ICO INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002

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 Incorporation) (IRS Employer Identification Number)

5333 Westheimer, Suite 600, Houston, Texas 77056
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(Address of Principal Executive Offices) (Zip Code)

(713) 351-4100
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(Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES [X] NO [ ]

Common stock, without par value 24,450,345 shares
outstanding as of August 12, 2002

ICO, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q

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ICO, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except share data)

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

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ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited and in thousands, except share data)

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

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ICO, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Unaudited and in thousands)

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

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ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)

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

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

NOTE 1. BASIS OF FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements," and accordingly do not include all information and footnotes
required under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Annual Report on Form
10-K for the year ended September 30, 2001 for ICO, Inc. (the "Company"). In the
opinion of management, these interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of June 30, 2002, the
results of operations for the three and nine months ended June 30, 2002 and 2001
and the changes in its cash position for the nine months ended June 30, 2002 and
2001. Results of operations for the nine-month period ended June 30, 2002 are
not necessarily indicative of the results that may be expected for the year
ending September 30, 2002. For additional information, refer to the consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended September 30, 2001.

NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") 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, but will be 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. Management
is currently evaluating the impact of this statement on its financial
statements. The Company has $46,245 of goodwill included in its balance sheet at
June 30, 2002 (of which $37,100 relates to continuing operations). Goodwill
amortization for the three and nine months ended June 30, 2002 was $357 and
$1,053, respectively, of which $291 and $860 related to continuing operations.

In July 2001, the FASB 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 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 is currently evaluating the impact of this
Statement on its financial statements.

In August 2001, the FASB 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, it retains the requirement of
Opinion 30 to report discontinued operations separately from continuing
abandonment and extends that reporting to a Corporate entity that either has
been disposed of (by sale, by 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,

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2001, and interim periods within those fiscal years. The Company adopted SFAS
144 on April 1, 2002. See "Note 12. Discontinued Operations."

In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS 145"), Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections. SFAS 145 rescinds
SFAS 4, Reporting Gains and Losses from Extinguishment of Debt. By rescinding
FASB Statement No. 4, gains or losses from extinguishment of debt that do not
meet the criteria of APB No. 30 should not be reported as an extraordinary item
and should be reclassified to income from continuing operations in all periods
presented. APB No. 30 states that extraordinary items are events and
transactions that are distinguished by their unusual nature and by the
infrequency of their occurrence. The Company has recorded extraordinary gains of
$107 and $425 net of income taxes for the three and nine months ended June 30,
2002 related to the early extinguishment of debt. The Company also recorded an
extraordinary gain of $399 net of income taxes in fiscal 1999 related to the
early extinguishment of debt. Therefore, these transactions will not be
considered extraordinary under APB No. 30 and will be classified as income from
continuing operations upon adoption of SFAS 145 in fiscal 2003. This Statement
is effective for fiscal years beginning after May 15, 2002 (October 1, 2002 for
the Company).

In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 ("SFAS 146"), Accounting for Costs Associated with Exit or
Disposal Activities. This Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF Issue 94-3, a liability for an exit
cost as defined in EITF Issue 94-3 was recognized at the date of an entity's
commitment to an exit plan. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. Previously issued financial statements shall not
be restated upon adoption of SFAS 146. Management does not expect the adoption
of SFAS 146 to have a material impact on its financial statements or results of
operations.

NOTE 3. EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY

Earnings per share is based on earnings applicable to common
shareholders and is calculated using the weighted average number of common
shares outstanding. During the three and nine months ended June 30, 2002 and
June 30, 2001, the potentially dilutive effects of the Company's exchangeable
preferred stock (which would have an anti-dilutive effect) and common stock
options and warrants, with exercise prices exceeding fair market value of the
underlying common shares, have been excluded from diluted earnings per share.
Additionally, the potentially dilutive effects of common stock options have been
excluded from diluted earnings per share for those periods in which the Company
generated a net loss. The total number of anti-dilutive securities for both the
three and nine months ended June 30, 2002 was 5,804,741 compared to 5,537,000
for the three and nine months ended June 30, 2001.

