-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ep/gb/E6l96c24Suh5Hw0PpCJSju6mHt7U2twtSSxYuELoOHPCSC1I1+cG/0V230 M+REOhqsZriQz5Yg3a91NA== 0000353567-03-000015.txt : 20030814 0000353567-03-000015.hdr.sgml : 20030814 20030814143559 ACCESSION NUMBER: 0000353567-03-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICO INC CENTRAL INDEX KEY: 0000353567 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 760566682 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08327 FILM NUMBER: 03846405 BUSINESS ADDRESS: STREET 1: 5333 WESTHEIMER ROAD STREET 2: SUITE 600 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7133514100 MAIL ADDRESS: STREET 1: 5333 WESTHEIMER ROAD STREET 2: SUITE 600 CITY: HOUSTON STATE: TX ZIP: 77056 10-Q 1 doc1.txt 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, 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 25,010,012 shares outstanding as of August 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 June 30, 2003 and September 30, 2002. . . 3 Consolidated Statement of Operations for the Three and Nine Months Ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 3. Quantitative and Qualitative Disclosures About Market Risks . . . . . . 21 Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 22
-2- ICO, INC. CONSOLIDATED BALANCE SHEETS (Unaudited and in thousands, except share data)
JUNE 30, SEPTEMBER 30, 2003 2002 ------------ ------------ ASSETS - ------ Current assets: Cash and cash equivalents $ 1,552 $ 129,072 Trade accounts receivables (less allowance for doubtful accounts of $1,998 and $1,695, respectively) 45,964 39,498 Inventories (less inventory reserve of $1,102 and $502, respectively) 25,833 19,367 Prepaid expenses and other 9,118 11,603 Oilfield Services assets held for sale 3,882 2,783 ------------ ------------ Total current assets 86,349 202,323 ------------ ------------ Property, plant and equipment, net 67,254 62,607 Goodwill 8,175 36,669 Other 1,075 3,082 ------------ ------------ Total assets $ 162,853 $ 304,681 ============ ============ LIABILITIES, STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE LOSS - -------------------------------------------------------------------------- Current liabilities: Short-term borrowings $ 13,316 $ 4,568 Current portion of long-term debt 3,127 2,793 Accounts payable 20,500 19,062 Accrued interest 122 4,006 Accrued salaries and wages 2,716 2,319 Income taxes payable 1,862 8,247 Other accrued expenses 8,434 8,760 Oilfield Services liabilities held for sale and retained 2,829 6,629 ------------ ------------ Total current liabilities 52,906 56,384 ------------ ------------ Deferred income taxes 4,733 6,525 Long-term liabilities 1,538 1,406 Long-term debt, net of current portion 23,854 128,877 ------------ ------------ Total liabilities 83,031 193,192 ------------ ------------ 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; 25,010,012 and 24,450,345 shares issued and outstanding, respectively 43,399 42,674 Additional paid-in capital 103,348 103,157 Accumulated other comprehensive loss (4,473) (9,608) Accumulated deficit (62,465) (24,747) ------------ ------------ Total stockholders' equity 79,822 111,489 ------------ ------------ Total liabilities and stockholders' equity $ 162,853 $ 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 and per share data)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Revenues $ 54,416 $ 46,971 $ 153,168 $ 131,679 Cost and expenses: Cost of sales and services 45,988 37,137 127,463 105,818 Selling, general and administrative expense 8,858 7,266 25,907 21,968 Stock option compensation expense 14 -- 106 -- Depreciation 2,321 1,937 6,642 5,994 Amortization 52 566 238 1,597 Impairment, restructuring and other costs 806 1,782 806 1,782 ------------ ------------ ------------ ------------ Operating loss (3,623) (1,717) (7,994) (5,480) Other income (expense): Interest income 9 83 283 371 Interest expense (672) (3,388) (3,124) (10,196) Other income (expense) (28) 731 492 1,695 ------------ ------------ ------------ ------------ Loss from continuing operations before income taxes and (4,314) (4,291) (10,343) (13,610) cumulative effect of change in accounting principle Benefit for income taxes (360) (1,343) (1,872) (3,397) ------------ ------------ ------------ ------------ Loss from continuing operations before cumulative effect of change in accounting principle (3,954) (2,948) (8,471) (10,213) Income (loss) from discontinued operations, net of provision (benefit) for income taxes of $459, $(372), $749 and $1,219, respectively (388) (370) 160 2,007 ------------ ------------ ------------ ------------ Net loss before cumulative effect of change in accounting principle (4,342) (3,318) (8,311) (8,206) Cumulative effect of change in accounting principle, net of benefit for income taxes of $0, $0, $(580) and $0, respectively -- -- (28,863) -- ------------ ------------ ------------ ------------ Net loss $ (4,342) $ (3,318) $ (37,174) $ (8,206) ------------ ------------ ------------ ------------ Preferred dividends -- (544) (544) (1,632) ------------ ------------ ------------ ------------ Net loss applicable to common stock $ (4,342) $ (3,862) $ (37,718) $ (9,838) ============ ============ ============ ============ Basic and diluted income (loss) per share: Loss from continuing operations before cumulative effect of change in accounting principle $ (.16) $ (.14) $ (.36) $ (.49) Income (loss) from discontinued operations (.01) (.02) -- .08 ------------ ------------ ------------ ------------ Net loss before cumulative effect of change in accounting principle $ (.17) $ (.16) $ (.36) $ (.41) Cumulative effect of change in accounting principle .00 .00 (1.16) .00 ------------ ------------ ------------ ------------ Basic and diluted net loss per common share $ (.17) $ (.16) $ (1.52) $ (.41) ============ ============ ============ ============ Basic and diluted weighted average shares outstanding 24,960,000 24,450,000 24,812,000 23,876,000 ============ ============ ============ ============
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 NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------- 2003 2002 2003 2002 -------- -------- --------- -------- Net loss $ (4,342) $ (3,318) $ (37,174) $ (8,206) Other comprehensive income (loss) Foreign currency translation adjustment 2,188 4,392 5,349 3,652 Unrealized loss on foreign currency hedges (151) (23) (214) (50) -------- -------- --------- -------- Comprehensive income (loss) $ (2,305) $ 1,051 $ (32,039) $ (4,604) ======== ======== ========= ========
The accompanying notes are an integral part of these financial statements. -5- ICO, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited and in thousands)
NINE MONTHS ENDED JUNE 30, --------------------- 2003 2002 ---------- --------- Cash flows from operating activities: Net loss from continuing operations $ (37,334) $ (10,213) Adjustments to reconcile net loss from continuing operations to net cash provided by (used for) operating activities: Depreciation and amortization 6,880 7,591 Proxy contest expense -- 746 Gain on sale of fixed assets (55) (564) Cumulative effect of change in accounting principle before tax 29,443 -- Stock option compensation expense 106 -- Gain on early retirement of debt (14) (654) Matching contribution to employee savings plan 349 408 Unrealized gain on foreign currency (419) (477) Impairment, restructuring and other costs 712 1,533 Changes in assets and liabilities: Receivables (2,167) (2,461) Inventories (3,728) 1,122 Prepaid expenses and other assets (1,012) 3,115 Deferred taxes (4,189) (4,953) Accounts payable 106 1,479 Accrued interest (3,884) (3,089) Other liabilities (470) (379) ---------- --------- Total adjustments 21,658 3,417 ---------- --------- Net cash used for operating activities for continuing operations (15,676) (6,796) Net cash provided by (used for) operating activities for discontinued operations (6,542) 10,861 ---------- --------- Net cash provided by (used for) operating activities (22,218) 4,065 ---------- --------- Cash flows used for investing activities: Capital expenditures (7,816) (7,782) Proceeds from dispositions of property, plant and equipment 275 529 ---------- --------- Net cash used for investing activities for continuing operations (7,541) (7,253) Net cash used for investing activities for discontinued operations -- (6,939) ---------- --------- Net cash used for investing activities (7,541) (14,192) ---------- --------- Cash flows used for financing activities: Common stock transactions 9 4 Payment of dividend on preferred stock (1,088) (1,632) Proceeds from debt 7,683 -- Term debt repayments (104,321) (9,541) Debt retirement costs (483) -- Payment of credit facility costs -- (628) ---------- --------- Net cash used for financing activities for continuing operations (98,200) (11,797) Net cash used for financing activities for discontinued operations -- (468) ---------- --------- Net cash used for financing activities (98,200) (12,265) ---------- --------- Effect of exchange rates on cash 439 597 ---------- --------- Net decrease in cash and equivalents (127,520) (21,795) Cash and equivalents at beginning of period 129,072 31,642 ---------- --------- Cash and equivalents at end of period $ 1,552 $ 9,847 ========== =========
