<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
AMENDMENT NO. 3
OCTOBER 31, 1997
THE GEON COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OF INCORPORATION)
1-11804 34-1730488
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE GEON CENTER
AVON LAKE, OHIO 44012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ) (ZIP CODE)
(440) 930-1001
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 31, 1997, a subsidiary of The Geon Company (Geon), acquired
substantially all of the issued and outstanding capital stock (the "Stock") of
Synergistics Industries Limited (Synergistics) of Mississauga, Ontario, a
manufacturer of a broad line of plastic components and raw materials in the form
of pellets, powder, and liquid plasticizer. As of the date of this filing, Geon
has acquired 100% of the outstanding stock of Synergistics. The cash purchase
price for the Stock was approximately U.S. $85,000,000. The acquisition was
financed using the proceeds of a bank loan.
Certain information regarding this transaction was included in the Geon's
quarterly report on Form 10-Q for the quarterly period ended September 30, 1997.
This Amendment No. 3 adds a conformed signature to the Report of KPMG,
Independent Auditors that was inadvertently omitted from Amendment No.2,
restates the financial statements previously filed under Item 7(a)(2) from
United States dollars to Canadian dollars, and amends Note 1(f) to the Financial
Statements of Synergistics Industries Limited for the year ended December 31,
1996. The financial statements and other information set forth herein is
otherwise identical with Amendment No. 2.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
a) Financial Statements of Business Acquired
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(1) Synergistics Industries Limited
Report of KPMG, Independent Auditors A-1
Consolidated Balance Sheet as of December 31, 1996 A-2
Consolidated Statement of Earnings and Retained
Earnings for the year ended December 31, 1996 A-3
Consolidated Statement of Cash Flows for the year
ended December 31, 1996 A-4
Notes to Consolidated Financial Statements A-5 to A-10
(2) Synergistics Industries Limited
Condensed Consolidated Balance Sheet (Unaudited) as
of September 30, 1997 B-1
Condensed Consolidated Statements of Earnings
(Unaudited) for nine months ended September 30,
1997 and 1996 B-2
Condensed Consolidated Statements of Cash Flows
(Unaudited) for nine months ended September 30,
1997 and 1996 B-3
Notes to Condensed Consolidated Financial
Statements (Unaudited) B-4
(b) Unaudited Pro Forma Condensed Consolidated Financial
Statements of The Geon Company and Synergistics
Industries Limited
Introduction C-1
Unaudited Pro Forma Condensed Consolidated Balance
Sheet as of September 30, 1997 C-2
Notes to the Unaudited Pro Forma Condensed
Consolidated Balance Sheet as of September 30, 1997 C-3
Unaudited Pro Forma Condensed Consolidated Statements
of Operations for the year ended December 31, 1996
and the nine months ended September 30, 1997 C-4 to C-5
Exhibits
Consent of Independent Auditors Exhibit 23.1
</TABLE>
1
<PAGE> 3
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 hereunto duly authorized.
THE GEON COMPANY
By: /s/ GREGORY L. RUTMAN
-------------------------------------------
Gregory L. Rutman
Secretary
Dated February 16, 1999
2
<PAGE> 4
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheet of Synergistics Industries
Limited - Les Industries Synergistics Limitee as at December 31, 1996 and the
consolidated statement of earnings and retained earnings and statements of cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and the results of its operations and the changes in its financial position for
the year then ended in accordance with accounting principles generally accepted
in Canada.