NOTE 4. INVENTORIES

Inventories consisted of the following:

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NOTE 5. INCOME TAXES

The Company's effective income tax rates were a benefit of 31% and 25%
during the three and nine months ended June 30, 2002, respectively, compared to
a benefit of 34% and 32% for the three and nine months ended June 30, 2001,
respectively. The tax rate changes were due to the recognition, during the first
quarter of fiscal 2002, of a valuation allowance of $754 against the benefit of
U.S. net operating losses expiring during fiscal 2002 (see below), and a change
in the mix of pre-tax income or loss generated by the Company's operations in
various taxing jurisdictions.

The Company increased the valuation allowance by $754 during the first
quarter of fiscal 2002 against the benefit of the net operating losses expiring
in 2002. The Company has, for tax purposes, $28,285 in domestic net operating
loss carry-forwards at June 30, 2002, which expire between 2019 and 2021. This
excludes net operating loss carry-forwards in the amount of $4,465, expected to
expire unused.

NOTE 6. 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. As further discussed in "Note 12. Discontinued
Operations", the Oilfield Services segment is being reported as discontinued
operations as required by SFAS 144.

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
and end users, such as rotational molders.

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 include leading integrated oil
companies, large independent oil and gas exploration and production companies,
drilling contractors, steel producers and processors and oilfield supply
companies.

There are no material inter-segment revenues included in the segment
information disclosed below. The Company evaluates the performance of its
segments based upon revenues and operating income. Summarized financial
information of the Company's reportable segments for the three and nine months
ended June 30, 2002 and 2001 is shown in the following tables.

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* Consists primarily of corporate overhead expenses and capital expenditures.
** Excludes business acquisitions.

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* Consists of unallocated corporate assets including: cash, deferred tax assets,
unamortized bond offering expenses, and corporate fixed assets.

A reconciliation of total segment operating loss from continuing
operations to loss from continuing operations before taxes and extraordinary
gain:

NOTE 7. IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES

During the third quarter 2002, the Company recognized a charge of
$1,533 related to the impairment of machinery and equipment of the Italian plant
closed in fiscal year 2002. This facility was closed due to its redundancy with
the Company's other nearby Italian facility performing similar services and in
the third quarter of fiscal 2002, the Company completed an evaluation of assets
contained in this facility and determined that these assets had a limited use or
were obsolete. During the third quarter 2002, the Company also recognized
severance expenses of $249 related to the Polymers Processing business.

During the third quarter of fiscal 2001, the Company recognized a
$7,400 charge for severance obligations relating to the termination of Asher
Pacholder (former Chairman and Chief Financial Officer), Sylvia Pacholder
(former President and Chief Executive Officer), Robin Pacholder (former
President- Wedco North America), David Gerst (former Senior Vice President and
General Counsel) and Tom Pacholder (former Senior Vice President- Wedco).

During the second quarter of fiscal 2001, the Company recognized a
charge of $650 related to the impairment of a non-core Polymers Processing
operation.

During the second quarter of fiscal 2001, the Company terminated
certain Polymers Processing employees and recognized related severance expenses
of $543.

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NOTE 8. 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 January 4, 2000 (by Pilar Olivas, et al., in Texas State
Court in Harris County), and on or about May 24, 2002 (by Richard Koskey, in
Texas State Court in Jefferson County, Texas). Generally the Company is
protected under workers' compensation law from claims in the Olivas litigation,
except to the extent a judgment might be awarded against the Company for an
intentional tort. The Company believes that the Olivas litigation will not have
a material adverse effect on the financial condition, results of operations or
cash flow of the Company. The Koskey litigation involves negligence claims that,
in theory, could circumvent the Company's immunity protections under the
workers' compensation law, but the Company believes that this litigation will
not have a material adverse effect on the financial condition, results of
operations or cash flow of the Company. The Koskey litigation names the Company
and Baker Hughes, Inc. ("Baker Hughes"), among others, as defendants. Koskey's
allegations are similar to the allegations made in the Roark and Petty
litigation, described below, and Koskey's claims fall within the provisions of
an agreement between the Company and Baker Hughes, described below, which limits
the Company's obligations in the litigation. The Olivas and Koskey litigation
are pending against the Company as of June 30, 2002.

