10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2004

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.

(Exact name of registrant as specified in its charter)

TEXAS	76-0566682
(State of incorporation)	(I.R.S. Employer Identification No.)
5333 Westheimer, Suite 600
Houston, Texas	77056
(Address of principal executive offices)	(Zip Code)

(713) 351-4100

(Telephone Number)

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

YES (X)   NO (   )

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES (   )   NO (X)

Common stock, without par value 25,281,421 shares
outstanding as of May 13, 2004

1

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

	Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2004 and September 30, 2003		3
Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2004 and 2003		4
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2004 and 2003		5
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2004 and 2003		6
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risks		26
Item 4. Controls and Procedures		27
Part II. Other Information
Item 1. Legal Proceedings		28
Item 5. Other Information		28
Item 6. Exhibits and Reports on Form 8-K		28
1st Amend.to Employee Agmt - W. Robert Parkey, Jr.
Employment Agreement - Paul Giddens
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

2

ICO, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share data)

	March 31,			September 30,
	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	1,724		$	4,114
Trade accounts receivables (less allowance for doubtful accounts of $2,230 and $2,047, respectively)		51,693			41,310
Inventories		29,185			24,166
Assets held for sale		850			—
Prepaid expenses and other		11,337			11,952
Total current assets		94,789			81,542
Property, plant and equipment, net		54,159			54,639
Goodwill		8,605			8,245
Other		625			835
Total assets	$	158,178		$	145,261
LIABILITIES, STOCKHOLDERS’ EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Current liabilities:
Short-term borrowings	$	8,381		$	5,846
Current portion of long-term debt		5,008			3,210
Accounts payable		28,909			22,120
Accrued salaries and wages		4,192			3,766
Other accrued expenses		11,076			11,399
Oilfield Services liabilities retained		1,156			2,476
Total current liabilities		58,722			48,817
Deferred income taxes		4,234			4,108
Long-term liabilities		1,694			1,629
Long-term debt, net of current portion		22,071			23,378
Total liabilities		86,721			77,932
Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, without par value - 345,000 shares authorized; 322,500 shares issued and outstanding with a liquidation preference of $34,970 and $33,882, respectively		13			13
Undesignated preferred stock, without par value- 105,000 shares authorized; 0 shares issued and outstanding		—			—
Junior participating preferred stock, without par value – 0 and 50,000 shares authorized, respectively; 0 shares issued and outstanding		—			—
Common stock, without par value – 50,000,000 shares authorized; 25,281,421 and 25,146,550 shares issued and outstanding, respectively		43,697			43,555
Additional paid-in capital		103,049			102,811
Accumulated other comprehensive loss		(2,007	)		(4,211	)
Accumulated deficit		(73,295	)		(74,839	)
Total stockholders’ equity		71,457			67,329
Total liabilities and stockholders’ equity	$	158,178		$	145,261

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

3

ICO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except share data)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2004			2003			2004			2003
Revenues:
Sales	$	58,490		$	45,243		$	106,704		$	82,513
Service		9,011			8,261			17,644			16,239
Total Revenues		67,501			53,504			124,348			98,752
Cost and expenses:
Cost of sales and services		54,017			43,547			100,125			81,475
Selling, general and administrative expense		8,660			9,026			16,261			17,049
Stock option compensation expense		231			29			242			92
Depreciation and amortization		1,934			2,293			3,986			4,507
Impairment, restructuring and other income		(116	)		—			(12	)		—
Operating income (loss)		2,775			(1,391	)		3,746			(4,371	)
Other income (expense):
Interest expense, net		(663	)		(642	)		(1,295	)		(2,178	)
Other		59			1			271			520
Income (loss) from continuing operations before income taxes and cumulative effect of change in accounting principle		2,171			(2,032	)		2,722			(6,029	)
Provision (benefit) for income taxes		740			(349	)		1,086			(1,512	)
Income (loss) from continuing operations before cumulative effect of change in accounting principle		1,431			(1,683	)		1,636			(4,517	)
Income (loss) from discontinued operations, net of provision (benefit) for income taxes of $0, $224, $(51) and $290, respectively		3			32			(92	)		548
Net income (loss) before cumulative effect of change in accounting principle		1,434			(1,651	)		1,544			(3,969	)
Cumulative effect of change in accounting principle, net of benefit for income taxes of $0, $0, $0 and $(580) respectively		—			—			—			(28,863	)
Net income (loss)	$	1,434		$	(1,651	)	$	1,544		$	(32,832	)
Preferred dividends		—			—			—			(544	)
Net income (loss) applicable to common stock	$	1,434		$	(1,651	)	$	1,544		$	(33,376	)
Basic and diluted income (loss) per share:
Basic net income (loss) from continuing operations before cumulative effect of change in accounting principle	$	.06		$	(.07	)	$	.06		$	(.20	)
Basic net income (loss) per common share	$	.06		$	(.07	)	$	.06		$	(1.35	)
Diluted income (loss) from continuing operations before cumulative effect of change in accounting principle	$	.05		$	(.07	)	$	.05		$	(.20	)
Diluted net income (loss) per common share	$	.05		$	(.07	)	$	.05		$	(1.35	)
Basic weighted average shares outstanding		25,271,000			24,809,000			25,254,000			24,739,000
Diluted weighted average shares outstanding		29,016,150			24,809,000			28,893,875			24,739,000

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

4

ICO, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2004			2003			2004		2003
Net income (loss)	$	1,434		$	(1,651	)	$	1,544	$	(32,832	)
Other comprehensive income (loss)
Foreign currency translation adjustment		(395	)		1,428			2,183		3,161
Unrealized gain (loss) on foreign currency hedges		171			(45	)		21		(63	)
Comprehensive income (loss)	$	1,210		$	(268	)	$	3,748	$	(29,734	)

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

5

ICO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

	Six Months Ended
	March 31,
	2004			2003
Cash flows from operating activities:
Net income (loss) from continuing operations	$	1,636		$	(33,380	)
Adjustments to reconcile net income (loss) from continuing operations to net cash used for operating activities:
Depreciation and amortization		3,986			4,507
Cumulative effect of change in accounting principle before tax		—			29,443
Unrealized gain on foreign currency		(159	)		(485	)
Changes in assets and liabilities:
Receivables		(8,685	)		(2,609	)
Inventories		(4,078	)		(5,262	)
Prepaid expenses and other assets		123			(650	)
Income taxes payable		849			(682	)
Deferred taxes		(347	)		(1,448	)
Accounts payable		6,041			4,951
Accrued interest		(12	)		(3,606	)
Other liabilities		17			642
Total adjustments		(2,265	)		24,801
Net cash used for operating activities by continuing operations		(629	)		(8,579	)
Net cash used for operating activities by discontinued operations		(1,086	)		(7,888	)
Net cash used for operating activities		(1,715	)		(16,467	)
Cash flows used for investing activities:
Capital expenditures		(2,745	)		(5,472	)
Proceeds from dispositions of property, plant and equipment		432			251
Net cash used for investing activities by continuing operations		(2,313	)		(5,221	)
Cash flows used for financing activities:
Payment of dividend on preferred stock		—			(1,088	)
Proceeds from debt		2,995			361
Term debt repayments		(1,585	)		(103,735	)
Debt retirement costs		—			(483	)
Net cash provided by (used for) financing activities by continuing operations		1,410			(104,945	)
Effect of exchange rates on cash		228			279
Net decrease in cash and equivalents		(2,390	)		(126,354	)
Cash and equivalents at beginning of period		4,114			129,072
Cash and equivalents at end of period	$	1,724		$	2,718

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

6

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

NOTE 1. BASIS OF FINANCIAL STATEMENTS

     The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X, “Interim Financial Statements,” and accordingly do not include all information and footnotes required under generally accepted accounting principles for complete financial statements. The financial statements have been prepared in conformity with the accounting principles and practices as disclosed in the Annual Report on Form 10-K for the year ended September 30, 2003 for ICO, Inc. (the “Company”). In the opinion of management, these interim financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position as of March 31, 2004, the results of operations for the three and six months ended March 31, 2004 and 2003 and the changes in its cash position for the six months ended March 31, 2004 and 2003. Results of operations for the three and six-month periods ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending September 30, 2004. For additional information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2003.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring use of estimates relate to employee benefit liabilities, valuation allowances for deferred tax assets, workers compensation, inventory reserves, allowance for doubtful accounts related to accounts receivable and commitments and contingencies.

     Estimates surrounding employee benefit liabilities are related to the Company maintaining a self insured medical plan in the United States (with stop loss insurance coverage limiting the Company’s expense to $100 per claim). Estimates are required in evaluating the Company’s medical expense incurred, but not paid due to the timing difference between when an employee receives medical care and the time the claim is processed and paid by the Company (typically a two to three-month timing difference). The valuation of deferred tax assets is based upon estimates of future pretax income in determining the ability to realize the deferred tax assets in each taxing jurisdiction. Estimates for workers’ compensation liabilities are due to the Company being self insured in the United States prior to fiscal year 2004 (with stop loss insurance coverage limiting the Company’s expense to $300 per claim). Estimates are made for ultimate costs associated with open workers’ compensation claims as well as for claims not yet reported. Inventory reserves are estimated based upon the Company’s review of its inventory. This review requires the Company to estimate the fair market value of certain inventory that has become old or obsolete. Determining the amount of the allowance for doubtful accounts involves estimating the collectibility of customer accounts receivable balances. Estimates surrounding commitments and contingencies are related primarily to litigation claims for which the Company evaluates the circumstances surrounding the claims to determine how much expense, if any, the Company should record. Actual results could differ from the estimates discussed above. Management believes that its estimates are reasonable.

7

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

     Revenue and Related Cost Recognition- The Company’s accounting policy regarding revenue recognition is to recognize revenue when all of the following criteria are met:

• Persuasive evidence of an arrangement exists: The Company has received an order from a customer.

• Delivery has occurred or services have been rendered: For product sales, revenue recognition occurs when title and risk of ownership have passed to the customer. For service revenue, revenue recognition occurs upon the completion of service.

• Seller’s price to the buyer is fixed or determinable: Sales prices are agreed with the customer before delivery has occurred or the services have been rendered.

• Collectibility is reasonably assured: The Company has a customer credit policy to ensure collectibility is reasonably assured.

     Revenues billed to customers related to shipping and handling are included in revenues while the associated shipping and handling costs to the Company are included in cost of sales and services.

     Impairment of Goodwill and Other Intangible Assets- Effective October 1, 2002, the Company adopted Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which established standards for reporting acquired goodwill and other intangible assets. This statement accounts for goodwill based on the reporting units of the combined entity into which an acquired entity is integrated. In accordance with SFAS 142, goodwill and indefinite lived intangible assets are tested for impairment at least annually at the reporting unit level, rather than being amortized, and the amortization period of intangible assets with finite lives is no longer limited to forty years. The Company’s annual impairment test is performed on September 30 of each fiscal year.

     Segment Information. The Company aggregates its operating segments (the Company’s geographic operations) into one reportable segment due to the similarities of the Company’s operating segments’ economic characteristics (gross margins), the nature of the products and services provided, the nature of the production processes, the types of customers, and the methods used to sell the Company’s products and services.

     Forward Exchange Agreements. The Company reflects that all derivative financial instruments that qualify for hedge accounting 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 recognizes the amount of hedge ineffectiveness in the Consolidated Statement of Operations.

     Recently Issued Accounting Pronouncements. In December 2003, the FASB issued the revised disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, which requires companies to disclose in their interim financial reports net periodic benefit costs (and the components of those costs) for pension and other postretirement benefits and updated information on expected contributions. This statement is effective for financial statements with fiscal years ending after December 15, 2003 and interim periods beginning after December 15, 2003. The Company adopted the interim period disclosure requirements effective January 1, 2004. The adoption did not have a material impact on the Company’s financial position or results of operations.

