production applications.
ACQUISITIONS
In November 1993, ICO acquired substantially all the assets of Tubular
Ultrasound Corporation ("TUC"), a tubular inspection company with low cost
ultrasonic inspection technology, located in Houston, Texas, for a total
consideration of $1,100,000. The TUC acquisition provided ICO with additional
engineering and product development expertise in the ultrasonic area.
In February 1994, ICO acquired Shearer Supply Ltd. ("Shearer") of Edmonton,
Alberta, the Company's first entry into the Canadian market for a total
consideration of $1,900,000. Shearer is the largest provider of sucker rod
inspection and reclamation services in Canada and also services and sells pump
engines used in the oilfield.
In April 1994, the Company acquired all of the outstanding capital stock of
Permian for a total consideration of $2,498,000. As part of the transaction,
the Company funded a pre-acquisition dividend to Permian shareholders by making
a $2,100,000 loan to Permian. Permian provides cement lining for tubing and
casing and also applies an external fusion bonded wrap.
In April 1994, ICO acquired Frontier Inspection Services, Inc. ("Frontier")
in Farmington, New Mexico for a total consideration of $1,500,000. Frontier is
the leading provider of tubular inspection services in New Mexico and the lower
Rocky Mountain area.
3
6
In October 1994 the Company purchased all of the outstanding capital stock
of B&W Equipment Sales and Mfg., Inc. ("B&W") for $700,000 consisting of
$350,000 cash and 66,666 shares of ICO common stock. B&W designs and
manufacturers parts and components for nondestructive testing and inspection of
equipment for use in the tubular market. The acquisition enables the Company
to lower repair and maintenance expenses for the Company's inspection units.
In March 1995 the Company acquired substantially all of the operational
assets (excluding real estate) of Kebco Pipe Services, Inc. ("Kebco"), which
provides testing, inspecting and reconditioning services for oil country
tubular goods in the West Texas area. Kebco was acquired for a total
consideration of $616,000, consisting of approximately $574,000 cash and a
$42,000 note.
In June 1995 the Company purchased all of the outstanding capital stock of
R.J. Dixon, Inc. (DBA "Spinco") for $1,000,000, consisting of a $490,000 note
and 94,884 shares of ICO common stock. Spinco provides inspection and
reclamation services for drill pipe and other oil country tubular goods in the
Gulf Coast area.
COMPETITION
The principal competitive factors in the Company's business are price,
availability and quality of service. The consolidation in the tubular
inspection, reconditioning and coating industry has resulted in the elimination
of many of the Company's competitors and reduced the Company's competition in
some markets to a single competitor. This consolidation has reduced the
capacity which exists in the domestic market to some extent, but the tubular
inspecting, reconditioning and coating industry continues to be highly
competitive. The Company's ability to compete effectively is also dependent
upon timely and reliable performance of its services at competitive rates.
Management believes that the Company will continue to compete effectively
because of the advantages of certain processes utilized by the Company over
those used by its competitors and the strong relationships which it maintains
with its customers.
The Company is the leading provider of sucker rod services and one of the
two largest providers of inspection, reconditioning and coating services for
tubular goods in the United States. The Company's customers include the major
oil and gas companies, as well as independent oil and gas companies, drilling
contractors and steel producers and processors. No single customer accounted
for over 10% of the Company's revenues in 1994 and 1995.
Few competitors of the Company provide services similar to the Company's
"Total Concept Tubing Services" or provide in-plant inspection of new tubular
goods outside Houston, Texas. The Company and Tuboscope Vetco International
Corporation compete with each other and a number of smaller companies in most
domestic markets. Capital and other requirements for entry into the tubular
inspection business are relatively low, and, as a consequence, competition is
vigorous in all of the Company's tubular inspection markets.
Much of the Company's business is seasonal in nature and reflects the
general pattern of oilfield drilling and workovers, with the first and fourth
quarters of the fiscal year generally having higher levels of activity and the
second and third quarters generally having lower levels of activity.
4
7
ENVIRONMENTAL REGULATION
The Company's services routinely involve the handling of chemical
substances and waste materials, some of which may be considered to be hazardous
wastes. The Company is subject to numerous local, state, and federal laws and
regulations concerning the use and handling of hazardous materials and
restricting releases of pollutants and contaminants into the environment. Many
of these laws and regulations provide for strict liability for the costs of
cleaning up contamination resulting from releases of regulated materials into
the environment. Management believes that the Company is in substantial
compliance with these laws and regulations, and continued compliance with
existing laws and regulations will not have a material adverse effect on the
Company's results of operations or financial condition. Management believes
that estimated capital expenditures for environmental remediation also will not
be material. The Company's insurance policies do provide coverage for
environmental or other damages caused as a result of defective casing or tubing
inspected by the Company.
RAW MATERIALS AND BACKLOGS
Management believes that materials used in the Company's operations are
available from numerous sources and are readily available to meet its needs.
Backlogs are not material to the Company's overall operation.
PATENTS AND LICENSES
The Company holds six United States patents and has one patent application
pending covering the proprietary technology utilized in its reconditioning,
inspecting, spraymetal and epoxy coating of sucker rods and its services for
used tubular goods. The expiration dates on these patents range from April 1998
to February 2009. No single patent is considered essential to the overall
successful operation of the Company's business.
In connection with the acquisition of BHTS, the Company acquired
royalty-free exclusive licenses to use WHS, PipeImage(TM) and other proprietary
technology. Pursuant to the terms of such licenses, the Company generally is
prohibited from using such proprietary technology in foreign markets.
The Company considers its proprietary technology to be important to its
business and future prospects. The Company believes that its patents and
licenses are valid. However, no assurance can be given that one or more of the
Company's competitors may not be able to develop or produce a process or system
of comparable or greater quality to those covered by the Company's patents or
licenses.
EMPLOYEES
As of November 22, 1995 the Company had approximately 900 full-time
employees, none of whom is represented by a union. The Company has experienced
no strikes or work stoppages and considers its relations with its employees to
be satisfactory. The Company provides many of its employees with stock options
and year-end bonuses.
5
8
ITEM 2. PROPERTIES
The location and approximate acreage of the Company's operating facilities
at November 22, 1995, together with an indication of the services performed at
such facilities are set forth below. All facilities have storage areas for
customer goods.
OWNERSHIP
OR
LEASE
LOCATION SERVICES ACRES EXPIRATION
- -------- -------- ----- ----------
Odessa, Texas Sucker rod reconditioning and inspecting 13 (1)
Odessa, Texas Sucker rod storage 7 Owned
Odessa, Texas Spraymetal and epoxy coating of sucker rods 3 Owned
Odessa, Texas Used tubular goods services 13 Owned
Odessa, Texas Internal coating of tubular goods 15 Owned
Odessa, Texas Trucking yard 14 Owned
Odessa, Texas Used tubular goods services 22 Owned
Odessa, Texas Facility sub-leased to third party 22 Owned
Odessa, Texas Cement lining/external coating 20 (2)
Denver City, Sucker rod reconditioning and inspecting 10 Owned
Texas
Farmington, Inspection of new and used tubular goods 14 1997
New Mexico
Oklahoma City, Sucker rod reconditioning and inspecting 8 Owned
Oklahoma
Oklahoma City, Inspection of new and used tubular goods 22 Owned
Oklahoma
Casper, Wyoming Sucker rod reconditioning and inspecting;
inspection of new and used tubular goods 29 (3)
Bakersfield,
California Sucker rod reconditioning and inspecting 30 Owned
Williston,
North Dakota Used tubular goods services 2 1997
6
9
OWNERSHIP
OR
LEASE
LOCATION SERVICES ACRES EXPIRATION
- -------- -------- ----- ----------
Corpus Christi, Inspection of new and used tubular goods 10 Owned
Texas
Houston, Texas Inspection of new tubular goods 199 Owned
Houston, Texas Internal coating of tubular goods 49 Owned
Lone Star, Texas Inspection of new tubular goods 80 Owned
Amelia, Internal coating and inspection of new and used
Louisiana tubular goods 31 1998
Edmonton, Alberta Inspection of new and used sucker rods. 10 (4)
Canada Sales and service of new and used oilwell engines
(1) Three acres are leased on a month-to-month basis; the remaining ten acres
are owned by the Company.
(2) Eighteen acres owned; the remaining two acres are leased on a
month-to-month basis.
(3) Seventeen acres owned; ten acres leased through 1997; remaining two acres
are leased on a month-to-month basis.
(4) Indicates yearly lease with three one-year, optional extensions.
The Company's facilities and equipment, owned and leased, are considered
by management to be well maintained and adequate for the Company's operations.
The Company also leases various sales and administrative offices with various
lease expiration dates through 2002. Utilization of the Company's facilities
is subject to fluctuations based in part on oil and gas exploration and
production levels. The Company is currently operating most of its facilities
below full capacity. Most facilities are operating no more than one shift per
day. The Company does not presently intend to close any of its significant
operating facilities. Management considers its properties to be suitable for
its present needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is named a defendant in twelve suits, filed between June 1988
and October 1994, for personal injury claims alleging exposure to silica
resulting in silicosis-related disease. The Company is generally protected
under workers' compensation law from claims under these suits except to the
extent a judgment is awarded against the Company for intentional tort. The
Company was dismissed without liability from two suits alleging intentional
tort against the Company for silicosis-related disease. In addition, the
Company has settled two other suits, both of which alleged wrongful death
caused by silicosis-related diseases. One of the pending personal injury cases
currently involves an alleged silicosis-related death, which is premised upon
allegations of gross negligence. The standard of liability
7
10
applicable to the remainder of the pending cases is intentional tort, a stricter
standard than the gross negligence standard applicable to the wrongful death
cases. The Company and its counsel cannot at this time predict with any
reasonable certainty the outcome of any of the remaining suits. Except as
described below, the Company does not believe, however, that such suits will
have a material adverse effect on the financial condition or results of
operations of the Company.
The Company does have in effect general liability and employer's liability
insurance policies applicable to the referenced suits; however, the Company has
been advised by each of the involved insurance carriers of a reservation of
rights with regard to policy obligations pertaining to the suits because of
various exclusions in the policies. 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 or results of operations of the
Company.
The Company is also named as a defendant in certain lawsuits arising in the
ordinary course of business. While the outcome of these lawsuits cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial condition or results of operations of
the Company.
The Company's agreement with Baker Hughes, Incorporated ("Baker Hughes")
pursuant to which BHTS was acquired by the Company, provides that Baker Hughes
will reimburse the Company for 50% of the BHTS environmental remediation costs
in excess of $318,000, with Baker Hughes' total reimbursement obligation being
limited to $1,000,000. BHTS is a responsible party at two hazardous waste
disposal sites that are currently undergoing remediation pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act,
frequently referred to as "Superfund". Under Superfund, persons who were
responsible for generating the hazardous waste disposed of at a site where
hazardous substances are being released into the environment are jointly and
severally liable for the costs of cleaning up environmental contamination, and
it is not uncommon for neighboring landowners and other third parties to file
claims for personal injuries and property damage allegedly caused by hazardous
substances released into the environment. The two sites where BHTS is a
responsible party are the French Limited site northeast of Houston, Texas, and
the Sheridan site near Hempstead, Texas. Based on the relatively advanced
status of the remediation at these sites and BHTS's minimal contribution of
wastes at each site, management believes that the Company's future liability
under the agreement with Baker Hughes with respect to these two sites will not
be material.