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 2001, the Company was non-suited or dismissed
without liability in seventeen cases filed by former employees alleging
intentional tort against the company for silicosis-related disease. On August 5,
2002, the Company was non-suited in the case filed by Roberto Bustillos in Texas
State Court in Ector County, Texas. All of the cases referenced in this
paragraph were filed by former employees of the Company's coating plant located
in Odessa, Texas.

The Company has settled six cases filed by the survivors of six former
employees of the Company's coating plant located in Odessa, Texas, 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.

On June 21, 2002, the Company entered into an agreement to settle any
and all current and prospective claims, including future claims alleging
wrongful death caused by silicosis-related disease, that have been or may be
brought by, through, or under twenty-four former employees of the Company's
Odessa, Texas coating plant who have been diagnosed with silicosis. The
settlement was entered into subject to approval of the Company's Board of
Directors (which approval has since been obtained), and approval of a court of
competent jurisdiction. The total settlement amount payable to the twenty-four
(24) claimants is $2,650, of which $2,000 is to be paid by the Company, with the
remaining $650 paid by two of the Company's insurers. The former employees whose
claims, including future wrongful death claims, will be settled include most of
the individuals whose intentional tort claims were non-suited or otherwise
dismissed without liability between 1993 and 2002 (referenced above in the
second paragraph of this Note 8).

In December of 1996, the Company and Baker Hughes entered into an
agreement to resolve 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.

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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.

Notwithstanding the sale of the Company's Oilfield Service business
(see "Note 12. Discontinued Operations"), the purchaser will not assume any
current or future liabilities related to silicosis or any other occupational
health matters that arise out of or relate to events or occurrences happening
prior to the consummation of the sale (including the pending claims discussed
above) and the Company has agreed to indemnify the purchaser for any such costs.

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.

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 brought in the Court of Arbitration of the International
Chamber of Commerce on August 7, 1998 (the "ICC Arbitration") by Oil Country
Tubular Limited ("OCTL"), a company based in India. The claim arose 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. The Company and OCTL entered
into an agreement on January 30, 2002, providing

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for a cash payment to OCTL in full and final settlement of all issues related to
the ICC Arbitration. The Company simultaneously entered into a settlement
agreement with Baker Hughes and Varco, L.P., pursuant to which the Company,
Baker Hughes and Varco, L.P. agreed to share the cost of the OCTL settlement,
and released each other from any further liability regarding the matter.
Pursuant to these agreements, the Company's share of the settlement with OCTL
was $1,840. This amount was recorded as an expense in the first quarter of
fiscal 2002 and was paid by the Company in the second quarter of fiscal 2002.

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, and alleging that certain severance payments
made by the Company to two of the Company's former officers/directors
constituted a misappropriation of assets. On October 23, 2001, the Court entered
an order granting non-suit, dismissing the case without prejudice upon the
Plaintiff's motion.

The Company is also named as a defendant in certain other lawsuits
arising in the ordinary course of business. The outcome of these lawsuits cannot
be predicted with certainty.

NOTE 9. ACQUISITIONS

During fiscal year 2002, the Company made two acquisitions. Both of the
acquired businesses are included in the Oilfield Services segment, which is
classified as a discontinued operation (see "Note 12. Discontinued Operations").

In March 2002, the Company acquired the operating assets of Analysis
Petroleum Inspection Pte Ltd ("APII"), headquartered in Singapore, for $1,070 in
cash (including transaction fees and expenses). APII has been in the business of
providing non-destructive inspection services to Southeast Asian drilling and
production companies in Singapore, Indonesia, Malaysia, Thailand and Vietnam
since 1988.

In 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 (including
transaction fees and expenses). The Rod Companies provide rod inspection and
reclamation services in Western Canada and the Rocky Mountain region in the
United States.

NOTE 10. SUPPLEMENTAL CASH FLOW INFORMATION

At June 30, 2002 and September 30, 2001, the Company accrued preferred
dividends of $544 which were declared, but unpaid. During the third quarter of
fiscal year 2002, the Company issued common stock with a value of $321 to
employees in connection with the Company's domestic employee savings plan.
During the second quarter of fiscal year 2002, the Company issued common stock
with a value of $898 to employees in connection with the Company's domestic
employee savings plan. Following approval by the Company's shareholders, the
Company issued in the second quarter of fiscal 2002 common stock with a value of
$746 to TSP in connection with TSP's successful proxy contest regarding the
election of James D. Calaway, A. John Knapp and Charles T. McCord to the Board
of Directors.

