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 JUNE 30, 2000
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number 0-10068
ICO, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 76-0566682
------------------------ ------------------------------------
(State of incorporation) (IRS Employer Identification Number)
11490 WESTHEIMER, SUITE 1000, HOUSTON, TEXAS 77077
-------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(281) 721-4200
------------------
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Common stock, without par value 22,406,506 shares
outstanding as of August 4, 2000
<PAGE>
ICO, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and
September 30, 1999.......................................... 3
Consolidated Statements of Operations for the Three and
Nine Months ended June 30, 2000 and 1999.................... 4
Consolidated Statements of Comprehensive Income for the
Three and Nine Months ended June 30, 2000 and 1999.......... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2000 and 1999................................ 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risks. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 20
Item 2. Changes in Securities (no response required).................. -
Item 3. Defaults upon Senior Securities (no response required)........ -
Item 4. Submission of Matters to a Vote of Security Holders
(no response required)........................................ -
Item 5. Other Information (no response required)...................... -
Item 6. Exhibits and Reports on Form 8-K.............................. 20
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<PAGE>
ICO, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ................................................................... $ 33,523 $ 37,439
Trade receivables (less allowance for doubtful accounts of $2,020
and $1,884, respectively) ........................................................... 61,341 53,421
Inventories ............................................................................ 29,188 26,592
Deferred tax asset ..................................................................... 3,199 3,062
Prepaid expenses and other ............................................................. 4,728 3,524
--------------- ---------------
Total current assets .............................................................. 131,979 124,038
--------------- ---------------
Property, plant and equipment, at cost ....................................................... 189,887 188,346
Less - accumulated depreciation and amortization ....................................... (81,980) (73,760)
--------------- ---------------
107,907 114,586
--------------- ---------------
Other assets:
Goodwill ............................................................................... 51,827 54,859
Deferred tax asset ..................................................................... 4,358 5,359
Debt offering costs .................................................................... 3,295 3,643
Other .................................................................................. 2,125 2,709
--------------- ---------------
Total Assets ........................................................................... $ 301,491 $ 305,194
=============== ===============
LIABILITIES, STOCKHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE LOSS
Current liabilities:
Short-term borrowings and current portion of long-term debt ............................ $ 10,984 $ 10,009
Accounts payable ....................................................................... 26,519 22,860
Accrued interest ....................................................................... 1,083 4,185
Accrued salaries and wages ............................................................. 2,697 3,818
Income taxes payable ................................................................... 2,156 574
Other accrued expenses ................................................................. 12,290 12,390
--------------- ---------------
Total current liabilities ......................................................... 55,729 53,836
Deferred income taxes ........................................................................ 6,116 7,085
Long-term liabilities ........................................................................ 1,306 1,671
Long-term debt, net of current portion ....................................................... 140,689 139,652
--------------- ---------------
Total liabilities ...................................................................... 203,840 202,244
--------------- ---------------
Commitments and contingencies ................................................................ -- --
Stockholders' equity:
Preferred stock, without par value - 500,000 shares authorized; 322,500
shares issued and outstanding with a liquidation
preference of $32,250 ............................................................. 13 13
Junior participating preferred stock, without par value -
50,000 shares authorized; 0 shares issued and outstanding ......................... -- --
Common stock, without par value - 50,000,000 shares authorized;
22,406,506 shares issued and outstanding .......................................... 39,696 39,693
Additional paid-in capital ............................................................. 105,333 105,333
Accumulated other comprehensive loss ................................................... (9,934) (4,684)
Accumulated deficit .................................................................... (37,457) (37,405)
--------------- ---------------
Total stockholders' equity ............................................................. 97,651 102,950
--------------- ---------------
Total liabilities and stockholders' equity ............................................. $ 301,491 $ 305,194
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Petrochemical processing sales and services ............... $ 58,128 $ 47,627 $ 164,933 $ 138,092
Oilfield sales and services ............................... 27,225 17,868 76,061 53,740
------------ ------------ ------------ ------------
Total net revenues ............................................. 85,353 65,495 240,994 191,832
------------ ------------ ------------ ------------
Cost and expenses:
Cost of sales and services ................................ 66,198 49,103 184,872 148,529
Selling, general and administrative ....................... 10,092 10,082 30,905 33,017
Depreciation .............................................. 3,502 3,534 10,468 10,799
Amortization of intangibles ............................... 600 663 1,903 2,088
Impairment of long-lived assets ........................... -- -- -- 9,291
Write-down of fixed assets ................................ -- 425 -- 3,273
Severance expenses ........................................ -- 1,500 -- 2,499
Write-off of start-up costs ............................... -- -- -- 867
------------ ------------ ------------ ------------
80,392 65,307 228,148 210,363
------------ ------------ ------------ ------------
Operating income (loss) ........................................ 4,961 188 12,846 (18,531)
------------ ------------ ------------ ------------
Other income (expense):
Currency exchange loss .................................... -- (431) -- (431)
Interest income ........................................... 559 382 1,664 1,528
Interest expense .......................................... (3,632) (3,388) (10,746) (10,301)
------------ ------------ ------------ ------------
(3,073) (3,437) (9,082) (9,204)
------------ ------------ ------------ ------------
Income (loss) before taxes and extraordinary item .............. 1,888 (3,249) 3,764 (27,735)
Provision (benefit) for income taxes ........................... 894 (942) 2,184 (7,158)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ........................ $ 994 $ (2,307) $ 1,580 $ (20,577)
------------ ------------ ------------ ------------
Extraordinary gain ............................................. -- -- -- 399
------------ ------------ ------------ ------------
Net income (loss) .............................................. 994 (2,307) 1,580 (20,178)
------------ ------------ ------------ ------------
Preferred dividends ............................................ (544) (544) (1,632) (1,632)
------------ ------------ ------------ ------------
Net income (loss) applicable to common stock ................... $ 450 $ (2,851) $ (52) $ (21,810)
============ ============ ============ ============
Basic and diluted earnings (loss) per share before
extraordinary item ........................................ $ .02 $ (.13) $ .00 $ (1.01)
Extraordinary item ............................................. -- -- -- .02
------------ ------------ ------------ ------------
Basic and diluted earnings (loss) per share (see Note 3) ....... $ .02 $ (.13) $ .00 $ (.99)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ICO, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited and in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Income (loss) ..................................... $ 994 $ (2,307) $ 1,580 $ (20,178)
