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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-10068
ICO, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 76-0566682
---------------------------------------- ----------------------------------
(State of Incorporation) (IRS Employer Identification Number)
5333 Westheimer, Suite 600, Houston, Texas 77056
- ------------------------------------------ ---------------------------------
(Address of Principal Executive Offices) (Zip Code)
(713) 351-4100
------------------
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Common stock, without par value 24,892,951 shares
outstanding as of May 14, 2003
ICO, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2003 and September 30, 2002 . . 3
Consolidated Statement of Operations for the Three and Six Months
Ended March 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Comprehensive Income (Loss) for the Three
and Six Months Ended March 31, 2003 and 2002. . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 2003 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Quantitative and Qualitative Disclosures About Market Risks . . . . . . 16
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 18
-2-
ICO, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share data)
MARCH 31, SEPTEMBER 30,
2003 2002
----------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 2,718 $ 129,072
Trade accounts receivables (less allowance for doubtful accounts of $1,859
and $1,695, respectively) 44,764 39,498
Inventories (less inventory reserve of $581 and $502, respectively) 26,431 19,367
Prepaid expenses and other 8,959 11,603
Oilfield Services assets held for sale 4,154 2,783
---------- ---------
Total current assets 87,026 202,323
---------- ---------
Property, plant and equipment, net 65,781 62,607
Goodwill 7,974 36,669
Other 1,366 3,082
---------- ---------
Total assets $ 162,147 $ 304,681
========== =========
LIABILITIES, STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE LOSS
- --------------------------------------------------------------------------
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 8,259 $ 7,361
Accounts payable 25,040 19,062
Accrued interest 400 4,006
Accrued salaries and wages 2,730 2,319
Income taxes payable 1,606 8,247
Other accrued expenses 8,800 8,760
Oilfield Services liabilities held for sale and retained 2,646 6,629
---------- ---------
Total current liabilities 49,481 56,384
---------- ---------
Deferred income taxes 5,494 6,525
Long-term liabilities 1,549 1,406
Long-term debt, net of current portion 23,742 128,877
---------- ---------
Total liabilities 80,266 193,192
---------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, without par value - 345,000 shares authorized; 322,500
Shares issued and outstanding with a liquidation preference of $32,250 13 13
Undesignated preferred stock, without par value- 105,000 shares authorized;
0 shares issued and outstanding -- --
Junior participating preferred stock, without par value
50,000 shares authorized; 0 shares issued and outstanding -- --
Common stock, without par value 50,000,000 shares authorized;
24,886,076 and 24,450,345 shares issued and outstanding, respectively 43,253 42,674
Additional paid-in capital 103,248 103,157
Accumulated other comprehensive loss (6,510) (9,608)
Accumulated deficit (58,123) (24,747)
---------- ---------
Total stockholders' equity 81,881 111,489
---------- ---------
Total liabilities and stockholders' equity $ 162,147 $ 304,681
========== =========
The accompanying notes are an integral part of these financial statements.
-3-
ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands, except share data)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------- ------------ -------------
Revenues $ 53,504 $ 41,838 $ 98,752 $ 84,708
Cost and expenses:
Cost of sales and services 43,547 33,028 81,475 68,681
Selling, general and administrative expense 9,026 7,980 17,049 14,702
Stock option compensation expense 29 -- 92 --
Depreciation 2,237 2,042 4,321 4,057
Amortization 56 514 186 1,031
----------- ------------ ----------- ------------
Operating loss (1,391) (1,726) (4,371) (3,763)
Other income (expense):
Interest income 24 113 274 288
Interest expense (666) (3,392) (2,452) (6,808)
Other 1 475 520 964
----------- ------------ ----------- ------------
Loss from continuing operations before income taxes and
cumulative effect of change in accounting principle (2,032) (4,530) (6,029) (9,319)
Benefit for income taxes (349) (1,552) (1,512) (2,054)
----------- ------------ ----------- ------------
Loss from continuing operations before cumulative effect of change
in accounting principle (1,683) (2,978) (4,517) (7,265)
Income from discontinued operations, net of provision for income
taxes of $224, $1,111, $290 and $1,591, respectively 32 1,675 548 2,377
----------- ------------ ----------- ------------
Net loss before cumulative effect of change in accounting principle (1,651) (1,303) (3,969) (4,888)
Cumulative effect of change in accounting principle, net of benefit
for income taxes of $0, $0, $(580) and $0 respectively -- -- (28,863) --
----------- ------------ ----------- ------------
Net loss $ (1,651) $ (1,303) $ (32,832) $ (4,888)
----------- ------------ ----------- ------------
Preferred dividends -- (544) (544) (1,088)
----------- ------------ ----------- ------------
Net loss applicable to common stock $ (1,651) $ (1,847) $ (33,376) $ (5,976)
=========== ============ =========== ============
Basic and diluted income (loss) per share:
Loss from continuing operations before cumulative effect
of change in accounting principle $ (.07) $ (.15) $ (.20) $ (.35)
Income from discontinued operations -- .07 .02 .10
----------- ------------ ----------- ------------
Net loss before cumulative effect of change in accounting
Principle (.07) (.08) (.18) (.25)
Cumulative effect of change in accounting principle -- -- (1.17) --
----------- ------------ ----------- ------------
Basic and diluted net loss per common share $ (.07) $ (.08) $ (1.35) $ (.25)
=========== ============ =========== ============
Basic and diluted weighted average shares outstanding 24,809,000 23,712,000 24,739,000 23,586,000
The accompanying notes are an integral part of these financial statements.