NOTE 11. RELATED PARTY TRANSACTIONS

In the second quarter of fiscal 2002, the Company issued common stock
with a value of $746 to TSP in connection with TSP's successful proxy contest
regarding the election of James D. Calaway, A. John Knapp and Charles T. McCord
to the Board of Directors.

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NOTE 12. DISCONTINUED OPERATIONS

On July 2, 2002, the Company entered into a definitive agreement
with Varco International, Inc. to sell substantially all of the Company's
Oilfield Services business for approximately $136,700 in cash and assumed debt,
plus the assumption of approximately $10,000 of trade payables and certain other
accrued operating expenses, subject to a working capital adjustment comparing
the working capital balances as of March 31, 2002 to the date the transaction is
closed. The Company expects to record a gain on the sale of the Oilfield
Services business. In accordance with SFAS 144, the Oilfield Services results of
operations are presented as discontinued operations, net of income taxes in the
consolidated statement of operations. In addition, the assets and liabilities
held for sale are shown as two separate line items in the consolidated balance
sheet.

Summary operating results of the discontinued operations for the three
and nine months ended June 30, 2002 and 2001 were as follows:

During the third quarter of fiscal 2002, the Company recognized a
charge of $2,200, net of a $650 insurance receivable, in connection with the
settlement of certain silicosis-related claims (see "Note 8. Legal
Proceedings"). During the first quarter of fiscal 2002, the Company recognized a
charge of $1,840 in connection with the settlement of the Oil Country Tubular
Limited arbitration (see "Note 8. Legal Proceedings"). During the third quarter
of fiscal 2001, the Company recognized a charge of $500 relating to litigation
of one of the personal injury claims alleging exposure to silica, resulting in
silicosis-related disease (see "Note 8. Legal Proceedings").

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Assets and liabilities of discontinued operations are as follows:

Inventories consisted of the following:

NOTE 13. EXTRAORDINARY GAIN

During the third quarter of fiscal 2002, the Company repurchased 10
3/8% Senior Notes due in 2007 with a face value of $1,175, recognizing an
extraordinary gain of $107 net of income tax. During the first quarter of fiscal
2002, the Company repurchased 10 3/8% Senior Notes due in 2007 with a face value
of $2,250, recognizing an extraordinary gain of $318 net of income tax.

NOTE 14. 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.

The Company's strategy has typically been to finance only working
capital with variable interest rate debt and to fix interest rates for the
financing of long-term assets. 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 (usually the U.S.
dollar).

The following table summarizes the Company's market-sensitive financial
instruments. These transactions are considered non-trading activities.

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ON-BALANCE SHEET FINANCIAL INSTRUMENTS

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED AND IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The statements contained in all parts of this document, including, but
not limited to, timing of new services or facilities, ability to compete,
effects of compliance with laws, 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, marketing plans, the sale of the oilfield
services business, demand for the Company's products and services, future growth
plans, oil and gas company spending, completion, 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 effects of the Company's indebtedness, the
state of the oil and gas industry, demand for the Company's products and
services, oil and gas prices, the rig count, the effect of the business cycle
and the level of business activity, the Company's proprietary technology, risks
relating to the acquisitions, the Company's ability to integrate specialty
chemical operations and to manage any growth, the risks of international
operations and currency

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risks, operations risks and risks regarding regulation, as well as those
described in the Company's annual report on Form 10-K for the fiscal year ended
September 30, 2001.

INTRODUCTION

The Company historically had two operating segments: Polymers
Processing and Oilfield Services. The Oilfield Services segment is now shown as
discontinued operations as more fully discussed in "Note 12. Discontinued
Operations." Polymers Processing revenues are derived from (1) product sales and
(2) toll services. Polymers Processing product sales entail the Company
purchasing resin which is usually 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 product sales,
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 product 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 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 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. The Company's oilfield revenues and
profitability have likewise varied significantly year-to-year.

