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, 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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 [ ]

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, 2002 was $27,097,533.

The number of shares outstanding of the registrant's Common Stock
as of December 20, 2002: Common Stock, no par value-24,678,585

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the Registrant's 2002 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, 2002.

ICO, INC.

2002 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 manufacture engineered resins and
concentrates and provide specialized polymers processing services. The
engineered resins manufactured by the Company are typically produced into a
powder form. Concentrates produced by the Company generally are mixed by
customers with polymer resins to give finished products desired characteristics,
such as color or protection from ultraviolet light. The Company also provides
toll processing services including ambient grinding, jet milling, compounding,
and ancillary services for polymer resins produced in pellet form. These
products and services are provided through our 19 operating facilities located
in 10 countries. The Company's customers include major chemical companies,
polymer production affiliates of major oil exploration and production companies,
and manufacturers of plastic products.

On September 6, 2002, ICO, Inc. (the "Company") completed the sale of
substantially all of its oilfield services business ("Oilfield Services") to
Varco International, Inc. ("Varco"). Total proceeds of the sale were $136,790 in
cash, assumed debt of the Company's Canadian subsidiary of $3,600 and the
assumption of certain other liabilities. The initial purchase price is subject
to a post-closing working capital adjustment for which $2,000 of the sale
proceeds have been placed in escrow. Varco has calculated that the post-closing
working capital adjustment should be $1,808 in the Company's favor, and the
Company has recorded an estimated receivable in that amount (in addition to the
$2,000 in escrow), although the Company believes that the final working capital
adjustment, which is not yet agreed upon by the Company and Varco, may result in
a larger payment in the Company's favor. The Company expects to finalize the
working capital adjustment in the second quarter of fiscal 2003, and when
completed, any adjustment made to the receivable recorded as of September 30,
2002 will be included in the discontinued operations portion of the consolidated
statement of operations. An additional $5,000 of the sale proceeds have been
placed in escrow for one year to cover any indemnification claims by the
purchasers against the Company. The $7,000 of escrow is included in prepaid
expenses and other current assets as of September 30, 2002. The Company is not
aware of any significant indemnification claims at this time. The Company
recorded a $42,280 gain, net of income tax of $25,912, on the sale of the
Oilfield Services business. Primarily due to this gain, the Company was able to
utilize net operating loss carryforwards of approximately $30,438. 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 Oilfield Services assets held for sale and
liabilities held for sale and retained are shown as two separate line items in
the consolidated balance sheet. The Company is actively marketing for sale the
remaining Oilfield Services operation. See Note 19- "Subsequent Events" related
to the use of a portion of the proceeds from the sale of the Oilfield Service
business.

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.

MANUFACTURING CAPABILITIES

The Company's manufacturing capabilities include size reduction,
compounding and related services. These services are an intermediate step
between the production of polymer resins and the manufacture of a wide variety
of products such as toys, water tanks, paint, garbage bags, plastic film or
other polymer products. The Company's manufacturing processes are used both to
produce powders for sale by the Company and for its toll processing services.

Size reduction. Size reduction is a grinding process whereby polymer
resins produced by chemical manufacturers in pellet form are reduced to a powder
form. 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

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not highly heat sensitive. The Company also provides jet milling services, used
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
provides cryogenic milling services, which uses liquid nitrogen to chill
materials to extremely low temperatures.

The Company primarily processes polyethylene. Other materials processed
include polyester, polypropylene, nylon, fluorocarbons, cellulose acetates,
vinyls, phenolics, polyurethane, acrylics, epoxies, waxes and others.

Compounding. Compounding is an extrusion process whereby plastics and
other additives are melt blended together to form an alloy resin. Often times
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, and then grinding the resulting pellet into a powder
form. The additives compounded into the base resins are determined by the end
products to be manufactured by the customer. Compounding is performed within
substantially all of the Company's facilities.

Manufacturing concentrates is a specialized form of compounding.
Bayshore Industrial, Inc., the Company's largest concentrate manufacturing
operation, is located in LaPorte, Texas. Bayshore produces concentrates for the
plastic film industry. The Company also has a smaller concentrate manufacturing
operation, 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 are typically resin producers or companies that produce plastic films.
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.

Other Manufacturing Services. The Company also offers its customers
ancillary polymer processing services in connection with size reduction and
compounding services. These ancillary services include dry blending and mixing
of plastics and other additives, granulating, packaging and warehousing.

Facilities. The Company operates at seven facilities in the United
States, six in Europe (located in the Netherlands, England, Italy, France and
Sweden), three in Australasia (located in New Zealand, Australia and Malaysia,
which are sometimes referred to collectively herein as the "Pacific Region
Operations") and an operating facility in Brazil (established during fiscal
2002) that provide size reduction services. Almost all of these operations
provide toll processing services, sell products into their markets and are able
to compound materials. All of these operations also sell polymer products to
customers.

PRODUCTS AND SERVICES

Product Sales. The powders produced by the Company in its manufacturing
operations are most often used to manufacture 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. Currently, the largest powder sales markets of the Company include
Western Europe, Australia, New Zealand and Malaysia. In late fiscal year 2002,
the Company began manufacturing products in Brazil and the Company's powders are
now being sold into this market. Currently, in the United States the Company
sells a relatively small volume of plastic powder; however, considerable effort
is being made to increase these sales. The Company also sells its powders in
Africa, South America, the Middle

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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
produce powders. The Company usually performs both size reduction and
compounding to produce its finished products.

The Company's concentrate products are primarily used by third parties
to produce plastic films. These products are primarily sold throughout North
America. The Company's small operation in Oyonnax, France provides high quality
color concentrates for the French market.

Toll Processing Services. Toll processing services involve processing
customer-owned raw materials, rather than Company-owned raw materials. These
toll processing services include size reduction, compounding and related
services such as granulating and blending.

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%, 18% and 21% for fiscal years 2002, 2001 and 2000, 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 rotational molding industry is one of the Company's most important
target markets. The Company provides a significant portion of its size reduction
toll processing services to customers that are either rotational molders or that
supply the rotational molding industry. Additionally, many of the polymer
powders manufactured by the Company are supplied to 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 other forms of molding.
Examples of end products which are rotationally molded include agricultural
tanks, toys and small recreational watercraft. Management believes that the
rotational molding industry market has the highest potential for growth among
the Company's target markets.

Other target markets include producers of automotive carpet backing,
paint, waxes and metal and fabric coatings.

The Company is also a major supplier of concentrates to the plastic
film industry in North America. The concentrates manufactured by the Company are
melt-blended into base resins to produce plastic film having the desired
characteristics. The Company sells concentrates to both resin producers and to
businesses that manufacture plastic films.

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 fluctuations 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"). 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. The Company anticipates that
polymer product sales in the United States market will increase in the future
and thus the Company's investment in inventory in the United States could
continue to increase.

3

SALES AND MARKETING

The Company markets its products and services through a sales force of
employees. These sales people are responsible for in-depth customer contact and
are required to be technically knowledgeable and have an understanding of the
markets they serve. The Company established a global marketing group during
fiscal 2002.

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 and toll services competitors are
generally small and mid-sized companies which, overall, have fewer locations and
a more regional emphasis. The Company's competitors in the polymer powder sales
business tend to be mid-sized to large companies. 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 tolling 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.

ACQUISITION AND DISPOSITION

On September 6, 2002, ICO, Inc. (the "Company") completed the sale of
substantially all of its oilfield services business ("Oilfield Services") to
Varco International, Inc. ("Varco"). Total proceeds of the sale were $136,790 in
cash, assumed debt of the Company's Canadian subsidiary of $3,600 and the
assumption of certain other liabilities. The initial purchase price is subject
to a post-closing working capital adjustment for which $2,000 of the sale
proceeds have been placed in escrow. Varco has calculated that the post-closing
working capital adjustment should be $1,808 in the Company's favor, and the
Company has recorded an estimated receivable in that amount (in addition to the
$2,000 in escrow), although the Company believes that the final working capital
adjustment, which is not yet agreed upon by the Company and Varco, may result in
a larger payment in the Company's favor. The Company expects to finalize the
working capital adjustment in the second quarter of fiscal 2003, and when
completed, any adjustment made to the receivable recorded as of September 30,
2002 will be included in the discontinued operations portion of the consolidated
statement of operations. An additional $5,000 of the sale proceeds have been
placed in escrow for one year to cover any indemnification claims by the
purchasers against the Company. The $7,000 of escrow is included in prepaid
expenses and other current assets as of September 30, 2002. The Company is not
aware of any significant indemnification claims at this time. The Company
recorded a $42,280 gain, net of income tax of $25,912, on the sale of the
Oilfield Services business. Primarily due to this gain, the Company was able to
utilize net operating loss carryforwards of approximately $30,438. 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 Oilfield Services assets held for sale and
liabilities held for sale and retained are shown as two separate line items in
the consolidated balance sheet. The Company is actively marketing for sale the
remaining Oilfield Services operation. See Note 19- "Subsequent Events" related
to the use of a portion of the proceeds from the sale of the Oilfield Service
business.