Other comprehensive loss
Foreign currency translation adjustment ......... (1,480) (1,471) (5,250) (4,348)
--------------- --------------- --------------- ---------------
Comprehensive income (loss) ........................... $ (486) $ (3,778) $ (3,670) $ (24,526)
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................................... $ 1,580 $ (20,178)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................................................... 12,371 12,887
Write-off of start-up costs ............................................................ -- 867
Impairment of long-term assets ......................................................... -- 9,291
Write-down fixed assets ................................................................ -- 3,273
Loss on currency exchange .............................................................. -- 431
Changes in assets and liabilities, net of the effects of
business acquisitions:
Receivables .................................................................. (11,228) 6,299
Inventories .................................................................. (4,160) 3,512
Prepaid expenses and other assets ............................................ (1,191) (15)
Income taxes payable ......................................................... 1,567 1,079
Deferred taxes ............................................................... 465 (8,408)
Accounts payable ............................................................. 5,850 (3,429)
Accrued interest ............................................................. (3,102) (3,155)
Accrued expenses ............................................................. (877) 3,102
--------------- ---------------
Total adjustments ............................................................ (305) 25,734
--------------- ---------------
Net cash provided by operating activities ......................................... 1,275 5,556
--------------- ---------------
Cash flows used for investing activities:
Capital expenditures ................................................................... (8,552) (12,329)
Acquisitions, net of cash acquired ..................................................... -- (7,603)
Dispositions of property, plant and equipment .......................................... 462 (15)
--------------- ---------------
Net cash used for investing activities ............................................ (8,090) (19,947)
--------------- ---------------
Cash flows provided by (used for) financing activities:
Net proceeds from sale of stock ........................................................ -- 12
Payment of dividend on preferred stock ................................................. (1,632) (1,632)
Payment of dividend on common stock .................................................... -- (1,216)
Additional debt ........................................................................ 6,967 598
Reductions of debt ..................................................................... (2,173) (6,520)
--------------- ---------------
Net cash provided by (used for) financing activities .............................. 3,162 (8,758)
--------------- ---------------
Effect of exchange rates on cash ............................................................. (263) (191)
--------------- ---------------
Net decrease in cash and equivalents ......................................................... (3,916) (23,340)
Cash and equivalents at beginning of period .................................................. 37,439 51,135
--------------- ---------------
Cash and equivalents at end of period ........................................................ $ 33,523 $ 27,795
=============== ===============
Supplemental disclosures of cash flow information:
Cash received (paid) during the period for:
Interest received ................................................................. $ 1,664 $ 1,529
Interest paid ..................................................................... (13,807) (13,497)
Income taxes paid ................................................................. (405) (727)
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements," and accordingly do not include all information and footnotes
required under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Annual Report on Form
10-K for the year ended September 30, 1999 for ICO, Inc. (the "Company"). In the
opinion of management, these interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of June 30, 2000, the
results of operations for the three and nine months ended June 30, 2000 and 1999
and the changes in its cash position for the nine months ended June 30, 2000 and
1999. Results of operations for the three and nine month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending September 30, 2000. For additional information, refer to the
consolidated financial statements and footnotes included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1999.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which requires that companies recognize all derivative instruments as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. Due to the Company's limited use of derivative instruments, the impact of
adopting SFAS No. 133 is not expected to be material to the Company's financial
statements. During July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133," which deferred the implementation of SFAS 133 until the
first quarter of the fiscal year ending September 30, 2001.
Certain reclassifications have been made to prior year amounts in order to
conform to current year classifications.
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<PAGE>
NOTE 3. EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY
Earnings per share is based on earnings applicable to common shareholders
and is calculated using the weighted average number of common shares outstanding
and in accordance with SFAS 128, "Earnings per Share". During the three and nine
months ended June 30, 2000 and June 30, 1999, the potentially dilutive effects
of the Company's exchangeable preferred stock (would have an anti-dilutive
effect) and common stock options, with exercise prices exceeding fair market
value of the underlying common shares, have been excluded from diluted earnings
per share. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------------------
2000 1999
------------------------------------------ -------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) ................... $ 994 $ (2,307)
Less: Preferred stock dividends ..... 544 544
------------ ------------
BASIC EPS ........................... $ 450 22,406,506 $ .02 $ (2,851) 22,113,707 $ (.13)
EFFECT OF DILUTIVE SECURITIES
Options .......................... -- 52,034 -- --
------------ ------------ ------------ ------------
DILUTED EPS ......................... $ 450 22,458,540 $ .02 $ (2,851) 22,113,707 $ (.13)
============ ============ ============ ============ ============ ============
<CAPTION>
NINE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------------
2000 1999
------------------------------------------- -------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) ................... $ 1,580 $ (20,178)
Less: Preferred stock dividends ..... 1,632 1,632
------------ ------------
BASIC EPS ........................... $ (52) 22,406,506 -- $ (21,810) 22,111,715 $ (.99)
EFFECT OF DILUTIVE SECURITIES
Options .......................... -- -- -- --
------------ ------------ ------------ ------------
DILUTED EPS ......................... $ (52) 22,406,506 -- $ (21,810) 22,111,715 $ (.99)
============ ============ ============ ============ ============ ============
</TABLE>
NOTE 4. INVENTORIES
Inventories consisted of the following:
JUNE 30, 2000 SEPTEMBER 30, 1999
-------------------- --------------------
(IN THOUSANDS)
Raw Materials .................. $ 13,941 $ 11,353
Finished Goods ................. 10,495 10,947
Supplies ....................... 3,366 3,359
Work in Progress ............... 1,386 933
-------------------- --------------------
$ 29,188 $ 26,592
==================== ====================
-8-
<PAGE>
NOTE 5. SEGMENT AND FOREIGN OPERATIONS INFORMATION
The Company's two reportable business segments are Petrochemical
Processing Services and Oilfield Services.
The Petrochemical Processing business segment provides size reduction,
compounding, concentrates manufacturing, distribution and related services. The
primary customers of the Petrochemical Processing segment include large
producers of petrochemicals, end users such as rotational molders and producers
of bags made of polyethylene, and polymer distributors.
The Oilfield Service business segment provides oilfield tubular and sucker
rod inspection, reconditioning and coating services and also sells equipment to
customers. This segment's customers includes leading integrated oil companies,
large independent oil and gas exploration and production companies, drilling
contractors, steel producers and processors and oilfield supply companies.
Summarized financial information of the Company's reportable segments for
the three and nine months ended June 30, 2000 and 1999 is shown in the following
table.
<TABLE>
<CAPTION>
PETROCHEMICAL OTHER
PROCESSING OILFIELD RECONCILING
SERVICES SERVICES ITEMS** TOTAL
--------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 2000
Revenues ............................................... $ 58,128 $ 27,225 $ -- $ 85,353
Operating Income (Loss) ................................ 3,715 3,390 (2,144) 4,961
Depreciation ........................................... 2,031 1,337 134 3,502
Amortization of intangibles ............................ 422 64 114 600
THREE MONTHS ENDED
JUNE 30, 1999
Revenues ............................................... 47,627 17,868 -- 65,495
Operating Income (Loss) ................................ 2,772 278 (2,862) 188
Depreciation ........................................... 2,067 1,351 116 3,534
Amortization of intangibles ............................ 469 67 127 663
NINE MONTHS ENDED
JUNE 30, 2000
Revenues ............................................... 164,933 76,061 -- 240,994
Operating Income (Loss) ................................ 11,401 8,538 (7,093) 12,846
Depreciation ........................................... 6,170 3,948 350 10,468
Amortization of intangibles ............................ 1,338 193 372 1,903
NINE MONTHS ENDED
JUNE 30, 1999
Revenues ............................................... 138,092 53,740 -- 191,832
Operating Income (Loss) ................................ (6,171) (2,334) (10,026) (18,531)
Depreciation ........................................... 6,535 3,884 380 10,799
Amortization of intangibles ............................ 1,539 165 384 2,088
</TABLE>
* Consists primarily of corporate overhead expenses.
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<PAGE>
<TABLE>
<CAPTION>
PETROCHEMICAL OTHER
PROCESSING OILFIELD RECONCILING
SERVICES SERVICES ITEMS* TOTAL
--------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AS OF JUNE 30, 2000
Total Assets $ 180,210 $ 76,643 $ 44,638 $ 301,491
</TABLE>
**Consists of unallocated corporate assets including: cash, deferred tax
assets, unamortized bond offering expenses, and corporate furniture and
equipment.
A reconciliation of total segment operating income to consolidated income
before taxes and extraordinary item is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total operating income for reportable segments ....... $ 4,961 $ 188 $ 12,846 $ (18,531)
Currency exchange loss ............................... -- (431) -- (431)
Interest income ...................................... 559 382 1,664 1,528
Interest expense ..................................... (3,632) (3,388) (10,746) (10,301)
--------------- --------------- --------------- ---------------
Consolidated income (loss) before income taxes
and extraordinary item ............................ $ 1,888 $ (3,249) $ 3,764 $ (27,735)
=============== =============== =============== ===============
</TABLE>
NOTE 6. LEGAL PROCEEDINGS
The Company is a named defendant in four cases involving four plaintiffs,
for personal injury claims alleging exposure to silica resulting in
silicosis-related disease. (The cases, all of which are pending in Texas state
courts, were initiated on May 13, 1991; November 21, 1991; August 25, 1992; and
January 4, 2000). For the most part, the Company is generally protected under
worker's compensation law from claims under these suits except to the extent a
judgment is awarded against the Company for intentional tort. The standard of
liability applicable to all of the Company's pending personal injury cases
alleging exposure to silica is intentional tort, a stricter standard than the
gross negligence standard applicable to wrongful death cases. Through July 25,
2000, one suit against the Company involved negligence claims that, in theory,
could have circumvented the Company's immunity protections under the workers'
compensation law, although even if such circumvention had occurred, the Company
believed that this litigation, referred to as the Roark litigation, would not
have had a material adverse effect on the financial condition, results of
operations and/or cash flow of the Company. As described in more detail below,
the Roark litigation named the Company and Baker Hughes, Inc. ("Baker Hughes"),
among others, as defendants and fell within the provisions of an agreement
between the Company and Baker Hughes that limited the Company's obligations in
the litigation. On July 25, 2000, the Company, Baker Hughes and the plaintiff in
the Roark litigation entered into a settlement that brought an end to the Roark
litigation. The terms of the settlement will not have a material adverse effect
on the Company's financial condition.
The Company currently has one pending silicosis-related suit in which
wrongful death is alleged. This case was filed in a Texas state court on April
4, 2000. In fiscal 1993, the Company settled two other silicosis-related suits,
both of which alleged wrongful death caused by silicosis-related diseases, which
resulted in a total charge of $605,000. In 1994, the Company was dismissed
without liability from two suits alleging intentional tort against the Company
for silicosis-related disease. In 1996, the Company obtained a non-suit in two
other intentional tort cases and in early 1997 was non-suited in an additional
tort case. During the second quarter of fiscal 1998, three cases involving
alleged silicosis-related deaths were settled. The Company was fully insured for
all three cases and, as a result, did not incur any settlement costs. During the
second quarter of fiscal 1998, the Company was non-
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<PAGE>
suited in one intentional tort case, and during the fourth quarter of fiscal
1998, the Company was non-suited in two additional tort cases. During the second
quarter of fiscal 1999, the Company was non-suited in one intentional tort case,
and during the fourth quarter of fiscal 1999, the Company was non-suited in an
additional intentional tort case. During the first quarter of fiscal 2000, the
Company was non-suited in two additional intentional tort cases. The Company and
its counsel cannot at this time predict with any reasonable certainty the
outcome of any of the remaining suits or whether or in what circumstances
additional suits may be filed. Except as described below, the Company does not
believe, however, that such suits will have a material adverse effect on its
financial condition, results of operations or cash flows. The Company has in
effect, in some instances, general liability and employer's liability insurance
policies applicable to the referenced suits; however, the extent and amount of
coverage is limited and the Company has been advised by certain insurance
carriers of a reservation of rights with regard to policy obligations pertaining
to the suits because of various exclusions in the policies. If an adverse
judgment is obtained against the Company in any of the referenced suits which is
ultimately determined not to be covered by insurance, the amount of such
judgment could have a material adverse effect on the financial condition,
results of operations and/or cash flows of the Company.
The Company's agreement with Baker Hughes, pursuant to which Baker Hughes
Tubular Services ("BHTS") was acquired by the Company, provides that Baker
Hughes will reimburse the Company for 50% of the BHTS environmental remediation
costs in excess of $318,000, with Baker Hughes' total reimbursement obligation
being limited to $2,000,000 (current BHTS obligation is $1,650,000). BHTS is a
responsible party at two hazardous waste disposal sites that are currently
undergoing remediation pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"). Under CERCLA, persons who were
responsible for generating the hazardous waste disposed of at a site where
hazardous substances are being released into the environment are jointly and
severally liable for the costs of cleaning up environmental contamination, and
it is not uncommon for neighboring landowners and other third parties to file
claims for personal injuries and property damage allegedly caused by hazardous
substances released into the environment. The two sites where BHTS is a
responsible party are the French Limited site northeast of Houston, Texas, and
the Sheridan site near Hempstead, Texas. Remediation of the French Limited site
has been completed, with only natural attenuation of contaminants in groundwater
occurring at this time. Remediation has not yet commenced at the Sheridan site.
Current plans for cleanup of this site, as set forth in the federal RECORD OF
DECISION, call for on-site bioremediation of the soils in tanks and natural
attenuation of contaminants in the groundwater. However, treatability studies to
evaluate possible new remedies for the soils, such as in-place bioremediation,
are being conducted as part of a Remedial Technology Review Program. Based on
the completed status of the remediation at the French Limited site and BHTS's
minimal contribution of wastes at both of the sites, the Company believes that
its future liability under the agreement with Baker Hughes with respect to these
two sites will not be material.
During December 1996, an agreement was signed by the Company and Baker
Hughes to settle the litigation of a dispute concerning the assumption of
certain liabilities in connection with the acquisition of BHTS in 1992. The
agreement stipulates that with regard to future occupational health claims, the
parties shall share costs equally with the Company's obligations being limited
to $500,000 for each claim and a maximum contingent liability of $5,000,000
($4,500,000 net of payments the Company has made to date pursuant to the terms
of the agreement) in the aggregate, for all claims. This agreement governed the
Company's liability with respect to the Roark litigation, which involved
occupational health claims arising out of Roark's employment at BHTS.
On November 21, 1997, in an action initiated by the Company in October
1994, a Texas state court jury awarded the Company approximately $13,000,000 in
the trial of its case against John Wood Group PLC relating to the 1994 contract
for the purchase of the operating assets of NDT Systems, Inc. and certain
related entities. The trial court subsequently entered a judgment for
$15,750,000 in the Company's favor, which includes pre-judgment interest on the
jury award. The Wood Group appealed the judgment. On March 9, 2000, the Court of
Appeals for the First District of Texas reversed the judgment entered by the
trial court and, as to all but one of ICO's claims, ordered that ICO have no
recovery. As to that remaining breach of contract claim seeking recovery of a
contract payment of $500,000, the Court of Appeals remanded the cause to the
trial court for further proceedings. On April 7, 2000, ICO filed with the Court
of Appeals its motion for rehearing and rehearing en
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<PAGE>
banc. That motion is still pending. Depending upon the Court of Appeals ruling
on that motion for rehearing, ICO may seek further review in the Texas Supreme
Court.
ICO Tubular Services, Inc., a now-defunct subsidiary of the Company, has
been named as a Respondent in an arbitration claim made on August 7, 1998, by
Oil Country Tubular Limited ("OCTL"), a company based in India. OCTL alleges
that its claim, which it has brought in the Court of Arbitration of the
International Chamber of Commerce, arises in connection with a Foreign
Collaboration Agreement ("FCA") entered into between it and Baker Hughes Tubular
Services, Inc.("BHTS"), a corporation whose name was changed to ICO Tubular
Services, Inc. after acquisition by the Company in 1992. OCTL claims that under
the FCA, BHTS agreed to provide certain services and/or technical assistance in
return for total payments of $2.4 million. OCTL claims, among other items, that
it did not receive its bargained-for technical assistance, spare parts, and
certain raw materials necessary for its oilfield tubular services plant in
India. OCTL seeks damages in excess of $96,000,000, calculated in part based on
lost profit projections over a number of years and in part on punitive damages.
The Company believes this damage claim is exaggerated. The Company had only
peripheral knowledge of the dispute between OCTL and Baker Hughes, Inc. ("Baker
Hughes") prior to the filing of OCTL's claim. The arbitration proceeding is at
an early stage. The Company and Baker Hughes objected to the arbitration
tribunal's jurisdiction over them. On March 15, 2000, the arbitration tribunal
entered an order overruling the Company's objection, but sustaining Baker
Hughes' objection. While the outcome of this arbitration matter cannot be
predicted, the Company plans to contest the claims vigorously.
The Company is also named as a defendant in certain other lawsuits arising
in the ordinary course of business. While the outcome of these lawsuits cannot
be predicted with certainty, ICO does not expect these matters to have a
material adverse effect on its financial condition.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in all parts of this document, including, but
not limited to, timing of new services or facilities, ability to compete,
effects of compliance with laws, effects of the Euro, matters relating to
operating facilities, effect and cost of litigation and remediation, future
liquidity, future capital expenditures, future acquisitions, future market
conditions, reductions in expenses, derivative transactions, effects of the Year
2000 issue, marketing plans, demand for the Company's products and services,
future growth plans, financial results and any other statements which are not
historical facts are forward-looking statements within the meaning of section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 that involve substantial risks and uncertainties. When words such as
"anticipate", "believe", "estimate", "intend", "expect", "plan" and similar
expressions are used, they are intended to identify the statements as
forward-looking. Actual results, performance or achievements can differ
materially from results suggested by these forward-looking statements due to a
number of factors, including those described in the Company's annual report Form
10-K for the fiscal year ended September 30, 1999.
INTRODUCTION
The Company's revenue is classified into two operating segments:
petrochemical processing and oilfield services. Petrochemical processing
revenues are derived from (1) distributing plastic powders, (2) grinding
petrochemicals into powders (size reduction) using a variety of methods,
including ambient grinding, cryogenic grinding and jet milling, providing
ancillary services and selling grinding equipment manufactured by the Company,
and (3) compounding sales and services, which include the manufacture and sale
of concentrates. The Company's distribution operations typically utilize the
Company's size reduction and compounding facilities to process petrochemical
products prior to sale. Oilfield services revenues include revenues derived from
(1) exploration sales and services (new tubular goods inspection), (2)
production sales and services (reclamation, reconditioning and inspection of
used tubular goods and sucker rods), (3) corrosion control services (coating of
tubular goods and sucker rods), and (4) other sales and services (transportation
services and oilfield engine sales and services in Canada). Service revenues in
both of the Company's business segments are recognized as the services are
performed or, in the case of product sales, revenues are generally recognized
upon shipment to third parties.
Cost of sales and services for the petrochemical processing and oilfield
services segments is primarily comprised of compensation and benefits to
non-administrative employees, occupancy costs, repair and maintenance,
electricity and equipment costs and supplies, and, in the case of concentrate
manufacturing operations and the Company's distribution business, purchased raw
materials. Selling, general and administrative expenses consist primarily of
compensation and related benefits to the sales and marketing, executive
management, management information system support, accounting, legal, human
resources and other administrative employees of the Company, other sales and
marketing expenses, communications costs, systems costs, insurance costs and
legal and accounting professional fees.
Gross profits as a percentage of revenue for the distribution and
concentrate manufacturing businesses generally are significantly lower than
those generated by the Company's size reduction services. Several of the
Company's petrochemical processing subsidiaries, including the Company's
concentrate manufacturing and distribution operations, typically buy raw
materials, improve the material and then sell the finished product. In contrast,
many of the Company's size reduction operations, particularly the U.S.
locations, typically involve processing customer-owned material (referred to as
toll processing).
The demand for the Company's oilfield products and services depends upon
oil and natural gas prices and the level of oil and natural gas production and
exploration activity. In addition to changes in commodity prices, exploration
and production activities are affected by worldwide economic conditions, supply
and demand for oil and natural gas, seasonal trends and the political stability
of oil-producing countries. The oil and gas industry has
-13-
<PAGE>
been highly volatile over the past several years, due primarily to the
volatility of oil and natural gas prices. During fiscal 1996 and 1997, the oil
and gas service industry generally experienced increased demand and improved
product and service pricing as a result of improved commodity prices and greater
levels of oil and gas exploration and production activity, due largely to a
strong world economy. In fiscal 1998, however, oil prices declined significantly
versus fiscal 1997 levels. While gas prices also declined during this period,
they declined to a lesser extent. These trends were attributed to, among other
factors, an excess worldwide oil supply, lower domestic energy demand resulting
from an unseasonably warm winter and a decline in demand due to the economic
downturn in Southeast Asia. As oil and, to a lesser extent, natural gas prices
declined during this period, demand for oilfield products and services,
including those provided by the Company, softened.
Oil and gas prices continued to fall sharply in the first half of fiscal
1999, with oil prices (as measured by the spot market price for West Texas
Intermediate Crude) reaching a low of less than $11.00 per barrel and natural
gas prices (as measured by the spot market price at the Henry Hub) reaching a
low of $1.65 per mcf during the first quarter of fiscal 1999. This 25-year low,
in real dollar terms, resulted in extremely depressed levels of oilfield
exploration and production activity with the U.S. drilling rig count falling to
an average of only 521 rigs during the third quarter of fiscal 1999. The
Company's oilfield service revenues and income were adversely impacted by these
factors. During the nine months ended June 30, 2000, the price of oil rose to an
average of $27 per barrel and natural gas prices rose to an average of $2.86 per
mcf. These trends have resulted in a strong recovery in demand for oilfield
services generally, including those provided by the Company, with the U.S. rig
count rising to an average of 854 during the third quarter of fiscal 2000. The
Company is optimistic that, if oil and gas prices remain at or near their
present levels, market conditions will continue to improve for all of the
Company's oilfield services.
LIQUIDITY AND CAPITAL RESOURCES
The following are considered by management as key measures of liquidity
applicable to the Company:
JUNE 30, 2000 SEPTEMBER 30, 1999
------------- ------------------
Cash and cash equivalents... $33,523,000 $ 37,439,000
Working capital............. 76,250,000 70,202,000
Current ratio............... 2.4 2.3
Debt-to-capitalization...... .61 to 1 .59 to 1
Cash and cash equivalents decreased $3,916,000 during the nine months
ended June 30, 2000 due to the factors described below. The Company's net
working capital increased during the nine months ended June 30, 2000 from
$70,202,000 at September 30, 1999 to $76,250,000 at June 30, 2000 as a result of
the factors described below.
For the nine months ended June 30, 2000, cash provided by operating
activities decreased to $1,275,000 from $5,556,000 for the nine months ended
June 30, 1999. The decrease occurred despite higher net income due to the
various changes in working capital accounts (particularly changes of accounts
receivable, inventory, accounts payable, accrued interest, and accrued
liabilities).
Capital expenditures totaled $8,552,000 during the nine months ended June
30, 2000, of which $1,951,000 related to the oilfield services business, and the
remaining $6,601,000 related to the petrochemical processing business. These
expenditures were made primarily to expand the Company's operating capacity. The
Company anticipates that available cash and/or existing credit facilities will
be sufficient to fund remaining fiscal 2000 capital expenditure requirements.
Cash flows used for financing activities increased to cash provided of
$3,162,000 during the nine months ended June 30, 2000 from uses of $(8,758,000)
during the first nine months of fiscal 1999. The increase was the
-14-
<PAGE>
result of lower debt repayments, increased borrowings, and lower common stock
dividends ($0 common stock dividends during fiscal 2000 compared to $1,216,000
in fiscal 1999) during the first nine months of fiscal 2000, compared to the
comparable 1999 period.
As of June 30, 2000, the Company had approximately $7,300,000 of
additional borrowing capacity available under various foreign credit
arrangements. Currently, the Company does not have a domestic credit facility.
The Company anticipates that existing cash balances and the additional borrowing
capacity provided by the foreign credit facilities will be an adequate source of
liquidity for the remainder of fiscal 2000.
The terms of the Company's Senior Notes limit the amount of liens and
additional indebtedness incurred by the Company. The Company's foreign
facilities are generally secured by assets owned by subsidiaries of the Company
and also carry various financial covenants.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------------------
% OF % OF % OF % OF
NET REVENUES (000'S) 2000 TOTAL 1999 TOTAL 2000 TOTAL 1999 TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution ........................... $ 24,221 42% $ 20,471 43% $ 69,110 42% $ 61,828 45%
Size Reduction Services and
Other Sales and Services ............ 12,273 21% 11,904 25% 35,427 21% 36,024 26%
Compounding Sales and Services ......... 21,634 37% 15,252 32% 60,396 37% 40,240 29%
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL PETROCHEMICAL PROCESSING ......... 58,128 100% 47,627 100% 164,933 100% 138,092 100%
-------- -------- -------- --------
Exploration Sales and Services ......... 10,544 39% 5,865 33% 25,901 34% 18,840 35%
Production Sales and Services .......... 9,373 34% 6,976 39% 26,746 35% 20,087 37%
Corrosion Control Sales and
Services ............................ 5,684 21% 3,507 20% 15,981 21% 11,781 22%
Other Sales and Services ............... 1,624 6% 1,520 8% 7,433 10% 3,032 6%
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL OILFIELD SERVICES REVENUES ....... 27,225 100% 17,868 100% 76,061 100% 53,740 100%
-------- -------- -------- --------
Total .................................. $ 85,353 $ 65,495 $240,994 $191,832
======== ======== ======== ========
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------------------
% OF % OF % OF % OF
OPERATING PROFIT (LOSS) (000'S) 2000 TOTAL 1999 TOTAL 2000 TOTAL 1999 TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Petrochemical Processing ............... $ 3,715 52% $ 2,772 91% $ 11,401 57% $ (6,171) 73%
Oilfield Services ...................... 3,390 48% 278 9% 8,538 43% (2,334) 27%
-------- -------- -------- -------- -------- -------- -------- --------
Total Operations ....................... 7,105 100% 3,050 100% 19,939 100% (8,505) 100%
General Corporate Expenses ............. (2,144) (2,862) (7,093) (10,026)
-------- -------- -------- --------
Total .................................. $ 4,961 $ 188 $ 12,846 $(18,531)
======== ======== ======== ========
</TABLE>
-15-
<PAGE>
THREE AND NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE AND NINE MONTHS
ENDED JUNE 30, 1999
REVENUES.
Consolidated revenues increased $19,858,000 (30%) and $49,162,000 (26%)
during the three and nine months ended June 30, 2000, respectively, compared to
the same periods of fiscal 1999. The increases were due to revenue improvements
in both the Petrochemical Processing and Oilfield Service business segments.
Petrochemical Processing revenues increased from $47,627,000 during the
third quarter of fiscal 1999 and $138,092,000 during the first nine months of
fiscal 1999 to $58,128,000 and $164,933,000 for the three and nine months ended
June 30, 2000, respectively. These increases of 22% and 19%, respectively, were
mostly the result of an increase in compounding revenues and, to a lesser
extent, an increase in distribution revenues.
Distribution revenues rose $3,750,000 (18%) during the three months ended
June 30, 2000 and rose $7,282,000 (12%) during the nine months ended June 30,
2000, compared to the same periods of fiscal 1999. Distribution revenues rose
due to higher resin prices and an increase in volumes sold in the Company's
European and Southeast Asian markets. Although revenues in Europe have increased
during fiscal 2000, European revenue increases have been stifled by the
depreciation of the Euro against the U.S. Dollar by approximately 12%, as
compared to fiscal 1999. Size reduction services and other sales and services
revenues increased $369,000 (3%) to $12,273,000 during the third quarter of
fiscal 2000, compared to the same quarter of fiscal 1999. The small increase was
the result of greater domestic size reduction revenues. During the nine months
ended June 30, 2000, size reduction revenues declined $597,000 (2%) to
$35,427,000 due to lower European revenues, caused by the depreciation of the
Euro compared to the U.S. Dollar. Compounding revenues rose dramatically from
$15,252,000 during the third quarter of fiscal 1999 to $21,634,000 during the
third quarter of fiscal 2000 and from $40,240,000 during the nine months ended
June 30, 1999 to $60,396,000 during the nine months ended June 30, 2000. These
increases of $6,382,000 (42%) during the quarter and $20,156,000 (50%) during
the nine month period, were primarily the result of the fiscal 1999 capacity
expansion at the Company's Bayshore Industrial concentrate manufacturing
facility in LaPorte, Texas. In addition, demand for the Company's compounding
products and services in Europe increased in fiscal 2000 compared to fiscal
1999.
Oilfield service revenues increased $9,357,000 (52%) to $27,225,000 during
the third quarter of fiscal 2000 compared to the third quarter of fiscal 1999
and increased $22,321,000 (42%) to $76,061,000 during the nine months of fiscal
2000, compared to the same period of fiscal 1999. Of the year-to-date increase,
28% of the improvement is attributable to the February 1999 acquisition of
MilCorp. The remaining increase is due to a strong rebound within all the
Company's oilfield service product lines, due to increased volumes resulting
from greater customer demand. This increase was particularly strong in
Exploration Services, which had a 79% increase in revenues during the quarter
ended June 30, 2000, compared to the same quarter of fiscal 1999. The recovery
is being driven by higher oil and gas prices which rose from a quarterly average
of $17.76 per barrel and $2.20 per mcf, respectively, during the quarter ended
June 30, 1999 to $29.10 per barrel and $3.63 per mcf during the quarter ended
June 30, 2000. As a result of these higher commodity prices, the North American
rig count has risen from an average of 834 during the third quarter of fiscal
2000, compared to an average of 521 during the same quarter of fiscal 1999.
COST AND EXPENSES
Consolidated gross margins (calculated as the difference between net
revenues and total costs of sales and services divided by revenues), decreased
from 25.0% during the three months ended June 30, 1999 to 22.4% during the three
months ended June 30, 2000. The decrease was caused by lower Petrochemical
Processing margins partially offset by the effect of higher Oilfield Service
gross margins. During the nine months ended June 30, 2000 consolidated gross
margins increased to 23.3% from 22.6% in fiscal 1999 as Oilfield Service gross
margins increased and Petrochemical Processing margins declined.
-16-
<PAGE>
Petrochemical Processing gross margins were 19.5% during the third quarter
of fiscal 2000 compared to 25.0% during the third quarter of fiscal 1999. During
the nine months ended June 30, 2000, Petrochemical gross margins were 20.9%
compared to 22.5% for the same period of fiscal 1999. These declines resulted
primarily from a change in revenue mix. During fiscal 2000, compounding and
distribution revenues, which inherently generate lower gross margins than size
reduction services, became a larger percentage of overall Petrochemical
Processing revenues. This trend caused overall Petrochemical Processing gross
margins to decline. Additionally, international gross margins softened during
fiscal 2000, which adversely affected Petrochemical gross margins.
Oilfield Service gross margins increased to 28.7% and 28.5% for the three
and nine months ended June 30, 2000, respectively, compared to 25.2% and 22.4%
for the three and nine months ended June 30, 1999, respectively. Higher volumes,
due to strengthening market conditions, resulted in increased capacity
utilization and, in turn, improved gross margins.
Selling, general and administrative costs increased $10,000 during the
three months ended June 30, 2000 and declined $2,112,000 (6%) during the nine
months ended June 30, 2000, compared to the same periods of fiscal 1999. The
decline versus the nine months ended June 30, 2000 was primarily due to lower
litigation related expenses and cost controls at the corporate level, partially
offset by an increase in expenses caused by the February 1999 acquisition of
MilCorp in Canada.
Depreciation and amortization expenses decreased from $4,197,000 during
the third quarter of fiscal 1999 to $4,102,000 during the same quarter of fiscal
2000 and from $12,887,000 during the nine months ended June 30, 1999 to
$12,371,000 during the nine months ended June 30, 2000. These declines were the
result of the effects of the 1999 charges relating to fixed assets and goodwill,
offset, in part, by the impact of capital expenditures and the acquisition of
MilCorp.
SECOND QUARTER FISCAL 1999 CHARGES
IMPAIRMENT OF LONG-LIVED ASSETS. During the second quarter of fiscal 1999,
the Company recognized a $9,291,000 charge for the impairment of long-lived
assets. $748,000 of this charge related to the Oilfield Services business, of
which $310,000 of the write-down related to the impairment of goodwill and the
remaining to machinery and equipment. $8,543,000 of the total charge related to
the Petrochemical Processing business and reflected the impairment of four
underperforming facilities. $4,812,000 of the petrochemical charge includes the
impairment of goodwill and $3,489,000 consists of machinery and equipment
impairment. The amount of the machinery and equipment impairments were
determined by comparing fair values with the corresponding carrying values of
the assets evaluated. Fair value was determined as the estimated current market
value of the assets evaluated.
WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT. During the second quarter of
fiscal 1999, the Company reduced the carrying value of property, plant and
equipment primarily due to assets which are obsolete or are not in working order
and will not be used in the future. Of the $2,848,000 write-down, $2,207,000
related to the petrochemical business and $641,000 related to the oilfield
service segment.
WRITE-DOWNS OF INVENTORY. During the second quarter, the Company wrote
down $1,507,000 of inventories to estimated market selling prices (mostly within
the oilfield service business), to reflect current market conditions.
SEVERANCE EXPENSES. During the second quarter of fiscal 1999, the Company
recognized severance expenses of $999,000 relating to terminated employees.
WRITE-OFF OF START-UP COSTS. The write-off of start-up costs primarily
relates to the closure, during the second quarter of fiscal 1999, of an
operation which had generated capitalized start-up costs. This operation had an
immaterial impact on the Company's financial results prior to the write-off of
capitalized start-up costs.
-17-
<PAGE>
THIRD QUARTER FISCAL 1999 CHARGES
During the third quarter of fiscal 1999 the Company recognized a severance
charge of $1,500,000 and a fixed asset write-down of $425,000 related to the
management restructuring of the Company's European Petrochemical Processing
operations.
OPERATING INCOME
Operating income increased from $188,000 for the three months ended June
30, 1999, to $4,961,000 for the three months ended June 30, 2000, and from a
loss of $(18,531,000) for the nine months ended June 30 1999, to income of
$12,846,000 for the nine months ended June 30, 2000. The increases were due to
the changes in revenues and costs and expenses discussed above.
NET INTEREST EXPENSE
Net interest expense was $3,073,000 and $9,082,000 during the three and
nine months ended June 30, 2000. For the three and nine months ended June 30
1999, the Company had net interest expense of $3,006,000 and $8,773,000,
respectively. These changes were primarily the result of declining cash balances
and increased rates of return on cash investments.
INCOME TAXES
The Company's effective income tax rate increased to 47% and 58% during
the three and nine months ended June 30, 2000, respectively, compared to 29% and
26% during the three and nine months ended June 30, 1999, respectively. These
tax rate increases were the result of a change in the amount of permanent
differences (including the goodwill impairment charges recognized in the second
quarter of fiscal 1999), relative to book pre- tax income or loss, as well as a
change in the mix of pre-tax income or loss generated by the Company's
operations in various taxing jurisdictions.
NET INCOME
For the three and nine months ended June 30, 2000, the Company had net
income of $994,000 and $1,580,000, respectively, compared to net losses of
$(2,307,000) and $(20,178,000) for the same periods in fiscal 1999, due to the
factors described above.
FOREIGN CURRENCY TRANSLATION
The fluctuations of the U.S. dollar against the Euro, Swedish krona,
British pound, Canadian dollar, New Zealand dollar, and the Australian dollar
have impacted the translation of revenues and expenses of the Company's
international operations. The table below summarizes the impact of changing
exchange rates for the above currencies between the fiscal 2000 and 1999
periods.
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
--------------- ---------------
Net revenues ............................... $ (2,925,745) $ (8,156,420)
Earnings before interest, taxes,
depreciation, and amortization ......... (302,971) (974,893)
Operating income ........................... (162,237) (541,828)
Pre-tax income ............................. (122,924) (424,495)
Net income ................................. (71,935) (259,322)
-18-
<PAGE>
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.
The Company's strategy has typically been to finance only working capital
with variable interest rate debt and to fix interest rates for the financing of
long-term assets. Forward currency contracts are used by the Company as a method
to establish a fixed functional currency cost for raw material purchases
denominated in non-functional currency (usually the U.S. dollar).
The following table summarizes the Company's market sensitive financial
instruments. These transactions are considered non-trading activities.
<TABLE>
<CAPTION>
ON-BALANCE SHEET
FINANCIAL INSTRUMENTS JUNE 30, 2000
--------------------- -----------------------------------------------------------------
US$ EQUIVALENT WEIGHTED AVERAGE
Variable interest rate debt: IN THOUSANDS YEAR-END INTEREST RATE EXPECTED MATURITY
------------------ ---------------------- ------------------
CURRENCY DENOMINATION
---------------------
<S> <C> <C> <C>
Dutch Guilders ............................................... 1,224 5.74% less than one year
British Pounds Sterling ...................................... 2,368 7.25% less than one year
French Francs ................................................ 39 5.14% 2001
Italian Lira ................................................. 4,295 4.98% less than one year
Canadian Dollar .............................................. 3,373 8.75% less than one year
New Zealand Dollar ........................................... 149 7.76% less than one year
ANTICIPATED TRANSACTIONS AND RELATED DERIVATIVES
Forward Exchange Agreements (000s):
RECEIVE US$/PAY NZ$:
--------------------
Contract Amount US$585
Average Contractual Exchange Rate (NZ$/US$) .4762
Expected Maturity Dates July 2000 through August 2000
RECEIVE US$/PAY AUSTRALIAN $:
-----------------------------
Contract Amount US$1,170
Average Contractual Exchange Rate (A$/US$) .5692
Expected Maturity Dates July 2000 through September 2000
RECEIVE US$/PAY DUTCH GUILDER
-----------------------------
Contract Amount US$10
Average Contractual Exchange Rate (NLG/US$) .4342
Expected Maturity Date July 13, 2000
RECEIVE GBP/PAY DUTCH GUILDER
-----------------------------
Contract Amount GBP77
Average Contractual Exchange Rate (NLG/GBP) .2769
Expected Maturity Dates July 2000 through August 2000
Option Agreement (000's):
RECEIVE US$/PAY FRENCH FRANCS
-----------------------------------------------
Contract Amount US$150
Average Contractual Exchange Rate (FRF/US$) .1462
Expiration Date On or before June 18, 2001
</TABLE>
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<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 6 to the Consolidated Financial Statements included in Part I, Item
1, of this quarterly report on Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Reference is hereby made to the exhibit index which appears on
page 21.
(b) There were no reports on Form 8-K during the Company's fiscal third
quarter.
-20-
<PAGE>
The following instruments and documents are included as Exhibits to this Form
10-Q. Exhibits incorporated by reference are so indicated by parenthetical
information.
EXHIBIT NO. EXHIBIT
----------- -------
2.1 -- Plan of Merger of ICO Merger Sub, Inc. with and into ICO, Inc.
(filed as Exhibit 2.4 to Form 10-Q dated August 13, 1998)
3.1 -- Articles of Incorporation of the Company dated March 20, 1998.
(filed as Exhibit 3.1 to Form 10-Q dated August 13, 1998)
3.2 -- Statement of Resolution of $6.75 Convertible Exchangeable
Preferred Stock dated March 30, 1998 (filed as Exhibit 3.2 to
Form 10-K dated December 23, 1998)
3.3 -- Certificate of Designation of Junior Participating Preferred
Stock of ICO Holdings, Inc. dated March 30, 1998 (filed as
Exhibit 3.3 to Form 10-K dated December 23, 1998)
3.4 -- Amended and Restated By-Laws of the Company dated May 12, 1999
(filed as Exhibit 3.4 to Form 10-Q dated May 14, 1999).
4.1 -- Indenture dated as of June 9, 1997 between the Company, as
issuer, and Fleet National Bank, as trustee, relating to Senior
Notes due 2007 (filed as Exhibit 4.1 to Form S-4 dated June 17,
1997)
4.2 -- First Supplemental Indenture and Amendment dated April 1,1998
between the Company, as issuer, and State Street and Trust
Company (formerly Fleet National Bank), as trustee, relating to
Senior Notes due 2007 (filed as Exhibit 4.2 to Form 10-Q dated
May 15, 1998)
4.3 -- Second Supplemental Indenture and Amendment dated April 1, 1998
between ICO P&O, Inc., a wholly owned subsidiary of the
Registrant, and State Street and Trust Company (formerly Fleet
National Bank), as trustee, relating to Senior Notes due 2007
(filed as Exhibit 4.3 to Form 10-Q dated May 15, 1998)
4.4 -- Warrant Agreement -- Series A, dated as of September 1, 1992,
between the Registrant and Society National Bank (filed as
Exhibit 4 of the Registrant's Annual Report on Form 10-K for
1992)
4.5 -- Stock Registration Rights Agreement dated April 30, 1996 by and
between the Company, a subsidiary of the Company and the Wedco
Shareholders Group, as defined (filed as Exhibit 4.4 to Form S-4
dated May 15, 1996)
4.6 -- Shareholders' Rights Agreement dated November 20, 1997 by and
between the Company and Harris Trust and Savings Bank, as rights
agent (filed as Exhibit 1 to Form 8-A dated December 22, 1997)
4.7 -- Shareholder Rights Agreement dated April 1, 1998 by and between
the Registrant and Harris Trust and Savings Bank, as rights agent
(filed as Exhibit 4.7 to Form 10-Q for the quarter ended March
31, 1998)
10.1 -- ICO, Inc. 1985 Stock Option Plan, as amended (filed as Exhibit B
to the Registrant's Definitive Proxy Statement dated April 27,
1987 for the Annual Meeting of Shareholders)
10.2 -- Second Amended and Restated 1993 Stock Option Plan for
Non-Employee Directors of ICO, Inc. (filed as Exhibit A to the
Registrant's Definitive Proxy Statement dated January 26, 1999
for the Annual Meeting of Shareholders)
10.3 -- 1994 Stock Option Plan of ICO, Inc. (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated June 24, 1994 for
the Annual Meeting of Shareholders)
10.4 -- ICO, Inc. 1995 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August 10, 1995 for
the Annual Meeting of Shareholders)
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<PAGE>
EXHIBIT NO. EXHIBIT
----------- -------
10.5 -- ICO, Inc. 1996 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated August 29, 1996 for
the Annual Meeting of Shareholders)
10.6 -- ICO, Inc. 1998 Stock Option Plan (filed as Exhibit A to
Registrant's Definitive Proxy Statement dated January 23, 1998
for the Annual Meeting of Shareholders)
10.7 -- Willoughby International Stockholders Agreement dated April 30,
1996 (filed as Exhibit 10.9 to Form S-4 dated May 15, 1996)
10.8 -- Consulting Agreement -- William E. Willoughby (filed as Exhibit
10.13 to Form S-4 dated May 15, 1996)
10.9 -- Salary Continuation Agreement -- William E. Willoughby (filed as
Exhibit 10.14 to Form S-4 dated May 15, 1996)
10.10 -- Addendum to Salary Continuation Agreement -- William E.
Willoughby (filed as Exhibit 10.15 to form S-4 dated May 15,
1996)
10.11 -- Non-Competition Covenant William E. Willoughby (filed as Exhibit
10.11 to Form S-4 dated May 15, 1996)
10.12 -- Stockholders Agreement respecting voting of shares of certain
former Wedco common shareholders (filed as Exhibit 10.21 to Form
S-4 dated May 15, 1996)
10.13 -- Stockholders Agreement respecting voting of shares of certain ICO
common shareholders (filed as Exhibit 10.22 to Form S-4 dated May
15, 1996)
10.14 -- Employment Agreement dated April 1, 1995 by and between the
Registrant and Asher O. Pacholder and amendments thereto (filed
as Exhibit 10.16 to Form 10-K dated December 29, 1997)
10.15 -- Employment Agreement dated April 1, 1995 by and between the
Registrant and Sylvia A. Pacholder and amendments thereto (filed
as Exhibit 10.17 to Form 10-K dated December 29, 1997).
10.16 -- Employment Agreement dated September 4, 1998 by and between the
Registrant and Jon C. Biro (Filed as Exhibit 10.20 to Form 10-K
dated December 23, 1998)
10.17 -- Employment Agreement dated September 4, 1998 by and between the
Registrant and Isaac H. Joseph (Filed as Exhibit 10.21 to Form
10-K dated December 23, 1998)
10.18 -- Employment Agreement dated September 4, 1998 by and between the
Registrant and Robin E. Pacholder (Filed as Exhibit 10.18 to Form
10-K dated December 17, 1999)
10.19 -- Employment Agreement dated August 5, 1999 by and between the
Registrant and David M. Gerst (Filed as Exhibit 10.19 to Form
10-K dated December 17, 1999)
21 -- Subsidiaries of the Company (Filed as Exhibit 21 to Form 10-K
dated December 17, 1999)
27** -- Financial Data Schedule
------------
** Filed herewith
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ICO, INC.
----------------------------------------
(Registrant)
/s/ ASHER O. PACHOLDER
----------------------------------------
August 4, 2000 Asher O. Pacholder
Chairman and Chief Financial Officer
(Principal Financial Officer)
/s/ JON C. BIRO
----------------------------------------
Jon C. Biro
Senior Vice President, Chief Accounting
Officer and Treasurer
(Principal Accounting Officer)
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