-4-
ICO, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Unaudited and in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -------------------
2003 2002 2003 2002
-------- -------- --------- --------
Net loss $(1,651) $(1,303) $(32,832) $(4,888)
Other comprehensive income (loss)
Foreign currency translation adjustment 1,428 36 3,161 (740)
Unrealized loss on foreign currency hedges (45) (27) (63) (27)
------- ------- -------- -------
Comprehensive loss $ (268) $(1,294) $(29,734) $(5,655)
======= ======= ======== =======
The accompanying notes are an integral part of these financial statements.
-5-
ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)
SIX MONTHS ENDED
MARCH 31,
---------------------
2003 2002
---------- ---------
Cash flows from operating activities:
Net loss from continuing operations $ (33,380) $ (7,265)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization 4,507 5,088
Proxy contest expense -- 746
Gain on sale of fixed assets (61) (552)
Cumulative effect of change in accounting principle before tax 29,443 --
Stock option compensation expense 92 --
Gain on early retirement of debt (14) (489)
Matching contribution to employee savings plan 235 408
Unrealized gain on foreign currency (485) --
Changes in assets and liabilities, net of the effects of business acquisitions:
Receivables (2,609) 1,712
Inventories (5,218) 2,489
Prepaid expenses and other assets (650) (276)
Income taxes payable (6,682) 280
Deferred taxes (2,382) (2,026)
Accounts payable 4,951 (3,437)
Accrued interest (3,606) (65)
Accrued expenses 390 548
--------- --------
Total adjustments 17,911 4,426
--------- --------
Net cash used for operating activities for continuing operations (15,469) (2,839)
Net cash provided by (used for) operating activities for discontinued
Operations (998) 5,618
--------- --------
Net cash provided by (used for) operating activities (16,467) 2,779
--------- --------
Cash flows used for investing activities:
Capital expenditures (5,472) (4,412)
Proceeds from dispositions of property, plant and equipment 251 472
--------- --------
Net cash used for investing activities for continuing operations (5,221) (3,940)
Net cash used for investing activities for discontinued operations -- (5,416)
--------- --------
Net cash used for investing activities (5,221) (9,356)
--------- --------
Cash flows used for financing activities:
Payment of dividend on preferred stock (1,088) (1,088)
Proceeds from debt 361 --
Term debt repayments (103,735) (5,755)
Debt retirement costs (483) (50)
--------- --------
Net cash used for financing activities for continuing operations (104,945) (6,893)
Net cash used for financing activities for discontinued operations -- (293)
--------- --------
Net cash used for financing activities (104,945) (7,186)
--------- --------
Effect of exchange rates on cash 279 (100)
--------- --------
Net decrease in cash and equivalents (126,354) (13,863)
Cash and equivalents at beginning of period 129,072 31,642
--------- --------
Cash and equivalents at end of period $ 2,718 $ 17,779
========= ========
The accompanying notes are an integral part of these financial statements.
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and in thousands, except share and per share data)
NOTE 1. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements," and accordingly do not include all information and footnotes
required under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Annual Report on Form
10-K for the year ended September 30, 2002 for ICO, Inc. (the Company). In the
opinion of management, these interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of March 31, 2003, the
results of operations for the three and six months ended March 31, 2003 and 2002
and the changes in its cash position for the three and six months ended March
31, 2003 and 2002. Results of operations for the three and six month periods
ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2003. For additional information,
refer to the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended September 30, 2002.
NOTE 2. STOCK OPTION PLANS
Prior to fiscal year 2003, the Company accounted for its stock option plans
under recognition and measurement provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. Effective October
1, 2002, the Company adopted the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation ("SFAS 123") to all
employee awards granted, modified or settled after October 1, 2002. The Company
adopted the prospective method to implement SFAS 123 under the provisions of
FASB Statement No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure- an amendment of FASB Statement No. 123. Awards under the Company's
plans vest immediately or may vest over periods of up to five years. The
following table illustrates the effect on net income and earnings per share if
the fair value based method had been applied to all outstanding and unvested
awards in each period.
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net loss before cumulative effect of change in accounting
principle, as reported $(1,651) $(1,303) $(3,969) $(4,888)
Add: Stock-based employee compensation expense included in
reported net income 29 -- 92 --
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards (29) (346) (92) (346)
------- ------- ------- -------
Pro forma net loss $(1,651) $(1,649) $(3,969) $(5,234)
======= ======= ======= =======
Basic and diluted loss per share, as reported $ (.07) $ (.08) $ (1.35) $ (.25)
======= ======= ======= =======
Basic and diluted loss per share, pro forma $ (.07) $ (.09) $ (1.35) $ (.27)
======= ======= ======= =======
NOTE 3. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Effective October 1, 2002, the Company was required to adopt Financial
Accounting Standards No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets,
which established Standards for reporting acquired goodwill and other intangible
assets. This Statement accounts for goodwill based on the reporting units of the
combined entity into which an acquired entity is integrated. In accordance with
the statement, goodwill and indefinite lived intangible assets will not be
amortized, but will be tested for impairment at least annually at the reporting
unit level, and the amortization period of intangible assets with finite lives
will not be limited to forty years. Using the discounted cash
-7-
flow method under the requirements of SFAS 142, the Company recorded an
impairment of goodwill of $28,863, net of income tax benefit of $580 during the
three months ended December 31, 2002 as a result of the adoption of SFAS 142 on
October 1, 2002. The goodwill impaired was derived from business acquisitions
made before fiscal year 2001. This impairment charge is reflected in the
consolidated statement of operations as a cumulative effect of change in
accounting principle. The cessation of goodwill amortization under SFAS 142
will result in a reduction of approximately $1,140 in annual amortization
expense, assuming no additional impairment of goodwill. The following proforma
information adjusts the historical financial information to reflect the effect
of not amortizing goodwill in accordance with SFAS 142.