4

There were no other material business acquisitions or dispositions from
continuing operations in fiscal year 2002 and 2001. During September 2000, the
Company acquired the operating assets of Sanko Manufacturer (M) ("Sanko") for
$675. 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.

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 materials, some of which may be considered to
be hazardous substances and 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 and discharges. Many of these laws and regulations provide
for strict joint and several liabilities for the costs of cleaning up
contamination resulting from releases of regulated materials, substances and
wastes into the environment. Violation of these laws and regulations as well as
terms and conditions of operating permits issued to the Company may result in
the imposition of administrative, civil, and criminal penalties and 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 and that future capital expenditures for environmental remediation will
not be material.

The Company regularly monitors and reviews its operations, procedures
and policies for compliance with environmental laws and regulations and the
Company's operating permits. 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. 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. In addition, 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 remediation 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 specialty polymers products may result in liability on account of
defective products. While the Company has an insurance program in effect to
address some of these risks, the insurance coverage is subject to applicable
deductibles, exclusions, limitations on coverage and policy limits. 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. 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.

5

PATENTS AND LICENSES

The Company holds two United Kingdom patents, two Australia/New Zealand
patents, and has six patent applications pending covering the proprietary
technology utilized in its polymer blending and rotational molding processing
services. The Company's polymers processing operations are not materially
dependent upon any patents or trademarks. The Company does not believe any
single patent is essential to the overall successful operation of the Company's
business. 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.

In connection with the sale of substantially all of the Company's
Oilfield Services business, all U.S. and foreign patents previously owned by the
Company for use in the operation of its Oilfield Services business were sold and
assigned to Varco. Simultaneously, the Company acquired from Varco a perpetual,
royalty-free, transferable, non-exclusive right and license to use, in
connection with the Oilfield Services business retained by the Company (the
"Permian Business," which is presently held for sale by the Company) the
technology and trade secrets associated with two of the U.S. patents assigned to
Varco.

EMPLOYEES

As of November 15, 2002, the Company had approximately 910 full-time
employees. Certain of the Company's employees working in Italy, France, the
Netherlands, 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.

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ITEM 2. PROPERTIES

The location and approximate acreage of the Company's operating
facilities at December 20, 2002, together with an indication of the services
performed at such facilities are set forth below.

PROPERTIES OWNED:

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

The leased properties listed above have various expiration dates
through 2013. The Company also leases various sales and administrative offices
with various lease expiration dates through 2006. The Company is currently
operating most of its facilities below full capacity. Most of the polymers
facilities are operating 24 hours per day, 5 days per week.

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ITEM 3. LEGAL PROCEEDINGS

Silicosis Related Claims. The Company is presently named as a defendant
in two lawsuits involving former coating plant employees alleging
silicosis-related personal injuries: Pilar Olivas, et al. v. ICO, Inc. et al.
pending in Texas State Court in Harris County (the "Olivas litigation"), and
Richard Koskey vs. ICO, Inc., et al. pending in Texas State Court in Jefferson
County (the "Koskey litigation"). Olivas is a former employee of the Company's
former plant located in Odessa, Texas (the "Odessa Plant"), and Koskey is a
former employee of the Company's former plant located in Houston, Texas (the
"Houston Plant").

The Odessa Plant and the Houston Plant, together with two other coating
plants in Louisiana and Canada, were sold to Varco in the fourth quarter of
fiscal 2002 as part of the Company's sale of its Oilfield Services business. At
these four plants, prior to 1989, a grit blasting process that produced silica
dust was used to internally coat tubular goods. (The Company used this process
at the Odessa Plant, but did not acquire the other three plants until after
1989.) Although the Company no longer owns or operates any of these four coating
plants, Varco, as the purchaser of such businesses, did not assume any current
or future liabilities related to silicosis or any other occupational health
matters arising out of or relating to events or occurrences happening prior to
the consummation of the sale (including the pending Olivas and Koskey litigation
discussed above), and the Company has agreed to indemnify Varco for any such
costs.

The Company is aware of thirty-one former employees of the Odessa
Plant, in addition to Pilar Olivas, who have been diagnosed since 1989 as
suffering from silicosis-related disease. Of those thirty-one, six are deceased,
and the Company has settled the six resulting wrongful death suits in prior
fiscal years. Many of the remaining twenty-five former employees of the Odessa
Plant diagnosed with silicosis filed personal injury litigation against the
Company, as well as certain sand and protective equipment manufacturers, during
the 1990's. In these actions, the Company was either non-suited, dismissed
without liability or adjudicated to have no liability in prior fiscal years. In
the third quarter of fiscal 2002, the Company agreed 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 of the remaining twenty-five former employees of
the Odessa Plant diagnosed with silicosis, for an aggregate payment by the
Company of $2,700 to the twenty-four claimants and their families, and these
settlements received court approval as of December 6, 2002. A portion of the
settlement ($650) was funded by payments from two of the Company's insurers, in
exchange for releases from certain employers' liability insurance policies.

As noted above, the Koskey litigation involves a former employee of the
Houston Plant. The Company acquired the Houston Plant from Baker Hughes, Inc.
("Baker Hughes") in connection with the 1992 acquisition of Baker Hughes Tubular
Services, Inc. ("BHTS"), and Baker Hughes, among others, is also named as a
defendant in the Koskey litigation. Pursuant to a 1996 agreement between the
Company and Baker Hughes concerning the assumption of certain liabilities
related to the BHTS acquisition, ICO and Baker Hughes share litigation costs
incurred in connection with the Koskey litigation, and ICO's exposure in the
case is effectively capped at $500. Since the Company's acquisition of BHTS in
1992, four other employees of the Houston Plant have filed personal injury
litigation alleging silicosis-related disease. All four of those individuals'
claims were previously settled.

The Company believes that neither the Olivas litigation nor the Koskey
litigation will have a material adverse effect on its financial condition,
results of operations, or cash flows. Other than these actions, and the
litigation and claims involving former employees of the Odessa Plant and Houston
Plant referenced above, the Company has not been involved in any personal injury
or wrongful death lawsuits involving former employees of the coating plants
where a grit blasting process that produced silica dust was used. However, 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, in connection with the four coating plants or otherwise, or the
outcome of future silicosis-related suits, if any. 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,
insurance policies that may be applicable to silicosis-related suits, but the
extent and amount of coverage is limited.

8

Environmental Remediation. The Comprehensive Environmental Response,
Compensation, and Liability Act, as amended ("CERCLA"), also known as
"Superfund," and comparable state laws impose liability without regard to fault
or the legality of the original conduct on certain classes of persons who are
considered to be responsible for the release of a "hazardous substance" into the
environment. These persons include the owner or operator of the disposal site or
the site where the release occurred, and companies that disposed or arranged for
the disposal of the hazardous substances at the site where the release occurred.
Under CERCLA, such persons may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment, for damages to natural resources, and for the costs of certain
health studies, and it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the release of hazardous substances into the environment. The Company,
through acquisitions that it has made, is identified as one of many potentially
responsible parties ("PRPs") under CERCLA at three sites: the French Limited
site northeast of Houston, Texas, the Sheridan Disposal Services site near
Hempstead, Texas, and the Combe Fill South Landfill site in Morris County, New
Jersey.

