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		December 31, 2003			September 30, 2003
ASSETS
Current assets:
Cash and cash equivalents		$	3,546		$	4,114
Trade accounts receivables (less allowance for doubtful accounts of $2,187 and $2,047, respectively)			43,325			41,310
Inventories			27,679			24,166
Assets held for sale			1,141			-
Prepaid expenses and other			11,731			11,952
Total current assets			87,422			81,542
Property, plant and equipment, net			55,086			54,639
Goodwill			8,613			8,245
Other			658			835
Total assets		$	151,779		$	145,261
LIABILITIES, STOCKHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Current liabilities:
Short-term borrowings		$	6,668		$	5,846
Current portion of long-term debt			4,973			3,210
Accounts payable			23,776			22,120
Accrued salaries and wages			3,293			3,766
Other accrued expenses			11,553			11,399
Oilfield Services liabilities retained			2,021			2,476
Total current liabilities			52,284			48,817
Deferred income taxes			4,700			4,108
Long-term liabilities			1,773			1,629
Long-term debt, net of current portion			23,039			23,378
Total liabilities			81,796			77,932
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 $34,426 and $33,882, respectively			13			13-
Undesignated preferred stock, without par value- 105,000 shares authorized; 0 shares issued and outstanding			-			--
Junior participating preferred stock, without par value B 0 and 50,000 shares authorized, respectively; 0 shares issued and outstanding			-			--
Common stock, without par value B 50,000,000 shares authorized; 25,257,471 and 25,146,550 shares issued and outstanding, respectively			43,660			43,555
Additional paid-in capital			102,822			102,811
Accumulated other comprehensive loss			(1,783	)		(4,211	)
Accumulated deficit			(74,729	)		(74,839	)
Total stockholders’ equity			69,983			67,329
Total liabilities and stockholders’ equity		$	151,779		$	145,261

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		Three Months
		Ended December 31,
		2003			2002
Net income (loss)		$	110		$	(31,181	)
Other comprehensive income (loss)
Foreign currency translation adjustment			2,578			1,733
Unrealized loss on foreign currency hedges			(150	)		(18	)
Comprehensive income (loss)		$	2,538		$	(29,466	)

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		Three Months Ended December 31,
		2003			2002
Cash flows from operating activities:
Net income (loss) from continuing operations		$	205		$	(31,697	)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used for) operating activities:
Depreciation and amortization			2,052			2,214
Cumulative effect of change in accounting principle before tax			–			29,443
Unrealized gain on foreign currency			(146	)		(430	)
Changes in assets and liabilities:
Receivables			743			2,386
Inventories			(2,164	)		(267	)
Prepaid expenses and other assets			323			253
Income taxes payable			(110	)		(411	)
Deferred taxes			261			(1,339	)
Accounts payable			(128	)		(473	)
Accrued interest			(259	)		(3,865	)
Other liabilities			(382	)		(1,113	)
Total adjustments			190			26,398
Net cash provided by (used for) operating activities by continuing operations			395			(5,299	)
Net cash used for operating activities by discontinued operations			(309	)		(11,550	)
Net cash provided by (used for) operating activities			86			(16,849	)
Cash flows used for investing activities:
Capital expenditures			(1,478	)		(2,476	)
Proceeds from dispositions of property, plant and equipment			61			44
Net cash used for investing activities by continuing operations			(1,417	)		(2,432	)
Cash flows used for financing activities:
Payment of dividend on preferred stock			–			(544	)
Proceeds from debt			1,214			858
Term debt repayments			(741	)		(103,105	)
Debt retirement costs			–			(483	)
Net cash provided by (used for) financing activities by continuing operations			473			(103,274	)
Effect of exchange rates on cash			290			261
Net decrease in cash and equivalents			(568	)		(122,294	)
Cash and equivalents at beginning of period			4,114			129,072
Cash and equivalents at end of period		$	3,546		$	6,778

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NOTE 2.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 104, Revenue Recognition ("SAB 104"), which supercedes SAB 101, Revenue Recognition in Financial Statements. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, which was sup erceded as a result of the issuance of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables . While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The Company does not expect this bulletin to have a material impact on the Company’s financial statements.