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------ ------------------
2003 2002 2003 2002
-------- -------- --------- --------
Reported net loss before cumulative effect of change in accounting principle $(1,651) $(1,303) $ (3,969) $(4,888)
Add back: goodwill amortization, net of income taxes of $0, $14, $0 and
$33, respectively -- 271 -- 536
------- ------- -------- -------
Adjusted net loss before cumulative effect of change in accounting principle (1,651) (1,032) (3,969) (4,352)
Cumulative effect of change in accounting principle -- -- (28,863) --
------- ------- -------- -------
Adjusted net loss $(1,651) $(1,032) $(32,832) $(4,352)
======= ======= ======== =======
Basic and diluted income (loss) per share:
Reported net loss before cumulative effect of change in accounting principle $ (.07) $ (.08) $ (.18) $ (.25)
Add back: goodwill amortization, net of income taxes of $0, $14, $0
and $33, respectively -- .01 -- .02
------- ------- -------- -------
Adjusted net loss before cumulative effect of change in accounting principle (.07) (.07) (.18) (.23)
Cumulative effect of change in accounting principle -- -- (1.17) --
------- ------- -------- -------
Adjusted net loss $ (.07) $ (.07) $ (1.35) $ (.23)
======= ======= ======== =======
NOTE 4. EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY
Earnings per share is based on earnings applicable to common shareholders
and is calculated using the weighted average number of common shares
outstanding. During the three and six months ended March 31, 2003 and March 31,
2002, the potentially dilutive effects of the Company's exchangeable preferred
stock (which would have an anti-dilutive effect) and common stock options and
warrants, with exercise prices exceeding fair market value of the underlying
common shares, have been excluded from diluted earnings per share. Additionally,
the potentially dilutive effects of common stock options have been excluded from
diluted earnings per share for those periods in which the Company generated a
net loss. The total number of anti-dilutive securities for both the three and
six months ended March 31, 2003 was 4,794,000 compared to 5,902,000 for the
three and six months ended March 31, 2002.
NOTE 5. INVENTORIES
Inventories consisted of the following:
MARCH 31, 2003 SEPTEMBER 30, 2002
-------------- ------------------
Finished goods $ 8,777 $ 7,547
Raw materials 15,965 10,664
Work in progress 289 201
Supplies 1,400 955
-------------- ------------------
Total inventory $ 26,431 $ 19,367
============== ==================
-8-
NOTE 6. INCOME TAXES
The Company's effective income tax rates were benefits of 17% and 25%
during the three and six months ended March 31, 2003, respectively, compared to
benefits of 34% and 22% for the three and six months ended March 31, 2002. The
decrease in the tax rate for the three months ended March 31, 2003 compared to
the same quarter of fiscal 2002 was due to not recognizing tax benefits of
fiscal 2003 losses generated by two of the Company's foreign operations. A tax
benefit for fiscal 2003 losses was not recognized because it is more likely than
not that the related deferred tax asset would not be realized. The Company's tax
rate increased during the six months ended March 31, 2003 due to the effects of
a valuation allowance of $754 placed against the benefit of U.S. net operating
losses expiring during the six months ended March 31, 2002. This was offset by
an effective tax rate decline in fiscal 2003 because the Company ceased
amortizing goodwill during fiscal year 2003 (as discussed in Note 2- "Cumulative
Effect of Change in Accounting Principle").
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company has letters of credit outstanding in the United States of
approximately $2,400 and $2,405 as of March 31, 2003 and September 30, 2002,
respectively and foreign letters of credit outstanding of $3,450 and $2,290 as
of March 31, 2003 and September 30, 2002, respectively.
Varco Indemnification Claims. Under the terms of the purchase agreement
relating to the sale of substantially all of the Company's Oilfield Services
business to Varco, the Company has agreed, subject to certain limitations, to
indemnify Varco for losses arising out of our breach of the representations and
warranties contained in the purchase agreement, and has placed $5,000 of the
sale proceeds in escrow through September 9, 2003 to be used to pay for our
indemnification obligations, should they arise. To date, Varco has submitted
demands for indemnification asserting aggregated losses in the range of $4,107
to $4,925. These indemnity demands relate to environmental claims arising out
of operations at two of the Company's former plants located in Houston, Texas,
and one plant located in Broussard, Louisiana. While we do not believe that
Varco has submitted any indemnifiable claims, we are investigating the substance
of the demands made by Varco. Because we cannot determine the validity of these
claims at this time, we have not reserved any amounts on our balance sheet in
contemplation of such liabilities. We can, however, give no assurance that the
Company will not be liable for these amounts or any additional amounts under the
indemnification provisions of the purchase agreement.
Other Legal Proceedings. The Company is also named as a defendant in
certain other lawsuits arising in the ordinary course of business. The outcome
of these lawsuits cannot be predicted with certainty. For a description of the
Company's legal proceedings, see Part I, Item 3 of the Company's Form 10-K filed
December 20, 2002.
NOTE 8. DISCONTINUED OPERATIONS
On September 6, 2002, ICO, Inc. (the "Company") completed the sale of
substantially all of its oilfield services business ("Oilfield Services") to
Varco International, Inc. ("Varco"). The initial purchase price was subject to a
post-closing working capital adjustment for which $2,000 of the sale proceeds
had been placed in escrow. The post-closing working capital adjustment was
settled on January 17, 2003 for $2,390. At September 30, 2002, the Company had
recorded a receivable of $1,808 which was the initial amount computed by Varco.
