<PAGE> 1
================================================================================
- - --------------------------------------------------------------------------------
FORM 10-Q
-----------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1996. COMMISSION FILE NUMBER 1-11804
THE GEON COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1730488
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Geon Center, Avon Lake, Ohio 44012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 930-1000
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
--- ---
As of March 31, 1996 there were 24,780,797 shares of common stock outstanding.
There is only one class of common stock.
- - --------------------------------------------------------------------------------
================================================================================
<PAGE> 2
THE GEON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Sales $ 245.7 $ 336.2
Operating costs and expenses:
Cost of sales 239.8 284.1
Selling and administrative expenses 12.4 12.9
--------- ---------
Operating income (loss) (6.5) 39.2
Interest expense (2.9) (1.7)
Interest income .7 .4
Other expense, net (.2) (2.1)
--------- ---------
Income (loss) before income taxes (8.9) 35.8
Income tax benefit (expense) 3.3 (14.4)
--------- ---------
Net income (loss) $ (5.6) $ 21.4
========= =========
Earnings per share:
Net income (loss) $ (.22) $ .80
========= =========
Number of shares used to compute earnings per share 25.2 26.9
Dividends paid per common share: $ .125 $ .125
</TABLE>
Page 2 of 9 Pages
<PAGE> 3
THE GEON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 54.1 $ 61.1
Accounts receivable, less allowance for doubtful
receivables ($2.2 in 1996 and $2.1 in 1995) 115.4 102.3
Inventories:
Finished products and in-process 85.4 94.4
Raw materials and supplies 33.4 27.4
---------- ----------
118.8 121.8
LIFO reserve (27.7) (29.6)
---------- ----------
91.1 92.2
Deferred income taxes 14.0 14.0
Prepaid expenses 16.2 13.4
---------- ----------
Total current assets 290.8 283.0
Property:
Land, buildings, machinery and equipment 1,136.8 1,131.9
Allowances for depreciation and amortization (694.7) (687.2)
---------- ----------
Property, net 442.1 444.7
Deferred charges and other assets 30.2 24.3
---------- ----------
Total assets $ 763.1 $ 752.0
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank debt $ 12.6 $ 8.6
Accounts payable 123.2 125.8
Accrued expenses 72.1 58.0
Current portion of long-term debt .7 .7
---------- ----------
Total current liabilities 208.6 193.1
Long-term debt 137.6 137.9
Deferred income taxes 35.7 37.3
Postretirement benefits other than pensions 86.7 86.7
Other non-current liabilities 92.1 88.1
---------- ----------
Total liabilities 560.7 543.1
Stockholders' equity:
Preferred stock, 10.0 shares authorized, no shares issued -- --
Common stock, $.10 par, authorized 100.0 shares;
issued 27.9 shares in 1996 and in 1995 2.8 2.8
Additional paid-in capital 271.4 273.9
Common stock held in treasury (3.1 shares in 1996
and 3.2 shares in 1995) (83.6) (86.6)
Retained earnings 53.6 62.3
Cumulative translation adjustment (17.9) (19.1)
Equity adjustment to recognize minimum pension liability (19.7) (19.7)
Unearned portion of restricted stock awards (4.2) (4.7)
---------- ----------
Total stockholders' equity 202.4 208.9
---------- ----------
Total liabilities and stockholders' equity $ 763.1 $ 752.0
========== ==========
</TABLE>
Page 3 of 9 Pages
<PAGE> 4
THE GEON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (5.6) $ 21.4
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 13.9 15.1
Provision (credit) for deferred income taxes (1.5) 6.4
Change in assets and liabilities:
Accounts receivable (12.7) 4.3
Inventories 1.6 (20.3)
Accounts payable (2.6) (18.7)
Accrued expenses 13.2 (11.3)
Income taxes payable .9 (2.7)
Other (1.7) 11.0
------- -------
Net cash provided by operating activities 5.5 5.2
INVESTING ACTIVITIES
Purchases of property (13.2) (13.1)
------- -------
NET CASH USED BY OPERATING AND INVESTING ACTIVITIES (7.7) (7.9)
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 3.6 (1.8)
Repayment of long-term debt (.3) (.3)
Repurchase of common stock -- (11.8)
Dividends (3.1) (3.3)
Proceeds from issuance of common stock .2 .2
------- -------
Net cash provided (used) by financing activities .4 (17.0)
EFFECT OF EXCHANGE RATE CHANGES ON CASH .3 (.3)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (7.0) (25.2)
CASH AND CASH EQUIVALENTS AT JANUARY 1 61.1 47.5
------- -------
CASH AND CASH EQUIVALENTS AT MARCH 31 $ 54.1 $ 22.3
======= =======
</TABLE>
During the first three months of 1996 the Company received a net income tax
refund of $2.2. During the same period 1995 the Company made income tax payments
of $11.1. Cash payments for interest including amounts capitalized were $1.0 for
the first three months of 1996 and $2.5 for the same period of 1995.