8

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

NOTE 3. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

     Effective October 1, 2002, the Company adopted Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which established Standards for reporting acquired goodwill and other intangible assets. This Statement accounts for goodwill based on the reporting units of the combined entity into which an acquired entity is integrated. In accordance with SFAS 142, goodwill and indefinite lived intangible assets are tested for impairment at least annually at the reporting unit level, rather than being amortized, and the amortization period of intangible assets with finite lives is no longer limited to forty years. The Company’s annual impairment testing date is September 30. Using the discounted cash flow method under the requirements of SFAS 142, the Company recorded an impairment of goodwill of $28,863, net of income tax benefit of $580 during the three months ended December 31, 2002 as a result of the adoption of SFAS 142 on October 1, 2002. This impairment charge is reflected in the consolidated statement of operations as a cumulative effect of change in accounting principle.

NOTE 4. EARNINGS PER SHARE AND STOCKHOLDERS’ EQUITY

     Earnings per share is based on earnings applicable to common shareholders and is calculated using the weighted average number of common shares outstanding. During the three and six months ended March 31, 2003, the potentially dilutive effects of the Company’s exchangeable preferred stock (which would have an anti-dilutive effect) and common stock options and warrants, with exercise prices exceeding fair market value of the underlying common shares, have been excluded from diluted earnings per share. Additionally, the potentially dilutive effects of common stock options have been excluded from diluted earnings per share for those periods in which the Company generated a net loss. The total number of anti-dilutive securities for the three and six months ended March 31, 2004 was 623,000 and 456,000, respectively, compared to 4,794,000 for the three and six months ended March 31, 2003. The decrease in the number of anti-dilutive securities in fiscal year 2004, compared to fiscal year 2003, is due to the Company generating net income in the current fiscal year.

	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2004		2003			2004		2003
Basic income (loss) per share:
Income (loss) from continuing operations before cumulative effect of change in accounting principle	$	0.06	$	(0.07	)	$	0.06	$	(0.20	)
Income from discontinued operations		—		—			—		0.02
Income (loss) before cumulative effect of change in accounting principle	$	0.06	$	(0.07	)	$	0.06	$	(0.18	)
Cumulative effect of change in accounting principle		—		—			—		(1.17	)
Basic net income (loss) per common share	$	0.06	$	(0.07	)	$	0.06	$	(1.35	)
Diluted income (loss) per share:
Income (loss) from continuing operations before cumulative effect of change in accounting principle	$	0.05	$	(0.07	)	$	0.05	$	(0.20	)
Income from discontinued operations		—		—			—		0.02
Income (loss) before cumulative effect of change in accounting principle	$	0.05	$	(0.07	)	$	0.05	$	(0.18	)
Cumulative effect of change in accounting principle		—		—			—		(1.17	)
Diluted net income (loss) per common share	$	0.05	$	(0.07	)	$	0.05	$	(1.35	)

9

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

     The weighted average number of common shares used in computing earnings per share is as follows:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2004		2003		2004		2003
Basic		25,271,000		24,809,000		25,254,000		24,739,000
Stock Options		210,550		—		105,275		—
Preferred Stock		3,534,600		—		3,534,600		—
Diluted		29,016,150		24,809,000		28,893,875		24,739,000

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

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

NOTE 5. INVENTORIES

     Inventories consisted of the following:

	March 31,			September 30,
	2004			2003
Raw materials	$	16,476		$	12,806
Finished goods		12,853			11,244
Work in progress		108			241
Supplies		905			1,356
Less reserve		(1,157	)		(1,481	)
Total inventory	$	29,185		$	24,166

NOTE 6. INCOME TAXES

     The Company’s effective income tax rates were 34% and 40% during the three and six months ended March 31, 2004, respectively, compared to benefits of 17% and 25% during the three and six months ended March 31, 2003. The change was due to the relation between pretax income or loss to nondeductible items and other permanent differences and the mix of pretax income or loss generated by the Company’s operations in various taxing jurisdictions. During the three and six months ended March 31, 2003, the Company’s foreign subsidiaries had a tax provision on pre-tax net loss due to the reasons mentioned above such as permanent differences and nondeductible items. In addition, during the fiscal 2003 periods, the Company placed valuation allowances against the deferred tax assets of the Company’s Italian and Swedish subsidiaries. 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.

10

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

The foreign tax provision on the pretax loss diluted the domestic effective tax benefit of 37% and 35% which resulted in the consolidated rates of 17% and 25%. During the three and six months ended March 31, 2004, the Company’s domestic subsidiaries incurred state income tax which had the effect of increasing the consolidated effective tax rate for the three and six months ended March 31, 2004 to 34% and 39%.

     The Company has a prior year domestic net operating loss for tax purposes of approximately $7,832. This loss was carried back to the 2002 fiscal year generating a tax refund of approximately $2,741. The $2,741 receivable is included in Prepaid expenses and other in the consolidated balance sheet and is expected to be received in the next twelve months.

NOTE 7. IMPAIRMENT, RESTRUCTURING AND OTHER INCOME

     During the second quarter of fiscal 2004, the Company negotiated the settlement of a severance obligation with a former employee and reversed $116 of previously recognized severance.

     During the first quarter of fiscal 2004, the Company recognized severance expense associated with the closure of its operation in Greece of $104.

NOTE 8. COMMITMENTS AND CONTINGENCIES

     The Company has letters of credit outstanding in the United States of approximately $3,064 and $2,090 as of March 31, 2004 and September 30, 2003, respectively and foreign letters of credit outstanding of $2,695 and $2,495 as of March 31, 2004 and September 30, 2003, respectively.

     Varco Indemnification Claims. Between May 2003 and September 2003, Varco International, Inc. (“Varco”) asserted approximately 29 claims for contractual indemnity against the Company in connection with the September 2002 sale of substantially all of the Company’s Oilfield Services business (“Oilfield Services”) to Varco. Varco’s indemnity demands are based on its contention that the Company breached a number of representations and warranties in the purchase agreement relating to this sale and that certain expenses or damages that Varco has incurred or may incur in the future constitute “excluded liabilities” under the purchase agreement. Varco alleges that the expected loss range for its indemnity claims is between $16,365 and $21,965. A portion of those indemnity demands (representing aggregate losses of approximately $365) relate to product liability claims. The balance of the indemnity demands relate to alleged historical contamination or alleged non-compliance with environmental rules at approximately 26 former Company properties located in both the United States and Canada. The Company has engaged an independent third-party environmental consulting company to review Varco’s claims, and has visited most of the sites to which Varco’s claims relate. Additionally, the Company’s third-party consultant has prepared detailed reports for 16 of the subject properties responding to Varco’s environmental indemnity claims. Based on these reports and the Company’s own assessment made from such visits, the Company believes that most of Varco’s indemnity claims fail to state a valid claim under the purchase agreement or are otherwise without merit and, where potential liability does exist, that Varco’s cost estimates are grossly inflated. The Company’s follow-up investigation on some of these claims is, however, still in process. The Company has requested additional information from Varco where appropriate.

     The parties have agreed to a limited information exchange in an attempt to resolve the disputed indemnity claims without resorting to litigation. In the purchase agreement relating to this sale, the Company agreed, subject to certain limitations, to indemnify Varco for losses arising out of breach of representations and warranties contained in the agreement in excess of $1,000, subject to certain limitations, including the obligation of Varco to

11

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

bear 50% of any losses relating to environmental matters in excess of the $1,000 threshold, up to a maximum aggregate loss borne by Varco in respect of such environmental matters of $4,000 (in addition to the $1,000 threshold). The Company has placed $5,000 of the sale proceeds in escrow to be used to pay for these indemnification obligations, should they arise. The $5,000 in proceeds was included in the gain on the sale of the Oilfield Services business recognized in fiscal year 2002. The Company does not believe that Varco has demonstrated, under the terms of the purchase agreement, that it is entitled to any material damages in excess of the $1,000 threshold. Because the Company believes that most of Varco’s indemnity claims fail to state a valid claim under the purchase agreement or are otherwise without merit and, where potential liability does exist, that Varco’s cost estimates are grossly inflated, it has not reserved any amounts on its balance sheets in contemplation of such liabilities or the uncollectability of the $5,000 receivable of the escrowed sales proceeds. At this point, the Company is not aware of any formal litigation initiated by Varco against the Company in connection with this dispute, but in the event that it cannot avoid litigation to obtain a release of the escrowed funds, the Company intends to assert its entitlement to the funds and defend itself vigorously. In connection with any such litigation (whether instigated by the Company or Varco), or upon the development of additional material information, the Company will reassess the collectibility of the escrowed sales proceeds based upon the facts and circumstances at the time, and may incur a charge to discontinued operations, which charge could be up to the full amount of the $5,000 receivable of escrowed sales proceeds. Any such charge would affect the Company’s net income and its consolidated statement of operations, but its consolidated statement of cash flows would not be affected unless and until the Company agreed or was compelled to pay Varco more than the $5,000 of escrowed sales proceeds.

     There is no assurance, however, that the Company will not be liable for all or a portion of Varco’s $21,965 claims or any additional amount under indemnification provisions of the purchase agreement, and a final adverse court decision awarding substantial money damages would have a material adverse impact on the Company’s financial condition, liquidity and results of operations.

     Silicosis Related Claims. Four coating plants (located in Louisiana, Canada, and Odessa and Houston, Texas) were sold to Varco in the fourth quarter of fiscal 2002 as part of the Company’s sale of its Oilfield Services business. 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 Koskey and Galvan litigation described below), and the Company has agreed to indemnify Varco for any such costs.

     The Company acquired the Odessa, Texas coating plant prior to the 1980’s. The other three coating plants (the “BHTS plants”), including the Houston, Texas plant, were acquired by ICO as part of the acquisition of Baker Hughes Tubular Services, Inc. (“BHTS”) from Baker Hughes Incorporated (“Baker Hughes”) in 1992. At these four plants, prior to 1989 a grit blasting process that produced silica dust was used to internally coat tubular goods. Since 1989, an alternative blasting media (which is not known to produce silica dust) has been used at each of the referenced coating plants. During the years since the mid-1990’s, the Company has been named as a party in lawsuits filed on behalf of former employees of the coating plants located in Odessa and Houston who allegedly suffered from silicosis-related disease as a result of exposure to silica dust produced in the blasting process. Issues surrounding the defense of and the Company’s exposure in cases filed on behalf of employees of the former BHTS plants and the Odessa plant warrant separate analyses due to the different history of ownership of those plants. An agreement with Baker Hughes (described below) affects the Company’s defense and exposure in cases filed by former employees of the BHTS plants, but is not applicable to cases filed on behalf of former employees of the Odessa plant.

12

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

     During prior fiscal years since the mid-1990’s, the Company has settled individual claims, including six wrongful death suits, involving thirty former employees of the Odessa, Texas coating plant who were diagnosed with silicosis-related disease. Because the Company was a subscriber to workers’ compensation, under Texas law the Company has been generally precluded from liability for personal injury claims filed by former employees of the Odessa plant. However, under Texas law certain survivors of a deceased employee may bring a wrongful death claim for occupational injuries resulting in death. The referenced claims involving former employees of the Odessa plant that the Company has settled have included future wrongful death claims of individuals currently diagnosed with silicosis-related disease. There are no lawsuits presently pending against the Company involving former employees of the Odessa plant; however, while the Company has settled potential wrongful death claims with most of the former employees of the Odessa plant who have been diagnosed with silicosis, it is possible that additional wrongful death claims may arise and be asserted against the Company in the future.

     The Company and Baker Hughes are both presently named as defendants in a lawsuit involving two former employees who allege that they were employees of BHTS and that they suffer from silicosis-related personal injuries, styled Celestino Galvan and Alfred Rogers v. ICO, Inc., Baker Hughes, Inc., et al. pending in Texas State Court in Orange County (the “Galvan litigation”). The Company was recently dismissed (subject to a tolling agreement, which is an agreement that would allow the plaintiff to bring the Company back into the suit on or before December 31, 2004) from a second silicosis-related personal injury lawsuit, styled Richard Koskey vs. ICO, Inc., Baker Hughes, Inc., et al. pending in Texas State Court in Jefferson County (the “Koskey litigation”), filed against Baker Hughes and the Company by a former employee of the Houston plant. Notwithstanding the Company’s dismissal from the Koskey litigation, the Company may still have exposure in that case because Baker Hughes remains a party.