NOTE 3.   CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

Effective October 1, 2002, the Company adopted 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.

NOTE 4.   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 months ended December 31, 2003 and December 31, 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 the three months ended December 31, 2003 was 4,502,000 compared to 4,779,000 for the three months ended December 31, 2002.

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Quarterly dividends (in an aggregate amount of $544 per quarter) have not been paid or declared on the Company’s Preferred Stock since January 1, 2003. Any undeclared or unpaid Preferred Stock dividends will need to be declared and paid before the Company may pay a dividend on the Company’s Common Stock.

On October 31, 1997, the Board of Directors adopted a Shareholders’ Rights Plan (the "Rights Plan") and declared a dividend of one Junior Participating Preferred Share purchase right with respect to each share of common stock outstanding at the close of business on November 21, 1997. On April 1, 1998, a successor Rights Plan was adopted by the Board of Directors with essentially identical terms and conditions. Under the terms of the Rights Plan, the Board amended the Rights Plan on October 31, 2003, to provide that the plan would expire on November 3, 2003, and the Rights Plan so expired.

NOTE 5. INVENTORIES

Inventories consisted of the following:

		December 31, 2003			September 30, 2003
Raw materials		$	15,595		$	12,806
Finished goods			11,560			11,244
Work in progress			252			241
Supplies			1,411			1,356
Less reserve			(1,139	)		(1,481	)
Total inventory		$	27,679		$	24,166

NOTE 6.   INCOME TAXES

The Company’s effective income tax rates were a provision of 63% compared to a benefit of 29% during the three months ended December 31, 2003 and 2002, respectively. The change in effective tax rates was due to the relation between pretax income or loss to nondeductible items and other permanent differences and the mix of pretax income or loss generated by the Company’s operations in various taxing jurisdictions. In addition, during the first quarter of 2004, the Company placed an additional valuation allowance against the deferred tax asset balance of the Company’s Brazilian and Swedish facilities. A valuation allowance is established when it is more likely than not that some or all of a deferred tax asset will not be realized.

The Company has a prior year domestic net operating loss for tax purposes of approximately $7,832. This loss will be carried back to the 2002 tax year generating a tax refund of approximately $2,741. The $2,741 receivable is included in Prepaid Expenses and Other current assets in the Consolidated Balance Sheet.

NOTE 7.   COMMITMENTS AND CONTINGENCIES

The Company has letters of credit outstanding in the United States of approximately $2,065 and $2,090 as of December 31, 2003 and September 30, 2003, respectively and foreign letters of credit outstanding of $2,425 and $2,495 as of December 31, 2003 and September 30, 2003, respectively.

Varco Indemnification Claims. Between May 2003 and September 2003, Varco International, Inc. ("Varco") asserted approximately 29 claims for contractual indemnity against the Company in connection with the September 2002 sale of substantially all of the Company’s Oilfield Services business ("Oilfield Services") to Varco. Varco claims that the Company breached a number of representations and warranties in the purchase agreement relating to this sale, and alleges that the expected loss range for its indemnity claims is between $16,000 and $21,600. A portion of those indemnity demands (representing aggregate losses of approximately $365 ) relate to product liability claims. The balance of the indemnity demands relate to alleged historical contamination or alleged non-compliance with environmental rules at approximately 26 former Company properties located in both the United States and Canada. The Company has engaged an independent third-party

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environmental consulting company to review Varco’s claims, and has visited most of the sites to which Varco’s claims relate, and based on the preliminary information received to date from the third-party consultant and its own assessment made from such visits, the Company believes that most of Varco’s indemnity claims fail to state a valid claim under the purchase agreement or are otherwise without merit and, where potential liability does exist, that Varco’s cost estimates are grossly inflated. The Company’s follow-up investigation on some of these claims is, however, still in the preliminary stages, and it has requested additional information from Varco where appropriate.