/s/ KPMG LLP Chartered Accountants
Montreal, Canada
March 6, 1997, except for Note 11 which is as of January 9, 1998
A-1
<PAGE> 5
SYNERGISTICS INDUSTRIES LIMITED -
LES INDUSTRIES SYNERGISTICS LIMITEE
CONSOLIDATED BALANCE SHEETS (IN CANADIAN DOLLARS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 1,418,017
Accounts receivable 37,406,757
Inventories 28,528,347
Other current assets 840,074
Deferred income taxes 1,685,450
------------
Total current assets 69,878,645
------------
Property, plant and equipment (note 2) 25,190,192
Other assets 283,286
------------
Total assets $ 95,352,123
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 3) $ 4,455,634
Accounts payable and accrued liabilities 44,194,546
Income taxes payable 2,313,071
Current portion of long-term debt (note 4) 1,940,200
------------
Total current liabilities 52,903,451
------------
Long-term debt (note 4) 4,441,564
Deferred income taxes 2,337,246
Shareholders' equity:
Capital stock (note 5) 16,170,499
Equity adjustment from foreign currency translation (88,189)
Retained earnings 19,587,552
------------
Total shareholders' equity
Commitments (note 7) 35,669,862
Contingent liability (note 8) ----------
Total liabilities and shareholders' equity $ 95,352,123
============
See accompanying notes to consolidated financial statements.
</TABLE>
A-2
<PAGE> 6
SYNERGISTICS INDUSTRIES LIMITED -
LES INDUSTRIES SYNERGISTICS LIMITEE
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS (IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Sales (net) $ 292,555,890
Operating costs and expenses:
Cost of sales 253,085,236
Selling and administrative 25,712,905
-------------
278,798,141
-------------
Operating income 13,757,749
Interest expense 1,037,496
-------------
Earnings before income taxes 12,720,253
Income tax provision (recovery):
Current 5,659,181
Deferred (914,264)
-------------
4,744,917
-------------
Net earnings 7,975,336
Retained earnings, beginning of year 11,612,216
-------------
Retained earnings, end of year $ 19,587,552
=============
Basic earnings per share $ 1.73
=============
Fully diluted earnings per share $ 1.54
=============
</TABLE>
See accompanying notes to consolidated financial statements.
A-3
<PAGE> 7
SYNERGISTICS INDUSTRIES LIMITED -
LES INDUSTRIES SYNERGISTICS LIMITEE
CONSOLIDATED STATEMENT OF CASH FLOWS (IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in):
Operations:
Net earnings from operations $ 7,975,336
Depreciation and amortization 5,176,072
Deferred income taxes (914,264)
Other items not affecting working capital 117,360
Net changes in non-cash working capital balances relating
to operations (693,762)
------------
11,660,742
Financing:
Net decrease in long-term debt (2,215,077)
Capital stock issued 221,687
------------
(1,993,390)
Investments:
Net additions to property, plant and equipment (4,283,235)
Other (272,956)
------------
(4,556,191)
------------
Decrease in net bank indebtedness 5,111,161
Net bank indebtedness, beginning of year (8,148,778)
------------
Net bank indebtedness, end of year $ (3,037,617)
============
Cash $ 1,418,017
Bank indebtedness (4,455,634)
------------
$ (3,037,617)
============
</TABLE>
See accompanying notes to consolidated financial statements.
A-4
<PAGE> 8
SYNERGISTICS INDUSTRIES LIMITED -
LES INDUSTRIES SYNERGISTICS LIMITEE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 (IN CANADIAN DOLLARS)
Synergistics Industries Limited - Les Industries Synergistics Limitee,
a public company, incorporated under the laws of the Province of
Ontario, has operations in Canada and the United States.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of
Synergistics Industries Limited - Les Industries Synergistics
Limitee and its subsidiary companies. All significant
intercompany accounts and transactions have been eliminated on
consolidation.
(b) Inventories:
The cost of inventories has been determined using the
first-in, first-out (FIFO) method. Inventories of finished
goods and work-in-process have been valued at the lower of
cost or market. Inventories of raw materials and supplies have
been valued at the lower of cost or market. Finished goods
inventories totaled $12,024,167 at December 31, 1996. Raw
materials and work-in-process inventories totaled $16,504,180
at December 31, 1996.