Active remediation of the French Limited site was concluded in the
mid-1990s, at which time the PRPs commenced natural attenuation of the site
groundwater. This natural attenuation strategy is expected to continue at least
through the end of 2005. As part of a "buyout agreement," in February 1997 the
Company paid the PRP group at the French Limited site $42 for the Company's
remaining share of its remedial obligations at that time, and for the future,
long-term operation and maintenance of the natural attenuation remedy at this
site. While there is a remote possibility that additional active remediation of
the French Limited site could be required at some point in the future, the
Company does not expect such remediation, should it be necessary, to have a
material adverse effect on the Company. With regard to the two remaining
Superfund sites, the Company believes it remains responsible for only de minimis
levels of wastes contributed to those sites, and that there are numerous other
PRPs identified at each of the two sites that contributed significantly larger
volumes of wastes to the sites. Consequently, the Company expects that its share
of any allocated liability for cleanup of the Sheridan Disposal Services site
and the Combe Fill South Landfill site will not be significant. Based on the
Company's current understanding of the remedial status of each of these three
sites together with its relative position in comparison to the many other PRPs
at those sites, the Company does not expect its future environmental liability
with respect to those sites to have a material adverse effect on the Company's
financial condition, results of operation, or cash flow.

Other Legal Proceedings. 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.

9

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

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 458 shareholders of record of the Company's common stock
at December 20, 2002.

The Company has not declared or paid common stock dividends during
2002, 2001 and 2000, respectively. The Company currently has no plans to declare
any common stock dividend.

The Company's domestic credit facility with Congress Financial
Corporation (Southwest) restricts the Company's ability to pay dividends on
common stock. The terms of the domestic credit facility, do allow the Company to
pay common stock dividends if the Company has not less than $3,000 of excess
availability under the credit facility on each of the immediately preceding ten
consecutive days of the payment of any such dividend and the Company is not then
in default under the credit facility (see Item 7- "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Note 8 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.

10

ITEM 6. SELECTED FINANCIAL DATA (1)

The following table sets forth selected financial data of the Company
that has been derived from audited consolidated financial statements which have
been restated to reflect the Oilfield Services business as a discontinued
operation. 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) "EBITDA" equals gross profit from continuing operations less selling,
general and administrative expenses from continuing operations 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. EBITDA
excludes impairment, restructuring and other costs from continuing
operations. 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.

(2) Working capital and total assets include Oilfield Services assets which are
classified as current assets held for sale in the amount of $2,783,
$78,092, $75,493, $75,405 and $67,034, respectively. Working capital also
includes total Oilfield Services liabilities held for sale and retained in
the amount of $6,629, $17,840, $18,288, $14,670 and $11,007, respectively.
Working capital excluding assets held for sale and liabilities held for
sale and retained was $149,785, $46,821, $63,502, $56,797 and $74,571.

(3) These amounts have been restated from the Company's historical information
to reflect the Oilfield Services business as a discontinued operation.

(4) These amounts include both continuing and discontinued operations.

12

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

INTRODUCTION

The Company's revenues are primarily derived from (1) product sales and
(2) toll services in the polymers processing industry. Product sales entail the
Company purchasing resin which is further processed within the Company's
operating facilities. The further processing of the material may involve size
reduction services and/or compounding services. Compounding services include the
manufacture and sale of concentrates. After processing, the Company 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. Service revenues 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 is primarily comprised of purchased raw
materials, compensation and benefits to non-administrative employees, occupancy
costs, repair and maintenance, electricity and equipment costs and supplies.
Selling, general and administrative expenses consist primarily of compensation
and related benefits to the sales and marketing, executive management,
information technology, accounting, legal, human resources and other
administrative employees of the Company, other sales and marketing expenses,
communications costs, systems costs, insurance costs and legal and accounting
professional fees.

Demand for the Company's products and services tends to be driven by
overall economic factors and, particularly, consumer spending. The trend of
applicable resin prices also impacts customer demand. As resin prices are
falling, customers tend to reduce their inventories and, therefore, reduce their
need for the Company's products and services. Conversely, as resin prices are
rising, customers often increase their inventories and accelerate their
purchases of products and services from the Company. Additionally, demand for
the Company's products and services tends to be seasonal, with customer demand
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.

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 - The Company recognizes revenue
from services upon completion of the services and related expenses are
recognized as incurred. For product and equipment sales, 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.

13

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
recognized in earnings.

RESULTS OF OPERATIONS

The following discussion regarding the Company's financial performance
during the past three fiscal years should be read in conjunction with the
consolidated financial statements and the notes to consolidated financial
statements.

Year Ended September 30, 2002 Compared to the Year Ended September 30, 2001

Revenues. During fiscal 2002, revenues declined $15,365 or 8% to
$181,472 as both product sales and toll service revenues declined. Product sales
revenue declined $9,900 or 6% from $156,038 to $146,138. 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 product sales mix of the Company's
domestic concentrate manufacturing operation. This decrease was partially offset
by an increase in product sales volumes in the Company's Pacific and U.S.
markets. Toll service revenues declined from $40,799 to $35,334, caused by lower
processing volumes in the United States and Europe resulting from reduced
customer demand, including the loss of some toll processing customers. The
strengthening of the European and Pacific currencies relative to the U.S. dollar
positively impacted total revenues by $2,753 in fiscal year 2002.

Cost and Expenses. Gross margins (calculated as the difference between
revenues and costs of sales and services, divided by revenues) increased to
18.8% in fiscal 2002, compared to 17.0% in fiscal 2001. 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 $1,048 inventory write-down recognized during fiscal 2001 and an
increase in volumes within the Company's Pacific Region Operations.

Selling, general and administrative expenses decreased to $29,824 in
fiscal 2002, compared to $31,847 in fiscal 2001, a decline of $2,023 or 6%. The
decrease was due to lower proxy contest expenses, legal fees and lawsuit
settlements. Proxy contest expenses reflected in selling, general and
administrative expenses were $756 and $1,660 for the fiscal years 2002 and 2001,
respectively. The fiscal 2002 proxy expense represents reimbursement of expenses
incurred by TSP in connection with TSP's successful proxy contest in 2001. These
expenses were reimbursed by the Company through the issuance to TSP of 528,834
shares of common stock. As a percentage of revenues, selling, general and
administrative expenses increased to 16.4% of revenues in fiscal 2002, from
16.2% in fiscal 2001. This increase was the result of the lower revenues during
fiscal 2002.

Depreciation and amortization expenses declined to $10,240 during
fiscal 2002 from $10,397 during fiscal 2001, a decrease of $157 or 2%. The
decline was the result of the fixed asset and goodwill impairments during the
two fiscal years ended September 30, 2002 and 2001, offset by the effect of
capital expenditures.

Impairment, Restructuring and Other Charges

14

During fiscal 2002, the Company recognized a charge of $2,731 related
to the impairment of machinery and equipment. During the third quarter of fiscal
2002, the Company completed an evaluation of assets contained in its Italian
facility closed in 2002 and determined that these assets had a limited use or
were obsolete and recorded an impairment charge of $1,415. The Italian plant was
closed due to its redundancy with the Company's other nearby Italian facility
performing similar services, and the Company consolidated its two Italian plants
into one. The remaining $1,316 charge relates to equipment that the Company
determined in the fourth quarter of 2002 would either be scrapped or is obsolete
due to the production changes being made throughout the Company. The Company
also recognized in fiscal year 2002 severance expenses of $437 related primarily
to the reorganization of the Company's Italian subsidiary.

During the fourth quarter of fiscal 2001, the Company decided to close
three polymers processing operations and restructure another facility. In
addition to the plant in Italy described above, the facilities closed included a
machinery manufacturing facility in the United States and a minerals size
reduction facility in the United States. The restructured facility manufactured
color concentrates in the UK and was sold in second quarter of fiscal year 2002.
The facilities in Italy and the United States were closed in the first half of
fiscal 2002. The minerals size reduction facility in the United States was sold
in the first quarter of fiscal 2002. As a result of these actions, the Company
recognized a charge of $6,948 in fiscal 2001 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, inventory write-downs 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.

During the third quarter of fiscal 2001, the Company recognized a
$7,410 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)
(collectively referred to as the "Terminated Pacholders"). In connection with
the termination of the Terminated Pacholders, the Company, in the third quarter
of fiscal 2001, established and funded an escrow account containing $3,113 in
cash. The purpose of the escrow account was to pay federal excise tax pursuant
to IRS Code Sec. 280(g) in the event there was a "change of control," as defined
by the IRS regulations, within one year of the Terminated Pacholders'
termination. A "change of control," as defined, did not occur within one year of
the severance date and therefore the cash was returned from the escrow account
during fiscal year 2002.

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) improved from a loss
of $23,292 in fiscal 2001 to a loss of $9,105 in fiscal 2002. The improvement
was due to the changes in revenue and expenses discussed above, including the
fiscal 2002 and 2001 charges.

