ICO INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001

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.
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(Exact name of registrant as specified in its charter)

TEXAS 76-0566682
(State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

5333 WESTHEIMER, SUITE 600 77056
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER (713) 351-4100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

TITLE OF EACH CLASS
-------------------
COMMON STOCK, NO PAR VALUE
RIGHTS TO PURCHASE JUNIOR PARTICIPATING PREFERRED STOCK
PREFERRED STOCK, NO PAR VALUE

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 and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of common equity held by nonaffiliates of the
Registrant as of December 20, 2001 was $22,258,736.

The number of shares outstanding of the registrant's Common Stock as of
December 20, 2001: Common Stock, no par value- 22,956,987

DOCUMENTS INCORPORATED BY REFERENCE

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Portions of the definitive proxy statement for the Registrant's 2000 Annual
Meeting of Shareholders are incorporated by reference in Part III of this Form
10-K. Such definitive proxy statement or the information to be so incorporated
will be filed with the Securities and Exchange Commission not later than 120
days subsequent to September 30, 2001.
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ICO, INC.

2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

PART I
(all currency figures in thousands, except per share data)

ITEM 1. BUSINESS

GENERAL

ICO, Inc. and its subsidiaries provide specialized polymers processing
and oilfield services. In the polymers processing segment, the Company provides
grinding, jet milling, compounding, and ancillary services for polymer resins
produced in pellet form (size reduction services); formulates and manufactures
concentrated products for blending with polymer resins to give finished products
desired characteristics, such as color or protection from ultraviolet light;
provides other compounding services; and provides related distribution services.
The Company's specialty polymers processing customers include major chemical
companies, polymers production affiliates of major oil exploration and
production companies, and manufacturers of plastic products.

In the oilfield services segment, ICO is a leading provider of
inspection, reconditioning and coating services for new and used tubular goods
and sucker rods used in the oil and gas industries. The Company's oilfield
services segment reduces customers' drilling and production costs by preventing
faulty tubular goods from being placed downhole (exploration services), by
reclaiming and reconditioning used tubular goods and sucker rods (production
services), and by preventing the premature failure of tubular goods and sucker
rods from occurring due to the corrosive downhole drilling environment
(corrosion control services). Although comprehensive industry statistics are not
readily available, ICO believes it is one of the two largest providers of
inspection, reconditioning and coating services for tubular goods in the United
States and Canada. The Company's customers in the oilfield services segment
include many of the leading integrated oil companies and large independent oil
and gas exploration and production companies.

The Company was incorporated in 1978 under the laws of the state of
Texas. During fiscal 1998, the Company was reorganized into a holding company
structure with new ICO, Inc., a Texas corporation, serving as the holding
company. References to the "Company" include ICO, Inc., its subsidiaries and
predecessors unless the context indicates otherwise.

CHANGE IN MANAGEMENT

On June 7, 2001, the Company issued a press release announcing that the
Company has entered into termination agreements with ICO's Chairman and Chief
Financial Officer, Dr. Asher ("A1") O. Pacholder, and its President and Chief
Executive Officer, Sylvia A. Pacholder, as well as with Robin E. Pacholder
(President of Wedco, North America), David M. Gerst (Senior Vice President and
General Counsel of ICO) and Tom D. Pacholder (Senior Vice President--Corporate
Administration of Wedco, Inc.) (collectively referred to herein as the
"Terminated Pacholders"). In connection with the termination agreements, Al
Pacholder and Sylvia Pacholder resigned as Directors of ICO.

Also on that date, John N. Williamson was named chairman of the Board
of Directors, and Timothy J. Gollin and Christopher N. O'Sullivan were appointed
to the Board of Directors. In addition, Mr. Gollin was named President and Chief
Executive Officer of ICO, and Mr. O'Sullivan was named Vice Chairman and Chief
Financial Officer.

Each of the termination agreements (the "Termination Agreements") was
entered into by the Terminated Pacholders in settlement and compromise of their
respective employment contracts (the "Employment Contracts") with ICO. Pursuant
to the Termination Agreements, ICO terminated each of the Terminated Pacholders
as an employee and officer of ICO or Wedco, as applicable, and accepted each
Terminated Pacholders' resignation from all other positions with ICO and its
subsidiaries. Also, see "Fiscal 2001 Charges" in Item 7- "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the financial impact of the Termination Agreements.

POLYMERS PROCESSING SERVICES

The Company's polymers processing business segment provides size
reduction services (grinding and related services such as blending and
screening); compounding services (including manufacturing concentrates for use
in

1

polymer products); and, primarily in Europe and Southeast Asia, related
distribution services. Most of the size reduction operations also provide
compounding, blending, and mixing services. The Company conducts its size
reduction and compounding operations in the United States, Europe, Australia,
New Zealand and Malaysia (the Australia, New Zealand, and Malaysia operations
are sometimes referred to collectively herein as the "Southeast Asian
operations"). The Company's concentrate manufacturing operations are conducted
in the United States through the Company's wholly-owned subsidiary, Bayshore
Industrial, Inc. In Europe, the Company manufactures concentrates in two
locations, one in France and another in England.

The Company's size reduction, compounding and related processing
services are an intermediate step between the production of polymer resins and
the manufacture of a wide variety of end products, such as paint, garbage bags,
plastic film or other polymers. Chemical manufacturers generally produce polymer
resins in pellet form. Various manufacturing processes, such as rotational
molding, used to produce finished plastic or other polymers products require the
pellets to be ground into smaller sizes, or to be mixed with additives and
recombined, before end products having the desired characteristics are produced.
The Company's size reduction services involve the grinding of pellets into
smaller sizes and, in many cases, the blending or compounding of polymer pellets
with other additives or fillers, such as colored pigments. The Company's
concentrate manufacturing operations involve the production of additives that,
when blended into resin, produce materials with desired properties such as
anti-blocking (to prevent plastic film or sheets from sticking together),
flame-retardancy, color, ultraviolet stabilization, impact and tear resistance,
or adhesion.

During the fourth quarter of fiscal 2001, the Company decided to close
three polymers processing operations and restructure another facility. The
facilities to be closed are a size reduction and compounding facility in Italy,
a grinding machinery manufacturing facility in the United States, and a minerals
size reduction facility in the United States. The restructured facility
manufactures color concentrates in the UK. Also, see "Fiscal 2001 Charges"
within Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Size Reduction and Compounding. Size reduction services include ambient
grinding, cryogenic grinding and jet milling to reduce various materials to a
powder form. Materials processed by the Company include polyethylene, polyester,
polypropylene, nylon, fluorocarbons, cellulose acetate, vinyls, phenolics,
polyurethane, acrylics, epoxies, waxes and others. The Company is a leading
provider of size reduction services in the United States, Western Europe, New
Zealand, Australia and Malaysia. The majority of the Company's size reduction
services involve ambient grinding, a mechanical attrition milling process
suitable for products which do not require ultrafine particle size and are not
highly heat sensitive. The powder produced by the Company is most often used in
manufacturing household items (such as toys, household furniture, and trash
receptacles), automobile parts, agricultural products (such as fertilizer and
water tanks), paint, and metal and fabric coatings. The powders are also used as
raw material for additional processing in which they are combined with
additives, such as color concentrates.

Often the Company compounds material in conjunction with providing size
reduction services (typically using an ambient grinding process). For example,
the Company serves many customers by purchasing natural colored resin,
compounding certain additives into the resin, in order for the customer to
manufacture a product with desired characteristics (for example a colored
material), and then grinding the resulting pellet into a powder form. The
process of compounding generally consists of melt blending and mixing of
plastics and other additives, by way of extrusion to form pellets. Compounding
services are offered to customers within a majority of the Company's size
reduction facilities.

Many of the resulting final products produced using the Company's
powders are manufactured using a rotational molding process. The Company
provides a substantial portion of its size reduction services to customers that
are either rotational molders or that supply the rotational molding industry.
Rotational molding produces plastic products by melting pre-measured plastic
powder in molds which are heated in an oven while being rotated. The melting
resin sticks to the hot mold and evenly coats the mold's surface. This process
offers design advantages over other molding processes, such as injection
molding, because assembly of multiple parts is unnecessary, consistent thickness
can be maintained, tooling is less expensive, and molds do not need to be
designed to withstand the high pressures inherent in injection molding. Examples
of end products which are rotationally molded include agricultural tanks, toys
and small recreational watercraft.

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The Company provides jet milling for products requiring very fine
particle size, such as additives for printing ink, adhesives, waxes and
cosmetics. Jet milling uses high velocity compressed air to reduce materials to
sizes between 0.5 and 150 microns. For materials with special thermal
characteristics (such as heat sensitive materials), the Company also provides
cryogenic milling services, which uses liquid nitrogen to chill materials to
extremely low temperatures.

The Company offers its customers related polymers processing services.
These services include dry blending and mixing of plastics and other additives,
other various processing services, packaging, warehousing and distribution
services that are integrated with the Company's size reduction services. From
time to time, the Company also sells Company-manufactured grinding and other
equipment in the United States and internationally.

The Company has seven operating facilities in the United States, seven
in Europe (located in the Netherlands, the UK, Italy, France and Sweden), and
three in Southeast Asia (located in New Zealand, Australia and Malaysia) that
provide size reduction services. Most of these facilities also perform
compounding services for customers.

Concentrate Manufacturing. The Company has three concentrate
manufacturing operations. Bayshore Industrial, Inc., the Company's largest
concentrate manufacturing operation, is located in LaPorte, Texas. Two smaller
operations were acquired by the Company - Impact Colours (formally the
concentrate manufacturing operations of Rotec Chemicals, Ltd.), located in
Rushden, England, manufactures proprietary color concentrates (see "Fiscal 2001
Charges" within Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations"), and Soreco S.A. located in Oyonnax,
France, which provides high quality color matching and color compounding
services for engineering plastics. The Company's concentrate manufacturing
operations involve the formulation and production of highly concentrated
compounds of additives that are then combined (by the Company or by others) with
polymer resins to produce materials having specifically desired characteristics,
such as anti-blocking (to prevent plastic film or sheets from sticking
together), flame-retardance, color, ultraviolet stabilization, impact and tear
resistance, or adhesion. The Company's concentrates are produced to the detailed
specifications of customers. These customers primarily consist of companies that
produce the additive-filled resins used by others in fabricating finished
products, as well as those companies that make the finished plastic products.
The concentrate manufacturing process requires the combination of up to 25
different additives or fillers in precise proportions. To be approved as the
manufacturer of such concentrates, the Company must satisfy rigorous
qualification procedures imposed by customers on a product-by-product basis. The
Company works closely with its concentrate customers to research develop and
test the formulations necessary to create the desired characteristics of the
concentrates to be produced. Such concentrates are produced in batches which may
range from as little as five pounds for a lab sample to as large as four million
pounds.

Distribution of Products Manufactured by the Company. In Europe and
Southeast Asia, the Company is a leading distributor of powders used in such
applications as rotational molding, carpet-backing, and powder coating. The
Company also sells these powders in Africa, South America, the Middle East, and
Southeast Asia. The Company generally procures the raw materials for its own
account and adds value using its own formulations and processes to process the
powders. Often, the Company utilizes both size reduction and compounding
technology to produce colored powders that satisfy specific customer
requirements.

Polymers Processing Customers and Pricing. The primary customers of the
Company's polymers processing business segment are large producers of polymers
(which include major chemical companies and polymers production affiliates of
major oil production companies), end users such as rotational molders, and, in
the case of the Company's domestic size reduction business, polymers
distributors. Worldwide sales to one polymers processing customer (Dow Chemical
Company and its subsidiaries) accounted for 11%, 14% and 13% for fiscal years
2001, 2000 and 1999, respectively. The Company has long-term contract
arrangements with many polymers processing customers whereby it has agreed to
process or manufacture certain polymers products for a single or multi-year term
at an agreed-upon fee structure.

The Company provides value-added polymers processing services to
customers. The Company often purchases and takes into inventory the raw
materials necessary to manufacture products sold to customers. The Company seeks
to minimize the risk of price fluctuation in raw materials and other supplies by
maintaining relatively short order cycles; however, the purchase of raw
materials into inventory may expose the Company to increased risk of price
fluctuations (see "Raw Materials and Backlog"). The majority of the Company's
domestic size reduction service revenues have historically been carried out on a
tolling basis and have not required the purchase of inventory.

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Polymers Processing Sales and Marketing. The Company has established a
sales force of seven full-time people dedicated to selling its size reduction
services and concentrate products in the United States. Additionally, the
Company's European polymers processing operations have an established sales
force in Europe consisting of sixteen full-time individuals located in The
Netherlands, the United Kingdom, Italy, France, Belgium, Germany and
Scandinavia. The New Zealand and Australian operations have a combined sales
force of eight people.

Competition. The specialty polymers processing business is highly
competitive. Competition is based principally on price, quality of service,
manufacturing technology, proximity to markets, timely delivery and customer
service and support. The Company's size reduction competitors are generally
small and mid-sized companies which, overall, have fewer locations and a more
regional emphasis. Several companies also maintain significant size reduction
facilities for their own use. The Company believes that it has been able to
compete effectively in its markets based on competitive pricing, its network of
plants, its technical expertise and equipment manufacturing capabilities and its
range of services, such as flexible storage, packaging facilities, and product
development. The Company also believes that its knowledge of the rotational
molding industry, through activities such as participation in the Association of
Rotational Molders, enhances its competitive position with this key customer
group. The Company's competitors in the concentrates industry include a number
of large enterprises, as well as small and mid-sized regional companies. The
Company believes its technical expertise, processing efficiency, high quality
product, customer support and pricing have enabled it to compete successfully in
this market.

The ambient size reduction business lacks substantial barriers to
entry, but cryogenic grinding and jet milling require a more significant
investment and greater technical expertise. The compounding business, including
concentrates manufacturing, requires a substantial investment in equipment, as
well as extensive technical and mechanical expertise. In general, many of the
Company's customers could perform the specialized polymers processing services
provided by the Company for themselves if they chose to do so, and new
competitors may enter the market from time to time. A number of the Company's
competitors and potential competitors in this segment have substantially greater
financial and other resources than the Company. While there can be no assurance,
the Company believes that it will be able to continue to compete effectively in
the industry, based on the factors described above.

OILFIELD SERVICES

The Company's Oilfield Services segment includes exploration services,
production services, and corrosion control services for new and used tubular
goods and sucker rods. These services include a variety of processes designed to
reduce the customer's cost of drilling and production. The Company also sells
equipment and supplies used in the inspection, reconditioning and coating of
tubular goods and sucker rods.

Tubular goods include various forms of casing, tubing, drill pipe and
line pipe. Casing is used to seal off fluids and prevent collapse of the bore
holes of oil and natural gas wells. After production casing is set, a string of
tubing is suspended from the surface inside the casing to serve as a conduit for
the extraction of oil and natural gas. Drill pipe is heavy seamless pipe used to
rotate the drill bit and circulate drilling fluids. Line pipe is used for waste
disposal lines, flow lines, gathering systems and pipelines through which oil,
natural gas and liquid hydrocarbons are transported. Removal of casing or tubing
for repair or replacement is expensive and results in an interruption of
production and loss of revenues to the well owner. Sucker rods are steel rods
which are joined together in a "string" by couplings to form a mechanical link
from a downhole pump at the bottom of an oil well to the pumping unit on the
surface. Removal of a sucker rod string for repair or replacement of rods,
couplings or the downhole pump requires a well to be shut down and the entire
string of sucker rods to be removed, resulting in additional expenses and loss
of revenues to the well owner due to interruption of production.