     The Company and Baker Hughes are sharing defense costs in both the Galvan and Koskey litigation pursuant to a cost sharing agreement (the “Agreement”) with Baker Hughes. Pursuant to the Agreement, the Company and Baker Hughes agreed to share equally the costs of defense and any judgment or mutually agreed to settlement of occupational health claims asserted against Baker Hughes (and also against the Company, in cases where the Company is also named as a defendant) by former employees of BHTS who contend that Baker Hughes has liability. The only such “occupational health” claims that have been asserted to date have been claims by employees of the BHTS plants who allegedly suffered from silicosis-related disease. Since the Agreement was executed in 1996, two suits to which the Agreement has applied have been settled (which were disclosed in the Company’s filings for prior years, and for which the Company’s payments totaled $750). The Koskey and Galvan litigation are the only lawsuits presently pending that involve former employees of the BHTS plants.

     Under the terms of the Agreement with Baker Hughes, the Company’s exposure is capped at $500 per claimant, and $5,000 in the aggregate for all such claims that may be asserted (currently $4,250 net of payments the Company has made to date referenced in the preceding paragraph); after those thresholds, Baker Hughes is responsible for 100% of the costs of defense, settlement, or judgments for occupational health claims governed by the Agreement.

     Based on the plaintiffs’ allegations and discovery conducted to date, both the Galvan and Koskey litigation are covered by the Agreement with Baker Hughes, and therefore the Company’s exposure is capped at $500 per claimant; however, at this time the Company cannot predict with any reasonable certainty its potential exposure with respect to the Koskey or Galvan litigation. Issues affecting the Company’s exposure in these cases include the defendants’ ability to effectively challenge each claimant’s silicosis diagnosis and allegations that silicosis-related injuries, if any, resulted from exposure to silica dust in a BHTS plant, successfully asserting the Company’s preclusion from liability based on the workers’ compensation bar in the Galvan case, and

13

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

successfully establishing that Baker Hughes is precluded from liability. Difficulty in estimating exposure in both the Galvan litigation and the Koskey litigation is due in part to the limited formal discovery that has been conducted in those cases.

     At this time, the Company cannot predict 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.

NOTE 9. DISCONTINUED OPERATIONS

     On September 6, 2002, the Company completed the sale of substantially all of its Oilfield Services business to Varco. The initial purchase price was subject to a post-closing working capital adjustment for which a gain of $582 was recorded during the three months ended December 31, 2002. All proceeds from the sale have been received except for $5,000 which was placed in escrow to be used to pay for indemnification obligations, should they arise. See Note 8 – “Commitments and Contingencies” for further discussion of the indemnification claims which, depending on the outcome, may result in additional liabilities and losses from discontinued operations in future periods. The $5,000 was included in the gain recognized on the sale of the Oilfield Services business in fiscal year 2002. The Oilfield Services results of operations are presented as discontinued operations, net of income taxes, in the consolidated statement of operations and the Oilfield Services liabilities retained are shown as a separate line item in the consolidated balance sheet. Legal fees or other expenses incurred related to discontinued operations are expensed as incurred to discontinued operations. The Company anticipates the settlement of the Oilfield Services liabilities in the Consolidated Balance Sheet as of March 31, 2004 of $1,156 to occur within the next twelve months. The expense associated with these liabilities has previously been recorded in the statement of operations as part of income (loss) from discontinued operations, and any adjustments to these liabilities will be reflected as income (loss) from discontinued operations in the period in which the adjustment becomes known. The Company recorded a $75 reduction in certain accrued liabilities related to discontinued operations during the three and six months ended March 31, 2004.

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

NOTE 10. LONG-TERM DEBT

     In the first quarter of fiscal 2003, the Company repurchased $104,480 principal amount of its 10 3/8% Senior Notes due 2007 at a weighted average net discount of $976.78 per $1,000 principal amount plus accrued interest in two separate transactions. The Company recorded in other income in the Consolidated Statement of Operations a gain on these purchases of approximately $14, net of transaction costs and write-off of debt offering costs.

14

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

NOTE 11. ASSETS HELD FOR SALE

     In the first quarter of fiscal 2004, the Company received a No Further Action Determination (“NFA”) from the New Jersey Department of Environmental Protection in relation to certain land the Company acquired in 1996 as part of the Wedco Technology, Inc. acquisition. The Company entered into a contract to sell this land in 1999 and with the receipt of the NFA, the Company expects to close on the sale of this property during fiscal year 2004 and expects to receive approximately $900. The net book value of the real estate is included in the Assets held for sale line item in the Consolidated Balance Sheet at March 31, 2004.

NOTE 12. RELATED PARTY

     During the first quarter of fiscal 2003, the Company repurchased $104,480 principal amount of its 10 3/8% Senior Notes due 2007. The Company used the investment banking services of Jefferies and Company to manage the repurchases. David E.K. Frischkorn, Jr., a member of the Company’s Board of Directors, was a Managing Director of Jefferies and Company during the time of the Senior Notes repurchases. The Company paid Jefferies and Company approximately $380 for their services related to these transactions.

NOTE 13. STOCK-BASED COMPENSATION

     During the second quarter of fiscal 2004, the Company granted options to purchase 600,000 shares of the Company’s common stock to W. Robert Parkey, Jr., the Company’s President and Chief Executive Officer, with exercise prices of $2.16 per share (applicable to 400,000 of the options), and $2.25 per share (applicable to 200,000 of the options). The Company also granted options to purchase 126,000 shares of the Company’s common stock to Jon C. Biro, the Company’s Chief Financial Officer, with an exercise price of $2.49 per share. The Company will expense the fair value of the options under SFAS 123, Accounting for Stock-Based Compensation, over the vesting periods of the options, which range from immediate vesting to three years from the date of grant. The total pretax compensation expense recognized in the Consolidated Statement of Operations with the above options was $170 during the three and six months ended March 31, 2004.

NOTE 14. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company’s primary market risk exposures include debt obligations carrying variable interest rates and foreign currency exchange risks. The Company enters into forward purchase contracts to mitigate its exposure to foreign currency exchange risks by selling a functional currency forward for a future purchase obligation denominated in a nonfunctional currency. These forward contracts qualify as cash flow hedging instruments and are highly effective. The Company recognizes the amount of hedge ineffectiveness in the Consolidated Statement of Operations. The hedge ineffectiveness was not a significant amount for the three and six months ended March 31, 2004 and 2003, respectively. As of March 31, 2004 and September 30, 2003, the Company had approximately $1,901 of notional value (fair value at March 31, 2004 was $1,880) and $2,845 of notional value (fair value at September 30, 2003 was $2,920), respectively, in forward exchange contracts to buy foreign currency to hedge anticipated expenses.

15

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

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

Financial Instruments

Variable Interest Rate Debt

					Weighted
	US$ Equivalent				Average Interest Rate
Currency Denomination	March 31,		September 30,		March 31,			September 30,
of Indebtedness (1)	2004		2003		2004			2003
Euro	$	2,577	$	2,496		4.75	%		4.71	%
United States Dollar		2,350		—		4.12	%		—
New Zealand Dollar		1,385		1,197		7.23	%		7.23	%
British Pounds Sterling		1,262		1,198		5.75	%		5.75	%
Swedish Krona		786		909		5.45	%		5.45	%
Australian Dollar		21		—		7.92	%		—
Malaysian Ringgit		—		46		—			7.75	%

⁽¹⁾ Maturity dates are less than one year.

     The Company does not have any financial instruments classified as off-balance sheet (other than operating leases) as of March 31, 2004 and September 30, 2003.

Forward Contracts

	March 31, 2004	September 30, 2003
Receive US$/Pay Australian $:
Contract Amount	US $1,901	US $2,178
Average Contractual Exchange Rate	(US$/A$) .7616	(US$/A$) .6624
Expected Maturity Dates	April 2004 through	October 2003 through
	June 2004	December 2003
Receive US$/Pay NZ$:
Contract Amount	None	US $667
Average Contractual Exchange Rate		(US$/NZ$) .5872
Expected Maturity Dates		October 2003 through
		November 2003

16

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

NOTE 15. 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 foreign plans require the Company to match employees’ contributions in cash. The Company’s domestic 401(k) plans are voluntarily matched, typically with ICO common stock. Domestic employees’ interests in the Company’s contributions and earnings are vested over five years of service, while foreign employees’ interests are generally vested immediately.

     The Company maintains a defined benefit plan for employees of the Company’s Dutch operating subsidiary. Participants contribute a range of 2.5% to 4% of the cost associated with their individual pension basis. 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. These plans are insured by participating annuity contracts with Aegon Levensverzekering N.V. (“Aegon”), located in The Hague, the Netherlands. These participating annuity contracts guarantee the funding of the Company’s future pension obligations for both its defined benefit pension plan and its defined benefit pre-pension plan. In accordance with the contract, Aegon will pay all future obligations under the provisions of these plans, while the Company pays annual insurance premiums. Payment of the insurance premiums by the Company constitutes an unconditional and irrevocable transfer of the related pension obligations from the Company to Aegon. Aegon has a Standard and Poor’s financial strength rating of AA. The premiums for the participating annuity contracts are included in pension expense. The amount of defined benefit plan pension expense recognized during the three and six months ending March 31, 2004 was $125 and $245, respectively compared to $100 and $230 during the three and six months ended March 31, 2003, respectively.

17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited and in thousands, except share and per share data)

Introduction

     The Company’s revenues are primarily derived from (1) product sales and (2) toll services in the polymers processing industry. Product sales entail the Company purchasing resin which is further processed within the Company’s operating facilities. The further processing of the material may involve size reduction services and/or compounding services. Compounding services include the manufacture and sale of concentrates. After processing, the Company sells the finished products to customers. Toll services involve both size reduction and compounding services whereby these services are performed on customer owned material.

     Cost of sales and services is primarily comprised of purchased raw materials, compensation and benefits to non-administrative employees, electricity, repair and maintenance, occupancy 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 as customers choose to purchase resin upon demand rather than building large levels of inventory. Conversely, as resin prices are rising, customers often increase their inventories and accelerate their purchases of products and services from the Company to help control their cost of products. Additionally, demand for the Company’s products and services tends to be seasonal, with customer demand historically being weakest during the Company’s first fiscal quarter due to the holiday season and also due to property taxes levied in the U.S. on customers’ inventories on January 1. 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. During the first half of fiscal 2004, the Company’s sales volumes have been stronger than the volumes sold in the first half of each of the previous two fiscal years. The Company believes this is primarily caused by an increase in customer demand due to improving worldwide economies and the fact that resin prices were rising during the first half of fiscal year 2004.

Critical Accounting Policies

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

     Use of Estimates- The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring use of estimates relate to employee benefit liabilities, valuation allowances for deferred tax assets, workers compensation, inventory reserves, allowance for doubtful accounts related to accounts receivable and commitments and contingencies.

18

(Unaudited and in thousands, except share and per share data)

     Estimates surrounding employee benefit liabilities are related to the Company maintaining a self insured medical plan in the United States (with stop loss insurance coverage limiting the Company’s expense to $100 per claim). Estimates are required in evaluating the Company’s medical expense incurred, but not paid due to the timing difference between when an employee receives medical care and the time the claim is processed and paid by the Company (typically a two to three-month timing difference). The valuation of deferred tax assets is based upon estimates of future pretax income in determining the ability to realize the deferred tax assets in each taxing jurisdiction. Estimates for workers’ compensation liabilities are due to the Company being self insured prior to fiscal year 2004 (with stop loss insurance coverage limiting the Company’s expense to $300 per claim). Ultimate costs associated with open workers’ compensation claims are estimated as well as an estimate for claims not yet reported. Inventory reserves are estimated based upon the Company’s review of its inventory. This review requires the Company to estimate the fair market value of certain inventory that has become old or obsolete. Determining the amount of the allowance for doubtful accounts involves estimating the collectibility of customer accounts receivable balances. Estimates surrounding commitments and contingencies are related primarily to litigation claims for which the Company evaluates the circumstances surrounding the claims to determine how much expense, if any, the Company should record. Actual results could differ from the estimates discussed above. Management believes that its estimates are reasonable.