The additional $582 was recorded as additional gain on disposition of Oilfield
Services and recorded during the three months ended December 31, 2002.
Additionally, $5,000 of the sales proceeds were placed in escrow and will remain
in escrow for one year from the date of the sale. The escrowed funds will be
used to cover any indemnification claims by Varco against the Company. The
$5,000 is included in "prepaid expenses and other" on the consolidated balance
sheet (see Note 7- "Commitments and Contingencies"). In accordance with SFAS
144, the Oilfield Services results of operations are presented as discontinued
operations, net of income taxes in the consolidated statement of operations. In
addition, the Oilfield Services assets held for sale and liabilities held for
sale and retained are shown as two separate line items in the consolidated
balance sheet. The Company is currently actively marketing the remaining
Oilfield Services operation for sale.
-9-
Assets and liabilities (including those retained) of discontinued
operations are as follows:
MARCH 31, SEPTEMBER 30,
2003 2002
---------- -------------
ASSETS
- ------
Trade accounts receivables $ 1,697 $ 495
Inventories 392 435
Property, plant and equipment, net 407 407
Goodwill 1,446 1,446
Other 212 --
---------- -------------
Total Oilfield Services assets held for sale $ 4,154 $ 2,783
========== =============
LIABILITIES
- -----------
Accounts payable $ 216 $ 458
Accrued insurance 1,659 2,261
Litigation settlement 115 2,850
Other 656 1,060
---------- -------------
Total Oilfield Services liabilities held for sale and retained $ 2,646 $ 6,629
========== =============
Of the $2,646 and $6,629 Oilfield Services liabilities held for sale and
retained as of March 31, 2003 and September 30, 2002, respectively, $229 and
$222 relate to Oilfield Services liabilities held for sale. The remaining $2,417
and $6,407 as of March 31, 2003 and September 30, 2002, respectively, were
retained by the Company in connection with the sale of the Oilfield Services
business to Varco, less amounts paid since the date of the sale.
NOTE 9. LONG-TERM DEBT
During the the first quarter of fiscal year 2003, the Company repurchased
$104,480 principal amount of its 10 3/8% Senior Notes due 2007 at a weighted
average net discount of $976.78 per $1,000 principal amount plus accrued
interest in two separate transactions. The Company recorded a gain on these
purchases of approximately $14, net of transaction costs and write-off of debt
offering costs. The Company used the investment banking services of Jefferies
and Company to manage the repurchases. David E.K. Frischkorn, Jr., a member of
the Company's Board of Directors, was a Managing Director of Jefferies and
Company during the time of the Senior Notes repurchases. The Company paid
Jefferies and Company approximately $380 for their services.
During the first quarter of fiscal 2002, the Company repurchased $2,250
principal amount of its 10 3/8% Senior Notes due 2007, recognizing a net gain of
$489.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145"), Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13 and Technical Corrections. SFAS 145 rescinds SFAS 4,
Reporting Gains and Losses from Extinguishment of Debt. By rescinding FASB
Statement No. 4, gains or losses from extinguishment of debt that do not meet
the criteria of APB No. 30 should not be reported as an extraordinary item and
should be reclassified to income from continuing operations in all periods
presented. APB No. 30 states that extraordinary items are events and
transactions that are distinguished by their unusual nature and by the
infrequency of their occurrence. SFAS 145 became effective for the Company on
October 1, 2002, and the Company's early retirement of the Senior Notes is not
considered extraordinary under APB No. 30. Therefore, the Company has recorded
the gains of $14 and $489 as other income in the consolidated statement of
operations for the six months ended March 31, 2003 and 2002, respectively.
NOTE 10. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures include debt obligations
carrying variable interest rates, and forward purchase contracts intended to
hedge accounts payable obligations denominated in currencies other than a given
operation's functional currency. Forward currency contracts are used by the
Company as a method to
-10-
establish a fixed functional currency cost for certain raw material purchases
denominated in non-functional currency (typically the U.S. Dollar).
The following table summarizes the Company's market-sensitive financial
instruments. These transactions are considered non-trading activities.
ON-BALANCE SHEET FINANCIAL INSTRUMENTS
- -----------------------------------------
WEIGHTED
US$ EQUIVALENT AVERAGE INTEREST RATE
------------------------- -------------------------
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
CURRENCY DENOMINATION 2003 2002 2003 2002
- --------------------- --------- ------------- --------- --------------
British Pounds Sterling (1) $ 2,100 $ 2,815 5.75% 5.75%
U.S. Dollar (1) 1,550 -- 4.75% --
New Zealand Dollar (1) 782 521 7.23% 6.61%
Euro (1) 142 715 6.00% 5.73%
Swedish Krona (1) 692 446 5.45% 4.90%
Malaysian Ringett (1) 62 71 8.15% 8.75%
(1) Maturity dates are expected to be less than one year.
MARCH 31, 2003 SEPTEMBER 30, 2002
---------------------------- ----------------------------------
RECEIVE US$/PAY NZ$:
- --------------------
Contract Amount US $451 None
Average Contractual Exchange Rate (US$/NZ$) .5478
Expected Maturity Dates April 2003
RECEIVE US$/PAY AUSTRALIAN $:
- -----------------------------
Contract Amount US $2,456 US $770
Average Contractual Exchange Rate (US$/A$) .5904 (US$/A$) .5421
Expected Maturity Dates April 2003 through June 2003 October 2002 through November 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED AND IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INTRODUCTION
- ------------
The Company's revenues are primarily derived from (1) product sales and (2)
toll services in the polymers processing industry. Product sales involve the
Company purchasing resin which is further processed within the Company's
operating facilities. The further processing of the material may involve size
reduction services and/or compounding services. Compounding services include
the manufacture and sale of concentrates. After processing, the Company then
sells the finished products to customers. Toll services involve both size
reduction and compounding services whereby these services are performed using
customer owned material. Service revenues are recognized as the services are
performed and, in the case of product sales, revenues are recognized when the
title of the product passes to the customer, which is generally upon shipment to
third parties.
