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Executives

John Knapp – President and CEO

Charlotte Ewart – General Counsel and Secretary

Brad Leuschner – CFO and Treasurer

Analysts

Christopher Butler – Sidoti & Company

Jackson Spears – The Robins Group

ICO, Inc. (ICOC) F2Q09 (Qtr End 03/31/09) Earnings Call Transcript May 8, 2009 11:00 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to the Second Quarter Fiscal Year 2009 Earnings Report Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. John Knapp. Mr. Knapp, you may begin.

John Knapp

Thank you. Welcome to the second quarter of fiscal ‘09 conference call for ICO. With me today are Charlotte Ewart, our General Counsel, and Brad Leuschner, our Chief Financial Officer. Before we turn to the substantive matters, let’s listen to Charlotte.

Charlotte Ewart

Thanks, John. Please note that information reported on this call speaks only as of today, May 8, 2009, and therefore you are advised that time sensitive information may no longer be accurate at the time of any replay listening. Also I must caution everyone listening that certain matters discussed in this conference call are forward-looking statements, intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. In particular, statements regarding trends in the marketplace and potential future results are examples of such forward-looking statements.

The forward-looking statements include risks and uncertainties, including but not limited to, restrictions imposed by the company’s outstanding indebtedness, changes in the cost and availability of polymers, demands for the company’s services and products, business cycles and other industry conditions, the company’s ability to manage inventories, the company's ability to develop technology and proprietary know-how, the company's lack of asset diversification, it's ability to attract and retain key personnel, litigation risk, risk related to the company's former oilfield services business, international risks, operational risks, currency translation risks, and other factors detailed in our most recently filed Form 10-K.

The factors discussed on this conference call and expressed from time to time in the company’s filings with the Securities and Exchange Commission could cause actual results and developments to be materially different from those expressed in this call. Any forward-looking statements made during this call are only made as of the date of this call, and the company undertakes no obligation to properly update or revise any forward-looking statements to reflect subsequent events or circumstances.

During today's call, management will discuss both GAAP and non-GAAP financial measures. With regard to the non-GAAP financial measures discussed in this call, including net income, loss as adjusted, net income/loss per common share as adjusted, operating income/loss as adjusted and net debt, please refer to the press release issued yesterday on May 7, 2009 which can be found on the company's website for disclosures about these measures and for reconciliation to the most directly comparable GAAP financial measures.

And back to you John.

John Knapp

Thank you, Charlotte. Now Brad will review the financials.

Brad Leuschner

All right. Thank you, John. Good morning everyone.

Let me begin by discussing the comparison of the second quarter results of 2009 to the second quarter results of 2008. For the three months ended March 31, 2009, revenues decreased 37% or $42 million to 70.1 million. This decrease was the result of a 23% decrease in volumes sold which reduced revenues by $18 million, lower average selling prices as a result of lower raw material costs which reduced revenues by $13.8 million, and the translation effect of the stronger US dollar which reduced revenues by $10.2 million.

The decline in volumes was the result of reduced customer demand throughout all the regions we operate in as a result of the global economic slowdown. We believe that customers are operating with lean inventory positions due to the uncertainty of demand, as well as uncertainties surrounding resin prices. Primarily as a result of the decline in volumes, our gross profit declined $7.4 million or 38%. Our gross margins were 16.9% in the second quarter, down slightly from the 17.2% experienced in the second quarter of 2008. Our SG&A was down $1.4 million or 13% due to the translation effect of the stronger US dollar, lower compensation costs, offset by higher bad debt expense. During the second quarter of fiscal 2009, we recognized $500,000 of bad debt expense associated with two of our customers in Australia filing for bankruptcy.

During the second quarter, we recognized a non-cash goodwill impairment charge of $3.5 million. This non-cash charge related to goodwill that was on the books of our Australia and New Zealand reporting units. The operating performance of those two reporting units combined with a weaker outlook as a result of the global economic slowdown and highly competitive market along with the decline in the market value of our stock caused the goodwill impairment. The impairment resulted in the write off of all goodwill for those two reporting units leaving goodwill on our books of $4.5 million that relates solely to Bayshore industrial reporting unit.