     Revenue and Related Cost Recognition- The Company’s accounting policy regarding revenue recognition is to recognize revenue when all of the following criteria are met:

• Persuasive evidence of an arrangement exists: The Company has received an order from a customer.

• Delivery has occurred or services have been rendered: For product sales, revenue recognition occurs when title and risk of ownership have passed to the customer. For service revenue, revenue recognition occurs upon the completion of service.

• Seller’s price to the buyer is fixed or determinable: Sales prices are agreed with the customer before delivery has occurred or the services have been rendered.

• Collectibility is reasonably assured: The Company has a customer credit policy to ensure collectibility is reasonably assured.

     Revenues billed to customers related to shipping and handling are included in revenues while the associated shipping and handling costs to the Company are included in cost of sales and services.

     Impairment of Property, Plant and Equipment- Property, plant and equipment are reviewed for impairment whenever an event or change in circumstances indicates the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes comparison of undiscounted future cash flows expected to be generated by the asset or group of assets with the associated assets’ carrying value. If the carrying value of the asset or group of assets exceeds the expected future cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent that the carrying amount of the asset exceeds its fair value.

     Impairment of Goodwill and Other Intangible Assets- Effective October 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which established standards for reporting acquired goodwill and other intangible assets. This statement accounts for goodwill based on the reporting units of the combined entity into which an acquired entity is integrated. In accordance with SFAS 142, goodwill and indefinite lived intangible assets are tested for impairment at least annually at the reporting unit level, rather than being amortized, and the amortization period of intangible assets with finite lives is no longer limited to forty years. The Company’s annual impairment test is performed on September 30 of each fiscal year.

19

(Unaudited and in thousands, except share and per share data)

     Currency Translation- Amounts in foreign currencies are translated into United States Dollars. When local functional currency is translated to United States Dollars, the effects are recorded as a separate component of Other comprehensive income or loss. Exchange gains and losses resulting from foreign currency transactions are recognized in earnings.

     The fluctuations of the United States Dollar against the Euro, Swedish Krona, British Pound, New Zealand Dollar, Australian Dollar and the Brazilian Real have impacted the translation of revenues and expenses of the Company’s international operations. The table below summarizes the impact of changing exchange rates for the above currencies for the three and six months ended March 31, 2004.

	Three Months Ended		Six Months Ended
	March 31, 2004		March 31, 2004
Total revenues	$	6,200	$	11,700
Operating income		460		675
Pretax income		380		565
Net income		300		400

     Stock Options- Effective October 1, 2002, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation, (“SFAS 123”) to all employee awards granted, modified or settled after October 1, 2002. The Company adopted the prospective method to implement SFAS 123 under the provisions of SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure- an amendment of SFAS 123. Awards under the Company’s plans vest over periods ranging from immediate vesting to five years.

Results of Operations

Three and Six Months Ended March 31, 2004 Compared to the Three and Six Months Ended March 31, 2003

	Summary Financial Information
	Three Months Ended												Six Months Ended
	March 31,												March 31,
	2004			2003			Change			%			2004			2003			Change			%
Sales revenue	$	58,490		$	45,243		$	13,247			29		$	106,704		$	82,513		$	24,191			29
Service revenue		9,011			8,261			750			9			17,644			16,239			1,405			9
Total revenues		67,501			53,504			13,997			26			124,348			98,752			25,596			26
SG&A (1)		8,891			9,055			(164	)		(2	)		16,503			17,141			(638	)		(4	)
Net income (loss)	$	1,434		$	(1,651	)	$	3,085			N.M.	(2)	$	1,544		$	(32,832	)	$	34,376			N.M.	(2)
Volumes (3)		80,000			73,000			7,000			10			151,100			136,800			14,300			10
Gross margin (4)		20.0	%		18.6	%		1.4	%					19.5	%		17.5	%		2.0	%
SG&A as a percentage of revenue		13	%		17	%		(4	%)					13	%		17	%		(4	)%
Effective income tax rate		34	%		(17	)%		N.M.	(2)					40	%		(25	%)		N.M.	(2)

⁽¹⁾ “SG&A” is defined as selling, general and administrative expense (including stock option compensation expense).

⁽²⁾ “N.M.” is an abbreviation for “not meaningful.”

⁽³⁾ “Volumes” refers to total metric tons sold either by selling proprietary products or toll processing services. Metric tons stated above are not in thousands.

⁽⁴⁾ Gross margin is calculated as the difference between revenues and cost of sales and services, divided by revenues.

20

(Unaudited and in thousands, except share and per share data)

     Revenues. Total revenues increased $13,997 or 26% to $67,501 and $25,596 or 26% to $124,348 during the three and six months ended March 31, 2004, compared to the same periods of fiscal 2003 due to an increase in both sales and service revenues.

     Sales Revenues. Sales revenue increased $13,247 or 29% to $58,490 during the three months ended March 31, 2004 compared to the same period of fiscal 2003. The increase in sales revenue was caused by an increase in sales volumes of 21% which led to an increase in revenues of $7,800 excluding foreign currency impact. The increase in sales volumes was particularly pronounced at the Company’s domestic concentrate manufacturing operation and certain European locations resulting from stronger customer demand due to improving economies in these regions. The translation effect of stronger foreign currencies relative to the United States Dollar increased sales revenues by $5,600.

     For the six months ended March 31, 2004 compared to the six months ended March 31, 2003, sales revenues increased $24,191 or 29% due to stronger foreign currencies (increased sales revenues $10,900) and an increase in sales volumes of 22%. The increase in sales volumes of 22% increased revenues by $16,800 (excluding currency impact) due to increased customer demand in all of the Company’s operating regions and greater market share in most regions. Sales revenue increased significantly for the Company’s domestic concentrate manufacturing operation primarily due to increased demand from existing customers. These increases were offset by a $3,509 decline in sales revenues due to a decline in average prices primarily due to a change in product sales mix within the Company’s domestic concentrates manufacturing operation.

     Service Revenues. Service revenues increased $750 or 9% to $9,011 during the three months ended March 31, 2004 and increased $1,405 or 9% during the six months ended March 31, 2004 compared to the same periods of the prior year, primarily due to stronger foreign currencies relative to the United States Dollar.

     Costs and Expenses.

     Gross Margins. Gross margins (calculated as the difference between revenues and cost of sales and services, divided by revenues) improved to 20.0% and 19.5% for the three and six months ended March 31, 2004 compared to 18.6% and 17.5% in the three and six months ended March 31, 2003, respectively. Gross margins improved due to significantly improved results produced by the Company’s domestic concentrate business and due to increased volumes sold which increased 10% during both the three and six months ended March 31, 2004, respectively. The Company gains operating leverage when volumes increase because costs of good sold expenses such as labor, electricity and plant expenses increase in a lower proportion relative to increases in volume. The Company’s European and North American ICO Polymers operating results improved significantly versus last year due to prior year cost reductions, an increase in customer demand and improved performance of two plants that dramatically underperformed last year.

     Selling, General and Administrative. Selling, general and administrative expenses (including stock option compensation expense)(“SG&A”) declined $164 or 2% and $638 or 4% during the three and six months ended March 31, 2004, respectively, compared to the same periods in fiscal 2003.

     The decrease in SG&A of $164 or 2% for the three months ended March 31, 2004, was primarily due to the cost reduction program implemented in the fourth quarter of fiscal 2003 which reduced SG&A by approximately $1,350, partially offset by the effect of stronger foreign currencies relative to the United States Dollar (an impact of approximately $600), an increase in profit sharing expense of $300 and an increase in stock option compensation expense of $202. As a percentage of revenues, sales, general and administrative expenses declined to 13% of revenue during the three months ended March 31, 2004 compared to 17% for the same quarter last year due to the increase in revenues while SG&A declined slightly.

21

(Unaudited and in thousands, except share and per share data)

     The decline of $638 or 4% in SG&A for the six–month periods was primarily due to the cost reduction program implemented in the fourth quarter of fiscal 2003 (impact of approximately $2,700) offset by the impact of stronger foreign currencies (increased SG&A $1,300), an increase in profit sharing expense of $320, and increase in stock option expense of $150 and an increase in insurance costs of $190. During the six months ended March 31, 2004, SG&A as a percentage of revenue declined to 13% compared to 17% for the six months ended March 31, 2003 due primarily to the increase in revenues while SG&A declined 4%.

     Impairment, restructuring and other income. During the second quarter of fiscal 2004, the Company negotiated the settlement of a severance obligation with a former employee and reversed $116 of previously recognized severance. During the first quarter of fiscal 2004, the Company recognized severance expense associated with the closure of its operation in Greece in the amount of $104.

     Depreciation and Amortization. Depreciation and amortization decreased $359 or 16% and $521 or 12% due to the fixed asset impairment recorded in the fourth quarter of fiscal year 2003 which reduced the carrying value of fixed assets which had the effect of reducing depreciation expense for the three and six months ending March 31, 2004, respectively.

     Net Interest Expense. During the three months ended March 31, 2004, compared to the three months ended March 31, 2003, interest expense increased $21 or 3% due to increased borrowings. Net interest expense for the six months ended March 31, 2004 decreased $883 or 41% compared to the same period in fiscal 2003 due to the repurchase of $104,480 of 10 3/8% Senior Notes during the first quarter of fiscal 2003.

     Income Taxes. The Company’s effective income tax rates were 34% and 40% during the three and six months ended March 31, 2004, respectively, compared to benefits of 17% and 25% during the three and six months ended March 31, 2003. The change was due to the relation between pretax income or loss to nondeductible items and other permanent differences and the mix of pretax income or loss generated by the Company’s operations in various taxing jurisdictions. During the three and six months ended March 31, 2003, the Company’s foreign subsidiaries had a tax provision on pre-tax net loss due to the reasons mentioned above such as permanent differences and nondeductible items. In addition, during the fiscal 2003 periods, the Company placed valuation allowances against the deferred tax assets of the Company’s Italian and Swedish subsidiaries. A valuation allowance is established when it is more likely than not that some or all of a deferred tax asset will not be realized. The foreign tax provision on the pretax loss diluted the domestic effective tax benefit of 37% and 35% which resulted in the consolidated rates of 17% and 25%. During the three and six months ended March 31, 2004, the Company’s domestic subsidiaries incurred state income tax which had the effect of increasing the consolidated effective tax rate for the three and six months ended March 31, 2004 to 34% and 40%.

     Income (loss) from continuing operations before cumulative effect of change in accounting principle. Income (loss) from continuing operations before cumulative effect of change in accounting principle increased $3,114 to income of $1,431 for the three months ended March 31, 2004 and increased $6,153 to income of $1,636 for the six months ended March 31, 2004 due to the factors discussed above.

     Income (Loss) From Discontinued Operations. Income from discontinued operations during the three months ended March 31, 2004 of $3 was due to a $75 reduction in certain accrued liabilities related to discontinued operations offset by legal fees incurred related primarily to the Varco indemnification claims (see Note 8 “Commitments and Contingencies”). Income from discontinued operations during the three months ended March 31, 2003 of $32 was related primarily to income from the Company’s remaining oilfield service operation which was sold in July 2003 offset by expenses associated with discontinued operations.

22

(Unaudited and in thousands, except share and per share data)

     Income (loss) from discontinued operations decreased from income of $548 during the six months ended March 31, 2003 to a loss of ($92) during the six months ended March 31, 2004. The loss from discontinued operations in the six months ended March 31, 2004 of ($92) is due to legal fees incurred related primarily to the Varco indemnification claims (see Note 8 – “Commitments and Contingencies”) partially offset by a $75 reduction in certain accrued liabilities recorded in the second quarter of fiscal 2004 related to discontinued operations. The income from discontinued operations of $548 during the six months ended March 31, 2003 was primarily due to the $582 pre-tax gain on the post-closing working capital adjustment recorded during the three months ended December 31, 2002 and the income from the remaining oilfield services operation sold in July 2003.