The parties have agreed to a limited information exchange in an attempt to resolve the disputed indemnity claims without resorting to litigation. In the purchase agreement relating to this sale, the Company agreed, subject to certain limitations, to indemnify Varco for losses arising out of our breach of representations and warranties contained in the agreement in excess of $1,000, and placed $5,000 of the sale proceeds in escrow to be used to pay for these indemnification obligations, should they arise. The $5,000 in proceeds was included in the gain on the sale of the Oilfield Services business recognized in fiscal year 2002. The Company does not believe that Varco has demonstrated, under the terms of the purchase agreement, that it is entitled to any damages in excess of the $1,000 threshold. At this point, the Company is not aware of any formal litigation initiated by Varco against the Company in connection with this dispute, but in the event that it cannot avoid litigation to obtain a release of the escrowed funds, the Company intends to assert its entitlement to the funds and defend itself vigorously. Because the Company believes that most of Varco’s indemnity claims fail to state a valid claim under the purchase agreement or are otherwise without merit and, where potential liability does exist, that Varco’s cost estimates are grossly inflated, it has not reserved any amounts on its balance sheet in contemplation of such liabilities or the uncollectability of the $5,000 receivable of the escrowed sales proceeds.

There is no assurance, however, that the Company will not be liable for the amount of Varco’s claims or any additional amount under indemnification provisions of the purchase agreement, and a final adverse court decision awarding substantial money damages would have a material adverse impact on the Company’s financial condition, liquidity and results of operations.

 

NOTE 8.   DISCONTINUED OPERATIONS

On September 6, 2002, the Company completed the sale of substantially all of its Oilfield Services business to Varco. The initial purchase price was subject to a post-closing working capital adjustment for which a gain of $582 was recorded during the three months ended December 31, 2002. All proceeds from the sale have been received except for $5,000 which was placed in escrow to be used to pay for indemnification obligations, should they arise. See Note 7 – Commitments and Contingencies for further discussion of the indemnification claims. The Oilfield Services results of operations are presented as discontinued operations, net of income taxes, in the consolidated statement of operations and th e Oilfield Services liabilities retained are shown as a separate line item in the consolidated balance sheet.

On July 31, 2003, the Company sold its remaining oilfield service operation to Permian Enterprises, Ltd. for $4,053 in cash and the assumption of certain liabilities and recorded a pre-tax gain of $600.

NOTE 9.   LONG-TERM DEBT

In the first quarter of fiscal 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 in other income in the Consolidated Statement of Operations a gain on these purchases of approximately $14, net of transaction costs and write-off of debt offering costs.

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NOTE 10.   ASSETS HELD FOR SALE

In the first quarter of fiscal 2004, the Company received a No Further Action Determination ("NFA") from the New Jersey Department of Environmental Protection in relation to certain land the Company acquired in 1996 as part of the Wedco Technology, Inc. acquisition. The Company entered into a contract to sell this land in 1999 and with the receipt of the NFA, the Company expects to close on the sale of this property during fiscal year 2004. Also during the first quarter of 2004, the Company ceased its operations at its Lovelady, Texas facility as previously announced during fiscal 2003 and signed in January 2004 a purchase and sale agreement. The net book value of the real estate for both properties is included in the Assets Held for Sale line it em in the Consolidated Balance Sheet at December 31, 2003. The Company expects the Lovelady, Texas property to be sold during fiscal year 2004 following the potential buyer’s completion of due diligence.

NOTE 11.   RELATED PARTY

During the first quarter of fiscal 2003, the Company repurchased $104,480 principal amount of its 10 3/8% Senior Notes due 2007. 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 these transactions.