In the second quarter of the prior year, our results included a net benefit of $1.6 million from insurance proceeds. Our interest expense declined $561,000 or 51% as a result of our lower debt levels which are down 49% from March 31, 2009 to March 31, 2008. Our net debt is down even further, our net debt at March 31, 2009, was 18.1 million compared to net debt at March 31, 2008 of 65.1 million, a decline of $47 million or 72%. Including the goodwill impairment, we reported a net loss of $3 million during the quarter or a loss of $0.11 per share. Excluding the non-cash goodwill impairment charge, our net income was 432,000 or two cents per share compared with $5 million on $0.18 in the second quarter of fiscal 2008.

Looking at our business segments, operating profits were down in all segments primarily due to volume declines. With the exception of ICO Asia-Pacific, all of our business segments were profitable at the operating income level. The loss of $5 million in our Asia-Pacific segment includes the goodwill impairment of $3.5 million. Excluding the goodwill impairment, the Asia-Pacific segment lost 1.5 million, a result of lower volumes, lower margins, closing related costs from our plant in Dubai that was closed in January and bad debt expense of $450,000.

Now turning to the sequential quarterly comparison, revenues declined $9.2 million or 12%. The decrease was caused by lower average selling prices due to lower raw material prices. This had a $13 million effect on revenues. Although our overall volumes were flat from the first quarter, we did have an increase in product sales volumes of 2%, which increased revenues by $5 million. Resin prices were stable in the second quarter after the dramatic and rapid fall in the first quarter which allowed us to improve our gross margins from 12.7% in the first quarter to 16.9% in the second quarter. This fact along with the increased product sales volumes allowed us to increase our net income as adjusted to exclude the goodwill impairment by $1.5 million from a loss of 1.1 million.

Taking a look at our business segments, ICO Europe stands out as the most improved. ICO Europe benefited from the stable resin price environment during the quarter as well as an increase in volumes of 14%. The volume increase was due in part from the first quarter being impacted by seasonality as a result of the December holiday period. Bayshore and ICO Polymers North America were fairly stable compared to the December quarter in terms of operating income. Excluding the goodwill impairment, our ICO Asia Pacific region had a slightly higher operating loss than the first quarter. Within the region, our Malaysia facility performed relatively well due to a 9% improvement in volumes, and the losses from our plants in Dubai were lower by $400,000. Unfortunately, these improvements were more than offset by weaker results from our Australia plant. We didn't incur $180,000 of severance in the region and 450,000 of bad debt expense in the second quarter.

Now looking at the balance sheet, we were again very pleased with our cash flow during the quarter which led to our ability to reduce our net debt position. Our net debt fell from $31.8 million at December 31, 2008 to 18.1 million at March 31, 2009, a decline of just under $14 million or 43%. Our capital expenditures were very light during the quarter at $560,000. We would expect capital expenditures for the remainder of fiscal year 2009 to be less than $2 million which includes expenditures we will make to add a second master batch compounding line in Malaysia that we previously announced. We believe our balance sheet is very strong with cash on hand at $17.1 million, total debt outstanding of $35.2 million and with available global borrowing capacity at March 31, 2009 of $47.3 million.

John, back to you.

John Knapp

Thank you, Brad. Well, let's begin with the big picture. These are really extremely challenging economic times. Our challenges at ICO are across the globe. During the last quarter's call, I stated that we were disappointed to report losses for the quarter. This quarter, I am pleased that our core profitability is intact. As Brad has pointed out, excluding the charge to goodwill, ICO earned two cents per share. While the size of the earnings is not impressive, these earnings were achieved despite a 23% decline in volumes and recognizing $500,000 of bad debt expense. We're proud of the work of the people at ISO during these times and believe our record at producing solid returns on invested capital will continue in the long run.

And while the profit figure is not impressive in size, our cash flow, which is a key metric that we're focusing on today, is impressive. During the quarter, we generated 13.4 million in operating cash flow, including $600,000 of CapEx. This is in addition to the 12.3 million we generated in the first quarter. A majority of the cash flow benefit from lower resin prices should be behind us, so we would expect our cash flow in the current quarter to be down from the torrid pace of the two previous quarters. We believe we have a strong and improving balance sheet which should be attractive to the best of the resin producers who are our suppliers and to wise customers whose businesses require a dependable source of processed resins. Balance sheets are important.