Net Interest Expense. Net interest expense increased to $12,831 in
fiscal 2002 from $12,447 in fiscal 2001, an increase of $384 (3%). This increase
is mostly due to the decline in U.S. short-term interest income on cash
equivalent investments, a decline in the Company's average cash levels during
fiscal 2002, offset by lower debt levels during the year.

Income Taxes. The Company's effective tax rate was a tax benefit of
20.9% during fiscal 2002, compared to a tax benefit of 30.0% during fiscal 2001.
The change was due to the relation between pre-tax income (loss) to
non-deductible goodwill and other permanent differences and the mix of pre-tax
income or loss generated by the Company's operations in various taxing
jurisdictions. Additionally, during the fourth quarter of fiscal 2002, the
Company recorded a valuation allowance of $1,547 which was placed against the
net deferred tax asset balance of the Company's Italian subsidiary. A valuation
allowance is established when it is more likely than not that some or all of a
deferred tax asset will not be realized.

15

The Company has for tax purposes $341 in AMT and other tax credit
carryforwards, which if utilized, will result in a cash savings. The tax credits
are expected to expire unused except for $320 of alternative minimum tax credits
which have no expiration. Domestic net operating loss carryforwards in the
amount of $30,438 were utilized this year to offset income. Net operating loss
carryforwards in the amount of $2,311 and tax credits in the amount of $21,
which currently have a valuation allowance of $830 against them, will expire
unused this year.

Income (loss) from Discontinued Operation. On September 6, 2002, ICO,
Inc. (the "Company") completed the sale of substantially all of its oilfield
services business ("Oilfield Services") to Varco International, Inc.
("Varco"). Total proceeds of the sale were $136,790 in cash, assumed debt of the
Company's Canadian subsidiary of $3,600 and the assumption of certain other
liabilities. The initial purchase price is subject to a post-closing working
capital adjustment for which $2,000 of the sale proceeds have been placed in
escrow. Varco has calculated that the post-closing working capital adjustment
should be $1,808 in the Company's favor, and the Company has recorded an
estimated receivable in that amount (in addition to the $2,000 in escrow),
although the Company believes that the final working capital adjustment, which
is not yet agreed upon by the Company and Varco, may result in a larger payment
in the Company's favor. The Company expects to finalize the working capital
adjustment in the second quarter of fiscal 2003, and when completed, any
adjustment made to the receivable recorded as of September 30, 2002 will be
included in the discontinued operations portion of the consolidated statement of
operations. An additional $5,000 of the sale proceeds have been placed in escrow
for one year to cover any indemnification claims by the purchasers against the
Company. The $7,000 of escrow is included in prepaid expenses and other current
assets as of September 30, 2002. The Company is not aware of any significant
indemnification claims at this time. The Company recorded a $42,280 gain, net of
income tax of $25,912, on the sale of the Oilfield Services business. Primarily
due to this gain, the Company was able to utilize net operating loss
carryforwards of approximately $30,438. 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 Oilfield Services assets held for sale and liabilities held for
sale and retained are shown as two separate line items in the consolidated
balance sheet. The Company is actively marketing for sale the remaining Oilfield
Services operation. See Note 19- "Subsequent Events" related to the use of a
portion of the proceeds from the sale of the Oilfield Service business.

Income (loss) from discontinued operations (including the gain on
disposition), net of income taxes, increased to $44,214 compared to $12,076 due
to the gain recorded on the disposition of the Oilfield Services business of
$42,280 net of income taxes.

Oilfield Service revenues decreased $19,201 or 15% to $111,290 due to
the lower exploration and production activity driven by lower average oil and
gas prices during fiscal year 2002, which also led to reduced profitability
during the year.

Net Income (Loss). During fiscal 2002, the Company generated net income
of $27,946 compared to a net loss of $13,437 in fiscal 2001, 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, New Zealand Dollar, Brazilian
Real 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
2002 and 2001.

16

Revenues $2,753
Operating income (2)
Pre-tax income (33)
Net income (93)

Subsequent Event. On November 1, 2002, the Company purchased $89,570
principal amount of its 10 3/8% Senior Notes due 2007 at a discount of $972.50
per $1,000 principal amount plus accrued interest. In the first quarter of
fiscal 2003, the Company is expected to record a gain on this purchase of
approximately $350, net of transaction costs.

In connection with the Company's October 2002 tender offer for the
Company's outstanding Senior Notes, the terms of the Senior Notes indenture were
amended significantly. The amended Senior Notes indenture contains a number of
covenants including restrictions on the sale of assets of the Company in excess
of $150,000 and a change of control provision that requires the Company to
repurchase all of the Senior Notes at a repurchase price in cash equal to 101%
of the principal amount of the Senior Notes upon the occurrence of a change of
control. A "change of control" means (i) the sale, lease or other 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 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.

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

Revenues declined $23,293 or 11% to $196,837 as both product sales and
toll service revenues declined. The strengthening of the U.S. dollar relative to
European and Australasian currencies negatively impacted revenues $10,858, or
47% of the overall revenue decline. Lower volumes also contributed to lower
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. Product sales revenues declined $17,356 or 10% to $156,038.
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. The majority of these powdered products are
manufactured in the Company's European and Pacific Region facilities. Toll
service revenues declined $5,937 or 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.

Cost and Expenses. Gross margins (calculated as the difference between
net revenues and costs of sales, divided by net revenues) declined to 17.0% 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 its business.

17

Selling, general and administrative expenses increased to $31,847 in
fiscal 2001, compared to $28,567 in fiscal 2000, an increase of $3,280 or 11%.
The increase was primarily due to cost increases during fiscal 2001, compared to
fiscal 2000 for legal fees, legal settlements, workers compensation and medical
claims. 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 16.2% of
revenues in fiscal 2001, from 13.0% in fiscal 2000. This increase was the result
of the expense increase discussed above as well as a decrease in revenues.

Depreciation and amortization expenses declined to $10,397 during
fiscal 2001 from $10,770 during fiscal 2000, a decrease of $373 or 3%. 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.

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. In
addition to the plant in Italy described above, the facilities closed included a
machinery manufacturing facility in the United States and a minerals size
reduction facility in the United States. The restructured facility manufactured
color concentrates in the UK and was sold in second quarter of fiscal year 2002.
The facilities in Italy and the United States were closed in the first half of
fiscal 2002. The minerals size reduction facility in the United States was sold
in the first quarter of fiscal 2002. 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,
inventory write-downs 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.

During the third quarter of fiscal 2001, the Company recognized a
$7,410 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)
(collectively referred to as the "Terminated Pacholders"). In connection with
the termination of the Terminated Pacholders, the Company, in the third quarter
of fiscal 2001, established and funded an escrow account containing $3,113 in
cash. The purpose of the escrow account was to pay federal excise tax pursuant
to IRS Code Sec. 280(g) in the event there was a "change of control", as defined
by the IRS regulations, within one year of the Terminated Pacholders'
termination. A "change of control", as defined, did not occur within one year of
the severance date and therefore the cash was returned from escrow during fiscal
year 2002.

Also, during fiscal 2001 and 2000, the Company terminated certain
polymers processing employees and recognized related severance expenses of $569
(excludes severance expenses discussed above) and $426, respectively.

Operating Income (Loss). Operating income (loss) declined to a loss of
$(23,292) in fiscal 2001, from operating income of $4,995 in fiscal 2000. The
decline was due to the changes in revenue and expenses discussed above,
including the fiscal 2001 and 2000 charges.

18

Net Interest Expense. Net interest expense increased to $12,447 in
fiscal 2001 from $11,870 in fiscal 2000, an increase of $577 or 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.

Income Tax. The Company's effective tax rate was a tax benefit of 30.0%
during fiscal 2001, compared to a tax benefit of 17.0% during fiscal 2000. The
increase in tax benefit was due to the relation between pre-tax income (loss) to
non-deductible goodwill and other permanent differences and the mix of pre-tax
income or loss generated by the Company's operations in various taxing
jurisdictions.

Income (loss) from Discontinued Operations. Income (loss) from
discontinued operations, net of income taxes, increased to $12,076 compared to
$8,371.

Oilfield Services revenues increased $25,151 or 24% to $130,491 due to
strong customer demand during fiscal year 2001 due to higher oil and gas prices
and in turn, higher rig counts.

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, 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.