(c) Depreciation and amortization of property, plant and
equipment:
Depreciation is computed at rates which are estimated to
amortize the cost of the assets over their estimated useful
lives, the details of which are set forth below:
<TABLE>
<CAPTION>
ASSET RATE
----- ----
<S> <C>
Buildings 15 - 20 years
Factory equipment 3 - 10 years
Office equipment 3 - 10 years
Equipment under capital leases 4 - 7 years
</TABLE>
(d) Amortization of goodwill:
Prior to 1996 goodwill arising on the acquisition of a
subsidiary company was amortized over 25 years using the
straight-line method. In 1996, the goodwill was considered to
have no continuing value to the Company and the remaining
unamortized balance was written off.
(e) Debt issue costs and deferred charges:
Expenditures made in connection with the issue of debt
securities are deferred and amortized over the term of the
debt.
(f) Revenue recognition:
The Company recognizes revenues at the point of passage of
title, which is the time of shipment.
(g) Derivative financial instruments:
The Company purchases forward foreign exchange contracts to
manage foreign currency exposures on raw material purchases.
Any gain or loss on the contract based on the current exchange
rate is recognized immediately.
A-5
<PAGE> 9
(h) Foreign currency translation:
Assets and liabilities of U.S. subsidiaries are translated at
the exchange rate in effect at the end of the period. Revenues
and expenses of the U.S. subsidiaries are translated at the
average rate in effect for the period. The resulting
translation gain or loss is reported as a component of
shareholders' equity. Gains and losses resulting from
transactions denominated in currencies other than the
applicable functional currency are included in income. Gains
and losses resulting from assets and liabilities held in
currencies other than the applicable functional currency are
also included in income.
(i) Earnings per common share:
Basic earnings per common share are based on the weighted
average number of shares of common stock outstanding during
the period. Fully diluted earnings per common share are based
upon common stock and common stock equivalents outstanding
during the period.
(j) Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------------ ------------ -----------
<S> <C> <C> <C>
Land $ 1,235,808 $ -- $ 1,235,808
Buildings 15,247,821 6,633,480 8,614,341
Factory equipment 48,654,992 35,925,688 12,729,304
Office equipment 3,941,408 2,255,489 1,685,919
Equipment under capital leases 2,182,466 1,257,646 924,820
----------- ----------- -----------
$71,262,495 $46,072,303 $25,190,192
=========== =========== ===========
</TABLE>
3. BANK INDEBTEDNESS:
At December 31, 1996, the Company had revolving demand loans of
$3,291,514 and $1,164,120 (US$849,351) included in bank indebtedness, a
term loan of $5,579,506 included in long-term debt (note 4), a
documentary letter of credit of US$111,720 outstanding with an expiry
date of January 30, 1997 and a standby letter of credit of US$1,250,000
outstanding under this agreement. These loans are secured by
substantially all of the assets of the Company. At December 31, 1996,
the Company had $20,544,366 available under its revolving loan
agreements.