     Cumulative Effect of Change in Accounting Principle. Effective October 1, 2002, the Company adopted Financial Accounting Standards No. 142 (“SFAS 142”), Goodwill and Other Intangible Assets, which established Standards for reporting acquired goodwill and other intangible assets. This Statement accounts for goodwill based on the reporting units of the combined entity into which an acquired entity is integrated. In accordance with SFAS 142, goodwill and indefinite lived intangible assets are tested for impairment at least annually at the reporting unit level, rather than being amortized, and the amortization period of intangible assets with finite lives is no longer limited to forty years. Using the discounted cash flow method under the requirements of SFAS 142, the Company recorded an impairment of goodwill of $28,863, net of income tax benefit of $580 during the three months ended December 31, 2002 as a result of the adoption of SFAS 142 on October 1, 2002. This impairment charge is reflected in the consolidated statement of operations as a cumulative effect of change in accounting principle. (See Note 3- “Cumulative Effect of Change of Accounting Principle” for further information on this charge).

     Net Income (Loss). For the three and six months ended March 31, 2004, the Company had net income of $1,434 and $1,544 compared to net losses of $(1,651) and $(32,832) for the comparable periods in fiscal 2003, due to the factors discussed above.

     Liquidity and Capital Resources. The following are considered by management as key measures of liquidity applicable to the Company:

	March 31, 2004		September 30, 2003
Cash and cash equivalents	$	1,724	$	4,114
Working capital		36,067		32,725

     Cash and cash equivalents declined $2,390 and working capital increased $3,342 during the six months ended March 31, 2004 due to the factors described below.

     For the six months ended March 31, 2004, cash used for operating activities by continuing operations decreased to cash used of $629 from cash used of $8,579 for the six months ended March 31, 2003. The decrease in cash used for operating activities by continuing operations occurred primarily due to lower interest payments caused by the early repayment of $104,480 of the Company’s 10 3/8% Senior Notes, higher net income from continuing operations before cumulative effect of change in accounting principle, an increase in accounts payable, offset by increases in accounts receivable and inventory. Accounts receivable increased $10,383 or 25% due primarily to the increase in revenues. The Company increased its inventory by $5,019 or 21% primarily due to the growth the Company has experienced in its sales volumes and due to higher average resin purchase prices. Accounts payable increased $6,789 or 31% due primarily to increases in inventory purchases.

     Cash used for operating activities by discontinued operations for the six months ended March 31, 2004 decreased to cash used of $1,086 compared to cash used of $7,888 for the six months ended March 31, 2003. This decrease was primarily due to the Company’s domestic income tax payment made in fiscal year 2003 as a result of the Company’s net income in fiscal year 2002 due to the gain recorded on the disposition of the oilfield services business. The cash used of $1,086 for the six months ended March 31, 2004 was related to payments of oilfield services liabilities retained.

     Capital expenditures totaled $2,745 during the six months ended March 31, 2004 and were related primarily to expanding and upgrading the Company’s production capacity. Approximately 43% of the $2,745 of capital expenditures was spent to expand production capacity of the Company’s Australian subsidiary. Capital expenditures for the remainder of fiscal 2004 are expected to be approximately $1,300 and will be primarily used to upgrade and/or expand the Company’s production capacity. The Company anticipates that available cash and existing credit facilities will be sufficient to fund remaining fiscal 2004 capital expenditure requirements.

23

(Unaudited and in thousands, except share and per share data)

     Cash provided by (used for) financing activities during the six months ended March 31, 2004 was cash provided of $1,410 compared to cash used of ($104,945) during the six months ended March 31, 2003. The change was primarily the result of decreased debt repayments due to the retirement of $104,480 of Senior Notes during the three months ended December 31, 2002. The Company retired the 10 3/8% Senior Notes in order to lower the Company’s interest expense and debt obligations using the proceeds from the disposition of its Oilfield Services Business.

     As of March 31, 2004, the Company had approximately $18,925 of additional borrowing capacity available under various foreign and domestic credit arrangements. In April 2002, the Company established a three-year domestic credit facility secured by domestic receivables and inventory with a maximum borrowing capacity of $15,000. The borrowing capacity varies based upon the levels of domestic receivables and inventory. As of March 31, 2004, the Company had approximately $9,585 of available borrowing capacity under the domestic credit facility and $9,340 available under various foreign credit facilities.

     Upon the sale of the Oilfield Services business in September 2002, the Company used a majority of the sales proceeds to retire $104,480 of 10 3/8% Senior Notes during the three months ended December 31, 2002 in order to lower the Company’s interest expense and debt obligations. In addition, the Company expects that its working capital over time will continue to grow due to an increase in sales revenues which requires the Company to purchase raw materials and maintain inventory and will increase the Company’s accounts receivables. The Company does not have material commitments for capital expenditures beyond fiscal year 2004. Annual capital expenditures required to upgrade existing equipment to maintain existing production capacity are approximately $2,000. The Company anticipates that existing cash balances of $1,724, cash flow from operations, future borrowings and existing borrowing capacity of $18,925 will provide adequate liquidity for the next twelve months. There can, however, be no assurance the Company will be successful in obtaining sources of capital that will be sufficient to support the Company’s requirements in the long-term.

     The Company’s foreign credit facilities are generally collateralized by assets owned by subsidiaries of the Company and also carry various financial covenants. The Company’s domestic credit facility is collateralized by domestic receivables and inventory and carries a variable interest rate. The variable interest rate is currently equal to either one-quarter (¼%) percent per annum in excess of the prime rate or two and one-quarter (2¼%) percent per annum in excess of the adjusted euro dollar rate and may be adjusted depending upon the Company’s leverage ratio, as defined, excess credit availability under the credit facility and the Company’s financial results. The Company’s weighted average interest rate on its domestic credit facility was 4.12% as of March 31, 2004. 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 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 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).

24

(Unaudited and in thousands, except share and per share data)

     In connection with the Company’s November 2002 repurchase of $89,570 principal amount of the Company’s outstanding Senior Notes, the terms of the Senior Notes indenture were amended significantly. The amended Senior Notes indenture contains a number of covenants including: restrictions on the sale of assets of the Company in excess of $150,000 and a change of control provision that requires the Company to repurchase all of the Senior Notes at a repurchase price in cash equal to 101% of the principal amount of the Senior Notes upon the occurrence of a change of control. A “change of control” means (i) the sale, lease or other 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. As of March 31, 2004 and September 30, 2003, Senior Notes outstanding were $10,095.

     Off-Balance Sheet Arrangements. The Company does not have any financial instruments classified as off-balance sheet (other than operating leases) as of March 31, 2004 and September 30, 2003.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS (Unaudited and in thousands, except share and per share data)

     The Company’s primary market risk exposures include debt obligations carrying variable interest rates and foreign currency exchange risks. The Company enters into forward purchase contracts to mitigate its exposure to foreign currency exchange risks by selling a functional currency forward for a future purchase obligation denominated in a nonfunctional currency. These forward contracts qualify as cash flow hedging instruments and are highly effective. The Company recognizes the amount of hedge ineffectiveness in the Consolidated Statement of Operations. The hedge ineffectiveness was not a significant amount for the three and six months ended March 31, 2004 and 2003, respectively. As of March 31, 2004 and September 30, 2003, the Company had approximately $1,901 of notional value (fair value at March 31, 2004 was $1,880) and $2,845 of notional value (fair value at September 30, 2003 was $2,920), respectively, in forward exchange contracts to buy foreign currency to hedge anticipated expenses.

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

Financial Instruments

Variable Interest Rate Debt

					Weighted
	US$ Equivalent				Average Interest Rate
Currency Denomination	March 31,		September 30,		March 31,			September 30,
of Indebtedness (1)	2004		2003		2004			2003
Euro	$	2,577	$	2,496		4.75	%		4.71	%
United States Dollar		2,350		—		4.12	%		—
New Zealand Dollar		1,385		1,197		7.23	%		7.23	%
British Pounds Sterling		1,262		1,198		5.75	%		5.75	%
Swedish Krona		786		909		5.45	%		5.45	%
Australian Dollar		21		—		7.92	%		—
Malaysian Ringgit		—		46		—			7.75	%

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

Forward Contracts

	March 31, 2004	September 30, 2003
Receive US$/Pay Australian $:
Contract Amount	US $1,901	US $2,178
Average Contractual Exchange Rate	(US$/A$) .7616	(US$/A$) .6624
Expected Maturity Dates	April 2004 through	October 2003 through
	June 2004	December 2003
Receive US$/Pay NZ$:
Contract Amount	None	US $667
Average Contractual Exchange Rate		(US$/NZ$) .5872
Expected Maturity Dates		October 2003 through
		November 2003

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ITEM 4. CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act, as amended), have concluded that as of March 31, 2004 the Company’s disclosure controls and procedures were effective to ensure that the information the Company is required to disclose in reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

(b)

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

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     For a description of the Company’s legal proceedings, see Note 8 to the Consolidated Financial Statements included in Part I, Item 1 of this quarterly report on Form 10-Q and Part I, Item 3 of the Company’s Form 10-K filed December 19, 2003.

ITEM 5. OTHER INFORMATION

     The Dividend Committee of the Company’s Board of Directors determined not to declare any dividend on its depositary shares, each representing ¼ of a share of the Company’s $6.75 convertible exchangeable preferred stock (“Preferred Stock”), for the quarter ending on June 30, 2004. Because this will result in the Company not declaring dividends on the shares of Preferred Stock for six consecutive quarters, the holders of the Preferred Stock will be entitled to elect two additional directors to the Company’s board of directors beginning in the fourth quarter of fiscal 2004. Such directors will serve on the Company’s board of directors for so long as all such dividends on Preferred Stock remain undeclared and unpaid.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

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

Exhibit No.		Exhibit
10.1*	—	First Amendment to Employment Agreement by and between W. Robert Parkey, Jr. and the Company, dated May 10, 2004, to be effective as of February 2, 2004.
10.2*	—	Employment Agreement by and between Paul Giddens and the Company, dated May 11, 2004, to be effective as of May 24, 2004.
31.1*	—	Certification of Chief Executive Officer and ICO, Inc. pursuant to 15 U.S.C. Section 7241.
31.2*	—	Certification of Chief Financial Officer and ICO, Inc. pursuant to 15 U.S.C. Section 7241.
32.1*	—	Certification of Chief Executive Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350.
32.2*	—	Certification of Chief Financial Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350.

*Filed herewith

(b) Reports on Form 8-K

     On January 20, 2004, the Company filed a Current Report on Form 8-K reporting that it had announced the appointment of W. Robert Parkey, Jr. as President, Chief Executive Officer, and a member of the Company’s Board of Directors, effective February 2, 2004.

     On January 30, 2004, the Company filed a Current Report on Form 8-K reporting that it had announced its financial results for the quarter ended December 31, 2003.

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SIGNATURES

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

	ICO, Inc.
	(Registrant)
May 14, 2004	/s/ Jon C. Biro
	Jon C. Biro
	Chief Financial Officer and Treasurer
	/s/ Bradley T. Leuschner
	Bradley T. Leuschner
	Chief Accounting Officer

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Exhibit Index

10.1*	—	First Amendment to Employment Agreement by and between W. Robert Parkey, Jr. and the Company, dated May 10, 2004, to be effective as of February 2, 2004.
10.2*	—	Employment Agreement by and between Paul Giddens and the Company, dated May 11, 2004, to be effective as of May 24, 2004.
31.1*	—	Certification of Chief Executive Officer and ICO, Inc. pursuant to 15 U.S.C. Section 7241.
31.2*	—	Certification of Chief Financial Officer and ICO, Inc. pursuant to 15 U.S.C. Section 7241.
32.1*	—	Certification of Chief Executive Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350.
32.2*	—	Certification of Chief Financial Officer of ICO, Inc. pursuant to 18 U.S.C. Section 1350.