Revenues $(10,858)
Operating income 199
Pre-tax income 431
Net income 301

LIQUIDITY AND CAPITAL RESOURCES

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

Cash and cash equivalents increased $97,430 and net working capital
increased $38,866 during fiscal 2002 due to the factors described below.

19

For fiscal 2002, cash provided by operating activities was $3,005
compared to cash provided by operating activities of $5,875 for fiscal 2001.
This change occurred despite a smaller net loss from continuing operations due
to the various changes in working capital accounts.

The Company received $123,819 net of transaction costs and cash
disposed on the sale of its Oilfield Services business to Varco in September
2002. See Note 15- "Discontinued Operations" for additional discussion related
to the sale of the Oilfield Services business.

Capital expenditures totaled $15,112 during fiscal 2002, of which
$10,159 related to the Polymers Processing business, and $4,953 related to the
Oilfield Services business. These expenditures were made primarily to expand the
Company's operating capacity. The Company anticipates that available cash and
existing and future credit facilities will be sufficient to fund fiscal 2003
capital expenditure requirements.

Cash used for financing activities was $12,570 during fiscal 2002,
compared to cash used of $3,383 during fiscal 2001. The change was primarily the
result of increased debt repayments.

As of September 30, 2002, the Company had approximately $18,000 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
$15,000. The borrowing capacity varies based upon the levels of domestic
receivables and inventory. As of November 30, 2002, the Company had
approximately $12,000 of borrowing capacity under the domestic credit facility.

A summary of future payments owed for contractual obligations and
commercial commitments as of September 30, 2002 are shown in the table below:

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's domestic credit facility contains a number of covenants
including, among others, limitations on the ability of the Company and its
restricted subsidiaries to (i) incur additional indebtedness, (ii) pay dividends
or redeem any capital stock, (iii) incur liens or other encumbrances on the
their assets, (iv) enter into transactions with affiliates, (v) merge with or
into any other entity or (vi) sell any of their assets. In addition, any "change
of control" of the Company or its restricted subsidiaries will constitute a
default under the facility ("change of control" means (i) the sale, lease or
other disposition of all or substantially all of the assets of such entity, (ii)
the adoption of a plan relating to the liquidation or dissolution of such
entity, (iii) any person or group becoming the beneficial owner of more than 50%
of the total voting power of the voting stock of such entity or (iv) until April
2004, a majority of the members of the board of directors of any such entity no
longer being "continuing directors" where "continuing directors" means the
members of the board on the date of the credit facility and members that were
nominated for election or elected to the board with the affirmative vote of a
majority of the "continuing directors" who were members of the board at the time
of such nomination or election).

The Company anticipates that existing cash balances will provide
adequate liquidity for fiscal 2003. There can, however, be no assurance the
Company will be successful in obtaining sources of capital that will be
sufficient to support the Company's capital requirements in the long-term.

In connection with the Company's October 2002 tender offer for the
Company's outstanding Senior Notes, the terms of the Senior Notes indenture were
amended significantly. The amended Senior Notes indenture contains a number of
covenants including: restrictions on the sale of assets of the Company in excess
of $150,000 and a change of control provision that requires the Company to
repurchase all of the Senior Notes at a repurchase price in cash equal to

20

101% of the principal amount of the Senior Notes upon the occurrence of a change
of control. A "change of control" means (i) the sale, lease or other 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 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.

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, fluctuation of the U.S.
Dollar against foreign currencies, 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 indebtedness represented by the Senior Notes due in 2007 has
several important implications for the Company, including, but not limited to,
the following: (i) a 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 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 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 (iv) 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 Company's business cycles 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, the
Company is affected by cycles in the petroleum and oil and gas industries.

The operations of the Company's business 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,

21

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 business
acquisitions, and other businesses may 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 has also made significant dispositions,
including the sale of substantially all of the Company's Oilfield Services
business to Varco in 2002, and the Company may dispose of additional assets or
businesses in the future. There can be no assurance that the Company will be
successful in investing or spending any capital obtained in connection with any
such disposition, or that the Company's remaining assets will perform as
expected after any such disposition.

The Company entered the specialty polymers processing industry with
its acquisition of Wedco Inc. ("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
change in size 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, the Company's product sales business, including the
Company's concentrate manufacturing operations require the Company to buy
inventories of supplies and products 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, South American and
Pacific Region specialty polymers processing services business. The Company
expects to continue to seek to expand its international operations, 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 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,

22

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 liabilities 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.

The industry 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 legal 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

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 adopted SFAS 142 on October 1, 2002. The Company has
$36,669 of goodwill included in its balance sheet at September 30, 2002.
Goodwill amortization was $1,140, $1,172 and $1,121 for the fiscal years 2002,
2001 and 2000, respectively. SFAS 142 requires a Company within six months of
adopting SFAS 142 to have completed its determination as to whether an
impairment of goodwill exists ("Step One"). SFAS 142 requires a Company within
twelve months of adoption to compute the goodwill impairment. The Company is
currently in the process of completing Step One. Based on the information to
date, the Company believes it will have a goodwill impairment but is not able to
provide an estimate.

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). This statement will not have a material impact on the
Company's 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

23

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, 2001,
and interim periods within those fiscal years. The Company adopted SFAS 144 on
April 1, 2002. See Note 15- "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 an extraordinary gain
of $425 net of income taxes during fiscal year 2002. Therefore, this transaction
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 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.

24

ON-BALANCE SHEET FINANCIAL INSTRUMENTS

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

The Company does not have any financial instruments classified as
off-balance sheet as of September 30, 2002 and 2001.

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.

25

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 "2003 Proxy Statement") for its annual meeting of shareholders.
The 2003 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, 2002.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

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

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Within 90 days before
the filing of this Report, the Company's principal executive officer
and principal financial officer evaluated the effectiveness of the
Company's disclosure controls and procedures. Based on the evaluation,
the Company's principal executive officer and principal financial
officer believe that the Company's disclosure controls and procedures
were effective to ensure that material information was accumulated and
communicated to the Company's management, including the Company's
principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal controls. There have been no significant changes in
the Company's internal controls or in other factors that could
significantly affect the Company's internal controls subsequent to the
evaluation referred to in the preceding paragraph (a) nor have there
been any corrective actions with regard to significant deficiencies or
material weaknesses.

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

26

PART IV

ITEM 15. 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) Reports on Form 8-K:

On August 14, 2002, the Company filed a Current Report on Form 8-K
reporting the submission to the Securities and Exchange Commission of
the certifications by its chief executive officer and chief financial
officer of the Company's quarterly report on Form 10-Q for the quarter
ended June 30, 2002 as required pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

On September 9, 2002, the Company filed a Current Report on Form 8-K
reporting that it had completed the sale of substantially all of its
Oilfield Services business to Varco International, Inc. and that in
connection therewith, the Company had amended its revolving credit
facility with Congress Financial Corporation (Southwest).

On September 18, 2002, the Company filed a Current Report on Form 8-K
to file the Unaudited Pro Form Financial Statements reflecting the sale
of substantially all of the Company's Oilfield Services business to
Varco International, Inc.

(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

29

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
(Principal Executive Officer)

Date: December 19, 2002

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.

30

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Timothy J. Gollin, certify that:

1. I have reviewed this annual report on Form 10-K of ICO, Inc. (the "Company")
for the period ending September 30, 2002;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report;

4. The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and

6. The Company's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ TIMOTHY J. GOLLIN
- ------------------------
Name: Timothy J. Gollin
Chief Executive Officer
Date: December 20, 2002

31

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Jon C. Biro, certify that:

1. I have reviewed this annual report on Form 10-K of ICO, Inc. (the "Company")
for the period ending September 30, 2002;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report;

4. The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and

6. The Company's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ JON C. BIRO
- --------------------
Name: Jon C. Biro
Chief Financial Officer and Treasurer
Date: December 20, 2002

32

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 15:

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, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 2002, 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
December 10, 2002

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

The Company provides competitively priced engineering resins to the
rotational molding industry worldwide. The Company serves other specialty
markets by supplying other polymer powders for metal coating and non-woven
textile applications. The Company also sells concentrates and provides specialty
size reduction services on a tolling basis. The Company also designs and
produces proprietary concentrates to serve producers and converters of resin in
North America and in selected export markets. The Company operates in the
polymers industry in the United States, Europe, Australia, New Zealand, Malaysia
and Brazil. See Note 17 - "Foreign Operations Information."