We're focusing intensely on inventory management during these uncertain times regarding demand and commodity prices. Our inventory which peaked in December of 2007 at $78 million declined to 36 million in December of 2008. It was 33 million at the end of March. We will continue to focus on this figure. A corollary in inventory management as Brad has pointed out is management of our debt. On March 31, our net debt – of 2008 that is, a year ago, our net debt was $65 million. On September 30, it was 44 million, December 30th of last year was 32 million, at the end of March, our net debt is $18 million. We are pleased with this reduction in the net debt.

In the two previous calls I have noted that we shifted our game plan to defense rather than offense. In addition to inventory and debt, we are focused on reducing risk in the business and our operating expenses. Our overall headcount at ICO is approximately 12% lower today than it was September 30, 2008. Please note that making these reductions has been painful as we are putting some very good people out of work. We pray that this phase of being lean is coming to an end. Most salaries across the globe have been frozen and in selected cases they have been reduced. We've adjusted the number of shifts we are running in our plants to respond to the reduction in customer demand and we have reined in credit to those customers where we see risk. This process will continue and it is a balancing act.

During the second quarter, we recorded $500,000 in bad debt expense. And considering the global economic climate in which we operate today, it is possible that we may incur credit losses in future quarters. We know that our volumes have been impacted by our efforts to carefully manage credit expense. Given our core profitability that appears intact at these lower volumes and a good balance sheet, we can now return to offense. We believe that we are in a position to take advantage of opportunities that may arise during difficult economic times such as these.

Talk about volume. As you may recall and I'm often reminded measuring of business on volume alone is not really an accurate measure of the success of our business. It is however the natural statistic, easily measured, which we continue to follow. Due to movements in prices of resins and currency, it is a better measure of our business than is r revenue. In our first quarter, our volumes were down 21% from the same quarter in the previous year. This quarter they are down 23%. Volumes were flat sequentially. While we are disappointed in our volumes, we recognize the slowdown is a global reality and we anticipate that volumes will continue to be a challenge in the immediate future. We do believe that our competitive position in the market, our nimbleness and our product mix will serve to stabilize our business. While the headwinds of today's economic conditions may affect growth in the short term, we are very confident that business prospects are good over the long-term.

Margin. Those of you who listened to our calls in the past know that I for one am a margin fanatic. As I stated, it is my view that people of ICO keep most of our plants working 24 hours a day, sometimes six days a week, put forth too much effort in my opinion in anything less than a 20% gross margin and a satisfactory return on invested capital. This quarter, our margin was 16.9%, up from 12.7% in the last quarter, but down from 17.2% a year ago. This margin improvement is as we suggested it would be in the last conference call. Having stated all of the above, we believe there is ample room for improvement in margin over the long run; it just takes consistent work. Over the past three years, our average gross margin was 17.7%.

SG&A percentage. For the quarter SG&A rose to 12.8% of revenues up from 11.3% last quarter and 9.3% in quarter two of last year. At this percentage level, a SG&A is higher than we would expect to achieve in the long run. Over the last three years, SG&A has averaged 9.5% of revenues. We are carefully monitoring our SG&A spending. We have made it clear in the past that we're incurring in developing several foreign markets, including India for ICO products. We're not going to give that up.

Operations. Brad touched on some of these and I think it's appropriate to go into a little bit more. Bayshore Industrial, as suggested in all previous calls, we have got a very strong management team at Bayshore, and they continue to manage well in difficult environments. Volumes at Bayshore were down 24% from the previous year's second quarter which led to an operating income decline from the previous year's quarter from 2.8 million to 1.6 million. We see several opportunities pickup market share and are working hard on these opportunities. One should note that operating income at Bayshore averaged $13.5 million per year over the past three years.