Exploration Services. The Company provides inspection services designed
to identify new tubular goods that are defective or which do not meet American
Petroleum Institute ("API") standards or other specifications set by the
customer. The API standards require pipe to be inspected to meet specified
standards and are generally employed as a benchmark in the petroleum industry.
Customers, however, generally require pipe to meet more rigorous standards.

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These inspection services are used by the mills that manufacture pipe, pipe
suppliers and end users, such as oil and gas exploration and production
companies, as a quality assurance and control measure to reduce the costs
associated with defective tubular goods and to reduce the risk of downhole
failure, especially when drilling deep oil and natural gas wells with high
downhole temperatures and pressures and when drilling in environmentally
sensitive areas such as offshore waters. The Company operates its own inspection
facilities for new tubular goods that provide (in contrast to field inspection)
a controlled environment that permits more efficient and consistent inspection
procedures, facilitates supervision of personnel and electronic equipment and
avoids problems associated with inclement weather. The Company also performs,
under long-term contracts, inspection services on site at the manufacturing
plants of several major producers and processors of tubular goods, thereby
reducing transportation and handling costs to the customer; and provides mobile
inspection services in the field. The Company also manufactures inspection
equipment which is sold or leased from time to time to domestic and foreign
customers.

The Company provides its customers a "Full-Service One-Stop Program" by
offering a complete range of tubular services, including electro-magnetic
inspection ("EMI"), ultrasonic inspection ("UT"), tubular maintenance and
storage, inventory management, and associated services such as hydrostatic
testing and threading (API specification and premium threading services are
offered within the Company's Houston, Texas facility by third parties). EMI is
a process which identifies flaws through magnetic flux leakage and is generally
used on pipe of less than 500 mil. in thickness. The Company designed and uses
an EMI system, the AGS System II, that the Company believes is capable of
identifying and visually displaying natural and man-made flaws that are not
identifiable using conventional EMI methods. The Company also designed and uses
a UT system, the ICO Scan system, that uses high frequency sound waves to
identify flaws that are virtually undetectable by other means. This system
employs high frequency sound waves and is used to inspect pipe that is thicker
than pipe which EMI can effectively inspect or that contains alloys of metals
other than steel, such as titanium.

Production Services. The Company reconditions and inspects used tubular
goods and new and used sucker rods through the provision of a complete package
of inspection and maintenance services. These services include the testing,
cleaning, reconditioning and electronic inspection of tubular goods. These
services are performed in a controlled environment at the Company's facilities,
which provides many of the advantages previously described for in-plant
inspection of new tubular goods, as well as at the well site using mobile
equipment. Production services reduce the customer's well operating costs
because reconditioning used tubular goods is typically less expensive than
purchasing new tubular goods. Reconditioned tubular goods generally must meet
the same API or customer standards as new tubular goods. The Company performs
these services at ten Company facilities located in California, Mississippi, New
Mexico, North Dakota, Oklahoma, Texas (two locations), Wyoming and Canada (two
locations).

The Company reconditions and inspects new and used sucker rods. Using
the Company's patented computerized sucker rod inspection system, reconditioning
involves a number of steps designed to clean, straighten, inspect and apply
protective coating to sucker rods to guard against corrosion. This process
reduces the customer's well operating costs because reconditioning used sucker
rods is less expensive than purchasing new sucker rods. The Company also
inspects new sucker rods before they are placed in service to reduce the risk of
downhole failure, which requires expensive pulling services and results in loss
of production. The Company's sucker rod reconditioning and inspection services
are provided at eight Company facilities located in California, Oklahoma, Texas
(three locations), Wyoming and Canada (two locations). See "Subsequent Events"
within Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

The Company provides a service that allows customers to acquire
reconditioned tubular goods or sucker rods at a lower cost than new tubular
goods or sucker rods, decrease their inventory carrying cost, and enhance their
inventory management. With this program, the Company purchases used tubular
goods and sucker rods from certain customers, reconditions and grades the pipe
and sucker rods for varying degrees of usage and resells the pipe and sucker
rods in the marketplace.

The Company operates mobile inspection units utilizing a system known
as Wellhead Scanalog(TM). The Company acquired the rights to Wellhead Scanalog
for use in the United States pursuant to a non-exclusive, royalty-free license
acquired in 1992. Wellhead Scanalog units are designed to perform tubular
inspection while the tubing is being

5

removed from the well without interfering with the normal operation of the rig.
The Company believes Wellhead Scanalog inspection is unique because it is not
affected by scale, mud, paraffin or water, which can inhibit the operation of
other systems.

Corrosion Control Services. The Company's corrosion control services
are designed to reduce well operating costs by extending the useful life of
downhole tubular goods and sucker rods and by improving the well's hydraulic
efficiency and pipe integrity. Corrosive conditions exist inside most wells.
Such conditions are particularly extreme in high temperature gas wells and in
oil producing regions where secondary and tertiary recovery techniques are
utilized. Secondary and tertiary recovery techniques are methods by which
natural forces in an oil reservoir are supplemented by means such as water
flooding to increase ultimate oil recovery. The Company offers a variety of
corrosion control services to its customers, using several of the Company's
proprietary and, in many cases, patented processes.

The Company performs internal coating of new and used tubular goods
with a variety of powder and liquid coatings. In the coating process, tubular
goods are placed in large burnout ovens to remove foreign substances. The
tubular goods are then grit blasted, primed with phenolic, preheated, coated
internally and subjected to a final baking process. The tubular goods are then
inspected visually and electronically to make certain the coating uniformly
covers the entire interior of the pipe and meets the Company's quality assurance
specifications. A similar process is utilized for cleaning, priming and coating
tubular couplings. The selection of the proper coating for downhole tubular
goods requires specialized knowledge and considerable effort by the Company's
experienced coating managers and technicians. The key to the process is
gathering facts concerning the well, its environment, test procedures and
related conditions planned for the life of the well. The Company has five
coating facilities located in Louisiana, Texas (three locations) and Canada.

The Company's patented sucker rod coating process involves applying a
special formula stainless steel to the sucker rods and then coating them with a
phenolic primer and fusion bonded modified epoxy. Sucker rods used in less
corrosive conditions may be coated only with phenolic primer and fusion bonded
modified epoxy. The Company's sucker rod coating services are provided at its
facility in Odessa, Texas.

The Company also provides internal cement lining for pipe ranging in
size from small diameter tubing to 24-foot line pipe. Cement provides an
increased barrier between corrosive fluids and the tubular product which allows
the customer to use a larger portion of its used pipe with a welded connection
when weight and torsion strength are not a primary issue. For critical line
pipe, the Company also applies an external fusion bonded tape which forms a
tough protective corrosion barrier.

Oilfield Services Customers. The Company's customers include leading
integrated oil companies, large independent oil and gas exploration and
production companies, drilling contractors, steel producers and processors, and
oilfield supply companies. No single customer of the oilfield services business
segment accounted for over 10% of the Company's consolidated revenues in fiscal
2001, 2000 or 1999. Sales are generally on an order-by-order basis or under
short-term contracts (i.e., one year or less). The Company does enter into
contracts in connection with the placement of Company-owned equipment in tubular
goods manufacturing or processing facilities. These contracts are generally for
three or more years and in some instances provide for fixed prices, volume
discounts and indemnification of customers for certain liabilities.

Oilfield Services Sales and Marketing. The Company's oilfield services
are marketed by 27 individuals who are responsible for in-depth customer contact
and service knowledge. Oilfield service sales representatives are required to be
technically knowledgeable in reclamation, inspection and corrosion control
services, and to stay abreast of regional and industry-wide trends in oil and
gas exploration, completion and production.

Competition. The principal competitive factors in the Company's
oilfield services business are price, availability and quality of service.
Although the consolidation in the tubular inspection, reconditioning and coating
industry has resulted in the elimination of many of the Company's competitors,
the Company's ability to compete effectively is dependent upon timely, reliable
performance and quality of its services and personnel at competitive rates. The
Company believes that it has been able to compete effectively because of its
efficient and cost-effective processes, the

6

strong relationships that it maintains with its customers, and its ability to
add value through integration of services such as tubular inspection, coating,
maintenance, transportation, storage and inventory control.

The Company believes few competitors within the United States provide
as wide a variety of tubular services as those offered by the Company. The
Company and Tuboscope, Inc., a subsidiary of Varco International, Inc., compete
with each other and a number of smaller companies in most domestic markets.
Varco International, Inc. has greater financial resources than the Company.
Unlike the Company's corrosion control business, capital and other requirements
for entry into the used tubular inspection business are relatively low and new
competition may enter the market from time to time. Potential entrants may have
substantially greater financial or other resources than the Company. While there
can be no assurance, the Company believes it will be able to compete effectively
in the industry, based on the factors described above.

ACQUISITIONS

From the beginning of fiscal 1994 through fiscal year-end 2001, the
Company completed and integrated eleven acquisitions in the oilfield services
segment which increased its market share and expanded its service capabilities.
In April 1996 the Company entered the polymers processing industry through the
acquisition of Wedco Technology, Inc. ("Wedco") to take advantage of
opportunities in that market. Since the Wedco acquisition, the Company has
completed ten additional acquisitions in the polymers processing industry. The
acquisitions the Company has completed during the last three fiscal years are
discussed below and were accounted for using the purchase method of accounting
and, as such, the results of operations of the acquired entities are included in
the Company's consolidated results of operations only from the date of each
acquisition forward.

During September 2000, the Company acquired the operating assets of
Sanko Manufacturer (M) ("Sanko") for $675, subject to adjustment. Sanko's
business is now conducted through Courtenay (Malaysia) Sdn. Bhd., a Malaysian
company that provides specialty powders and size reduction and compounding
services to the rotational molding, metal coating, textile, and injection
molding industries in Malaysia.

During February 1999, the Company acquired MilCorp Holdings, Inc. and
MilCorp Industries, Ltd. (collectively "MilCorp") for $7,653 in cash and the
assumption of approximately $3,744 of debt. MilCorp is a leading provider of
fully integrated services for oil country tubular goods, including trucking,
inventory management, inspection and internal coating. MilCorp has facilities
located on 160 acres near Edmonton, Alberta, in the energy-producing region of
Western Canada. MilCorp has been in business for more than 50 years and its
customers include many of Western Canada's large energy companies and drilling
contractors.

There were no acquisitions in fiscal year 2001. Subsequent to fiscal
year-end 2001, the Company acquired the operating assets of Rod Services Canada
Ltd. and TRC Rod Services of the Rockies, Inc. See "Subsequent Events" within
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

ENVIRONMENTAL REGULATION

The Company is subject to numerous and changing local, state, federal
and foreign laws and regulations concerning the use, storage, treatment,
disposal and general handling of hazardous materials, some of which may be
considered to be hazardous wastes, and restrictions concerning the release of
pollutants and contaminants into the environment. These laws and regulations may
require the Company to obtain and maintain certain permits and other
authorizations mandating procedures under which the Company must operate and
restrict emissions. Many of these laws and regulations provide for strict joint
and several liability for the costs of cleaning up contamination resulting from
releases of regulated materials into the environment. Violation of mandatory
procedures under operating permits may result in fines, remedial actions or, in
more serious situations, shutdowns or revocation of permits or authorizations.
The Company believes that future compliance with existing laws and regulations
will not have a material adverse effect on the Company. The Company further
believes that future capital expenditures for environmental remediation will not
be material.

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The Company regularly monitors and reviews its operations, procedures
and policies for compliance with environmental laws and regulations and the
Company's operating permits. The Company believes that its current procedures
and practices in its operations, including those for handling hazardous
materials, are substantially in compliance with all material environmental laws
and regulations and its material operating permits. There can be no assurance,
however, that a review of the Company's past, present or future operations by
courts or federal, state, local or foreign regulatory authorities will not
result in determinations that could have a material adverse effect on the
Company. In addition, the revocation of any of the Company's material operating
permits, the denial of any material permit application or the failure to renew
any interim permit, could have a material adverse effect on the Company. While
the Company cannot predict what environmental laws and regulations will be
enacted or adopted in the future or how such future laws or regulations will be
administered or interpreted, it believes the impact of any such laws or
regulations is not likely to be more burdensome to the Company than to other
similarly situated companies involved in oilfield services or polymers
processing. Compliance with more stringent environmental laws and regulations,
more vigorous enforcement policies, or stricter interpretations of current laws
and regulations, or the occurrence of an industrial accident, could have a
material adverse effect on the Company. Also, see discussion concerning
environmental issues included in "Item 3. Legal Proceedings."

INSURANCE AND RISK

Except for warranties implied by law, the Company does not generally
warrant the products and services it provides. Nonetheless, if the Company were
found to have been negligent, or to have breached its obligations to its
customers, the Company could be exposed to significant liabilities and its
reputation could be adversely affected. Likewise, the Company's activities as a
vendor of inspection equipment, a reseller of tubular goods and a manufacturer
of specialty polymers products, may result in liability on account of defective
products. The Company believes these risks of its business are adequately
covered by its insurance program. However, such coverage is subject to
applicable deductibles, exclusions, limitations on coverage and policy limits.
In addition, the occurrence of a significant adverse event, the risks of which
are not fully covered by insurance, could have a material adverse effect on the
Company's financial condition, results of operations or net cash flows.
Moreover, no assurance can be given that the Company will be able to maintain
adequate insurance in the future at rates it considers reasonable.

RAW MATERIALS

The Company purchases and takes into inventory the resins, additives
and other materials used in its concentrates manufacturing, distribution and a
portion of its specialty polymers distribution business. Within the Oilfield
Service business, the Company purchases and takes into inventory oil country
tubular goods and sucker rods. These materials are subject to fluctuating
availability and prices. The Company believes that these and other materials
used in its operations are available from numerous sources and are available to
meet its needs.

PATENTS AND LICENSES

The Company holds fifteen United States patents, three United Kingdom
patents, two Australia/New Zealand patents, and has six patent applications
pending covering the proprietary technology utilized in its reconditioning,
inspecting, spraymetal and epoxy coating of sucker rods and its services for
used tubular goods. The expiration dates on these patents range from January
2006 to October 2019. The Company's polymers processing operations are not
materially dependent upon any patents or trademarks. The Company believes that
its patents and licenses are valid and that the duration of its existing patents
is satisfactory. However, no assurance can be given that one or more of the
Company's competitors may not be able to develop or produce a process or system
of comparable or greater quality to those covered by the Company's patents or
licenses, that patents will issue in respect to filed patent applications, that
the Company's patents will not be found to be invalid or that others will not
claim that the Company's operations infringe upon or use the intellectual
property of others. In addition, issued patents may be modified or revoked by
the United States Patent and Trademark Office or in legal proceedings. The
Company does not believe any single patent is essential to the overall
successful operation of the Company's business.

8

In connection with the acquisition of Baker Hughes Tubular Services
during fiscal 1992, the Company acquired royalty-free non-exclusive licenses to
use Wellhead Scanalog(TM), PipeImage(TM) and other proprietary technology in the
United States. Pursuant to the terms of such licenses, the Company generally is
prohibited from using such proprietary technology in foreign markets.

EMPLOYEES

As of November 30, 2001, the Company had approximately 1,897 full-time
employees and approximately 448 independent full-time contract employees. The
Company's employees working in Italy, France, Holland, Sweden, New Zealand, and
Australia are parties to collective bargaining agreements. None of the other
employees are represented by a union. The Company has experienced no strikes or
work stoppages during the past fiscal year and considers its relations with its
employees to be satisfactory.

9

ITEM 2. PROPERTIES

The location and approximate acreage of the Company's operating
facilities at December 18, 2001, together with an indication of the services
performed at such facilities are set forth below.