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. 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, 2003, the results of operations for the three and nine months ended June 30, 2003 and 2002 and the changes in its cash position for the nine months ended June 30, 2003 and 2002. Results of operations for the three and nine month periods ended June 30, 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement will be effective for contracts entered into, modified or designated as hedges after June 30, 2003. The Company will adopt this standard on July 1, 2003 and does not expect it to have a material impact on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that those instruments be classified as liabilities in statements of financial position. This statement will be effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company will adopt this standard on July 1, 2003 and does not expect it to have a material impact on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." The interpretation requires disclosure about the nature and terms of obligations under certain guarantees that companies have issued. The interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this interpretation were effective upon issuance of the interpretation. The implementation of this interpretation did not have a material impact on the Company's financial statements. In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, An Interpretation of Accounting Research Bulletin No. 51." The primary objectives of FIN 46 are to provide guidance on how to identify entities for which control is achieved through means other than through voting rights (variable interest entities ("VIE")) and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity in which either (1) the equity investors do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. This statement will be -7- effective no later than the beginning of the first interim or annual reporting period that starts after June 15, 2003. The Company will adopt this standard on July 1, 2003 and does not expect it to have a material impact on the Company's financial statements. NOTE 3. STOCK OPTION PLANS Prior to fiscal year 2003, the Company accounted for its stock option plans under recognition and measurement provisions of Accounting Principles Board 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 NINE MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Net loss before cumulative effect of change in accounting principle, as reported $(4,342) $(3,318) $(8,311) $(8,206) Add: Stock-based employee compensation expense included in reported net income 14 -- 106 -- Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards (14) -- (106) (346) ------- ------- ------- ------- Pro forma net loss $(4,342) $(3,318) $(8,311) $(8,552) ======= ======= ======= ======= Basic and diluted loss per share, as reported $ (.17) $ (.16) $ (.36) $ (.41) ======= ======= ======= ======= Basic and diluted loss per share, pro forma $ (.17) $ (.16) $ (.36) $ (.43) ======= ======= ======= =======
NOTE 4. 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 SFAS 142, goodwill and indefinite lived intangible assets are tested for impairment at least annually at the reporting unit level, rather than being amortized, and the amortization period of intangible assets with finite lives is no longer 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. 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. -8-
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Reported net loss before cumulative effect of change in accounting principle $ (4,342) $ (3,318) $ (8,311) $ (8,206) Add back: goodwill amortization, net of income taxes of $0, $17, $0 and $50, respectively -- 274 -- 810 -------- -------- -------- -------- Adjusted net loss before cumulative effect of change in accounting principle (4,342) (3,044) (8,311) (7,396) Cumulative effect of change in accounting principle -- -- (28,863) -- -------- -------- -------- -------- Adjusted net loss $ (4,342) $ (3,044) $(37,174) $ (7,396) ======== ======== ======== ======== Basic and diluted income (loss) per share: Reported net loss before cumulative effect of change in accounting principle $ (.17) $ (.16) $ (.36) $ (.41) Add back: goodwill amortization, net of income taxes of $0, $17, $0 and $50, respectively -- .01 -- .03 -------- -------- -------- -------- Adjusted net loss before cumulative effect of change in accounting principle (.17) (.15) (.36) (.38) Cumulative effect of change in accounting principle -- -- (1.16) -- -------- -------- -------- -------- Adjusted net loss $ (.17) $ (.15) $ (1.52) $ (.38) ======== ======== ======== ========
NOTE 5. 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 nine months ended June 30, 2003 and June 30, 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 nine months ended June 30, 2003 was 4,719,000 compared to 5,805,000 for the three and nine months ended June 30, 2002. NOTE 6. INVENTORIES Inventories, net of reserves, consisted of the following:
JUNE 30, 2003 SEPTEMBER 30, 2002 -------------- ------------------ Finished goods $ 10,602 $ 7,547 Raw materials 13,487 10,664 Work in progress 401 201 Supplies 1,343 955 -------------- ------------------ Total inventory $ 25,833 $ 19,367 ============== ==================
NOTE 7. IMPAIRMENT, RESTRUCTURING AND OTHER COSTS
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Severance $ 231 $ 249 $ 231 $ 249 Impairment of fixed assets 529 1,533 529 1,533 Other 46 -- 46 -- -------- -------- -------- -------- Total impairment, restructuring and other costs $ 806 $1,782 $ 806 $ 1,782 ======== ======== ======== ========
-9- During the third quarter of fiscal 2003, the Company recognized an impairment of fixed assets of $529 at the Company's ICO Polymers North America and UK locations. The North American impairment related to the Company's plans to consolidate its China, Texas and Lovelady, Texas facilities during the first half of the Company's fiscal year 2004 as part of its cost reduction program as well as other grinding equipment. The UK impairment relates to the shutdown of the facility's cryogenic processing line. During the third quarter of fiscal 2003, the Company also recognized $231 of severance expenses primarily related to the Company's Italian subsidiary. During the third quarter of fiscal 2002, the Company recognized a charge of $1,533 related to the impairment of machinery and equipment of the Italian plant closed in fiscal year 2002. This facility was closed due to its redundancy with the Company's other nearby Italian facility performing similar services. In the third quarter of fiscal 2002, the Company completed an evaluation of assets contained in this facility and determined that these assets had a limited use or were obsolete. During the third quarter of fiscal 2002, the Company also recognized severance expenses of $249 related to the Company's Italian subsidiary. NOTE 8. INCOME TAXES The Company's effective income tax rates were benefits of 8% and 18% during the three and nine months ended June 30, 2003, respectively, compared to benefits of 31% and 25% for the three and nine months ended June 30, 2002. The three and nine months ended June 30, 2003 include a valuation allowance for two of the Company's foreign operations because it is more likely than not that the related deferred tax asset will not be realized. The amount of the valuation allowance for the three and nine months ended June 30, 2003 was approximately $410 and $630, respectively. Also impacting the tax benefit is the cessation of amortizing goodwill during fiscal year 2003 (as discussed in Note 4 - "Cumulative Effect of Change of Accounting Principle") which has the effect of causing an increase in the effective tax rate benefit. During the nine months ended June 30, 2002, a valuation allowance of $754 was placed against the benefit of U.S. net operating losses which had the effect of reducing the tax rate benefit during the period. The tax rate change was also due to a change in the mix of pretax income or loss generated by the Company's operations in various taxing jurisdictions. NOTE 9. COMMITMENTS AND CONTINGENCIES The Company has letters of credit outstanding in the United States of approximately $2,090 and $2,405 as of June 30, 2003 and September 30, 2002, respectively and foreign letters of credit outstanding of $2,580 and $2,290 as of June 30, 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 International, Inc., 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 for one year from date of sale to be used to pay for our indemnification obligations, should they arise. This $5,000 in proceeds was included in the gain on the sale of the oilfield services business recognized in fiscal year 2002. To date, Varco has submitted demands for indemnification asserting aggregated losses in the range of $12,403 to $16,883. A portion of those indemnity demands (aggregated losses of $365) relate to product liability claims. The balance of the indemnity demands relate to environmental claims arising out of operations at seventeen of the Company's former plants in various U.S. locations. While we do not believe that Varco has submitted any claims for which they would be entitled to any material indemnity payment from the Company, 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, which if liable, would result in an expense to the discontinued operations section of the statement of operations. Silicosis Related Claims. With regard to the Company's involvement in Pilar Olivas, et al. v. ICO, Inc. et al. (the "Olivas litigation"), the Company has obtained a summary judgment absolving it of any liability to the plaintiffs, and has filed papers to sever those claims from the plaintiffs' remaining claims against other parties in order to obtain dismissal from such proceeding. -10- The Company was recently served as a defendant in a lawsuit styled Celestino Galvan and Alfred Rogers v. ICO, Inc., Baker Hughes, Inc., et al. pending in Texas State Court in Orange County (the "Galvan and Rogers litigation"). The plaintiffs in the Galvan and Rogers litigation allege that they suffer from silicosis and were employees of Baker Hughes, which is also named as a defendant. At this time, the Company cannot predict with any reasonably certainty its potential exposure with respect to this matter. The Company continues to be involved in Richard Koskey vs. ICO, Inc., Baker Hughes, Inc., et al. (the "Koskey litigation"). For additional information regarding the Company's involvement in silicosis-related litigation, see Part I, Item 3 of the Company's Form 10-K filed December 20, 2002. 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. NOTE 10. DISCONTINUED OPERATIONS On September 6, 2002, 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 9- "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. -11- Assets and liabilities (including those retained) of discontinued operations are as follows:
JUNE 30, SEPTEMBER 30, 2003 2002 ------------- ------------- ASSETS - ------ Trade accounts receivables $ 1,358 $ 495 Inventories 471 435 Property, plant and equipment, net 407 407 Goodwill 1,446 1,446 Other 200 -- ------------- ------------- Total Oilfield Services assets held for sale $ 3,882 $ 2,783 ============= ============= LIABILITIES - ----------- Accounts payable $ 351 $ 458 Accrued insurance 1,276 2,261 Litigation settlement 165 2,850 Other 1,037 1,060 ------------- ------------- Total Oilfield Services liabilities held for sale and retained $ 2,829 $ 6,629 ============= =============
Of the $2,829 and $6,629 Oilfield Services liabilities held for sale and retained as of June 30, 2003 and September 30, 2002, respectively, $516 and $510 relate to Oilfield Services liabilities held for sale. The remaining $2,313 and $6,119 as of June 30, 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. See Note 13, "Subsequent Events," related to the sale of the remaining oilfield service business. NOTE 11. LONG-TERM DEBT During 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 related to this transaction. During the third quarter of fiscal 2002, the Company repurchased 10 3/8% Senior Notes due in 2007 with a face value of $1,175, recognizing a net gain before income tax of $165. During the first quarter of fiscal 2002, the Company repurchased $2,250 principal amount of its 10 3/8% Senior Notes due in 2007, recognizing a net gain before income tax 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 $654 as other income in the consolidated statement of operations for the three and nine months ended June 30, 2003 and 2002, respectively. -12- NOTE 12. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposures include debt obligations carrying variable interest rates, and forward purchase contracts intended to hedge accounts payable obligations denominated in currencies other than a given operation's functional currency. Forward currency contracts are used by the Company as a method to establish a fixed functional currency cost for certain raw material purchases denominated in non-functional currency (typically the U.S. Dollar). The following table summarizes the Company's market-sensitive financial instruments. These transactions are considered non-trading activities. ON-BALANCE SHEET FINANCIAL INSTRUMENTS - -----------------------------------------
VARIABLE INTEREST RATE DEBT: WEIGHTED US$ EQUIVALENT AVERAGE INTEREST RATE ------------------------- ------------------------- JUNE 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30, CURRENCY DENOMINATION 2003 2002 2003 2002 - --------------------- --------- -------------- --------- -------------- British Pounds Sterling (1) $ 2,022 $ 2,815 5.75% 5.75% U.S. Dollar (1) 6,187 -- 4.03% -- New Zealand Dollar (1) 1,244 521 7.23% 6.61% Euro (1) 3,117 715 5.12% 5.73% Swedish Krona (1) 705 446 5.45% 4.90% Malaysian Ringett (1) 41 71 8.15% 8.75% (1) Maturity dates are expected to be less than one year.
The Company does not have any financial instruments classified as off-balance sheet as of June 30, 2003 and September 30, 2002.
FORWARD PURCHASE CONTRACTS: JUNE 30, 2003 SEPTEMBER 30, 2002 - --------------------------------- ------------------------------ ------------------------------------ RECEIVE US$/PAY NZ$: - -------------------- Contract Amount US $236 None Average Contractual Exchange Rate (US$/NZ$) .5775 Expected Maturity Dates July 2003 RECEIVE US$/PAY AUSTRALIAN $: - ----------------------------- Contract Amount US $2,352 US $770 Average Contractual Exchange Rate (US$/A$) .6232 (US$/A$) .5421 Expected Maturity Dates July 2003 through October 2003 October 2002 through November 2002
NOTE 13. SUBSEQUENT EVENTS On July 31, 2003 the Company sold its remaining oilfield service business to Permian Enterprises, Ltd. for $4,110 and the assumption of certain liabilities, subject to adjustments. The Company does not expect the sale to result in a material impact on the Company's statement of operations in the fourth quarter. -13- 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. 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 January 1. 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, commitments and contingencies, 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 -14- 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 SFAS 142, goodwill and indefinite lived intangible assets are tested for impairment at least annually at the reporting unit level, rather than being amortized, and the amortization period of intangible assets with finite lives is no longer 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, 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 nine months ended June 30, 2003 and 2002.
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, -------------------- ------------------- 2003 2002 2003 2002 --------- -------- -------- -------- Net revenues $ 4,418 $ 179 $ 13,021 $ 467 Operating income (loss) (160) -- (77) 11 Pre-tax loss (209) (3) (232) 3 Net loss (266) -- (2,327) 3
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 3- "Stock Option Plans"). RESULTS OF OPERATIONS - ----------------------- Three and Nine Months Ended June 30, 2003 Compared to the Three and Nine Months Ended June 30, 2002
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30, ---------------------------------------- ------------------------------------------ NET REVENUES 2003 % of Total 2002 % of Total 2003 % of Total 2002 % of Total ------- ---------- ------- ---------- -------- ---------- -------- ---------- Product Sales $46,104 85% $38,020 81% $128,617 84% $105,214 80% Toll Services 8,312 15% 8,951 19% 24,551 16% 26,465 20% ------- ---------- ------- ---------- -------- ---------- -------- ---------- Total Revenues $54,416 100% $46,971 100% $153,168 100% $131,679 100% ======= ======= ======== ========
REVENUES. Revenues increased $7,445 or 16% and $21,489 or 16% during the three and nine months ended June 30, 2003, respectively, compared to the same period of fiscal 2002. Product sales revenues increased $8,084 or 21% to $46,104 for the three months ended June 30, 2003 and $23,403 or 22% to $128,617 for the nine months ended June 30, 2003 compared to the same periods of fiscal 2002. The increase in product sales revenue was -15- 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 $639 or 7% to $8,312 during the three months ended June 30, 2003 and $1,914 or 7% to $24,551 during the nine months ended June 30, 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 and loss of certain customers, offset by the impact of stronger foreign currencies compared to the U.S. Dollar. COSTS AND EXPENSES. Gross margins (calculated as the difference between revenues and cost of sales, divided by revenues) declined to 15.5% and 16.8%, during the three and nine months ended June 30, 2003, compared to 20.9% and 19.6%, during the three and nine months ended June 30, 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 and, to a lesser extent, an inventory reserve of $521 recorded in the three months ended June 30, 2003. 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 for the nine months ended June 30, 2003 partially offset the adverse impact of the factors discussed above. Selling, general and administrative expenses increased $1,592 or 22% during the three months ended June 30, 2003 and $3,939 or 18% during the nine months ended June 30, 2003, compared to the same periods of fiscal 2002. As a percentage of revenues, selling, general and administrative expenses were 16% and 17%, during the three and nine months ended June 30, 2003 compared to 15% and 17% for the three and nine months ended June 30, 2002. The increase in selling, general and administrative expenses during the three and nine months ended June 30, 2003 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 (including travel costs) 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. The Company also incurred lower proxy expense in the nine month comparison due to the $746 recorded in the quarter ended March 31, 2002 related to the Company's payment to Travis Street Partners ("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. Depreciation and amortization expenses decreased to $2,373 and $6,880 during the three and nine months ended June 30, 2003 from $2,503 and $7,591 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 4- "Cumulative Effect of Change in Accounting Principle"). IMPAIRMENT, RESTRUCTURING AND OTHER COSTS.