IPNA, which is ICO Polymers North America, IPNA second quarter volumes were down significantly 38% from a year ago, affected by the slowing economy. We continue to expect IPNA to incur some volume pressure from the economy. We're confident that the management team at IPNA and our position in the market, while it may take a few quarters to shake out, we expect to see this competitive landscape improve. IPNA's operating income is $660,000 in the second quarter down from 2.9 million a year ago; that period had $1.6 million of insurance benefit. The remaining reduction was primarily volume driven. And stated consistently before, we remain enthusiastic about the oilfield product development and commercialization which is led for ICO by IPNA. Unfortunately, exploration and development in the oilfield has greatly reduced throughout the world and particularly in North America today. We suspect that it will come back in the future; the timing is uncertain. Please note that average operating income at IPNA has been $5.6 million over the past five years.

ICO Asia-Pacific which we used to call Australasia, business in Australia remains disappointing, incredibly competitive, while in Malaysia it is quite reasonable. We expect to see improvements in Australia and New Zealand over the course of the coming year as the excruciatingly competitive markets become more rational. We expect our Malaysian performance to remain reasonable as our well positioned management incurs some economic headwind.

In the previous calls, we discussed our inventory issues in Australia and New Zealand. In fact, we stated that at December 31, 2008, our inventories in this region were 1 million to 2 million more than we would have preferred. Today that figure is closer to $500,000. We are in the process of restructuring operations in Australia and New Zealand to benefit from our global resin supplier relationships, optimize production, and reduce our costs. We're already seeing improvements in this activity. And we know that these moves will improve our sustainable market position going forward, but in the short term, these resulted in severance and other costs of $200,000 in the past quarter.

As announced on the last call, we made the decision to close our operations in Dubai. We believe we have a superior mean of serving the Mideast roto markets. In light of the activity in the world of Dubai, that decision looks even better today. During the past quarter, we incurred $330,000 in costs related to the closing of Dubai. We expect these costs to be further diminished in this current quarter. The recent loss of 1.6 million in operating income in the quarter included the Dubai losses but prior to the write off of goodwill. This compares to a loss of 1.3 million in the previous quarter and an operating profit of $760,000 a year ago. Volumes processed in the region declined 12% from the previous year although a portion of that decline is attributable to Dubai, as the weakness in Australia exceeded the growth of Malaysia. Note as Brad pointed out, we continue to be enthusiastic on the prospects of Bayshore Malaysia compounding for master batch concentrate to serve the film packaging industry and are proceeding with the previously announced expansion of that capacity. Over the past three years, our average operating income in the region has been $3.4 million.

In Europe, as noted in all calls, we have great leadership in Europe in Derek Bristow, and are building a strong management team to support our efforts there. While our numbers in Europe were impacted by the slowing economy, it also reflects the strength of our position in that market. We earned 1.9 million in operating income there during the quarter compared to 3.5 million the same quarter last year but up dramatically from the previous quarter as resin prices stabilized and volumes improve sequentially by 14%. V volumes were down 15% from the previous year as we see the effects of the slowing economy and its effect on our business in Europe. Over the past three years, our average operating income in Europe has been $9.4 million.

Our Brazilian business rebounded from the first quarter. Our operating income was $30,000 compared to a loss in the previous quarter and our operating income was $190,000 same quarter of last year. Volumes were down 16% compared to last year. We see opportunities to expand our business in this market so that it becomes meaningful to ICO. We expect Brazil, all of Central and South America to become more significant to ICO in the future years. During the last three years, operating income in this region averaged $300,000. While we remain concerned about the current economy and the global recession, we have confidence in ICO's long-term prospects and we really like our balance sheet.

We will take questions at this time.

Question-and-Answer Session

Operator

Thank you. We will now begin the question and answer session. (Operator instructions) And our first question is from Christopher Butler from Sidoti & Company. Please go ahead.

Christopher Butler – Sidoti & Company

Hi. Good morning guys.

John Knapp

Good morning Chris.

Christopher Butler – Sidoti & Company

I was hoping you might give us some more color on inventory levels starting with where your customers are at as far as that is concerned, are you seeing maintenance purchases again at this point, also is there anymore room for you to reduce inventory or have you gotten that to an area that position – that you're comfortable in?