10

PROPERTIES LEASED:

Notes:

(1) Seventeen acres are owned, 21 acres leased through 2003, remaining two
leased month to month.

(2) Three acres are leased on a month to month basis; the remaining ten acres
are owned by the Company.

(3) Eighteen acres are owned; the remaining two acres are leased on a month-to
month basis.

The Company considers its facilities and equipment to be well
maintained and adequate for the Company's present operations. The leased
properties listed above have various expiration dates through 2016. The Company
also leases various sales and administrative offices with various lease
expiration dates through 2006. Utilization of the Company's oilfield service
facilities is subject to fluctuations based in part on oil and gas exploration
and production levels. The Company is currently operating most of its facilities
below full capacity. Most oilfield facilities are operating no more than 12
hours per day, while most of the polymers facilities are operating 24 hours per
day, 5 days per week.

11

ITEM 3. LEGAL PROCEEDINGS

Silicosis Related Claims. The Company is presently named as a defendant
in two lawsuits involving two former employees alleging personal injury claims
related to exposure to silica resulting in silicosis-related disease. These
cases were initiated on November 21, 1991 (by Roberto Bustillos, et al., in
Texas State Court in Ector County) and on January 4, 2000 (by Pilar Olivas, et
al., in Texas State Court in Harris County). Generally, the Company is protected
under workers' compensation law from claims under these two suits, except to the
extent a judgment might be awarded against the Company for an intentional tort.

In fiscal 1994 and 1995, the Company received an instructed verdict
(i.e. no liability was found at trial after the plaintiff's evidence was
presented) in four cases involving four plaintiffs, also former employees,
alleging intentional tort against the Company for silicosis-related disease.
Between fiscal 1993 and fiscal 2000, the Company was non-suited or dismissed
without liability in fifteen cases filed by former employees alleging
intentional tort against the company for silicosis-related disease. In the
second and fourth quarters of fiscal 2001, the Company was non-suited in two
more cases filed by former employees alleging intentional tort against the
company (the case filed in 1991 by Odilon Martinez in Texas State Court in Ector
County, and the case filed in 1992 by James Glidwell in Texas State Court in
Ector County, respectively).

The Company has settled six cases filed by the survivors of six former
employees, alleging wrongful death caused by silicosis-related disease. Five of
these settlements occurred between fiscal 1993 and fiscal 1999. The sixth case
(which was filed in 2000 by Delma Orozco, individually and as representative of
the Estate of Lazaro Orozco, et al., in Texas State Court in Ector County), was
settled in the fourth quarter of fiscal 2001. In fiscal 1993 the Company
incurred a total charge of $605 in connection with settlement of two of the
above-referenced wrongful death cases. The Company was fully insured for the
settlement of the other four cases alleging wrongful death causes of action,
including the Orozco case settled in fiscal 2001, and therefore did not incur
any settlement costs in connection with those cases. At this time there are no
suits pending against the Company alleging wrongful death caused by
silicosis-related disease.

During December 1996, an agreement was signed by the Company and Baker
Hughes, Inc. ("Baker Hughes") to settle the litigation of a dispute concerning
the assumption of certain liabilities in connection with the acquisition of
Baker Hughes Tubular Services ("BHTS") in 1992. The agreement stipulates that
with regard to future occupational health claims (which would include silicosis
claims), the parties shall share costs equally, with the Company's obligations
being limited to $500 for each claim and a maximum contingent liability of
$5,000 ($4,250 net of payments the Company has made to date pursuant to the
terms of the agreement) in the aggregate, for all claims. Subsequent to the year
end, the only claim outstanding at September 30, 2001 was settled.

The Company has settled two cases filed by former employees of BHTS
alleging personal injury claims related to exposure to silica resulting in
silicosis-related disease. These cases, filed by Paul Roark and James Petty (the
"Roark and Petty litigation"), were settled in the fourth quarter of fiscal 2000
and the first quarter of fiscal 2002, respectively. The Roark and Petty
litigation involved negligence claims that, in theory, could have circumvented
the Company's immunity protections under the workers' compensation law. The
Roark and Petty litigation named the Company and Baker Hughes, among others, as
defendants, and fell within the provisions of the December 1996 agreement
between the Company and Baker Hughes (described in the preceding paragraph). The
terms of the settlements in the Roark and Petty litigation did not have a
material adverse effect on the Company's financial condition.

The Company and its counsel cannot, at this time, predict with any
reasonable certainty whether or in what circumstances additional
silicosis-related suits may be filed, or the outcome of future silicosis-related
suits, if any. The Company does not believe, however, that the two
silicosis-related lawsuits that are presently pending will have a material
adverse effect on its financial condition, results of operations or cash flows.
It is possible that future silicosis-related suits, if any, may have a material
adverse effect on the Company's financial condition, results of operations or
cash flows, if an adverse judgment is obtained against the Company which is
ultimately determined not to be covered by insurance. The Company has in effect,
in some instances, employer's liability insurance policies applicable to
silicosis-related suits; however, the extent and amount of coverage is limited,
and the Company has been advised by certain insurance carriers of a reservation
of rights with regard to policy obligations pertaining to the suits because of
various exclusions in the policies.

12

Environmental Remediation. The Company's agreement with Baker Hughes,
pursuant to which BHTS was acquired by the Company, provides that Baker Hughes
will reimburse the Company for 50% of the BHTS environmental remediation costs
in excess of $318, with Baker Hughes' total reimbursement obligation being
limited to $2,000 (current BHTS obligation is limited to $1,650). BHTS is a
responsible party at two hazardous waste disposal sites that are currently
undergoing remediation pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"). Under CERCLA, persons who were
responsible for generating the hazardous waste disposed of at a site where
hazardous substances are being released into the environment are jointly and
severally liable for the costs of cleaning up environmental contamination, and
it is not uncommon for neighboring landowners and other third parties to file
claims for personal injuries and property damage allegedly caused by hazardous
substances released into the environment. The two sites where BHTS is a
responsible party are the French Limited site northeast of Houston, Texas and
the Sheridan site near Hempstead, Texas. Remediation of the French Limited site
has been completed, with only natural attenuation of contaminants in groundwater
occurring at this time. Remediation has not yet commenced at the Sheridan site.
Current plans for cleanup of this site, as set forth in the federal Record of
Decision, call for on-site bioremediation of the soils in tanks and natural
attenuation of contaminants in the groundwater. However, treatability studies to
evaluate possible new remedies for the soils, such as in-place bioremediation,
are being conducted as part of a Remedial Technology Review Program. Based on
the completed status of the remediation at the French Limited site and BHTS's
minimal contribution of wastes at both of the sites, the Company believes that
its future liability under the agreement with Baker Hughes with respect to these
two sites will not be material to the Company's financial condition, results of
operations or cash flows.

John Wood Group PLC Litigation. On November 21, 1997, in an action
initiated by the Company in October 1994, a Texas State Court jury awarded the
Company approximately $13,000 in the trial of its case against John Wood Group
PLC relating to the 1994 contract for the purchase of the operating assets of
NDT Systems, Inc. and certain related entities. The trial court subsequently
entered a judgment for $15,750 in the Company's favor, which includes
pre-judgment interest on the jury award. The Wood Group appealed the judgment.
On March 9, 2000, the Court of Appeals for the First District of Texas reversed
the judgment entered by the trial court and, as to all but one of the Company's
claims, ordered that the Company have no recovery. As to that remaining breach
of contract claim seeking recovery of a contract payment of $500, the Court of
Appeals remanded the cause to the trial court for further proceedings. The Court
of Appeals overruled the Company's motion for rehearing and rehearing en banc.
The Company filed a petition for review in the Texas Supreme Court, and the
Texas Supreme Court denied Company's petition for review on February 8, 2001.
The Company filed a motion for rehearing from the Texas Supreme Court's denial
of the Company's petition for review. On March 29, 2001, the Texas Supreme Court
denied the Company's motion for rehearing from the Texas Supreme Court's denial
of the Company's petition for review. On September 5, 2001, the Company
dismissed all claims pending in the litigation in exchange for a payment of $200
from the Wood Group.

Oil Country Tubular Limited Arbitration. ICO Tubular Services, Inc., a
now-defunct subsidiary of the Company, was named as a Respondent in an
arbitration claim made on August 7, 1998, by Oil Country Tubular Limited
("OCTL"), a company based in India. The claim arises out of a transaction
between OCTL and BHTS whereby BHTS sold equipment and other assets from a plant
in Canada to OCTL and entered into a separate Foreign Collaboration Agreement
(FCA) to provide certain practical and technical assistance in setting up the
plant and making it operational in India.

OCTL paid $2,400 for the FCA and $2,800 for equipment for the plant. In
its claim brought in the Court of Arbitration of the International Chamber of
Commerce ("ICC"), OCTL claims, among other items, that it did not receive
technical assistance, technical data, spare parts and certain raw materials that
were necessary for its oilfield tubular services plant in India and that BHTS
owed it under the FCA. The Company is involved by virtue of its acquisition in
1992 of BHTS. The Company had only peripheral knowledge of the dispute between
OCTL and Baker Hughes prior to the filing of OCTL's claim. The Company objected
to the jurisdiction of the arbitration tribunal on the ground that the Company
is not a party to the FCA, the FCA having been assigned to Tuboscope
Incorporated prior to

13

the Company's purchase of BHTS. After a hearing on that objection, the arbitral
tribunal entered a decision in March 2000, holding that it did have jurisdiction
over the Company. OCTL submitted an Amended Statement of Claim in November 2000,
in which it claimed nine different breaches of the FCA. Although the Company was
not involved in the actions made the basis of OCTL's claims, its reconstruction
of events indicated that BHTS supplied OCTL with a fully operational plant and
that OCTL's difficulties, such as they were, resulted from external causes. The
total amount of OCTL's claims exceeds $30,000. It has alleged approximately
$8,700 in losses due to past contractual breaches, plus approximately $7,900 in
"liquidated damages" it claims to have paid to third parties because of
production losses that allegedly resulted from contractual breaches and an
unspecified amount of damages from lost sales. While the outcome of this
arbitration matter cannot be predicted, the Company plans to continue to contest
the claims vigorously. The Company believes the damage claim is exaggerated. If
the ICC arbitral panel should enter an award against the Company, the Company,
Baker Hughes and Tuboscope have entered into a separate agreement to arbitrate
which entity would be responsible to pay the award.

Shareholder Litigation. On May 11, 2001, an individual shareholder
filed a lawsuit in Texas State Court in Harris County against the Company, its
directors, two of the Company's former officers/directors, and Travis Street
Partners, L.L.C. ("TSP"), alleging breach of fiduciary duty in connection with
TSP's offer to buy the Company. The lawsuit also alleges that certain severance
payments made by the Company to two of the Company's former officers/directors
constitute a misappropriation of assets. The individual shareholder plaintiff
filed suit on behalf of himself and derivatively on behalf of the Company, and
has requested that the suit be maintained as a class action and that he be
certified as the class representative. Plaintiff seeks an unspecified amount of
damages. The Company has entered into an agreement with the plaintiff which, for
now, indefinitely extends the time for the Company to file a responsive answer
to the lawsuit.

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.

14

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Company's common stock trades on the NASDAQ Stock Market under the
symbol ICOC. There were 373 shareholders of record of the Company's common stock
at December 20, 2001.

During the first quarter of fiscal year 1999, the Company declared a
$.055 per common share dividend. Since that time, the Company has not declared
or paid common stock dividends. The Company currently has no plans to reinstate
the common stock dividend.

The Company's agreement relating to the Senior Notes due in 2007
restricts the Company's ability to pay dividends on preferred and common stock.
The terms of the Senior Notes, however, do allow for dividend payments on
currently outstanding preferred stock, in accordance with the terms of the
preferred stock, and up to $.22 per share, per annum on common stock, in the
absence of any default or event of default on the Senior Notes. The above
limitations may not be decreased, but may be increased based upon the Company's
results of operations and other factors (see Item 7 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Note 7 to the Company's Consolidated Financial
Statements).

The following table sets forth the high and low sales prices for the
common stock as reported on the NASDAQ Stock Market.

15

ITEM 6. SELECTED FINANCIAL DATA (1)

The following table sets forth selected financial data of the Company
that has been derived from consolidated financial statements that have been
audited. The selected financial data should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, included
elsewhere in this report.

(1) The Statement of Operations, Balance Sheet and Other Financial Data include
the results of operations and financial position of the Company and each of
the companies acquired since their respective dates of acquisition. See
discussion of fiscal year acquisitions in Item 1.

(2) "EBITDA" equals gross profit less selling, general and administrative
expenses and should not be considered as an alternative to net income or any
other generally accepted accounting principles measure of performance as an
indicator of the Company's operating performance or as a measure of
liquidity. The Company believes EBITDA is a widely accepted financial
indicator of a company's ability to service debt. Because EBITDA excludes
some, but not all items that affect net income, such measure varies among
companies and may not be comparable to EBITDA as used by other companies.

(3) Ratios of EBITDA to interest expense and interest expense net of interest
income represent ratios which provide investors with information as to the
Company's current ability to meet its interest costs. Because EBITDA
excludes some, but not all items that affect net income, such measure varies
among companies and may not be comparable to debt service ratios used by
other companies.

(4) Consists of cash used for capital expenditures, excluding property, plant
and equipment obtained in acquisitions.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
IN OPERATIONS

INTRODUCTION

The Company has two operating segments: Polymers Processing and
Oilfield Services. Polymers Processing revenues are derived from (1) product
sales and (2) toll services. Polymers Processing 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, which 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 on customer owned material.
Oilfield Service revenues include revenues derived from (1) exploration sales
and services (new tubular goods inspection), (2) production sales and services
(reclamation, reconditioning and inspection of used tubular goods and sucker
rods), (3) corrosion control services (coating of tubular goods and sucker rods)
and (4) other sales and services (transportation services and oilfield engine
sales and services in Canada). Service revenues in both of the Company's
business segments 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 for the Polymers Processing and Oilfield
Services segments is primarily comprised of compensation and benefits to
non-administrative employees, occupancy costs, repair and maintenance,
electricity and equipment costs and supplies, and, in the case of concentrate
manufacturing operations and the Company's distribution business, purchased raw
materials. Selling, general and administrative expenses consist primarily of
compensation and related benefits to the sales and marketing, executive
management, management information system support, 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.

Gross profits as a percentage of revenue for product sales within the
Polymers Processing business generally are significantly lower than those
generated by the Company's toll services due to the raw material component
embedded in these sales revenues. Performing distribution activities inherent in
product sales allows the Company's processing operations to be scheduled more
efficiently and enhances the Company's relationships with the end users of the
processed material.

Demand for the Company's polymers processing products and services tend
to be driven by overall economic factors and, particularly, consumer spending.
The trend of applicable resin prices also impacts customer demand. As

17

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 Polymers Processing revenues
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 December 31. 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.