Page 4 of 9 Pages
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note A
- - ------
The accompanying unaudited consolidated financial statements of The Geon Company
(Company or Geon) have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair financial presentation have been included. Operating results for the three
month period ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. For further
information refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1995. Certain amounts for 1995 have been reclassified to conform to the 1996
presentation.
Note B
- - ------
There are pending or threatened against the Company or its subsidiaries various
claims, lawsuits and administrative proceedings, all arising from the ordinary
course of business with respect to commercial, product liability and
environmental matters, which seek remedies or damages. The Company believes that
any liability that may finally be determined should not have a material adverse
effect on the Company's consolidated financial position.
Page 5 of 9 Pages
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Industry Conditions:
- - --------------------
Based on The Society of Plastics Industry's February 1996 data, North American
(U.S. and Canada) producer shipments of polyvinyl chloride (PVC), including
exports, are estimated to have been 8% higher in the first quarter of 1996 over
the fourth quarter of 1995 and were about 1% higher than in the same quarter in
1995. Exports from North America were equal to an annualized shipment rate of
1.4 billion pounds in the first quarter, comparable to the rate during the full
year of 1995.
Capacity utilization (shipments/capacity) for North America was estimated at 95%
of effective capacity (91% of nameplate) during the first quarter of 1996,
compared to 92% and 100% of effective capacity in the fourth and first quarters
of 1995, respectively. North American capacity is estimated to have increased 5%
and 6% since the fourth and first quarters of 1995, respectively.
Chlorine prices decreased approximately 4% in the first quarter versus both the
fourth and first quarters of 1995. Ethylene prices, decreased 5% in the first
quarter of 1996 from the previous quarter and were 26% lower than the same
period of the prior year. The spread between PVC resin prices and purchased
ethylene and chlorine in the largest PVC resin markets is estimated to have been
1.5 cents per pound lower in the first quarter of 1996 as compared to the
previous quarter and 4.5 cents per pound lower than the first quarter of 1995.
Ethylene and chlorine prices are expected to increase in the second quarter. In
1996 domestic PVC resin producers have generally realized a 4 cent per pound
increase over the February through April period. Another 4 cent per pound resin
price increase has been announced which will be effective beginning in May.
Results of Operations:
- - ----------------------
The Company had sales of $245.7 million in the first quarter versus $336.2
million in the first quarter of 1995. Net income (loss) for the first quarter of
1996 and 1995 was ($5.6) million and $21 million, respectively. In the fourth
quarter of 1995 Geon had sales of $264 million and net income of $9.0 million,
excluding the after-tax effect of employee separation costs of $4.6 million.
First quarter 1996 results reflect a combination of a decrease in PVC resin
prices less raw materials cost to levels below those seen in the last cyclical
trough, as well as operational problems at the Company's LaPorte, Texas, Vinyl
Chloride Monomer (VCM) plant and the Deer Park, Texas, PVC plant. These
operational problems resulted in lost production, higher operating maintenance
cost and the need to purchase replacement materials from third parties at costs
which were higher than the Company's production cost. Without these operating
problems, the Company would have realized a small operating profit.
The Company's average spread between resin prices and raw material costs
decreased in the first quarter of 1996 as compared to the fourth and first
quarters of 1995 in line with industry averages. While industry shipments
improved in the quarter, the Company's first quarter 1996 resin shipments were
1% above and 4% below the fourth and first quarters of 1995, respectively. The
Company's first quarter 1996 resin sales volumes were constrained by the plant
operational problems noted above. Compound sales volume in the first quarter of
1996 were approximately 1% above the same period a year ago.
During the first quarter of last year, the Company was able to sell VCM into the
export market at a substantial premium to domestic prices. This benefited the
first quarter of 1995 operating income, when compared to the first quarter of
1996, by approximately $7 million.
Interest & Other Expense:
- - -------------------------
Interest expense of $2.9 million during the first quarter of 1996 increased from
$1.7 million during the same period in 1995. The increase reflects interest
expense on higher average debt levels associated with the Company's refinancing
in December 1995. Other expense, net decreased in the first quarter 1996 as
compared to the same period in 1995 mainly from the effects of favorable foreign
currency rates and lower costs associated with the sale of accounts receivable.
Page 6 of 9 Pages
<PAGE> 7
Taxes:
- - ------
The first quarter of 1996 included an income tax benefit of $3.3 million on a
pre-tax loss of $8.9 million as compared to an income tax expense of $14.4
million in the first quarter of 1995 on pre-tax income of $35.8 million. Changes
in effective tax rates between the periods noted above were primarily
attributable to the accrual of dividend withholding taxes on foreign
subsidiaries' undistributed earnings.
Capital Resources and Liquidity:
- - --------------------------------
During the three months ended March 31, 1996, the Company used $7.7 million of
net cash from operating and investing activities which was approximately the
same as the first quarter of 1995. Lower income in 1996 was offset by a lower
increase in net operating working capital (accounts receivable plus inventory
less accounts payable).