*Filed herewith

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EX-10.1

Exhibit 10.1

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”) is entered into by and between ICO, Inc. (the “Company”) and W. Robert Parkey, Jr. (“Employee”), signed and dated as of May 10, 2004, and to be effective as of February 2, 2004 (the “Effective Date”).

     WHEREAS, Employee and the Company entered into an Employment Agreement (the “Agreement”) as of the Effective Date; and

     WHEREAS, the parties desire to amend the Agreement, as set forth herein.

     NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, the Company and Employee agree as follows:

     The parties hereby agree that the Agreement shall be amended as set forth in items 1 through 3 below:

     1. In the fourth line of Section 3.3(b) of the Agreement, the reference to “Sections 3.1(a) through (e)” is deleted and replaced by a reference to “Sections 3.1(a)(i) through 3.1(a)(iv).”

     2. Following Section 3.5, the following shall be language shall be added as a new Section 3.6:

     “3.6 Notwithstanding anything in this Agreement to the contrary, if any amounts due to the Employee under this Agreement and any other agreement, plan or program constitute a “parachute payment,” as such term is defined in Code Section 280G(b)(2), and the amount of the parachute payment, reduced by all federal, state and local taxes applicable thereto, including the excise tax imposed pursuant to Code Section 4999, is less than the amount the Employee would receive if he were paid three times his “base amount,” as defined in Code Section 280G(b)(3), less one dollar, reduced by all federal, state and local taxes applicable thereto, then the aggregate of the amounts constituting the parachute payment shall be reduced to an amount that will equal three times his base amount less one dollar. The determinations to be made with respect to this Section shall be made by an accounting firm selected by the Employee and paid by the Company, and which may be the Company’s independent auditors.”

     3. The first sentence in Section 5.6 of the Agreement shall be deleted and replaced by the following sentence:

“This Agreement shall be binding upon and inure to the benefit of the Company, and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of the Company by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise.”

     IN WITNESS WHEREOF, the Company and Employee have duly executed this Agreement in multiple originals to be effective on the Effective Date.

ICO, Inc.

/s/ Christopher N. O’Sullivan

Christopher N. O’Sullivan

Chairman of the Board of Directors

Date: May 10, 2004

Employee

/s/ W. Robert Parkey, Jr.

W. Robert Parkey, Jr.

Date: May 10, 2004

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”) is entered into by and between ICO, Inc. (the “Company”) and Paul Giddens (“Employee”), to be effective as of May 24, 2004 (the “Effective Date”).

WITNESSETH:

     WHEREAS, Employee will become employed by Company on the Effective Date; and

     WHEREAS, the Company desires to employ Employee from and after the Effective Date pursuant to the terms and conditions and for the consideration set forth in this Agreement, and Employee desires to be employed by Company pursuant to such terms and conditions and for such consideration.

     NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, the Company and Employee agree as follows:

ARTICLE 1: EMPLOYMENT AND DUTIES:

     1.1 The Company agrees to employ Employee, and Employee agrees to be employed by the Company, beginning as of the Effective Date and continuing until the date of termination of Employee’s employment (“Termination Date”), subject to the terms and conditions of this Agreement. The “Employment Period,” as used herein, shall mean the period commencing on the Effective Date, and ending on the Termination Date. The “Term,” as used herein, shall mean the two year period commencing on the Effective Date, and expiring at midnight of the day before the second anniversary of the Effective Date.

(a) At least six (6) weeks prior to the expiration of the Term (and each mutually agreed to extension thereof), the board of directors (“Board”) of the Company shall notify the Employee, in writing pursuant to Section 5.1, of the Board’s desire to continue Employee’s employment beyond the end of the Term (or any mutually agreed to extension thereof). If the Board desires to retain the Employee, then the parties shall amend this agreement to extend the Employment Period for an additional two-year period (“Extension Period”), and the Term (or any mutually agreed to extension thereof) shall be extended for an additional two years, or a new employment agreement (on substantially the same terms as this Agreement) shall be negotiated, prepared, and put into effect prior to the end of the Term (or any mutually agreed to extension thereof); however if the parties cannot agree to the terms of a new agreement by the expiration of the Term (or

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	any mutually agreed to extension thereof), then Employee’s employment shall terminate at the end of the Term (or any mutually agreed to extension thereof), and shall be subject to 3.1(d).
(b)	For the avoidance of doubt it is the parties’ understanding that if this Agreement is extended for an Extension Period or any subsequent Extension Period, at the end of any such Extension Period, the provisions of Section 1.1(a) shall apply, and any reference in this Agreement to the Term shall include any mutually agreed extension thereof, whether or not expressly noted.

     1.2 Beginning as of the Effective Date and throughout the Term (and mutually agreed to extension thereof), Employee shall be employed as Vice President of Human Resources & Administration of the Company. Employee may also serve as an officer and/or director of the Company’s domestic and foreign affiliated subsidiaries, and in such other key contributor capacities as may be requested by the Employer. Employee agrees to serve in such positions, and to perform diligently and to the best of Employee’s abilities the duties and services pertaining to such positions as reasonably determined by Company, as well as such additional or different duties and services appropriate to such positions which the Employee from time to time may be directed to perform by the Company. Employee shall report to the Chief Executive Officer (the “CEO”).

     1.3 Employee shall at all times comply with and be subject to such policies and procedures as the Company may establish from time to time, including, without limitation, the Company’s Employee Handbook and Code of Business Ethics.

     1.4 Employee shall, during the Employment Period, devote Employee’s full business time, energy, and best efforts to the business and affairs of the Company. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee’s performance of Employee’s duties hereunder, is contrary to the interest of the Company or any of its affiliated subsidiaries and divisions (collectively, the “ICO Entities” or, individually, an “ICO Entity”), or requires any significant portion of Employee’s business time. The ICO Entities as of the Effective Date are listed on Exhibit A attached hereto and incorporated herein. In the event that, during the Employment Period, any of the ICO Entities establish or purchase a 10% or more direct or indirect equity interest in any entity not listed on Exhibit A, such entity shall be deemed to be an ICO Entity for the purposes of this Agreement. The foregoing notwithstanding, the parties recognize and agree that Employee may engage in passive personal investments and other business activities which do not conflict with the business and affairs of the Company or the ICO Entities or interfere with Employee’s performance of his duties hereunder. Employee shall be eligible to serve on the board of directors or committees thereof of entities that are not ICO Entities during Employee’s employment by the Company, subject to the Board’s advance consideration and approval thereof. Employee shall be permitted to retain any compensation received for approved service on any unaffiliated corporation’s board of directors or committees thereof.

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     1.5 Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity, and allegiance to act at all times in the best interests of the Company and other ICO Entities and to do no act which would, directly or indirectly, injure any such entity’s business, interests, or reputation. It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect the Company, or any ICO Entity, involves a possible conflict of interest. In keeping with Employee’s fiduciary duties to the Company, Employee agrees that during the Employment Period Employee shall not knowingly become involved in a conflict of interest with the Company or the ICO Entities, or upon discovery thereof, allow such a conflict to continue. Moreover, during the Employment Period Employee shall not engage in any activity which might involve a possible conflict of interest without first obtaining approval in accordance with this Agreement and the Company’s policies and procedures.

ARTICLE 2: COMPENSATION AND BENEFITS:

     2.1 During the Employment Period, the Employee shall receive a base salary (“Base Salary”) of One Hundred and Fifty Thousand Dollars ($150,000) per annum, less all required deductions, including but not limited federal withholding, social security and other taxes, and payable bi-weekly on the Company’s regular payroll schedule. During the Employment Period, the Base Salary may be reviewed periodically by the Compensation Committee of the Board (the “Compensation Committee”). The Compensation Committee may make recommendations to the Board to revise the Employee’s Base Salary, which may only be revised upon approval by the Board. Any increase in the Base Salary shall not serve to limit or reduce any other obligation to the Employee under this Agreement. During the Term (and each mutual extension thereof), the Base Salary shall not be reduced.

     2.2 In addition to the Base Salary, the Employee shall be eligible, to receive the following bonus payments:

(a) “Guaranteed” bonus payments, payable as follows: (i) a one-time bonus of Five Thousand Dollars ($5,000), to be paid on December 31, 2004, and (ii) a one-time bonus of Seven Thousand, Five Hundred Dollars ($7,500), to be paid on December 31, 2005. In the event that Employee’s employment terminates for any reason prior to the date when a bonus payment referred to in this paragraph is due, Employee shall not be entitled to receive such bonus payment.

(b) An “incentive” bonus payment for the Company’s fiscal year 2004 of up to Five Thousand Dollars ($5,000), which shall only be payable if: (i) the Company meets its $9.8 million EBIDTA target (the accomplishment of which shall be determined solely by the Board); and (ii) Employee satisfies all individual performance targets established by the CEO (the accomplishment of which shall be determined solely by the CEO). In the event that the referenced $9.8 million EBIDTA target is achieved and Employee only

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satisfies a portion of the individual performance targets referenced in (ii), the CEO shall may, at the CEO’s sole discretion, award an “incentive” bonus for the Company’s fiscal year 2004 that is less than $5,000.

     2.3. In addition to the Base Salary and other benefits afforded to Employee under this Agreement, on the Effective Date Employee shall receive options (“Options”) to purchase 25,000 shares of the Common Stock of the Company (“Shares”).

     The Options shall vest as follows:

(a)	Options to purchase 8,334 Shares shall be 100% fully vested on the first anniversary of the Effective Date.
(b)	Options to purchase 8,333 Shares shall be 100% fully vested on the second anniversary of the Effective Date.
(c)	Options to purchase 8,333 Shares shall be 100% fully vested on the third anniversary of the Effective Date.

All of the 25,000 Options shall be granted at an exercise price equal to the greater of $2.00 per share or the Fair Market Value (as defined in the applicable stock option plan under which the options are granted) of the Common Stock on the Effective Date, and to the extent permitted under the Internal Revenue Code, shall be Incentive Stock Options (“ISOs”). The Options shall expire on the seventh anniversary of the Effective Date. Notwithstanding the foregoing, upon termination of Employee’s employment for any reason then the options shall expire upon the first business day following the expiration of the three (3) month period after Employee’s Termination Date. The Options shall be granted under the terms of the Company’s 1994, 1995, 1996, and/or 1998 Employee Stock Option Plans, at the Company’s discretion, or on terms substantially identical to the terms in such plans, and subject to the Employee’s execution of option agreements in compliance with all terms and conditions of the applicable plans.

     2.4 During the Employment Period, the Employee shall be entitled to participate in incentive, savings, and retirement plans, and other standard benefit plans afforded to executive-level employees of the Company, including, without limitation, all medical, dental, disability, group life, accidental death, D&O indemnity, and travel accident insurance plans and programs of the Company, to the extent Employee is otherwise eligible under the terms and conditions of the applicable plan or policy, and as such plans or policies may be from time to time be amended, modified or terminated by the Company without prior notice. Dependents of Employee may participate in such plans to the extent allowed for other dependants of executive level Employees of the Company as allowed by the applicable plan. This Agreement shall not be construed to limit in any respect the Company’s right to establish, amend, modify, or terminate

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any benefit plan or policy. Furthermore, the Company shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any incentive compensation, employee benefit, or stock or stock option program or plan, so long as such actions are similarly applicable to covered employees generally.

     2.5 During the Employment Period, the Company shall pay or reimburse Employee for all actual, reasonable, and customary expenses incurred by Employee in the course of his employment, including business-related travel expenses and the costs associated with a Company issued mobile phone, subject to the terms of and Employee’s compliance with the Company’s Global Employee Business Expense Policy, as amended from time to time, and any other applicable Company policies related to business expenses. Furthermore, in lieu of use of a Company vehicle, and maintenance, repair, and insurance expenses associated therewith, the Employee shall receive a monthly vehicle allowance in the sum of $700.00 (“Vehicle Allowance”), paid on the first payday of each month.

     2.6 During the Employment Period, the Employee shall be entitled to two weeks of vacation, fully paid, per calendar year.