John Knapp

Let's address the second piece first, because that is easier. I believe that we were reasonably close to the level of quantity that we're going to carry in inventory and I would be surprised if there is dramatic price movement in resin, we can always be surprised. So this figure that we are at, 33 million, is probably not going to change dramatically, Chris. As to our customers' inventory, boy isn't that the $64 question. We know that our customers are currently running lean on inventory. We see that because when they place orders, they place smaller orders, but they are wishing that it would be delivered promptly. We do recognize that some customers in very particular niches are still heavier in inventory than they would like to be. As you know, Chris, our exposure to the automotive world is very limited, but we know those customers that did use our facilities before, their products, we know that those customers are a little long in inventory. Other customers, particularly those in the film packaging world, we suspect their inventories are light, and when they place an order, there is a real sense of urgency about when it is going to be delivered. I hope that answers your question.

Christopher Butler – Sidoti & Company

It does. And shifting gears a little bit, looking at the Asia Australasia segment, you detailed a couple of expenses that were in there, namely the goodwill write-down, the bad debt expense of 500,000. You also mentioned some drag from Dubai, did you quantify that? Did I hear 400,000 or was that a change year-over-year?

John Knapp

330,000 was the headwind from closing Dubai and we stated that it would be reduced hopefully substantially this quarter. Should we talk about Australia? Chris?

Christopher Butler – Sidoti & Company

I'm sorry.

John Knapp

You want better color on Australia?

Christopher Butler – Sidoti & Company

Well, I was starting with the – just to get an idea of what the – what a clean number would look like out of that segment this quarter, but definitely interested in progress in Australia, when we might be able to get the segment back to breakeven, is it something we could look at possibly for the third or fourth quarter here moving forward?

John Knapp

That is a real possibility. First, Chris, you should know, we stated it in the past. Australia is a good market for roto powders, and it is a good market because they use three times per capita roto powders that we use in North America in that market, or close to there, because today water tanks are a big product arena there. That market bloomed and then busted and intense competition, spent a lot of money, expending more competitors came into the market. A rationalization process is in fact taking place. We like our position in that market very much. We suspect, Chris, that Australia over the next ten years is going to be a solid economy relative to the rest of the world, and it will be a good place for us to be. We have a very good reputation in the market. We have in fact reduced our operating costs, so we have gotten lean. So breakeven is lower and as that steadied, I think the competitive climate is improving. One of the things that we suffered from in Australia, I think Brad pointed out, we had $450,000 of credit losses just as we grew process over expanded, those who used the resins, the roto motors over expanded, and that market is being rationalized today. That rationalization may take another quarter of two, but we're convinced that there'll be a steady good set of roto motors that will be our customers for years to come. Did that help you, Chris?

Christopher Butler – Sidoti & Company

It does. And shifting back to be balance sheet, this might be a question for Brad, but could you give us an idea of the additional flexibility on your debt covenants that you had announced at the end of March and what you're expecting in addition for interest expense to be as we look into the third quarter?

Brad Leuschner

Sure. So as we announced in late March, we entered into an amendment with our – on our credit agreement with KeyBanc and Wells Fargo here in the US. With that agreement, it changed some of the terms on the calculation of the fixed charged covenant ratio, and we were at 1.5 times at March 31 and we were required to be at 1 to 1 times coverage on that issue. So we were at 1.5 to 1 at March 31. As for the additional interest costs, essentially the amendment increased our rates above LIBOR by 225 basis points and we think that would increase our interest expense by $250,000 per year on the outstanding borrowings at that time. Along with that amendment, we reduced the maximum amount under the revolver, it was $30 million. We reduced it to $20 million. We put in – part of the amendment put in place a borrowing base concept which we can borrow at certain levels of our eligible receivable and inventory, so because of our lower levels of receivables and inventory, it didn't make sense to have a $30 million revolver that we couldn't tap into. So we reduced that to 20 million to save on some of the unused line fee cost.

Christopher Butler – Sidoti & Company

I appreciate your time. I'll get back in the queue.

Operator

Our next question is from Jackson Spears from Robins Group. Please go ahead.

Jackson Spears – The Robins Group

John, you indicated you are paranoid over gross margin. In the past you and I have talked about gross margin of 18% plus, what steps are you taking to get it back to 18 to 20% level? And I know you can't predict it, but do you think we can get back here in the second half of this year?