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2003 2002 2003 2002 ------ ------ ------ ------ Severance $ 231 $ 249 $ 231 $ 249 Impairment of fixed assets 529 1,533 529 1,533 Other 46 -- 46 -- ------ ------ ------ ------ Total impairment, restructuring and other costs $ 806 $1,782 $ 806 $1,782 ====== ====== ====== ======
-16- During the third quarter of fiscal 2003, the Company recognized an impairment of fixed assets of $529 at the Company's ICO Polymers North America and UK locations. The North American impairment related to the Company's plans to consolidate its China, Texas and Lovelady, Texas facilities during the first half of the Company's fiscal year 2004 as part of its cost reduction program as well as other grinding equipment. The UK impairment relates to the shutdown of the facility's cryogenic processing line. During the third quarter of fiscal 2003, the Company also recognized $231 of severance expenses primarily related to the Company's Italian subsidiary. During the third quarter of fiscal 2002, the Company recognized a charge of $1,533 related to the impairment of machinery and equipment of the Italian plant closed in fiscal year 2002. This facility was closed due to its redundancy with the Company's other nearby Italian facility performing similar services. In the third quarter of fiscal 2002, the Company completed an evaluation of assets contained in this facility and determined that these assets had a limited use or were obsolete. During the third quarter of fiscal 2002, the Company also recognized severance expenses of $249 related to the Company's Italian subsidiary. OTHER INCOME (EXPENSE). Other income (expense) for the three and nine months ended June 30, 2003 was $(691) and $(2,349) compared to $(2,574) and $(8,130) for the same periods in 2002. This decline in expense was due to a reduction in net interest expenses of $2,642 or 80% during the three months ended June 30, 2003 and $9,542 or 97% for the nine months ended June 30, 2003 due to the repurchase of $104,480 of Senior Notes during the first quarter of fiscal 2003. The decline in net interest expense was offset by lower other income (expense). Other income (expense) decreased $759 and $1,203 for the three and nine months ended June 30, 2003. The three months ended June 30, 2002 included a gain on the repurchase of $1,175 of the Company's 10 3/8% Senior Notes of $165 and an unrealized foreign currency gain due primarily to the strengthening of the Euro compared to the U.S. Dollar of $553. The nine months ending June 30, 2003 other income (expense) of $492 is primarily due to an unrealized foreign currency gain due to the strengthening of the Euro compared to the U.S. Dollar. The nine months ended June 30, 2002 consists of a $654 gain on the early retirement of $3,425 10 3/8% Senior Notes, a $564 gain on the sale of fixed assets primarily associated with the sale of the Company's UK color concentrates business and an unrealized foreign currency gain primarily due to the strengthening of the Euro compared to the U.S. Dollar of $477. INCOME TAXES. The Company's effective income tax rates were benefits of 8% and 18% during the three and nine months ended June 30, 2003, respectively, compared to benefits of 31% and 25% for the three and nine months ended June 30, 2002. The three and nine months ended June 30, 2003 include a valuation allowance for two of the Company's foreign operations because it is more likely than not that the related deferred tax asset will not be realized. The amount of the valuation allowance for the three and nine months ended June 30, 2003 was approximately $410 and $630, respectively. Also impacting the tax benefit is the cessation of amortizing goodwill during fiscal year 2003 (as discussed in Note 4 - - "Cumulative Effect of Change of Accounting Principle") which has the effect of causing an increase in the effective tax rate benefit. During the nine months ended June 30, 2002, a valuation allowance of $754 was placed against the benefit of U.S. net operating losses which had the effect of reducing the tax rate benefit during the period. The tax rate change was also due to a change in the mix of pretax income or loss generated by the Company's operations in various taxing jurisdictions. 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.
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, ------------------- ----------------- 2003 2002 2003 2002 -------- --------- -------- ------- Revenues $ 1,553 $ 28,626 $ 4,496 $88,505 Operating income 66 (674) 326 3,397 Income from discontinued operations before loss on disposal, net of income taxes 46 (370) 215 2,007 Loss on disposal of discontinued operations, net of income taxes of $434, $0, $635 and $0 (434) -- (55) --
Income from discontinued operations before the loss on disposition, net of income taxes, improved during the three months ended June 30, 2003 compared to the three months ended June 30, 2002 due to a decline in -17- impairment, restructuring and other costs of $2,200 offset by the sale of substantially all of the Company's oilfield services business. The comparative nine month periods income from discontinued operations before loss on disposal, net of income taxes decreased due to the sale of substantially all of the Company's oilfield services business offset by a reduction in impairment, restructuring and other costs. The loss on disposition of discontinued operations, net of income taxes, is due to the $582 gain recorded on the finalization of the post-closing working capital adjustment (See Note 10- "Discontinued Operations") offset by tax expense recorded in the three months ended June 30, 2003 related to the fiscal year 2002 gain on the sale of substantially all of the Company's oilfield services business as a result of finalizing and filing the U.S. tax return in June 2003. See Note 13, "Subsequent Events," related to the sale of the remaining oilfield services business. 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 SFAS 142, goodwill and indefinite lived intangible assets are tested for impairment at least annually at the reporting unit level, rather than being amortized, and the amortization period of intangible assets with finite lives is no longer 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 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 nine months ended June 30, 2003, the Company generated net losses of $(4,342) and $(37,174), compared to net losses of $(3,318) and $(8,206) 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: JUNE 30, 2003 SEPTEMBER 30, 2002 ------------- ------------------ Cash and cash equivalents $ 1,552 $ 129,072 Working capital 33,443 145,939 Cash and cash equivalents declined $127,520 and working capital declined $112,496 during the nine months ended June 30, 2003 due to the factors described below. For the nine months ended June 30, 2003, cash used for operating activities relating to continuing operations increased to $15,676 compared to $6,796 during the nine months ended June 30, 2002. The increase in cash used for operating activities occurred primarily due to an increase in accounts receivable, inventory, deferred taxes and payment of accrued interest expense. For the nine months ended June 30, 2003, cash provided by (used for) discontinued operations decreased to $(6,542) due to the sale of substantially all of the Company's oilfield services business as well as the Company's domestic tax payments made in fiscal year 2003 associated with the fiscal year 2002 sale. Capital expenditures for continuing operations totaled $7,816 during the nine months ended June 30, 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 relating to continuing operations was $98,200 during the nine months ended June 30, 2003 compared to cash used of $11,797 during the nine months ended June 30, 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. -18- Cash used for investing and financing activities for discontinued operations decreased in the nine months ended June 30, 2003 due to the sale of substantially all of the Company's oilfield services business. As of June 30, 2003 the Company had approximately $11,350 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 June 30, 2003, the Company had approximately $5,675 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 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In March 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging -19- Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement will be effective for contracts entered into, modified or designated as hedges after June 30, 2003. The Company will adopt this standard as of July 1, 2003 and does not expect it to have a material impact on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that those instruments be classified as liabilities in statements of financial position. This statement will be effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company will adopt this standard as of July 1, 2003 and does not expect it to have a material impact on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." The interpretation requires disclosure about the nature and terms of obligations under certain guarantees that Company's have issued. The interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this interpretation were effective upon issuance of the interpretation. The implementation of this interpretation did not have a material impact on the Company's financial statements. In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, An Interpretation of Accounting Research Bulletin No. 51." The primary objectives of FIN 46 are to provide guidance on how to identify entities for which control is achieved through means other than through voting rights (variable interest entities ("VIE")) and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity in which either (1) the equity investors do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. This statement will be effective no later than the beginning of the first interim or annual reporting period that starts after June 15, 2003. The Company will adopt this standard as of July 1, 2003 and does not expect it to have a material impact on the Company's financial statements. -20- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposures include debt obligations carrying variable interest rates, and forward 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 - -----------------------------------------
VARIABLE INTEREST RATE DEBT: WEIGHTED US$ EQUIVALENT AVERAGE INTEREST RATE ------------------------- ------------------------- JUNE 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30, CURRENCY DENOMINATION 2003 2002 2003 2002 - --------------------- --------- -------------- --------- -------------- British Pounds Sterling (1) $ 2,022 $ 2,815 5.75% 5.75% U.S. Dollar (1) 6,187 -- 4.03% -- New Zealand Dollar (1) 1,244 521 7.23% 6.61% Euro (1) 3,117 715 5.12% 5.73% Swedish Krona (1) 705 446 5.45% 4.90% Malaysian Ringett (1) 41 71 8.15% 8.75% (1) Maturity dates are expected to be less than one year.