A-6
<PAGE> 10
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S> <C>
Term loan, maturing June 30, 1999 with quarterly installments, bearing
interest at the Company's option of either the bank prime plus 3/4%
or the Bankers' Acceptance rate plus 1-1/2%. This loan is secured by
substantially all of the assets of the Company (note 3) $5,579,506
Obligations under capital leases in US dollars, having implicit
interest rates from 9.00% to 10.28%, expiring
between 1997 and 2000 629,454
Obligations under capital leases having implicit interest
rates from 10.74% to 12.56%, expiring between 1998 and 1999 172,804
----------
6,381,764
Less current portion included in current liabilities 1,940,200
----------
$4,441,564
==========
</TABLE>
The aggregate amount of long-term debt required to be repaid is:
<TABLE>
<CAPTION>
CDN US
$ $
- -
<S> <C> <C>
1997 $1,511,693 $312,641
1998 1,625,049 52,884
1999 2,615,568 58,567
2000 -- 35,161
</TABLE>
5. CAPITAL STOCK:
(a) Capital stock consists of:
<TABLE>
<CAPTION>
<S> <C>
Class A non-voting shares:
Authorized: an unlimited number of shares without par value $16,128,260
Common shares:
Authorized: an unlimited number of shares without par value 42,239
-----------
$16,170,499
===========
</TABLE>
The following details the changes in the components of shareholders'
equity:
<TABLE>
<CAPTION>
NUMBER OF FOREIGN
NUMBER OF CLASS A CLASS A CURRENCY
COMMON NON-VOTING NON-VOTING COMMON RETAINED TRANSLATION
SHARES SHARES SHARES SHARES EARNINGS ADJUSTMENT
------ ------ ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 34,264 4,556,187 $15,906,573 $ 42,239 $11,612,216 $ (139,028)
Shares issued upon exercise of
stock options -- 62,750 221,687 -- -- --
Foreign currency translation
adjustment -- -- -- -- -- 50,839
Net earnings -- -- -- -- 7,975,336 --
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 34,264 4,618,937 $16,128,260 $ 42,239 $19,587,552 $ (88,189)
=========== =========== =========== =========== =========== ===========
</TABLE>
(b) Stock options:
Under stock option plans for key employees, 954,200 class A non-voting
have been reserved for issuance. Options have been granted and are
outstanding at December 31, 1996 for 637,731 class A non-voting shares,
including 42,300 granted in 1996, exercisable in stages to March 2006
at prices between $3.00 and $4.65 per share. In 1996, 62,750 class A
non-voting share options were exercised for proceeds of $221,687.
A-7
<PAGE> 11
6. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
The fair value of the Company's cash, accounts receivable, bank
indebtedness, accounts payable, accrued liabilities and long-term debt
approximate their carrying value.
7. COMMITMENTS:
Minimum payments required over the next five years under various rental
agreements are approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $1,328,200
1998 1,019,800
1999 651,800
2000 289,100
2001 83,800
</TABLE>
Rent expense was $1,066,939 for the year ended December 31, 1996.
8. CONTINGENT LIABILITY:
The Company and its US operating subsidiaries are being sued for US
$3,000,000 by a customer, who is also a supplier and major competitor,
for alleged damages relating to product produced by a subsidiary in
1995. The Company denies any responsibility in this matter and
management is of the opinion that this case is totally without
foundation.
9. INCOME TAXES:
The income tax rate for financial reporting purposes varied from the
Basic Canadian federal rate as follows:
<TABLE>
<CAPTION>
<S> <C>
Effective income tax rate:
Basic Canadian federal tax 22.1%
Permanent differences and other adjustments 2.5
Higher effective US federal tax on US subsidiaries 5.0
Provincial and state income taxes net of federal deductions
where applicable 7.7
----
Effective income tax rate 37.3%
----
</TABLE>
Significant components of the Company's deferred tax asset and
liability at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset:
Accrued liabilities $1,366,385
Deferred compensation and other employee accruals 416,802
Accounts receivable 391,118
Inventory (131,930)
Canadian tax credits (356,925)
----------
Total deferred tax asset 1,685,450
----------
Deferred tax liability:
Tax over book depreciation 2,283,680
Other 53,566
----------
Total deferred tax liability 2,337,246
----------
Net deferred tax liability $ 651,796
----------
</TABLE>
A-8
<PAGE> 12
A summary of income tax expense is as follows:
<TABLE>
<CAPTION>
<S> <C>
Current:
Canada $3,315,000
United States 2,344,181
------------
Total current 5,659,181
------------
Deferred:
Canada (445,275)
United States (468,989)
------------
Total deferred (914,264)
------------
Total tax expense $4,744,917
------------
10. SEGMENTED INFORMATION BY GEOGRAPHIC AREA:
Assets:
Canadian operations $ 51,632,668
United States operations 41,688,483
Corporate and eliminations 2,030,972
------------
$ 95,352,123
------------
Sales (net):
Canadian operations $156,581,579
United States operations 156,291,376
Inter-segment transfers (20,317,065)
------------
$292,555,890
------------
Operations:
Canadian earnings from operations $ 12,158,216
United States earnings from operations 6,225,108
------------
18,383,324
Corporate expenses and eliminations 4,625,575
Interest expense 1,037,496
Income tax provision 4,744,917
------------
Net earnings $ 7,975,336
------------
</TABLE>
11. SUBSEQUENT EVENT:
Subsequent to year end, on October 31, 1997, substantially all of the
outstanding capital stock of the Company was purchased by The Geon
Company.