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:

Financial Instruments

		US$ Equivalent						Weighted Average Interest Rate
Currency Denomination		December 31,			September 30,			December 31,			September 30,
of Indebtedness		2003			2003			2003			2003
Euro (1)		$	2,830		$	2,496			4.71	%		4.71	%
British Pounds Sterling (1)			1,630			1,198			5.75	%		5.75	%
New Zealand Dollar (1)			1,422			1,197			7.23	%		7.23	%
Australian Dollar (1)			240			-			7.92	%		-
Swedish Krona (1)			528			909			5.45	%		5.45	%
Malaysian Ringgit (1)			18			46			7.75	%		7.75	%
(1) Maturity dates are expected to be less than one year.

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The Company does not have any financial instruments classified as off-balance sheet as of December 31, 2003 and September 30, 2003.

		December 31, 2003		September 30, 2003
Receive US$/Pay NZ$ :
Contract Amount		None		US $427
Average Contractual Exchange Rate				(US$/NZ$) .5884
Expected Maturity Dates				October 2003 through
				November 2003
Receive US$/Pay Australian $:
Contract Amount		US $1,230		US $2,178
Average Contractual Exchange Rate		(US$/A$) .6754		(US$/A$) .6624
Expected Maturity Dates		January 2004 through		October 2003 through
		February 2004		December 2003

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 entail 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 sells the finished products to customers. Toll services involve both size reduction and compounding services whereby these services are performed on customer owned material. Service revenues are recognized as the services are performed and, in the case of product sales, revenue s are recognized when the title of the product passes to the customer, which is generally upon shipment.

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 historically 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&# 146; inventories on January 1. However, during the first quarter of fiscal 2004, the Company experienced customer demand which exceeded the demand of the Company’s third and fourth quarters of fiscal 2003. 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.

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Critical Accounting Policies

The Company’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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 employee benefit liabilities, valuation allowances for deferred tax assets, workers c ompensation, inventory reserves, allowance for doubtful accounts related to accounts receivable, and commitments and contingencies. 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 sales, revenues and related expenses are recognized when ownership is transferred, which generally occurs when the products are shipped.

Impairment of Property, Plant and Equipment- Property, plant 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 undiscounted future cash flows expected to be generated by the 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 adopted Statement of 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 intangibl e 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 or loss. Exchange gains and losses resulting from foreign currency transactions are recognized in earnings.

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The fluctuations of the U.S. Dollar against the Euro, Swedish Krona, British Pound, New Zealand Dollar, Australian Dollar and the Brazilian Real 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 months ended December 31, 2003.

	Three Months Ended
	December 31, 2003
Total revenues	$5,450
Operating income (loss)	239
Pre-tax income (loss)	196
Net income (loss)	119

Stock Options- Effective October 1, 2002, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standard 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 SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure- an amendment of SFAS 123. Awards under the Company’s plans vest over periods ranging from immediate vesting to five years.

Results of Operations

Three Months Ended December 31, 2003 Compared to the Three Months Ended December 31, 2002

Revenues. Total revenues increased $11,599 or 26% to $56,847 during the three months ended December 31, 2003, compared to the same period of fiscal 2002 due to an increase in both sales and service revenues. Sales revenue increased $10,683 or 28% to $48,214 during the three months ended December 31, 2003 compared to the same period of fiscal 2002. The increase in sales revenue was caused by an increase in sales volumes, particularly for the Company's domestic concentrate manufacturing operation, Australasian operations and certai n European locations and due to stronger foreign currencies relative to the U.S. Dollar (an impact of approximately $4,850 – see "Currency Translation" in Critical Accounting Policies). The increase caused by volumes and foreign currency was offset by lower average product sales prices, mostly due to a less favorable mix of product sales. The adverse change in the mix of product sales was primarily attributable to the Company’s North American ICO Polymers and film concentrate manufacturing operations. Service revenues increased $916 or 12% to $8,633 for the three months ended December 31, 2003 compared to the same period in fiscal 2002 caused primarily by stronger foreign currencies relative to the U.S. dollar (an impact of approximately $600).