8
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on September 8,
1995 for the following purposes:
1) To elect two Class II Directors to serve until the 1998 Annual Meeting
of Shareholders and until their respective successors are elected and
qualified;
2) To approve the ICO, Inc. 1995 Stock Option Plan; and
3) To ratify and approve the selection of Price Waterhouse LLP as the
Company's auditors for the ensuing fiscal year.
Holders of shares of common stock of record on the books of the Company at
the close of business on August 9, 1995 were entitled to vote at the meeting.
William E. Cornelius and Robin E. Pacholder were elected as Class I
Directors at the annual meeting with 7,471,265 and 7,471,131 votes for, 0 and
134 votes against and 427,392 and 427,526 abstentions, respectively.
The ICO, Inc. 1995 Stock Option Plan was approved by the following votes:
6,238,841 votes for, 1,545,524 votes against, 19,291 abstentions and 95,000
broker non-votes.
The selection of Price Waterhouse LLP as the Company's auditors for the
1996 Fiscal year was approved by the following vote: 7,871,235 votes for,
19,345 votes against, 8,077 abstentions and 0 broker non-votes.
9
12
P A R T I I
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the NASDAQ National Market System
under the symbol ICOC and is listed on the Boston Stock Exchange. The Company's
common stock has been included in the NASDAQ National Market System since July
19, 1988. There were approximately 492 shareholders of record of the Company's
common stock at November 22, 1995.
On November 1, 1995 the Company established a quarterly dividend of $.05
per share on its common stock. The first dividend will be paid on December 31,
1995 to the shareholders of record on December 21, 1995.
The following table sets forth the high and low sales prices for the common
stock as reported on the NASDAQ National Market System.
HIGH LOW
---- ---
1994 First Quarter 10 5 3/4
Second Quarter 9 1/4 6 3/4
Third Quarter 7 1/4 4 1/4
Fourth Quarter 5 3/4 4 1/4
1995 First Quarter 5 3/8 3 3/4
Second Quarter 6 3 3/4
Third Quarter 6 1/4 5 1/8
Fourth Quarter 5 7/8 4 5/8
10
13
ITEM 6. SELECTED FINANCIAL DATA
Year Ended September 30,
--------------------------------------------------------------
1995(3) 1994(3) 1993 1992(1) 1991
---------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
Income Statement Data:
Revenues:
Exploration Sales and Services .... $ 34,953 $ 30,096 $ 25,290 $ 12,171 $ 13,018
Production Sales and Services ..... 28,749 28,919 24,936 18,569 19,667
Corrosion Control Services ........ 20,562 14,549 9,991 3,895 4,805
Other sales and services .......... 3,623 2,406 -- -- --
---------- ---------- ---------- ---------- ----------
Total revenues ................. $ 87,887 $ 75,970 $ 60,217 $ 34,635 $ 37,490
========== ========== ========== ========== ==========
Gross Profit ......................... $ 28,002 $ 21,779 $ 17,355 $ 10,482 $ 12,755
Selling, general and administrative
expenses ............................. 17,840 15,202 12,730 8,055 9,320
---------- ---------- ---------- ---------- ----------
Income before interest, taxes,
depreciation and amortization, unusual
and extraordinary items .............. 10,162 6,577 4,625 2,427 3,435
Depreciation and amortization ........ 5,112 4,357 3,669 2,616 2,864
Interest (income) expense, net ....... (1,307) (431) 2,352 740 632
Unusual items ........................ -- -- 605 (467) 4,108
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item ................... $ 6,357 $ 2,651 $ (2,001) $ (462) $ (4,169)
========== ========== ========== ========== ==========
Net income (loss) .................... $ 5,790 $ 1,225 $ (2,001) $ (383) $ (3,562)
========== ========== ========== ========== ==========
Earnings (loss) per common and
common equivalent share:
Income (loss) before extraordinary
item .............................. $ .41 $ .09 $ (.49) $ (.15) $ (1.48)
Net income (loss) ................. $ .41 $ (.07) $ (.49) $ (.12) $ (1.27)
Weighted average shares
outstanding ....................... 8,709,303 8,299,559 4,052,325 3,093,964 2,809,088
Balance Sheet Data:
Working capital ...................... $ 37,284 $ 37,656 $ 17,787 $ 3,321 $ 4,019
Property, plant and equipment, net ... 29,824 27,513 24,431 25,435 18,529
Total assets ......................... 88,183 78,969 51,353 40,713 27,491
Long-term debt ....................... 1,047 456 10,676 19,376 13,685
Stockholders' equity ................. 74,471 69,204 32,293 10,304 7,928
Other Financial Information:
Capital expenditures(2) .............. $ 5,838 $ 4,782 $ 2,252 $ 642 $ 1,344
(1) Due to the completion of the acquisition of BHTS on September 30, 1992,
the result of such acquisition is reflected in the balance sheet data at
September 30, 1992, but not in the income statement data for the year
ended September 30, 1992.
(2) Consists of cash used for capital expenditures, excluding property, plant
and equipment obtained in acquisitions.
(3) See discussion of fiscal year acquisitions in Item 7.
11
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
In November 1993, the Company completed an offering of Convertible
Exchangeable Preferred Stock ("Preferred Stock"). The shares of Preferred
Stock are evidenced by Depositary Shares, each representing one-quarter of a
share of Preferred Stock. A total of 1,290,000 Depositary Shares were sold at
a price of $25 per share. Each preferred share is convertible into 10.96
common shares (equivalent to 2.74 common shares per Depositary Share) at a
conversion price of $9.125 per common share subject to adjustment upon the
occurrence of certain events. The Company realized net proceeds from the
offering of approximately $30,600,000. The Company utilized approximately
$10,707,000 of the net proceeds to reduce its outstanding indebtedness and
approximately $4,133,000 for the acquisitions discussed below. At September
30, 1995, the balance of cash equivalents was approximately $25,000,000 and the
Company has only $1,682,000 of debt. The balance of the net proceeds will be
used for working capital and capital expenditures to fund future growth and for
selective acquisitions of assets or existing businesses.
In November 1993, the Company acquired substantially all of the property,
plant and equipment of TUC, a tubular inspection company for a total
consideration of approximately $1,100,000 consisting of 105,000 shares of the
Company's common stock and the payment of approximately $170,000 of TUC
indebtedness. The Company accounted for this acquisition under the purchase
method of accounting. For the year ended June 30, 1993, TUC generated revenues
of approximately $1,700,000 (unaudited).
In February 1994, the Company purchased all of the outstanding stock of
Shearer, which is located in Edmonton, Alberta, and provides sucker rod
inspection and reclamation services. The purchase price was approximately
$1,900,000 and consisted of approximately $1,300,000 cash and 98,294 shares of
the Company's common stock. The Company accounted for this acquisition under
the purchase method of accounting. For the nine months ended December 31,
1993, Shearer generated revenues of approximately $4,300,000 (unaudited) and
income before tax of approximately $482,000 (unaudited).
In April 1994, the Company acquired all of the outstanding capital stock
of Permian located in Midland, Texas, for approximately $2,500,000 consisting
of 399,600 shares of the Company's common stock. As part of this transaction,
the Company funded a pre-acquisition dividend to Permian shareholders by making
a $2,100,000 loan to Permian. Permian provides cement lining for tubing and
casing. The Company accounted for this acquisition under the purchase method
of accounting. For the year ended December 31, 1993, Permian generated revenues
of approximately $5,200,000 and income before tax of approximately $540,000.
Also in April 1994, the Company acquired all of the outstanding capital
stock of Frontier for approximately $1,500,000 consisting of 230,000 shares of
the Company's common stock. Frontier, which is based in Farmington, New
Mexico, provides inspection and reclamation services for tubing and casing.
The Company accounted for this acquisition under the purchase method of
accounting. For the year ended December 31, 1993, Frontier generated revenues
of approximately $1,800,000 and income before tax of approximately $414,000.
In October 1994, the Company purchased all of the outstanding capital
stock of B&W Equipment Sales and Mfg., Inc. ("B&W"), located in Odessa, Texas,
for approximately $745,000, consisting of $395,000 cash and 66,666 shares of
the Company's common stock. B&W designs and manufactures parts and components
for nondestructive testing and inspection equipment for use in the tubular
market. The
12
15
Company accounted for this acquisition under the purchase method of accounting.
For the nine months ended September 30, 1994 (unaudited), B&W generated
revenues of approximately $1,000,000 (unaudited) and net income of $116,000
(unaudited) with total assets of $528,000.
In March 1995 the Company acquired substantially all of the operational
assets (excluding real estate) of Kebco, which provides testing, inspecting and
reconditioning services for oil country tubular goods in the West Texas area.
Kebco was acquired for a total consideration of approximately $671,000,
consisting of approximately $629,000 cash and a $42,000 note. The Company
accounted for this acquisition under the purchase method of accounting. For
the year ended June 30, 1994, (unaudited) Kebco generated revenues of
approximately $730,000 (unaudited) and net income of approximately $37,000
(unaudited).
In June 1995 the Company purchased all of the outstanding capital stock of
Spinco for approximately $1,000,000, consisting of a $490,000 note and 94,884
shares of ICO common stock. Spinco provides inspection and reclamation
services for drill pipe and other oil country tubular goods in the Gulf Coast
area. For the nine months ended April 30, 1995, (unaudited) Spinco generated
approximately $741,000 (unaudited) in revenues and net income of $207,000
(unaudited).
The acquisitions of Shearer, Permian, Frontier, B&W, Kebco and Spinco
generated approximately $4,600,000 in excess purchase price over fair value of
net tangible assets acquired ("Goodwill") which is recorded in other assets on
the Company's Consolidated Balance Sheet. Goodwill is amortized over an
estimated useful life of 40 years.
The Company and Wedco Technology, Inc. ("Wedco") are negotiating the
acquisition of Wedco by the Company by means of a merger. No definitive
agreement has been reached and there can be no assurance that such transaction
will be consummated. Any merger, among other things, would be subject to the
approval of each company's shareholders and the satisfaction of certain
regulatory requirements.
Capital expenditures for 1995 were $5,838,000, excluding property, plant
and equipment of $1,439,000 acquired in connection with the acquisitions
described above. These expenditures were funded through cash generated from
operations and existing cash. Approximately $2,900,000 of the expenditures
were incurred for major repairs and enhancements of existing facilities. The
remaining expenditures were incurred in conjunction with the manufacture of new
pipe inspection units for steel mill and processor customers. For fiscal 1996,
capital expenditures for major repairs and enhancements of existing facilities
and manufacture of inspection equipment currently under contract for sale are
planned to be approximately $3,000,000 and are expected to be financed through
cash generated from operations and existing cash.
The Company is subject to numerous local, state, and federal laws and
regulations concerning the containment and disposal of hazardous materials.
Management believes that the Company is in substantial compliance with these
laws and regulations and that the compliance and remedial action costs
associated with these laws and regulations have not had a material adverse
effect on its results of operations, financial condition or competitive
position. Management believes that compliance with existing laws and
regulations will not have a materially adverse effect on the Company's results
of operations or financial condition in the foreseeable future and that capital
expenditures for environmental remediation will not be material.