Cost of sales and services is primarily comprised of purchased raw
materials, compensation and benefits to non-administrative employees, occupancy
costs, repair and maintenance, electricity and equipment costs and supplies.
Selling, general and administrative expenses consist primarily of compensation
and related benefits to the sales and marketing, executive management,
information technology, accounting, legal, human resources and other
administrative employees of the Company, other sales and marketing expenses,
communications costs, systems costs, insurance costs and legal and accounting
professional fees.
-11-
Demand for the Company's products and services tends to be driven by
overall economic factors and, particularly, consumer spending. The trend of
applicable resin prices also impacts customer demand. As resin prices are
falling, customers tend to reduce their inventories and, therefore, reduce their
need for the Company's products and services. Conversely, as resin prices are
rising, customers often increase their inventories and accelerate their
purchases of products and services from the Company. Additionally, demand for
the Company's products and services tends to be seasonal, with customer demand
being weakest during the Company's first fiscal quarter due to the holiday
season and also due to property taxes levied in the U.S. on customers'
inventories on December 31. The Company's fourth fiscal quarter also tends to be
softer compared to the Company's second and third fiscal quarters, in terms of
customer demand, due to vacation periods in the Company's European markets.
CRITICAL ACCOUNTING POLICIES
- ------------------------------
The Company's consolidated financial statements are impacted by the
accounting policies used and the estimates and assumptions made by management
during their preparation. The following is a discussion of the Company's
critical accounting policies pertaining to use of estimates, revenue and related
cost recognition, impairment of long-lived assets and currency translation.
Use of Estimates- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if any, at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant areas requiring use
of estimates relate to post-retirement and other employee benefit liabilities,
valuation allowances for deferred tax assets, workers compensation, allowance
for doubtful accounts related to accounts receivable, and fair value of
financial instruments. Actual results could differ from these estimates.
Management believes that its estimates are reasonable.
Revenue and Related Cost Recognition- The Company recognizes revenue from
services upon completion of the services and related expenses are recognized as
incurred. For product and equipment sales, revenues and related expenses are
recognized when ownership is transferred, which generally occurs when the
products are shipped.
Impairment of Property and Equipment- Property and equipment are reviewed
for impairment whenever an event or change in circumstances indicates the
carrying amount of an asset or group of assets may not be recoverable. The
impairment review includes comparison of future cash flows expected to be
generated by the asset or group of assets with the associated assets' carrying
value. If the carrying value of the asset or group of assets exceeds the
expected future cash flows (undiscounted and without interest charges), an
impairment loss is recognized to the extent that the carrying amount of the
asset exceeds its fair value.
Impairment of Goodwill and Other Intangible Assets- Effective October 1,
2002, the Company was required to adopt Financial Accounting Standards No. 142
("SFAS 142"), Goodwill and Other Intangible Assets, which established Standards
for reporting acquired goodwill and other intangible assets. This Statement
accounts for goodwill based on the reporting units of the combined entity into
which an acquired entity is integrated. In accordance with the statement,
goodwill and indefinite lived intangible assets will not be amortized, but will
be tested for impairment at least annually at the reporting unit level, and the
amortization period of intangible assets with finite lives will not be limited
to forty years.
Currency Translation- Amounts in foreign currencies are translated into
U.S. dollars. When local functional currency is translated to U.S. dollars, the
effects are recorded as a separate component of Other Comprehensive Income.
Exchange gains and losses resulting from foreign currency transactions are
recognized in earnings.
The fluctuations of the U.S Dollar against the Euro, Swedish Krona, British
Pound, New Zealand Dollar, Brazilian Real and the Australian Dollar have
impacted the translation of revenues and expenses of the Company's international
operations. The table below summarizes the impact of changing exchange rates
for the above currencies for the three and six months ended March 31, 2003 and
2002.
-12-
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -----------------
2003 2002 2003 2002
-------- -------- -------- -------
Net revenues $ 4,120 $ (410) $ 7,510 $ (790)
Operating income (loss) 130 (20) 70 (10)
Pre-tax loss 80 (20) (30) (10)
Net loss -- (10) (1,880) --
Stock Options- Effective October 1, 2002, the Company adopted the fair
value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation ("SFAS 123") to all employee awards granted, modified
or settled after October 1, 2002. The Company adopted the prospective method to
implement SFAS 123 under the provisions of FASB Statement No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure- an amendment of FASB
Statement No. 123. Awards under the Company's plans vest over periods ranging
from immediate vesting to five years (see Note 2- "Stock Option Plans").