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. The historical financial statements have
been restated to reflect the Oilfield Services business as a discontinued
operation.

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 - The Company recognizes revenue
from services upon completion of the services and related expenses are
recognized as incurred. For product and equipment sales, revenues and related
expenses are recognized when title is transferred, which generally occurs when
the products are shipped and accepted by the customer.

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:

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
other income (expense).

F-7

The Company has capitalized as of September 30, 2002 $410 of internal
software costs related to the development of the Company's inventory and sales
order processing system.

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. See "Recently Issued Accounting
Pronouncements" below.

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 $15,363 and $14,223 at September 30, 2002 and 2001,
respectively. See "Recently Issued Accounting Pronouncements" below.

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
recognized in earnings. Net foreign currency transaction gain was $363 in fiscal
year 2002. Amounts for fiscal years 2001 and 2000 were not material.

The fluctuations of the U.S Dollar against the Euro, Swedish Krona,
British Pound, New Zealand Dollar, Brazilian Real 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 2002 and 2001.

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- "Stock Option
Plan." Effective October 1, 2002, the Company will begin accounting for stock
options in the financial statements as well as disclosure under SFAS No. 123.

CONCENTRATION OF CREDIT RISK - 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%, 18% and 21% for fiscal years 2002, 2001 and
2000, 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.

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

F-8

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 presents 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 for the years ended September 30, 2002 and 2000,
respectively. The weighted average shares outstanding was increased by 22,000
and 58,000 shares to reflect the conversion of all potentially dilutive
securities for the years ended September 30, 2002 and 2000, respectively. There
were no potentially dilutive securities for the fiscal year ended September 30,
2001 due to the loss recorded by the Company. The total amount of anti-dilutive
securities for the years ended September 30, 2002, 2001, and 2000 were
5,155,000, 5,506,000 and 5,640,000 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, 2002. The Senior Notes long-term
debt, with a face value of $114,575 and $118,000 had a fair market value of
approximately $111,424 and $89,680 at September 30, 2002 and 2001, respectively.
See Note 19 - "Subsequent Events" regarding the Company's repurchase of Senior
Notes with a face value of $89,750. 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, 2002 and 2001, the Company had approximately
$770 of notional value (fair market value at September 30, 2002 was $771) and
$1,326 of notional value (fair market value at September 30, 2001 was $1,271),
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, 2002 of $129,072 and additional borrowings capacity of $18,000
under various foreign and domestic credit arrangements and potential borrowing
capacity under potentially new credit facilities will provide adequate cash
flows and liquidity for 2003. See Note 19- "Subsequent Events" regarding the
Company's repurchase of Senior Notes with a face value of $89,750. Management
expects the liquidity from these amounts and cash flow from operations in 2003
will satisfy the capital expenditures, schedule debt payments and operational
budgets of the Company for the upcoming year.

FORWARD EXCHANGE AGREEMENTS OUTSTANDING - The Company reflects 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 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).

F-9

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.

The Company does not have any financial instruments classified as
off-balance sheet as of September 30, 2002 and 2001.

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

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 adopted
SFAS 142 on October 1, 2002. The Company has $36,669 of goodwill included in its
balance sheet at September 30, 2002. Goodwill amortization was $1,140, $1,172
and $1,121 for the

F-10

fiscal years 2002, 2001 and 2000, respectively. SFAS 142 requires a Company
within six months of adopting SFAS 142 to have completed its determination as to
whether an impairment of goodwill exists ("Step One"). SFAS 142 requires a
Company within twelve months of adoption to compute the goodwill impairment. The
Company is currently in the process of completing Step One. Based on the
information to date, the Company believes it will have a goodwill impairment but
is not able to provide an estimate.

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). This statement will not have a material impact on the
Company's 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, 2001,
and interim periods within those fiscal years. The Company adopted SFAS 144 on
April 1, 2002. See Note 15- "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 an extraordinary gain
of $425 net of income taxes during fiscal year 2002. Therefore, this transaction
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 2 - ACQUISITION AND DISPOSITION

On September 6, 2002, ICO, Inc. (the "Company") completed the sale of
substantially all of its oilfield services business ("Oilfield Services")
business to Varco International, Inc. ("Varco"). Total proceeds of the sale were
$136,790 in cash, assumed debt of the Company's Canadian subsidiary of $3,600
and the assumption of certain other liabilities. The

F-11

initial purchase price is subject to a post-closing working capital adjustment
for which $2,000 of the sale proceeds have been placed in escrow. Varco has
calculated that the post-closing working capital adjustment should be $1,808 in
the Company's favor, and the Company has recorded an estimated receivable in
that amount, although the Company believes that the final working capital
adjustment, which is not yet agreed upon by the Company and Varco, may result in
a larger payment in the Company's favor. The Company expects to finalize the
working capital adjustment in the second quarter of fiscal 2003, and when
completed, any adjustment made to the receivable recorded as of September 30,
2002 will be included in the discontinued operations portion of the consolidated
statement of operations. An additional $5,000 of the sale proceeds have been
placed in escrow for one year to cover any indemnification claims by the
purchasers against the Company. The $7,000 of escrow is included in prepaid
expenses and other as of September 30, 2002. The Company is not aware of any
significant indemnification claims at this time. The Company recorded a $42,280
gain, net of income tax of $25,912, on the sale of the Oilfield Services
business. Primarily due to this gain, the Company was able to utilize net
operating loss carryforwards of approximately $30,438. 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 Oilfield Services assets held for sale and liabilities held for
sale and retained are shown as two separate line items in the consolidated
balance sheet. The Company is actively marketing for sale the remaining Oilfield
Services business operation. See Note 19- "Subsequent Events" related to the use
of a portion of the proceeds from the sale of the Oilfield Service business.

There were no business acquisitions from continuing operations in
fiscal year 2002 and 2001. During September 2000, the Company acquired the
operating assets of Sanko Manufacturer (M) ("Sanko") for $675. 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.

NOTE 3 - EXTRAORDINARY ITEM

During fiscal 2002 the Company repurchased 10 3/8% Senior Notes due in
2007 with a face value of $3,425, at a discount, recognizing an extraordinary
gain of $425 net of income tax.

NOTE 4 - IMPAIRMENT, RESTRUCTURING AND OTHER COSTS

During fiscal 2002, the Company recognized a charge of $2,731 related
to the impairment of machinery and equipment. During the third quarter of fiscal
2002, the Company completed an evaluation of assets contained in its Italian
facility closed in 2002 and determined that these assets had a limited use or
were obsolete and recorded an impairment charge of $1,415. The Italian plant was
closed due to its redundancy with the Company's other nearby Italian facility
performing similar services, and the Company consolidated its two Italian plants
into one. The remaining $1,316 charge relates to equipment that the Company
determined in the fourth quarter of 2002 would either be scrapped or is obsolete
due to the production changes being made throughout the Company. The Company
also recognized in fiscal year 2002 severance expenses of $437 related primarily
to the reorganization of the Company's Italian subsidiary.

During the fourth quarter of fiscal 2001, the Company decided to close
three polymers processing operations and restructure another facility. In
addition to the redundant plant in Italy described above, the facilities closed
included a machinery manufacturing facility in the United States and a minerals
size reduction facility in the United States. The restructured facility
manufactured color concentrates in the UK and was sold in second quarter of
fiscal year 2002. The facilities in Italy and the United States were closed in
the first half of fiscal 2002. The minerals size reduction facility in the
United States was sold in the first quarter of fiscal 2002. As a result of these
actions, the

F-12

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, inventory write-downs 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.

During the third quarter of fiscal 2001, the Company recognized a
$7,410 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)
(collectively referred to as the "Terminated Pacholders"). In connection with
the termination of the Terminated Pacholders, the Company, in the third quarter
of fiscal 2001, established and funded an escrow account containing $3,113 in
cash. The purpose of the escrow account was to pay federal excise tax pursuant
to IRS Code Sec. 280(g) in the event there was a "change of control", as defined
by the IRS regulations, within one year of the Terminated Pacholders'
termination. A "change of control", as defined, did not occur within one year of
the severance date and therefore the cash was returned from escrow during fiscal
year 2002.

Also, during fiscal 2001 and 2000, the Company terminated certain
polymers processing employees and recognized related severance expenses of $569
(excludes severance expenses discussed above) and $426, respectively.

As of September 30, 2002, $199 of the lease termination costs and $409
of the severance has not been paid by the Company.