-18-

RESULTS OF OPERATIONS

The following results of operations information consists of continuing
operations. Continuing operations includes the Company's Polymers Processing
business segment and Corporate administrative expenses. See "Note 12.
Discontinued Operations" regarding the Oilfield Services business segment.

- ----------
(1) "EBITDA" equals revenues less cost of sales and services, less selling,
general and administrative expenses. EBITDA 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.
See reconciliation below.

-19-

Three and Nine Months Ended June 30, 2002 Compared to the Three and Nine Months
Ended June 30, 2001

REVENUES

Revenues declined from $49,538 to $46,984 and from $152,009 to $132,243
during the three and nine months ended June 30, 2002, respectively, compared to
the same periods of fiscal 2001. Both product sales and toll service revenues
declined. Product sales revenues declined from $40,145 to $38,033 and from
$121,194 to $105,778 for the three and nine months ended June 30, 2002 compared
to the same periods of fiscal 2001. The decline in product sales revenue was
caused by lower average sales prices (caused in part by lower resin prices) in
Europe and a change in the revenue mix of the Company's domestic concentrate
manufacturing operation, partially offset by an increase in polymers sales
volumes. Toll service revenues declined from $9,393 to $8,951 and from $30,815
to $26,465 for the three and nine months ended June 30, 2002 compared to the
same period in fiscal 2001, caused by lower processing volumes in the United
States and Europe resulting from reduced customer demand.

COSTS AND EXPENSES

Gross margins (calculated as the difference between net revenues and
cost of sales, divided by net revenues) improved to 21.0% and 20.0% during the
three and nine months ended June 30, 2002, respectively, compared to 15.7% and
17.1% in both the three and nine months ended June 30, 2001, respectively.

The gross margin increase was the result of an improved revenue mix
(from a gross margin perspective) generated by the Company's domestic
concentrate manufacturing operation, a loss on disposition of fixed assets
included in the fiscal 2001 periods, an increase in volumes within the Company's
South East Asian operations and an improvement in European gross margins. The
European gross margin improvement was due in part to the benefits of
consolidating the Company's two Italian plants into one location, improved
inventory management and the sale of the Company's color concentrates business
in the UK.

Depreciation and amortization expenses decreased to $2,503 and $7,591
during the three and nine months ended June 30, 2002 from $2,601 and $7,797
during the same periods of fiscal 2001 due primarily to the closure or sale of
facilities in Europe and the United States.

Selling, general and administrative expenses were $7,266 and $21,968
during the three and nine months ended June 30, 2002, compared to $8,286 and
$24,089 during the same periods of fiscal 2001. Proxy expenses reflected in
selling, general and administrative expenses were $0 and $756 for both the three
and nine months ended June 30, 2002, compared to $546 and $1,660 for the three
and nine months ended June 30, 2001, respectively. The fiscal 2002 proxy expense
relates to the Company's issuance to TSP of 528,834 shares of common stock,
representing reimbursement of expenses incurred by TSP in connection with TSP's
successful proxy contest in 2001. Selling, general and administrative expenses
as a percentage of revenue were 15.5% and 16.6% of revenues during the three and
nine months ended June 30, 2002, respectively, compared to 16.7% and 15.8%
during the same periods of fiscal 2001.

IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES

Oilfield Service revenues declined $4,137 or 13% and $9,377 or 10%
during the three and nine months ended June 30, 2002 compared to the same
periods of fiscal 2001. The following table summarizes important market measures
which drive the Company's Oilfield Service business:

All major product lines within the Oilfield Service business
experienced revenue declines during the quarter and fiscal year-to-date periods
resulting from lower exploration and production activity. Exploration sales and
service revenues declined mostly due to reduced new oil country tubular goods
production and a decline in Gulf of Mexico activity which resulted in a decline
in new pipe inspection demand. Production service and corrosion control revenues
declined relatively less compared to the decline in exploration sales and
services. This trend was due to the fact that the workover rig count fell at a
slower pace than other rig counts and coating demand only began to decline in
late 2001.