     2.7 The Company may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

     2.8 No amendment, modification, or repeal of Article Eleven of the Articles of Incorporation of the Company (as amended on or before the date hereof) or Article 7 of the Amended and Restated Bylaws of ICO, Inc., as amended October 5, 2001, shall have the effect of limiting or denying any indemnification rights with respect to actions of Employee occurring, or proceedings arising, prior to such amendment, modification, or repeal, which indemnification rights Employee would otherwise have been entitled to if such amendment, modification, or repeal had not been effectuated, and the provisions of Article 7 of the Amended and Restated Bylaws of ICO, Inc., as amended October 5, 2001, shall continue to apply to Employee with respect to actions taken or proceedings arising prior to such amendment, modification, or repeal, as if such amendment, modification or repeal had not been effectuated. Notwithstanding the foregoing, nothing in this Section 2.9 shall entitle Employee to indemnification (i) to any extent not permitted by the Texas Business Corporation Act, as amended from time to time, and (ii) with respect to actions occurring at or after (but not as to actions of Employee occurring prior to) the time of such amendment, modification, or repeal that are the basis for Employee’s claim for indemnity to any extent that indemnity for such later actions of Employee is not permitted by such Articles of Incorporation or Bylaws as so amended, modified, or repealed. Employee’s rights to indemnification shall continue in effect after the termination of this Agreement, regardless of the cause of termination, for a period of five (5) years thereafter, and as to any claim for indemnification raised or in existence during that five-year period, Employee’s rights and the Company’s obligations under this Section 2.9 shall continue until such claim is resolved without further right of appeal.

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ARTICLE 3: TERMINATION OF EMPLOYMENT AND EFFECTS OF SUCH TERMINATION:

     3.1 (a) Employee’s employment shall be terminated during the Employment Period by reason of the following circumstances:

(i)	Death of Employee.
(ii)	Permanent Disability. “Permanent Disability” shall mean Employee’s physical or mental incapacity to perform his usual duties, with such condition likely to remain continuously and permanently as determined by the Board of Directors. The decisions as to whether and as of what date Employee has become permanently disabled are delegated to the Board of Directors for determination, and any dispute of Employee with any such decision shall be limited to whether the Board of Directors reached such decision in good faith.
(iii)	Voluntary Termination. “Voluntary Termination” shall mean a termination of employment at the election of Employee (other than for Good Reason, as defined in Section 3.2(b) below), including termination upon the expiration of the Term because Employee does not desire to continue his employment beyond the end of the Term (as described in Section 3.1(d)(i) below). Employee will provide the Company with six (6) weeks advance notice of his intent to terminate his employment voluntarily. Employee shall continue to remain an employee of the Company through the six week notice period and will perform such duties, if any, assigned to him by the Company during the notice period. Notwithstanding the foregoing, the Company may, at its option, waive the Employee’s obligation to remain an employee during all or any portion of the six week notice period, in which case Employee’s employment shall cease immediately.
(iv)	Termination by Company for Cause. “Termination for Cause” shall mean a termination of employment immediately upon notice to the Employee from the Company that an event constituting “Cause” has occurred. For purposes of this Agreement, the term “Cause” shall be defined as: (a) an act of dishonesty or fraud; (b) a knowing and material violation of any written policy of the Company or applicable to the Company’s operations; (c) a knowing and material violation of an applicable law, rule, or regulation that exposes the Company to damages or liability; (d) a material breach of fiduciary duty; or (e) conviction of a felony. In the event that Employee is terminated for Cause, Employee shall be provided with notice of such termination in accordance with Section 5.1 below.

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     (b) In the event Employee’s employment terminates as a result of any of the circumstances described in 3.1(a)(i) through (iv) above, all future compensation to which Employee would otherwise be entitled and all future benefits for which Employee is eligible shall cease and terminate as of the Termination Date, except as specifically provided in this Section 3.1 or the terms of any of the Company’s health or welfare plans, and Employee shall receive payment, if any, for accrued and unused vacation days according to the Company’s current policy applicable to payment for unused vacation. In the event of termination for any of the reasons set forth in 3.1(a)(i) through (iv) above, Employee shall not be entitled to receive an Annual Incentive Bonus for the fiscal year in which the termination occurs, but shall be entitled to receive an Annual Incentive Bonus, if any, that has been earned but not yet paid to Employee for the fiscal year prior to the fiscal year in which the termination occurs.

     (c) Notwithstanding anything contained in 3.1(b), in the event that Employee’s employment terminates as a result of death or permanent disability resulting from any accident or incident beyond Employee’s control that occurs while Employee is traveling on Company business or is in the course and scope of employment (excluding any accident or incident occurring when Employee is traveling within Houston and to or from his normal place of business or his residence), the preceding paragraph shall not apply, and instead Employee (or his Estate, as the case may be) shall be entitled to receive payment subject to and calculated in accordance with the provisions of Sections 3.2(a) and 3.2(a)(i) through (iv) below.

     (d) In the event that Employee’s employment terminates upon the expiration of the Term because the parties are unable to agree to the terms of a new agreement by the expiration of the Term (or any mutual extension thereof), then the Termination Date shall be the last day of the Term (or any mutual extension thereof), and:

(i)

if the Company has offered to extend the Term of this Agreement (or any mutual extension thereof) (without amending the terms of this Agreement, other than by increasing Employee’s salary, bonus, and/or other remuneration or benefits hereunder), or to enter into a new agreement on terms that are substantially the same as the terms of this Agreement (other than by increasing Employee’s salary, bonus, and/or other remuneration or benefits hereunder), then if Employee declines to accept the Company’s offer, Employee’s termination shall be treated as a Voluntary Termination, and the provisions of Section 3.1(b) shall apply; or

(ii)

if the Company has not offered (x) to extend the Term of this Agreement (or any mutual extension thereof) (without amending the terms of this Agreement, other than by increasing Employee’s salary, bonus, and/or other remuneration or benefits hereunder), or (y) to enter into a new agreement on terms that are substantially the same as the terms of this Agreement (other than by increasing Employee’s salary, bonus, and/or other remuneration or benefits hereunder), then Employee shall be entitled

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to a “Termination Payment” subject to and calculated in accordance with the provisions of Sections 3.2(a) and 3.2(a)(i) through (iv) below.

     3.2 The Company reserves the right to terminate Employee’s employment for any reason other than the circumstances described in Sections 3.1(a)(i) through 3.1(a)(iv) above, or to terminate Employee’s employment upon the expiration of the Term, in which case it shall provide him with written notice of termination (“Notice of Termination”). The Notice of Termination shall specify the Termination Date.

(a) If the Termination Date occurs during the Term (or any mutual extension thereof), or on the last day of the Term (or any mutual extension thereof) because the Board does not desire to continue Employee’s employment beyond the Term (or any mutual extension thereof), Company shall pay Employee, within thirty (30) days after the Termination Date, and after Employee’s execution of a full release of all claims against the Company (excluding only claims for benefits and payments to be payable after Termination Date under any of the Company’s health or welfare plans, and claims for indemnification against third parties pursuant to Article 7 of the Amended and Restated Bylaws of ICO, Inc., as amended October 5, 2001), a “Termination Payment,” in lump sum cash (subject to required taxes and withholdings) consisting of the following:

(i)	pro rata Base Salary through the Termination Date, and in the event that the prior fiscal year’s Annual Incentive Bonus, if any, has been earned but not yet paid, such Annual Incentive Bonus for the prior fiscal year; and
(ii)	payment, if any, for accrued and unused vacation days according to the Company’s current policy applicable to payment for unused vacation; and
(iii)	a sum equal to 100% of the Employee’s current annual Base Salary.

(b) “Good Reason” shall mean a termination of employment by Employee under any one of the following circumstances:

(i)

In the event of a material breach by Company of any material provision of this Agreement which remains uncorrected for thirty (30) days following written notice (“Material Breach Notice Period”) of such breach by Employee to the Board, Employee may terminate this Agreement provided that Employee provides the Board with written notice of such termination, specifying a Termination Date that is on or after the date of such written notice but within sixty (60) days after the expiration of the Material Breach Notice Period.

(ii)

In the event that there is any material diminution of Employee’s job description, job role, responsibilities, and/or scope of position during the Term, Employee may terminate this Agreement upon written notice to the

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Board of Directors specifying a Termination Date that is on or after the date of such written notice.

(iii)

If there is any amendment, modification, or repeal of Article Eleven of the Articles of Incorporation of the Company (as amended on or before the date hereof) and/or Article 7 of the Amended and Restated Bylaws of ICO, Inc. (as amended October 5, 2001) by the shareholders or the Board, which amendment, modification, or repeal shall have the effect of limiting or denying, except in any immaterial respect, any indemnification rights that Employee would otherwise be entitled to if such amendment, modification, or repeal had not been effectuated, then Employee may terminate this Agreement within thirty (30) days of the taking effect of such amendment, modification, or repeal, upon written notice to the Board.

In the event of such termination by Employee for Good Reason, Employee shall be entitled to a Termination Payment subject to and calculated in accordance with the provisions of Sections 3.2(a) and 3.2(a)(i) through (iv) above.

     3.3. Termination following a Change of Control

     (a) For the purposes of this Agreement, “Change of Control” means any of the following events: (i) a merger, share exchange or consolidation in which the Company will not be the surviving entity (or survives only as a subsidiary of an entity), (ii) the sale or exchange by the Company all or substantially all of its assets to any other person or entity, (iii) the acquisition of ownership or control (including, without limitation, power to vote) by any person or entity, including a “group” as contemplated by Section 13(d)(3) of the 1934 Act, of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power); provided, however, that a Change of Control will not include (A) any reorganization, merger, consolidation, sale, exchange, or similar transaction, which involves solely the Company and one or more entities wholly-owned, directly or indirectly, by the Company immediately prior to such event; or (B) the consummation of any transaction or series of integrated transactions immediately following which the record holders of the voting stock of the Company immediately prior to such transaction or series of transactions continue to hold 50% or more of the voting stock (based upon voting power) of (1) any entity that owns, directly or indirectly, the stock of the Company, (2) any entity with which the Company has merged, or (3) any entity that owns an entity with which the Company has merged.

     (b) A “COC Termination” shall be deemed to have occurred if (i) there is a Change of Control during the Term (or any mutual extension thereof), and (ii) within the twelve (12) month period immediately following the Change of Control (but still within the Term (or any mutual extension thereof) (A) the Employee’s employment terminates for any reason other than the circumstances described in Sections 3.1(a)(i) through 3.1(a)(iii) above, (B) Employee is

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required to relocate over 100 miles from Houston, Texas; (C) Employee is required to commute to a location over 100 miles from the Company’s current corporate offices; (D) Employee’s Base Salary is materially reduced or any other material benefit of the Employee’s employment is materially reduced; or (E) there is any material diminution of Employee’s job description, job role, responsibilities, and/or scope of position. In the event of a COC Termination, the Company or successor in interest shall be obligated to pay Employee, within thirty (30) days after the Termination Date, and after Employee’s execution of a full release of all claims against the Company (excluding only claims for benefits and payments to be payable after Termination Date under any of the Company’s health or welfare plans, and claims for indemnification against third parties pursuant to Article 7 of the Amended and Restated Bylaws of ICO, Inc., as amended October 5, 2001), a Termination Payment subject to and calculated in accordance with the provisions of Sections 3.2(a) and 3.2(a)(i) through (iv) above

     3.4 Any Termination Payment paid to Employee pursuant to Section 3.2 or 3.3 shall be in consideration of Employee’s continuing obligations under Article 4. Nothing contained in this Article 3 shall be construed to be a waiver by Employee of any benefits accrued for or due Employee under any employee benefit plan (as such term is defined in the Employee Retirement Income Security Act of 1974, as amended), maintained by the Company except that Employee shall not be entitled to any severance benefits pursuant to any severance plan or program of the Company.

     3.5 Termination of the employment relationship does not terminate those obligations imposed by this Agreement which are continuing obligations, including Employee’s obligations under Article 4.