The demand for the Company's Oilfield products and services depends
upon oil and natural gas prices and the level of oil and natural gas production
and exploration activity. In addition to changes in commodity prices,
exploration and production activities are affected by worldwide economic
conditions, supply and demand for oil and natural gas, seasonal trends and the
political stability of oil-producing countries. The oil and gas industry has
been highly volatile over the past several years, due primarily to the
volatility of oil and natural gas prices. Oil and gas prices fell sharply in the
first half of fiscal 1999, with oil prices (as measured by the spot market price
for West Texas Intermediate Crude) reaching a low of less than $11.00 per barrel
and natural gas prices (as measured by the Henry Hub spot market price) reaching
a low of $1.65 per mcf during the first quarter of fiscal 1999. This 25-year
low, in real dollar terms, resulted in extremely depressed levels of oilfield
exploration and production activity with the U.S. drilling rig count falling to
an average of only 523 rigs during the third quarter of fiscal 1999. The
Company's oilfield service revenues and income were adversely impacted by these
factors. Over the course of fiscal 2000, oil and gas prices generally increased.
During the first half of fiscal 2001 average oil and gas prices rose
significantly compared to the same period in fiscal 2000. These trends have
resulted in a strong recovery in demand for oilfield services generally and
those services provided by the Company, with the U.S. rig count rising to an
average of 1,237 during the third quarter of fiscal 2001. During the latter half
of fiscal 2001 and into fiscal 2002 oil and gas prices have declined and, as a
result, U.S. and Canadian rig counts have also declined. Should these trends
continue, the Company would anticipate the demand for the Company's Oilfield
products and services would likewise decline. As a result, the financial
performance of the Oilfield Service business would also decline.

18

RESULTS OF OPERATIONS

(1) "EBITDA" equals gross profit less selling, general and administrative
expenses and should not be considered as an alternative to net income or any
other generally accepted accounting principles measure of performance as an
indicator of the Company's operating performance or as a measure of
liquidity. The Company believes EBITDA is a widely accepted financial
indicator of a company's ability to service debt. Because EBITDA excludes
some, but not all items that affect net income, such measure varies among
companies and may not be comparable to EBITDA as used by other companies.

Revenues. Consolidated revenues increased slightly, up $1,992 (1%) to
$327,299 due to revenue growth of the Company's Oilfield Service business,
partially offset by lower revenues generated by the Polymers Processing
business.

19

Polymers Processing revenues declined $23,816 (11%) to $196,120 as both
product sales and toll service revenues declined. The strengthening of the U.S.
dollar relative to European and South East Asian currencies negatively impacted
revenues $10,700, or 45% of the overall revenue decline. Lower volumes also
contributed to lower Polymers Processing revenues. The volume declines were due
to competitive pressures, an ineffective marketing strategy as well as the
effect of the weakening global economy, during the fiscal year. Polymers product
sales revenues declined $17,879 (10%) to $155,321. Much of this decline was the
result of the appreciation of the U.S. dollar relative to the relevant foreign
currencies and a drop in sales volumes in the Company's U.S. market. Average
sales prices also declined in the Company's European market due to a decline in
resin prices. The Company purchases linear low density polyethylene and low
density polyethylene to manufacture most of its powdered finished products.
Currently, the majority of these powdered products are manufactured in the
Company's Europe and Southeast Asian facilities. In the U.S., customers who
require powdered products have tended to deal with the Company on a toll service
basis, rather than buying product manufactured by the Company. Polymers toll
service revenues declined $5,937 (13%) to $40,799. The decline was caused by
lower processing volumes in the United States and Europe and the strengthening
of the U.S. dollar during fiscal 2001.

Oilfield Service revenues increased $25,808 (24%) to $131,179 during
fiscal 2001. All major product lines experienced higher revenues during fiscal
2001, compared to fiscal 2000. Strong customer demand during the year was driven
by higher oil and gas prices during the fiscal 2001 and in-turn higher rig
counts. The following table summarizes important market measures which drive the
Company's oilfield service business.

During the last quarter of fiscal 2001 and subsequent to September 30,
2001, oil and gas prices declined and, as a result, rig counts have decreased.
Should this trend continue, demand for the Company's oilfield services will
likely decline and in turn, the financial performance of this segment of the
Company's business will be negatively affected.

Cost and Expenses. Gross margins (calculated as the difference between
net revenues and costs of sales, divided by net revenues) declined to 22.1% in
fiscal 2001, compared to 23.2% in fiscal 2000. The gross margin erosion was the
result of lower Polymers Processing gross margins, partially offset by the
benefits of improved Oilfield Service gross margins.

Polymers Processing gross margins declined to 16.7% in fiscal 2001,
compared to 20.3% in fiscal 2000. The decline was caused by $1,048 in inventory
write-downs recognized during fiscal 2001, lower processing volumes and higher
workers' compensation and employee medical expenses, during fiscal 2001,
compared to fiscal 2000. The Company's gross margins were negatively impacted by
falling resin prices in fiscal 2001. As resin prices fall, the margin the
Company earns on its product sales is reduced due to the timing difference
between the purchase of the raw materials and the sale of the finished product.
The Company expects to mitigate this risk in the future by reducing resin
inventories throughout the Polymers Processing business.

Oilfield Service gross margins improved to 30.1% during fiscal 2001,
compared to 29.3% during fiscal 2000. The improvement is almost entirely due to
the increase in volumes during the year.

Selling, general and administrative expenses increased to $46,954 in
fiscal 2001, compared to $40,404 in fiscal 2000, an increase of $6,550 (16%).
The increase was primarily due to cost increases during fiscal 2001, compared to
fiscal 2000 for: legal fees, legal settlements, workers compensation, medical
claims and Oilfield Service selling, general and administration expenses
commensurate with the increase in Oilfield Service revenues. During fiscal 2001,
the Company also incurred $1,660 in proxy contest expenses related to the 2001
annual meeting of shareholders. As a percentage of revenues, selling, general
and administrative expenses increased to 14.3% of revenues in fiscal 2001, from
12.4% in fiscal 2000. This increase was the result of the expense increase
discussed above, as revenues increased modestly.

20

Depreciation and amortization expenses declined to $15,538 during
fiscal 2001 from $16,332 during fiscal 2000, a decrease of $794 (5%). The
decline was the result of the effects of the strengthening U.S. dollar, which
had the effect of reducing reported foreign operations' depreciation and
amortization in U.S. dollar terms, partially offset by the impact of capital
expenditures.

FISCAL 2001 CHARGES

During the fourth quarter of fiscal 2001, the Company decided to close
three polymers processing operations and restructure another facility. The
facilities to be closed are a size reduction and compounding facility in Italy,
a grinding machinery manufacturing facility in the United States, and a minerals
size reduction facility in the United States. The restructured facility
manufactures color concentrates in the UK. As a result of these actions, the
Company recognized a charge of $6,948 which consisted of $5,744 in long-lived
asset impairments (consisting of $4,218 in goodwill impairment and $1,526 for
fixed asset impairments), $462 of lease termination costs, $327 of severance
expenses, an inventory write-down of $340 (included in cost of sales) to reduce
inventory values to estimated market selling prices, and $75 of other
miscellaneous charges (included in the cost of services). The amount of the
fixed asset impairments were determined by comparing fair values with the
corresponding carrying values of the assets evaluated. Fair value was determined
as the estimated current market value of the assets evaluated based on an
independent appraisal.

The facility in Italy was closed due to its redundancy with the
Company's other, nearby Italian facility performing similar services. The
machinery manufacturing facility in the United States was closed in order to
integrate the operation with the Company's processing facilities. The minerals
size reduction facility was closed due to its weak financial performance and was
sold subsequent to the fiscal year end. The UK operation was restructured during
fiscal 2001 due to its weak performance.

During 2001, the Company recognized (i) a $7,410 charge for severance
obligations relating to the termination of Asher Pacholder (Chairman and Chief
Financial Officer), Sylvia Pacholder (President and Chief Executive Officer),
Robin Pacholder (President - Wedco North America), David Gerst (Senior Vice
President and General Counsel) and Tom Pacholder (Senior Vice President - Wedco)
(collectively referred to as the "Terminated Pacholders"), which were discussed
in the Company's form 8-K filed on June 8, 2001, and (ii) a $250 charge for
litigation relating to one of the personal injury claims alleging exposure to
silica, resulting in silicosis-related disease.

In connection with the termination of the Terminated Pacholders, the
Company established and funded an escrow account containing $3,113 in cash. The
purpose of the escrow account is to pay federal excise tax pursuant to IRS Code
Sec. 280(g) in the event there is a "change of control", as defined by the IRS
regulations, within one year of the Terminated Pacholders' termination. Due to
the uncertainty surrounding whether the excise tax will be due, the $3,113 has
not been reflected as an expense during fiscal year 2001 and additionally, the
escrow balance has been reclassified to "prepaid expenses and other current
assets" from cash on the Company's September 30, 2001 balance sheet. Also,
should a "change of control", as defined, occur within one year of the severance
date, a significant portion of the tax asset the Company has recognized,
relating to the future benefit of deducting the $7,410 severance charge, will no
longer be an allowable deduction for tax purposes.

Also, during fiscal 2001, the Company terminated certain polymers
processing employees and recognized related severance expenses of $569 (excludes
severance expenses discussed above).

Operating Income (Loss). Operating income (loss) declined to a loss of
$(4,781) in fiscal 2001, from operating income of $18,251 in fiscal 2000. The
decline was due to the changes in revenue and expenses discussed above,
including the fiscal 2001 charges.

Net Interest Expense. Net interest expense increased to $12,690 in
fiscal 2001 from $12,117 in fiscal 2000, an increase of $573 (5%). This increase
is mostly due to the decline in U.S. short-term interest income on cash
equivalent investments and a decline in the Company's cash balances during
fiscal 2001.

21

Income Taxes. The Company's effective tax rate was 23.1% during fiscal
2001, compared to 59.2% during fiscal 2000. The lower rate was due to the
relation between pre-tax income (loss), non-deductible goodwill and the mix of
pre-tax income or loss generated by the Company's operations in various taxing
jurisdictions.

The Company has for tax purposes $33,088 in domestic net operating loss
carry-forwards ("NOLs"), which expire between 2002 and 2021, and $294 in
investment and other tax credit carry-forwards which, if utilized, will result
in a cash savings. Net operating loss carry-forwards in the amount of $2,311 and
$21 of the tax credits are expected to expire unused. The Company has recorded a
valuation allowance as of September 30, 2001 of $830 relating to these tax
benefits expected to expire unused. A change in ownership under the Internal
Revenue Code has occurred, which limits the utilization of $4,465 of the
Company's NOLs and credits to approximately $677 each year through their
expiration.

Net Income (Loss). During fiscal 2001, the Company generated a net loss
of $(13,437) compared to net income of $2,501 in fiscal 2000, due to the changes
in revenues and expenses discussed above.

Foreign Currency Translation. The fluctuations of the U.S. dollar
against the Euro, Swedish Krona, British Pound, Canadian Dollar, 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 between fiscal
2001 and 2000.

Net revenues $(11,642)
Earnings before interest, taxes,
depreciation, and amortization (821)
Operating income 4
Pre-tax income 248
Net income 184

Subsequent Event. During December 2001, the Company acquired the
operating assets of Rod Services of Canada, Ltd., with a facility in Red Deer,
Alberta, Canada; and TRC Rod Services of the Rockies, Inc., with a facility in
Casper, Wyoming (collectively referred to as "The Rod Companies") for $1,581 in
cash. The Rod Companies provide rod inspection and reclamation services in
Western Canada and the Rocky Mountain region in the United States.

Year Ended September 30, 2000 Compared to Year Ended September 30, 1999

Revenues. Consolidated revenues increased $62,934 (24%) during fiscal
2000, compared to fiscal 1999. The increases were due to revenue improvements in
both the Polymers Processing and Oilfield Service business segments.

Polymers Processing revenues increased from $187,477 during fiscal 1999
to $219,936 for fiscal 2000. This increase of 17% was the result of an increase
in product sales revenues, offset in part by lower toll service revenues and the
effect of the strength of the U.S. Dollar compared to the Euro, the British
Pound, the Australian Dollar, and the New Zealand Dollar.

Polymers product sales revenues increased $34,045 (24%) to $173,200
during fiscal 2000. This change was due to an increase in product sales volumes
in the Company's European and Southeast Asian markets and an increase in
concentrate manufacturing volumes (in large part due to the fiscal 1999 capacity
expansion at the Company's U.S. concentrate manufacturing facility). A portion
of the product sales improvement in Europe came at the expense of toll service
revenues. During fiscal 2000, many European customers were converted from toll
processing customers to product sales customers. Product sales revenues were
adversely impacted during fiscal 2000 by the strengthening of the U.S. dollar,
relative to applicable European and Southeast Asian currencies. Toll service
revenues declined due to lower European processing volumes, in part the result
of converting some European customers to buying products rather than purely
buying services, and the effect of the strengthening U.S. dollar during fiscal
2000. The impact of these factors was partially offset by an increase in U.S.
size reduction (toll service) revenues.

22

Oilfield Service revenues increased $30,475 (41%) to $105,371 during
fiscal 2000 compared to fiscal 1999. Of this increase, $7,300 is attributable to
the February 1999 acquisition of MilCorp (increased production sales and
services, corrosion control services and other sales and services). The
remaining increase is due to a strong rebound within all the Company's oilfield
service product lines due to increased volumes resulting from greater customer
demand. The recovery is being driven by higher oil and gas prices which rose
from an average of $16.31 per barrel and $2.09 per mcf during fiscal 1999 to
$28.48 per barrel and $3.25 per mcf during fiscal 2000. As a result of these
higher commodity prices, the North American rig count has risen from an average
of 602 during fiscal 1999 compared to an average of 842 during fiscal 2000.

Cost and Expenses. Consolidated gross margins (calculated as the
difference between net revenues and total costs of sales and services divided by
revenues), increased slightly from 23.1% during fiscal 1999 to 23.2% during
fiscal 2000. The slight increase was caused by the effect of higher Oilfield
Service gross margins, partially offset by lower Polymers Processing margins.

Polymers Processing gross margins were 20.3% during fiscal 2000
compared to 22.1% during fiscal 1999. This decline resulted primarily from a
change in revenue mix. During fiscal 2000, compounding and distribution revenues
(included in "product sales" revenues), which generate lower gross margins than
toll service revenues, became a larger percentage of overall Polymers Processing
revenues. This trend caused overall Polymers Processing gross margins to
decline. Additionally, international polymers gross margins softened during
fiscal 2000, due to higher production costs which adversely affected overall
polymers gross margins.

Oilfield Service gross margins increased to 29.3% during fiscal 2000
compared to 23.3% during fiscal 1999. Higher volumes, due to strengthening
market conditions, resulted in increased capacity utilization and, in turn,
improved gross margins.

Selling, general and administrative costs decreased $1,754 (4%) during
fiscal 2000 compared to fiscal 1999. The decline was primarily due to lower
litigation-related expenses and cost controls at the corporate level, partially
offset by an increase in expenses resulting from the February 1999 acquisition
of MilCorp in Canada. As a percentage of revenues sales, general and
administrative expenses improved from 16.1% in fiscal 1999 to 12.4% in fiscal
2000. The improvement was the result of revenues increasing, while sales,
general and administrative expenses declined.

During the fourth quarter of fiscal 2000, the Company recognized
severance expenses of $426 relating to terminated employees in Europe.

Depreciation and amortization expenses decreased from $17,074 during
fiscal 1999 to $16,332 during fiscal 2000. This decline was the result of the
effects of the 1999 charges relating to fixed assets and goodwill, offset, in
part, by the impact of capital expenditures and the acquisition of MilCorp.

FISCAL 1999 CHARGES

During fiscal 1999, the Company recognized a $9,291 non-cash charge for
the impairment of long-lived assets. $748 of this charge relates to the oilfield
services business, of which $310 of the write-down related to the impairment of
goodwill and the remaining to machinery and equipment. $8,543 of the total
charge relates to the petrochemical business and reflects the impairment of four
underperforming facilities. $4,812 of the polymers charge includes the
impairment of goodwill and $3,489 consists of machinery and equipment
impairment. The amount of the machinery and equipment impairments was determined
by comparing fair values with the corresponding carrying values of the assets
evaluated. Fair value was determined as the estimated current market value of
the assets evaluated.