Oilfield Service gross margins declined to 26.3% and 26.9% during the
three and nine months ended June 30, 2002 compared to 30.1% and 30.2% during the
same periods of fiscal 2001. These declines were due to the decline in service
volumes, which resulted in the loss of operating leverage.

-22-

Oilfield Service depreciation and amortization expense declined to
$1,283 and $3,695 during the three and nine months ended June 30, 2002 compared
to $1,261 and $3,875 for the three and nine months ended June 30, 2001.

Oilfield Services sales, general and administration increased to $4,713
and $12,696 during the three and nine months ended June 30, 2002 compared to
$3,587 and $10,154 for the three and nine months ended June 30, 2001. These
increases are primarily due to the decentralization of certain administrative
functions previously provided by the Company's Corporate office, an increase in
compensation expense relating to the Company's Canadian operations and $280 of
expenses included in the fiscal 2002 periods relating to the Oilfield Service
sale transaction.

During the third quarter of fiscal 2002, the Company recognized a
charge of $2,200 in connection with the settlement of certain silicosis-related
claims (see "Note 8. Legal Proceedings"). During the first quarter of fiscal
2002, the Company recognized a charge of $1,840 in connection with the
settlement of the Oil Country Tubular Limited litigation (see "Note 8. Legal
Proceedings").

Income (loss) from discontinued operations, net of income taxes,
decreased to $(369) and $2,007 during the three and nine months ended June 30,
2002 compared to $2,828 and $9,419 during the three and nine months ended June
30, 2002 due to the factors discussed above.

EXTRAORDINARY GAIN

During the third quarter of fiscal 2002, the Company repurchased
10 3/8% Senior Notes due in 2007 with a face value of $1,175, recognizing an
extraordinary gain of $107 net of income tax.

Also during the first quarter of fiscal 2002, the Company repurchased
10 3/8% Senior Notes due in 2007 with a face value of $2,250, recognizing an
extraordinary gain of $318 net of income tax.

NET LOSS

For the three and nine months ended June 30, 2002, the Company had net
losses of $3,318 and $8,206 compared to net losses of $6,204 and $6,747 for the
comparable periods in fiscal 2001, due to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

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

Cash and cash equivalents declined $21,795 and net working capital
decreased $14,001 during the nine months ended June 30, 2002 due to the factors
described below.

For the nine months ended June 30, 2002, cash provided by operating
activities increased to $4,065 from cash used of $3,173 for the nine months
ended June 30, 2001. The increase in cash provided by operating activities
occurred due to the various changes in working capital accounts (primarily
accounts receivable, prepaid expenses and other assets, accounts payable and
inventory). The nine months ended June 30, 2002 includes the receipt of $3,100
of cash previously held in escrow and recorded in other assets related to the
termination of certain former executives of the Company.

Capital expenditures totaled $12,240 during the nine months ended June
30, 2002, of which $7,348 related to the Polymers Processing business, and
$4,458 related to the Oilfield Service business. The remaining $434 related to
corporate expenditures. Fiscal 2002 capital expenditures were made primarily to
expand the Company's operating

-23-

capacity. Additionally, during fiscal 2002, the Company paid $2,651 for the
acquisition of two Oilfield Service businesses (see Note 9. "Acquisitions"
contained in Item 1. "Financial Statements"). The Company anticipates that
available cash and existing credit facilities will be sufficient to fund
remaining fiscal 2002 capital expenditure requirements.

Cash used for financing activities was $12,265 during the nine months
ended June 30, 2002 compared to cash used of $3,972 during the nine months ended
June 30, 2001. The change was primarily the result of increased debt repayments.

As of June 30, 2002, the Company had approximately $33,900 of
additional borrowing capacity available under various foreign and domestic
credit arrangements. In April 2002, the Company established a three-year
domestic credit facility secured by domestic receivables, inventory and certain
domestic property, plant and equipment with a maximum borrowing capacity of
$25,000. The borrowing capacity varies based upon the levels of domestic
receivables and inventory. As of July 31, 2002, the Company had approximately
$24,000 of borrowing capacity under the domestic credit facility.