13
16
RESULTS OF OPERATIONS
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
Revenues. Revenues increased $11,917,000 or 16% from the year ended
September 30, 1994 to the same period in 1995. Exploration revenues increased
$4,857,000 or 16% from the year ended September 30, 1994 to the same period in
1995. Demand for Exploration services is affected by domestic drilling
activity. The domestic rig count averaged approximately 738 for the year ended
September 30, 1995 compared to an average of approximately 785 for the year
ended September 30, 1994. The adverse impact of the lower domestic rig count,
however, was more than offset by the Company's increased success in providing
in-plant, new pipe inspection services to steel mill and processing customers.
Production revenues decreased $170,000 or less than 1% from the year ended
September 1994 to the same period in 1995. Demand for these services is
affected by changes in oil prices which remained relatively stable in 1995
versus 1994. Oil prices ranged from a high of approximately $21 per barrel to
a low of approximately $17 per barrel for the year ended September 30, 1995
compared to a high of approximately $21 per barrel to a low of approximately
$14 per barrel for the year ended September 30, 1994. The impact of fiscal
year 1994 acquisitions of Frontier, Kebco and Shearer had a positive impact on
production revenues. The effect of the acquisitions, however, was offset by a
temporary decline in California revenues and a decline in demand for tubular
and sucker rod inspection and reconditioning services in the Oklahoma and
Wyoming markets. The decrease in California was the result of production
delays following the relocation of the Company's operating facility to
Bakersfield, California, from The City of Industry, California.
Revenues from Corrosion Control services increased $6,013,000 or 41% from
the year ended September 1994 to the same period in 1995. The increase is due
to the full year effect of the April 1994 Permian acquisition and an increase
demand for the Company's corrosion control services at all of its facilities.
Costs and Expenses. Cost of sales and services as a percentage of net
revenues decreased from 71% for the year ended September 30, 1994 to 68% for
the year ended September 30, 1995. This was due to the cost reduction program
implemented at the beginning of the 1994 third quarter and the increased sales
volume of the Company's exploration sales and services in fiscal year 1995
versus fiscal year 1994.
Selling, general and administrative expenses increased from $15,202,000 for
the year ended September 30, 1994 to $17,840,000 for the year ended September
30, 1995. The change is due to increased sales activity, the 1994 acquisitions
of TUC, Shearer, Permian and Frontier and the 1995 acquisitions of B&W and
Spinco. Selling, general and administrative costs as a percentage of revenues
has remained consistent for the fiscal year ended September 30, 1994 as
compared to the same period in 1995.
Depreciation and amortization expense increased from $4,357,000 for the year
ended September 30, 1994 to $5,112,000 for the year ended September 30, 1995.
The increase resulted from the additions of property, plant and equipment
during the year including the property, plant and equipment included in the
fiscal year 1995 and 1994 acquisitions.
Net interest income increased from $431,000 for the year ended September 30,
1994 to $1,307,000 for the year ended September 30, 1995. This change resulted
from the retirement of indebtedness in early fiscal year 1994 and increasing
yields on the Company's high-quality commercial paper portfolio in fiscal year
1995 versus 1994.
14
17
Provision (Benefit) For Income Taxes. The Company reduced its valuation
allowance during fiscal year 1995 to reflect its ability to benefit from
temporary differences to the extent that regular federal taxes have been paid.
See the income tax footnote to the fiscal year 1995 financial statements for
the detail of temporary differences between income for financial reporting
purposes and federal income tax purposes.
The Company has for tax purposes $9,068,000 and $306,000 in net operating
and capital loss carryforwards, respectively, which expire between 2000 and
2008, and $2,078,000 in investment, alternative minimum, and other tax credit
carryforwards. All of the tax credits are expected to expire unused except
$104,000 in alternative minimum tax credits, which have no expiration.
Net Income. For the year ended September 30, 1995 the Company had net
income of $5,790,000 as compared to net income of $1,225,000 for the year ended
September 30, 1994 due to the factors described above. Included in the net
income for the year ended September 30, 1994 is an extraordinary loss of
$1,371,000 resulting from the retirement of indebtedness previously recorded on
the consolidated balance sheet at a discounted value.
Year Ended September 30, 1994 Compared to Year Ended September 30, 1993
Revenues. Revenues increased $15,753,000 or 26% from the year ended
September 30, 1993 to the same period in 1994. Exploration revenues increased
$4,806,000 or 19% from the year ended September 30, 1993 to the same period in
1994. Demand for exploration services is affected by domestic drilling
activity. The domestic rig count averaged approximately 785 for the year ended
September 30, 1994 compared to an average of approximately 750 for the year
ended September 30, 1993. Other factors contributing to the increase in
revenues related to exploration services were the completion in 1994 of the
consolidation of operations in Houston, Texas, the acquisition of TUC during
the first quarter and an increase in mill inspection services. The increase in
revenues also included approximately $1,800,000 from the sale of two mill
inspection systems during the year ended September 30, 1994.
Production revenues increased $3,983,000 or 16% from the year ended
September 30, 1993 to the same period in 1994. This increase in revenues was
due to higher sales of pipe and sucker rods during the year ended September 30,
1994, the expansion of operating facilities in Odessa, Texas and the
acquisition of Shearer in February 1994 and Frontier in April 1994. This
increase was partially offset by a decline in the demand for tubular and sucker
rod reconditioning services. The demand for these services is influenced by
oil prices which ranged from a high of approximately $21 per barrel to a low of
approximately $14 per barrel for the year ended September 30, 1994 compared to
a high of approximately $23 per barrel to a low of approximately $17 per barrel
for the year ended September 30, 1993.
Revenues from corrosion control services, which include internal coating and
lining services, increased $4,558,000 or 46% from the year ended September 30,
1993 to the same period in 1994. This increase was primarily due to the
acquisition of Permian in April 1994 and the installation of a new powder
coating line at the Company's Amelia, Louisiana facility.
Costs and Expenses. Cost of sales and services as a percentage of net
revenues remained consistent at 71% for the year ended September 30, 1993 and
for the year ended September 30, 1994, despite the higher sales of pipe and
sucker rods and the increase in corrosion control services, which generally
carry lower margins. This was due in part to a cost reduction program
implemented at the beginning of the third quarter of 1994 concentrating
primarily on production and corrosion control services.
15
18
Selling, general and administrative expenses increased from $12,730,000
for the year ended September 30, 1993 to $15,202,000 for the year ended
September 30, 1994. The increase in selling, general and administrative
expenses resulted from the additional costs associated with the expansion of
the Company's operations in Odessa and Houston, Texas, the acquisition of TUC,
Shearer, Permian and Frontier and costs associated with exploring potential
opportunities in the international marketplace. Selling, general and
administrative costs as a percentage of revenues has decreased from 21% for the
year ended September 30, 1993 to 20% for the year ended September 30, 1994 due
to management's continuing process of reviewing overhead and operating expenses
in order to maintain appropriate levels relative to revenues.
Depreciation and amortization expense increased from $3,669,000 for the
year ended September 30, 1993 to $4,357,000 for the year ended September 30,
1994. The increase resulted from the addition of property, plant and equipment
during the year and the property, plant and equipment included in the
acquisitions of TUC, Shearer, Permian and Frontier.
Net interest expense was $2,352,000 for the year ended September 30,
1993; for the year ended September 30, 1994, the Company had net interest
income of $431,000. This change resulted from the retirement of indebtedness
and the investment of cash proceeds from the Preferred Stock offering.
Net Income (Loss). For the year ended September 30, 1994, the Company had
net income of $1,225,000 as compared to a net loss of $2,001,000 for the year
ended September 30, 1993 due to the factors described above. Net income for the
year ended September 30, 1994 included an extraordinary loss of $1,371,000
resulting from the retirement of indebtedness recorded on the consolidated
balance sheet at a discounted value. The net loss for the year ended September
30, 1993 included a loss of $605,000 resulting from the settlement of
litigation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report. See index to this information on Page F-1 of this Annual Report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
19
P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
THE BOARD OF DIRECTORS
The following information is furnished as to each Director of the
Registrant. For each Director, the following table indicates the name, age,
position and offices with the Company, term of office and period during which
the Director has served as such and other directorships held by the Director in
certain companies. Also shown are the total number of shares of common stock
beneficially owned by each Director individually, and all Directors and
executive officers of the Company as a group, without naming them, and the
percent of such class so owned, as of November 15, 1995. Unless otherwise
indicated, all shares are owned directly and the owner has sole voting and
investment powers with respect thereto.
COMMON STOCK OWNED PERCENT OF
NAME AND AGE, ALL POSITIONS HELD FOR BENEFICIALLY (1) COMMON STOCK
DIRECTOR SINCE THE PAST FIVE YEARS OWNED
BENEFICIALLY
Sylvia A. Pacholder Chief Executive Officer of the Company 2,476,988(4)(5)(6)(7)(8)(11) 25.2%
53, 1993 since February 1995 and President since
November 1994. From July 1994 to November
1994 Ms. Pacholder was Executive Vice
President - Operations, and from January
1994 to July 1994 she was Vice President -
Corporate Development of the Company.
During 1993 Ms. Pacholder was Senior Vice
President of Pacholder Associates, Inc.
Ms. Pacholder was a member of the faculty
at the University of Cincinnati from 1984
to 1993, most recently as the head of the
Department of Mathematics and Applied
Sciences. Ms. S. Pacholder is the spouse
of Asher O. Pacholder and the parent of
Robin E. Pacholder.
Asher O. Pacholder Chairman of the Board of Directors and 2,455,988(4)(5)(6)(7)(8)(11) 25.0%
58, 1990 Chief Financial Officer of the Company
since February 1995. Dr. Pacholder has
been Chairman of the Board and a Managing
Director of Pacholder Associates, Inc.
since 1983. He serves on the Boards of
Directors of USF&G Pacholder Fund, Inc., a
closed-end investment company, Southland
Corporation, which owns and operates
convenience stores, Trump's Castle
Associates, which owns and operates the
Trump's Castle Casino Resort in Atlantic
City, New Jersey, and AM International,
Inc., a manufacturer and distributor of
graphics equipment and supplies. Dr.
Pacholder is the spouse of Sylvia A.
Pacholder and the parent of Robin E.
Pacholder.
William E. Cornelius An independent manufacturing consultant 8,000(2)(3)(6) *
46, 1992 since 1991. For more than five years prior
to 1991, Mr. Cornelius was Vice President/
Partner of Young & Klein Technicraft, Inc.,
a printing company. Currently serving as
Director of Novare Services, Inc., a
health care services company.
17
20
COMMON STOCK OWNED PERCENT OF
NAME AND AGE, ALL POSITIONS HELD FOR BENEFICIALLY (1) COMMON STOCK
DIRECTOR SINCE THE PAST FIVE YEARS OWNED
BENEFICIALLY
William J. Morgan President and a Managing Director of 1,737,644(2)(3)(4)(5)(6)(11) 17.8%
39, 1992 Pacholder Associates, Inc. for more than
five years. He serves on the Board of
Directors of USF&G Pacholder Fund, Inc.,
Duckwall-Alco Stores, Inc., a Midwestern
retailer, and Kaiser Ventures, Inc., an
environmental resources company.