During fiscal 1999, the Company reduced the carrying value of property,
plant and equipment primarily due to assets which were obsolete or not in
working order and would not be used in the future. Of the $3,420 write-down,
$2,779 related to the petrochemical business and $641 related to the oilfield
service segment.

During fiscal 1999, the Company recognized severance expenses of $2,499
relating to terminated employees. Of this charge $1,500 related to management
changes within the Company's European Polymers Processing operations.

23

The fiscal 1999 write-off of start-up costs of $867 primarily relates
to the closure, during the second quarter of fiscal 1999, of an operation which
had capitalized start-up costs. This operation had an immaterial impact on the
Company's financial results prior to the write-off of capitalized start-up
costs.

Operating Income. Operating income (loss) increased from a loss of
$(14,580) during fiscal 1999 to $18,251 for fiscal 2000. The increase was due to
the changes in revenues and costs and expenses discussed above.

Net Interest Expense. Net interest expense was $12,117 during fiscal
2000. For fiscal 1999, the Company had net interest expense of $11,910. This
change was primarily due to higher average debt levels partially offset by
increased rates of return on cash investments.

Income Taxes. The Company's effective income tax rate increased to 59%
during fiscal 2000 compared to 24% during fiscal 1999. This tax rate increase
was the result of an increase in the amount of permanent differences (including
the goodwill impairment charges recognized in fiscal 1999 and non-deductible
goodwill amortization from acquisitions), relative to book pre-tax income or
loss, as well as a change in the mix of pre-tax income or loss generated by the
Company's operations in various taxing jurisdictions.

Foreign Currency Translation. The fluctuations of the U.S. Dollar
against the Euro, Swedish Krona, British Pound, Canadian Dollar, 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 between fiscal
2000 and 1999.

Net revenues $ (11,875)
Earnings before interest, taxes,
depreciation, and amortization (1,304)
Operating income (691)
Pre-tax income (499)
Net income (330)

LIQUIDITY AND CAPITAL RESOURCES

The following are considered by management as key measures of liquidity
applicable to the Company:

Year Ended September 30, 2001 compared to Year Ended September 30, 2000

Cash and cash equivalents decreased $7,313 and net working capital
declined $12,916 during fiscal 2001 due to the factors described below.

For fiscal 2001, cash provided by operating activities was $5,875
compared to cash provided by operating activities of $8,889 for fiscal 2000.
This change occurred due to lower net income and the various changes in working
capital accounts.

Capital expenditures totaled $10,914 during fiscal 2001, of which
$5,915 related to the Polymers Processing business, and $4,999 related to the
Oilfield Service business. These expenditures were made primarily to expand the
Company's operating capacity. The Company anticipates that available cash and/or
existing and future credit facilities will be sufficient to fund fiscal 2002
capital expenditure requirements.

24

Cash used for financing activities was $3,383 during fiscal 2001,
compared to cash provided of $3,893 during fiscal 2000. The change was primarily
the result of lower borrowings and lower debt repayments.

As of November 30, 2001, the Company had approximately $11,008 of
additional borrowing capacity available under various foreign credit
arrangements. Currently, the Company does not have a domestic credit facility.
The Company anticipates that existing cash balances and the additional borrowing
capacity provided under existing foreign and potentially future credit
facilities will provide adequate liquidity for fiscal 2002. However, there can
be no assurance that the Company will be able to successfully obtain a new
credit facility or that such sources of capital will be sufficient to support
our capital requirements in the long-term.

The terms of the Senior Notes indenture restrict the Company's ability
to pay dividends on preferred and common stock; however, the terms of the Senior
Notes do allow for dividend payments on currently outstanding preferred stock,
in accordance with the terms of the preferred stock, and up to $.22 per share,
per annum on common stock, in the absence of any default or event of default on
the Senior Notes. The above limitations may not be decreased, but may be
increased based upon the Company's results of operations and other factors. The
Company's foreign credit facilities are generally secured by assets owned by
subsidiaries of the Company and also carry various financial covenants.

The Senior Notes indenture contains a number of covenants including: a
limitation on the incurrence of indebtedness and the issuance of stock that is
redeemable or is convertible or exchangeable for debt, provided that the Company
may incur additional indebtedness if the consolidated interest coverage ratio,
as defined in the indenture, will be at least 2.0 to 1.0 after such indebtedness
is incurred; or if the indebtedness qualifies as "Permitted Indebtedness" under
the indenture, a limitation on certain restricted payments, including, among
others, the payment of any dividends, the purchase or redemption of any capital
stock or the early retirement of any debt subordinate to the Senior Notes,
subject to certain exceptions; certain limitations on creating liens on the
Company's assets unless the Senior Notes are equally and ratably secured;
limitations on transactions with affiliates; a limitation against restrictions
on the ability of the Company's subsidiaries to pay dividends or make certain
distributions, payments or advances to the Company; restrictions on the sale of
assets of the Company unless (i) the Company receives the fair market value of
such properties or assets, determined pursuant to the indenture, (ii) the
Company receives 75% of the purchase price for such assets in cash or cash
equivalents and (iii) the proceeds of such sale are applied pursuant to the
indenture; 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
("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); a limitation of certain sale/leaseback
transactions; and restrictions on guarantees of certain indebtedness by the
Company's restricted subsidiaries. The indenture also restricts certain mergers,
consolidations or dispositions of all or substantially all of the Company's
assets.

CONVERSION TO THE EURO CURRENCY

The Company has a substantial portion of its operations within
countries that adopted the Euro currency on January 1, 1999. The Company now
invoices and receives payments denominated in Euros whenever possible. The cost
of achieving this has not been material. The adoption of the Euro by the
European Economic and Monetary Union is ultimately expected, from a competitive
viewpoint, to benefit the Company to some extent as price transparency becomes a
reality. The Company continues to believe that the impact of adopting the Euro
with regard to currency exchange and taxation implications will not have a
material impact on the results of operations or the financial condition of the
Company.

25

FORWARD-LOOKING STATEMENTS

The statements contained in all parts of this document, including, but
not limited to, timing of new services or facilities, ability to compete, future
capital expenditures, effects of compliance with laws, effects of the Euro
adoption, matters relating to operating facilities, effect and cost of
litigation and remediation, future liquidity, future capital expenditures,
future acquisitions, future market conditions, reductions in expenses,
derivative transactions, net operating losses and tax credits, demand for the
Company's products and services, future growth plans, financial results and any
other statements which are not historical facts are forward-looking statements
within the meaning of section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 that involve substantial risks and
uncertainties. When words such as "anticipate", "believe", "estimate", "intend",
"expect", "plan" and similar expressions are used, they are intended to identify
the statements as forward-looking. Actual results, performance or achievements
can differ materially from results suggested by these forward-looking statements
due to a number of factors, including results of operations, the Company's
financial condition, results of litigation, capital expenditures and other
spending requirements, demand for the Company's products and services and those
described below and elsewhere in this document and those described in the
Company's other filings with the SEC.

The significant indebtedness incurred in June 1997, as a result of the
placement of the Senior Notes due in 2007, has several important implications
for the Company, including, but not limited to, the following: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to service
the Company's indebtedness and will not be available for other purposes, (ii)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures or acquisitions or for other purposes may be
restricted, (iii) the Company's flexibility to expand, make capital expenditures
or acquisitions or for other purposes may be impaired (future acquisitions may
require the Company to alter its capitalization significantly, which changes may
significantly alter the leverage of the Company), (iv) the indenture relating to
the Senior Notes contains, and future agreements relating to the Company's
indebtedness may contain, certain restrictive covenants, including, among other
things, limitations on the ability of the Company to incur additional
indebtedness, to create liens and other encumbrances, to make certain payments
and investments, to sell or otherwise dispose of assets or to merge or
consolidate with another entity (failure to comply with these provisions may
result in an event of default, which, if not cured or waived, could have a
material adverse effect on the Company), and (v) the ability of the Company to
satisfy its obligations pursuant to such indebtedness will be dependent upon the
Company's future performance which, in turn, will be subject to general economic
conditions and management, financial, business, regulatory and other factors
affecting the business and operations of the Company, some of which are not in
the Company's control. To the extent that the Company is unable to repay the
principal amount of the Notes out of cash on hand, it may (i) seek to repay the
Notes with the proceeds of an equity offering, (ii) seek refinancing, or (iii)
sell significant assets. There can be no assurance that any of the forgoing
alternatives will be available to the Company at all or on terms that are
favorable to the Company. If the Company cannot satisfy its obligations related
to such indebtedness, substantially all of the Company's long-term debt could be
in default and could be declared immediately due and payable which would have a
material adverse effect on the Company.

The oil and gas industry in which the Company participates through its
Oilfield Service business has experienced significant volatility. Demand for the
Company's oilfield services depends principally upon the level of domestic oil
and gas drilling and workover activity, which, in turn, depends upon factors
such as the level of oil and gas prices, expectations about future oil and gas
prices, the cost of exploring for and producing oil and gas, worldwide weather
conditions, international political, military, regulatory and economic
conditions and the ability of oil and gas companies to raise capital. Oil prices
and, to a lesser extent, gas prices declined significantly during 1999, which
resulted in decreases in oil and gas exploration and production activities. Oil
and gas prices rebounded during 2000 and the first half of 2001, and this
improvement resulted in an increase in demand for the Company's oilfield
services. During the latter half of 2001 and into early fiscal 2002, oil and gas
prices have softened. No assurance can be given that current market conditions
will not continue to deteriorate and, therefore, whether or not the demand for
the Company's oilfield services will decline in the future. Industry conditions
will continue to be influenced by numerous factors over which the Company will
have no control. A further decline in oil or gas prices or domestic oilfield
activity could have a material adverse effect on the Company's Oilfield Service
business, results of operations and prospects. Furthermore, the Oilfield Service
business is substantially seasonal, reflecting the pattern of oilfield drilling
and workovers, with the first and fourth quarters of the fiscal years having
generally higher levels of activity. Drilling and workover activity can
fluctuate significantly in a short period of time, particularly in the United
States and Canada.

26

The business cycles of the Company's Polymers Processing services
segment are affected by changes in the level of economic activity in the various
regions in which the Company operates and changes in the cost of the polymers
(i.e. resins) produced by the major chemical companies. These costs are outside
of the Company's control and the business cycles are generally volatile and
relatively unpredictable. In addition, such business cycles may reflect cycles
in the petroleum industry and oil and gas price changes, which affect both of
the Company's business segments and may make the Company, as a whole, vulnerable
to the effect of changes in the petroleum industry.

The operations of the Company's Oilfield Service and Polymers
Processing businesses are dependent to a certain degree upon proprietary
technology, know-how and trade secrets either developed by the Company or
licensed to it by third parties. In many cases, these or equivalent processes or
technologies are available to the Company's competitors, customers and others.
In addition, there can be no assurance that such persons will not develop
substantially equivalent or superior proprietary processes and technologies. The
availability to, or development by others of equivalent or superior information,
processes or technologies could have a material adverse effect on the Company.

Over the past several years, the Company has made many acquisitions,
and management expects that other businesses will be acquired in the future.
There can be no assurance that the Company will be able to identify or reach
mutually agreeable terms with acquisition candidates and their owners, or that
the Company will be able to profitably manage additional businesses or
successfully integrate such additional businesses into the Company at all, or
without substantial costs, delays or other problems. There can be no assurance
that businesses acquired will achieve sales and profitability that justify the
investment made by the Company. Any inability on the part of the Company to
control these risks effectively and integrate and manage acquired businesses
could have a material adverse effect on the Company. The Company may, to the
extent allowed by agreements, incur indebtedness to finance future acquisitions.
There can be no assurance that the Company will be able to obtain any such
financing or that, if available, such financing will be on terms acceptable to
the Company. Acquisitions may result in increased depreciation and amortization
expense, increased interest expense, increased financial leverage or decreased
operating income, any of which could have a material adverse effect on the
Company's operating results.

The Company entered the specialty polymers processing industry with its
acquisition of Wedco in April 1996, and had no experience in the industry prior
to the acquisition. Since the acquisition of Wedco, the Company has expanded its
specialty polymers processing operations by making numerous business
acquisitions. The success of the Company will depend, in part, on the Company's
ability to continue the integration of acquired specialty chemical operations
by, among other things, centralizing certain functions to achieve cost savings
and developing programs and processes that will promote cooperation among the
businesses and the sharing of resources. In addition, the growth of the Company
has and will continue to place significant demands on the Company's management,
internal systems and networks. There can be no assurance that the Company will
be able to effectively manage or implement its plans for these operations or
that, if implemented, such plans will be successful. In addition, in fiscal year
1997, the Company began to expand the distribution aspects of its specialty
polymers production services business through acquisitions of the existing
businesses and the execution of supply agreements with certain resin suppliers.
These distribution operations, as well as the concentrate manufacturing
operations, require the Company to buy and manage inventories of supplies and
products and, in turn, to maintain greater levels of working capital than it has
historically and to manage the risk of ownership of commodity inventories having
fluctuating market values. The maintenance of excessive inventories in these
businesses could expose the Company to losses from drops in market prices for
its products while maintenance of insufficient inventories may result in lost
sales to the Company.

A portion of the Company's current operations is conducted in
international markets, particularly the Company's European and Southeast Asian
specialty polymers processing services business. The Company expects to continue
to seek to expand its international operations, both in the Company's Polymers
Processing and Oilfield Services businesses, primarily through internal growth
and acquisitions. The Company's international operations are subject to certain
political, economic and other uncertainties normally associated with
international operations, including among others, risks of government policies
regarding private property, taxation policies, foreign exchange restrictions and
currency fluctuations and other restrictions arising out of foreign governmental
sovereignty over areas in which the Company conducts business that may limit or
disrupt markets, restrict the movement of funds or result in the

27

deprivation of contract rights, and, possibly, civil disturbance or other forms
of conflict. Losses from the factors above could be material in those countries
where the Company now has or may in the future have a concentration of assets.

The operations of the Company involve many risks, which, even through a
combination of experience, knowledge and careful evaluation, may not be
overcome. These risks include equipment or product failures or work related
accidents which could also result in personal injury, property damages,
pollution and other environmental risks. The Company may not be fully insured
against possible losses pursuant to such risks. Such losses could have a
material adverse impact on the Company. In addition, from time to time, the
Company is involved in various litigation matters arising in the ordinary course
of its business and is currently involved in numerous legal proceedings in
connection with its operations and those of its acquired companies. There can be
no assurance that the Company will not incur substantial liability as a result
of these or other proceedings. The Company is subject to numerous and changing
local, state, federal and foreign laws and regulations concerning the use,
storage, treatment, disposal and general handling of hazardous materials, some
of which may be considered to be hazardous wastes, and restricting releases of
pollutants and contaminants into the environment. These laws and regulations may
require the Company to obtain and maintain certain permits and other
authorizations mandating procedures under which the Company will operate and
restricting emissions. Many of these laws and regulations provide for strict
joint and several liability for the costs of cleaning up contamination resulting
from releases of regulated materials into the environment. Violations of
mandatory procedures under operating permits may result in fines, remedial
actions or, in more serious instances, shutdowns or revocation of permits or
authorizations. There can be no assurance that a review of the Company's past,
present or future operations by courts or federal, state, local or foreign
regulatory authorities will not result in determinations that could have a
material adverse effect on the Company's financial condition or results of
operations. In addition, the revocation of any of the Company's material
operating permits, the denial of any material permit application or the failure
to renew any material interim permit could have a material adverse effect on the
Company. The Company cannot predict what environmental laws and regulations will
be enacted or adopted in the future or how such future law or regulation will be
administered or interpreted. To date, the Company has incurred compliance and
clean-up costs in connection with environmental laws and regulations and there
can be no assurance as to future costs. In particular, compliance with more
stringent environmental laws and regulations, more vigorous enforcement
policies, or stricter interpretations of current laws and regulations, or the
occurrence of an industrial accident, could have a material adverse effect on
the Company.