ARTICLE 4:
OWNERSHIP AND PROTECTION OF INTELLECTUAL PROPERTY
AND CONFIDENTIAL INFORMATION;
NON-COMPETITION AGREEMENT:

     4.1 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee’s employment by the Company (whether during business hours or otherwise and whether on the Company’s premises or otherwise) which relate to the business, products or services of the Company or any of the ICO Entities (including, without limitation, all such information relating to corporate opportunities, confidential financial information, research and development activities, sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or potential customers and their requirements, the identity of key contacts within the customers’ organizations or within the organizations of acquisition prospects, marketing and merchandising techniques, prospective names, and marks), and all writings or material of any

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type embodying any of such items, shall be the sole and exclusive property of ICO or the ICO Entities, as the case may be.

     4.2 Employee acknowledges that the businesses of the Company and the ICO Entities are highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates (including but not limited to the products and/or services marketed, advertised, and/or sold to customers and prospective customers, and the prices charged or quoted to them for such products and/or services, and the business activities, needs, and requirements for products and/or services of such customers or prospective customers) all comprise confidential business information and trade secrets which are valuable, special, and unique assets which the Company or the ICO Entities use in their business to obtain a competitive advantage over their competitors. Employee further acknowledges that protection of such confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to the Company and the ICO Entities in maintaining their competitive position. Employee hereby agrees that Employee will not, at any time during or after the Employment Period, make any unauthorized disclosure of any confidential business information or trade secrets of the Company or any other ICO Entity, or make any use thereof, except in the carrying out of his employment responsibilities hereunder. Confidential business information shall not include information in the public domain (but only if the same becomes part of the public domain through a means other than a disclosure prohibited hereunder). The above notwithstanding a disclosure shall not be unauthorized if (i) it is required by law or by a court of competent jurisdiction or (ii) it is in connection with any judicial arbitration, dispute resolution or other legal proceeding in which Employee’s legal rights and obligations as an Employee or under this Agreement are at issue; provided, however, that Employee shall, to the extent practicable and lawful in any such events, give prior notice to the Company of his intent to disclose any such confidential business information in such context so as to allow the Company or the applicable ICO Entity an opportunity (which Employee will cooperate with and will not oppose) to obtain such protective orders or similar relief with respect thereto as may be deemed appropriate.

     4.3 All written materials, records, and other documents made by, or coming into the possession of, Employee during the Employment Period which contain or disclose confidential business information or trade secrets of the Company or the ICO Entities shall be and remain the property of the Company or the ICO Entities, as the case may be. Upon termination of Employee’s employment with the Company, for any reason, Employee promptly shall deliver the same and all copies thereof to the Company.

     4.4 To enable Employee to perform the duties contemplated by this Agreement, the Company promises that it will disclose confidential information, including confidential business information and trade secrets of the nature described or referenced in Sections 4.1 – 4.3 above,

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during the Employment Period and before termination of the employment relationship established by this Agreement. In return for and ancillary to the promise made by the Company to make such disclosure, Employee hereby makes a reciprocal promise designed to enforce the Company’s interest in protecting its confidential information and its goodwill. Accordingly, Employee promises to comply with the obligations set forth in Sections 4.1 through 4.3 above, and furthermore, Employee agrees that, during Employee’s employment with the Company and/or any other ICO Entity, and for fifteen (15) months following the end of employment with the Company or any other ICO Entity for any reason, Employee will not, directly or through any other person, firm, or corporation, in any country in which the Company or any ICO Entity does business:

(a)	perform services as an employee, officer, director or independent contractor for any Competing Enterprise (as defined below);
(b)	be an owner, shareholder (except for the ownership by Employee of less than Five Percent (5%) of the equity securities of any publicly-traded company), agent, or partner of, or serve in an executive position with, any Competing Enterprise;
(c)	call on or otherwise communicate with any customer or prior customer of the Company and/or any ICO Entity, including any respective successors and assigns, for the purpose of soliciting business for a Competing Enterprise or for someone other than the Company and/or other ICO Entities; or
(d)	do anything to interfere with the normal operation of the businesses of the Company or any other ICO Entity, including, without limitation, make any effort personally or through others to recruit, hire, or solicit any employee or independent contractor of the Company or another ICO Entity to leave the Company or such ICO Entity, or to interfere in any way with any ICO Entity’s relationships with its customers or suppliers.

For purposes of this Section, the term “Competing Enterprise” shall mean: any person or any business organization of whatever form, excluding the Company and/or any other ICO Entity, engaged directly or indirectly in any business or enterprise whose business activities specifically relate to or involve: (i) grinding, processing, blending, and/or compounding of polymer products for (a) the rotational molding industry, or (b) any other industry that ICO Polymers North America, Inc. or any other ICO Entity specifically services or sells to; or (ii) the production of concentrates or compounds or other processing services related to polymer products as conducted by Bayshore Industrial, Inc. or any other ICO Entities.

ARTICLE 5: MISCELLANEOUS:

     5.1 For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when received by or

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tendered to Employee or the Company, as applicable, by pre-paid courier or by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Company, to

ICO, Inc., To the attention of the Chairman of the Board of Directors
5333 Westheimer Road, Suite 600
Houston, Texas 77056

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

     If to Employee, to his last known personal residence.

Notwithstanding the foregoing, any Notice of Termination pursuant to Article 3 may be delivered to the Employee in accordance with the above sentences in this Section 5.1, or by email to the Employee’s Company email address, and in the event of such delivery by email, the Delivery Date shall be conclusively determined to be the date when such email was received on the Company’s server regardless of the date when such email was opened by the Employee.

     5.2 This Agreement shall be governed by and construed and enforced, in all respects in accordance with the law of the State of Texas, without regard to principles of conflicts of law, unless preempted by federal law, in which case federal law shall govern; provided, however, that the dispute resolution process in Section 5.5 shall govern in all respects with regard to the resolution of disputes hereunder.

     5.3 No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

     5.4 It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect.

     5.5 It is the mutual intention of the parties to have any dispute concerning this Agreement resolved out of court. Accordingly, the parties agree that any claim or controversy of

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whatever nature arising from or relating in any way to this Agreement or the employment of the Employee by the Company, and any continuing obligations under this Agreement, including disputes arising under the common law or federal or state statutes, laws or regulations and disputes with respect to the arbitrability of any claim or controversy, shall be resolved exclusively by final and binding arbitration before a single experienced employment arbitrator selected by the parties and conducted in accordance with the agreement of the parties or as determined by the arbitrator. If the parties are unable to agree to an arbitrator, an arbitrator will be selected in accordance with the Employment Dispute Resolution (“EDR”) Rules of the American Arbitration Association (“AAA”). The arbitration will be conducted in Houston, Texas, pursuant to the EDR Rules of the AAA, and the arbitrator shall have full authority to award or grant all remedies provided by law. The judgment upon the award may be enforced by any court having jurisdiction thereof. Each party shall pay the fees of their respective attorneys, the expenses of their witnesses, and any other expenses incurred by such party in connection with the arbitration; provided, however, that the Company shall pay for the fees of the arbitrator or the administrative and filing fees charged by the AAA. However, either party, on its own behalf and on behalf of any other ICO Entities, shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any breach or the continuation of any breach of the provisions of herein.

     5.6 This Agreement shall be binding upon and inure to the benefit of the Company, and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of the Company by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee’s rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of the Company.

     5.7 This Agreement replaces and extinguishes any previous agreements and discussions pertaining to the subject matter covered herein. This Agreement constitutes the entire agreement of the parties with regard to the terms of Employee’s employment, termination of employment and severance benefits, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to the foregoing matters which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by the Company that is not contained in this Agreement shall be valid or binding, except as set forth in any applicable Employee benefit plan. It is understood that, by signing below, Employee acknowledges that this Agreement supercedes any agreements or understandings regarding the subject matter covered herein made prior to the Employee signing this document. Any modification of this Agreement will be effective only if it is in writing and signed by each party whose rights hereunder are affected thereby, provided that any such

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modification must be authorized or approved by the Board of Directors or its delegate, as appropriate.

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     IN WITNESS WHEREOF, the Company and Employee have duly executed this Agreement in multiple originals to be effective on the Effective Date.

ICO, Inc.

/s/ W. Robert Parkey, Jr. By: W. Robert Parkey, Jr.
Title: President and C.E.O.

Date: May 11, 2004

Employee

/s/ Paul Giddens Paul Giddens

Date: May 11, 2004

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EXHIBIT A

The ICO Entities (as defined in Section 1.4) are listed below, with country of incorporation and state (if U.S.) indicated.

Bayshore Industrial, Inc. – USA, TX

Courtenay Polymers Pty Ltd. - Australia

Fabri-Moulds Ltd. - UK

ICO Europe BV – The Netherlands

ICO Global Services, Inc. – USA, DE

ICO Holdings Australia Pty Ltd. - Australia

ICO Holdings New Zealand Ltd. – New Zealand

ICO Holland BV – The Netherlands

ICO Italia Srl - Italy

ICO Minerals, Inc. – USA, DE

ICO Offshore – Cayman Islands

ICO P&O, Inc. – USA, DE

ICO Petrochemical Cayman Islands – Cayman Islands

ICO Polymers do Brasil Ltda. - Brazil

ICO Polymers France SAS - France

ICO Polymers Hellas Ltd. - Greece

ICO Polymers North America, Inc. – USA, NJ

ICO Polymers UK Ltd. - UK

ICO Polymers, Inc. – USA, DE

ICO Scandinavia AB - Sweden

ICO Technology, Inc. – USA, DE

ICO UK Ltd. - UK

ICO Worldwide, LP – USA, TX

ICO Worldwide (UK), Ltd. - UK

ICO Worldwide Tubular Services PTE Ltd. - Singapore

Innovation Company, S.A. de C.V. - Mexico

J.R. Courtenay (N.Z.) Ltd. – New Zealand

J.R. Courtenay Sdn Bhd - Malaysia

Rotec Chemicals, Ltd. - UK

Lomic SCI - France

Soreco SAS - France

Swavasey Colours Ltd. - UK

Tecron Industries Ltd. - UK

Verplast Srl - Italy

Wedco Minerais Ltda. - Brazil

Wedco Petrochemical, Inc. – USA, DE

Wedco Technology U.K. Ltd. - UK

Wedco Technology, Inc. – USA, NJ

Worldwide GP, LLC – USA, DE

Worldwide LP, LLC – USA, DE

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, W. Robert Parkey, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of ICO, Inc. (the “Company”) for the period ending March 31, 2004;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the Company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

	/s/ W. Robert Parkey, Jr.
Name:	W. Robert Parkey, Jr.
Title:	Chief Executive Officer
Date:	May 14, 2004

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jon C. Biro, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ICO, Inc. (the “Company”) for the period ending March 31, 2004;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the Company and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

	/s/ Jon C. Biro
Name:	Jon C. Biro
Title:	Chief Financial Officer
Date:	May 14, 2004

EX-32.1

Exhibit 32.1

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER OF ICO, INC.
PURSUANT TO 18 U.S.C. § 1350

In connection with the accompanying report on Form 10-Q for the period ending March 31, 2004 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W. Robert Parkey, Jr., the Chief Executive Officer of ICO, Inc. (the “Company”), hereby certify, to my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company in respect of those items required to be described or presented in such Report under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934.

	/s/ W. Robert Parkey, Jr.
Name:	W. Robert Parkey, Jr.
	Chief Executive Officer
Date:	May 14, 2004

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be a part of the Report or “filed” for any purpose whatsoever.

EX-32.2

Exhibit 32.2

CERTIFICATION OF
CHIEF FINANCIAL OFFICER OF ICO, INC.
PURSUANT TO 18 U.S.C. § 1350

In connection with the accompanying report on Form 10-Q for the period ending March 31, 2004 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jon C. Biro, the Chief Financial Officer of ICO, Inc. (the “Company”), hereby certify, to my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company in respect of those items required to be described or presented in such Report under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934.

	/s/ Jon C. Biro
Name:	Jon C. Biro
	Chief Financial Officer
Date:	May 14, 2004

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed to be a part of the Report or “filed” for any purpose whatsoever.