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES:
The financial statements have been prepared in accordance with
accounting principles generally accepted in Canada which, in the case
of the Company conform in all material respects with those in the
United States, except for the following disclosures:
(a) Short-term bank borrowings have been netted against
cash and cash equivalents presented in the consolidated
statements of cash flows to arrive at net cash (bank
indebtedness). If U.S generally accepted accounting
principles had been followed, the short-term bank
borrowings would be included in financing activities
and amounts on the consolidated statement of cash flows
would be adjusted as follows:
A-9
<PAGE> 13
Cash provided by financing activities $ 6,894,706
Net increase in cash during the period 209,845
Cash position, end of period 1,418,107
(b) Interest expense for the year ended December 31, 1996
approximates the interest paid during the same period. Income
taxes paid totaled $2,817,592 in 1996.
(c) The closing exchange rates for United States Dollars as a ratio
of Canadian Dollars was 1.37 at December 31, 1996. The average
exchange rate for the year ended December 31, 1996 was 1.36.
A-10
<PAGE> 14
SYNERGISTICS INDUSTRIES LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN MILLIONS OF CANADIAN DOLLARS )
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
----
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 3.6
Accounts receivable, net of allowance 47.5
Inventories 33.1
Deferred income taxes 1.7
Prepaid expenses and other current assets 2.9
--------
Total current assets 88.8
Property and equipment 75.0
Allowances for depreciation and amortization (50.0)
--------
Property and equipment, net 25.0
Deferred charges and other assets 0.2
--------
Total assets $ 114.0
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 56.6
Accrued expenses 6.3
Current portion of long-term debt 1.5
--------
Total current liabilities 64.4
Long-term debt 3.6
Deferred income taxes 1.9
--------
Total liabilities 69.9
Shareholders' equity:
Capital stock 17.1
Foreign currency translation adjustment 0.1
Retained earnings 26.9
--------
Total shareholders' equity 44.1
--------
Total liabilities and shareholders' equity $ 114.0
========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
B-1
<PAGE> 15
SYNERGISTICS INDUSTRIES LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN MILLIONS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Sales $ 244.9 $ 217.4
Operating costs and expenses:
Cost of sales 211.3 188.4
Selling and administrative 21.5 19.4
-------- --------
Operating earnings 12.1 9.6
Interest expense (0.5) (0.9)
-------- --------
Earnings before income taxes 11.6 8.7
Income tax expense (4.3) (3.2)
-------- --------
Net earnings $ 7.3 $ 5.5
======== ========
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
B-2
<PAGE> 16
SYNERGISTICS INDUSTRIES LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS OF CANADIAN DOLLARS )
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net earnings $ 7.3 $ 5.5
Depreciation and amortization 3.8 3.5
Deferred income taxes (0.4) (0.2)
Net changes in non-cash operating assets and liabilities 1.7 (0.3)
------- ------
Cash provided by operating activities 12.4 8.5
Investing activities:
Purchases of property and equipment (4.2) (2.6)
Other (1.2) (0.5)
------- ------
Cash used in investing activities (5.4) (3.1)
Financing activities:
Repayments of long-term debt (1.2) (1.3)
Repayments of short-term borrowings (4.5) (5.4)
Proceeds from issuance of capital stock 0.9 0.1
------- ------
Cash used in financing activities (4.8) (6.6)
------- ------
Increase (decrease) in Cash 2.2 (1.2)
Cash, beginning of period 1.4 1.2
------- ------
Cash, end of period $ 3.6 $ --
======= ======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
B-3
<PAGE> 17
SYNERGISTICS INDUSTRIES LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN MILLIONS OF CANADIAN DOLLARS)
NOTE A
The accompanying unaudited condensed consolidated financial statements of
Synergistics Industries Limited (Synergistics) 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 nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to the consolidated financial
statements and notes thereto for the year ended December 31, 1996, included
elsewhere in this Form 8-K/A.