RESULTS OF OPERATIONS
- -----------------------
Three and Six Months Ended March 31, 2003 Compared to the Three and Six Months
Ended March 31, 2002
REVENUES. Revenues increased $11,666 or 28% and $14,044 or 17% during the
three and six months ended March 31, 2003, respectively, compared to the same
period of fiscal 2002. Product sales revenues increased $12,681 or 39% to
$45,243 for the three months ended March 31, 2003 and $15,319 or 23% to $82,513
for the six months ended March 31, 2003 compared to the same periods of fiscal
2002. The increase in product sales revenue was caused by an increase in
product sales volumes, and in particular, sales of the Company's powders for the
rotational molding industry, and stronger foreign currencies compared to the
U.S. Dollar (See Item 2. Management's discussion and analysis of financial
condition and results of operations- "Critical Accounting Policies"). Toll
service revenues declined $1,015 or 11% to $8,261 during the three months ended
March 31, 2003 and $1,275 or 7% to $16,239 during the six months ended March 31,
2003, compared to the same periods of fiscal 2002, respectively. The declines
were caused by lower processing volumes in the United States and Europe
resulting from reduced customer demand, offset by the impact of stronger foreign
currencies compared to the U.S. Dollar.
COSTS AND EXPENSES. Gross margins (calculated as the difference between
net revenues and cost of sales, divided by net revenues) declined to 18.6% and
17.5%, during the three and six months ended March 31, 2003, compared to 21.1%
and 18.9%, during the three and six months ended March 31, 2002, respectively.
Gross margins declined due to a change in revenue mix resulting from an increase
in product sales combined with a decline in toll processing volumes. Service
revenues generally provide higher profit margins because, unlike product sales,
the Company does not purchase raw materials for these transactions. The change
in revenue mix was particularly pronounced within the Company's European and
North American operations. Weak operating performance of the Company's Italian
and Swedish business units also contributed to the decline in gross margins.
Strong results generated by the Company's Asian operations partially offset the
adverse impact of the factors discussed above.
Selling, general and administrative expenses increased $1,046 or 13% during
the three months ended March 31, 2003 and $2,347 or 16% during the six months
ended March 31, 2003, compared to the same periods of fiscal 2002. As a
percentage of revenues, selling, general and administrative expenses were 16.9%
and 17.3%, during the three and six months ended March 31, 2003 compared to
19.1% and 17.4% for the three and six months ended March 31, 2002. The 2002
periods include $746 of proxy contest expenses related to the Company's payment
to TSP of 528,834 shares of common stock with a value of $746, representing
reimbursement of expenses incurred by TSP in connection with TSP's successful
proxy contest in 2001 regarding the election of James D. Calaway, A. John Knapp
and Charles T. McCord to the Board of Directors. The increase in sales, general
and administrative expenses was due to the strengthening of the Euro and other
foreign currencies relative to the U.S. Dollar, an increase in sales and
marketing expenses relating to the Company's effort to increase product sales
revenues, an increase in compensation expenses due to an increase in the number
of Corporate office employees and an increase in expenses incurred by the
Company's Brazilian operations which began production in September 2002.
-13-
Depreciation and amortization expenses decreased to $2,293 and $4,507
during the three and six months ended March 31, 2003 from $2,556 and $5,088
during the same period of fiscal 2002. These declines were primarily due to the
Company no longer amortizing goodwill as a result of the adoption of FAS 142
(See Note 3- "Cumulative Effect of Change in Accounting Principle").
OTHER INCOME (EXPENSE). Other income (expense) for the three and six
months ended March 31, 2003 was $(641) and $(1,658) compared to $(2,804) and
$(5,556) for the same periods in 2002. This decline in expense was due to a
reduction in net interest expenses of $2,637 or 80% during the three months
ended March 31, 2003 and $4,342 or 67% for the six months ended March 31, 2002.
The decline in interest expense was primarily due to the repurchase of $104,480
of Senior Notes during the first quarter of fiscal 2003.
INCOME TAXES. The Company's effective income tax rates were benefits of
17% and 25% during the three and six months ended March 31, 2003, respectively,
compared to benefits of 34% and 22% for the three and six months ended March 31,
2002. The decrease in the tax rate for the three months ended March 31, 2003
compared to the same quarter of fiscal 2002 was due to not recognizing tax
benefits of fiscal 2003 losses generated by two of the Company's foreign
operations. A tax benefit for fiscal 2003 losses was not recognized because it
is more likely than not that the related deferred tax asset would not be
realized. The Company's tax rate increased during the six months ended March 31,
2003 due to the effects of a valuation allowance of $754 placed against the
benefit of U.S. net operating losses expiring during the six months ended March
31, 2002. This was offset by an effective tax rate decline in fiscal 2003
because the Company ceased amortizing goodwill during fiscal year 2003 (as
discussed in Note 2- "Cumulative Effect of Change in Accounting Principle").
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. In accordance with SFAS 144,
the Oilfield Services results of operations are presented as discontinued
operations, net of income taxes in the consolidated statement of operations. In
addition, the Oilfield Services assets held for sale and liabilities held for
sale and retained are shown as two separate line items in the consolidated
balance sheet. Management is currently actively marketing the remaining Oilfield
Services operation for sale.
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -----------------
2003 2002 2003 2002
-------- -------- ------- --------
Revenues $ 1,473 $ 29,739 $ 2,943 $ 59,845
Operating income 260 2,790 260 4,037
Income from discontinued operations before gain on disposal, net
of income taxes 169 1,675 169 2,377
Gain on disposal of discontinued operations, net of income taxes of
$135, $0, $201 and $0 (137) -- 379 --
Income from discontinued operations before the gain on disposition, net of
income taxes, decreased due to the sale of substantially all of the Company's
Oilfield Services business. The gain on disposition of discontinued operations,
net of income taxes, is due to the finalization of the post-closing working
capital adjustment (See Note 8- "Discontinued Operations" for further discussion
of this gain).