The Company does not have any financial instruments classified as off-balance sheet as of June 30, 2003 and September 30, 2002.
FORWARD PURCHASE CONTRACTS: JUNE 30, 2003 SEPTEMBER 30, 2002 - --------------------------------- ------------------------------ ------------------------------------ RECEIVE US$/PAY NZ$: - -------------------- Contract Amount US $236 None Average Contractual Exchange Rate (US$/NZ$) .5775 Expected Maturity Dates July 2003 RECEIVE US$/PAY AUSTRALIAN $: - ----------------------------- Contract Amount US $2,352 US $770 Average Contractual Exchange Rate US$/A$) .6232 (US$/A$) .5421 Expected Maturity Dates July 2003 through October 2003 October 2002 through November 2002
ITEM 4. CONTROLS AND PROCEDURES The Company's principal executive and financial officer carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the third quarter. Based upon that evaluation, the Company's principal executive and financial officer concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that the Company's disclosure controls and procedures are effective to ensure that information is accumulated and communicated to the Company's management to allow timely decisions regarding required disclosure. In connection with the evaluation, no significant changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) were identified that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. -21- PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS For a description of the Company's legal proceedings, see Note 9 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 June 21, 2003, the Company entered into a new employment contract (attached herewith as Exhibit 10.4) with Christopher N. O'Sullivan, pursuant to which he continues to serve as the Company's President and Chairman. 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 - ------------ ------- 10.1* - Supplemental Agreement between ICO, Inc. and Timothy J. Gollin dated June 19, 2003. 10.2* - Amendment to Supplemental Agreement between ICO, Inc. and Timothy J. Gollin, dated July 14, 2003 10.3* - Agreement between ICO, Inc. and Timothy J. Gollin dated July 18, 2003 10.4* - Employment Agreement between ICO, Inc. and Christopher N. O'Sullivan, dated June 21, 2003 10.5* - Amendment to Employment Agreement, between ICO, Inc. and Christopher N. O'Sullivan, dated July 23, 2003 31.1* - Certification of Chief Executive Officer and ICO, Inc. pursuant to 15 U.S.C. Section 7241 31.2* - Certification of Chief Financial Officer and ICO, Inc. pursuant to 15 U.S.C. Section 7241 32.1* - Certification of Chief Executive Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350 32.2* - 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 May 9, 2003, the Company filed a Current Report on Form 8-K reporting on its financial results for the quarter ended March 31, 2003. -22- 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) August 14, 2003 /s/ Jon C. Biro ----------------------------------------- Jon C. Biro Chief Financial Officer and (interim) Chief Executive Officer /s/ Bradley T. Leuschner ----------------------------------------- Bradley T. Leuschner Chief Accounting Officer and (interim) Treasurer -23- EX-10.1 3 doc2.txt EXHIBIT 10.1 Supplemental Agreement This Supplemental Agreement ("Supplemental Agreement") is entered into by and between ICO, Inc., a Texas corporation, and its subsidiaries and affiliates ("Employer"), and Timothy J. Gollin ("Employee"), to be effective June 19, 2003 (the "Effective Date"). WITNESSETH: WHEREAS, Employee and Employer are parties to an Employment Agreement ("the 2001 Agreement") effective June 21, 2001; WHEREAS, the Employer has given notice that the 2001 Agreement will not be renewed, and the 2001 Agreement may thus expire on June 20, 2003; and WHEREAS, Employee and Employer desire to extend the expiration date of the 2001 Agreement to allow time to enter into a new Employment Agreement ("the 2003 Agreement"). NOW, THEREFORE, for and in consideration of the mutual promises, covenants, And obligations contained herein, Employer and Employee agree as follows: 1. Employer and Employee wish to continue their employment relationship beyond June 20, 2003. To that end, the parties have engaged in negotiations regarding the terms of a new Employment Agreement but as of the effective date of this Supplemental Agreement the parties have not yet executed the 2003 Agreement. 2. The parties desire to continue their negotiations. As consideration for Employee's agreement to continue negotiations regarding the 2003 Agreement and to continue his employment with the Employer during such negotiations, Employer agrees (a) that it will not take further action to terminate its employment relationship with Employee effective at the close of business on June 20, 2003, (b) that beginning with the Effective Date of this Supplemental Agreement and until the earlier of the execution of the 2003 Agreement, the termination of the parties' employment relationship, or July 15, 2003, Employer will continue to pay Employee his salary and continue the benefits in place immediately prior to the Effective Date, and (c) that, if the Employer terminates the employment relationship for any reason prior to or at the close of business on July 15, 2003, or if the parties have not entered into a 2003 Agreement replacing the 2001 Agreement on or before that date, the obligations of Employer to Employee shall be the same as those obligations the Employer would have had at the close of business on June 20, 2003, if the parties had not entered into this Supplemental Agreement, but instead if the Employer had terminated the Employee on June 20, 2003, prior to the close of business. 3. In consideration for the Employer's agreement set forth in paragraph 2, above, Employee agrees (a) to continue negotiations regarding the 2003 Agreement in an effort to reach agreement on or before July 15, 2003; (b) to continue in employment with the Employer during such negotiations until July 15, 2003; and (c) that he will not assert any claim that severance or similar benefits are payable to him under the 2001 Agreement unless the parties have not entered into a 2003 Agreement replacing the 2001 Agreement before the close of business on July 15, 2003. 4. Notwithstanding anything contained in this Supplemental Agreement, and notwithstanding anything contained in the 2001 Agreement, in the event that Employee and Employer terminate the employment relationship because they cannot agree to the terms of a 2003 Agreement by the close of business on July 15, 2003, or in the event that either party terminates the employment relationship on or before the close of business on July 15, 2003 for any other reason, Employer and Employee agree that Employer will owe Employee severance pay equal to $247,500 (the "Severance Payment"), and no more or no less than that amount. 5. This Supplemental Agreement extends the expiration date of the 2001 Agreement. Except as expressly modified by this Supplemental Agreement, the terms of the 2001 Agreement remain in effect for the period of the extension. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the Effective Date. EMPLOYER: ICO, Inc. BY: /s/ Christopher N. O'Sullivan -------------------------------- Christopher N. O'Sullivan President and Chairman EMPLOYEE: /s/ Timothy J. Gollin -------------------------------- Timothy J. Gollin EX-10.2 4 doc3.txt EXHIBIT 10.2 Amendment to Supplemental Agreement This Amendment to Supplemental Agreement ("Amendment") is entered into by and between ICO, Inc., a Texas corporation, and its subsidiaries and affiliates ("Employer"), and Timothy J. Gollin ("Employee"), to be effective July 14, 2003 (the "Effective Date"). WITNESSETH: WHEREAS, Employee and Employer are parties to an Employment Agreement ("the 2001 Agreement") effective June 21, 2001, and a Supplemental Agreement (the "Supplemental Agreement") effective June 19, 2003, supplementing the terms of the referenced 2001 Agreement; WHEREAS, Employee and Employer desire to amend the Supplemental Agreement, as set forth herein. NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: 1. All references to "July 15, 2003" contained in paragraphs 2, 3, and 4 of the Supplemental Agreement are hereby specifically changed to "August 15, 2003." 2. Except as expressly modified by this Amendment, the terms and conditions in the Supplemental Agreement remain in effect. IN WITNESS WHEREOF, Employer and Employee have duly executed this Amendment in multiple originals to be effective on the Effective Date. EMPLOYER: ICO, Inc. BY: /s/ Christopher N. O'Sullivan -------------------------------- Christopher N. O'Sullivan President and Chairman EMPLOYEE: /s/ Timothy J. Gollin -------------------------------- Timothy J. Gollin EX-10.3 5 doc4.txt EXHIBIT 10.3 AGREEMENT This Agreement (this "Agreement") is entered into by and between ICO, Inc., a Texas corporation, and its subsidiaries and affiliates ("Company"), and Timothy J. Gollin ("Gollin"), to be effective June 18, 2003 (the "Effective Date"). WHEREAS, Gollin resigned from his employment and positions with the Company, effective July 17, 2003; WHEREAS, in connection with the termination of Gollin's employment relationship with the Company, the Company is contractually obligated to pay Gollin the sum of $247,500 (the "Severance Payment"), and no more or less than that amount, and the parties desire to enter into an agreement regarding timing of the severance payment; and WHEREAS, the parties desire to enter into a consulting agreement, pursuant to which Gollin may provide consulting services on an independent contractor basis following the termination of his employment with Company; NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, Company and Gollin agree as follows: 1. Timing of Severance Payment: The parties agree that the Severance Payment shall be paid out over a six-month period, as follows: Amount Date of Payment ------ ----------------- $82,500: Immediately upon Company's receipt of this Agreement, executed by Gollin. $27,500 August 15, 2003 $27,500 September 15, 2003 $27,500 October 15, 2003 $27,500 November 17, 2003 $27,500 December 15, 2003 $27,500 January 15, 2004 In addition to the above-referenced Severance Payment, Company agrees to pay up to $10,000 of Gollin's legal fees incurred with George Bostick and/or the law firm Sutherland Asbill & Brennan LLP. for services provided on or before the date of this Agreement. 