NOTE B
Inventories at September 30, 1997 consist of $13.3 million of finished goods and
$19.8 million of raw materials and work-in-process inventories.
NOTE C
On October 31,1997, substantially all of the outstanding common stock of
Synergistics was acquired by The Geon Company. All outstanding stock options
were exercised prior to the expiration of the tender offer by The Geon Company.
NOTE D
There are pending or threatened against Synergistics various claims which seek
remedies or damages, all of which arise in the ordinary course of business.
Synergistics believes that any liability that may finally be determined will not
materially impact its financial position.
B-4
<PAGE> 18
THE GEON COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated balance sheet as of September 30,
1997 has been prepared to reflect the financial position of the The Geon Company
(Geon) as if the acquisition of Synergistics Industries Limited (Synergistics)
occurred as of September 30, 1997. The unaudited pro forma condensed
consolidated statement of operations for the year ended December 31, 1996 has
been prepared to reflect the results of operations of Geon as if the acquisition
of Synergistics occurred as of January 1, 1996. The unaudited pro forma
condensed consolidated statement of operations for the nine months ended
September 30, 1997 has been prepared to reflect the results of operations of
Geon as if the acquisition of Synergistics occurred as of January 1, 1997. The
information is not designed to represent and does not represent what Geon's
results of operations would have been had the aforementioned transaction been
completed as of the beginning of the period indicated, or to project Geon's
results of operations for any future period. The pro forma adjustments,
including the purchase price adjustments reflected in the unaudited pro forma
condensed consolidated financial statements to give effect to the acquisition of
Synergistics, are based on available information and certain assumptions that
Geon believes are reasonable in these circumstances.
C-1
<PAGE> 19
THE GEON COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
---------
HISTORICAL
---------- AS
GEON SYNERGISTICS ADJUSTMENTS ADJUSTED
---- ------------ ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 25.5 $ 2.6 $ 1.2(a) $ 29.3
Accounts receivable, less allowance
for doubtful receivables 87.4 34.4 - 121.8
Inventories 93.5 23.9 0.9(b) 118.3
Deferred income taxes 19.6 1.2 - 20.8
Prepaid expenses 12.1 2.0 - 14.1
-------- ------ ------ --------
Total current assets 238.1 64.1 2.1 304.3
Property:
Land, buildings, machinery and
equipment 1,160.2 54.1 4.0(c) 1,182.2
(36.1)(d)
Allowances for depreciation and
amortization (732.3) (36.1) 36.1(d) (732.3)
-------- ------ ------ --------
Property, net 427.9 18.0 4.0 449.9
Deferred charges and other assets 127.6 0.2 69.1(e) 196.9
-------- ------ ------ --------
TOTAL ASSETS $ 793.6 $ 82.3 $ 75.2 $ 951.1
======== ====== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank debt $ 53.1 $ -- $ 85.0 (f) $ 141.8
3.7 (g)
Accounts payable 130.1 41.0 -- 171.1
Accrued expenses 55.0 4.4 4.6 (h) 66.9
2.9 (i)
Current portion of long-term debt 0.7 1.1 (1.1)(g) 0.7
-------- ----- ------- --------
Total current liabilities 238.9 46.5 95.1 380.5
Long-term debt 136.7 2.6 (2.6)(g) 136.7
Deferred income taxes 38.6 1.4 (9.0)(j) 31.0
Postretirement benefits other than
pensions 86.7 -- -- 86.7
Other non-current liabilities 65.6 -- 23.5 (k) 89.1
-------- ----- ------- --------
Total liabilities 566.5 50.5 107.0 724.0
Stockholders' equity:
Capital stock, paid-in capital