Robin E. Pacholder Senior Vice President and Associate 6,822(6)(9) *
28, 1993 General Counsel with Pacholder
Associates, Inc., an investment advisory
firm, since 1994. Ms. Pacholder was an
Associate with the law firm of Pachulski,
Stang, Ziehl & Young from 1992 to 1994.
Prior to that time, Ms. R. Pacholder
attended and graduated with honors from
the UCLA School of Law and was admitted to
practice law in California in 1992. Ms.
Pacholder is the daughter of Asher O.
Pacholder and Sylvia A. Pacholder.
John F. Williamson Executive Vice President and Chief 4,000(2)(3)(6) *
57, 1995 Financial Officer of Asset Allocation
Concepts, Inc., an investment management
company, since May 1995. From 1993 to 1994
Mr. Williamson was Vice President/Manager
of Investments for American Life and Casualty
Insurance Company. From 1990 to 1993 he
was a Financial Consultant. Prior to that
time Mr. Williamson was Senior Vice
President/Treasurer and member of the
Operating Committee for Community Federal
Savings and Loan Association from 1985 to
1990. Mr. Williamson serves on the Board
of Directors of USF&G Pacholder Fund. Mr.
Williamson was appointed by the Board of
Directors in June 1995 to fill the vacancy
on the Board resulting from the death of
John R. Howard.
NAMED OFFICERS WHO ARE
NOT DIRECTORS
Isaac Joseph, 22,000(6) *
Senior Vice President
Sales
Curtis Mathews, 32,000(6) *
Senior Vice President
Corporate Development
Kenneth Miller, 20,000(6) *
Senior Vice President
Corrosion Control
Services
All Directors and Executive Officers, as a group (12 persons) 2,700,824(10) 26.9%
_________________
(1) Except as otherwise indicated, the beneficial owner listed below has sole
voting and investment powers with respect thereto.
(2) Audit Committee Member
(3) Compensation Committee Member
(4) Executive Committee Member
(5) Share amounts include 521,964 shares of common stock and 468,000 shares of
common stock which may be acquired through the exercise of warrants and
203,603 shares of common stock which may be acquired upon conversion of
Convertible Exchangeable Preferred Stock, in each case held by limited
partnerships, of which Dr. Pacholder and Mr. Morgan are general partners.
Pursuant to certain Investment Advisory Agreements,
18
21
Pacholder Associates, Inc. has sole voting and investment power over such
securities. Share amounts also include 391,060 shares of common stock,
100,000 shares of common stock which may be acquired through the exercise
of warrants and 43,017 shares of common stock which may be acquired upon
conversion of Convertible Exchangeable Preferred Stock, in each case owned
by a wholly-owned subsidiary of Pacholder Associates, Inc.
(6) Share amounts for Ms. S. Pacholder, Mr. Joseph, and Mr. Miller include
20,000, 1,500, and 3,000 shares of common stock, respectively, that are
issuable upon exercise of stock options granted under the 1985 Stock
Option Plan. Share amounts for Ms. S. Pacholder, Dr. Pacholder, Mr.
Joseph, Mr. Mathews, and Mr. Miller include 30,000, 30,000, 8,500, 20,000,
and 5,000 shares of common stock, respectively, that are issuable upon
exercise of stock options granted under the 1994 Stock Option Plan. Share
amounts for Ms. S. Pacholder, Dr. Pacholder, Mr. Joseph, Mr. Mathews and
Mr. Miller include 35,000, 30,000, 12,000, 12,000 and 12,000 shares of
common stock, respectively, that are issuable upon exercise of options
granted under the 1995 Stock Option Plan. Share amounts for Dr. Pacholder,
Mr. Morgan, Mr. Cornelius, Ms. S. Pacholder, Ms. R. Pacholder and Mr.
Williamson include 6,000, 8,000, 8,000, 2,000, 6,000 and 4,000 shares of
common stock, respectively, that are issuable upon exercise of stock
options granted under the 1993 Stock Option Plan for Non-Employee
Directors.
(7) Share amounts include 650,944 shares of common stock issued in connection
with six acquisitions over which Ms. S. Pacholder and Dr. Pacholder share
voting power. Ms. S. Pacholder and Dr. Pacholder disclaim beneficial
ownership of these shares.
(8) Includes 11,400 shares of common stock.
(9) Includes 822 shares of common stock which may be acquired upon conversion
of Convertible Exchangeable Preferred Stock.
(10) Share amounts include 249,000 shares of common stock issuable upon
exercise of stock options granted to certain officers and Directors under
the Company's stock option plans 568,000 shares of common stock issuable
upon exercise of warrants and 247,442 shares of Preferred Stock that are
deemed to be beneficially owned by certain Directors as indicated in (5)
and (9) above. Share amounts also include 650,944 shares of common stock
over which certain Directors and officers share voting power as indicated
in (7) above.
(11) Pursuant to the November 17, 1995 scheduled termination of one limited
partnership, of which Dr. Pacholder and Mr. Morgan are general partners,
approximately 730,815 beneficial shares will be distributed to the limited
partners and Pacholder and Associates, Inc. will no longer have sole
voting power over 724,722 shares.
The Board of Directors held seven meetings during the year ended
September 30, 1995. Each meeting was attended by all Directors of record. Each
Director who is not an employee of the Company receives an annual retainer of
$10,000, and a Director's fee in the amount of $2,000 for each meeting of the
Board or Committee of the Board actually attended and reimbursement of actual
expenses incurred. In addition, each Director who is not an employee is a
participant in the 1993 Non-Employee Director Stock Option Plan. Under the
terms of the plan, each non-employee Director is granted options to purchase
2,000 shares of the Company's common stock, on the first business day
subsequent to each annual meeting of shareholders. Ms. Sylvia Pacholder was
granted options to purchase 2,000 shares of the Company's common stock upon her
appointment to the Board of Directors on September 8, 1993. Ms. Robin
Pacholder was granted options to purchase 2,000 shares of the Company's common
stock upon her appointment to the Board of Directors on December 28, 1993. Mr.
Williamson was granted options to purchase 2,000 shares of the Company's common
stock upon his appointment to the Board of Directors on June 9, 1995.
Standing Audit and Compensation Committees, each composed of the
non-officer Directors, met once during the past fiscal year. All committee
members were present. The functions of the Audit Committee include reviewing
the engagement of the independent accountants, the scope and timing of the
audit, certain non-audit services to be rendered by the independent
accountants, reviewing the report of the independent accountants upon
completion of their audit and reviewing with the independent accountants and
management the Company's policies and procedures with respect to accounting and
financial controls. The Compensation Committee reviews and recommends
compensation arrangements for Directors, officers and other employees and takes
whatever action may be required in connection with the Company's stock option
plans.
In fiscal 1993 the Board of Directors established an Executive Committee
which is currently composed of Directors William J. Morgan, Asher O. Pacholder
and Sylvia A. Pacholder. The functions of the Executive Committee include
reviewing capital expenditure projects, and assisting management in developing
and implementing strategic plans. The Executive Committee held five meetings
during the year ended September 30, 1995.
19
22
The Company does not have a Nominating Committee.
PRINCIPAL EXECUTIVE OFFICERS OF THE COMPANY
WHO ARE NOT ALSO DIRECTORS
Set forth below are the name, age, positions and offices and periods
during which so served, of each executive officer of the Company and certain of
its subsidiaries, who is not also a Director, and all persons presently chosen
to become executive officers of the Company and certain of its subsidiaries:
NAME AGE POSITION
- ---- --- --------
Jon C. Biro 29 Controller & Treasurer
Randy Hamilton 36 Vice President - Exploration Services
Isaac Joseph 40 Senior Vice President - Sales
Curtis Mathews 52 Senior Vice President - Corporate Development
Kenneth Miller 51 Senior Vice President - Corrosion Control Services
Roy Pickett 47 Vice President - Production Services
_______________
Mr. Biro, a certified public accountant, has been principally employed as
Controller and Treasurer of the Company since April, 1995. From October 1994
to March 1995, Mr. Biro was Controller of the Company. Prior to that time, Mr.
Biro was a CPA with Price Waterhouse LLP.
Mr. Hamilton has been principally employed as Vice President -
Exploration Services of the Company since October 1995. From July 1995 to
September 1995, Mr. Hamilton was Assistant Vice President - Exploration
Services. From September 1994 to June 1995, Mr. Hamilton was employed as
Division Manager. From September 1992 to August 1994, Mr. Hamilton served the
Company as a department manager. Prior to that time, Mr. Hamilton was employed
as a department manager with Baker Hughes Tubular Services, Inc.
Mr. Joseph has been principally employed as Senior Vice President - Sales
of the Company since March 1995. From November 1994 to March 1995 he was the
Louisiana Division Manager. Mr. Joseph was the Company's Division Sales
Manager for Louisiana from June 1994 to November 1994. From March 1992 to June
1994 Mr. Joseph was the Louisiana Sales Manager for Tuboscope Vetco
International. From September 1991 to March 1992 he was a Sales Representative
for Completion Accessories, Inc., an oilfield service company, in Louisiana.
Prior to that time, he was Senior Sales Representative for Baker Hughes Vetco
Services, an oilfield service company, in Louisiana.
Mr. Mathews has been principally employed as Senior Vice President -
Corporate Development of the Company since July 1995. From October 1994 to
June 1995 Mr. Mathews was Vice President - Exploration Services of the Company.
From October 1992 to September 1994, Mr. Mathews was employed as Regional
Manager. For more than five years prior to that time, Mr. Mathews served as
Domestic Inspection Manager for Baker Hughes Tubular Services, Inc.
Mr. Miller has been principally employed as Senior Vice President -
Corrosion Control Services of the Company since October 1995. From November
1994 to October 1995, Mr. Miller served the Company as Assistant Vice President
- - Corrosion Control Products. From October 1993 to October 1994, He was the
Louisiana Division Manager, and for three years prior to October 1993, Mr.
Miller served as the Gulf Coast Area Manager for Baker Hughes Tubular Services,
Inc.
Mr. Pickett has been principally employed with the Company as Vice
President - Production Services since July 1995. From November 1994 to July
1995, Mr. Pickett was employed as Division Manager.
20
23
For more than nine years prior to that time, Mr. Pickett was employed as an
assistant sales manager with the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to each of the five most highly compensated executive officers and Directors
and the Company's former Chairman and Chief Executive Officer during the fiscal
year ended September 30, 1995.
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM
------------------- COMPENSATION
-------------
NAME AND OPTION AWARDS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION(1)
------------------ ---- ------ ----- ------------- ---------------
Sylvia A. Pacholder 1995 $156,193 (3) 50,000 2,300
President & 1994 78,564 75,000 0 0
Chief Executive Officer 1993 -- -- -- --
Asher O. Pacholder 1995 94,327 (3) 30,000 0
Chairman of the Board 1994 -- -- -- --
& Chief Financial Officer 1993 -- -- -- --
James P. Shanahan, Jr.(2) 1995 $83,011 $0 30,000 0
Chairman of the Board & 1994 158,958 75,000 6,000 16,336
Chief Executive Officer 1993 131,833 75,000 30,000 1,583
Isaac Joseph 1995 78,126 (3) 10,000 781
Senior Vice President 1994 18,423 17,000 -- 100
Sales 1993 -- -- -- --
Curtis Mathews 1995 91,875 (3) 20,000 1,148
Senior Vice President 1994 78,528 10,000 0 1,020
Corporate Development 1993 77,940 8,100 4,000 0
Kenneth Miller 1995 74,145 (3) 6,000 1,834
Senior Vice President 1994 58,872 2,000 2,000 816
Corrosion Control Services 1993 58,872 3,954 0 809
(1) Includes the Company's matching contributions for fiscal 1995 to the
Employee Stock Ownership Plan [the 401(k) Plan]. Also includes $14,583
paid to Mr. Shanahan in connection with the Company's relocation plan in
1994.