2. Consulting Agreement During the six month period following the Effective Date of this Agreement, or until Gollin accepts full-time employment with another company, whichever occurs first, the following shall apply: a) Gollin shall provide Company with consulting advice and services on mutually agreed topics on an as-needed basis. The Company shall have no obligation to pay Gollin any consulting service fees unless expressly agreed to in writing by Company. Gollin acknowledges and agrees that, unless otherwise agreed to in writing by the Company, the consideration set forth in paragraphs 2(b) and 2(c) constitutes consideration for any consulting services performed by Gollin. The Company and Gollin agree that as a consultant Gollin will be an independent contractor. b) Company shall provide Gollin with the use of an office and a phone line at Company's corporate offices, e-mail via Company's server, use of a cell phone, and use of a laptop computer. Gollin shall be responsible for monthly cell phone charges in excess of $200 per month, unless expressly agreed to in writing by Company. Gollin's out-of-pocket and other expenses incurred in connection with the provision of consulting services shall not be paid or reimbursed by the Company unless expressly agreed to in writing by the Company prior to Gollin's incurring same. c) Company shall pay or reimburse Gollin for the cost of COBRA for continuance of health and dental insurance coverages for Gollin and his children. IN WITNESS WHEREOF, Company and Gollin have duly executed this Agreement in multiple originals to be effective on the Effective Date. ICO, Inc. /s/ Jon C. Biro ---------------------------------- Jon C. Biro Chief Financial Officer and Interim Chief Executive Officer /s/ Timothy J. Gollin ---------------------------------- Timothy J. Gollin EX-10.4 6 doc5.txt EXHIBIT 10.4 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into by and between ICO, Inc., a Texas corporation, and its subsidiaries and affiliates ("Employer"), and Christopher N. O'Sullivan ("Employee"), to be effective on June 21, 2003 (the "Effective Date"). WITNESSETH: WHEREAS, Employee shall continue to be employed by Employer on the Effective Date; and WHEREAS, Employer desires to employ Employee from and after the Effective Date, pursuant to the terms and conditions and for the consideration set forth in this Agreement, and Employee desires to be employed by Employer pursuant to such terms and conditions and for such consideration. NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: ARTICLE 1: EMPLOYMENT AND DUTIES: 1.1 Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning as of the Effective Date and continuing until the date of termination of Employee's employment pursuant to the provisions of Article 3 ("Employment Period"), subject to the terms and conditions of this Agreement. 1.2 As of the Effective Date, Employee shall continue to be employed as Chairman of the Board and President of ICO, Inc. Employee agrees to serve in the assigned positions or in such other key contributor capacities as may be requested from time to time by Employer, and to perform diligently and to the best of Employee's abilities the duties and services pertaining to such positions as reasonably determined by Employer, as well as such additional or different duties and services appropriate to such positions which Employee from time to time may be reasonably directed to perform by Employer. 1.3 Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.4 The Employee agrees to devote reasonable attention and time to the business and affairs of the Company, and, to the extent necessary to discharge the responsibilities assigned to the Employee hereunder, to perform faithfully and efficiently such responsibilities. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder or is contrary to the interest of Employer or any of its affiliated subsidiaries and divisions, including Employer. The foregoing notwithstanding, the parties recognize and agree that Employee may engage in active or passive personal investments and other business activities which do not conflict with the business and affairs of the Employer or interfere with Employee's performance of his duties hereunder. Employee shall be permitted to retain any compensation received for approved service on any unaffiliated corporation's board of directors. 1.5 Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of the Employer and its affiliates and to do no act which would, directly or indirectly, injure any such entity's business, interests, or reputation. In keeping with Employee's fiduciary duties to Employer, Employee agrees that Employee shall not knowingly become involved in a conflict of interest with Employer or upon discovery thereof, allow such a conflict to continue. Moreover, Employee shall not engage in any activity which might involve a possible conflict of interest without first obtaining approval in accordance with Employer's policies and procedures. ARTICLE 2: COMPENSATION AND BENEFITS: 2.1 During the Term of this Agreement (as defined in Article 3.1 below), the Employee shall receive a base salary ("Base Salary") of One Hundred and Eight Thousand Dollars ($108,000) per annum payable bi-weekly. During the Term, the Base Salary shall be reviewed annually and may be increased to reflect at a minimum increases in the cost of living. Any increase in the Base Salary shall not serve to limit or reduce any other obligation to the Employee under this Agreement. The Base Salary shall not be reduced after any such increase during the Term without the consent of the Employee. 2.2 In addition to the Base Salary, the Employee shall be eligible, for each fiscal year during the Term, to receive incentive compensation in accordance with the terms of the Senior Manager Incentive Plan to be adopted by the Board of Directors of ICO, Inc. or the Compensation Committee thereof. Employee acknowledges that the Board retains the absolute discretion to adopt and from time to time to modify the Senior Manager Incentive Plan or any other incentive plan. Any incentive compensation shall be payable in January of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless otherwise agreed between the Employer and the Employee. Although the Board of Directors of ICO, Inc. has not yet approved the Senior Manager Incentive Plan, the Board anticipates adopting a plan containing terms and conditions similar to those set forth in the letter from Jon C. Biro to Employee attached hereto as Exhibit A. 2.3 The Employee shall be entitled to participate, during the Employment Period, in all incentive, savings and retirement plans and programs, if any, that may be adopted by the Board specifically for key executives of the Company. 2.4 During the Employment Period, Employee shall be entitled to receive stock options under and subject to the terms of the Company's then existing stock option plans in an amount and under such terms as the Board of Directors or the Compensation Committee thereof shall determine. 2.5 During the Employment Period, the Employee and/or the Employee's dependent family, as the case may be, shall be eligible for participation in and shall receive all benefits under each welfare benefit plan of ICO, Inc. and its U.S. subsidiaries, including, without limitation, all medical, dental, disability, group life, accidental death and travel accident insurance plans and programs of the Company, as in effect immediately preceding the Effective Date or as in effect at any time thereafter with respect to other key employees. 2.6 During the Employment Period, the Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the policies and procedures of the Company as in effect immediately preceding the Effective Date or as in effect at any time thereafter with respect to other key employees. 2.7 During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the policies of the Company as in effect immediately preceding the Effective Date or as in effect at any time thereafter with respect to other key employees. In lieu of use of a Company vehicle, and maintenance, repair, insurance, and fuel charges associated therewith, the Employee shall receive a monthly vehicle allowance in the sum of $1,330.00 ("Vehicle Allowance"), paid in advance on the first payday of each month. The Vehicle Allowance shall be periodically adjusted to reflect inflation. As reimbursement for fuel and vehicle-related charges incurred by Employee when using Employee's personal vehicle on Company business, Employee shall be reimbursed at the IRS reimbursement rate of $0.365 per mile (or the prevailing rate). 2.8 During the Employment Period, the Employee shall be entitled to annual paid vacation that in no event shall be less than four weeks per year. 2.9 During the Term, the Employer will maintain term life insurance on behalf of the Employee for the benefit of persons designated as beneficiaries by Employee in the amount of $1,000,000. 