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Effective October 1,
2002, the Company was required to adopt Financial Accounting Standards No. 142
("SFAS 142"), Goodwill and Other Intangible Assets, which established Standards
for reporting acquired goodwill and other intangible assets. This Statement
accounts for goodwill based on the reporting units of the combined entity into
which an acquired entity is integrated. In accordance with the statement,
goodwill and indefinite lived intangible assets will not be amortized, but will
be tested for impairment at least annually at the reporting unit level, and the
amortization period of intangible assets with finite lives will not be limited
to forty years. Using the discounted cash flow method under the requirements of
SFAS 142, the Company recorded an impairment of goodwill of $28,863, net of
income tax benefit of $580 during the three months ended December 31, 2002 as a
result of the adoption of SFAS 142 on October 1, 2002. The goodwill impaired
was derived from business acquisitions made before fiscal year 2001. This
impairment charge is reflected in the consolidated statement of operations as a
cumulative effect of change in accounting principle. The cessation of
-14-
goodwill amortization under SFAS 142 will result in a reduction of approximately
$1,140 in annual amortization expense, assuming no additional impairment of
goodwill.
NET LOSS. For the three and six months ended March 31, 2003, the Company
generated net losses of $(1,651) and $(32,832), compared to net losses of
$(1,303) and $(4,888) for the comparable period in fiscal 2002, due to the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES. The following are considered by
management as key measures of liquidity applicable to the Company:
MARCH 31, 2003 SEPTEMBER 30, 2002
-------------- ------------------
Cash and cash equivalents $ 2,718 $ 129,072
Working capital 37,545 145,939
Cash and cash equivalents declined $126,354 and working capital declined
$108,394 during the six months ended March 31, 2003 due to the factors described
below.
For the six months ended March 31, 2003, cash provided by (used for)
operating activities relating to continuing operations decreased to $(15,469)
compared to cash used for of $(2,839) during the six months ended March 31,
2002. The increase in cash used for operating activities occurred primarily due
to the tax payment made on the Company's fiscal year 2002 taxable income, an
increase in accounts receivable and inventory and payment of accrued interest
expense, offset by an increase in accounts payable.
Capital expenditures totaled $5,472 during the six months ended March 31,
2003. The Company anticipates that available cash and existing credit
facilities will be sufficient to fund remaining fiscal 2003 capital expenditure
requirements.
Cash used for financing activities was $104,945 during the six months ended
March 31, 2003 compared to cash used of $6,893 during the six months ended March
31, 2002. The change was primarily the result of increased debt repayments due
to the retirement of $104,480 of Senior Notes during the first quarter of fiscal
year 2003.
As of March 31, 2003 the Company had approximately $18,500 of additional
borrowing capacity available under various foreign and domestic credit
arrangements. In April 2002, the Company established a three-year domestic
credit facility secured by domestic receivables and inventory with a maximum
borrowing capacity of $15,000. The borrowing capacity varies based upon the
levels of domestic receivables and inventory. As of March 31, 2003, the Company
had approximately $11,600 of borrowing capacity under the domestic credit
facility.
The Company's foreign credit facilities are generally secured by assets
owned by foreign subsidiaries of the Company and also carry various financial
covenants. The Company's domestic credit facility is secured by domestic
receivables, inventory and certain domestic property, plant and equipment and
carries a variable interest rate. The variable interest rate is currently equal
to either one-quarter (1/4%) percent per annum in excess of the prime rate or
two and one-quarter (2 1/4%) percent per annum in excess of the adjusted euro
dollar rate and may be adjusted depending upon the Company's leverage ratio, as
defined, and excess credit availability under the credit facility. The Company's
domestic credit facility contains customary financial covenants which vary
depending upon excess availability, as defined in the credit facility agreement.
The Company's domestic credit facility contains a number of covenants
including, among others, limitations on the ability of the Company and its
restricted subsidiaries to (i) incur additional indebtedness, (ii) pay dividends
or redeem any capital stock, (iii) incur liens or other encumbrances on their
assets, (iv) enter into transactions with affiliates, (v) merge with or into any
other entity or (vi) sell any of their assets. In addition, any "change of
control" of the Company or its restricted subsidiaries will constitute a default
under the facility ("change of control" means (i) the sale, lease or other
disposition of all or substantially all of the assets of such entity, (ii) the
adoption of a plan relating to the liquidation or dissolution of such entity,
(iii) any person or group becoming beneficial owner of more than 50% of the
total voting power of the voting stock of such entity or (iv) until April 2004,
a majority of the members of the board of directors of any such entity no longer
being "continuing directors" where "continuing directors" means the
-15-
members of the board on the date of the credit facility and members that were
nominated for election or elected to the board with the affirmative vote of a
majority of the "continuing directors" who were members of the board at the time
of such nomination or election).
The Company anticipates that existing cash balances, together with the
borrowing capacity will provide adequate liquidity for fiscal 2003. There can,
however, be no assurance the Company will be successful in obtaining sources of
capital that will be sufficient to support the Company's capital requirements
during fiscal year 2004 and beyond.
