ICO, Inc. Announces Fiscal 2003 Fourth Quarter
and Fiscal Year Results
Ø Business outlook improving
Ø Company expects to report operating income before charges for the quarter ended December 31, 2003, a substantial year-over-year improvement
Ø Company updates progress on cost reduction plan
Ø Fourth quarter results include $12,008,000 of charges
HOUSTON, TEXAS, December 15, 2003 – ICO, Inc. (NASDAQ:ICOC) announced fiscal year 2003 and fourth quarter fiscal year 2003 financial results today. ICO reported fiscal year 2003 revenues of $206,614,000, an operating loss from continuing operations of ($22,611,000), including impairment, restructuring and other costs of $12,814,000, loss from continuing operations before cumulative effect of change in accounting principle of ($20,855,000) or ($.86) per share and net loss of ($50,092,000) or ($2.04) per share. For the quarter, ICO reported revenues of $53,446,000, an operating loss from continuing operations of ($14,617,000) including $12,008,000 of impairment, restructuring and other costs and loss from continuing operations of ($12,384,000) or ($.50) per share. Including discontinued operations, net loss was ($12,918,000) or ($.52) per share for the quarter.
Results of Operations
Impairment, Restructuring and Other Costs
Impairment, restructuring and other costs in the fourth quarter of 2003 were $12,008,000 related to an impairment of fixed assets of $11,267,000 and severance expenses of $823,000, offset by an $82,000 gain on early lease termination. The fixed asset impairment was due to a charge of $10,378,000 brought about due to continued operating losses at certain ICO Polymers locations in Europe and North America and an impairment related to capitalized software development costs of $889,000. The severance expenses were related to the resignation of the Company’s Chief Executive Officer and severance payments related to other employee terminations.
Year-over-year quarter comparison
Revenues increased $3,653,000 or 7% compared to the fourth quarter of fiscal 2002. The year-over-year revenue increase was primarily due to the strengthening of the Euro and other foreign currencies relative to the U.S. Dollar which increased revenues by $3,900,000. Fourth quarter fiscal 2003 product sales volumes of ICORENETM and COTENETM rotational molding powders increased 25%, compared to the same quarter last year. Offsetting these increases was a decline in revenues caused by a change in revenue mix within the Company’s North American concentrates manufacturing operation and a reduction in toll processing volumes.
Gross profit declined $49,000 or 1% and gross margins declined from 16.6% to 15.4%. These declines were caused by weak operating performance of the Company’s European operations due to a decline in volumes and inventory reserves of $513,000 relating to slow moving inventory. Additionally, a revenue mix change, caused by an increase in product sales and a decline in toll service revenues, and lower average selling prices reduced gross profits and margins. An improvement in gross margins at the Company’s North American concentrates manufacturing operation partially offset the factors discussed above.
Selling, general and administrative expenses increased $489,000 or 6% during the fourth quarter of fiscal 2003, due mostly to the strengthening of the Euro and other foreign currencies versus the U.S. Dollar which had the effect of increasing selling, general and administrative expenses by $500,000. Due to the decline in gross profit and increase in selling, general and administrative expenses, EBITDA (see reconciliation of financial data) declined $543,000 to a loss of ($133,000) for the quarter. The strengthening Euro and other currencies had a minimal impact on EBITDA during the quarter.
Operating loss increased from a loss of ($3,625,000) during the fourth quarter of 2002 to a loss of ($14,617,000) due to the factors discussed above.
Loss from continuing operations before cumulative effect of change in accounting principle increased $6,329,000 to a loss of ($12,384,000) due to the operating loss increase discussed above, offset by a reduction in net interest expense of $2,358,000 or 78%. Net interest expense declined due to the repayment of $104,480,000 of the Company’s 10 3/8% Senior Notes due 2007, during the first quarter of fiscal 2003.