Each of the industries in which the Company participates is highly
competitive. Some competitors or potential competitors of the Company have
substantially greater financial or other resources than the Company. The
inability of the Company to effectively compete in its markets would have a
material adverse effect on the Company.

The Company is party to various arbitration and litigation proceedings.
The results of such matters are uncertain. There can be no assurance that
adverse results in such matters will not have a material adverse effect on the
Company. See "Item 3. Legal Proceedings."

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

At June 30, 2001, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations, which requires that all business combinations be accounted for
using the purchase method. In addition, this Statement requires that intangible
assets be recognized as assets apart from goodwill if certain criteria are met.
As the provisions of this Statement apply to all business combinations initiated
after June 30, 2001, Management will consider the impact of this statement for
future combinations.

At June 30, 2001, the Financial Accounting Standard Board issued
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 the statement, goodwill and indefinite lived
intangible assets will not be amortized and tested for impairment at least
annually at the reporting unit level, and the amortization period of intangible
assets with finite lives will not be limited to forty years. The provisions of
this Statement are required to be applied starting with fiscal years beginning
after December 15, 2001 (October 1, 2002 for the Company) with early application
permitted for entities with fiscal years beginning after March 15, 2001. The

28

Company expects to adopt SFAS 142 on October 1, 2002. The Company has $44,689 of
goodwill included in its balance sheet at September 30, 2001. Implementation of
SFAS 142 by the Company would result in elimination of amortization of goodwill
from acquisitions under the purchase method of accounting. Goodwill amortization
for fiscal 2001 was approximately $1,425.

In July 2001, the Financial Accounting Standard Board issued the
Statement of Financial Accounting Standards No. 143 ("SFAS 143"), Accounting for
Asset Retirement Obligations (ARO), which requires that an asset retirement cost
be capitalized as part of the cost of the related long-lived asset and allocated
to expense by using a systematic and rational method. Under this Statement, an
entity is not required to re-measure an ARO liability at fair value each period
but is required to recognize changes in an ARO liability resulting from the
passage of time and revisions in cash flow estimates. This Statement is
effective for financial statements issued for fiscal years beginning after June
15, 2002 (October 1, 2002 for the Company). Management will consider the impact
of this Statement on its financial statements for future periods.

In August 2001, the Financial Accounting Standard Board issued the
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), Accounting for
the Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. The purpose of this Statement was to
establish a single accounting model for long-lived assets to be disposed of by
sale, based on the framework established in FASB Statement No. 121 ("SFAS"
121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and to resolve certain implementation issues related
to SFAS 121. This Statement also supersedes the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations, however,
retains the requirement of Opinion 30 to report discontinued operations
separately from continuing abandonment, or in a distribution to owners) or is
classified as held for sale. This Statement shall generally be effective for
financial statements issued for fiscal years beginning after December 15, 2001
(October 1, 2002 for the Company), and interim periods within those fiscal
years.

29

ITEM 7A. 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

(1) Maturity dates are expected to be less than one year.

30

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this Item is submitted as a separate section of this
report. See index to this information on Page F-1 of this Annual Report on Form
10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

31

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to
information under the caption "Proposal 1 - Election of Directors" and to the
information under the caption "Section 16(a)" in the Company's definitive Proxy
Statement (the "2002 Proxy Statement") for its annual meeting of shareholders.
The 2002 Proxy Statement or the information to be so incorporated will be filed
with the Securities and Exchange Commission (the "Commission") not later than
120 days subsequent to September 30, 2001.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by
reference to the 2002 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by
reference to the 2002 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTION.

The information required by this item is incorporated herein by
reference to the 2002 Proxy Statement.

32

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The response to this portion of Item 14 is submitted as a separate
section of this report on page F-1.

(b) Fourth quarter fiscal 2001 Form 8-K filing: on August 20, 2001 the
Company filed a Form 8-K filing concerning the announcement that the
Company's Board of Directors had rejected the revised terms of the
offer from Varco International, Inc. to acquire the Oilfield Service
business of the Company.

(c) Exhibits required by Item 601 of S-K:

The following instruments and documents are included as Exhibits to
this Form 10-K. Exhibits incorporated by reference are so indicated by
parenthetical information.

- ----------

** Filed herewith

34

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

By: /s/ Timothy J. Gollin
-------------------------------------------
Timothy J. Gollin, Chief Executive Officer,
President and Secretary
(Principal Executive Officer)

Date: December 20, 2001

Pursuant to the requirements of the securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

35

ICO, INC. AND SUBSIDIARIES

FORM 10-K

INDEX OF FINANCIAL STATEMENTS

The following financial statements of ICO, Inc. and subsidiaries are required to
be included by Item 14(a):

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted or the
information is presented in the consolidated financial statements or related
notes.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of ICO, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
Index appearing on page F-1 present fairly, in all material respects, the
financial position of ICO, Inc. and its subsidiaries at September 30, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 2001, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Houston, Texas
November 30, 2001

F-2

ICO, INC.
CONSOLIDATED BALANCE SHEET

The accompanying notes are an integral part of these consolidated
financial statements.

F-3

ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS

The accompanying notes are an integral part of these consolidated
financial statements.

F-4

ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS

The accompanying notes are an integral part of these consolidated
financial statements.

F-5

ICO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these consolidated financial
statements.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of ICO, Inc. and its wholly-owned subsidiaries
("ICO" or the "Company"). All significant intercompany accounts and transactions
have been eliminated in consolidation.

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, and fair value of
financial instruments. Actual results could differ from these estimates.
Management believes that its estimates are reasonable.

SEGMENT INFORMATION - The Company operates in two industry segments.
The Company serves the polymers industry by providing customers with
size-reduction, compounding, and other related services for heat sensitive
thermo-plastic and other materials, producing concentrates by serving as a
distributor of specialty polymers processed by the Company and manufacturing
size-reduction equipment. The Company operates in the polymers industry in the
United States, Europe, Australia, New Zealand, and Malaysia. The Company also
serves the Oilfield Services industries by providing oilfield tubular and sucker
rod inspection, reconditioning, and coating services and equipment, operating in
many of the significant oil and gas producing regions and active exploration
areas of the Continental United States and Canada. See Note 15 - "Segment and
Foreign Operations Information."

REVENUE AND RELATED COST RECOGNITION - Within each of the Company's two
business segments, the Company recognizes revenue from services upon completion
of the services and related expenses are recognized as incurred. For product and
equipment sales, within both of the Company's business segments, revenues and
related expenses are recognized when title is transferred, which generally
occurs when the products are shipped.

INVENTORIES - Inventories are stated at the lower of cost or market,
cost being determined by the first-in, first-out method.

CASH AND CASH EQUIVALENTS - The Company considers all highly-liquid
debt securities with a maturity of three months or less when purchased to be
cash equivalents. Those securities are readily convertible to known amounts of
cash, and bear insignificant risk of changes in value due to their short
maturity period.

PROPERTY, PLANT AND EQUIPMENT - The costs of property, plant and
equipment, including renewals and improvements which extend the life of existing
properties, are capitalized and depreciated using the straight-line method over
the estimated useful lives of the various classes of assets as follows:

F-7

Leasehold improvements are amortized on a straight-line basis over the
lesser of the economic life of the asset or the lease term. Expenditures for
maintenance and repairs are expensed as incurred. The cost of property, plant
and equipment sold or otherwise retired and the related accumulated depreciation
are removed from the accounts and any resultant gain or loss is included in
operating results.

IMPAIRMENT OF LONG-LIVED ASSETS - Property and equipment and goodwill
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 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.

GOODWILL - The excess purchase price over fair value of net tangible
assets is being amortized on a straight-line basis over forty years. Accumulated
amortization was $15,206 and $9,563 at September 30, 2001 and 2000,
respectively. See "Recently Issued Accounting Pronouncements" below.

PATENTS AND LICENSES - The cost of patents, patent rights and license
agreements is generally amortized over the remaining legal lives of the patents
or agreements on a straight-line basis, averaging approximately ten years.
Accumulated amortization was $1,442 and $1,413 at September 30, 2001 and 2000,
respectively.

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
generally recognized in earnings. Net foreign currency transaction gains or
losses are not material in any of the periods presented.

The fluctuations of the U.S. Dollar against the Euro, Swedish Krona,
British Pound, Canadian Dollar, 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 fiscal years 2001 and 2000.

ENVIRONMENTAL - Environmental expenditures that relate to current
operations are expensed as incurred. Expenditures that relate to an existing
condition caused by past operations and which do not contribute to current or
future revenue generation, are also expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated. Generally, the timing of these accruals coincides with
the earlier of completion of a feasibility study or the Company's commitment to
a formal plan of action. Also, see "Note 13 - Commitments and Contingencies."

STOCK-BASED COMPENSATION - The Company accounts for employee
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company has adopted the disclosure-only provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation" (See Note 10).

CONCENTRATION OF CREDIT RISK - The market for the Company's services is
the polymers and oil and gas industries. Within the polymers processing segment,
the Company's primary customers include manufacturers of plastic products and
large producers of polymers, which include major chemical companies and polymers
production affiliates

F-8

of major oil production companies. The Company's customers within the oilfield
service business include several of the leading integrated oil companies, large
independent oil and gas exploration and production companies, drilling
contractors, steel producers and processors, and supply companies. Worldwide
sales to one polymers customer accounted for approximately 11%, 14% and 13% of
consolidated fiscal years 2001, 2000 and 1999 revenues, respectively.

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of trade receivables. The
Company provides allowances for potential credit losses when necessary.
Accordingly, management considers such credit risk to be limited.

INCOME TAXES - The provision for income taxes includes federal, state,
and foreign income taxes currently payable and deferred based on currently
enacted tax laws. Deferred income taxes are provided for the tax consequences of
differences between the financial statement and tax bases of assets and
liabilities.

The Company does not provide for U.S. income taxes on foreign
subsidiaries' undistributed earnings intended to be permanently reinvested in
foreign operations.

EARNINGS (LOSS) PER COMMON SHARE - The Company calculates earnings per
share ("EPS") in accordance with Statement of Financial Accounting Standard No.
128 ("SFAS 128"), "Earnings Per Share." SFAS 128 requires the presentation of
both basic and diluted EPS amounts. The requirements for calculating basic EPS
excludes the dilutive effect of securities. Diluted EPS assumes the conversion
of all dilutive securities. The weighted average shares outstanding for the year
ended September 30, 2000 was increased by 58,233 shares to reflect the
conversion of all potentially dilutive securities. There were no potentially
dilutive securities for the fiscal years ended September 30, 2001 and 1999 due
to the loss recorded by the Company. The total amount of anti-dilutive
securities for the years ended September 30, 2001, 2000, and 1999 were
5,506,450, 5,640,000, and 5,702,000 shares, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial
instruments consist of cash and cash equivalents, accounts receivable, accounts
payable, long-term debt and foreign currency derivative contracts. The carrying
amounts of cash and cash equivalents, accounts receivable, and accounts payable
approximate fair value due to the highly liquid nature of these short-term
instruments. Except for the Senior Notes indebtedness, the aggregate fair value
of the Company's long-term debt, as determined using interest rates currently
available to the Company for borrowings with similar terms, approximates the
aggregate carrying amount as of September 30, 2001. The Senior Notes long-term
debt, with a face value of $118,000 had a fair market value of approximately
$89,680 and $113,870 at September 30, 2001 and 2000, respectively. The Company
attempts to mitigate its exposure to foreign currency exchange risks by matching
the local currency component of its contracts to the amount of operating costs
transacted in the local currency. As of September 30, 2001 and 2000, the Company
had approximately $1,326 of notional value (fair market value at September 30,
2001 was $1,271) and $3,360 of notional value (fair market value at September
30, 2000 was $3,049), respectively, in forward exchange contracts to buy foreign
currency to hedge anticipated expenses. The value of the contracts, upon
ultimate settlement, is dependent upon actual currency exchange rates at the
various maturity dates.

LIQUIDITY - The Company anticipates that the existing cash balance as
of September 30, 2001 of $31,642 and additional borrowings capacity of $11,008
under various foreign credit arrangements and potential borrowing capacity under
potentially new credit facilities will provide adequate cash flows and liquidity
for 2002. Management expects the liquidity from these amounts and cash flow from
operations in 2002 will satisfy the capital expenditures, schedule debt payments
and operational budgets of the Company for the upcoming year.

FORWARD EXCHANGE AGREEMENTS OUTSTANDING - Effective October 1, 2000,
the Company adopted FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that all
derivative financial instruments that qualify for hedge accounting, such as
interest rate swap contracts and foreign exchange contracts, be recognized in
the financial statements and measured at fair value regardless of the purpose or
intent for holding them. Changes in the fair value of derivative financial
instruments are recognized in stockholders' equity (as a component of
comprehensive income (loss)). The adoption of FAS 133 did not have a material
effect on the Company's financial statements.

F-9

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

(1) Maturity dates are expected to be less than one year.

RECLASSIFICATIONS - Certain reclassifications have been made to the
prior year amounts in order to conform to the current year classifications.

F-10

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - At June 30, 2001, the
Financial Accounting Standard Board issued Statement of Financial Accounting
Standards No. 141 (SFAS 141), Business Combinations, which requires that all
business combinations be accounted for using the purchase method. In addition,
this Statement requires that intangible assets be recognized as assets apart
from goodwill if certain criteria are met. As the provisions of this Statement
apply to all business combinations initiated after June 30, 2001, Management
will consider the impact of this statement for future combinations.

At June 30, 2001, the Financial Accounting Standard Board issued
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 the statement, goodwill and indefinite lived
intangible assets will not be amortized and tested for impairment at least
annually at the reporting unit level, and the amortization period of intangible
assets with finite lives will not be limited to forty years. The provisions of
this Statement are required to be applied starting with fiscal years beginning
after December 15, 2001 (October 1, 2002 for the Company) with early application
permitted for entities with fiscal years beginning after March 15, 2001. The
Company expects to adopt SFAS 142 on October 1, 2002. The Company has $44,689 of
goodwill included in its balance sheet at September 30, 2001. Implementation of
SFAS 142 by the Company would result in elimination of amortization of goodwill
from acquisitions under the purchase method of accounting. Goodwill amortization
for fiscal 2001 was approximately $1,425.

In July 2001, the Financial Accounting Standard Board issued the
Statement of Financial Accounting Standards No. 143 ("SFAS 143"), Accounting for
Asset Retirement Obligations (ARO), which requires that an asset retirement cost
be capitalized as part of the cost of the related long-lived asset and allocated
to expense by using a systematic and rational method. Under this Statement, an
entity is not required to re-measure an ARO liability at fair value each period
but is required to recognize changes in an ARO liability resulting from the
passage of time and revisions in cash flow estimates. This Statement is
effective for financial statements issued for fiscal years beginning after June
15, 2002 (October 1, 2002 for the Company). Management will consider the impact
of this Statement on its financial statements for future periods.

In August 2001, the Financial Accounting Standard Board issued the
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), Accounting for
the Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. The purpose of this Statement was to
establish a single accounting model for long-lived assets to be disposed of by
sale, based on the framework established in FASB Statement No. 121 ("SFAS"
121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and to resolve certain implementation issues related
to SFAS 121. This Statement also supersedes the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations, however,
retains the requirement of Opinion 30 to report discontinued operations
separately from continuing abandonment, or in a distribution to owners) or is
classified as held for sale. This Statement shall generally be effective for
financial statements issued for fiscal years beginning after December 15, 2001
(October 1, 2002 for the Company), and interim periods within those fiscal
years.