Costs and Expenses. Gross margins (calculated as the difference between net revenues and cost of sales, divided by net revenues) improved to 18.9% during the three months ended December 31, 2003 compared to 16.2% in the three months ended December 31, 2002, respectively. Gross margins improved due to significantly improved results at the Company’s North American film concentrate business, Australasian and European operations compared to the previous fiscal year’s first quarter. The improved results were primarily a result of improved operating leverage due to the Company’s overall increase in volumes sol d which increased approximately 12% due to increased customer demand.

Selling, general and administrative expenses (including stock option compensation expense) declined $474 or 6% during the three months ended December 31, 2003 compared to the same period in fiscal 2003. As a percentage of revenues, sales, general and administrative expenses decreased to 13.4% of revenue compared to 17.9% for the same quarter last year. The decline in sales, general and administrative expenses was primarily due to the cost reduction program implemented in the fourth quarter of fiscal 2003, partially offset by the effect of stronger foreign currencies relative to the US dollar (an impact of approximately $600).

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Net Interest Expense. Net interest expense for the three months ended December 31, 2003 decreased $904 or 59% compared to the same period in fiscal 2003. This decline in expense was primarily due to the repurchase of $104,480 of Senior Notes during the first quarter of fiscal 2003.

Income Taxes. The Company’s effective income tax rates were a provision of 63% compared to a benefit of 29% during the three months ended December 31, 2003 and 2002, respectively. The change in effective tax rates was due to the relation between pretax income or loss to nondeductible items and other permanent differences and the mix of pretax income or loss generated by the Company’s operations in various taxing jurisdictions. In addition, during the first quarter of 2004, the Company placed an additional valuation allowance against the deferred tax asset balance of the Company’s Brazilian and Swedi sh facilities. A valuation allowance is established when it is more likely than not that some or all of a deferred tax asset will not be realized.

Income (Loss) From Discontinued Operations. Income (loss) from discontinued operations decreased from income of $516 during the three months ended December 31, 2002, to a loss of $95 during the first quarter of fiscal 2004 as a result of the $582 gain on the post-closing working capital adjustment recorded during the three months ended December 31, 2002.

Cumulative Effect of Change in Accounting Principle. Effective October 1, 2002, the Company adopted 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 in tangible 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. (See Note 3- "Cumulative Effect of Change of Accounting Principle" for further information on this charge).

Net Income (Loss). For the three months ended December 31, 2003, the Company had net income of $110 compared to a net loss of $31,181 for the comparable period in fiscal 2003, 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:

		December 31, 2003			September 30, 2003
Cash and cash equivalents		$	3,546		$	4,114
Working capital			35,138			32,725

Cash and cash equivalents declined $568 and working capital increased $2,413 during the three months ended December 31, 2003 due to the factors described below.

For the three months ended December 31, 2003, cash provided by (used for) operating activities by continuing operations increased to cash provided of $395 from cash used of $5,299 for the three months ended December 31, 2002. The increase in cash provided by operating activities occurred primarily due to lower interest payments, higher net income from continuing operations before cumulative effect of change in accounting principle, and other various working capital changes.

Capital expenditures totaled $1,478 during the three months ended December 31, 2003. The Company anticipates that available cash and existing credit facilities will be sufficient to fund remaining fiscal 2004 capital expenditure requirements.

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Cash provided by (used for) financing activities during the three months ended December 31, 2003 was cash provided of $473 compared to cash used of $103,274 during the three months ended December 31, 2002. The change was primarily the result of decreased debt repayments due to the retirement of $104,480 of Senior Notes during the three months ended December 31, 2002.

As of December 31, 2003, the Company had approximately $18,460 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 December 31, 2003, the Company had approximately $9,730 of borrowing capacity under the domestic credit facility and $8,730 available under various foreign credit facilities.