Investing activities include the purchase of property of $13.2 million during
the first three months of 1996 which approximated the same period in 1995.
Capital expenditures for the full year of 1996 are projected to be approximately
the same as last year.
Financing activities in the first three months of 1996 primarily reflects the
payment of dividends offset by an increase in short-term debt. In the first
quarter of 1995 $11.8 million of the Company's stock was repurchased under a
February 1995 Board of Directors authorization. This authorization permits the
purchase of an additional 900,000 shares of Geon common stock by the Company.
The timing of any purchases depends on the Company's cash flow and market price
of its stock. No additional shares have been repurchased in 1996.
The Company believes that the projected cash to be provided by operations, the
existing working capital facilities and other available permitted borrowings
will provide sufficient funds to support dividends, debt service requirements
and normal capital expenditures plus expenditures associated with the previously
announced chlor-alkali plant with mechanical completion planned for in late
1997.
Environmental Matters:
- - ----------------------
The Company is subject to various federal, state and local environmental laws
and regulations concerning emissions to the air, discharges to waterways, the
release of materials into the environment, the generation, handling, storage,
transportation, treatment and disposal of waste materials or otherwise relating
to the protection of the environment.
The Company maintains a disciplined environmental and industrial safety and
health compliance program and conducts internal and external regulatory audits
at its plants in order to identify and categorize potential environmental
exposures and to ensure compliance with applicable environmental, health and
safety laws and regulations. This is an effort which has required and may
continue to require process or operational modifications, the installation of
pollution control devices and cleanups.
The Company estimates capital expenditures related to the limiting and
monitoring of hazardous and non-hazardous wastes during 1996 and 1997 to
approximate $2 million to $4 million.
The Company believes that compliance with current governmental regulations will
not have a material adverse effect on its capital expenditures, earnings, cash
flow or liquidity. At March 31, 1996, the Company had accruals totaling
approximately $28.4 million to cover future environmental remediation
expenditures. Environmental remediation expenditures are estimated to be $5
million to $8 million in 1996.
Page 7 of 9 Pages
<PAGE> 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 10, 1993, Westlake Monomers Corporation (Westlake)
brought an action against the Company and The B.F.Goodrich
Company (BFG) generally alleging that certain of Westlake's
rights pursuant to a right of first refusal agreement between BFG
and Westlake covering specified assets, generally comprised of
those located at Calvert City, Kentucky were triggered by the
Initial Public Offering of the Company by BFG in April 1993. With
the lawsuit stayed, and the issues referred to arbitration for
resolution, on October 31, 1994, the arbitrator indicated that
the right of first refusal was triggered, but the decision did
not specify a remedy. On March 29, 1995 BFG announced that the
arbitrator in that case ruled that Westlake does not have the
right to buy common shares in The Geon Company as part of an
existing right of first refusal. As discussed in the Company's
Form 10-K, BFG has previously agreed to indemnify the Company
with respect to any liabilities and expenses arising from the
Westlake lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Statement re Computation of Per Share Earnings
(b) Reports on Form 8-K
None.
Page 8 of 9 Pages
<PAGE> 9
SIGNATURE
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.
May 10, 1996 THE GEON COMPANY
/S/T. A. WALTERMIRE
----------------------------------
T. A. Waltermire
Chief Financial Officer,
(Principal Financial Officer)
/S/G. P. SMITH
----------------------------------
G. P. Smith
Controller and Assistant Treasurer
(Principal Accounting Officer)
Page 9 of 9 Pages
<PAGE> 1
EXHIBIT 11
THE GEON COMPANY
STAEMENT RE COMPUTATION OF PER SHARE EARNINGS (Unaudited)
(In millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Number of Shares
----------------
Average shares outstanding 24.7 26.3
Net effect of dilutive stock options - based on treasury stock
method using average market price .5 .6
-------- --------
Total common and common equivalent shares outstanding 25.2 26.9
======== ========
Net income (loss) per share $ (.22) $ .80
======== ========
</TABLE>
The unaudited earnings per share for all periods presented were computed
based on the weighted average number of shares of common stock outstanding
and common stock equivalents.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 7
<SECURITIES> 47
<RECEIVABLES> 115
<ALLOWANCES> 2
<INVENTORY> 91
<CURRENT-ASSETS> 291
<PP&E> 1,137
<DEPRECIATION> 695
<TOTAL-ASSETS> 763
<CURRENT-LIABILITIES> 209
<BONDS> 138
<COMMON> 3
0
0
<OTHER-SE> 199
<TOTAL-LIABILITY-AND-EQUITY> 763
<SALES> 246
<TOTAL-REVENUES> 246
<CGS> 240
<TOTAL-COSTS> 240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (9)
<INCOME-TAX> 3
<INCOME-CONTINUING> (6)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