NOTE 5 - INVENTORIES

Inventories at September 30 consisted of the following:

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

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

F-13

NOTE 7 - LONG-TERM DEBT

Long-term debt at September 30, 2002 and 2001 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, 2002, accumulated amortization of debt offering costs totaled
$2,702. Beginning in June of 2002, the Company may, at its option, redeem the
Senior Notes at various premiums depending upon the redemption date. 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. See Note 19. "Subsequent Events" regarding the Company's
repurchase of Senior Notes with a face value of $89,570.

Maturities of the Company's debt are as follows:

NOTE 8 - CREDIT ARRANGEMENTS

The Company maintains several lines of credit through its wholly-owned
subsidiaries. Total credit availability of these facilities totaled
approximately $22,568 and $19,003 at September 30, 2002 and 2001, 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 $4,568 and $7,924 at September 30, 2002 and
2001, respectively.

The Company maintains a three-year domestic credit facility secured by
domestic receivables, inventory and certain domestic property, plant and
equipment with a maximum borrowing capacity of $15,000. The borrowing capacity
varies based upon the levels of domestic receivables and inventory.

The Company's domestic credit facility contains a number of covenants
including, among others, limitations on the ability of the Company and its
restricted subsidiaries to (i) incur additional indebtedness, (ii) pay dividends
or redeem any capital stock, (iii) incur liens or other encumbrances on the
their assets, (iv) enter into transactions with affiliates, (v) merge with or
into any other entity or (vi) sell any of their assets. In addition, any "change
of control" of the Company or its restricted subsidiaries will constitute a
default under the facility ("change of control" means (i) the sale, lease or
other disposition of all or substantially all of the assets of such entity, (ii)
the adoption of a plan relating to the liquidation or dissolution of such
entity, (iii) any person or group becoming the beneficial owner of more than 50%
of the total voting power of the voting stock of such entity or (iv) until April
2004, a majority of the members of the board of directors of any such entity no
longer being "continuing directors" where "continuing directors" means the
members of the board on the date of the credit facility and members that were
nominated for election or elected to the board with the affirmative vote of a
majority of the "continuing directors" who were members of the board at the time
of such nomination or election).

The weighted average interest rate charged on short-term borrowings
under the Company's various credit facilities at September 30, 2002 and 2001 was
5.8%.

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, 2002,
2001 and 2000 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, 2002 totaled $7,131.
Cumulative dividends on the Company's preferred stock paid out of Accumulated
Deficit totaled $12,105 through September 30, 2002.

There were no dividends paid on the Company's Common Stock during
fiscal years ended September 30, 2002, 2001 and 2000. Cumulative liquidating
dividends on the Company's common stock paid out of Additional Paid-in Capital
through September 30, 2002 totaled $5,676. Cumulative dividends on the
Company's common stock paid out of Accumulated Deficit totaled $7,752 through
September 30, 2002.

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

F-15

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.

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.

F-16

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 908,854, 532,650, and 711,250, shares available for grant at
September 30, 2002, 2001, and 2000, respectively. The following is a summary of
stock option activity for the three years ended September 30:

The following table summarizes information about fixed stock options
outstanding at September 30, 2002:

In conjunction with the sale of the Oilfield Services business to Varco
(see Note 15- "Discontinued Operations"), the employees of the Oilfield Services
business had ninety days from their respective termination dates to exercise
their respective stock options. None of the options were exercised and
consequently, on December 6, 2002, approximately 460,000 options were forfeited.

As discussed in Note 1, the Company had elected to continue to account
for stock-based compensation in accordance with APB 25 through September 30,
2002. Effective October 1, 2002, the Company will begin accounting for stock
options as prescribed by SFAS 123. 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 during fiscal years 2002, 2001 and 2000,
respectively, net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated in the table below:

F-17

The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes pricing 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:

The provision for income taxes consists of the following:

F-18

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

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 total net deferred tax liability at September 30, 2002 is comprised
of $134 of net current deferred tax liabilities and $6,187 of net non-current
deferred tax liabilities.

The Company has for tax purposes $341 in AMT and other tax
carryforwards, which if utilized, will result in a cash savings. The tax credits
are expected to expire unused except for $320 of alternative minimum tax credits
which have no expiration. The domestic net operating loss carryforwards in the
amount of $30,438 were utilized this year to offset income primarily related to
the sale of the Oilfield Services business. Net operating loss carryforwards in
the amount of $2,311 and tax credits in the amount of $21, which currently have
a valuation allowance of $830 against

F-19

them, will expire unused this year. A valuation allowance of $1,547 has been
placed against the net deferred tax asset balance of the Company's Italian
subsidiary. 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 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. The Company has
unremitted losses from foreign subsidiaries of approximately $6,000.

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.

The Company maintains a defined benefit plan, for employees of one of
the Company's Dutch subsidiaries. Participants contribute a range of 2.5% 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 1.43% 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, 2002, 2001 and 2000 was
$1,266, $1,333 and $1,424, 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 $2,920 in 2002, $3,081 in 2001 and
$2,923 in 2000. Future minimum rental payments as of September 30, 2002 are due
as follows:

2003 2,248
2004 1,967
2005 1,552
2006 1,192
2007 914
Thereafter 830

Silicosis Related Claims. The Company is presently named as a defendant
in two lawsuits involving former coating plant employees alleging
silicosis-related personal injuries: Pilar Olivas, et al. v. ICO, Inc. et al.
pending in Texas State Court in Harris County (the "Olivas litigation"), and
Richard Koskey vs. ICO, Inc., et al. pending in Texas State Court in Jefferson
County (the "Koskey litigation"). Olivas is a former employee of the Company's
former plant located in Odessa, Texas (the "Odessa Plant"), and Koskey is a
former employee of the Company's former plant located in Houston, Texas (the
"Houston Plant").

F-20

The Odessa Plant and the Houston Plant, together with two other coating
plants in Louisiana and Canada, were sold to Varco in the fourth quarter of
fiscal 2002 as part of the Company's sale of its Oilfield Services business. At
these four plants, prior to 1989, a grit blasting process that produced silica
dust was used to internally coat tubular goods. (The Company used this process
at the Odessa Plant, but did not acquire the other three plants until after
1989.) Although the Company no longer owns or operates any of these four coating
plants, Varco, as the purchaser of such businesses, did not assume any current
or future liabilities related to silicosis or any other occupational health
matters arising out of or relating to events or occurrences happening prior to
the consummation of the sale (including the pending Olivas and Koskey litigation
discussed above), and the Company has agreed to indemnify Varco for any such
costs.

The Company is aware of thirty-one former employees of the Odessa
Plant, in addition to Pilar Olivas, who have been diagnosed since 1989 as
suffering from silicosis-related disease. Of those thirty-one, six are deceased,
and the Company has settled the six resulting wrongful death suits in prior
fiscal years. Many of the remaining twenty-five former employees of the Odessa
Plant diagnosed with silicosis filed personal injury litigation against the
Company, as well as certain sand and protective equipment manufacturers, during
the 1990's. In these actions, the Company was either non-suited, dismissed
without liability or adjudicated to have no liability in prior fiscal years. In
the third quarter of fiscal 2002, the Company agreed 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 of the remaining twenty-five former employees of
the Odessa Plant diagnosed with silicosis, for an aggregate payment by the
Company of $2,700 to the twenty-four claimants and their families, and these
settlements received court approval as of December 6, 2002. A portion of the
settlement ($650) was funded by payments from two of the Company's insurers, in
exchange for releases from certain employers' liability insurance policies.

As noted above, the Koskey litigation involves a former employee of the
Houston Plant. The Company acquired the Houston Plant from Baker Hughes, Inc.
("Baker Hughes") in connection with the 1992 acquisition of Baker Hughes Tubular
Services, Inc. ("BHTS"), and Baker Hughes, among others, is also named as a
defendant in the Koskey litigation. Pursuant to a 1996 agreement between the
Company and Baker Hughes concerning the assumption of certain liabilities
related to the BHTS acquisition, ICO and Baker Hughes share litigation costs
incurred in connection with the Koskey litigation, and ICO's exposure in the
case is effectively capped at $500. Since the Company's acquisition of BHTS in
1992, four other employees of the Houston Plant have filed personal injury
litigation alleging silicosis-related disease. All four of those individuals'
claims were previously settled.