The Company’s foreign credit facilities are generally collateralized by assets owned by subsidiaries of the Company and also carry various financial covenants. The Company’s domestic credit facility is collateralized by domestic receivables and inventory and carries a variable interest rate. The variable interest rate is currently equal to either one-quarter (¼%) percent per annum in excess of the prime rate or two and one-quarter (2¼%) percent per annum in excess of the adjusted euro dollar rate and may be adjusted depending upon the Company’s leverage ratio, as defined, excess credit availability under the credit facility and the Company’s financial results. The Company’s domestic credit facility contains cust omary 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 dissol ution 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, cash flow from operations, and borrowing capacity will provide adequate liquidity for fiscal 2004. 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 requirements in the long-term.

In connection with the Company’s November 2002 repurchase of $89,570 principal amount of 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 dispos ition 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

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clearly established meaning under New York law (which governs the indenture) and is subject to judicial interpretation. As of December 31, 2003 and September 30, 2003, Senior Notes outstanding were $10,095.

 

           Off-Balance Sheet Arrangements. The Company does not have any financial instruments classified as off-balance sheet as of December 31, 2003 and September 30, 2003.

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:

Financial Instruments

		US$ Equivalent						Weighted Average Interest Rate
		December 31,			September 30,			December 31,			September 30,
Currency Denomination of Indebtedness		2003			2003			2003			2003
Euro (1)		$	2,830		$	2,496			4.71	%		4.71	%
British Pounds Sterling (1)			1,630			1,198			5.75	%		5.75	%
New Zealand Dollar (1)			1,422			1,197			7.23	%		7.23	%
Australian Dollar (1)			240			-			7.92	%		-
Swedish Krona (1)			528			909			5.45	%		5.45	%
Malaysian Ringgit (1)			18			46			7.75	%		7.75	%
(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 December 31, 2003 and September 30, 2003.

		December 31, 2003		September 30, 2003
Receive US$/Pay NZ$ :
Contract Amount		None		US $427
Average Contractual Exchange Rate				(US$/NZ$) .5884
Expected Maturity Dates				October 2003 through
				November 2003
Receive US$/Pay Australian $:
Contract Amount		US $1,230		US $2,178
Average Contractual Exchange Rate		(US$/A$) .6754		(US$/A$) .6624
Expected Maturity Dates		January 2004 through		October 2003 through
		February 2004		December 2003

 

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ITEM 4.   CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act, as amended), have concluded that as of December 31, 2003, the Company’s disclosure controls and procedures were effective to ensure that the information the Company is required to disclose in reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

(b)  Changes in internal controls. There have been no significant changes in the Company's internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, the Company's internal controls subsequent to the evaluation referred to in the preceding paragraph (a). There were no significant deficiencies or material weakness identified and, therefore, no corrective actions were taken.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of the Company’s legal proceedings, see Note 7 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 19, 2003.

ITEM 5. OTHER INFORMATION

The Company’s chief executive and chief financial officers have each submitted to the Securities and Exchange Commission their certifications as required under 18 U.S.C. 1350, accompanying the filing of this Report.

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*	—	Employment Agreement between ICO, Inc. and W. Robert Parkey, Jr., dated January 14, 2004, to be effective on February 2, 2004.
10.2*	—	Employment Agreement between ICO, Inc. and Jon C. Biro, dated January 28, 2004.
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 November 4, 2003, the Company filed a Current Report on Form 8-K reporting that it had amended its Rights Agreement dated April 1, 1998 between ICO, Inc. and Harris Trust & Savings Bank, which amendment would cause the Rights Agreement to terminate as of the close of business on November 3, 2003.

 

  On December 9, 2003, the Company filed a Current Report on Form 8-K reporting that its board of directors appointed John F. Gibson to serve on the board, filling a vacant seat, to serve as a Class II director with a term ending at the Company’s 2005 annual meeting.

 

  On December 15, 2003, the Company filed a Current Report on Form 8-K reporting that it had announced its financial results for the quarter and fiscal year ended September 30, 2003.

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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)
January 30, 2004	/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

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