Sequential quarter comparison
Revenues declined $970,000 or 2% due to lower volumes in Europe due to the usual summer vacation period and a decline in average sales prices in Europe due to lower resin prices, offset by an increase in volumes and revenues in the Company’s North American concentrates manufacturing operation. Lower revenues produced lower gross profit which declined $211,000 or 3%, to $8,217,000 during the fourth quarter. Selling, general and administrative expenses decreased $513,000 or 6%, due to the cost reduction plan implemented in late fiscal year 2003. EBITDA improved $311,000 or 70% due to the factors above. Due to these changes and the impairment, restructuring and other costs of $12,008,000, operating loss increased to a loss of ($14,617,000) compared to the third quarter fiscal 2003 loss of ($3,623,000).
Liquidity
During the fourth quarter, cash balances increased $2,562,000 to $4,114,000. The increase was due to the sale of the Company’s remaining oilfield services location in July 2003 for $4,053,000 in cash, a decline in accounts receivable of $4,654,000, a decline in inventory of $1,667,000, an increase in accounts payable of $1,620,000 offset by capital expenditures of $1,100,000 and a decline of $7,470,000 in short-term borrowings.
Borrowing capacity available under the Company’s existing credit arrangements increased $5,010,000 during the fourth quarter to $16,360,000 as of September 30, 2003.
Business Outlook and Cost Reduction Plan Update
“We are now beginning to see the benefits of our cost reduction program,” said Jon Biro, interim Chief Executive Officer and Chief Financial Officer. “Our selling, general and administrative expenses declined on a sequential basis for the second consecutive quarter. Furthermore, our business volumes for the three months ended November 30, 2003 exceeded the volumes from the same months of the previous year, which has not been the case since July 2002. Our operations in Sweden and certain operations in the U.S., which dramatically under-performed during fiscal year 2003 are beginning to show improvement. Our North American concentrates manufacturing location and our locations in Australasia are also experiencing significant increase in volumes in the first quarter of fiscal year 2004. The annualized cost reductions implemented during the fourth quarter of approximately $6,500,000 will also improve our earnings. Despite the traditional holiday period during December, we expect to generate modest operating income before charges during our first fiscal quarter of 2004, a significant improvement compared to the first and fourth quarters of fiscal 2003.”
The $6,500,000 of annualized cost reductions were made at the Company’s corporate headquarters ($3,200,000), ICO Polymers North American locations ($1,500,000) and European locations ($1,800,000). Of the $6,500,000 in cost reductions, $5,400,000 relates to reduced selling, general and administrative expenses. Additional cost reductions are planned for fiscal year 2004.
Preferred Dividend
The Company’s Dividend Committee of the Board of Directors has determined not to declare any dividend on its depositary shares, each representing ¼ of a share of $6.75 convertible preferred stock, for the quarter ending on December 31, 2003. These securities trade on the NASDAQ National Market System under the symbol "ICOCZ.”
Conference Call on the Web
A live Internet broadcast of ICO, Inc.’s conference call regarding fiscal 2003 fourth-quarter and year-end earnings can be accessed at 10:00 a.m. Central time on Tuesday, December 16, 2003 at
www.firstcallevents.com, where the webcast replay will be archived.
Company Information
Through twenty plants worldwide, ICO Polymers produces and markets ICORENE™ and COTENE™ rotational molding powders, as well as ICOFLO™ powdered processing aids and ICOTEX™ powders for textile producers. ICO additionally provides WEDCO™ size reduction services for specialty polymers. ICO’s Bayshore Industrial subsidiary produces specialty compounds, concentrates, and additives primarily for the film industry.
This press release contains forward-looking statements, which are not statements of historical facts and involve certain risks, uncertainties and assumptions. These include, but are not limited to, demand for the Company's services and products, business cycles and other industry conditions, prices of commodities, international risks, operational risks, strategic alternatives available to the Company, and other factors detailed in the Company's form 10-K for the fiscal year ended September 30, 2002 and its other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated.
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