2.10 Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. ARTICLE 3: TERM; TERMINATION OF EMPLOYMENT AND EFFECTS OF SUCH TERMINATION: 3.1 The term of this Agreement shall begin on the Effective Date and continue until September 30, 2004 (the "Term"). The Term shall thereafter be extended for an additional twelve months on the same terms contained herein and in effect as of such time of renewal unless Employer or Employee gives notice at least sixty days prior to the end of the Term or any extended Term that one or both of them does not intend to renew the Agreement. If such nonrenewal notice is given by the Employer, then the provisions of Article 3.7 shall be applicable. 3.2 Employee's employment with Employer shall be terminated (i) upon the death of Employee, (ii) upon Employee's Retirement (as defined below), (iii) upon Employee's Permanent Disability (as defined below), or (iv) at any time by Employer upon notice to Employee, or by Employee upon thirty (30) days notice to Employer, for any or no reason. 3.3 If Employee's employment is terminated by reason of any of the following circumstances, Employee shall not be entitled to receive the benefits set forth in Article 3.4 hereof: (a) Death. (b) Retirement. "Retirement" shall mean either (a) Employee's retirement at or after normal retirement age (either voluntarily or pursuant to Employer's retirement policy) or (b) the voluntary termination of Employee's employment by Employee in accordance with Employer's early retirement policy for other than Good Reason (as defined below). (c) Permanent Disability. "Permanent Disability" shall mean Employee's physical or mental incapacity to perform his usual duties with such condition likely to remain continuously and permanently as determined by the Board of Directors. (d) Voluntary Termination. "Voluntary Termination" shall mean a termination of employment in the sole discretion and at the election of Employee for other than Good Reason. "Good Reason" shall mean a termination of employment by Employee because of a material breach by Employer of any material provision of this Agreement which remains uncorrected for thirty (30) days following notice ("notice period") of such breach by Employee to Employer, provided such termination occurs within sixty (60) days after the expiration of the notice period. In the event of termination for Good Reason, Article 3.3 will apply. (e) Termination for Cause. Termination of Employee's employment by Employer for cause. The term "for cause" includes (i) any act or acts of dishonesty or fraud; (ii) knowing violations of any written policy of the Company or applicable to Employer's operations; (iii) violations of applicable laws, rules or regulations that expose the Company to damages or liability; (iv) any material breach by Employee of any material provision of this Agreement which remains uncorrected for thirty (30) days following notice of such breach by Employer to Employee; and (v) breach of fiduciary duty. In the event Employee's employment is terminated under any of the foregoing circumstances, all future compensation to which Employee is otherwise entitled and all future benefits for which Employee is eligible shall cease and terminate as of the date of termination, except as specifically provided in this Article 3.3. Employee, or his Estate in the case of Employee's death, shall be entitled to pro rata base salary through the date of such termination and shall be entitled to any individual bonuses or individual incentive compensation declared but not yet paid but payable under Employer's plans for years prior to the year of Employee's termination of employment, and any bonus or incentive compensation declared and payable but not yet paid for the year in which Employee terminates employment. Any other payments or benefits by or on behalf of Employer are limited to those which may be payable pursuant to the terms of Employer's employee benefit plans (as defined in Article 3.5), incentive plans, or the applicable agreements underlying such plans. 3.4 If Employee's employment is terminated by Employer or Employee for any reason other than as set forth in Article 3.3 above, Employer shall pay to Employee a severance benefit consisting of a single lump sum cash payment equal to one half of the Employee's Base Salary. The lump sum payment shall be made no later than sixty (60) days following the date of the applicable termination of employment. Furthermore, Employee shall be entitled to any individual bonuses or individual incentive compensation declared and payable but not yet paid under Employer's plans for years prior to the year of Employee's termination of employment for any reasons other than as set forth in Article 3.3 above. Such amounts shall be paid to Employee in a single lump sum cash payment along with the payment of the lump sum severance payment described in this Article. 3.5 The severance benefit paid to Employee pursuant to Article 3.4 shall be in consideration of Employee's continuing obligations hereunder after such termination, including, without limitation, Employee's obligations under Article 4. Further, as a condition to the receipt of such severance benefit, Employee agrees that any and all claims and any and all causes of action of any kind or character, including, but not limited to, all claims and causes of action arising out of Employee's employment with Employer and any of its affiliates or the termination of such employment or any actions by the officers, directors, employees, and agents of Employer shall be resolved through a dispute resolution process as provided in Article 5.5 hereof. Employee shall not be under any duty or obligation to seek or accept other employment following a termination of employment pursuant to which a severance benefit payment under Article 3.4 is owing, and the amount due Employee pursuant to Article 3.4 shall not be reduced or suspended if Employee accepts subsequent employment or earns any amounts as a self-employed individual. Employee's rights under Article 3.4 are Employee's sole and exclusive rights against the Employer or its affiliates and the Employer's sole and exclusive liability to Employee under the Agreement, in contract, tort, or otherwise, for the termination of Employee's employment relationship with Employer. Employee agrees that all disputes relating to Employee's termination of employment, including, without limitation, any dispute as to "cause" or "voluntary termination" and any claims or demands against Employer based upon Employee's employment for any monies other than those specified in Article 3.4, shall be resolved through a dispute resolution process as provided in Article 5.5 hereof. The decisions as to whether and as of what date Employee has become permanently disabled are delegated to the Board of Directors for determination, and any dispute of Employee with any such decision shall be limited to whether the Board of Directors reached such decision in good faith. Nothing contained in this Article 3 shall be construed to be a waiver by Employee of any benefits accrued for or due Employee under any employee benefit plan (as such term is defined in the Employees' Retirement Income Security Act of 1974, as amended) maintained by Employer except that Employee shall not be entitled to any severance benefits pursuant to any severance plan or program of the Employer. 3.6 Termination of the employment relationship does not terminate those obligations imposed by this Agreement that are continuing obligations, including Employee's obligations under Article 4. 3.7 In the event this Agreement is not renewed as a consequence of a termination notice from the Employer to Employee (other than for cause) pursuant to Article 3.1, then the Employee would upon such termination be entitled to receive a severance payment in the amount of one half of the annual Base Salary immediately prior to such termination. If either the Employer or Employee wish to continue their employment relationship after the Term or extended Term but on terms and conditions that differ from those set forth in this Agreement, the Employer or Employee shall send notice of non-renewal and the employment relationship will continue after the Term as an at-will employment relationship while the Employer and Employee attempt in good faith to reach agreement concerning the terms and conditions of a new employment agreement. ARTICLE 4: OWNERSHIP AND PROTECTION OF INTELLECTUAL PROPERTY AND CONFIDENTIAL INFORMATION: 4.1 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer or any of its affiliates (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to the business, products or services of Employer or its affiliates (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks), and all writings or material of any type embodying any of such items, shall be the sole and exclusive property of Employer or its affiliates, as the case may be. 4.2 Employee acknowledges that the businesses of Employer and its affiliates are highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates, all comprise confidential business information and trade secrets which are valuable, special, and unique assets which Employer or its affiliates use in their business to obtain a competitive advantage over their competitors. Employee further acknowledges that protection of such confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Employer and its affiliates in maintaining their competitive position. Employee hereby agrees that Employee will not, at any time during or after his employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its affiliates, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. Confidential business information shall not include information in the public domain (but only if the same becomes part of the public domain through a means other than a disclosure prohibited hereunder). The above notwithstanding, a disclosure shall not be unauthorized if (i) it is required by law or by a court of competent jurisdiction or (ii) it is in connection with any judicial arbitration, dispute resolution or other legal proceeding in which Employee's legal rights and obligations as an employee or under this Agreement are at issue; provided, however, that Employee shall, to the extent practicable and lawful in any such events, give prior notice to Employer of his intent to disclose any such confidential business information in such context so as to allow Employer or its affiliates an opportunity (which Employee will not oppose) to obtain such protective orders or similar relief with respect thereto as may be deemed appropriate. 