The Company believes that neither the Olivas litigation nor the Koskey
litigation will have a material adverse effect on its financial condition,
results of operations, or cash flows. Other than these actions, and the
litigation and claims involving former employees of the Odessa Plant and Houston
Plant referenced above, the Company has not been involved in any personal injury
or wrongful death lawsuits involving former employees of the coating plants
where a grit blasting process that produced silica dust was used. However, 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, in connection with the four coating plants or otherwise, or the
outcome of future silicosis-related suits, if any. 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,
insurance policies that may be applicable to silicosis-related suits, but the
extent and amount of coverage is limited.

Environmental Remediation. The Comprehensive Environmental Response,
Compensation, and Liability Act, as amended ("CERCLA"), also known as
"Superfund," and comparable state laws impose liability without regard to fault
or the legality of the original conduct on certain classes of persons who are
considered to be responsible for the release of a "hazardous substance" into the
environment. These persons include the owner or operator of the disposal site or
the site where the release occurred, and companies that disposed or arranged for
the disposal of the hazardous substances at the site where the release occurred.
Under CERCLA, such persons may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment, for damages to natural resources, and for the costs of certain
health studies, and it is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property damage allegedly
caused by the release of hazardous substances into the environment. The Company,
through acquisitions that it has made, is identified as one of many potentially
responsible parties ("PRPs") under CERCLA at three sites: the French Limited
site northeast of Houston,

F-21

Texas, the Sheridan Disposal Services site near Hempstead, Texas, and the Combe
Fill South Landfill site in Morris County, New Jersey.

Active remediation of the French Limited site was concluded in the
mid-1990s, at which time the PRPs commenced natural attenuation of the site
groundwater. This natural attenuation strategy is expected to continue at least
through the end of 2005. As part of a "buyout agreement," in February 1997 the
Company paid the PRP group at the French Limited site $42 for the Company's
remaining share of its remedial obligations at that time, and for the future,
long-term operation and maintenance of the natural attenuation remedy at this
site. While there is a remote possibility that additional active remediation of
the French Limited site could be required at some point in the future, the
Company does not expect such remediation, should it be necessary, to have a
material adverse effect on the Company. With regard to the two remaining
Superfund sites, the Company believes it remains responsible for only de minimis
levels of wastes contributed to those sites, and that there are numerous other
PRPs identified at each of the two sites that contributed significantly larger
volumes of wastes to the sites. Consequently, the Company expects that its share
of any allocated liability for cleanup of the Sheridan Disposal Services site
and the Combe Fill South Landfill site will not be significant. Based on the
Company's current understanding of the remedial status of each of these three
sites together with its relative position in comparison to the many other PRPs
at those sites, the Company does not expect its future environmental liability
with respect to those sites to have a material adverse effect on the Company's
financial condition, results of operation, or cash flow.

Other Legal Proceedings. 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 14 - RELATED PARTY

Following approval by the Company's shareholders, the Company issued in
the second quarter of fiscal 2002, 528,834 shares of common stock with a value
of $746 to Travis Street Partners L.L.C. ("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. See Note 19 - "Subsequent
Events" regarding the Company's repurchase of Senior Notes with a face value of
$89,510.

NOTE 15 - DISCONTINUED OPERATIONS

On September 6, 2002, ICO, Inc. (the "Company") completed the sale of
substantially all of its oilfield services business ("Oilfield Services") to
Varco International, Inc. ("Varco"). Total proceeds of the sale were $136,790 in
cash, assumed debt of the Company's Canadian subsidiary of $3,600 and the
assumption of certain other liabilities. The initial purchase price is subject
to a post-closing working capital adjustment for which $2,000 of the sale
proceeds have been placed in escrow. Varco has calculated that the post-closing
working capital adjustment should be $1,808 in the Company's favor (in addition
to the $2,000 in escrow), and the Company has recorded an estimated receivable
in that amount, although the Company believes that the final working capital
adjustment, which is not yet agreed upon by the Company and Varco, may result in
a larger payment in the Company's favor. The Company expects to finalize the
working capital adjustment in the second quarter of fiscal 2003, and when
completed, any adjustment made to the receivable recorded as of September 30,
2002 will be included in the discontinued operations portion of the consolidated
statement of operations. An additional $5,000 of the sale proceeds have been
placed in escrow for one year to cover any indemnification claims by the
purchasers against the Company. The $7,000 of escrow is included in prepaid
expenses and other current assets as of September 30, 2002. The Company is not
aware of any significant indemnification claims at this time. The Company
recorded a $42,280 gain, net of income tax of $25,912, on the sale of the
Oilfield Services business. Primarily due to this gain, the Company was able to
utilize net operating loss carryforwards of approximately $30,438. 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 Oilfield Services assets held for sale and
liabilities held for sale and retained are shown as two separate line items in
the consolidated balance sheet. The Company is actively marketing for sale the
remaining Oilfield Services operation. See Note 19 - "Subsequent Events" related
to the use of a portion of the proceeds from the sale of the Oilfield Service
business.

F-22

The following table summarizes the calculation of the gain on the
disposition of the Oilfield Services business.

Net cash received on disposition of Oilfield Services $ 127,981
Receivable on Oilfield Services disposition, subject to post-closing adjustment 8,809
------------
Total estimated proceeds 136,790
Less: Net assets sold (74,638)
Less: Transaction costs (2,928)
Plus: Net liabilities sold 8,968
------------
Gain on sale of Oilfield Services disposition before income tax $ 68,192
Less: Income tax (25,912)
------------
Gain on sale of Oilfield Services disposition, net of income tax $ 42,280
============

Assets and liabilities (including those retained) of discontinued
operations are as follows:

Of the $6,629 of Oilfield Services liabilities held for sale and
retained at September 30, 2002, $222 relates to Oilfield Services liabilities
held for sale and the remaining $6,407 was retained by the Company upon the sale
of the Oilfield Services business to Varco less amounts paid since that date
through September 30, 2002. The Company expects to satisfy the majority of these
obligations during fiscal year 2003.

NOTE 16 - SUPPLEMENTAL CASH FLOW INFORMATION

As discussed in Note 2, the following is a schedule of assets acquired
and liabilities assumed in conjunction with the business acquisitions (including
discontinued operations) in 2002 and 2000.

F-23

At September 30, 2002, 2001, and 2000, the Company accrued preferred
dividends of $544 which were declared, but unpaid.

During fiscal years 2002, 2001 and 2000, the Company issued to
employees $1,219, $20 and $543 worth of common stock, respectively, in
connection with the Company's domestic benefit plans. At September 30, 2002 and
2001, the Company had accrued $255 and $600, respectively, in connection with of
the Company's domestic benefit plan. See Note 12 - "Employee Benefit Plans."

NOTE 17 - OPERATIONS INFORMATION

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

Foreign revenue is based on the country in which the legal subsidiary
is domiciled. Long-lived assets include net property, plant and equipment,
goodwill, and other long-term assets.

F-24

NOTE 18 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table presents selected financial information for each
quarter in the fiscal years ended September 30, 2002 and September 30, 2001,
respectively.

The sum of the quarterly earnings per share may not equal the annual
earnings per share as each quarter's earnings per share is individually
calculated.

NOTE 19 - SUBSEQUENT EVENTS

On November 1, 2002, the Company purchased $89,570 principal amount of
its 10 3/8% Senior Notes due 2007 at a discount of $972.50 per $1,000 principal
amount plus accrued interest. The Company is expected to record a gain on this
purchase of approximately $350, net of transaction costs. The Company used the
investment banking services of Jefferies and Company to manage the tender offer.
David E.K. Frischkorn, Jr., a member of the Company's Board of Directors, is a
Managing Director with Jefferies and Company. The Company paid Jefferies and
Company approximately $340 for their services

In connection with the Company's October 2002 tender offer for the
Company's outstanding Senior Notes, the terms of the Senior Notes indenture were
amended significantly. The amended Senior Notes indenture contains a number of
covenants including restrictions on the sale of assets of the Company in excess
of $150,000 and a change of control provision that requires the Company to
repurchase all of the Senior Notes at a repurchase price in cash equal to 101%
of the principal amount of the Senior Notes upon the occurrence of a change of
control. A "change of control" means (i) the sale, lease or other 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 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.

F-25

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 December 10, 2002 appearing elsewhere in this Form 10-K also included an
audit of the financial statement schedule listed in Item 15 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
December 10, 2002

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

- ----------------

*Filed herewith