John Knapp

Well, Jack, you know we don't give guidance at ICO. But we are not far off at 16.9% from 18% and I had simply remarked that it was improving during the course of the quarter, so we hope that that trend continues. We see some areas that there is great margin pressure and that you know we would sure like to see improvements in it. But Jack one of the things that we know today is that we are very comfortable that our inventory that we are carrying is if you went out in the market and replaced it today, we are very close to whatever replacement cost would be today. And that is the first step that you have to having a solid margin, if that makes sense to you. So we're very hopeful with the improvements in this quarter and the coming quarter.

Jackson Spears – The Robins Group

(inaudible) North America and Bayshore, in last call you talked about Bayshore actually volume picking up in January, how has it processed during the second quarter, and how has it done in April for Bayshore industrial?

John Knapp

Let's see. Bayshore, obviously we said the volumes were down 24% in the previous year, how were they relative to the first quarter?

Brad Leuschner

They were…

John Knapp

While Brad is looking up at that, Bayshore has several – Jack, I told you that I learned that the word trial is a word that when – I used to get excited when we were running trials, okay, with customers and new products, okay. Today I'm getting a little frustrated with the word trial. We are running trials on some products that will dramatically impact Bayshore's volumes and we know that these are customers that have done very well and we know are pretty good at running this product. So we remain keenly hopeful to see some increase in volumes.

Brad Leuschner

Volumes were down about 10% sequentially at Bayshore.

John Knapp

The guys at Bayshore, Jack, are pretty disappointed in their volumes in this last quarter and they expected to do better, and it has to do with all those trials that we're working on, that we expect to get orders on, in a very short period of time. I hope that tries to address that question a little bit.

Jackson Spears – The Robins Group

What about ICO North America?

John Knapp

Well, IPNA had some of the same issues. We had some – we were not losing customers, Jack. We have got customers that dramatically curtailed their purchases during the quarter and what we're seeing, and I imagine everybody in the manufacturing world is seeing is, we are seeing some of our lines now, demand increasing dramatically. And in other of our lines, we still see them at very low demand. So I expect IPNA to be challenged in its volumes for a period of time. I can't tell you we have seen very specific plans and volumes in plants pick up nicely, but we know it is going to be challenging.

Jackson Spears – The Robins Group

And operating rate at Bayshore industrial and IPNA is what, you are at about 60%, 70% operating rate?

John Knapp

Bayshore would be about 65% to 70% operating rate; that is correct. IPNA…

Brad Leuschner

I was just going to say IPNA volumes sequentially were flat. However they reached a low point in the month of December and each month of the quarter volumes did improve in the second quarter.

John Knapp

What percentage of capacity would you say IPNA is running at? I would say it is about 65%, Jack. And you know, this is important, Jack. We increased capacity for IPNA, timing is a little off, okay, but we have really got a great plant in Pennsylvania, and it is really set to run a lot more business. Remember my overall suspicion is that, I call them (inaudible) competitors, competitors that are a little strapped with the customers worried about their long-term viability, or customers or competitors that we like to get out of particular lines that they compete with us, that is where our volume pickup is likely to come from. We're seeing some of that activity, not so much realized, but again the word trial is there. I hope that answer addresses something.

Jackson Spears – The Robins Group

And then lastly because Europe is so important for you now, any color on what is going on in Europe and the operating rate that? Are we seeing evidence as the quarter progresses, some progress?

John Knapp

Well, Jack, I can't say – no one knows where the European economies are going to go. What we can tell you is that our primary activity serving roto motors in Europe, we suspect that that demand fell much more than our volumes processed, i.e. we are winning market share, and we know that our platform in Europe is beginning to run pretty effectively, which means that we understand the customers well, Jack. We understand the inventories well, we are doing a good job of sharing customers between our plants, and that allows us to be pretty effective in how we run Europe. We don't have a glass ball that says Europe is – we can't tell you that the economy in Europe has flattened and has hit a bottom. We can tell you that we really like our position in that marketplace in terms of the competitive position we have.