(2) Mr. Shanahan is no longer an employee of the company; however, he
currently has an acquisition and financing consulting agreement in effect
with the Company for which he is paid $15,000 per month and reimbursement
of certain relocation expenses. The agreement, which was effective in
February 1995, is for not less than twelve months in duration and may be
terminated in certain circumstances, including six months' notice by
either party.
(3) As of November 22, 1995 the distribution of fiscal year 1995 bonuses has
not yet been determined.
21
24
OPTIONS GRANTED DURING FISCAL 1995
The following table sets forth stock options granted to the individuals
named in the Summary Compensation Table during 1995 under the Company's 1985
and 1994 Stock Option Plan. Under the Securities and Exchange Commission
("SEC") regulations, companies are required to project an estimate of
appreciation of the underlying shares of stock during the option term. The
Company has chosen the 5%, 10% formula approved by the SEC; however, the
ultimate value will depend on the market value of the Company's stock at a
future date, which may or may not correspond to the projections below.
Potential realizable value
at assumed annual rates of
stock price appreciation
INDIVIDUAL GRANTS for option term
- ------------------------------------------------------------------- --------------------------
% of total
Options granted
Options To employees Exercise price Expiration
Name Granted In 1995 Per Share (1) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------
Sylvia A. Pacholder 50,000 11% 30,000 @ $5.00 10/14/2004 $93,334 $239,061
20,000 @ $4.75 12/02/2004 59,745 151,406
Asher O. Pacholder 30,000 7% $5.00 4/01/2005 94,334 239,061
James P. Shanahan, Jr. 30,000 7% $5.00 5/16/1995 0 0
Isaac Joseph 10,000 2% 1,500 @ $4.75 12/02/2004 4,481 11,355
2,500 @ $5.00 10/14/2004 7,861 19,922
6,000 @ $5.75 6/30/2005 21,697 54,984
Curtis Mathews 20,000 4% $5.00 10/14/2004 62,889 159,374
Kenneth Miller 6,000 1% 1,000 @ $4.75 12/02/2004 2,987 7,570
5,000 @ $5.00 10/14/2004 15,722 39,844
(1) Exercise price is the fair market value on the date of grant.
FISCAL 1995 OPTION EXERCISES AND FISCAL YEAR-END VALUE
The following table sets forth stock options exercised by the individuals
named in the Summary Compensation Table during 1995, and the number and value
of all unexercised options at fiscal year end. The value of "in-the-money"
options refers to options having an exercise price which is less than the
market price of the Company's stock on September 30, 1995.
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value September 30, 1995 September 30, 1995 (1)
Name Exercise Realized (2) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
Sylvia A. Pacholder -0- n/a 52,000/0 $2,500/0
Asher O. Pacholder -0- n/a 36,000/0 0/0
James P. Shanahan, Jr. 30,000 $21,250 36,000/0 33,750/0
Isaac Joseph -0- n/a 10,000/0 188/0
Curtis Mathews -0- n/a 32,000/0 0/0
Kenneth Miller -0- n/a 8,000/0 125/0
(1) Represents market value of the Company's common stock at September 30,
1995 less the exercise price.
(2) Based on market value of the Company's common stock on the date of
issuance of shares.
22
25
EMPLOYEE STOCK OWNERSHIP PLAN
In June 1982, the Board of Directors adopted the ICO, Inc. Employee Stock
Ownership Plan (ESOP). The plan has been amended to comply with all tax acts
enacted since 1982. Compensation expense associated with this plan amounted to
approximately $183,000 in 1995, $194,000 in 1994 and $175,000 in 1993. In 1988
management amended the ESOP to provide a 401(k) savings feature. The ESOP is
the only Company-sponsored retirement plan in effect at September 30, 1995. The
amendment provides employees with a tax-deferred savings plan that allows them
to accumulate funds for retirement. All employees with six months of service
who are at least twenty and one-half years of age are eligible to participate
in the plan beginning each October.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1995, the Compensation Committee of the Board of
Directors of the Company consisted of Messrs. Asher O. Pacholder, William J.
Morgan, John R. Howard, William E. Cornelius, and Ms. Robin E. Pacholder until
October 20, 1995.
Effective October 20, 1995 the Compensation Committee of the Board of
Directors of the Company consists of Messrs. William J. Morgan, William E.
Cornelius, and John F. Williamson.
Dr. Pacholder and Mr. Morgan are each Directors of the Company and are
executive officers of Pacholder Associates, Inc.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and NASDAQ. Officers, Directors and greater than 10% Shareholders are required
by Securities and Exchange Commission regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on the review of the
copies of such forms furnished to the Company, or written representations that
no Forms 5 were required, the Company believes that during fiscal 1995, all
Section 16(a) filing requirements applicable to its Directors, officers and
greater than 10% beneficial owners were met.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table contains information concerning the security
ownership of certain beneficial owners known to the management of the Company,
based upon filings with the Securities and Exchange Commission, to own more
than five percent of the Company's common stock at the close of business on
November 15, 1995.
23
26
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
- -----------------------------------------------------------------------------------------------------
Pacholder Associates
8044 Montgomery Road, Suite 382
Cincinnati, Ohio 45236......................... 1,727,644 (2)(4) 17.7%
Prudential Insurance Company of America
100 Mulberry Street
Newark, New Jersey 07102....................... 757,400 8.5%
State Street Research & Management Company
One Financial Center, 38th Floor
Boston, Massachusetts 02111.................... 773,040 (3) 8.7%
Wellington Management Company
75 State Street
Boston, Massachusetts 02109.................... 710,760 8.0%
FMR Corporation
82 Devonshire Street
Boston, Massachusetts 02109.................... 661,700 7.4%
Alphi Investment Management Company
155 Pfingsten Road, Suite 360
Deerfield, Illinois 60015...................... 636,700 7.1%
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, Maryland 21202..................... 515,040 5.8%
_______________________________________________________
(1) Voting and dispositive power is shared by the beneficial owner indicated
and certain of its subsidiaries, or investment funds managed by it.
(2) Share amounts include 521,964 shares of common stock, 468,000 shares of
common stock which may be acquired through the exercise of warrants and
203,603 shares of common stock which may be acquired upon conversion of
Convertible Exchangeable Preferred Stock, in each case held by limited
partnerships, of which Dr. Pacholder and Mr. Morgan are general partners.
Pursuant to certain Investment Advisory Agreements, Pacholder Associates,
Inc. has sole voting and investment power over such securities. Share
amounts also include 391,060 shares of common stock, 100,000 shares of
common stock which may be acquired through the exercise of warrants and
43,017 shares of common stock which may be acquired upon conversion of
Convertible Exchangeable Preferred Stock, in each case owned by a
wholly-owned subsidiary of Pacholder Associates, Inc.
(3) This number represents 510,000 shares of common stock held and 263,040
shares of common stock which may be acquired upon conversion of
Convertible Exchangeable Preferred Stock.
24
27
(4) Pursuant to the November 17, 1995 scheduled termination of one limited
partnership, of which Dr. Pacholder and Mr. Morgan are general partners,
approximately 730,815 beneficial shares will be distributed to the limited
partners and Pacholder and Associates, Inc. will no longer have sole
voting power 724,722 shares.
SECURITY OWNERSHIP OF MANAGEMENT
See Item 10. Directors and Executive Officers of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No reportable transactions occurred in the year ended September 30, 1995.
25
28
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The response to this portion of Item 14 is submitted as a separate
section of this report on page F-1.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended September 30, 1995.
(c) Exhibits Required by Item 601 of S-K:
(1) The following exhibits are filed as a separate section of this
Form 10-K Annual Report:
3(ii) Bylaws of Registrant, as amended
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule
(2) The following exhibits are incorporated herein by reference:
3(i) Articles of Incorporation of Registrant, as amended.
(Exhibit 4 to Registrant's Form S-3 dated September 13,
1993)
4(a) Indenture for 10% Senior Notes due 2002, dated as of
September 1, 1992, between Registrant and Ameritrust Texas
N.A., Trustee. (Exhibit 4 to Registrant's Form 10-K Annual
Report for 1992)
4(b) Warrant Agreement - Series A, dated as of September 1,
1992, between Registrant and Society National Bank.
(Exhibit 4 to Registrant's Form 10-K Annual Report for
1992)
4(c) Warrant Agreement - Series B, dated as of September 1,
1992, between Registrant and Society National Bank.
(Exhibit 4 to Registrant's Form 10-K Annual Report for
1992)
MANAGEMENT COMPENSATORY AGREEMENTS
10(a) ICO, Inc. Tax Credit Employee Stock Ownership Plan, as
amended.
10(b) Amendments to accounts financing agreement and promissory
notes between Registrant and Congress Financial
Corporation. (Exhibit 4 to Registrant's Form 10-K Annual
Report for 1992)
26
29
10(c) ICO, Inc. 1985 Stock Option Plan, as amended. (Exhibit B to
Registrant's definitive proxy statement dated April 27,
1987 for the Annual Meeting of Shareholders)
10(d) Accounts financing agreement and promissory notes between
Congress Financial Corporation and ICO, Inc. dated January
11, 1989. (Exhibit 3 to Registrant's Form 10-K Annual
Report for 1988)
10(e) Agreement for the purchase and sale of all of the
outstanding shares of capital stock of Baker Hughes Tubular
Services, Inc. and certain related non-U.S. assets by and
between ICO, Inc. and Baker Hughes, Incorporated. (Exhibit
2(a) to Registrant's Form 8-K Current Report dated
September 30, 1992)
10(f) 1993 Stock Option Plan for Non-Employee Directors of ICO,
Inc. (Exhibit 99 to Registrant's Form S-8 dated September
13, 1993)
10(g) ICO, Inc. 1994 Stock Option Plan (Exhibit A to Registrant's
definitive proxy statement dated June 24, 1994 for the
Annual Meeting of Shareholders)
10(h) ICO, Inc. 1995 Stock Option Plan (Exhibit A to Registrant's
definitive proxy statement dated August 10, 1995 for the
Annual Meeting of Shareholders)
(d) The response to this portion of Item 14 is submitted as a separate
section of this report on page F-1.
27
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ICO, INC.