On July 2, 2002, the Company entered into a definitive agreement with
Varco International, Inc. to sell substantially all of the Company's oilfield
services business for approximately $136,700 in cash and assumed debt, plus the
assumption of approximately $10,000 of trade payables and certain other accrued
operating expenses, subject to a working capital adjustment comparing the
working capital balances as of March 31, 2002 to the date the transaction is
closed. Prior to the consummation of this sale, the Company will be required to
amend its domestic credit facility, which amendment is expected to materially
reduce the Company's available borrowing capacity thereunder in connection with
the reduction in size of the Company's asset base. The Company intends to use
the cash proceeds of this transaction to either (i) invest in assets related to
the Company's business or (ii) repay debt.

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 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" as
defined in 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; a limitation of certain sale/leaseback transactions; and
restrictions on guarantees of certain indebtedness by the Company's restricted
subsidiaries. A "change of control" means (i) the sale, lease or other
disposition of all or substantially all of the assets of the Company and its
restricted subsidiaries, (ii) the adoption of a plan relating to the liquidation
or dissolution of the Company, (iii) any person or group becoming the beneficial
owner of more than 50% of the total voting power of the voting stock of the
Company or (iv) a majority of the members of the Board of Directors no longer
being "continuing directors" where "continuing directors" means the members of
the Board of Directors on the date of the indenture and members that were
nominated for election or elected to the Board of Directors with the affirmative
vote of a majority of the "continuing directors" who were members of the Board
at the time of such nomination or election. The interpretation of the phrase
"all or substantially all" as used in

-24-

the Senior Notes indenture varies according to the facts and circumstances of
the subject transaction, has no clearly established meaning under New York law
(which governs the indenture) and is subject to judicial interpretation. Under
the asset sale provisions of the Senior Notes indenture, if the sale of the
Company's oilfield service business does not constitute the sale of all or
substantially all of the Company's assets, the Company will be required to offer
to repurchase Senior Notes at par within one year of the consummation of the
transaction to the extent of any cash proceeds that have not be previously used
to either (i) invest in the assets or properties used in the business of the
Company or (ii) repay indebtedness under the domestic or foreign credit
facilities or other senior indebtedness of the Company.

The Company's foreign credit facilities are generally secured by assets
owned by subsidiaries of the Company and also carry various financial covenants.
The Company's domestic credit facility is secured by domestic receivables,
inventory and certain domestic property, plant and equipment and carries a
variable interest rate. The variable interest rate is currently equal to either
one-quarter ( 1/4%) percent per annum in excess of the prime rate or two and
one-quarter (2 1/4%) percent per annum in excess of the adjusted euro dollar
rate and may be adjusted depending upon the Company's leverage ratio, as
defined, excess credit availability under the credit facility and the Company's
financial results. The Company's domestic credit facility contains customary
financial covenants which vary depending upon excess availability, as defined in
the credit facility agreement.

The Company anticipates that existing cash balances, together with the
borrowing capacity it anticipates will be available under its amended credit
facility will provide adequate liquidity for the remainder of fiscal 2002.
However, there can be no assurance the Company will be successful in
renegotiating its credit facility or that such sources of capital will be
sufficient to support the Company's capital requirements in the long-term.

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements are impacted by the
accounting policies used and the estimates and assumptions made by management
during their preparation. The following is a discussion of the Company's
critical accounting policies pertaining to use of estimates, revenue and related
cost recognition, impairment of long-lived assets and currency translation.

USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if any, at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant areas requiring use
of estimates relate to post-retirement and other employee benefit liabilities,
valuation allowances for deferred tax assets, workers compensation, allowance
for doubtful accounts related to accounts receivable, and fair value of
financial instruments. Actual results could differ from these estimates.
Management believes that its estimates are reasonable.

REVENUE AND RELATED COST RECOGNITION - 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.

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.

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

-25-

Comprehensive Income. Exchange gains and losses resulting from foreign currency
transactions are generally recognized in earnings.

The fluctuations of the U.S Dollar against the Euro, Swedish Krona,
British Pound, New Zealand Dollar, and the Australian Dollar have impacted the
translation of revenues and expenses of the Company's international operations.
The table below summarizes the impact of changing exchange rates for the above
currencies for the three and nine months ended June 30, 2002 and 2001.