and treasury stock 184.0 12.5 (13.7)(l) 184.0
1.2 (a)
Retained earnings 68.6 19.7 (19.7)(l) 68.6
Cumulative translation adjustment (21.3) (0.4) 0.4 (l) (21.3)
Other (4.2) -- -- (4.2)
-------- ----- ------ --------
Total stockholders' equity 227.1 31.8 (31.8) 227.1
-------- ----- ------ --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 793.6 $82.3 $ 75.2 $ 951.1
======== ===== ====== ========
</TABLE>
See notes to the unaudited pro forma condensed consolidated balance sheet
C-2
<PAGE> 20
THE GEON COMPANY
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN MILLIONS OF U.S. DOLLARS)
(a) Represents the exercise of outstanding stock options prior to the
acquisition of Synergistics stock by Geon.
(b) Represents the adjustment to inventory based on fair values under the
purchase method of accounting.
(c) Represents the adjustment to property based on fair values under the
purchase method of accounting.
(d) Represents the elimination of accumulated depreciation as of September
30, 1997 under the purchase method of accounting.
(e) Represents the net increase in intangible assets due to the application
of purchase accounting for the net assets acquired in the Synergistics
acquisition.
(f) Represents the funding required to effect the acquisition of
Synergistics, initially financed with short-term borrowings which are
expected to be refinanced on some extended basis in 1998.
(g) Represents the repayment of Synergistics pre-acquisition long-term debt
with the proceeds of short-term borrowings.
(h) Represents an increase to accrued liabilities for bonuses awarded by
Synergistics to its employees in connection with the acquisition. Due
to the non-recurring nature of these bonuses, the related expense has
not been shown in the pro forma statements of operations.
(i) Represents accrual of costs directly related to the acquisition.
(j) Represents deferred income taxes, at an estimated effective tax rate of
39%, resulting from financial reporting and tax reporting basis
differences in assets acquired and liabilities assumed in the
Synergistics acquisition.
(k) Represents the net increase to the accrued environmental liabilities of
Synergistics to remediate facilities to Geon's historical environmental
operating practices.
(l) Elimination of shareholders' equity in connection with the Synergistics
acquisition.
(m) Amounts have been translated at the currency exchange rate in effect at
September 30, 1997.
C-3
<PAGE> 21
THE GEON COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
GEON SYNERGISTICS ADJUSTMENTS AS ADJUSTED
---- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,144.4 $ 167.9 $ -- $ 1,312.3
Operating costs and expenses:
Cost of Sales 1,061.8 138.9 0.9(a) 1,201.8
0.2(b)
Selling and administrative 52.7 18.9 2.0(c) 73.6
----------- --------- ---------- ----------
1,114.5 157.8 3.1 1,275.4
----------- --------- ---------- ----------
Operating income 29.9 10.1 (3.1) 36.9
Interest expense (10.8) (0.8) (5.5)(d) (17.1)
Interest income 1.4 -- -- 1.4
Other income, net 0.2 -- -- 0.2
----------- --------- ---------- ----------
Income before income taxes 20.7 9.3 (8.6) 21.4
Income tax expense (8.5) (3.5) 2.6(e) (9.4)
----------- --------- ---------- ----------
NET INCOME $ 12.2 $ 5.8 $ (6.0) $ 12.0
=========== ========= ========== ==========
EARNINGS PER SHARE $ 0.50 $ 0.49
=========== ==========
NUMBER OF SHARES USED TO
COMPUTE EARNINGS PER SHARE 24.6 24.6
==== ====
</TABLE>
(a) Represents the one-time incremental cost of sales due to the write-up
of inventory to fair market value, under the purchase method of
accounting.