NOTE 2 - ACQUISITIONS

The Company did not enter into any business acquisitions in fiscal year
2001. The Company did enter into business combinations during fiscal years 2000
and 1999 which were accounted for using the purchase method of accounting under
APB No. 16, "Accounting for Business Combinations." Accordingly, operating
results of the acquired companies are included with the Company's consolidated
results of operations from the respective acquisition dates. The revenues and
net income of acquired business prior to the acquisition dates were not material
to the Company's consolidated results of operations.

During September 2000, the Company acquired the operating assets of
Sanko Manufacturer (M) Sdn. Bhd. ("Sanko") for $675 in cash. Sanko's business is
now conducted through Courtenay (Malaysia) Sdn. Bhd., a Malaysian company that
provides specialty powders, and size reduction and compounding services to the
rotational molding, metal coating, textile and injection molding industries in
Malaysia.

F-11

During February 1999, the Company acquired MilCorp Holdings, Inc. and
MilCorp Industries, Ltd. (collectively "MilCorp") for $7,653 in cash and the
assumption of approximately $3,744 of debt. MilCorp is a leading provider of
fully integrated services for oil country tubular goods, including trucking,
inventory management, inspection and internal coating. MilCorp has facilities
located on 160 acres near Edmonton, Alberta, in the energy-producing region of
Western Canada. MilCorp has been in business for more than 50 years and its
customers include many of Western Canada's large energy companies and drilling
contractors.

NOTE 3 - EXTRAORDINARY ITEM

During fiscal 1999 the Company repurchased Senior Notes with a face
value of $2,000, at a discount, recognizing a pre-tax gain of $614 and an
after-tax gain of $399.

NOTE 4 - IMPAIRMENT, RESTRUCTURING AND OTHER COSTS

During the fourth quarter of fiscal 2001, the Company decided to close
three polymers processing operations and restructure another facility. The
facilities to be closed are a size reduction and compounding facility in Italy,
a grinding machinery manufacturing facility in the United States, and a minerals
size reduction facility in the United States. The restructured facility
manufactures color concentrates in the UK. As a result of these actions, the
Company recognized a charge of $6,948 which consisted of $5,744 in long-lived
asset impairments (consisting of $4,218 in goodwill impairment and $1,526 for
fixed asset impairments), $462 of lease termination costs, $327 of severance
expenses, an inventory write-down of $340 (included in cost of sales) to reduce
inventory values to estimated market selling prices, and $75 of other
miscellaneous charges (included in the cost of services). The amount of the
fixed asset impairments were determined by comparing fair values with the
corresponding carrying values of the assets evaluated. Fair value was determined
as the estimated current market value of the assets evaluated based on an
independent appraisal.

The facility in Italy was closed due to its redundancy with the
Company's other, nearby Italian facility performing similar services. The
machinery manufacturing facility in the United States was closed in order to
integrate the operation with the Company's processing facilities. The minerals
size reduction facility was closed due to its weak financial performance and was
sold subsequent to the fiscal year end. The UK operation was restructured during
fiscal 2001 due to its weak performance.

During 2001, the Company recognized (i) a $7,410 charge for severance
obligations relating to the termination of Asher Pacholder (Chairman and Chief
Financial Officer), Sylvia Pacholder (President and Chief Executive Officer),
Robin Pacholder (President- Wedco North America), David Gerst (Senior Vice
President and General Counsel) and Tom Pacholder (Senior Vice President - Wedco)
(collectively referred to as the "Terminated Pacholders"), which were discussed
in the Company's form 8-K filed on June 8, 2001, and (ii) a $250 charge for
litigation relating to one of the personal injury claims alleging exposure to
silica, resulting in silicosis-related disease.

In connection with the termination of the Terminated Pacholders, the
Company established and funded an escrow account containing $3,113 in cash. The
purpose of the escrow account is to pay federal excise tax pursuant to

F-12

IRS Code Sec. 280(g) in the event there is a "change of control", as defined by
the IRS regulations, within one year of the Terminated Pacholders' termination.
Due to the uncertainty surrounding whether the excise tax will be due, the
$3,113 has not been reflected as an expense during fiscal year 2001 and
additionally, the escrow balance has been reclassified to "prepaid expenses and
other current assets" from cash on the Company's September 30, 2001 balance
sheet. Also, should a "change of control", as defined, occur within one year of
the severance date, a significant portion of the tax asset the Company has
recognized, relating to the future benefit of deducting the $7,410 severance
charge, will no longer be an allowable deduction for tax purposes.

Also, during fiscal 2001, the Company terminated certain polymers
processing employees and recognized related severance expenses of $569 (excludes
severance expenses discussed above).

During fiscal 1999, the Company recognized a non-cash $9,291 charge
for the impairment of long-lived assets. $748 of this charge relates to the
oilfield services business, of which $310 related to the impairment of goodwill
and the remaining to machinery and equipment. $8,543 of the total charge relates
to the polymers business and reflects the impairment of four under-performing
facilities. $4,812 of the polymers charge includes the impairment of goodwill
and $3,489 consists of machinery and equipment impairment. The amount of
goodwill impairment was determined by comparing estimated future cash flows, on
a discounted basis, to the carrying value of the facility evaluated including
the amount of goodwill originally allocated to the facility at the time of
acquisition. The amount of the machinery and equipment impairments was
determined by comparing fair values with the corresponding carrying values of
the assets evaluated. Fair value was determined as the estimated current market
value of the assets evaluated.

During fiscal 1999, the Company reduced the carrying value of property,
plant and equipment primarily due to assets that are obsolete or are not in
working order and will not be used in the future. Of the non-cash $3,420
write-off, $2,779 related to the polymers business and $641 related to the
oilfield service segment.

The Company, during fiscal 1999, recorded a write-down of $1,507
(included in cost of sales) to reduce inventory values to estimated market
selling prices (primarily within the oilfield service business) to reflect
current market conditions.

Severance expenses of $8,306, $426 and $2,499 relating to terminated
employees were recognized during fiscal 2001, 2000 and 1999. The fiscal 2001
charge primarily relates to the third quarter fiscal 2001 executive management
changes as discussed above. The fiscal 2000 and 1999 severance expenses relate,
in large part, to European management changes during the fourth quarter of
fiscal year 2000 and the third quarter of fiscal 1999.

During fiscal 1999, the Company wrote-off $867 of start-up costs
primarily relating to the closure, during the second quarter of fiscal 1999, of
an operation that had capitalized start-up costs.

NOTE 5 - INVENTORIES

Inventories at September 30 consisted of the following:

F-13

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, consisted of the following at
September 30:

NOTE 7 - LONG-TERM DEBT

Long-term debt at September 30, 2001 and 2000 consists of the
following. Obligations denominated in a foreign currency have been translated
using year-end exchange rates.

F-14

In June 1997, the Company issued the Series A Senior Notes at $120,000
face value and received proceeds of $114,797 net of offering costs of $5,203.
Offering costs are amortized over the term of the Senior Notes and, as of
September 30, 2001, accumulated amortization of debt offering costs totaled
$2,490. Beginning in June of 2002, the Company may, at its option, redeem the
Senior Notes at various premiums depending upon the redemption date. The terms
of the Senior Notes limit the amount of additional indebtedness incurred by the
Company and its subsidiaries and restrict certain payments, specifically
dividends on preferred and common stock. The terms, however, do allow for
dividend payments on currently outstanding preferred stock in accordance with
the terms of the preferred stock and up to $.22 per share per annum on common
stock in the absence of any default or event of default on the Senior Notes. The
above dividend limitations may not be decreased, but may be increased, based
upon the Company's results of operations and other factors. In November 1997,
the Company completed an exchange of 100% of the unregistered Series A Notes for
registered 10 3/8% Series B Notes due 2007, with essentially equivalent terms.

Maturities of the Company's debt are as follows:

NOTE 8 - CREDIT ARRANGEMENTS

The Company maintains several foreign lines of credit through its
wholly-owned subsidiaries. Total credit availability of these facilities totaled
$19,003 and $15,376 at September 30, 2001 and 2000, respectively. The facilities
are collateralized by certain assets of the foreign subsidiaries. Borrowings
under these agreements, classified as short term borrowings on the consolidated
balance sheet, totaled $7,924 and $7,405 at September 30, 2001 and 2000,
respectively.

F-15

The weighted average interest rate charged on short-term borrowings
under the Company's various credit facilities at September 30, 2001 and 2000 was
5.8% and 5.6%, respectively.

NOTE 9 - STOCKHOLDERS' EQUITY

During November 1993, the Company completed an offering of Convertible
Exchangeable Preferred Stock ("Preferred Stock"). The shares of Preferred Stock
are evidenced by Depositary Shares, each representing one-quarter of a share of
Preferred Stock. A total of 1,290,000 Depositary Shares were sold at a price of
$25 per share. Each Preferred Share is convertible into 10.96 common shares
(equivalent to 2.74 common shares per Depositary Share) at a conversion price of
$9.125 per common share subject to adjustment upon the occurrence of certain
events. The Board of Directors approved the recording of the Preferred Stock
offering by allocating $.01 per Depositary Share to Preferred Stock and the
remainder to additional paid-in capital. Preferred Stock dividends of $1.6875
per depositary share are paid annually.

Cash dividends paid during the fiscal years ended September 30, 2001,
2000 and 1999 equaled $2,176 during each year on the Company's Preferred Stock.
Cumulative liquidating dividends on the Company's Preferred Stock paid out of
Additional Paid-in Capital through September 30, 2001 totaled $7,131.

Cash dividends paid during the fiscal year ended September 30, 1999
equaled $1,216 on the Company's common stock, which represented a liquidating
dividend paid from Additional Paid-in Capital. There were no dividends paid on
the Company's Common Stock during fiscal years ended September 30, 2001 and
2000. Cumulative liquidating dividends on the Company's common stock paid out of
Additional Paid-in Capital through September 30, 2001 totaled $5,676.

In connection with the Company's 1992 debt restructuring, 801,750
Common Stock Purchase Warrants (expiring July 2002) were issued at an exercise
price of $5.00. At September 30, 2001 and 2000, 621,750 common stock purchase
warrants were outstanding.

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. The rights are designed to assure
that all Shareholders receive fair and equal treatment in the event of any
proposed takeover of the Company and to encourage a potential acquirer to
negotiate with the Board of Directors prior to attempting a takeover. It
includes safeguards against partial or two-tiered tender offers, squeeze-out
mergers and other abusive takeover tactics to gain control of ICO without paying
all Shareholders a control premium. Each right entitles the holder to purchase
one-thousandth of a share of a newly authorized series of the Company's
preferred stock at a purchase price of $30. Each one-thousandth of a share of
such preferred stock is intended to be the economic and voting equivalent of one
share of common stock. The rights are not presently exercisable, and are
currently evidenced by the Company's common stock certificates and trade
automatically with the common stock.

In the event any person or group commences a tender or exchange offer
that, if consummated, would result in such person or group becoming the
beneficial owner of 15% or more of ICO's common stock, then after a specified
period, separate rights certificates will be distributed and each right will
entitle its holder to purchase one-thousandth of a share of such preferred stock
at a purchase price of $30.

In the event a person or group acquires beneficial ownership of 15% or
more of the Company's common stock, then, after a specified period, each right
(other than rights beneficially owned by such person or group, which become
void) will entitle its holder to purchase, at the purchase price, shares of the
Company's common stock, (or, at the option of the Board, such preferred stock)
having a market value equal to twice the purchase price. Additionally, if after
any such person or group acquires beneficial ownership of 15% or more of ICO's
common stock, the Company is acquired in a merger or other business combination
or 50% or more of its consolidated assets or earning power are sold, each right
(other than rights beneficially owned by such person or group, which will have
become void) will entitle its holder to purchase, at the purchase price, shares
of common stock of the person or group with whom the Company engaged in such
transaction having a market value equal to twice the purchase price.

F-16

Under certain circumstances, the Company may, at its option, exchange
for each outstanding right (other than voided rights) one share of common stock
or one-thousandth of a share of such preferred stock. The Company may also, at
its option, redeem the rights at a price of $.01 per right at any time prior to
a specified period of time after a person or group has become the beneficial
owner of 15% or more of its common stock.

The rights will expire on November 20, 2007, unless earlier redeemed.

NOTE 10 - STOCK OPTION PLANS

The table below summarizes the Company's six stock option plans. The
number of options indicates the number of common shares underlying the options
authorized by the Company's Board of Directors and shareholders. All the plans
allow grants for 10 years from each plan's effective date. All options granted
to date are currently vested, however, future options granted may carry vesting
schedules at the discretion of a committee of the Board of Directors.

For all of the above plans, shares of common stock are reserved for
grant to certain officers, key employees and non-employee directors at a price
not less than 100% of the fair market value of the stock at the date of grant.
There were 532,650, 711,250, and 709,050, shares available for grant at
September 30, 2001, 2000, and 1999, respectively. The following is a summary of
stock option activity for the three years ended September 30:

F-17

The following table summarizes information about fixed stock options outstanding
at September 30, 2001:

As discussed in Note 1, the Company has elected to continue to account
for stock-based compensation in accordance with APB 25. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123, net income (loss) and
earnings (loss) per share would have been reduced to the pro forma amounts
indicated in the table below:

The fair value of each option grant is estimated on the date of the
grant using the Noreen-Wolfson option-pricing model, which is the Black-Scholes
model adjusted for the dilutive impact which the conversion of the options will
have on the Company's stock price, with the following assumptions:

NOTE 11 - INCOME TAXES

The amounts of income (loss) before income taxes attributable to
domestic and foreign operations are as follows:

F-18

The provision for income taxes consists of the following:

A reconciliation of the income tax expense (benefit) at the federal
statutory rate (35%) to the Company's effective rate is as follows:

F-19

Deferred tax assets (liabilities) result from the cumulative effect of
temporary differences in the recognition of expenses (revenues) between tax
returns and financial statements. The significant components of the balances are
as follows:

The Company reduced the valuation allowance during 2001, 2000, and 1999
to reflect the expiration of certain federal tax credits. The Company further
reduced the valuation allowance in 1999 and 2000 to reflect the utilization and
expiration of capital losses. A valuation allowance is established when it is
more likely than not that some or all of the deferred tax asset will not be
realized.

The Company has for tax purposes $33,088 in domestic net operating loss
carry-forwards ("NOLs"), which expire between 2002 and 2021, and $294 in
investment and other tax credit carry-forwards which, if utilized, will result
in a cash savings. Net operating loss carry-forwards in the amount of $2,311 and
$21 of the tax credits are expected to expire unused. A change in ownership
under the Internal Revenue Code has occurred, which limits the utilization of
$4,465 of the Company's NOLs to approximately $677 each year through their
expiration. The Company has recorded a valuation allowance as of September 30,
2001 of $830 relating to these tax benefits expected to expire unused.

The Company does not provide for U.S. income taxes on foreign
subsidiaries' undistributed earnings intended to be permanently reinvested in
foreign operations. It is not practicable to estimate the amount of additional
tax that might be payable should the earnings be remitted or deemed remitted or
should the Company sell its stock in the subsidiaries.