Jackson Spears – The Robins Group

On the acquisition front, could you give us some color of the type of things you're looking at, how big they could be, and what is the probability you might be able to get one done?

John Knapp

Oh Jack, we are not supposed to comment too much on things going forward, but the acquisition front, everybody knows that there are opportunities, I call them bolt-ons, okay. Everybody knows – Jack, I'm a reformed real estate developer, but if you bought too early in the mid to late 80s in Texas, you bought too soon, and you got creamed. There are some little issues about when do you start doing some things. I need to tell you I believe they are out there, we're working with some very interesting elements and we hope that we will be able to seize some of these opportunities.

Jackson Spears – The Robins Group

Some of them as big as 20,000,000 to 50,000,000 in revenue opportunity, precise is not important, but what kind of size could they be?

John Knapp

Jack, I can't comment on size what we are looking at, but that would be…

Jackson Spears – The Robins Group

That is why I give you a wide range. What about stock repurchase? When the stock was way below book value during the quarter, I don't hear any comments on where you stood on that. I know you're not – you are conservative on the stock repurchase, what is your attitude going forward on that?

John Knapp

Well, Jack, I like all people recognize that our stock price is – you know I added up our cash and our availability of credit, and it came awful close to the market cap of ICO one day last week, and some people would think that is a great value, do you follow me? So I was a little – I was actually depressed by that summation. But I must state we are not – we like – we want the strongest balance sheet you could possibly have until the world feels round okay, and I think that that says enough.

Jackson Spears – The Robins Group

And lastly, John, you know I really think you have done a great job. What steps have you taken to find a successor to you who or someone who can be more responsible (inaudible)?

John Knapp

Jack, we made a press release that said that we had retained Spencer Stuart, and we're exploring searching for a new CEO. And we have implemented that process and begun it. We're not in a hurry, and I'm not going anywhere. Clearly we think that there may be really interesting folks that are available in the marketplace, that are knowledgeable and experienced in the world of resin and processing of resin. So we'll leave it at that for the time being.

Jackson Spears – The Robins Group

Thank you, John. And congratulations on making money in this tough economic environment.

John Knapp

Thanks, Jack. We like to make money.

Jackson Spears – The Robins Group

I figured that. Thank you, John.

Operator

(Operator instructions) And we have a question from Christopher Butler from Sidoti & Company, please go ahead.

Christopher Butler – Sidoti & Company

Hi guys. Thanks for taking a follow question. With the reductions that you have made to headcount and the noticeable improvement the last couple of quarters on SG&A expense, I noticed that the corporate unallocated number from the segment page was in the 1.5 million range, which tends to be on the higher range that you posted the last year or so, do you expect to see improvements there?

John Knapp

Did we lose you?

Christopher Butler – Sidoti & Company

Did I get my question in or did we get cut off?

John Knapp

Well I think we got enough of the question.

Brad Leuschner

You were asking about corporate and you said 1.5 million unallocated corporate, right? And you were asking, do we expect to see much improvement in that? I don't think you will see much change in that number on the corporate costs. You know it is – in our opinion, we operate fairly lean in this office, and I don't expect much change in that number.

Christopher Butler – Sidoti & Company

Okay. So that would then indicate that some of the reductions that you had made are not operational, could you point us in the segments that might show the benefit from that more than others?

John Knapp

Well, our headcount reduction was pretty well across the board where we could control headcount, a little harder to change headcount in Europe than it is in the United States. So our largest reduction in headcount was at IPNA. Bayshore there was very minimal change in headcount because those guys at Bayshore, those guys at Bayshore are thinking they're going to win some more business. We have just finished a headcount reduction in Australia and New Zealand, and again reporting to me on January 1, so you will see change in benefit there; it is going to take some time to look through them, too much more time. We have slightly less headcount in Malaysia, but their business is good. So we tried to adjust headcount to what we thought the business is going to be. I don't know if that helps you much.

Christopher Butler – Sidoti & Company

It does, thank you again.

Operator

And at this time, we have no further questions.

John Knapp

We got off light. Thank you all for listening to this call and look forward to visiting with you again when we release our next set of numbers. Goodbye.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.

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