(b) Represents incremental depreciation expense due to the write-up of
property to fair market value under the purchase method of accounting.
(c) Represents the incremental amortization due to the application of
purchase accounting in the Synergistics acquisition resulting from the
excess of the purchase price paid over net assets acquired. Intangible
assets includes goodwill that is amortized over 35 years and is
nondeductible for income tax purposes.
(d) Includes incremental interest expense based on the imputed funding
required to effect the acquisition of Synergistics. The interest rate
used of 6.5% is an estimated long-term rate.
(e) To record the tax effect of the pro-forma adjustments using an
estimated 39% income tax rate.
(f) Amounts have been translated at the average currency exchange rate for
the period.
C-4
<PAGE> 22
THE GEON COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
GEON SYNERGISTICS ADJUSTMENTS AS ADJUSTED
---- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 937.7 $ 177.9 $ -- $ 1,115.6
Operating costs and expenses:
Cost of Sales 846.5 153.4 0.9 (a) 1,000.9
0.1 (b)
Selling and administrative 35.6 15.7 1.5 (c) 52.8
Employee separation 15.0 -- -- 15.0
--------- --------- ---------- ----------
897.1 169.1 2.5 1,068.7
--------- --------- ---------- ----------
Operating income 40.6 8.8 (2.5) 46.9
Interest expense (8.4) (0.3) (4.1)(d) (12.8)
Interest income 0.4 -- -- 0.4
Other expense, net (4.5) -- -- (4.5)
--------- --------- ---------- ----------
Income before income taxes 28.1 8.5 (6.6) 30.0
Income tax expense (9.1) (3.2) 2.0 (e) (10.3)
--------- --------- ---------- ---------
NET INCOME $ 19.0 $ 5.3 $ (4.6) $ 19.7
========= ========= ========== =========
EARNINGS PER SHARE $ 0.81 $ 0.84
========= =========
NUMBER OF SHARES USED TO
COMPUTE EARNINGS PER SHARE 23.5 23.5
==== ====
</TABLE>
(a) Represents the one-time incremental cost of sales due to the write-up
of inventory to fair market value, under the purchase method of
accounting.
(b) Represents incremental depreciation expense due to the write-up of
property to fair market value under the purchase method of accounting.
(c) Represents the incremental amortization due to the application of
purchase accounting in the Synergistics acquisition resulting from the
excess of the purchase price paid over net assets acquired. Intangible
assets includes goodwill that is amortized over 35 years and is
nondeductible for income tax purposes.
(d) Includes incremental interest expense based on the imputed funding
required to effect the acquisition of Synergistics. The interest rate
used of 6.5% is an estimated long-term rate.
(e) To record the tax effect of the pro-forma adjustments using an
estimated 39% income tax rate.
(f) Amounts have been translated at the average currency exchange rate for
the period.
C-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-80522) of The Geon Company and in the related prospectus, in the
Registration Statement (Form S-8 No. 33-92398) pertaining to The Geon Retirement
Savings Plan, in the Registration Statement (Form S-8 No. 33-80262) pertaining
to The Geon Company Deferred Compensation Plan for Non-Employee Directors, in
the Registration Statement (Form S-8 No. 33-62112) pertaining to The Geon
Company Incentive Stock Plan, in the Registration Statement (Form S-8 No.
33-65520) pertaining to The Geon Company Retirement Plus Savings Plan, and in
the Registration Statement (Form S-8 No. 33-65518) pertaining to The Geon
Company Retirement Plus Savings Plan for Wage Employees of our report dated
March 6, 1997, with respect to the consolidated financial statements included
herein.
/s/ KPMG LLP Chartered Accountants
Montreal, Canada
January 27, 1998