- ----------
(1) "EBITDA" equals revenues less cost of sales and services 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") 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, but will be 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. Management
is currently evaluating the impact of this statement on its financial
statements. The Company has $46,245 of goodwill included in its balance sheet at
June 30, 2002 (of which $37,100 relates to continuing operations). Goodwill
amortization for the three and nine months ended June 30, 2002 was $357 and
$1,053, respectively, of which $291 and $860 related to continuing operations.

In July 2001, the FASB 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 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 is currently evaluating the impact of this
Statement on its financial statements.

In August 2001, the FASB 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, it retains the requirement of
Opinion 30 to report discontinued operations

-26-

separately from continuing abandonment and extends that reporting to a Corporate
entity that either has been disposed of (by sale, by 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, and interim periods within those fiscal
years. The Company adopted SFAS 144 on April 1, 2002 (see "Note 12. Discontinued
Operations").

In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS 145"), Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections. SFAS 145 rescinds
SFAS 4, Reporting Gains and Losses from Extinguishment of Debt. By rescinding
FASB Statement No. 4, gains or losses from extinguishment of debt that do not
meet the criteria of APB No. 30 should not be reported as an extraordinary item
and should be reclassified to income from continuing operations in all periods
presented. APB No. 30 states that extraordinary items are events and
transactions that are distinguished by their unusual nature and by the
infrequency of their occurrence. The Company has recorded extraordinary gains of
$107 and $425 net of income taxes for the three and nine months ended June 30,
2002 related to the early extinguishment of debt. The Company also recorded an
extraordinary gain of $399 net of income taxes in fiscal 1999 related to the
early extinguishment of debt. Therefore, these transactions will not be
considered extraordinary under APB No. 30 and will be classified as income from
continuing operations upon adoption of SFAS 145 in fiscal 2003. This Statement
is effective for fiscal years beginning after May 15, 2002 (October 1, 2002 for
the Company).

In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 ("SFAS 146"), Accounting for Costs Associated with Exit or
Disposal Activities. This Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF Issue 94-3, a liability for an exit
cost as defined in EITF Issue 94-3 was recognized at the date of an entity's
commitment to an exit plan. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. Previously issued financial statements shall not
be restated upon adoption of SFAS 146. Management does not expect the adoption
of SFAS 146 to have a material impact on its financial statements or results of
operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposures include debt obligations
carrying variable interest rates and forward purchase contracts intended to
hedge accounts payable obligations denominated in currencies other than a given
operation's functional currency.

The Company's strategy has typically been to finance only working
capital with variable interest rate debt and to fix interest rates for the
financing of long-term assets. 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 (usually the U.S.
dollar).

The following table summarizes the Company's market-sensitive financial
instruments. These transactions are considered non-trading activities.

-27-

ON-BALANCE SHEET FINANCIAL INSTRUMENTS

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

-28-

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 8 to the Consolidated Financial Statements included in Part I,
Item 1, of this quarterly report on Form 10-Q.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits - Reference is hereby made to the exhibit index which appears
below.

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

-29-

- ----------
*Filed herewith

(b) Reports on Form 8-K on April 10, 2002.

On April 10, 2002, the Company filed Form 8-K regarding the Loan and
Security Agreement dated April 9, 2002, by and among ICO Worldwide, Inc., Wedco,
Inc. and Bayshore Industrial, Inc., as Borrowers, and ICO, Inc., ICO Polymers,
Inc., Wedco Technology, Inc., Wedco Petrochemicals, Inc. and ICO Technology,
Inc. as Guarantors, and ICO P&O, Inc., ICO Global Services and Congress
Financial Corporation (Southwest) as Lender (filed as exhibit 10.1 to Form 8-K
dated April 10, 2002)

-30-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

ICO, Inc.
-------------------------------------
(Registrant)

August 14, 2002
/s/ Jon C. Biro
-------------------------------------
Jon C. Biro
Chief Financial Officer and Treasurer

/s/ Bradley T. Leuschner
-------------------------------------
Bradley T. Leuschner
Chief Accounting Officer

-31-

INDEX TO EXHIBITS

- ----------
*Filed herewith