By: /s/ SYLVIA A. PACHOLDER
-----------------------------------
Sylvia A. Pacholder, President and
Chief Executive Officer
(Principal Executive Officer)
Date November 22, 1995
-----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
------------------- ----
/s/ SYLVIA A. PACHOLDER November 22, 1995
- ---------------------------------------------------
Sylvia A. Pacholder, President and
Chief Executive Officer
(Principal Executive Officer)
November 22, 1995
/s/ ASHER O. PACHOLDER
- ---------------------------------------------------
Asher O. Pacholder, Chairman of the Board
and Chief Financial Officer
(Principal Financial Officer)
November 22, 1995
/s/ JON C. BIRO
- ---------------------------------------------------
Jon C. Biro, Controller and Treasurer
(Principal Accounting Officer)
November 22, 1995
/s/ WILLIAM E. CORNELIUS
- ---------------------------------------------------
William E. Cornelius, Director
November 22, 1995
/s/ WILLIAM J. MORGAN
- ---------------------------------------------------
William J. Morgan, Director
November 22, 1995
/s/ ROBIN E. PACHOLDER
- ---------------------------------------------------
Robin E. Pacholder, Director
November 22, 1995
/s/ JOHN F. WILLIAMSON
- ---------------------------------------------------
John F. Williamson, Director
28
31
ICO, INC. AND SUBSIDIARIES
FORM 10-K
INDEX OF FINANCIAL STATEMENTS AND SCHEDULE
The following financial statements of ICO, Inc. and subsidiaries are required
to be included by Item 14(a):
(1) Financial Statements: PAGE
----
Report of Independent Accountants . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet at September 30, 1995 and 1994 . . . . . F-3
Consolidated Statement of Operations for the three years
ended September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for the three years
ended September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity for the
three years ended September 30, 1995 . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-7
(2) Financial Statement Schedule:
Schedule VIII - Valuation and Qualifying Accounts . . . . . . . . . S-1
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted or
the information is presented in the consolidated financial statements or
related notes.
F-1
32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ICO, Inc.
In our opinion, the consolidated financial statements listed in the Index
appearing on page F-1 present fairly, in all material respects, the financial
position of ICO, Inc. and its subsidiaries at September 30, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
October 31, 1995
F-2
33
ICO, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
------------------------------
1995 1994
------------- -------------
ASSETS
Current Assets:
Cash and equivalents $ 24,991,000 $ 24,763,000
Trade receivables (less allowance for doubtful accounts of
$828,000 and $576,000, respectively) 18,050,000 14,307,000
Inventories 4,873,000 4,642,000
Prepaid expenses and other 2,035,000 3,253,000
------------- -------------
Total current assets 49,949,000 46,965,000
------------- -------------
Property, plant and equipment, at cost 83,461,000 76,374,000
Less - accumulated depreciation and amortization (53,637,000) (48,861,000)
------------- -------------
29,824,000 27,513,000
------------- -------------
Other assets:
Goodwill, net 4,474,000 3,663,000
Deferred tax asset 1,633,000 --
Patents and licenses, net 229,000 264,000
Other 2,074,000 564,000
------------- -------------
$ 88,183,000 $ 78,969,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 635,000 $ 437,000
Accounts payable 5,622,000 5,122,000
Accrued insurance 1,731,000 1,316,000
Accrued salaries and wages 1,351,000 935,000
Income taxes payable 1,209,000 --
Accrued expenses 2,117,000 1,499,000
------------- -------------
Total current liabilities 12,665,000 9,309,000
------------- -------------
Long-term debt, net of current portion 1,047,000 456,000
------------- -------------
Stockholders' Equity:
Preferred stock, without par value - 500,000 shares authorized;
322,500 shares issued and outstanding with a liquidation
preference of $32,250,000 13,000 13,000
Common Stock, without par value - 50,000,000 shares authorized;
8,883,911 and 8,551,574 shares issued and outstanding, respectively 35,042,000 33,394,000
Additional paid-in capital 56,058,000 56,053,000
Accumulated deficit (16,642,000) (20,256,000)
------------- -------------
74,471,000 69,204,000
------------- -------------
Commitments and contingencies (see Note 5 & 10)
$ 88,183,000 $ 78,969,000
============= =============
The accompanying notes are an integral part of these financial statements.
F-3
34
ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1994 1993
------------- ------------- -------------
Revenues:
Exploration Services $ 31,342,000 $ 27,531,000 $ 24,878,000
Production Services 19,586,000 19,469,000 20,169,000
Corrosion Control Services 19,394,000 14,549,000 9,991,000
Product sales 14,672,000 12,015,000 5,179,000
Other sales and services 2,893,000 2,406,000 --
------------- ------------- -------------
87,887,000 75,970,000 60,217,000
------------- ------------- -------------
Cost and expenses:
Cost of sales and services 59,885,000 54,191,000 42,862,000
Selling, general and administrative 17,840,000 15,202,000 12,730,000
Depreciation and amortization 5,112,000 4,357,000 3,669,000
Litigation settlement -- -- 605,000
------------- ------------ -------------
82,837,000 73,750,000 59,866,000
------------- ------------- -------------
Operating income 5,050,000 2,220,000 351,000
Other income and expense:
Interest income 1,424,000 902,000 62,000
Interest expense (117,000) (471,000) (2,414,000)
------------- ------------- -------------
Income (loss) before taxes and extraordinary item 6,357,000 2,651,000 (2,001,000)
Provision for income taxes 567,000 55,000 --
------------- ------------- -------------
Income (loss) before extraordinary item 5,790,000 2,596,000 (2,001,000)
Extraordinary item - loss on repayment
of debt -- (1,371,000) --
------------- ------------- -------------
Net income (loss) $ 5,790,000 $ 1,225,000 $ (2,001,000)
============= ============= =============
Earnings (loss) per common and
common equivalent share:
Income (loss) before extraordinary item $ .41 $ .09 $ (.49)
Extraordinary item -- (.16) --
------------- ------------- -------------
Net income (loss) $ .41 $ (.07) $ (.49)
============= ============= =============
Weighted average common and common
equivalent shares outstanding 8,709,303 8,299,559 4,052,325
============= ============= =============
The accompanying notes are an integral part of these financial statements.
F-4
35
ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
Cash flows from operating activities:
Cash received from customers $ 83,388,000 $ 73,612,000 $ 59,180,000
Cash paid to suppliers and employees (74,666,000) (68,961,000) (57,623,000)
Interest received 1,430,000 805,000 62,000
Interest paid (127,000) (710,000) (2,022,000)
Income taxes paid (992,000) -- --
Litigation settlement -- -- (605,000)
-------------- -------------- --------------
Net cash provided by (used for) operating activities 9,033,000 4,746,000 (1,008,000)
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (5,838,000) (4,782,000) (2,252,000)
Acquisitions (939,000) (3,194,000) --
Dispositions of property, plant and equipment 133,000 533,000 137,000
-------------- -------------- --------------
Net cash provided by (used for) investing activities (6,644,000) (7,443,000) (2,115,000)
-------------- -------------- --------------
Cash flows from financing activities:
Net proceeds from sale of stock 622,000 31,418,000 21,635,000
Payment of dividend on preferred stock (2,176,000) (1,826,000) --
Additions and refinanced debt 142,000 -- 49,372,000
Reductions of debt (749,000) (11,582,000) (58,643,000)
-------------- -------------- --------------
Net cash provided by (used for) financing activities (2,161,000) 18,010,000 12,364,000
-------------- -------------- --------------
Net increase in cash 228,000 15,313,000 9,241,000
Cash and equivalents at beginning of year 24,763,000 9,450,000 209,000
-------------- -------------- --------------
Cash and equivalents at end of year $ 24,991,000 $ 24,763,000 $ 9,450,000
============== ============== ==============
Reconciliation of net income (loss) to
net cash provided by (used for) operating activities:
Net income (loss) $ 5,790,000 $ 1,225,000 $ (2,001,000)
-------------- -------------- --------------
Adjustments:
Depreciation and amortization 5,112,000 4,357,000 3,669,000
Loss on extinguishment of debt -- 1,371,000 --
Interest not paid -- -- 67,000
Net changes in assets and liabilities:
Receivables (3,279,000) (1,067,000) (1,037,000)
Inventories 297,000 (515,000) (104,000)
Prepaid expenses and other assets (340,000) (302,000) (1,268,000)
Deferred tax asset (1,634,000) -- --
Accounts payable 400,000 (51,000) 625,000
Accrued expenses 2,687,000 (272,000) (959,000)
-------------- -------------- --------------
Total adjustments 3,243,000 3,521,000 993,000
-------------- -------------- --------------
Net cash provided by (used for)
operating activities $ 9,033,000 $ 4,746,000 $ (1,008,000)
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
F-5
36
ICO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL
PREFERRED ---------------------- PAID-IN ACCUMULATED
STOCK SHARES AMOUNT CAPITAL DEFICIT
----- ------ ------ ------- -------
Balance at September 30, 1992 -- 3,162,192 $25,301,000 $3,258,000 $(18,255,000)
Fractional shares acquired in connection with a
reverse stock split -- (50) -- -- --
Issuance of shares in connection with a stock
offering -- 3,945,000 40,000 22,935,000 --
Issuance of shares in connection with exercise of
warrants -- 154,875 849,000 (75,000) --
Issuance of shares in connection with the exercise
of employee stock options -- 17,100 66,000 -- --
Issuance of shares to the ICO Employee Stock
Ownership Plan -- 18,960 175,000 -- --
Net loss -- -- -- -- (2,001,000)
---------- --------- ----------- ----------- ------------
Balance at September 30, 1993 -- 7,298,077 26,431,000 26,118,000 (20,256,000)
Issuance of shares in connection with acquisitions -- 832,894 5,550,000 -- --
Issuance of shares in connection with the exercise
of warrants -- 349,143 1,095,000 -- --
Issuance of shares in connection with the exercise
of employee stock options -- 32,680 124,000 -- --
Issuance of shares to the ICO Employee Stock
Ownership Plan -- 38,780 194,000 -- --
Issuance of 322,500 shares of Convertible
Exchangeable Preferred Stock $ 13,000 -- -- 30,588,000 --
Convertible Exchangeable Preferred Stock
Dividend (601,000) (1,225,000)
Translation adjustment (52,000)
Net income -- -- -- -- 1,225,000
---------- --------- ----------- ----------- ------------
Balance at September 30, 1994 13,000 8,551,574 33,394,000 56,053,000 (20,256,000)
Issuance of shares in connection with acquisitions -- 161,550 843,000
Issuance of shares in connection with the exercise
of employee stock options -- 133,330 622,000
Issuance of shares to the ICO Employee Stock
Ownership Plan -- 37,457 183,000
Convertible Exchangeable Preferred Stock
Dividend (2,176,000)
Translation adjustment 5,000
Net income 5,790,000
---------- --------- ----------- ----------- ------------
Balance at September 30, 1995 $ 13,000 8,883,911 $35,042,000 $56,058,000 $(16,642,000)
========== ========= =========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-6
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of ICO, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
SEGMENT INFORMATION - While the Company serves many of the significant
oil and gas producing regions and active exploration areas of the Continental
United States, it operates primarily in one industry segment which includes the
inspecting, reconditioning and coating of tubular goods and sucker rods utilized
in the oil and gas industry.
REVENUE AND RELATED COST - The Company generally recognizes revenue
upon completion of its inspection and coating services 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. In 1993, product sales were not significant. In 1994 and 1995,
product sales totaling $1,782,000 and $2,043,000 yielded a gross margin of
approximately 50% and 58%, respectively.
INVENTORIES - Inventories are stated at the lower of cost or market,
cost being determined by the first-in, first-out method.