NOTE 12 - EMPLOYEE BENEFIT PLANS

The Company maintains several defined contribution benefit plans that
cover domestic and foreign employees that meet certain eligibility requirements
related to age and service time with the Company. The plan in which each
employee is eligible to participate depends upon the subsidiary that employs the
employee. All plans have a salary deferral feature that enables employees to
contribute up to a certain percentage of their earnings, subject to governmental
regulations. Many of the plans require the Company to match employees'
contributions with ICO stock or a monetary contribution. Domestic employees'
interests in the Company's contributions and earnings are vested over five years
of service, while foreign employees are generally vested immediately.

F-20

The Company maintains a defined benefit plan, for employees of one of
the Company's Dutch subsidiaries. Participants contribute a range of 1.5% to 4%
of the cost associated with their individual pension basis. The Company
contributes an annual amount based on an actuarial calculation. The plan
provides retirement benefits at the normal retirement age of 65. This subsidiary
also maintains a pre-pension plan for all employees who are eligible for the
basic pension plan. Under this plan, an employee may choose between the ages of
60-62 to retire early. These employees will remain under the pre-pension plan
until the age of 65 at which time they will be eligible for the basic pension
plan. During the early retirement period, eligible employees opting for early
retirement will receive 50% to 75% of their salaries on the date of retirement.
Annually, employees contribute 1.4% of their salaries towards their
pre-pensions. The Company will contribute the difference between what has been
accumulated by means of annual premiums and what is necessary to be paid out
during the early retirement period.

Total expense for all employee benefit plans included in consolidated
results of operations for the years ended September 30, 2001, 2000 and 1999 was
$1,460, $1,338, and $1,397, respectively.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

The Company leases certain transportation equipment, office space and
other machinery and equipment under operating leases that expire at various
dates. Rental expense was approximately $6,686 in 2001, $5,382 in 2000, and
$5,790 in 1999. Future minimum rental payments as of September 30, 2001 are due
as follows:

2002 $5,623
2003 5,037
2004 4,167
2005 3,319
2006 2,439
Thereafter 2,930

Silicosis Related Claims. The Company is presently named as a defendant
in two lawsuits involving two former employees alleging personal injury claims
related to exposure to silica resulting in silicosis-related disease. These
cases were initiated on November 21, 1991 (by Roberto Bustillos, et al., in
Texas State Court in Ector County) and on January 4, 2000 (by Pilar Olivas, et
al., in Texas State Court in Harris County). Generally, the Company is protected
under workers' compensation law from claims under these two suits, except to the
extent a judgment might be awarded against the Company for an intentional tort.

In fiscal 1994 and 1995, the Company received an instructed verdict
(i.e. no liability was found at trial after the plaintiff's evidence was
presented) in four cases involving four plaintiffs, also former employees,
alleging intentional tort against the Company for silicosis-related disease.
Between fiscal 1993 and fiscal 2000, the Company was non-suited or dismissed
without liability in fifteen cases filed by former employees alleging
intentional tort against the company for silicosis-related disease. In the
second and fourth quarters of fiscal 2001, the Company was non-suited in two
more cases filed by former employees alleging intentional tort against the
company (the case filed in 1991 by Odilon Martinez in Texas State Court in Ector
County, and the case filed in 1992 by James Glidwell in Texas State Court in
Ector County, respectively).

The Company has settled six cases filed by the survivors of six former
employees, alleging wrongful death caused by silicosis-related disease. Five of
these settlements occurred between fiscal 1993 and fiscal 1999. The sixth case
(which was filed in 2000 by Delma Orozco, individually and as representative of
the Estate of Lazaro Orozco, et al., in Texas State Court in Ector County), was
settled in the fourth quarter of fiscal 2001. In fiscal 1993 the Company
incurred a total charge of $605 in connection with settlement of two of the
above-referenced wrongful death cases. The Company was fully insured for the
settlement of the other four cases alleging wrongful death causes of action,
including the Orozco case settled in fiscal 2001, and therefore did not incur
any settlement costs in connection with those cases. At this time there are no
suits pending against the Company alleging wrongful death caused by
silicosis-related disease.

F-21

During December 1996, an agreement was signed by the Company and Baker
Hughes, Inc. ("Baker Hughes") to settle the litigation of a dispute concerning
the assumption of certain liabilities in connection with the acquisition of
Baker Hughes Tubular Services ("BHTS") in 1992. The agreement stipulates that
with regard to future occupational health claims (which would include silicosis
claims), the parties shall share costs equally, with the Company's obligations
being limited to $500 for each claim and a maximum contingent liability of
$5,000 ($4,250 net of payments the Company has made to date pursuant to the
terms of the agreement) in the aggregate, for all claims. Subsequent to the year
end, the only claim outstanding at September 30, 2001 was settled.

The Company has settled two cases filed by former employees of BHTS
alleging personal injury claims related to exposure to silica resulting in
silicosis-related disease. These cases, filed by Paul Roark and James Petty (the
"Roark and Petty litigation"), were settled in the fourth quarter of fiscal 2000
and the first quarter of fiscal 2002, respectively. The Roark and Petty
litigation involved negligence claims that, in theory, could have circumvented
the Company's immunity protections under the workers' compensation law. The
Roark and Petty litigation named the Company and Baker Hughes, among others, as
defendants, and fell within the provisions of the December 1996 agreement
between the Company and Baker Hughes (described in the preceding paragraph). The
terms of the settlements in the Roark and Petty litigation did not have a
material adverse effect on the Company's financial condition.

The Company and its counsel cannot, at this time, predict with any
reasonable certainty whether or in what circumstances additional
silicosis-related suits may be filed, or the outcome of future silicosis-related
suits, if any. The Company does not believe, however, that the two
silicosis-related lawsuits that are presently pending will have a material
adverse effect on its financial condition, results of operations or cash flows.
It is possible that future silicosis-related suits, if any, may have a material
adverse effect on the Company's financial condition, results of operations or
cash flows, if an adverse judgment is obtained against the Company which is
ultimately determined not to be covered by insurance. The Company has in effect,
in some instances, employer's liability insurance policies applicable to
silicosis-related suits; however, the extent and amount of coverage is limited,
and the Company has been advised by certain insurance carriers of a reservation
of rights with regard to policy obligations pertaining to the suits because of
various exclusions in the policies.

Environmental Remediation. The Company's agreement with Baker Hughes,
pursuant to which BHTS was acquired by the Company, provides that Baker Hughes
will reimburse the Company for 50% of the BHTS environmental remediation costs
in excess of $318, with Baker Hughes' total reimbursement obligation being
limited to $2,000 (current BHTS obligation is limited to $1,650). BHTS is a
responsible party at two hazardous waste disposal sites that are currently
undergoing remediation pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"). Under CERCLA, persons who were
responsible for generating the hazardous waste disposed of at a site where
hazardous substances are being released into the environment are jointly and
severally liable for the costs of cleaning up environmental contamination, and
it is not uncommon for neighboring landowners and other third parties to file
claims for personal injuries and property damage allegedly caused by hazardous
substances released into the environment. The two sites where BHTS is a
responsible party are the French Limited site northeast of Houston, Texas and
the Sheridan site near Hempstead, Texas. Remediation of the French Limited site
has been completed, with only natural attenuation of contaminants in groundwater
occurring at this time. Remediation has not yet commenced at the Sheridan site.
Current plans for cleanup of this site, as set forth in the federal Record of
Decision, call for on-site bioremediation of the soils in tanks and natural
attenuation of contaminants in the groundwater. However, treatability studies to
evaluate possible new remedies for the soils, such as in-place bioremediation,
are being conducted as part of a Remedial Technology Review Program. Based on
the completed status of the remediation at the French Limited site and BHTS's
minimal contribution of wastes at both of the sites, the Company believes that
its future liability under the agreement with Baker Hughes with respect to these
two sites will not be material to the Company's financial condition, results of
operations or cash flows.

John Wood Group PLC Litigation. On November 21, 1997, in an action
initiated by the Company in October 1994, a Texas State Court jury awarded the
Company approximately $13,000 in the trial of its case against John Wood Group
PLC relating to the 1994 contract for the purchase of the operating assets of
NDT Systems, Inc. and certain related entities. The trial court subsequently
entered a judgment for $15,750 in the Company's favor, which includes
pre-judgment interest on the jury award. The Wood Group appealed the judgment.
On March 9, 2000, the Court of Appeals for the First District of Texas reversed
the judgment entered by the trial court and, as to all but one of the

F-22

Company's claims, ordered that the Company have no recovery. As to that
remaining breach of contract claim seeking recovery of a contract payment of
$500, the Court of Appeals remanded the cause to the trial court for further
proceedings. The Court of Appeals overruled the Company's motion for rehearing
and rehearing en banc. The Company filed a petition for review in the Texas
Supreme Court, and the Texas Supreme Court denied Company's petition for review
on February 8, 2001. The Company filed a motion for rehearing from the Texas
Supreme Court's denial of the Company's petition for review. On March 29, 2001,
the Texas Supreme Court denied the Company's motion for rehearing from the Texas
Supreme Court's denial of the Company's petition for review. On September 5,
2001, the Company dismissed all claims pending in the litigation in exchange for
a payment of $200 from the Wood Group.

Oil Country Tubular Limited Arbitration. ICO Tubular Services, Inc., a
now-defunct subsidiary of the Company, was named as a Respondent in an
arbitration claim made on August 7, 1998, by Oil Country Tubular Limited
("OCTL"), a company based in India. The claim arises out of a transaction
between OCTL and BHTS whereby BHTS sold equipment and other assets from a plant
in Canada to OCTL and entered into a separate Foreign Collaboration Agreement
(FCA) to provide certain practical and technical assistance in setting up the
plant and making it operational in India.

OCTL paid $2,400 for the FCA and $2,800 for equipment for the plant. In
its claim brought in the Court of Arbitration of the International Chamber of
Commerce ("ICC"), OCTL claims, among other items, that it did not receive
technical assistance, technical data, spare parts and certain raw materials that
were necessary for its oilfield tubular services plant in India and that BHTS
owed it under the FCA. The Company is involved by virtue of its acquisition in
1992 of BHTS. The Company had only peripheral knowledge of the dispute between
OCTL and Baker Hughes prior to the filing of OCTL's claim. The Company objected
to the jurisdiction of the arbitration tribunal on the ground that the Company
is not a party to the FCA, the FCA having been assigned to Tuboscope
Incorporated prior to the Company's purchase of BHTS. After a hearing on that
objection, the arbitral tribunal entered a decision in March 2000, holding that
it did have jurisdiction over the Company. OCTL submitted an Amended Statement
of Claim in November 2000, in which it claimed nine different breaches of the
FCA. Although the Company was not involved in the actions made the basis of
OCTL's claims, its reconstruction of events indicated that BHTS supplied OCTL
with a fully operational plant and that OCTL's difficulties, such as they were,
resulted from external causes. The total amount of OCTL's claims exceeds
$30,000. It has alleged approximately $8,700 in losses due to past contractual
breaches, plus approximately $7,900 in "liquidated damages" it claims to have
paid to third parties because of production losses that allegedly resulted from
contractual breaches and an unspecified amount of damages from lost sales. While
the outcome of this arbitration matter cannot be predicted, the Company plans to
continue to contest the claims vigorously. The Company believes the damage claim
is exaggerated. If the ICC arbitral panel should enter an award against the
Company, the Company, Baker Hughes and Tuboscope have entered into a separate
agreement to arbitrate which entity would be responsible to pay the award.

Shareholder Litigation. On May 11, 2001, an individual shareholder
filed a lawsuit in Texas State Court in Harris County against the Company, its
directors, two of the Company's former officers/directors, and Travis Street
Partners, L.L.C. ("TSP"), alleging breach of fiduciary duty in connection with
TSP's offer to buy the Company. The lawsuit also alleges that certain severance
payments made by the Company to two of the Company's former officers/directors
constitute a misappropriation of assets. The individual shareholder plaintiff
filed suit on behalf of himself and derivatively on behalf of the Company, and
has requested that the suit be maintained as a class action and that he be
certified as the class representative. Plaintiff seeks an unspecified amount of
damages. The Company has entered into an agreement with the plaintiff which, for
now, indefinitely extends the time for the Company to file a responsive answer
to the lawsuit.

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.

F-23

NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION

As discussed in Note 2, the following is a schedule of assets acquired
and liabilities assumed in conjunction with the acquisitions in 2000 and 1999.
There were no acquisitions in 2001.

At September 30, 2001 and 2000, the Company accrued preferred dividends
of $544 which were declared, but unpaid.

During fiscal years 2000 and 1999, the Company issued to employees $543
and $523 worth of common stock, respectively, in connection with the Company's
domestic benefit plans. At September 30, 2001, the Company had accrued $600 for
fiscal year 2001 in connection with of the Company's domestic benefit plan. See
Note 12 - "Employee Benefit Plans".

NOTE 15 - SEGMENT AND FOREIGN OPERATIONS INFORMATION

The Company's two reportable segments consist of the primary products
and services provided by the Company to customers: Polymers Processing Services
and Oilfield Services.

The Polymers Processing segment provides size reduction, compounding,
concentrates manufacturing, distribution and related services. The primary
customers of the Polymers Processing segment include large producers of
polymers, end users, such as rotational molders, and polymers distributors.
Worldwide sales to one Polymers Processing customer accounted for 11%, 14% and
13% of the Company's consolidated revenues in fiscal 2001, 2000 and 1999,
respectively.

The Oilfield Service business segment provides oilfield tubular and
sucker rod inspection, reconditioning and coating services and also sells
equipment to customers. This segment's customers includes leading integrated oil
companies, large independent oil and gas exploration and production companies,
drilling contractors, steel producers and processors and oilfield supply
companies. No single Oilfield Service customer accounted for more than 10% of
the Company's consolidated revenues.

The accounting policies of the reportable segments are the same as
those described in the Summary of Significant Accounting Policies (see Note 1).
There are no material inter-segment revenues. The Company evaluates the
performance of its segments based upon revenues and operating income.

F-24

Summarized financial information of the Company's reportable segments
for the years ended September 30, 2001, 2000 and 1999 is shown in the following
table.

*Consists primarily of corporate overhead expenses and unallocated corporate
assets. Unallocated corporate assets consist of cash, deferred tax assets,
unamortized bond offering expenses, and corporate fixed assets.

F-25

A reconciliation of total segment operating income to consolidated
income before taxes and extraordinary items is as follows:

The following is revenue and long-lived asset information by geographic
area for years ended September 30:

Foreign revenue is based on the country in which the legal subsidiary
is domiciled. Revenue from no single foreign country was material to the
consolidated revenues of the Company. Long-lived assets include net property,
plant and equipment, goodwill, debt offering costs, deferred tax assets, patents
and other long-term assets.

NOTE 16 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table presents selected financial information for each
quarter in the fiscal years ended September 30, 2001 and September 30, 2000,
respectively.

NOTE 17- SUBSEQUENT EVENT

During December 2001, the Company acquired the operating assets of Rod
Services of Canada, Ltd., with a facility in Red Deer, Alberta, Canada; and TRC
Rod Services of the Rockies, Inc., with a facility in Casper, Wyoming
(collectively referred to as "The Rod Companies") for $1,581 in cash. The Rod
Companies provide rod inspection and reclamation services in Western Canada and
the Rocky Mountain region in the United States.

F-26

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of ICO, Inc.:

Our audits of the consolidated financial statements referred to in our report
dated November 30, 2001 appearing elsewhere in this Form 10-K also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Houston, Texas
November 30, 2001

S-1

ICO, Inc.
Schedule II - Valuation and Qualifying Accounts
(In Thousands)

(1) Due to write-offs and/or foreign currency translation differences.

S-2

EXHIBIT INDEX

EXHIBIT INDEX

- ----------

** Filed herewith