In connection with the Company's October 2002 tender offer for the
Company's outstanding Senior Notes, the terms of the Senior Notes indenture were
amended significantly. The amended Senior Notes indenture contains a number of
covenants including: restrictions on the sale of assets of the Company in excess
of $150,000 and a change of control provision that requires the Company to
repurchase all of the Senior Notes at a repurchase price in cash equal to 101%
of the principal amount of the Senior Notes upon the occurrence of a change of
control. A "change of control" means (i) the sale, lease or other disposition
of all or substantially all of the assets of the Company and its restricted
subsidiaries, (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) any person or group becoming the beneficial
owner of more than 50% of the total voting power of the voting stock of the
Company or (iv) a majority of the members of the Board of Directors no longer
being "continuing directors" where "continuing directors" means the members of
the Board of Directors on the date of the indenture and members that were
nominated for election or elected to the Board of Directors with the affirmative
vote of a majority of the "continuing directors" who were members of the Board
at the time of such nomination or election. The interpretation of the phrase
"all or substantially all" as used in the Senior Notes indenture varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which governs the indenture) and
is subject to judicial interpretation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures include debt obligations
carrying variable interest rates, and forward purchase contracts intended to
hedge accounts payable obligations denominated in currencies other than a given
operation's functional currency. Forward currency contracts are used by the
Company as a method to establish a fixed functional currency cost for certain
raw material purchases denominated in non-functional currency (typically the
U.S. Dollar).
The following table summarizes the Company's market-sensitive financial
instruments. These transactions are considered non-trading activities.
ON-BALANCE SHEET FINANCIAL INSTRUMENTS
- -----------------------------------------
WEIGHTED
US$ EQUIVALENT AVERAGE INTEREST RATE
------------------------- -------------------------
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
CURRENCY DENOMINATION 2003 2002 2003 2002
- --------------------- --------- ------------- --------- --------------
British Pounds Sterling (1) $ 2,100 $ 2,815 5.75% 5.75%
U.S. Dollar (1) 1,550 -- 4.75% --
New Zealand Dollar (1) 782 521 7.23% 6.61%
Euro (1) 142 715 6.00% 5.73%
Swedish Krona (1) 692 446 5.45% 4.90%
Malaysian Ringett (1) 62 71 8.15% 8.75%
(1) Maturity dates are expected to be less than one year.
-16-
MARCH 31, 2003 SEPTEMBER 30, 2002
---------------------------- ----------------------------------
RECEIVE US$/PAY NZ$:
- --------------------
Contract Amount US $451 None
Average Contractual Exchange Rate (US$/NZ$) .5478
Expected Maturity Dates April 2003
RECEIVE US$/PAY AUSTRALIAN $:
- -----------------------------
Contract Amount US $2,456 US $770
Average Contractual Exchange Rate (US$/A$) .5904 (US$/A$) .5421
Expected Maturity Dates April 2003 through June 2003 October 2002 through November 2002
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Within 90 days before the
filing of this Report, the Company's principal executive officer and
principal financial officer evaluated the effectiveness of the Company's
disclosure controls and procedures. Based on the evaluation, the Company's
principal executive officer and principal financial officer believe that
the Company's disclosure controls and procedures were effective to ensure
that material information was accumulated and communicated to the Company's
management, including the Company's principal executive officer and
principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
(b) Changes in internal controls. There have been no significant changes in the
Company's internal controls or in other factors that could significantly
affect the Company's internal controls subsequent to the evaluation
referred to in the preceding paragraph (a) nor have there been any
corrective actions with regard to significant deficiencies or material
weaknesses.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of the Company's legal proceedings, see Note 7 to the
Consolidated Financial Statements included in Part I, Item 1, of this quarterly
report on Form 10-Q and Part I, Item 3 of the Company's Form 10-K filed December
20, 2002.
ITEM 5. OTHER INFORMATION
On March 26, 2003, the Compensation Committee of the Company's Board of
Directors notified Tim Gollin, Chief Executive Officer, and Chris O'Sullivan,
President and Chairman of the Company (the "Employees"), of the Committee's
intention to renegotiate the employment contracts between the Employees and the
Company, which, unless extended, expire on June 20, 2003. The Compensation
Committee indicated that it believed renegotiation of these agreements was
appropriate in light of the reduced size and profitability of the Company. In
connection with these renegotiations, the Compensation Committee elected not to
renew the existing employment agreements. Under the terms of each of the
existing agreements, if the agreement is not renewed as a consequence of a
termination notice from the Company to the Employee, then the Employee is
entitled to receive a severance payment of one years' base salary. At this time,
the Company anticipates that new employment agreements will be entered into with
each Employee, and that no terminations will occur.
-17-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Reference is hereby made to the exhibit index which appears
below.
The following instruments and documents are included as Exhibits to this
Form 10-Q. Exhibits incorporated by reference are so indicated by parenthetical
information.
EXHIBIT NO. EXHIBIT
- ----------- -------
99.1* - Certification of Chief Executive Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350
99.2* - Certification of Chief Financial Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350
*Filed herewith
(b) Reports on Form 8-K
On February 20, 2003, the Company filed a Current Report on Form 8-K to
report that the Dividend Committee of the Company's Board of Directors had
determined not to declare any dividend for the quarter ending March 31, 2003 on
its depositary shares, each such depositary share representing 1/4 of a share of
the Company's $6.75 convertible exchangeable preferred stock.
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ICO, Inc.
-----------------------------------------
(Registrant)
May 14, 2003
/s/ Jon C. Biro
-----------------------------------------
Jon C. Biro
Chief Financial Officer and Treasurer
/s/ Bradley T. Leuschner
-----------------------------------------
Bradley T. Leuschner
Chief Accounting Officer
-19-
CERTIFICATION
-------------
I, Timothy J. Gollin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICO, Inc. (the
"Company") for the period ending March 31, 2003;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Timothy J. Gollin
- -----------------------------
Name: Timothy J. Gollin
Chief Executive Officer
Date: May 14, 2003
-20-
CERTIFICATION
-------------
I, Jon C. Biro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICO, Inc. (the
"Company") for the period ending March 31, 2003;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Jon C. Biro
- -------------------------------------------
Name: Jon C. Biro
Chief Financial Officer and Treasurer
Date: May 14, 2003
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