CASH AND CASH EQUIVALENTS - The Company considers all highly-liquid
debt securities with a maturity of three months or less when purchased to be
cash equivalents.
PROPERTY, PLANT AND EQUIPMENT - The costs of property, plant and
equipment, including renewals and improvements which extend the life of existing
properties, are capitalized and depreciated using the straight-line method over
the estimated useful lives of the various classes of assets as follows:
CLASSIFICATION YEARS
- -------------- -----
Site improvements................................................. 3-25
Buildings......................................................... 5-25
Machinery and equipment........................................... 3-22
Transportation equipment.......................................... 3-14
Leasehold improvements are amortized on a straight-line basis over the
lesser of the economic life of the asset or the lease term. Expenditures for
normal maintenance and repairs are expensed as incurred. The cost of property,
plant and equipment sold or otherwise retired and the related accumulated
depreciation are removed from the accounts and any resultant gain or loss is
included in operating results.
GOODWILL - The excess purchase price over fair value of net tangible
assets, goodwill, is being amortized on a straight-line basis over 40 years. The
Company periodically reviews goodwill to assess recoverability. Impairments
would be recognized in operating results if a permanent diminution in value were
to occur. In 1993, goodwill amortization was immaterial. The goodwill
amortization charged against earnings in 1994 and 1995 was $67,000 and $129,000,
respectively.
PATENTS AND LICENSES -- The cost of patents, patent rights and license
agreements is generally amortized over the remaining legal lives of the patents
or agreements on a straight-line basis, averaging approximately ten years. Total
accumulated amortization associated with such patents and agreements at
September 30, 1994 and 1995 was $1,232,000 and $1,267,000, respectively.
F-7
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION -- Exchange adjustments resulting from
foreign currency transactions are generally recognized in net earnings, whereas
adjustments resulting from the translation of financial statements are reflected
as a separate component of stockholders' equity. Net foreign currency
transaction gains or losses are not material in any of the periods presented.
ENVIRONMENTAL - Environmental expenditures that relate to current
operations are expensed as incurred. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are also expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the costs
can be reasonably estimated. Generally, the timing of these accruals coincides
with the earlier of completion of a feasibility study or the Company's
commitment to a formal plan of action. As of September 30, 1994 and 1995, a
liability for environmental remediation of $140,000 and $61,000, respectively,
remained which was assumed in the acquisition of Baker Hughes Tubular Services,
Inc. ("BHTS").
INCOME TAXES -- The Company and its wholly-owned subsidiaries file a
consolidated federal income tax return. Investment tax credits are recognized
using the flow-through method, 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.
EARNINGS (LOSS) PER SHARE -- Earnings (loss) per share is based on
earnings (loss) applicable to common shareholders and is computed using the
weighted average number of common and common equivalent shares outstanding
during the year including stock options and warrants which may have a dilutive
effect. Outstanding options, and warrants and Exchangeable Preferred Stock had
no materially dilutive effect for the years ended September 30, 1995, 1994, and
1993.
RECLASSIFICATION - Certain reclassifications have been made to the
prior year amounts in order to conform to the current year classifications.
NOTE 2 - ACQUISITIONS
1995 ACQUISITIONS
In June 1995 the Company purchased all of the outstanding capital stock
of R.J. Dixon, Inc. (DBA "Spinco") for a $490,000 note and 94,884 shares of ICO
common stock. Spinco is a Louisiana corporation that provides inspection and
reclamation services for drill pipe and other oil country tubular goods in the
Gulf Coast area. For the nine months ended April 30, 1995, (unaudited) Spinco
generated approximately $741,000 in revenues and net income of $207,000.
In March 1995 the Company acquired substantially all of the operational
assets, excluding real estate, of Kebco Pipe Services, Inc. ("Kebco"), which
provides testing, inspecting and reconditioning services for oil country tubular
goods in the West Texas area. Kebco was acquired for a total consideration of
approximately $671,000, consisting of approximately $629,000 cash and a $42,000
note. For the year ended June 30, 1994, (unaudited) Kebco generated revenues of
approximately $730,000 and net income of approximately $37,000.
F-8
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1994 the Company purchased all of the outstanding capital
stock of B&W Equipment Sales and Mfg., Inc. ("B&W") for approximately $745,000,
consisting of $395,000 cash and 66,666 shares of ICO common stock. B&W is a
Texas corporation that designs and manufactures parts and components for
nondestructive testing and inspection of equipment for use in the tubular
market. For the nine months ended September 30, 1994, (unaudited) B&W generated
revenues of approximately $1,000,000 and net income of $116,000. B&W sales to
ICO during such nine month period totaled approximately $635,000.
All of the 1995 acquisitions were accounted for under the purchase
method of accounting.
1994 ACQUISITIONS
In April 1994, the Company acquired all of the outstanding capital
stock of Permian Enterprises, Inc. ("Permian") located in Midland, Texas, for
$2,498,000 consisting of 399,600 shares of the Company's common stock. As part
of this transaction, the Company funded a pre-acquisition dividend to Permian
shareholders by making a $2,100,000 loan to Permian. Permian provides cement
lining for tubing and casing. For the year ended December 31, 1993 Permian
generated revenues of $5,200,000 and income before tax of $540,000.
In April 1994, the Company purchased all of the outstanding capital
stock of Frontier Inspection Services, Inc. ("Frontier") for $1,495,000
consisting of 230,000 shares of the Company's common stock. Frontier, which is
based in Farmington, New Mexico, provides inspection and reclamation services
for tubing and casing. For the year ended December 31, 1993 Frontier generated
revenues of $1,800,000 and income before tax of $414,000.
In February 1994, the Company purchased all of the outstanding capital
stock of Shearer Supply Ltd. ("Shearer") of Canada for $1,900,000, consisting of
$1,300,000 cash and 98,294 shares of the Company's common stock. Shearer
inspects and reconditions sucker rods and reconditions engines utilized in
connection with pumping units of oil wells. For the nine months ended December
31, 1993 Shearer generated revenues of $4,300,000 and income before tax of
$482,000.
In November 1993, the Company acquired substantially all of the
property, plant and equipment of Tubular Ultrasound Corporation, Inc. ("TUC"), a
pipe-inspection company, located in Houston, Texas, for a total consideration of
$1,100,000 consisting of 105,000 shares of the Company's common stock and the
payment of $170,000 of TUC indebtedness. For the year ended June 30, 1993,
(unaudited) TUC generated revenues of $1,700,000 and income before tax of
$83,000.
All of the 1994 acquisitions were accounted for under the purchase method of
accounting. Assuming the 1994 and 1995 transactions described above occurred at
the beginning of each year presented, condensed unaudited pro forma combined
results of operations are as follows:
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1994
----------- -----------
Revenues $88,803,000 $84,394,000
Income before extraordinary item 5,974,000 3,761,000
Net income per share before
extraordinary item .43 .23
F-9
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- INVENTORIES
Inventories at September 30 consisted of the following:
1995 1994
----------- -----------
Finished goods $ 1,941,000 $ 2,176,000
Raw materials and work in process 2,932,000 2,466,000
----------- -----------
$ 4,873,000 $ 4,642,000
=========== ===========
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following at
September 30:
1995 1994
----------- -----------
Land and site improvements $19,133,000 $15,964,000
Buildings 10,171,000 9,707,000
Machinery and equipment 46,228,000 45,045,000
Transportation equipment 2,389,000 2,089,000
Leasehold improvements 1,668,000 1,603,000
Construction in progress 3,872,000 1,966,000
----------- -----------
$83,461,000 $76,374,000
=========== ===========
NOTE 5 -- DEBT AND PLEDGED ASSETS
Debt at September 30, consisted of the following:
1995 1994
----------- -----------
Secured loan agreements $ 1,192,000 $ 893,000
Spinco acquisition note 490,000 --
----------- -----------
1,682,000 893,000
Less - Current portion 635,000 437,000
----------- -----------
$ 1,047,000 $ 456,000
=========== ===========
The various secured loan agreements are collateralized by certain
assets of the Company and contain restrictions relating to, among other things:
additional borrowings, selling assets except in the ordinary course of business,
and investments or guarantees. The loan agreements carry various maturities and
interest rates ranging from 8.5% to 12.5%, respectively.
The Spinco acquisition note (see Note 2) bears interest at 5% and is
due January 2, 1996.
F-10
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of September 30, 1995, principal payments on long-term debt for the
next five years were as follows: 1996 - $635,000; 1997 - $76,000; 1998 -
$77,000; 1999 - $81,000 and 2000 - $86,000.
NOTE 6 -- PREFERRED STOCK
In November 1993, the Company completed an offering of Convertible
Exchangeable Preferred Stock ("Preferred Stock"). The shares of Preferred Stock
are evidenced by Depositary Shares, each representing one-quarter of a share of
Preferred Stock. A total of 1,290,000 Depositary Shares were sold at a price of
$25 per share. Each preferred share is convertible into 10.96 common shares
(equivalent to 2.74 common shares per Depositary Share) at a conversion price of
$9.125 per common share subject to adjustment upon the occurrence of certain
events. The Board of Directors approved the recording of the Preferred Stock
offering by allocating $.01 per Depositary Share to Preferred Stock and the
remainder to additional paid-in capital. Preferred Stock dividends of $1.68 per
depositary share are paid annually.
NOTE 7 -- STOCK OPTION PLANS AND COMMON STOCK WARRANTS
The ICO, Inc. 1985 Stock Option Plan provides for the grant of options
to purchase an aggregate of 310,000 shares of the Company's common stock during
the ten-year period commencing January 2, 1985. Shares of common stock are
reserved for grant to certain officers and key employees at a price not less
than 100% of the fair market value of the stock at the date of grant. The
following is a summary of stock option activity for the year ended September 30:
1995 1994 1993
------------- ------------- -------------
Options outstanding at beginning of year 183,041 193,772 68,968
Options granted at $4.75 61,750 -- --
Options granted at $8.25 -- 17,000 --
Option granted at $7.13 -- 15,000 --
Options granted at $3.75 -- -- 144,000
Options exercised (43,944) (32,680) (17,100)
Options canceled or expired (47,685) (10,051) (2,096)
------------ ------------ ------------
Options outstanding at end of year 153,162 183,041 193,772
============ ============ ============
Price of options exercised $3.75 - 5.00 $3.75 - 5.00 $3.75 - 5.10
Information as of end of year:
Price range of options outstanding $3.75 -12.20 $3.75 -12.20 $3.75 -12.20
Shares exercisable 153,162 183,041 193,772
Shares available for grant None 71,775 93,724
F-11
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The ICO, Inc. 1993 Non-employee Directors Stock Option Plan provides
for the grant of options to purchase an aggregate of 80,000 shares of the
Company's common stock during the ten-year period commencing June 16, 1993.