4.3 All written materials, records, and other documents made by, or coming into the possession of, Employee during the period of Employee's employment by Employer which contain or disclose confidential business information or trade secrets of Employer or its affiliates shall be and remain the property of Employer, or its affiliates, as the case may be. Upon termination of Employee's employment by Employer, for any reason, Employee shall promptly deliver the same and all copies thereof, to Employer. 4.4 For purposes of this Article 4 only, "affiliates" shall mean entities in which Employer has a 10% or more direct or indirect equity interest. 4.5 This Article 4 does not prohibit employment or consultation with any other organization after termination from Employer or any of its affiliates, but defines the obligations of confidentiality and protection of the intellectual property owned by Employer or its affiliates agreed to and imposed on Employee by this Agreement. ARTICLE 5: MISCELLANEOUS: 5.1 For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when received by or tendered to Employee or Employer, as applicable, by prepaid courier or by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer, to the attention of the Compensation Committee of the Board of Directors of ICO, Inc. 5333 Westheimer, Suite 600 Houston, Texas 77056 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. If to Employee, to his last known personal residence. 5.2 This Agreement shall be governed by and construed and enforced, in all respects in accordance with the law of the State of Texas, without regard to principles of conflicts of law, unless preempted by federal law, in which case federal law shall govern; provided, however, that the dispute resolution process in Article 5.5 shall govern in all respects with regard to the resolution of disputes hereunder. 5.3 No failure by either party hereto at any time to give notice of any breach by the other party of or to require compliance with any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 5.4 It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 5.5 It is the mutual intention of the parties to have any dispute concerning this Agreement resolved out of court. Accordingly, the parties agree that any claim or controversy of whatever nature arising from or relating in any way to this Agreement or the employment of the Employee by the Company, and any continuing obligations under this Agreement, including disputes arising under the common law or federal or state statutes, laws or regulations and disputes with respect to the arbitrability of any claim or controversy, shall be resolved exclusively by final and binding arbitration before a single experienced employment arbitrator selected in accordance with the Employment Dispute Resolution ("EDR") Rules of the American Arbitration Association ("AAA"). The arbitration will be conducted pursuant to the EDR Rules of the AAA, and the arbitrator shall have full authority to award or grant all remedies provided by law. The judgment upon the award may be enforced by any court having jurisdiction thereof. Each party shall pay the fees of their respective attorneys, the expenses of their witnesses, and any other expenses incurred by such party in connection with the arbitration; provided, however, that Employer shall pay for the fees of the arbitrator and the administrative and filing fees charged by the AAA. However, either party, on its own behalf and on behalf of any other employer, shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any breach or the continuation of any breach of the provisions of herein. The parties agree that an injunction shall be in effect until the subject matter of the dispute can be resolved through mutual agreement or binding arbitration. 5.6 This Agreement shall be binding upon and inure to the benefit of Employer, to the extent herein provided, and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of Employer by any means, whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of Employer, other than in the case of death or incompetence of Employee. 5.7 This Agreement replaces and extinguishes any previous agreements and discussions pertaining to the subject matter covered herein. This Agreement constitutes the entire agreement of the parties with regard to the terms of Employee's employment, termination of employment and severance benefits, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to the foregoing matters, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by Employer that is not contained in this Agreement shall be valid or binding, except as set forth in any applicable employee benefit plan. It is understood that, by signing below, Employee acknowledges that this Agreement supercedes any agreements or understandings regarding the subject matter covered herein made prior to the Employee signing this document. Any modification of this Agreement will be effective only if it is in writing and signed by each party whose rights hereunder are affected thereby, provided that any such modification must be authorized or approved by the Board of Directors or its delegate, as appropriate. By signing this Agreement Employee is relying solely on his own judgment, and states that he has been represented by his own legal counsel in connection with this Agreement, who has read and explained to Employee the entire contents of this Agreement, as well as explained the legal consequences pertaining to this Agreement. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the Effective Date. EMPLOYER: ICO, Inc. BY: /s/ Jon C. Biro ----------------------------------------- Jon C. Biro Chief Financial Officer and Treasurer EMPLOYEE: /s/ Christopher N. O'Sullivan ----------------------------------------- Christopher N. O'Sullivan EX-10.5 7 doc6.txt EXHIBIT 10.5 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment ("Amendment") is made and effective on July 23, 2003. WHEREAS, effective June 21, 2003, ICO, Inc., a Texas corporation, and its subsidiaries and affiliates ("Employer"), and Christopher N. O'Sullivan ("Employee") entered in to an Employment Agreement ("Agreement"); and WHEREAS, the parties desire to amend the Agreement, as set forth herein. NOW, THEREFORE, Employer and Employee agree as follows: 1. Article 2.9 of the Agreement is hereby deleted. 2. All terms and conditions in the Agreement that are not amended by this Amendment continue to be in full force and effect. IN WITNESS WHEREOF, Employer and Employee have duly executed this Amendment in multiple originals, to be effective on the date set forth above. EMPLOYER: ICO, Inc. BY: /s/ Jon C. Biro ----------------------------------------- Jon C. Biro Chief Financial Officer and Treasurer EMPLOYEE: /s/ Christopher N. O'Sullivan ----------------------------------------- Christopher N. O'Sullivan EX-31.1 8 doc7.txt EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER ICO, INC. PURSUANT TO 15 U.S.C. 7241 I, Jon C. Biro, certify that: 1. I have reviewed this report on Form 10-Q of ICO, Inc. (the "Company") for the period ending June 30, 2003; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Jon C. Biro - ---------------------------------------- Name: Jon C. Biro (Interim) Chief Executive Officer Date: August 14, 2003 EX-31.2 9 doc8.txt EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER ICO, INC. PURSUANT TO 15 U.S.C. 7241 I, Jon C. Biro, certify that: 1. I have reviewed this report on Form 10-Q of ICO, Inc. (the "Company") for the period ending June 30, 2003; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of t he registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Jon C. Biro - -------------------------------- Name: Jon C. Biro Chief Financial Officer Date: August 14, 2003 EX-32.1 10 doc9.txt EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER ICO, INC. PURSUANT TO 18 U.S.C. 1350 In connection with the accompanying report on Form 10-Q for the period ending June 30, 2003 and filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jon C. Biro, the (interim) Chief Executive Officer of ICO, Inc. (the "Company"), hereby certify, to my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company in respect of those items required to be described or presented in such Report under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934. /s/ Jon C. Biro - ------------------------ Name: Jon C. Biro Date: August 14, 2003 This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be a part of the Report or "filed" for any purpose whatsoever. EX-32.2 11 doc10.txt EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER ICO, INC. PURSUANT TO 18 U.S.C. 1350 In connection with the accompanying report on Form 10-Q for the period ending June 30, 2003 and filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jon C. Biro, the Chief Financial Officer of ICO, Inc. (the "Company"), hereby certify, to my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company in respect of those items required to be described or presented in such Report under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934. /s/ Jon C. Biro - ------------------------ Name: Jon C. Biro Date: August 14, 2003 This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be a part of the Report or "filed" for any purpose whatsoever. -----END PRIVACY-ENHANCED MESSAGE-----