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ICO, Inc. Reports Record Revenues of $78.1 Million and Generates Profits for Sixth Consecutive Quarter

Published on 2005-05-12. Author : SpecialChem

HOUSTON -- ICO, Inc. (Nasdaq: ICOC - News), global producer of custom polymer powders and film concentrates, announced its second quarter financial results for the quarter ended March 31, 2005.

Gross profit improved to $14.0 million, up $.5 million from the same quarter last year. This improvement was caused by effectively increasing product sales prices and managing raw material procurement. Additionally, the quarterly results were favorably impacted by higher raw material supplier rebates in Europe. Lower sales volumes partially offset these improvements. Gross margins declined from 20.0% for the quarter ended March 31, 2004 to 17.9% for the quarter ended March 31, 2005. This decline was primarily due to lower product sales volumes offset by the beneficial impact of improved feedstock margins (the difference between product selling price and raw material costs) and the supplier rebates recognized in Europe. The reduction in gross margin was caused by the increase in selling prices and, hence, higher sales revenues, which increased primarily due to rising resin prices. Higher resin prices have historically resulted in higher selling prices; however, gross profit may not increase, thus causing a reduction in gross margin.

Offsetting the gross profit improvement and leading to a decline in operating income was an increase in SG&A of $.9 million or 10%. This increase was primarily caused by third party implementation costs associated with the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), Section 404, which totaled $.3 million during the quarter. The Company is required to perform an evaluation of its internal controls in accordance with Sarbanes-Oxley Section 404 during the current fiscal year. Compliance with Sarbanes-Oxley also increased professional accounting fees by $.2 million due to the expected higher cost of the fiscal year 2005 audit to be performed by the Company's independent auditors. The Company also incurred $.3 million of severance costs associated with layoffs within the ICO Polymers North America business and the corporate headquarters, as well as higher bad debt expense caused by slow paying customers in the Company's ICO Brazil business. Last, foreign currencies caused approximately $.3 million of the SG&A expense increase.

Income from continuing operations was $1.0 million, or $0.03 per fully diluted share, compared to income of $1.4 million, or $.05 per fully diluted share, in the second quarter of fiscal year 2004.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") from continuing operations was $4.1 million in the second quarter of fiscal 2005 (includes non-cash stock option expense of $.2 million). This compares to $4.8 million of EBITDA from continuing operations for the same quarter last year (includes non-cash stock option expense of $.2 million). Management believes this measurement is a reasonable indicator of the amount of cash generated by the business available to pay for working capital growth, capital expenditures, interest, debt principal payments, dividends and taxes. A full reconciliation of EBITDA with GAAP figures is attached in the financial tables that follow.

For the six months ending March 31, 2005, operating income improved $.6 million or 17% caused by higher gross profit, partially offset by higher SG&A expenses. The higher gross profit was caused by similar factors that influenced the year-over-year quarterly comparison described above. Gross margins declined from 19.5% for the six months ending March 31, 2004 to 18.4% for the six months ending March 31, 2005. This reduction was caused by the effect of higher resin prices on revenues partially offset by the impact of improved feedstock margins and the higher supplier rebates recognized in Europe. SG&A increased $2.0 million or 12.6% caused by stronger foreign currencies compared to the U.S. Dollar (an impact of approximately $.5 million), higher compensation and benefits costs of $.7 million and an increase in severance costs of $.4 million. In addition, third party Sarbanes-Oxley implementation costs were $.3 million and professional accounting fees increased $.3 million relating to the fiscal year 2005 audit to be performed by the Company's independent accountants.

Mr. W. Robert Parkey, Jr., President and Chief Executive Officer, stated, "Our Bayshore and ICO Europe businesses generated strong earnings for the first half of the year. The softening of volumes in the Australasian and ICO Polymers North America segments impacted the earnings generated from those regions. Lower customer demand in these regions was caused by the very high resin prices, market perception that resin prices may have peaked, and a temporary slowdown in the water tank sector of the market in Australia. Our ICO Brazil segment is working through a challenging market environment due to high resin prices and a slowdown within the agricultural segment of the market. Our management team is working hard to continue to make improvements in the business."

Available borrowing capacity under the Company's existing credit arrangements was $22.9 million as of March 31, 2005, compared to $22.4 million as of September 30, 2004. During the second quarter of fiscal 2005, the Company's U.S. and European subsidiaries refinanced approximately $12.0 million of primarily short-term debt in several transactions, replacing it with term debt with maturities ranging from five years to fifteen years and carrying fixed interest rates ranging from 5.0% to 7.2%. Subsequent to the end of the fiscal second quarter, credit availability increased due to an increase in the Company's U.S. credit facility to $25.0 million. The $10.0 million increase in the U.S. credit facility consists of an additional term loan facility to finance certain existing equipment and equipment to be purchased in the Company's U.S. operations and an increase in the revolving credit line component of $5.0 million. Additionally, in April 2005, the Company received an expected $3.4 million U.S. income tax refund. On April 29, 2005, the Company gave notice of its desire to redeem $5.1 million of the Company's 10 3/8% Series B Senior Notes at par value on June 1, 2005.

Cost Reductions Implemented During the Quarter

During the Company's fiscal second quarter and early in the third quarter, management reduced annual overhead expenses by $.8 million. These cost savings were achieved through headcount reductions within ICO Polymers North America and the corporate headquarters and restructuring of the Company's Brazilian operations.

Preferred Dividend

The Company's Board of Directors has determined not to declare any dividend on its depositary shares, each representing 1/4 of a share of its $6.75 convertible exchangeable preferred stock, for the quarter ending on June 30, 2005.

About ICO, Inc.

With 17 locations in 9 countries, ICO Polymers produces custom polymer powders for rotational molding and other polymers segments, including textiles, metal coatings and masterbatch. ICO remains an industry leader in size reduction, compounding and other tolling services for plastic and non- plastic materials. ICO's Bayshore Industrial subsidiary produces specialty compounds, concentrates and additives primarily for the film industry.

This press release contains forward-looking statements, which are not statements of historical facts and involve certain risks, uncertainties and assumptions. These include, but are not limited to, restrictions imposed by the Company's outstanding indebtedness, changes in the cost and availability of polymers, demand for the Company's services and products, business cycles and other industry conditions, the Company's lack of asset diversification, international risks, operational risks, and other factors detailed in the Company's form 10-K for the fiscal year ended September 30, 2004 and its other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated.

Source: ICO Inc.


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