Shares of common stock are reserved for grant to the nonemployee Directors at a
price not less than 100% of the fair market value of the stock at the date of
grant. The following is a summary of stock option activity for the year ended
September 30:
1995 1994 1993
------ ------ ------
Options outstanding at beginning of year 30,000 22,000
Options granted at $5.13 8,000 -- --
Options granted at $5.75 -- 10,000 --
Options granted at $6.13 2,000 -- --
Options granted at $7.13 -- 2,000 --
Options granted at $7.19 -- -- 20,000
Options granted at $9.75 -- -- 2,000
Options canceled or expired (6,000) (4,000) --
------ ------ -----------
Options outstanding at end of year 34,000 30,000 22,000
====== ====== ===========
The ICO, Inc. 1994 Stock Option Plan provides for the grant of options
to purchase an aggregate of 400,000 shares of the Company's common stock during
the ten-year period commencing July 1, 1994. Shares of common stock are reserved
for grant to certain officers and key employees at a price not less than 100% of
the fair market value of the stock at the date of grant. The following is a
summary of stock option activity for the year ended September 30, 1995:
Options granted at $5.00 379,800
Options granted at $5.75 18,000
Options exercised (84,900)
Options canceled or expired (13,500)
------------
Options outstanding at end of year 299,400
============
Price of options exercised $ 5.00
Information as of end of year:
Price range of options outstanding $5.00 - 5.75
Shares exercisable 299,400
Shares available to grant 15,700
The ICO, Inc. 1995 Stock Option Plan ("1995 Plan") was approved by the
stockholders at the Annual Meeting held on September 8, 1995 and provides for
the grant of options to purchase an aggregate of 400,000 shares of the Company's
common stock during the ten year period commencing August 15, 1995. Shares of
common stock are reserved for grant to certain officers and key employees at a
price not less than 100% of the fair market value of the stock at the date of
grant. As of September 30, 1995 no options had been granted under the 1995 Plan.
F-12
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the Company's debt restructurings, 51,625 (expiring
June 1997) and 801,375 (expiring July 2002) Common Stock Purchase Warrants were
issued and are outstanding and currently exercisable at $5.00 as of September
30, 1995.
NOTE 8 -- INCOME TAXES
The amounts of income (loss) before income taxes attributable to
domestic and foreign operations are as follows:
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1995 1994 1993
----------- ----------- -----------
Domestic $ 5,297,000 $ 1,323,000 $(1,801,000)
Foreign 1,060,000 (43,000) (200,000)
----------- ----------- -----------
$ 6,357,000 $ 1,280,000 $(2,001,000)
=========== =========== ===========
The provision for income taxes consists of the following:
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1995 1994 1993
----------- ---------- -----------
Current:
Federal $ 1,633,000 $ 55,000
State 208,000
Foreign 359,000
----------- ---------- -----------
$ 2,200,000 $ 55,000
----------- ---------- -----------
Deferred:
Federal $ (1,633,000)
----------- ---------- -----------
$ (1,633,000)
----------- ---------- -----------
Total:
Federal $ 55,000
State $ 208,000
Foreign 359,000
----------- ---------- -----------
$ 567,000 $ 55,000
=========== ========== ===========
A reconciliation of the income tax expense at the federal statutory
rate (35% for 1995 and 34% for prior years) to the Company's effective rate is
as follows:
F-13
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1995 1994 1993
----------- ----------- -----------
Tax expense (benefit) at statutory rate $ 2,225,000 $ 435,000 $ (680,000)
Change in the deferred tax assets valuation
allowance (1,695,000) (495,000) 496,000
Non-deductible expenses and other, net 37,000 115,000 184,000
----------- ----------- -----------
$ 567,000 $ 55,000 $
=========== =========== ===========
Deferred tax assets (liabilities) result from the cumulative effect of
temporary differences in the recognition of expenses (revenues) between tax
returns and financial statements. The significant components of the balances are
as follows:
SEPTEMBER 30,
----------------------------
1995 1994
----------- -----------
Deferred tax assets:
Net operating and capital loss carryforwards $ 3,299,000 $ 4,763,000
Tax credit carryforward 2,078,000 2,191,000
Depreciation 966,000 326,000
Insurance reserves 733,000 540,000
Other accruals 382,000 83,000
Bad debt reserves 338,000 228,000
Compensated absence accrual 91,000 89,000
Other 70,000 --
----------- -----------
7,957,000 8,220,000
----------- -----------
Deferred tax liabilities:
Deferred revenue (361,000)
Other (20,000) (14,000)
----------- -----------
(381,000) (14,000)
----------- -----------
Valuation allowance on deferred tax assets: (5,943,000) (8,206,000)
----------- -----------
Net deferred tax assets: $ 1,633,000
=========== ===========
The Company has for tax purposes $9,068,000 and $306,000 in net
operating and capital loss carryforwards, respectively, which expire between
2000 and 2008, and $2,078,000 in investment, alternative minimum and other tax
credit carryforwards. All of the tax credits are expected to expire unused
except $104,000 in alternative minimum tax credits, which have no expiration.
A stock offering in 1993 resulted in a cumulative change in ownership
that consequently limited the Company's ability to utilize the carryforwards and
investment tax credits to approximately $3,000,000 each year through their
expiration in 2008.
F-14
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company changed its assessment of the deferred tax assets valuation
allowance in the fourth quarter of fiscal 1995 to recognize its ability to
benefit from the reversal of temporary differences between financial and taxable
income to the extent that regular federal income taxes have been paid on taxable
income. The Company continues to maintain a full deferred tax asset valuation
allowance on the net operating loss, capital loss, and tax credit carryforwards
due to the uncertainty of the realizability of their benefit. The deferred tax
asset valuation allowance was also reduced by $568,000 in fiscal 1995 to reflect
the expiration of certain state net operating loss carryforwards and federal tax
credits.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
STOCK OWNERSHIP PLAN - Compensation expense associated with the
Company's Employee Stock Ownership Plan, as amended ("ESOP") amounted to
approximately $183,000 in 1995, $194,000 in 1994, and $175,000 in 1993.
Effective October 1, 1988 management amended the ESOP to provide a 401(k)
savings feature. The Company is required to contribute at least 25% of the
salary contribution of each participant. The ESOP is the only company-sponsored
retirement plan in effect at September 30, 1995. The amendment provides
employees with a tax-deferred savings plan that allows them to accumulate funds
for retirement. All employees with six months of service who are at least twenty
and one-half years of age are eligible to participate in the plan beginning each
October.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain transportation equipment, office space and
other machinery and equipment under operating leases which expire at various
dates through fiscal 2002. Rental expense was approximately $2,679,000 in 1995,
$2,508,000 in 1994, and $2,616,000 in 1993. Future minimum rental payments, as
of September 30, 1995 are due as follows:
1996 1,701,000
1997 950,000
1998 500,000
1999 427,000
2000 378,000
Thereafter 588,000
The Company is a defendant in twelve lawsuits for personal-injury
claims for exposure to silica resulting in silicosis-related disease. The
Company has in effect general liability and employer's liability insurance
policies applicable to such suits; however, the Company has been advised by each
of the involved insurance carriers of a reservation of rights with regard to
policy obligations pertaining to the suits because of various exclusions in the
policies. Additionally, the Company is generally protected under workers'
compensation law against such claims except to the extent a judgment is awarded
based on claims alleging intentional tort. If an adverse judgment is obtained
against the Company in any such suit, which is ultimately determined not to be
covered by insurance, the amount of such judgment could have a material adverse
effect on the financial condition or results of operations of the Company.
F-15
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There are various other claims and pending actions incidental to the
business operations of the Company. In the opinion of the Company's management,
the Company's potential liability in these matters in the aggregate is not
material.
In conjunction with the sale of mill inspection equipment for which a
security interest was perfected, the Company is guarantor of amounts due a third
party totaling $1,283,958 as of September 30, 1995. Related revenues of
$1,782,000 and costs of $892,000 have been recognized in the 1994 Consolidated
Statement of Operations.
NOTE 11 -- UNUSUAL ITEMS
In 1994, the Company repaid debt with a face value of $11,380,000 and
recorded an extraordinary loss of $1,371,000 resulting from the elimination of
discounts from face value which originated at the inception of the debt. The
Company retired the 10% Notes at 107% of the principal amount thereof.
On June 9, 1993 the Company settled two personal-injury claims for
exposure to silica resulting in silicosis-related deaths for a cash payment in
the amount of $605,000 which was recorded as a charge to operations during the
quarter ended June 30, 1993.
NOTE 12 -- SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS NON-CASH
INFORMATION
As more full discussed in Note 2, the following is a schedule of assets
acquired, liabilities assumed, and common stock issued in conjunction with the
acquisitions in 1995 and 1994:
YEAR ENDED SEPTEMBER 30,
------------------------------
1995 1994
----------- -----------
Trade receivables $ 462,000 $ 2,072,000
Inventories 107,000 1,464,000
Prepaid expenses and other assets 42,000 291,000
Property, plant and equipment 1,439,000 3,045,000
Goodwill 885,000 3,707,000
Accounts payable (102,000) (640,000)
Accrued liabilities (154,000) (781,000)
Long-term debt (897,000) (1,105,000)
Common stock issued (843,000) (4,859,000)
----------- -----------
Cash paid, net of cash acquired $ 939,000 $ 3,194,000
=========== ===========
In 1995 the Company purchased real estate by issuing debt of $500,000.
During fiscal years 1993, 1994 and 1995, the Company issued to
employees $175,000, 194,000 and 183,000 worth of common stock, respectively, in
connection with the Company's Employee Stock Ownership Plan.
F-16
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In July 1993, Baker Hughes exercised a portion of its Warrant to
purchase 450,857 shares of common stock for an aggregate purchase price of
approximately $1,691,000 which was applied to an equivalent reduction in the
principal balance due under the BHTS seven-year acquisition note. In February
1994, Baker Hughes exercised the remaining portion of its Warrant to purchase
349,143 shares of common stock for an aggregate purchase price of approximately
$1,309,000 which was applied to an equivalent reduction in the principal balance
due under the BHTS seven-year acquisition note. The Company prepaid the
remaining balance of the seven-year note in February 1994.
In September 1993, the holders of $774,375 of 10% Notes due 1997
exercised Warrants by tendering their Note, and the Company issued 154,875
shares of its common stock.
In 1993, the Company purchased real estate previously leased by issuing
debt of $450,000.
NOTE 13 -- SUBSEQUENT EVENTS
On November 1, 1995 the Company established a quarterly dividend of
$.05 per share on its common stock. The first dividend will be paid on December
31, 1995 to the shareholders of record on December 21, 1995.
The Company and Wedco Technology, Inc. ("Wedco") are negotiating the
acquisition of Wedco by the Company by means of a merger. No definitive
agreement has been reached and there can be no assurance that such transaction
will be consummated. Any merger, among other things, would be subject to the
approval of each company's shareholders and the satisfaction of certain
regulatory requirements.
F-17
48
ICO, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
BALANCE ADDITIONS BALANCE
AT BEGINNING CHARGED TO (1) AT END OF
OF YEAR EXPENSES DEDUCTIONS YEAR
------------ ---------- ---------- ---------
(IN THOUSANDS)
Year ended September 30, 1995:
Allowance for doubtful trade
receivables $ 576 $ 418 $ 166 $ 828
========== ========== ========== =========
Year ended September 30, 1994:
Allowance for doubtful trade
receivables $ 584 $ -- $ 8 $ 576
========== ========== ========== =========
Year ended September 30, 1993:
Allowance for doubtful trade
receivables $ 779 $ -- $ 195 $ 584
========== ========== ========== =========
(1) Uncollectible accounts written off, net of recoveries.
S-1
49
EXHIBIT INDEX
3(ii) Bylaws of Registrant, as amended
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule