<PAGE> 1
================================================================================
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998. COMMISSION FILE NUMBER 1-11804
THE GEON COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 34-1730488
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Geon Center, Avon Lake, Ohio 44012-0122
(Address of principal executive offices) (Zip-Code)
Registrant's telephone number, including area code (440) 930-1000
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.10 per share New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock, consisting solely of common
stock, held by non-affiliates of the registrant as of March 15, 1999 was
approximately $555.6 million. On such date, 23,477,835 of such shares of the
registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders are
incorporated by reference into Part III.
The Exhibit Index is located herein beginning at sequential page I-1.
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 2
ITEM 1. DESCRIPTION OF THE BUSINESS.
GENERAL
The Geon Company, together with its subsidiaries (the Company), is the
world's largest manufacturer and marketer of polyvinyl chloride (PVC) compounds,
the largest North American manufacturer of PVC dispersion resins, and a leading
North American producer of PVC resins. PVC is the world's second most widely
used plastic. It is an attractive alternative to traditional materials such as
glass, metal and wood and other plastic materials because of its versatility,
durability and cost competitiveness. PVC's largest applications are associated
with infrastructure development; building products and consumer durable goods.
The Company also produces vinyl chloride monomer (VCM), an intermediate
precursor to PVC. The Company's operations are located primarily in the United
States and Canada in two business segments. The "Performance Polymers and
Services" (PP&S) segment includes PVC compounds, two compounding joint ventures,
specialty resins, plastisol formulators and analytical testing services. During
1998, the Company acquired three plastisol (see "Products" below) formulator
businesses, Plast-o-meric, Inc., the Wilflex Division of Flexible Products
Company and Adchem, Inc. These acquisitions added a total of approximately 300
employees at 5 locations. Geon is the only specialty resin producer with
downstream integration into plastisol formulators. In addition, PP&S includes
the newly formed "Decillion" joint venture with Owens Corning that will market
and manufacture material systems based on a unique technology for reinforced
thermoplastic polymers. Geon owns 40% of the joint venture. The "Resin and
Intermediates" (R&I) segment includes suspension and mass resins, vinyl chloride
monomer (VCM), the Company's 50% equity holding in the Sunbelt chlor-alkali
joint venture and the Company's 37.4% holding in Australian Vinyls Corporation
(AVC), an Australian PVC operation. As of December 31, 1998, the Company's North
American nameplate commodity suspension/mass PVC resin capacity was
approximately 2.6 billion pounds, or approximately 18% of total U.S. and
Canadian PVC capacity.
On December 22, 1998, the Company entered into agreements to form a PVC
partnership and a Compounding partnership with Occidental Chemical Corporation
(OxyChem). The Company will contribute a substantial portion of the assets and
liabilities of its R&I business segment to the PVC partnership, which will
operate a business that produces and markets PVC suspension and mass resins, VCM
and chlor-alkali products. In exchange, Geon will receive a 24% interest in the
PVC partnership and the PVC partnership will assume certain liabilities and
obligations of Geon. The Company's equity holdings in the Sunbelt chlor-alkali
venture and the Australian resin operations (AVC) will not be contributed to the
PVC partnership. The Compounding partnership will operate a powder/dry blend
compounding business and will be 90% owned by Geon. In conjunction with the
transactions, Geon will realize $110 million through retention of certain
working capital and distribution of cash from the PVC partnership. OxyChem will
also transfer to Geon a PVC flexible film and pellet compounding plant in
Burlington, New Jersey and a specialty pellet compound business primarily
located in Pasadena, Texas. The formation of the partnerships is subject to
certain conditions, including approval of the Company's stockholders.
PRODUCTS
The Company's PP&S products include PVC compounds, specialty resins,
and plastisol formulations. In addition, the Company offers its analytical,
testing and problem-solving capabilities to customers and suppliers through its
subsidiary, Polymer Diagnostics Inc. With the acquisitions of three formulator
businesses in 1998, the Company added urethane powder coatings, vinyl plastisol
inks used in ink transfers and polymer additives, such as blowing agents and
pigments, to its products.
PVC compounds are made by combining vinyl resin with additives.
Depending upon the additives used, the compound can be either rigid and
impact-resistant or soft and flexible. PVC compounds are fabricated by customers
of the Company through extrusion, calendaring, injection-molding or
blow-molding. Flexible PVC compounds are used for wire and cable insulation,
automotive interior and exterior trim, packaging and medical devices. The
Company also manufactures plastisizers which add the property of flexibility to
PVC. Rigid extrusion PVC compounds are commonly used in window frames, vertical
blinds and construction applications. Injection-molding PVC compounds are used
in specialty parts like business machine components, appliance parts and
bottles. The Company's development of PVC compounds that can be injection-molded
into thin-walled complex parts or that have other unique characteristics has
opened new applications and markets for PVC. Specialty resins are much finer in
particle size than suspension resins and when compounded with plasticizers they
take on soft, flexible characteristics. They are used primarily in wire
2
<PAGE> 3
and metal coatings, vinyl flooring, vinyl wall coverings and automotive
interiors, as well as in consumer products such as toys. The Company supports
its PP&S products by providing service to customers through enhanced customer
support. The Company's sales force works with engineering and marketing experts
of original equipment to create new uses for PVC products and to replace more
costly plastics and other traditional materials such as wood, glass or aluminum
through the development of cost-effective solutions that meet specific customer
needs. In addition, the Company uses a combination of material science,
computer-aided design and prototype part production capabilities to assist
customers in the development and application of new uses for higher-performance
PVC compounds.
The Company's R&I products include PVC suspension and mass resins and
VCM. PVC suspension and mass resins, named for the different processes used to
produce them, are powders that cannot be used without the addition of
ingredients to form a vinyl compound. Suspension/mass resins can be further
categorized as general purpose and special purpose resins. General purpose
resins comprise the largest portion of resins by volume and are typically used
in rigid applications such as pipe and exterior siding. Special purpose resins
are a broad category of resins possessing unique characteristics such as color
and clarity and are used in a wide variety of applications such as film, medical
and automotive products. Geon's PVC resin production supplies the Company's
compounding operations. In addition, the Company sells PVC resin to third party
trade customers. VCM produced by the Company is used primarily internally in the
production of PVC resin. The Company supplies approximately one-third of its
chlorine requirements through the Sunbelt joint venture arrangement with Olin
Corporation.
Additional financial information related to business segments and
geographic regions is included in Note Q to the Consolidated Financial
Statements.
COMPETITION
The Company competes with major U.S. chemical manufacturers and
diversified companies, some of which have greater financial resources than the
Company. Competition in the industry is based upon factors, the importance of
which vary depending on the specific characteristics of the product and the
applicable market, ranging from price and availability to product performance
and customer and technical support. With respect to the R&I segment, the Company
competes primarily with seven major North American PVC producers: Borden
Chemicals and Plastics Limited Partnership; CONDEA Vista Chemical Company (a
subsidiary of RWE-DEA Hamburg, Germany); Formosa Plastics Corporation U.S.A. (a
subsidiary of Formosa Plastic Group, Taipei, Taiwan); Georgia Gulf Corporation;
Occidental Chemical Corporation (a subsidiary of Occidental Petroleum
Corporation), Shintech, Inc. (a subsidiary of Shin Etsu Chemical Co., Ltd.,
Tokyo, Japan) and The Westlake Group. The key competitive factors are price,
product availability and performance. In 1998, the eight largest resin producers
(one of which is the Company) accounted for approximately 90% of the total
estimated resin capacity. None of the producers had more than 20% of total resin
capacity.
Because there is no single PVC compound market, the manner in which the
Company competes varies from market to market, although in each market the
Company competes primarily on the basis of product consistency and customer
service in addition to price. In certain PVC compound markets, such as pipe
fittings, wire and cable, and bottles, the Company competes with other PVC resin
manufacturers. In the markets for higher performance PVC compounds, such as
extrusion and injection molding compounds for business equipment, appliances,
telecommunications and construction, the Company competes less with traditional
PVC manufacturers and more with other non-PVC plastic manufacturers, such as
General Electric Company, Bayer AG and The Dow Chemical Company. Manufacturing
margins and prices in these markets tend to be higher and more stable than PVC
resin and other compound markets, although such areas have higher support costs
comprised of sales, marketing, technical service, customer support and research
and development. Competitors in the specialty resin market include many of the
PVC resin competitors discussed under R&I competition above. Plastisol
formulator competition is characterized by a large number of formulators, many
of them independent, non-public companies. Approximately 5-10 of these
formulators, including Geon, account for the majority of formulator sales in
North America.
RAW MATERIALS
The Company produces the majority of the VCM it requires for the
manufacture of PVC at its plant in LaPorte, Texas. In April 1996, the Company
expanded the capacity of the LaPorte facility by 800 million pounds, bringing
its capacity to 2.4 billion pounds. In addition, the Company has a long-term
Canadian VCM
3
<PAGE> 4
supply contract providing substantially all VCM requirements for the Company's
Canadian PVC resin production located in Scotford, Alberta. The Canadian supply
contract remains effective through 2000.
The two principal raw materials used by the Company to manufacture VCM
are ethylene and chlorine. The majority of the Company's ethylene requirements
are provided under three long-term supply agreements with the largest having an
initial term through December 31, 2005. The other significant long-term supply
agreements expire at the end of 2003 and 2005. The Company has over 95% of its
anticipated ethylene requirements under contract for 1999.
The Company sources its chlorine requirements three ways: (1) Sunbelt
chlor-alkali joint venture participation; (2) agreement with Bayer Corporation
for hydrogen chloride; and (3) third party purchases.
The Company has a 50% participation in a chlor-alkali plant under a
joint venture agreement with Olin Corporation. The plant, which began operations
in the fourth quarter of 1997, has a capacity of 250,000 tons. A future plant
expansion to a capacity of 400,000 tons can be accommodated.
Further, the Company has an agreement with Bayer Corporation under
which a pipeline transports by-product anhydrous hydrogen chloride from Bayer's
plant to Geon's nearby LaPorte, Texas plant. This anhydrous hydrogen chloride is
converted to chlorine for use in the VCM production process. This pipeline
became fully operational in October 1998 and provides for delivery of anhydrous
hydrogen chloride sufficient to provide 250,000 tons of chlorine.
The remainder of the Company's chlorine requirements are purchased from
third parties through long-term supply agreements (other than those discussed
above) and on the spot-market. The Company's primary long-term chlorine supply
agreements are with three different domestic suppliers which expire through
2005. These supply agreements generally contain volume commitments and various
pricing mechanisms which management believes provide a cost-effective sourcing
of chlorine.
Historically, chlorine and ethylene have been produced in the United
States at a lower cost than elsewhere in the world. This cost advantage has
resulted in U.S. producers of PVC having lower raw material costs than their
counterparts in many other parts of the world. In addition to the raw materials
for VCM, the Company purchases a variety of additives to manufacture its
compound products. These materials generally have adequate alternative sources
of supply and are not purchased under multi-year contracts.
In conjunction with the formation of the joint venture with OxyChem,
Geon will enter into a resin and VCM supply agreement with the PVC partnership
under which it will purchase a substantial portion of its PVC resin and all of
Geon's VCM requirements. The agreements will have an initial term of 15 years
with renewal options. The supply agreement will assure availability of supply,
technical development and support and competitively priced PVC resin and VCM.
The PVC resin supply contract includes price formulas that have market and cost
based features. The Company believes that the pricing under the PVC resin
supply contract approximates the market price that would be available to a
purchaser of similar volumes for similar transactions with third parties.
RESEARCH AND DEVELOPMENT
The Company has developed substantial research and development
capability. The Company's efforts are devoted to (i) providing support to its
manufacturing plants for cost reduction, productivity and quality improvement
programs, (ii) providing quality technical services to assure the continued
success of its products for its customers' applications, (iii) providing
technology for improvements to its products, processes and applications, and
(iv) developing new products to satisfy defined market needs. The Company
operates a research and development center in Avon Lake, Ohio. The laboratory is
equipped with modern analytical, synthesis, polymer characterization and testing
equipment and pilot plants and polymer compounding operations which simulate the
production facilities for rapid translation of new technology into new products.
Expenditures for Company sponsored product research and product
development in 1998, 1997 and 1996 were $15.0 million, $17.1 million and $17.5
million, respectively. Expenditures in 1999 are projected to remain at
approximately the same level as in 1998.
EMPLOYEES
As of December 31, 1998, the Company had approximately 2,400 full-time
employees of whom approximately 180 employees are covered by collective
bargaining agreements which expire in July 2000, November 2000 and July 2001.
The bargaining unit employees are employed at the Company's plant in Kentucky
and the acquired Synergistics plants located in Canada. The Company considers
its employee relations to be good.
4
<PAGE> 5
ENVIRONMENTAL, HEALTH AND SAFETY
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 endeavors
to ensure the safe and lawful operation of its facilities in manufacturing and
distribution of products and believes it is in compliance in all material
respects with applicable laws and regulations.
The Company maintains a disciplined environmental and occupational
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 and the
installation of pollution control devices and cleanups.
The Company's capital expenditures related to the limiting and
monitoring of hazardous and non-hazardous wastes totaled $4 million, $4 million
and $3 million in 1998, 1997, and 1996, respectively. In addition, the Company
estimates capital expenditures for future environmental improvement programs to
approximate $3 million to $5 million in 1999. The projected future capital
expenditures are associated with a wide variety of environmental projects such
as compliance with anticipated new regulations, achievement of internal company
programs and improved operating efficiencies, and expenditures to remediate the
acquired facilities to the historical environmental operating practices of Geon.
The primary areas for future environmental capital expenditures can be broadly
categorized as solid waste, air quality, waste water and ground water
improvements. Expenditures for remediating various sites were $5.3 million, $5.0
million and $6.1 million in 1998, 1997 and 1996, respectively. Expenditures in
1999 for remediation of these sites are projected to be $5 million to $7
million.
The Company has been notified by the U.S. Environmental Protection
Agency, a state environmental agency, or a private party that it may be a
potentially responsible party (PRP) in connection with seven active and inactive
non-Company owned sites. While government agencies frequently claim PRPs are
jointly and severally liable at these sites, in the Company's experience,
interim and final allocation of liability costs are generally made based on the
relative contribution of waste. The Company believes that it has potential
continuing liability with respect to only four such sites. In addition, the
Company initiates corrective and preventive environmental projects of its own to
ensure safe and lawful activities at its operations. The Company believes that
compliance with current governmental regulations at all levels will not have a
material adverse effect on its financial condition. Based on estimates prepared
by the Company's environmental engineers and consultants, the Company, at
December 31, 1998, had accruals totaling $45.9 million to cover probable future
environmental expenditures related to previous contaminated sites. The accrual
represents the Company's best estimate for the remaining remediation costs based
upon information and technology currently available. Depending upon the results
of future testing and the ultimate remediation alternatives undertaken at these
sites, it is possible that the ultimate costs to be incurred could be more than
recorded at December 31, 1998 by as much as $14 million. The Company's estimate
of the liability may be revised as new regulations, technologies or additional
information is obtained.
Of the $45.9 million accrued for future environmental expenditures,
$17.3 million is attributable to future remediation expenditures at the Calvert
City, Kentucky, site and less than $.5 million is attributable to off-site
environmental remediation liabilities, including the four sites mentioned above.
The remaining amount is primarily attributable to other environmental
remediation projects at nine other Company-owned facilities. At Calvert City,
consent orders have been signed with both the U.S. Environmental Protection
Agency and the Commonwealth of Kentucky Department of Environmental Protection
which provide for a site-wide remediation program primarily to remove ethylene
dichloride (EDC) from groundwater, the cost of which has been accrued.
Environmental expense incurred was $2.4 million in each of the years ended
December 31, 1998 and 1997 and $4.2 million for the year ended December 31,
1996.
The Company participates in the EPA Compliance Audit Program (CAP)
under Section 8(e) of the Toxic Substances Control Act. That section requires
reporting of information indicating a substantial risk of injury to health or
the environment from a chemical substance or mixture. Under the CAP, the Company
conducts an audit of its files and reports any information that should have been
reported previously. The total potential maximum liability of the Company and
its subsidiaries under the CAP is $1 million. The first part of the CAP required
reporting of substantial risk information concerning health effects. The
remaining part of the CAP involves substantial risk information concerning the
environment. The Company will perform its
5
<PAGE> 6
obligations under the environmental portion of the CAP after the EPA issues
guidance concerning the kinds of environmental information that it believes are
reportable. The Company does not believe that its portion of any civil penalties
arising from this portion of the CAP will exceed $.2 million.
The risk of additional costs and liabilities is inherent in certain
plant operations and certain products produced at the Company's plants, as is
the case with other companies involved in the PVC industry. There can be no
assurance that additional costs and liabilities will not be incurred by the
Company in the future. It is also possible that other developments, such as
increasingly strict environmental, safety and health laws, regulations and
enforcement policies thereunder and claims for damages to property or persons
resulting from plant emissions or products, could result in additional costs and
liabilities to the Company.
A number of foreign countries and domestic local communities have
enacted, or have under consideration, laws and regulations relating to the use
and disposal of plastic materials. Widespread adoption of such laws and
regulations, or public perception, may have an adverse impact on plastic
materials. Although many of the Company's major markets are in durable,
longer-life applications which could reduce the impact of any such environmental
regulation, there is no assurance that possible future legislation or regulation
would not have an adverse effect on the Company's business.
The Company does not believe that there are any new laws which will
have a material impact on the industry or the Company's capital expenditures,
cash flow or liquidity.
The Company conducts a comprehensive occupational safety and health
program. Industry data shows that the Company's safety record is among the best
in the chemical industry.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The foregoing "Description of the Business" section contains statements
concerning trends and other forward-looking information affecting or relating to
the Company and its industry that are intended to qualify for the protections
afforded "forward-looking statements" under the Private Securities Litigation
Reform Act of 1995. Actual results could differ materially from such statements
based on a variety of factors which are discussed on page F-24 under the caption
" Cautionary Note on Forward-Looking Statements".
6
<PAGE> 7
ITEM 2. PROPERTIES.
CORPORATE HEADQUARTERS: Avon Lake, Ohio
PERFORMANCE POLYMERS AND SERVICES FACILITIES:
<TABLE>
<CAPTION>
SPECIALTY PLASTISOL
VINYL COMPOUNDING DISPERSION RESIN FORMULATORS SERVICES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Avon Lake, Ohio Henry, Illinois Kennesaw, Georgia Avon Lake, Ohio
Conroe, Texas Pedricktown, New Jersey North Baltimore, Ohio
Farmingdale, New Jersey Sullivan, Missouri
Lindsay, Ontario, Canada Sussex, Wisconsin
Long Beach, California Waukesha, Wisconsin
Louisville Kentucky
Niagara Falls, Ontario, Canada
Orangeville, Ontario, Canada
Plaquemine, Louisiana
St. Remi de Naperville, Quebec,
Canada
Terre Haute, Indiana
Valleyfield, Quebec, Canada
Newton-Aycliffe, England
(joint venture)
Singapore (joint venture)
</TABLE>
RESIN AND INTERMEDIATES FACILITIES:
Deer Park, Texas
LaPorte, Texas
Louisville, Kentucky
Niagara Falls, Ontario, Canada
Pedricktown, New Jersey
Scotford, Alberta, Canada
McIntosh, Alabama (joint venture)
Melbourne, Victoria, Australia (joint venture)
ITEM 3. LEGAL PROCEEDINGS.
In addition to the matters regarding the environment described above
under the heading "Environmental, Health and Safety", there are pending or
threatened against the Company 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 be finally determined
should not have a material effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
7
<PAGE> 8
EXECUTIVE OFFICERS OF THE COMPANY. (INCLUDED PURSUANT TO INSTRUCTION 3 TO
PARAGRAPH (B) OF ITEM 401 OF REGULATION S-K)
Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. Except as otherwise noted in biographies
below, the executive officers of the Company were elected to their respective
positions immediately following the formation of the Company in 1993. Their ages
and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
<S> <C> <C>
William F. Patient 64 Chairman of the Board and Chief Executive Officer
Thomas A. Waltermire 49 President and Chief Operating Officer
Donald P. Knechtges 57 Senior Vice President, Business and Technology Development
V. Lance Mitchell 39 Vice President and General Manager, Compounds
Clarence J. Nosal 61 Vice President and General Manager, Intermediates
Gregory L. Rutman 56 Vice President, General Counsel and Secretary
W. David Wilson 45 Vice President and Chief Financial Officer
</TABLE>
WILLIAM F. PATIENT
Mr. Patient received a degree in Chemical Engineering from Washington
University, St. Louis. Mr. Patient joined the B.F.Goodrich Company (BFG) in 1989
as Senior Vice President of BFG and as President of BFG's Geon Vinyl Division.
Prior to joining BFG, Mr. Patient had been associated with Borg-Warner Chemicals
since 1962, most recently as Vice President. Since the IPO, Mr. Patient has
served as the Chairman of the Board and Chief Executive Officer of the Company.
THOMAS A. WALTERMIRE
Mr. Waltermire received a B.S. in Biology from Ohio State University in
1971 and an M.B.A. from Harvard University in 1974. Mr. Waltermire joined BFG in
June 1974. In April 1993, he became Senior Vice President and Treasurer of the
Company, and in October 1993 became Chief Financial Officer. In May 1997, he was
appointed Chief Operating Officer, and in February 1998 Mr. Waltermire was named
President and Chief Operating Officer.
DONALD P. KNECHTGES
Mr. Knechtges received a B.A. in Chemistry from Marietta College in
1963 and a B.S. in Chemical Engineering from Case Institute of Technology in
1965. Mr. Knechtges joined BFG as an engineer in June 1965 and became Senior
Vice President, Commercial in December 1991. In August 1995, Mr. Knechtges was
named Senior Vice President, Business and Technology Development.
V. LANCE MITCHELL
Mr. Mitchell received a B.S. in Marketing in 1982 from Bowling Green
State University. Mr. Mitchell joined BFG as a Product Manager in 1989. Since
then he has served as a Market Development Manager, Regional Sales Manager,
Extrusion Business Director and Compound Business Director. In May 1997, he was
named Vice President and General Manager, Compounds.
CLARENCE J. NOSAL
Mr. Nosal received a B.S. in Mechanical Engineering from the United
States Naval Academy in 1961 and an MBA from Golden Gate University in 1967. Mr.
Nosal joined BFG in 1979 as a Plant Manager. In 1988 he was named Vice President
of Operations for the Geon Vinyl Division of BFG, and after the initial public
offering (IPO) in April 1993, he became Vice President and General Manager,
Intermediates.
8
<PAGE> 9
GREGORY L. RUTMAN
Mr. Rutman received an A.B. in Business Management from Baldwin-Wallace
College in 1964 and a J.D. degree from Cleveland Marshall College of Law in
1969. In 1987, he completed the Executive Program at the Darden Graduate School
of Business Administration, University of Virginia. Mr. Rutman joined BFG in
October 1974. From 1985 until the IPO, he functioned as Staff Vice President of
BFG and Counsel to the BFG Geon Vinyl Division. Since the IPO, he has served as
Vice President, General Counsel, Secretary and Assistant Treasurer of the
Company.
W. DAVID WILSON
Mr. Wilson received an A.B. in history from DePauw University in 1975,
and a Masters Degree in International Management from The American Graduate
School of International Management (Thunderbird) in 1977. Mr. Wilson joined BFG
in 1978 and served in a variety of financial management positions within the
Chemical Group. He was named controller of the Geon Vinyl Division in 1985 and
later became Director of Marketing. He served as General Manager for Auseon
Limited, Geon's wholly-owned Australian subsidiary, and Director of Business
Management for Geon's Resin Division before being named Vice President and Chief
Financial Officer in May 1997.
9
<PAGE> 10
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock, $.10 par value per share, is reported on
the New York Stock Exchange under the trading symbol "GON". The information
appearing in the table on page F-23 of this filing under the caption "Quarterly
Data (Unaudited)", is incorporated herein by reference thereto. At March 15,
1999, the Company had approximately 7,000 individual stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item appears on page F-23 of this
filing under the caption "Selected Financial Data", and is incorporated herein
by reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item appears under the caption
"Management's Analysis" on pages F-3, F-4, F-6, F-8 and F-10 of this filing and
is incorporated herein by reference thereto. Such information contains
statements concerning trends and other forward-looking information affecting or
relating to the Company and its industry that are intended to qualify for the
protections afforded "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. Actual results could differ materially from such
statements based on a variety of factors which are discussed on page F-24 of
this filing under the caption "Cautionary Note On Forward-Looking Statements"
and such factors are incorporated herein by reference thereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
The information required by this item is included on page F-6 under the
caption "Market Risk Disclosures", and is incorporated herein by reference
thereto. Such information contains statements concerning trends and other
forward-looking information affecting or relating to the Company and its
industry that are intended to qualify for the protections afforded
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. Actual results could differ materially from such statements based on a
variety of factors which are discussed on page F-24 of this filing under the
caption "Cautionary Note On Forward-Looking Statements" and such factors are
incorporated herein by reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears on pages F-5, F-7, F-9
and F-11 through F-24 of this filing and is incorporated herein by reference
thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
10
<PAGE> 11
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding the Directors of the Company is incorporated
by reference to the information to be contained in the Proxy Statement to be
filed with respect to the 1999 Annual Meeting of Stockholders. If such Proxy
Statement is not filed within 120 days after the end of the fiscal year covered
by this Form 10-K, such information will be filed as part of an amendment to
this Form 10-K not later than the end of the 120-day period. Information
concerning executive officers of the Company is contained in Part I of this
Report under the heading "Executive Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION.
The information regarding executive compensation is incorporated
by reference to the information to be contained in the Proxy Statement to be
filed with respect to the 1999 Annual Meeting of Stockholders. If such Proxy
Statement is not filed within 120 days after the end of the fiscal year covered
by this Form 10-K, such information will be filed as part of an amendment to
this Form 10-K not later than the end of the 120-day period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information regarding security ownership of certain beneficial
owners and management is incorporated by reference to the information to be
contained in the Proxy Statement to be filed with respect to the 1999 Annual
Meeting of Stockholders. If such Proxy Statement is not filed within 120 days
after the end of the fiscal year covered by this Form 10-K, such information
will be filed as part of an amendment to this Form 10-K not later than the end
of the 120-day period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information regarding certain relationships and related
transactions is incorporated by reference to the information to be contained in
the Proxy Statement to be filed with respect to the 1999 Annual Meeting of
Stockholders. If such Proxy Statement is not filed within 120 days after the end
of the fiscal year covered by this Form 10-K, such information will be filed as
part of an amendment to this Form 10-K not later than the end of the 120-day
period.
11
<PAGE> 12
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) and (d) - The response to these portions of Item 14 are
submitted as a separate section of this Report beginning on page F-1 of this
Report.
(a)(3) and (c) - An index of Exhibits filed as part of this Report is
located beginning on page I-1 of this Report.
(b) Reports on Form 8-K Filed in the Fourth Quarter of 1998:
o Form 8-K filed on November 20, 1998, announcing the consolidation
of the Company's compounding operations.
o Form 8-K filed on December 18, 1998, announcing the formation of a
joint venture with Owens Corning.
o Form 8-K filed on December 23, 1998, announcing the signing of a
definitive agreement with Occidental Chemical Corporation to form
PVC and compounding joint ventures.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 31, 1999.
THE GEON COMPANY
By: /s/ Gregory L. Rutman
----------------------
Gregory L. Rutman
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities indicated
on March 31, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ William F. Patient Chairman of the Board, Chief Executive
- -------------------------- Officer and Director (Principal Executive
William F. Patient Officer)
/s/ Thomas A. Waltermire President and Chief Operating Officer
- -------------------------- and Director
Thomas A. Waltermire
/s/ W. David Wilson Vice President and Chief Financial Officer
- ------------------------- (Principal Financial Officer)
W. David Wilson
/s/ Gregory P. Smith Corporate Controller (Principal Accounting
- ------------------------- Officer)
Gregory P. Smith
/s/ James K. Baker Director /s/ D. Larry Moore Director
- ------------------------- --------------------------
James K. Baker D. Larry Moore
/s/ J. A. Fred Brothers Director /s/ John D. Ong Director
- ------------------------- --------------------------
J. A. Fred Brothers John D. Ong
/s/ Gale Duff-Bloom Director /s/ R. Geoffrey P. Styles Director
- ------------------------- --------------------------
Gale Duff-Bloom R. Geoffrey P. Styles
/s/ J. Douglas Campbell Director /s/ Farah M. Walters Director
- ------------------------- --------------------------
J. Douglas Campbell Farah M. Walters
</TABLE>
13
<PAGE> 14
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2) AND (d)
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1998
THE GEON COMPANY
F-1
<PAGE> 15
ITEM 14(a)(1) AND (2) and (d).
THE GEON COMPANY AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of The Geon Company and
subsidiaries for the year ended December 31, 1998, are incorporated by reference
in Item 8.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated statements of income - Years ended December 31, 1998, 1997 and 1996. F-5
Consolidated balance sheets - December 31, 1998 and 1997 F-7
Consolidated statements of cash flows - Years ended December 31, 1998, 1997 and 1996. F-9
Consolidated statements of stockholders' equity - Years ended December 31, 1998, 1997 and 1996. F-11
Notes to consolidated financial statements - December 31, 1998. F-12 to F-22
Quarterly Data (Unaudited) F-23
Report of Independent Auditors F-24
</TABLE>
The following consolidated financial statement schedule of the Registrant and
its subsidiaries is included in Item 14(d)
<TABLE>
<S> <C> <C>
Schedule II Valuation and qualifying accounts -Years ended December 31, 1998, 1997 and 1996 F-25
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-2
<PAGE> 16
THE GEON COMPANY AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS - CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
1998 RESULTS OF OPERATIONS -TOTAL COMPANY
In 1998, the Company had record sales of $1.284 billion. Operating income,
before a special charge for employee separation and plant phase-out costs, was
$51.9 million and income from equity affiliates totaled $3.7 million. Operating
income, before special charges, decreased $15.1 million from 1997 due to a
decline in industry polyvinyl chloride (PVC) resin margins. Partially
offsetting the lower PVC industry resin margins were the improved operating
results of the Performance Polymers and Services (PP&S) business, including the
acquisitions of Synergistics Industries Limited in the fourth quarter of 1997
and three plastisol formulators in the summer of 1998. The Performance Polymers
and Services business represented 65% of 1998 consolidated sales versus 49% in
1997. In 1998, selling and administrative expenses increased $33.2 million over
1997. Approximately 70% of this change relates to the acquisitions.
Approximately one-third of the remaining increase relates to incentive
compensation plans which are tied to Company performance. The balance is
associated with new business development, marketing and costs associated with
redirecting the business focus toward growing the PP&S business segment.
Interest expense in 1998 was $4.1 million above 1997 due to higher average
short-term borrowings which financed the acquisitions discussed below. The
Company's income tax rate for 1998 was 41.5% compared with 35.0% in 1997. The
increase primarily resulted from the effects of non-deductible goodwill from
recent acquisitions and a favorable adjustment recorded in 1997 for prior years
income tax liabilities.
Other expense, net, decreased from $5.9 million in 1997 to $2.6 million in 1998,
primarily as a result of fluctuations in the Canadian and Australian exchange
rates.
PERFORMANCE POLYMERS & SERVICE BUSINESS (PP&S)
PP&S 1998 sales were $839 million, an increase of 38%, or $232 million, over
1997. This growth primarily resulted from additional sales volumes from the
acquisitions of Synergistics in late 1997 and the formulator businesses in
1998. This growth was partially offset by lower average selling prices of
approximately 3.5% resulting from downward pressure caused by lower material
costs. The margin of average selling price over material costs increased by 16%
in 1998 over 1997. This increase was primarily due to lower resin costs and the
realization of cost savings in purchased raw materials resulting from synergies
created by the recent business acquisitions. Cash plant conversion costs, as a
percentage of sales, increased 3 percentage points due to a changing mix of
products with the business acquisitions, excess compounding capacity and lower
average selling prices.
In the fourth quarter of 1998, a $14.6 million special charge was recognized
related to a plan to consolidate the Company's compounding manufacturing
operations. The consolidation involves the closure of two plants and other
production lines. As part of the compound consolidation plan, additional costs
estimated to be $7.5 million are expected in the first quarter of 1999 and upon
formation of the powder compound joint venture at which time the Company will
close its Conroe, Texas facility. The consolidation is projected to be completed
by mid-1999 and result in savings estimated at $6 million in 1999 and $14
million annually thereafter. See Note O to the Consolidated Financial Statements
for a further discussion of this charge.
RESIN & INTERMEDIATES BUSINESS (R&I)
Based on the Society of Plastics Industry's (SPI) December 1998 data, North
American (U.S. and Canada) producer shipments of PVC resins (including exports)
are estimated to have increased 4% over 1997. In 1998, based on SPI data,
export shipments are estimated to have decreased 3% over 1997. Domestic
shipments increased approximately 5% over last year. Capacity utilization
(shipments/capacity) for North America is estimated at 92% of effective
capacity (85% of nameplate) in 1998. North American capacity increased 6% over
1997. The Company believes that average industry margins for the largest PVC
resin market applications decreased approximately 2.0 cents per pound in 1998
as compared with 1997. This decrease was the result of lower average selling
prices of approximately 34%, which were partially offset by lower average
feedstock costs.
Industry margins over feedstock costs in 1998 set an historic low for the third
consecutive year and were approximately 4.5 cents per pound (30%) below the
level set in 1992, the last industry trough.
R&I 1998 sales were $578 million, a decrease of $240 million or 29% from 1997.
Approximately $51 million of this decline resulted from the contribution of the
Company's Australian resin operations to the Australian joint venture in 1997,
which eliminated those revenues from consolidated sales in 1998. The balance of
the decline is primarily due to lower PVC resin selling prices. The Company's
resin exports represented 4% of total volume in 1998 versus 3% in 1997. PVC
resin volumes were flat with last year. The Company's average resin selling
price decreased 22%, somewhat less than the industry average due to Geon's
product mix. R&I had a business loss (operating loss plus income from equity
affiliates) of $36.4 million in 1998, generally resulting from the historic low
industry margins noted above. The business loss represented a decrease in
earnings of approximately $57 million from 1997, excluding the impact of the
1997 employee separation and plant phase out charge. This decrease was due to
lower margins of approximately $50 million on total resin volume, costs
associated with the second quarter 1998 maintenance shutdown of the LaPorte,
Texas VCM plant of $3.5 million, and annual increases in plant and
administrative costs.
Beginning in the fourth quarter of 1998, the Company began purchasing
anhydrous hydrogen chloride from Bayer by pipeline, which ultimately will
provide approximately one-third of the chlorine requirements at Geon's LaPorte,
Texas VCM plant. The arrangement provides the R&I business with a cost
competitive source of chlorine.
F-3
- --------------------------------------------------------------------------------
<PAGE> 17
THE GEON COMPANY AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS - CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
1997 RESULTS OF OPERATIONS - TOTAL COMPANY
In 1997, the Company had strong shipments of both resin and compound. Operating
income, before a special charge for employee separation costs, increased $37.1
million or 124% over 1996, despite lower industry PVC margins. This improvement
was the result of the Company's efforts to grow and expand its Performance
Polymers and Services business segment. In addition, the Company further
reduced the material and operating costs of its resin operations with the April
1996 start-up of the LaPorte, Texas VCM plant expansion. The acquisition of
Synergistics was completed and Synergistics became part of Geon's consolidated
operations effective October 31, 1997. Because Synergistics' results were
included with the Company's for only two months, the impact on 1997 earnings
was not significant.
In the second quarter of 1997, a pre-tax charge of $15 million was recorded to
cover costs associated with a voluntary early retirement program covering 74
employees. At December 31, 1998, excluding future payments to be made as part of
the funding of the Company's pension plans, $3.0 million remains accrued and
will be paid by mid-1999. See Note O to the Consolidated Financial Statements
for further discussion of this charge.
Other expense, net, in 1997 included foreign currency losses of $2.2 million,
primarily resulting from the weakening of the Australian dollar. In 1996, the
Company had currency gains of $1.6 million resulting from fluctuations in both
Australian and Canadian currencies. In addition in 1997, other expense, net,
included a discount on the sale of receivables of $5.0 million, compared with
$2.4 million in 1996. The increase was the result of higher average receivables
sold in 1997.
Income tax expense in 1997 was 35% of pre-tax income versus 41.1% in 1996.
Excluding a favorable adjustment in 1997 related to prior years tax liabilities,
the 1997 income tax expense was 40.9%, approximating the previous year.
PERFORMANCE POLYMERS & SERVICES BUSINESS (PP&S)
PP&S 1997 sales were $607 million, an increase of 13% or $70 million over 1996.
Approximately 50% of this growth is attributable to the additional sales of
Synergistics. Higher shipment volumes, excluding Synergistics, increased
revenues by approximately 8%, accounting for the remaining sales growth. On
average, selling prices were flat from 1996 to 1997. Margins (weighted-average
unit selling price over average material costs) declined approximately 7%,
primarily as a result of higher costs for PVC resin, a key raw material in the
production of PVC compounds. 1997 weighted-average unit plant cash conversion
costs were flat with 1996.
RESIN & INTERMEDIATES BUSINESS (R&I)
Based on the SPI's December 1997 data, North American producer shipments of PVC
resins (including exports) are estimated to have increased 6% over 1996. In
1997, based on SPI data, export shipments are estimated to have increased 33%
over 1996. Domestic shipments increased approximately 3% over last year.
Capacity utilization for North America was estimated at 94% of effective
capacity (87% of nameplate) in 1997. North American capacity increased 7% over
1996. The Company believes that average industry margins for the largest PVC
resin market applications decreased approximately 1.0 cent per pound in 1997 as
compared with 1996. This decrease was the result of higher average feedstock
costs of approximately 20%, only partially offset by higher average selling
prices. In 1997, ethylene costs on average were approximately 15% higher than
in 1996. Average chlorine costs increased one-third over 1996 levels.
R&I sales were $818 million, an increase of $57 million, or 7%, from 1996. A
7% increase in average unit selling price of suspension resin and an increase
of 8% in the volume of suspension resin sold resulted in approximately $92
million of additional revenue. This was partially offset by a decline in VCM
sales as a result of increased internal VCM consumption, combined with a $24
million decrease in consolidated sales as a result of the contribution of the
Company's Australian resin operation to the Australian joint venture in August
1997, eliminating those revenues from consolidated sales in the period of
September through December of 1997. The Company's export sales declined from
11% to 4% of R&I sales as a result of increased domestic demand and an increase
in the volume of VCM and resin consumed by the Company's PP&S business. R&I had
business income of $20.4 in 1997, excluding the impact of the employee
separation charge. In 1996, the business loss was $15.5 million. The margin of
the average selling price of suspension resin over the Company's cost of
materials increased by 8% from 1996, primarily as a result of lower VCM costs.
Reduced VCM costs resulted from the expansion of the LaPorte, Texas facility in
mid-1996 and lower cost chlorine purchased from the jointly owned Sunbelt
chlor-alkali plant which began operations in November 1997. This suspension
resin margin improvement increased R&I business income by approximately $22
million, including the effect of R&I sales to PP&S at market prices. The
remaining improvement in business income is attributable primarily to the
increase in sales volumes. PVC plant cash conversion costs were flat from 1996
to 1997.
F-4
- --------------------------------------------------------------------------------
<PAGE> 18
THE GEON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
In millions, except per share data
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
SALES $1,284.4 $1,250.0 $1,144.4
OPERATING COSTS AND EXPENSES:
Cost of sales 1,092.6 1,079.6 1,008.1
Selling and administrative 82.0 48.8 52.3
Depreciation and amortization 57.9 54.6 54.1
Employee separation and plant phase-out 14.6 15.0 --
-------------------------------------------
1,247.1 1,198.0 1,114.5
-------------------------------------------
OPERATING INCOME 37.3 52.0 29.9
Income (loss) from equity affiliates 3.7 (.3) 1.0
Interest expense (16.0) (11.9) (10.8)
Interest income 1.2 .7 1.4
Other expense, net (2.6) (5.9) (.8)
-------------------------------------------
INCOME BEFORE INCOME TAXES 23.6 34.6 20.7
Income tax expense (9.8) (12.1) (8.5)
-------------------------------------------
NET INCOME $ 13.8 $ 22.5 $ 12.2
===========================================
EARNINGS PER COMMON SHARE:
Basic $ .60 $ .98 $ .51
Diluted $ .58 $ .95 $ .50
WEIGHTED AVERAGE SHARES USED TO COMPUTE EARNINGS PER SHARE:
Basic 22.9 22.9 23.9
Diluted 23.6 23.6 24.6
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-5
- --------------------------------------------------------------------------------
<PAGE> 19
THE GEON COMPANY AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS - CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
The consolidated balance sheet at December 31, 1998, reflects the strong
financial position of The Geon Company.
ASSETS
Total assets were $802.0 million at December 31, 1998, or 8% below 1997. The
change in assets is primarily related to (a) lower receivables from lower PVC
resin selling prices and an increase in receivables sold (b) lower inventories
primarily reflecting lower feedstock costs and (c) purchases of property below
depreciation. These decreases were partially offset by the addition of assets
associated with 1998 acquired businesses of $66.4 million at December 31, 1998.
The investment in equity affiliates includes the Company's 50% participation in
the Sunbelt chlor-alkali joint venture and an Australian joint venture with
Orica Limited (formerly ICI Australia). The Australian joint venture commenced
operations in August 1997, with the Company contributing most of the assets of
its Australian PVC subsidiary in exchange for a 37.4% ownership interest. Also,
the Company holds a 50% participation in two compounding joint ventures located
in the United Kingdom and Singapore. Further, in December 1998, the Company
announced that it would hold a 40% ownership in a start-up joint venture with
Owens Corning to market and manufacture material systems based on a unique
technology for reinforced thermoplastic materials.
LIABILITIES AND EQUITY
The three plastisol formulator acquisitions in 1998, as well as the Synergistics
acquisition in 1997, were funded with variable-rate short-term credit
facilities. At December 31, 1998, the Company had short-term bank debt of $50.9
million.
At December 31, 1998, the Company had outstanding $125 million in debentures
issued in 1995 and maturing in 10 and 20 years from issuance. The debentures
have received investment-grade credit ratings. In addition, the Company has
available unsecured lines of credit and overdraft facilities totaling $296
million.
Other non-current liabilities include most of the Company's accrued
environmental liabilities, as well as pension accruals. The stronger U.S. dollar
against the Canadian and Australian dollar resulted in unrecognized translation
losses included in other equity of $8.8 million for the year. In 1998, the
Company returned $11.7 million to its stockholders in the form of dividends.
MARKET RISK DISCLOSURES
The Company is exposed to market risk from changes in interest rates on debt
obligations. The Company's long-term debt at December 31, 1998 consists entirely
of fixed rate obligations. To manage such risk, the Company periodically enters
into interest rate exchange contracts which generally convert fixed-rate
obligations to floating rates. No such exchange contracts were outstanding at
December 31, 1998. Cash principal payments required under these obligations are
1999 - $.8 million, 2000 - $1.8 million, 2001 - $.3 million, 2002 - $.5 million,
2003 - $.8 million, and $132.0 million thereafter. Weighted-average interest
rates on this debt are 7.0% for 1999 through 2001, 6.9% for 2002 through 2003
and 7.1% thereafter. The Company's short-term debt consists entirely of floating
rate obligations. At December 31, 1998, the Company's short-term debt is
denominated in Canadian dollars and has a floating rate of 5.1% based on the
lenders reference rate. To manage risk associated with floating rate debt, the
Company has an interest rate cap agreement expiring in July 1999, which limits
the interest rate on up to $85 million of floating rate borrowings to 9%. The
fair value of this contract at December 31, 1998 is not significant.
The Company is also exposed to market risk from changes in foreign currency
exchange rates, primarily from its operations in Canada and Australia where
assets and liabilities are denominated in Canadian and Australian dollars,
respectively. To manage such risk, the Company periodically enters into foreign
currency forward exchange contracts to mitigate the impact of temporary
fluctuations in exchange rates. At December 31, 1998, the Company had a foreign
currency forward exchange contract to exchange $16.9 million U.S. dollars for
$27.0 million Australian dollars. This contract was terminated in January 1999.
The Company does not expect foreign currency denominated assets and liabilities
at December 31, 1998 to have a significant impact on earnings or cash flows.
ENVIRONMENTAL MATTERS
The Company generates both hazardous and non-hazardous wastes, the treatment,
storage, transportation and disposal of which are regulated by various
governmental agencies.
The Company has been designated a potentially responsible party by the U.S.
Environmental Protection Agency in connection with one plant and various other
sites. The Company also has reportable environmental contamination at certain
owned plant sites in the United States and Canada. The Company has accrued $46
million to cover future environmental remediation expenditures and does not
believe any of the matters either individually or in the aggregate will have a
material adverse effect on its capital expenditures, earnings, cash flow or
liquidity. Capital expenditures related to the limiting and monitoring of
hazardous and non-hazardous wastes amounted to $4 million, $4 million and $3
million for 1998, 1997 and 1996, respectively. The Company estimates capital
expenditures during 1999 of approximately $3 million to $5 million. Expenditures
related to the remediation of previously contaminated sites are projected to be
$25 million to $30 million over the next five years. The risk of additional
costs and liabilities is inherent in certain plant operations and certain
products produced at the Company's plants, as is the case with other companies
involved in the PVC industry. For additional discussion, refer to Note L to the
Consolidated Financial Statements.
PENDING TRANSACTIONS WITH OCCIDENTAL CHEMICAL CORPORATION
On December 22, 1998, the Company entered into agreements with Occidental
Chemical Corporation (OxyChem) to form two limited partnerships and acquire
certain businesses from OxyChem. Most significantly, Geon and OxyChem would
contribute their PVC resin operations to a PVC partnership in which the Company
would have a 24% ownership interest. The Company anticipates closing the
transaction early in the second quarter of 1999. For a further discussion of the
transaction see Notes C and F to the Consolidated Financial Statements.
F-6
- --------------------------------------------------------------------------------
<PAGE> 20
THE GEON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
In millions, except per share data
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 14.4 $ 49.1
Accounts receivable 70.8 110.8
Inventories 113.9 122.4
Deferred income tax assets 24.6 20.7
Prepaid expenses 11.0 10.5
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 234.7 313.5
Property, net 443.5 456.6
Investment in equity affiliates 19.8 20.6
Goodwill, net 81.5 63.6
Deferred charges and other non-current assets 22.5 18.6
============================================================================================================================
TOTAL ASSETS $ 802.0 $ 872.9
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank debt $ 50.9 $ 90.4
Accounts payable 129.1 159.1
Accrued expenses 76.0 63.3
Current portion of long-term debt .8 .8
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 256.8 313.6
Long-term debt 135.4 136.4
Deferred income tax liabilities 32.8 35.8
Post-retirement benefits other than pensions 85.1 86.2
Other non-current liabilities including pensions 77.8 77.1
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 587.9 649.1
- ----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, 10.0 shares authorized; no shares issued -- --
Common stock, $0.10 par, authorized 100.0 shares; issued 28.0 and 27.9 in 1998
and 1997, respectively 2.8 2.8
Additional paid-in capital 296.1 295.8
Retained earnings 75.4 73.3
Common stock held in treasury, 4.6 shares in 1998 and 4.7 shares in 1997 (115.1) (118.0)
Accumulated other non-owner equity changes (45.1) (30.1)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 214.1 223.8
============================================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 802.0 $ 872.9
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-7
- --------------------------------------------------------------------------------
<PAGE> 21
THE GEON COMPANY AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS - CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Net cash provided by operating and investing activities in 1998 and 1997, before
the business acquisitions, is as follows:
<TABLE>
<CAPTION>
Change
(In millions) 1998 1997 1998 vs. 1997
----------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided by operating
activities $110.0 $98.0 $12.0
Net cash used by investing
activities (98.3) (115.3) 17.0
Business acquisitions, net of
cash acquired 57.1 82.2 (25.1)
----------------------------------------------------------------
Net cash used by investing
activities, excluding net
cash paid for acquisitions (41.2) (33.1) (8.1)
----------------------------------------------------------------
Net cash provided by operating
and investing activities
before business
acquisitions $ 68.8 $ 64.9 $ 3.9
================================================================
</TABLE>
The 1998 net cash provided by operating and investing activities, before
business acquisitions, was $3.9 million higher than in 1997 and was achieved
despite low industry PVC resin margins and an operating loss in the Resin &
Intermediates business segment. Operating activities in 1998 provided cash of
$110.0 million, or $12.0 million higher than in 1997. Operating working capital
decreased $34.5 million from 1997 and was offset by a decrease in net income of
$13.1 million, after adjusting for the effects of the following non-cash
charges: depreciation and amortization, employee separation, plant phase-out and
deferred income tax provision. Other operating uses of cash in 1998 included the
LaPorte maintenance shutdown of $6.0 million and severance and other payments of
$4.0 made in connection with the employee separation program announced in 1997.
Cash used in investing activities included purchases of property of $40.7
million, a decrease of $10.2 million from 1997. Investing activities in 1997
also included the repayment of prior-year advances to equity affiliates.
In 1997, net cash used by operating and investing activities was $17.3 million
and included the acquisition of Synergistics at a net investment of $82.2
million. Excluding the Synergistics acquisition, net cash provided by operating
and investing activities was $64.9 million, an increase of $73.5 million over
1996. Operating activities provided $98.0 million of cash, an increase of $13.4
million over 1996. This increase was primarily due to earnings $23.3 million
higher than in 1996 after adjusting net income for depreciation and
amortization, employee separation, plant phase-out and deferred income tax
provision. This was partially offset by an increase in 1997 of operating
working capital of $9.6 million, or an increased usage from 1996 of $28.3
million. Cash used in investing activities in 1997, excluding business
acquisitions, decreased by $60.1 million as a result of a $22.5 million
decrease in purchases of property as well as the repayment in 1997 of
prior-year advances to equity affiliates.
Financing activities in 1998 primarily reflected the reduction of short-term
debt and the payment of dividends. In 1997, financing activities included an
increase in short-term debt as a result of the acquisition of Synergistics,
dividend payments and the repurchase of 200,000 shares of common stock.
The Company believes it has sufficient funds to support dividends, debt service
requirements and normal capital and operating expenditures under its existing
working capital facilities and other available permitted borrowings. Certain
factors that may affect these forward-looking comments are discussed on page
F-24. Under an August 1996 Board of Directors resolution, the Company is
authorized to repurchase an additional 1.7 million shares of Geon common stock.
INFLATION
The Company employs a number of strategies to mitigate the impact of inflation
on financial results. A considerable amount of capital spending is directed
toward cost reduction and productivity improvement projects. Moreover, through
its research and development efforts, the Company is continually exploring ways
to reduce the cost of existing products and to develop new products with
improved performance characteristics that will command premium prices. The
Company is also reviewing and re-engineering its administrative activities on an
ongoing basis in order to streamline operations and reduce costs.
F-8
- --------------------------------------------------------------------------------
<PAGE> 22
THE GEON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
In millions
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 13.8 $ 22.5 $ 12.2
Adjustments to reconcile net income
to net cash provided by operating activities:
Employee separation and plant phase-out 14.6 15.0 --
Depreciation and amortization 57.9 54.6 54.1
Provision for deferred income taxes (1.0) 6.3 8.8
Changes in assets and liabilities:
Operating working capital:
Accounts receivable 50.7 (2.8) 30.1
Inventories 16.5 (4.3) (12.0)
Accounts payable (32.7) (2.5) .6
- ----------------------------------------------------------------------------------------------------------------------------
Total operating working capital 34.5 (9.6) 18.7
- ----------------------------------------- --------------------------------------------------------------------------------
Accrued expenses (2.3) (6.0) (2.5)
Income taxes payable/receivable, net 3.3 4.2 (2.1)
Other (10.8) 11.0 (4.6)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 110.0 98.0 84.6
INVESTING ACTIVITIES
Business acquisitions, net of cash acquired (57.1) (82.2) --
Purchases of property (40.7) (50.9) (73.4)
Investment in and advances to equity affiliates (.5) 17.8 (19.8)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING AND INVESTING ACTIVITIES 11.7 (17.3) (8.6)
FINANCING ACTIVITIES
(Decrease) increase in short-term debt (34.4) 72.0 9.8
Repayment of long-term debt (.9) (4.0) (.7)
Net proceeds from issuance of common stock 1.8 .3 .4
Repurchase of common stock -- (4.1) (32.4)
Dividends (11.7) (11.6) (12.1)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (45.2) 52.6 (35.0)
Effect of exchange rate changes on cash (1.2) (4.1) .4
- ----------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (34.7) 31.2 (43.2)
Cash and cash equivalents at beginning of year 49.1 17.9 61.1
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14.4 $ 49.1 $ 17.9
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-9
- --------------------------------------------------------------------------------
<PAGE> 23
THE GEON COMPANY AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS - YEAR 2000 COMPLIANCE
- --------------------------------------------------------------------------------
YEAR 2000 (Y2K)
State of Readiness. Since 1997, the Company has been actively involved in
surveying, assessing, and correcting Year 2000 ("Y2K") problems with its
information technology structure. Geon's information technology structure
includes, among others, commercial business information systems, manufacturing
information systems, desktop computing networks, and data and communication
networks. Geon implemented a new integrated commercial business information
system in 1997 which is Y2K compliant and will support approximately 90% of the
current operations. Following the assessment of its information technology
structure, Geon identified its systems that it believed may be vulnerable to Y2K
failures and established a program to assess Y2K issues.
The Company's Y2K efforts are being carried out by Geon's Y2K compliance team
under the leadership of the Manager of Technical Support. The Manager of
Technical Support has assembled a group of seven individuals to oversee the
implementation of Geon's Y2K program and has appointed a person at each of
Geon's facilities, including those newly acquired, to address Y2K issues. The
Y2K compliance team maintains a reporting structure to ensure that progress is
made on Y2K issues and to ensure the reliability of risk and cost estimates
relating to Y2K problems.
The most critical non-information technology systems, such as automated process
control equipment, are relatively new and are being upgraded and maintained with
the help of Geon's various suppliers. To date, Geon's investigation of these
systems has not revealed any Y2K problems; however investigation in this area
continues.
In February 1997, Geon completed the installation of a new integrated commercial
business information system which is Y2K compliant and will support 90% of
Geon's current operations. The purchase and initial installation of Geon's new
commercial business information system cost approximately $20 million.
Currently, the Company is operating one older information system which has been
remediated. As a result of the installation of the new system and its
remediation efforts, Geon has completed all of its Y2K work with respect to its
commercial business information systems. The Company is also in the process of
remediating all of its technical infrastructure. The most critical
non-information technology systems include automated process control equipment
and equipment containing embedded chips. These systems are relatively new and
are being upgraded with the help of Geon's various suppliers.
In addition to internal resources, the Company is utilizing external resources
to implement its Y2K program and to ensure that its risk and cost estimates are
reliable. Geon has contracted with outside consultants to verify Geon's
assessment of its Y2K problems and to assist it with remediation efforts.
The Company relies significantly upon third parties in the operation of its
business. As a result, as part of Geon's Y2K program, the purchasing and
production control department of each operating unit has made, and is making,
efforts to determine and assess the Y2K compliance of third parties with which
Geon does business. In particular, throughout 1998, Geon contacted and sent
questionnaires to all of its raw material suppliers to obtain information
relating to the status of such suppliers with respect to Y2K issues, Geon
received assurances from 75% of its raw material suppliers that they are or
would be Y2K compliant by July 1999. Geon has maintained ongoing correspondence
with its suppliers regarding Y2K issues and placed particular emphasis on
determining the Y2K readiness of its critical suppliers.
Due to the uncertainties associated with Y2K problems, Geon is in the process of
developing contingency plans in the event that its business or operations are
disrupted on January 1, 2000. As part of this plan, the Company expects to
adjust its inventory levels and mix of products and raw materials consistent
with good business practice based upon the risks that Geon believes exist. In
addition, Geon expects to develop a plan that outlines how one facility can
compensate for any disruption at another facility due to Y2K problems.
Completion. The Company's Y2K compliance team expects Geon's internal systems
and processes to be Y2K compliant by July 1999.
Cost. The Company anticipates incurring total out-of-pocket expenditures of
approximately $.75 million on Y2K issues. To date, Geon has incurred
out-of-pocket costs of approximately $.3 million on Y2K issues, plus internal
personnel time included in the scope of normal operations. Approximately 85% of
these funds have been expended in connection with remediation, and 15% of these
funds have been expended to replace portions of the information technology
structure. The funds used by Geon to address its Y2K problems are from the
general business budget, and all such costs are expensed as incurred.
Risks. If the Company's suppliers and customers are not Y2K compliant by January
1, 2000, such noncompliance could materially affect Geon's business, results of
operations, and financial condition. Geon may experience some random or
unforeseen supply chain disruptions that may affect its ability to produce and
distribute key products. In addition, the Company's business may be disrupted if
a significant number of its customers are unable to pay for products supplied to
them by Geon. Geon's worst case scenario is the inability of Geon to receive raw
materials or remove products from its facilities. In order for Y2K problems to
have a material effect on Geon, Geon believes that more than one of its
facilities would have to experience significant Y2K problems.
Forward-Looking Statements. The data on which the Company believes it will
complete its Y2K compliance efforts and the expenses related to Geon's Y2K
compliance efforts are based upon management's best estimates, which are based
on assumptions of future events, including the availability of certain
resources, third party modification plans, and other factors. There can be no
assurances that these results and estimates will be achieved, and the actual
results could materially differ from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability of personnel trained in this area and the ability to locate and
correct all relevant computer codes. In addition, there can be no assurances
that the systems or products of third parties on which Geon relies will be
timely converted or that a material failure by a third party, or a conversion
that is incompatible with Geon's systems, would not have a material adverse
effect on Geon.
F-10
- --------------------------------------------------------------------------------
<PAGE> 24
THE GEON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
In millions, except per share data; Shares in thousands
<TABLE>
<CAPTION>
Accumulated
Common Common Other
Shares Additional Stock Non-Owner
Common Held in Common Paid-In Retained Held in Equity
Shares Treasury Total Stock Capital Earnings Treasury Changes
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 27,877 3,197 $208.9 $2.8 $273.9 $ 62.3 $ (86.6) $(43.5)
Non-owner equity changes:
Net income 12.2 12.2
Translation adjustment .5 .5
Adjustment of minimum pension liability 16.4 16.4
--------
Total non-owner equity changes 29.1
Stock-based compensation and exercise of
options (107) 3.0 (3.7) 3.3 3.4
Adjustment related to step-up in tax basis 25.9 25.9
Repurchase of common shares 1,469 (32.4) (32.4)
Cash dividends ($.50 per share) (12.1) (12.1)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 27,877 4,559 222.4 2.8 296.1 62.4 (115.7) (23.2)
Non-owner equity changes:
Net income 22.5 22.5
Translation adjustment (8.3) (8.3)
Adjustment of minimum pension liability 1.0 1.0
--------
Total non-owner equity changes 15.2
Stock-based compensation and exercise of
options (59) 1.9 (.3) 1.8 .4
Repurchase of common shares 200 (4.1) (4.1)
Cash dividends ($.50 per share) (11.6) (11.6)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 27,877 4,700 223.8 2.8 295.8 73.3 (118.0) (30.1)
Non-owner equity changes:
Net income 13.8 13.8
Translation adjustment (8.8) (8.8)
Adjustment of minimum pension liability (6.6) (6.6)
--------
Total non-owner equity changes (1.6)
Stock-based compensation and exercise of
options 97 (78) 3.6 .3 2.9 .4
Cash dividends ($.50 per share) (11.7) (11.7)
===============================================================================================================================
BALANCE DECEMBER 31, 1998 27,974 4,622 $214.1 $2.8 $296.1 $ 75.4 $(115.1) $(45.1)
===============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-11
- --------------------------------------------------------------------------------
<PAGE> 25
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A. THE COMPANY
The Geon Company (Company or Geon), together with its subsidiaries, is the
world's largest manufacturer and marketer of polyvinyl chloride (PVC) compounds
and a leading North American producer of PVC resins. Geon's operations are
primarily located in the United States and Canada in two business segments. The
"Performance Polymers and Services" segment includes PVC compounds, including
two joint ventures, specialty resins, plastisol formulators and analytical
testing services. The "Resin and Intermediates" segment includes suspension and
mass resins, vinyl chloride monomer (VCM), a precursor to PVC, the Company's 50%
equity holding in Sunbelt chlor-alkali joint venture and the Company's 37.4%
holding in Australian Vinyls Corporation (AVC), an Australian PVC operation.
Sales include exports from North America of $45.7 million, $36.2 million and
$85.7 million in 1998, 1997 and 1996, respectively.
As described in Note C, on December 22, 1998, the Company entered into
agreements to form a PVC partnership and a compounding partnership with
Occidental Chemical Corporation (OxyChem). The Company will contribute a
substantial portion of the assets and liabilities of its Resin and
Intermediates segment to the PVC partnership, which will operate a business
that produces and markets PVC suspension and mass resins, VCM and chlor-alkali
products. The Company's equity holdings in Sunbelt and AVC will not be
contributed to the PVC partnership. The compounding partnership will operate a
powder/dry blend compounding business. In conjunction with the transactions,
Geon will realize $110 million through retention of certain working capital and
distribution of cash from the PVC partnership. OxyChem will also transfer to
Geon a PVC flexible film and pellet compounding plant in Burlington, New Jersey
and a specialty pellet compound business primarily located in Pasadena, Texas.
The formation of the partnerships is subject to certain conditions,
including approval of the Company's stockholders.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All majority owned affiliates are consolidated.
Investments in affiliates where Company ownership is 50 percent or less are
accounted for under the equity method. Intercompany transactions are eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of less than three months to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Most domestic
inventories are valued by the last-in, first-out (LIFO) cost method. Inventories
not valued by the LIFO method are valued principally by the average cost method.
PROPERTY AND DEPRECIATION
Property, plant and equipment is recorded at cost, net of depreciation
and amortization computed principally using the straight-line method over the
estimated useful life of the assets, ranging from three to 15 years for
machinery and equipment and up to 40 years for buildings. Computer software is
amortized over periods not exceeding ten years. Property, plant and equipment
is generally depreciated on accelerated methods for income tax purposes.
Repairs and maintenance costs are expensed as incurred, except for costs
associated with periodic plant turnaround (maintenance shutdown) costs which
are deferred and amortized over approximately two years, the period benefited.
At December 31, 1998 and 1997, unamortized turnaround costs were $4.3 million
and $1.9 million, respectively. Amortization expense related to deferred plant
turnaround costs totaled $3.6 million, $4.5 million and $4.1 million in 1998,
1997 and 1996, respectively.
GOODWILL
The excess of the purchase price paid over the fair value of the net assets
of businesses acquired is recorded as goodwill and amortized over a thirty-five
year period on a straight-line basis. Goodwill and other long-lived assets are
reviewed for impairment. When undiscounted cash flows are not sufficient to
recover the assets' carrying amount, an impairment loss is charged to expense in
the period identified. Measurement of impairment is based upon discounted cash
flows, asset appraisals or market values of similar assets. At December 31, 1998
and 1997, accumulated amortization totaled $2.4 million and $.3 million,
respectively. Amortization expense was $2.1 million and $.3 million in 1998 and
1997, respectively.
FINANCIAL INSTRUMENTS
The fair values of cash equivalents and short-term bank debt approximate
their carrying amount because of the short maturity of those instruments. The
fair values of long-term debt and debentures are estimated based on the present
value of the underlying cash flows discounted at the Company's estimated
borrowing rate. At December 31, 1998 and 1997, the fair value of long-term debt,
including debentures, approximates its carrying value.
F-12
- --------------------------------------------------------------------------------
<PAGE> 26
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company periodically enters into interest rate exchange and foreign
currency contracts. Interest rate exchange contracts are generally used to
convert fixed-rate to floating-rate debt in order to take advantage of lower
floating rates. Foreign currency contracts are used to minimize the impact of
temporary fluctuations in exchange rates. These contracts generally do not
qualify as hedges; accordingly, these contracts are carried at market value,
with resulting gains and losses recognized immediately in other income. At
December 31, 1998, the Company had outstanding a foreign currency forward
exchange contract to exchange approximately $16.9 million U.S. dollars for
$27.0 million Australian dollars. The fair value of this contract, which
was terminated in January 1999, was approximately $(.3) at December 31, 1998.
The Company also has an interest rate cap agreement which limits the
interest rate on up to $85 million of floating rate debt to a maximum rate of
9%. This cap agreement expires in July 1999. The fair value of this contract at
December 31, 1998 is not significant.
REVENUE RECOGNITION
The Company recognizes revenues at the point of passage of title, which is
at the time of shipment.
ENVIRONMENTAL COSTS
The Company expenses, on a current basis, recurring costs associated with
managing hazardous substances and pollution in ongoing operations. Costs
associated with the remediation of environmental contamination are accrued when
it becomes probable that a liability has been incurred and the Company's
proportionate share of the amount can be reasonably estimated.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs, which were $15.0 million, $17.1 million
and $17.5 million in 1998, 1997 and 1996, respectively, are charged to expense
as incurred.
FOREIGN CURRENCY TRANSLATION
Income statement items are translated at average currency exchange rates.
Transaction gains and losses are included in determining net income. All balance
sheet accounts of foreign subsidiaries and equity investees are translated at
the exchange rate at the end of the period. The Company's share of the resulting
translation adjustment is recorded as part of the other component of
stockholders' equity. The cumulative unrecognized translation adjustment loss
was $35.7 million, $26.9 million and $18.6 million at December 31, 1998, 1997
and 1996, respectively.
STOCK OPTIONS
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
CHANGE IN ACCOUNTING METHOD
Effective January 1, 1998, the Company adopted Statement of Position
(SOP) 98-1, "Accounting for the Costs of Software Developed or Obtained for
Internal Use." The SOP requires the capitalization of certain costs to develop
or obtain internal use software. The adoption of this SOP did not have a
material impact in 1998.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-up Activities." The SOP is
effective beginning January 1, 1999, and requires that unamortized start-up
costs be written off at the time the SOP is adopted and future start-up costs
be expensed as incurred. Unamortized start-up costs totaling $1.5 million, net
of income tax benefit, will be written off as the cumulative effect of a change
in accounting as of January 1, 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Financial Instruments and Hedging
Activities," which is required to be adopted beginning in the year 2000. Because
of the Company's minimal use of derivatives, the adoption of this Statement is
not expected to have a material impact on the earnings or the financial position
of the Company.
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.
RECLASSIFICATION
Certain amounts for 1997 and 1996 have been reclassified to conform to the
1998 presentation.
NOTE C. JOINT VENTURE FORMATION
On December 22, 1998, the Company entered into agreements with OxyChem to
form two limited partnerships. Under these agreements, Geon will contribute to
the PVC partnership five PVC suspension and mass resin plants and one VCM plant
as well as related assets. In exchange, Geon will receive a 24% interest in the
PVC partnership and the PVC partnership will assume certain liabilities and
obligations of Geon related to agreements under which Geon currently leases a
portion of a VCM plant located in LaPorte, Texas, as well as certain industrial
revenue bond debt of Geon. OxyChem will contribute to the PVC partnership one
PVC plant, one VCM plant, a 50% interest in OxyMar, a Texas general partnership
that operates a VCM plant, and a chlor-alkali chemical complex, together with
related assets. In exchange, OxyChem will receive a 76% interest in the PVC
partnership, and the PVC partnership will assume certain liabilities and
obligations of OxyChem, including certain OxyMar debt.
F-13
- --------------------------------------------------------------------------------
<PAGE> 27
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Geon will contribute to the compounding partnership substantially all of its
powder/dry blend compounding assets, located at Plaquemine, Louisiana, and its
powder compound business. In exchange, Geon will receive a 90% interest in the
compounding partnership, and the compounding partnership will assume certain
liabilities and obligations of Geon. OxyChem will contribute to the compounding
partnership substantially all of its compounding assets located at Pasadena,
Texas. In exchange, OxyChem will receive a 10% interest in the compounding
partnership, and the partnership will assume certain liabilities and obligations
of OxyChem.
In conjunction with the Joint Venture transactions, Geon will realize $110
million through retention of certain working capital and the distribution of
cash from the PVC partnership. OxyChem will also transfer to Geon a PVC flexible
film and pellet compounding plant located in Burlington, New Jersey, and its
specialty pellet compound business located in Pasadena, Texas, in addition to
inventory, customer lists, contracts and other associated rights.
In addition, Geon will enter into a resin and VCM supply agreement with the
PVC partnership under which it will purchase a substantial portion of its PVC
resin and VCM. The agreements will have an initial term of 15 years with renewal
options. The Company will also enter into various service agreements with the
partnerships.
The Company will account for its interest in the PVC partnership as an
equity investment. The compounding partnership will be consolidated.
The formation of the partnerships is subject to certain conditions,
including approval of the Company's stockholders.
NOTE D. BUSINESS ACQUISITIONS
During 1998, the Company completed the acquisitions of three custom
formulators of vinyl plastisols for a combined purchase price of $57.1 million,
net of cash acquired. The acquisitions were accounted for under the purchase
method of accounting and, accordingly, the assets acquired and liabilities
assumed are recorded at their estimated fair values on the acquisition date. The
excess of the purchase price over the estimated fair value of net assets
acquired totaled approximately $24 million and has been recorded as goodwill.
The purchase price allocations reflected in these financial statements are
preliminary and will be finalized in 1999. The acquisitions were financed with
the Company's existing short-term credit facilities. The Company's 1998 results
of operations include the operations of two of these acquired companies from
June 1, 1998 and the third from September 1, 1998.
On October 31, 1997, the Company acquired Synergistics Industries Limited
(Synergistics) of Mississauga, Ontario, Canada for approximately $87 million.
The acquisition was also accounted for under the purchase method of accounting
and the excess of the purchase price over the estimated fair value of net assets
acquired of approximately $64 million has been recorded as goodwill.
If these acquisitions had occurred at the beginning of 1997, after adjusting
for goodwill amortization, interest on acquisition debt and other pro forma
adjustments, the Company's sales, operating income and net income for 1997
would have increased by approximately $312.0 million, $26.2 million and $3.1
million, respectively. Sales, operating income and net income for 1998 would
have increased by approximately $52.2 million, $4.7 million and $1.7 million,
respectively. Basic and diluted earnings per share would have increased by
approximately $.08 for 1998 and $.14 for 1997.
NOTE E. FINANCING ARRANGEMENTS
Aggregate maturities of long-term debt during the five years subsequent to
December 31, 1998 are: 1999--$0.8 million; 2000--$1.8 million; 2001--$0.3
million; 2002--$0.5 million; and 2003--$0.8 million. Interest paid amounted to
$14.5 million, $12.5 million and $10.9 million during 1998, 1997 and 1996,
respectively. At December 31, long-term debt consists of the following:
<TABLE>
<CAPTION>
(In millions) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
6.875% Debentures (maturing 2005) $ 75.0 $ 75.0
7.500% Debentures (maturing 2015) 50.0 50.0
6.66% Industrial revenue bonds
related to LaPorte facility
(maturing 2009) 7.6 7.8
Other 3.6 4.4
- ------------------------------------------------------------
136.2 137.2
Less current portion .8 .8
============================================================
$135.4 $136.4
============================================================
</TABLE>
At December 31, 1998, the Company had the following unsecured lines of
credit, all of which are short-term except for the revolving credit facility,
which expires in the year 2000.
<TABLE>
<CAPTION>
Number of Permitted
(Dollars in millions) Lines Borrowings
-----------------------------------------------------------
<S> <C> <C>
U.S. (including the $100
revolving credit facility) 5 $230.0
Canada (includes acquisition
facility) 4 66.0
-----------------------------------------------------------
$296.0
===========================================================
</TABLE>
At December 31, 1998, approximately $250.1 million of the credit and
overdraft facilities was available. The weighted-average interest rate on
short-term borrowings was 5.1% at December 31, 1998 and 4.1% at December 31,
1997.
The Company's bank agreements contain restrictive covenants and require
the maintenance of certain financial ratios.
F-14
- --------------------------------------------------------------------------------
<PAGE> 28
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE F. LEASING ARRANGEMENTS
The Company leases warehouse space, machinery and equipment, automobiles
and railcars under operating leases with remaining terms up to twelve years.
Rent expense amounted to $32.2 million, $32.1 million and $23.8 million during
1998, 1997 and 1996, respectively. The Company leases a VCM production facility
and related equipment under operating leases that expire in 2001. Under the
terms of the lease agreements, the Company has options to renew the lease for
five one-year periods and may purchase the VCM facility and equipment at a
predetermined price at any time during the lease term. The agreements provide
for a guaranteed residual value of approximately $150 million at termination.
Under the terms of the transaction agreements with OxyChem (see Note C), the PVC
partnership will assume the Company's obligation under these leases.
The future minimum lease payments under noncancelable operating leases
with initial lease terms in excess of one year at December 31, 1998, are as
follows: 1999--$27.1 million; 2000--$21.9 million; 2001--$179.4 million;
2002--$2.9 million; 2003--$2.3 million; and thereafter--$10.6 million.
NOTE G. SALE OF ACCOUNTS RECEIVABLE
The Company has an agreement with a bank to sell an undivided interest in
certain trade accounts receivable under which, on an ongoing basis, a maximum of
$85.0 million can be sold from a designated pool subject to limited recourse.
Payments are collected from the sold accounts receivable; the collections are
reinvested in new accounts receivable for the buyers; and a yield based on
defined short-term market rates is transferred to the buyers. Buyers have
collection rights to recover payments from the receivables in the designated
pool. Sales of accounts receivable averaged $78.4 million, $79.9 million and
$40.5 million in 1998, 1997 and 1996, respectively. Accounts receivable at
December 31, 1998 and 1997 are net of $85.0 million and $60.0 million,
respectively, representing the interests in receivables sold under these
agreements. The discount from the Company's sale of receivables is included in
"Other expense, net" in the Consolidated Statements of Income.
NOTE H. INVENTORIES
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
At FIFO or average cost, which
approximates current costs:
Finished products and in
process $ 94.3 $107.8
Raw materials and supplies 34.2 48.7
- ------------------------------------------------------------
128.5 156.5
Reserve to reduce certain
inventories to LIFO basis (14.6) (34.1)
============================================================
$113.9 $122.4
============================================================
</TABLE>
Approximately 56% and 62% of the pre-LIFO inventory amounts have been
valued by the LIFO method at December 31, 1998 and 1997, respectively.
The decrease in the LIFO reserve from December 31, 1997 to December 31, 1998
is attributable to deflation in the Company's material costs.
NOTE I. PROPERTY
<TABLE>
<CAPTION>
December 31,
(In millions) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 32.3 $ 31.5
Buildings 216.5 206.6
Machinery and equipment 956.4 935.2
- ------------------------------------------------------------
1,205.2 1,173.3
Less accumulated
depreciation and 761.7 716.7
amortization
============================================================
$ 443.5 $ 456.6
============================================================
</TABLE>
Capital expenditures for 1997 and 1996 include $2.4 million and $1.1
million, respectively, of capitalized interest costs. No interest was
capitalized in 1998.
NOTE J. OTHER BALANCE SHEET LIABILITIES
<TABLE>
<CAPTION>
(In millions) Non-current
Accrued Expenses Liabilities
- -----------------------------------------------------------
December 31, December 31,
1998 1997 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Employment costs $25.5 $23.9 $ 5.6 $ 4.6
Environmental 5.5 7.3 40.4 43.7
Plant utilities 1.4 1.4 1.8 3.2
Taxes, other than 15.1 13.1 -- --
income
Post-retirement 7.7 7.7 -- --
benefits
Pension 2.4 -- 23.0 20.1
Employee separation
and plant phase-out 9.2 2.8 -- --
Other 9.2 7.1 7.0 5.5
===========================================================
$76.0 $63.3 $77.8 $ 77.1
===========================================================
</TABLE>
NOTE K. EMPLOYEE BENEFIT PLANS
PENSION BENEFIT PLANS
In 1998, the Company adopted FASB Statement No. 132, "Employers'
Disclosure about Pensions and Other Post-retirement Benefits". This Statement
addresses disclosures only and did not change the Company's recognition and
measurement of pension and post-retirement obligations. The Company has two
defined benefit pension plans covering substantially all domestic employees. The
plan covering salaried employees (salaried plan) generally provides benefit
payments using a formula that is based on employee compensation and length of
service. The plan covering union wage employees (wage plan) generally provides
benefit payments of stated amounts for each year of service. Annual
contributions to the plans are sufficient to satisfy legal requirements. Plan
assets consist principally of corporate and government obligations and funds
invested in equities. In addition to funded pension plans, the Company has three
unfunded nonqualified pension plans which provide supplemental pension benefits
for senior executives.
F-15
- --------------------------------------------------------------------------------
<PAGE> 29
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table sets forth as of December 31, 1998 and 1997 the status
of the Company's funded defined benefit pension plans. The plan assets relate
only to these funded plans. Accordingly, the table excludes the accumulated
benefit obligation and benefit payments for unfunded non-qualified plans.
<TABLE>
<CAPTION>
Change
(In millions) 1998 1997 1998 vs. 1997
--------------------------------------------------------------
CHANGE IN PLAN ASSETS:
<S> <C> <C> <C>
Plan assets - beginning of $241.8 $215.0 $ 26.8
the year
Actual return on plan assets 15.3 33.5 (18.2)
Company contributions 5.7 11.0 (5.3)
Benefits paid (18.9) (17.7) (1.2)
--------------------------------------------------------------
Plan assets - end of the year 243.9 241.8 2.1
--------------------------------------------------------------
Accumulated benefit obligation 263.2 256.7 6.5
(ABO)
--------------------------------------------------------------
Plan assets less than ABO $ 19.3 $ 14.9 $ 4.4
--------------------------------------------------------------
</TABLE>
At December 31, 1998, the accumulated benefit obligation liability related
to these funded pension plans was 93% funded. The use of a 0.2% lower interest
rate to discount future pension obligations at December 31, 1998 as compared to
1997 increased the ABO by approximately $7.0 million. Discount rate assumptions
change with fluctuations in current investment returns. Over the last three
years, the Company's contributions have totaled $28.7 million, or $5.1 million
above the normal pension expense for the same period.
Annual pension expense for funded and unfunded defined benefit pension
plans, including a charge of $10.7 million in 1997 related to a voluntary
retirement program, included the following components:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned $ 3.9 $ 4.1 $ 4.0
Interest cost 20.1 19.5 18.8
Curtailment loss and special
termination benefits -- 10.7 --
Expected return on plan assets (22.5) (19.6) (16.9)
Amortization of unrecognized
losses, transition obligation
and prior service cost 2.6 3.8 5.8
============================================================
Pension expense, net $ 4.1 $ 18.5 $ 11.7
============================================================
</TABLE>
The tables below show the change in the combined projected benefit
obligation (PBO) and the combined funded status of both the funded and unfunded
defined benefit pension plans. The PBO includes the impact of projected future
salary increases.
<TABLE>
<CAPTION>
Change
(In millions) 1998 1997 1998 vs. 1997
--------------------------------------------------------------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION (PBO):
Benefit obligation- beginning
of year $294.1 $265.9 $ 28.2
Service cost 3.9 4.1 (.2)
Interest Cost 20.1 19.5 .6
Benefits paid (19.9) (17.7) (2.2)
Curtailment and special
termination benefits - 10.7 (10.7)
Change in discount rate and
other 3.9 11.6 (7.7)
------------------------------------------------------------
Benefit obligation - end of
year (PBO) 302.1 $294.1 8.0
Less projected salary increases (31.1) (29.1) (2.0)
------------------------------------------------------------
Accumulated benefit obligation
(ABO) $271.0 $265.0 $ 6.0
------------------------------------------------------------
FUNDED STATUS OF THE PLANS:
Plan assets less than PBO $ 58.2 $ 52.3 $ 5.9
Unamortized balances:
Transitional liability (4.4) (5.6) 1.2
Prior service cost (3.9) (5.0) 1.1
Net actuarial loss (44.8) (35.3) (9.5)
Adjustments required to
recognize minimum liability 20.3 13.7 6.6
------------------------------------------------------------
Accrued pension cost - all
plans 25.4 20.1 5.3
------------------------------------------------------------
Accrued pension cost-
salaried plan 24.6 19.4 5.2
Prepaid pension cost-
wage plan (8.2) (7.6) (.6)
Accrued pension cost-
unfunded plans $ 9.0 $ 8.3 $ .7
============================================================
</TABLE>
The combined PBO includes the PBO of unfunded plans of $10.2 million and
$9.7 million at December 31, 1998 and 1997, respectively. The ABO of these
unfunded plans was $9.1 million and $8.3 million at December 31,1998 and 1997 ,
respectively. The remaining PBO relates to the Company's two funded pension
plans. The salaried plan had, at December 31, 1998 and 1997, a PBO and ABO
exceeding the fair value of the assets related to the Plan. At December 31, 1998
the PBO, ABO and fair value of related assets for this plan were $268.8 million,
$240.0 million and $215.4 million, respectively. At December 31, 1997, the PBO,
ABO and fair value of plan assets of this plan were $260.2 million, $232.5
million and $213.1 million, respectively.
F-16
- --------------------------------------------------------------------------------
<PAGE> 30
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Major assumptions used in accounting for the Company's defined benefit
pension plans are as follows:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------
<S> <C> <C>
Discount rate for
obligations 7.0% 7.2%
Rate of increase in
compensation levels 4.0%-7.0% 4.0%-7.0%
Expected long-term rate
of return on plan
assets 9.5% 9.5%
- ----------------------------------------------------
</TABLE>
A charge of $10.7 million for curtailment and special termination benefits
was recorded in 1997 relating to a voluntary retirement program. The charge is
included in the employee separation charge of $15.0 million recognized in the
consolidated statement of income. The Company had recorded an intangible asset
of $6.5 million and $8.6 million related to both funded and unfunded pension
plans as of December 31, 1998 and 1997, respectively. At December 31, 1998 and
1997, the Company's accumulated other non-owner equity changes includes $8.9
million and $2.3 million, respectively related to adjustment of the minimum
pension liability of its pension plans.
The Company reports other non-owner equity changes net of the related
income tax expense or benefit in the Consolidated Statements of Stockholders'
Equity. The income tax (expense) benefit related to the adjustment of the
minimum pension liability was $3.6 million, $(.5) million and $(8.8) million in
1998, 1997 and 1996, respectively.
RETIREMENT SAVINGS PLAN
The Company maintains a voluntary retirement savings plan (RSP) for most
employees. Under provisions of the RSP, eligible employees can receive Company
matching contributions up to the first 6% of their eligible earnings. For 1998,
1997 and 1996, Company contributions amounted to $5.4 million, $4.7 million and
$4.7 million, respectively. In addition, the Company makes profit-sharing
payments to the RSP for those employees not covered by management incentive
compensation plans. In 1998, 1997 and 1996, these profit-sharing payments
totaled $1.5 million, $.8 million and $1.0 million, respectively.
POST-RETIREMENT BENEFIT PLANS
The Company sponsors several unfunded defined benefit post-retirement
plans that provide certain health care and life insurance benefits to eligible
employees. The health care plans are contributory, with retiree contributions
adjusted periodically, and contain other cost-sharing features such as
deductibles and coinsurance. The life insurance plans are generally
non-contributory. Below is a reconciliation of the plans' combined benefit
obligations and funded status for December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(In millions) 1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Benefit obligation - beginning of
year $94.5 $91.5
Service cost .4 .4
Interest cost 6.5 6.5
Participant contributions .5 .6
Change in discount rates and 2.1 1.7
other
Curtailment and special
termination benefits -- 1.4
Benefits paid (8.2) (7.6)
- -----------------------------------------------------------
Benefit obligation - end of year 95.8 94.5
Unrecognized loss (3.0) (.6)
===========================================================
Accrued post-retirement benefit
liability $92.8 $93.9
===========================================================
</TABLE>
The annual post-retirement benefit expense for each of the years ended
December 31 included the following components:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned $ .4 $ .4 $ .4
Interest cost 6.5 6.5 6.5
===========================================================
Postretirement expense, net $6.9 $6.9 $6.9
===========================================================
</TABLE>
The average assumed rate of increase in the per capita cost of covered
benefits is 7.5% for 1998 and is assumed to decrease gradually to 5% in 2004 and
thereafter. A change in the assumed health care cost trend rates of 1% in each
year would increase or decrease the benefit obligation as of December 31, 1998
by approximately $5.0 million and the aggregate of the service and interest cost
components of net periodic post-retirement benefit cost for 1998 by $.4 million.
The discount rates used in determining the benefit obligation at December
31, 1998 and 1997 were 7.0% and 7.2%, respectively.
F-17
- --------------------------------------------------------------------------------
<PAGE> 31
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE L. COMMITMENTS
ENVIRONMENTAL
The Company has been notified by the U.S. Environmental Protection Agency,
a state environmental agency, or a private party that it may be a potentially
responsible party (PRP) in connection with seven active and inactive non-Company
owned sites. While government agencies frequently claim PRPs are jointly and
severally liable at these sites, in the Company's experience, interim and final
allocation of liability costs are generally made based on the relative
contribution of waste. The Company believes that it has potential continuing
liability with respect to only four such sites. In addition, the Company
initiates corrective and preventive environmental projects of its own to ensure
safe and lawful activities at its operations. The Company believes that
compliance with current governmental regulations at all levels will not have a
material adverse effect on its financial condition. Based on estimates prepared
by the Company's environmental engineers and consultants, the Company, at
December 31, 1998, had accruals totaling $45.9 million to cover probable future
environmental expenditures related to previous contaminated sites. The accrual
represents the Company's best estimate for the remaining remediation costs based
upon information and technology currently available. Depending upon the results
of future testing and the ultimate remediation alternatives undertaken at these
sites, it is possible that the ultimate costs to be incurred could be more than
the accrual at December 31, 1998 by as much as $14 million. The Company's
estimate of the liability may be revised as new regulations, technologies or
additional information is obtained.
Of the $45.9 million accrued for future environmental expenditures, $17.3
million is attributable to future remediation expenditures at the Calvert City,
Kentucky, site and less than $.5 million is attributable to off-site
environmental remediation liabilities, including the four sites mentioned above.
The remaining amount is primarily attributable to other environmental
remediation projects at nine other Company-owned facilities. At Calvert City,
consent orders have been signed with both the U.S. Environmental Protection
Agency and the Commonwealth of Kentucky Department of Environmental Protection
which provide for a site-wide remediation program primarily to remove ethylene
dichloride (EDC) from groundwater, the cost of which has been accrued.
Environmental expense incurred was $2.4 million in each of the years ended
December 31, 1998 and 1997 and $4.2 million for the year ended December 31,
1996.
GUARANTEES
The Company has a 50% participation in a joint venture operating a
chlor-alkali plant. The Company has guaranteed $97.5 million of the joint
venture's outstanding senior secured notes, maturing in 2017.
OTHER
The Company and its subsidiaries have commitments for a substantial
portion of its key raw material feedstocks and energy incidental to the ordinary
course of business. The Company is also, from time to time, subject to routine
litigation incidental to its business. The Company believes that any liability
that may finally be determined would not have a material adverse effect on its
financial condition.
NOTE M. OTHER EXPENSE, NET
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Currency exchange gain
(loss) $ 2.9 $(2.2) $ 1.6
Foreign currency exchange
contract (1.1) -- --
Discount on sale of trade
receivables (4.6) (5.0) (2.4)
Other income, net .2 1.3 --
===========================================================
$(2.6) $(5.9) $ (.8)
===========================================================
</TABLE>
NOTE N. INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 5.1 $24.9 $(8.9)
Foreign 18.5 9.7 29.6
===========================================================
$23.6 $34.6 $20.7
===========================================================
</TABLE>
A summary of income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ .2 $ .4 $(10.4)
State .6 (1.1) --
Foreign 10.0 6.5 10.1
-----------------------------------------------------------
Total current 10.8 5.8 (.3)
Deferred:
Federal 2.0 6.9 8.8
State (.4) 1.8 (.4)
Foreign (2.6) (2.4) .4
-----------------------------------------------------------
Total deferred (1.0) 6.3 8.8
===========================================================
Total tax expense $ 9.8 $12.1 $ 8.5
===========================================================
</TABLE>
The income tax rate for financial reporting purposes varied from the
federal statutory rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income
tax rate 35.0% 35.0% 35.0%
Increase (decrease):
State tax, net of federal
benefit .8 1.5 (1.5)
Goodwill 2.6 - -
Differences in rates
of foreign operations 1.5 2.0 .8
Foreign withholding
accrued on unremitted
earnings - 1.1 4.7
Adjust prior year's
income tax liability - (5.9) --
Other, net 1.6 1.3 2.1
===========================================================
Effective income tax rate 41.5% 35.0% 41.1%
===========================================================
</TABLE>
F-18
- --------------------------------------------------------------------------------
<PAGE> 32
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Significant components of the Company's deferred tax liabilities and
assets at December 31 are as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997
----------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $110.2 $ 97.6
Equity investments 4.8 -
Other, net 14.1 16.7
----------------------------------------------------------
Total deferred tax liabilities 129.1 114.3
----------------------------------------------------------
Deferred tax assets:
Post-retirement benefits other than 32.5 32.9
pensions
Employment cost and pension 14.4 9.3
Environmental 14.6 16.7
Net operating loss carryforward 26.4 13.6
LIFO inventory 4.7 5.0
Intangibles 3.7 4.0
Alternative minimum tax credit
carryforward 5.5 3.9
Foreign tax credit carryforward 6.4 6.0
Foreign tax valuation allowance (6.4) (6.0)
State taxes .6 .5
Other, net 18.5 13.3
----------------------------------------------------------
Total deferred tax assets 120.9 99.2
----------------------------------------------------------
Net deferred tax liabilities $ 8.2 $ 15.1
==========================================================
</TABLE>
SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than not that
some portion or all of the deferred tax assets will not be realized. As
realization of the foreign tax credit carryforwards is considered uncertain, a
valuation allowance has been recorded. The Company believes that the timing of
the reversal of its deferred tax liabilities, principally relating to
accelerated depreciation, will be sufficient to fully recognize its remaining
deferred tax assets. In particular, the turnaround of the largest deferred tax
asset, related to accounting for postretirement benefits other than pensions,
will occur over an extended period of time and, as a result, will be realizable
for tax purposes over those future periods.
During 1996, the Company finalized the effects of the step-up in the tax
basis of its assets as a result of formation and recorded adjustments to
deferred taxes and equity of $25.9 million.
The Company has provided for U.S. federal and foreign withholding tax on
$30.0 million or 19% of foreign subsidiaries' undistributed earnings as of
December 31, 1998. Regarding the undistributed earnings on which no federal and
foreign withholding has been provided, earnings are intended to be reinvested
indefinitely. It is not practical to determine the amount of income tax
liability that would result had such earnings been actually repatriated. On
repatriation, certain foreign countries impose withholding taxes. The amount of
foreign withholding taxes that would be payable on remittance of the entire
amount of undistributed earnings would approximate $8.6 million.
During 1998, 1997 and 1996, the Company paid income taxes net of refunds
of $7.8 million, $1.9 million and $2.2 million, respectively. The Company has a
net operating loss carryforward of approximately $75.5 million, of which $11.7
million will expire in 2011, $20.7 million will expire in 2012 and the remaining
$43.1 million will expire in 2018. In addition, the Company has foreign tax
carryforwards of $6.4 million, which will expire from 1999 through 2003 and an
alternative minimum tax credit carryforward of $5.5 million.
NOTE O. EMPLOYEE SEPARATION AND PLANT PHASE-OUT
---------------------------------------
CHARGES
In the fourth quarter of 1998, the Company recorded employee separation
and plant phase out charges of $14.6 million relating to the Company's
consolidation of its compounding operations. This plan of consolidation includes
the closing of two manufacturing plants and the partial closing of production
lines at other manufacturing plants. The affected facilities are those of the
former Synergistics operations that Geon acquired in the fourth quarter of 1997.
The manufacturing of products made at such sites will be transferred to other
plants utilizing existing capacity. This consolidation resulted in the write-off
of software, machinery and equipment and, at the affected sites, employee
separation costs related to the elimination of approximately 250 positions, and
charges related to other costs associated with the plant sites consisting
primarily of demolition and lease termination costs. The charges taken in the
fourth quarter of 1998 and those anticipated to be taken in the first quarter of
1999 related to the elimination of 250 positions include termination costs
(severance benefits and outplacement services). The costs associated with
services rendered by the employees through the date of termination will be
charged to operations as incurred.
The fourth quarter 1998 activity relating to the accrual for the
consolidation of the compound operations consisted of payments of $.7 million
and charges totaling $14.6 million as follows:
(a) the non-cash write-off of fixed assets with a net book value of
$5.3 million. Such fixed assets will be demolished by June 1999.
(b) employee separation costs of $5.0 million of which cash payments of
$.7 million were made as of December 31, 1998, and the remaining
cash payments will be made through mid-2000. No employee
terminations occurred through December 31, 1998. Termination of 180
individuals is expected to be completed by mid-1999 in connection
with the elimination of the 250 positions described above; and
(c) other site closure costs of $4.3 million consisting of $3.3 million
of accrued demolition costs and $1.0 million of incurred legal and
professional fees.
The Company also anticipates incurring, in the first quarter of 1999 and
upon formation of the powder compound joint venture, estimated costs totaling
$7.5 million relating to the completion of the compound consolidation plan. The
amounts expected to be incurred are as follows: (a) accelerated depreciation of
$1.4 million and related disposition costs of $2.0 million related to certain
compounding operating assets which were identified at the end of the fourth
quarter of 1998 as assets to be taken out of service by the end of the second
quarter of 1999, (b) $2.0 million of disposition costs, which will be expensed
as incurred, consisting of moving and relocation costs and the cost of archiving
and converting files from computers and software disposed as part of the
consolidation of the compound operations, (c) lease termination costs of $1
million, and (d) costs associated with exiting the Conroe, Texas, powder
compounding facility, which will be closed subject to the consummation of the
joint venture transactions, totaling $4.0 million. The cost of closing the
Conroe, Texas facility primarily represent non-cash write-offs of fixed assets
with a net book value of $2.0 million and other assets with a carrying value of
$.5 million, and cash employee separation costs of approximately $1.5 million
relating to the termination of 70 individuals in connection with the elimination
of the 250 positions discussed above. These terminations are expected to be
completed by mid-1999. All sites and production lines in the plan are projected
to be closed by mid-1999.
The consolidation is expected to produce total cost savings of $6 million
in 1999 and $14 million annually thereafter.
F-19
- --------------------------------------------------------------------------------
<PAGE> 33
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In 1997, the Company recorded a $15.0 million before tax charge, primarily
for employee separation costs related to 74 position reductions at its
headquarters. Approximately $8.0 million of the $15.0 million charge will be
funded as part of the Company's funded pension plans. The remaining $7.0 million
represents cash payments for enhanced pension benefits and separation costs.
Through December 31, 1998, the Company has paid $4.0 million of the enhanced
pension benefits and separation costs and expects to pay the remaining $3.0
million in the first half of 1999.
NOTE P. STOCK OPTION AND STOCK INCENTIVE PLANS
The Company's incentive stock plans provide for the awarding or granting
of options to purchase common stock of the Company. Generally, options granted
become exercisable at the rate of 35% after one year, 70% after two years and
100% after three years. Certain options granted under the Company's long-term
incentive plan are exercisable after six years, with accelerated vesting based
upon achievement of target stock prices. In addition, some options are fully
exercisable after grant. The term of each option cannot extend beyond ten years
from the date of grant. Certain options carry with them limited stock
appreciation rights exercisable in the event of a change in control. All options
under the plans have been granted at 100% of market (as defined) on the date of
the grant. In addition, certain senior level executives received special awards
in connection with the formation of the Company and the initial public offering
(IPO) of stock on April 29, 1993, which included stock options with rights to
purchase 1.2 million shares. These awards became exercisable four years after
grant date. The Company also has a stock plan for non-employee directors under
which options are granted.
During 1998, the Company issued 1.1 million stock options under a three
year long-term incentive plan. Two-thirds of these options become exercisable
after six years, with accelerated vesting if target stock prices are met. The
remainder of these options are exercisable only if the target stock prices are
met.
A summary of stock option activity follows:
Weighted
(In thousands except per share data) Average
Shares Exercise Price
- -------------------------------------------------------
Outstanding at January 1, 1996 2,055 $20.27
Issued 284 25.98
Exercised 21 18.57
Forfeited 3 26.85
- -------------------------------------------------------
Outstanding at January 1, 1997 2,315 20.97
Issued 318 20.07
Exercised 51 20.51
Forfeited 48 23.91
- -------------------------------------------------------
Outstanding at January 1, 1998 2,534 20.81
Issued 1,462 20.98
Exercised 126 18.94
Forfeited 62 24.87
- -------------------------------------------------------
Outstanding at December 31, 1998 3,808 20.87
- -------------------------------------------------------
Exercisable at December 31, 1998 2,146 20.70
Exercisable at December 31, 1997 2,048 20.35
Exercisable at December 31, 1996 853 21.57
- -------------------------------------------------------
At December 31, 1998:
Exercisable options:
Exercise price: $14.92-$22.00 1,477 18.10
Exercise price: $22.01-$30.125 669 26.37
Unexercisable options:
Exercise price: $14.92-$22.00 1,198 20.57
Exercise price: $22.01-$30.12 464 23.05
=======================================================
At December 31, 1998, the weighted average remaining life for options with
an exercise price of $22.00 or less was 6.12 years. Options with an exercise
price of more than $22.00 had a remaining life of 7.17 years.
Under the Company's incentive programs, senior executives and other key
employees are also eligible to receive annual bonus awards, consisting of stock
or a combination of both stock and cash. Under these plans, performance measures
are established and used to determine the payout, if any. The Company granted
0.1 million shares of stock under these annual incentive stock plans in each of
the past three years. These annual stock awards are restricted with the
restriction generally lapsing over one to three years with some subject to
acceleration based on the Company's stock price performance. At December 31,
1998, restricted shares totaling 0.4 million were outstanding, including
restricted stock issued at the time of the IPO. In addition, under the Company's
Long-Term Incentive Plan, certain senior executives are eligible to receive
stock awards based upon performance measures over a three year period. In 1998,
0.1 million shares were issued related to the three year period ended December
31, 1997.
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for its incentive plans.
Accordingly, no compensation cost has been recognized for its fixed option plans
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant. Had the compensation cost
for the stock options granted been determined based upon the fair value at the
grant date, consistent with the fair value method of FASB Statement No. 123,
"Accounting for Stock-Based Compensation," the Company's net earnings and
earnings per share would have been reduced by $1.9
F-20
- --------------------------------------------------------------------------------
<PAGE> 34
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
million in 1998 ($.08 per share); $2.1 million ($.09 per share) in 1997 and $0.7
million ($.03 per share) in 1996 on a diluted basis. The weighted average fair
value of stock options granted per share was $6.53, $6.23 and $8.02 for 1998,
1997 and 1996, respectively. The fair value of the stock options at the grant
date was estimated using the Black-Scholes option pricing model with an assumed
risk free interest rate of 4.8%, 5.4% and 5.7%, an assumed dividend yield of
2.5%, 2.5% and 2.0%, and stock price volatility of 29.9%, 28.5% and 29.8% for
1998, 1997 and 1996, respectively. A seven year weighted average life was used
for all periods.
The compensation cost recognized related to the stock portion of the
annual incentive plans, three year incentive plan and amortization of restricted
stock awarded at the IPO amounted to $4.9 million, $2.3 million and $3.0 million
in 1998, 1997 and 1996, respectively. The weighted average fair value per share
of restricted stock and stock awards under the Long-Term Incentive Plan on the
grant date was $20.75, $19.88 and $26.38 for 1998, 1997 and 1996, respectively.
At December 31, 1998, approximately 1.0 million shares were reserved for
future issuance upon exercise of stock options granted or were available for
future grants under the Company's incentive plans.
NOTE Q. SEGMENT INFORMATION
The Company operates primarily in two business segments, the Performance
Polymers and Services (PP&S) segment, and the Resin and Intermediates (R&I)
segment. The accounting policies of each business segment are consistent with
those described in the "Summary of Significant Accounting Policies".
Inter-segment sales are accounted for at prices which generally approximate
those for similar transactions with unaffiliated customers. The elimination of
inter-segment sales revenue is primarily for sales from the R&I segment to the
PP&S segment and is included in the Other segment. Certain other corporate
expenses and eliminations are also included in the Other segment. The total
Company business earnings comprise operating income plus income from equity
affiliates. Business segment assets consist primarily of customer receivables,
inventories, net property and goodwill. Cash, sales of accounts receivable and
certain other assets not identified with a specific segment are included in the
Other segment.
($ in millions) TOTAL PP&S R&I Other
- -------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998:
Net sales $1,284.4 $839.2 $577.7 $(132.5)
Business earnings (loss) 41.0 79.2 (36.4) (1.8)
Employee separation and
plant phase out 14.6 14.6 - -
- -------------------------------------------------------------------------
Business earnings (loss)
before employee
separation and plant
phase out 55.6 93.8 (36.4) (1.8)
Depreciation and
amortization 57.9 28.6 28.8 .5
- -------------------------------------------------------------------------
Business earnings (loss)
before depreciation,
amortization and employee
separation and plant phase
out 113.5 122.4 (7.6) (1.3)
- -------------------------------------------------------------------------
Total assets 802.0 463.4 347.8 (9.2)
Capital expenditures 40.7 21.7 18.8 .2
=========================================================================
YEAR ENDED DECEMBER 31,
1997:
Net sales $1,250.0 $606.7 $817.7 $(174.4)
Business earnings (loss) 51.7 44.7 16.4 (9.4)
Employee separation and
plant phase out 15.0 2.9 4.0 8.1
- -------------------------------------------------------------------------
Business earnings (loss)
before employee separation
and plant phase out 66.7 47.6 20.4 (1.3)
Depreciation and
amortization 54.6 25.9 28.7 --
- -------------------------------------------------------------------------
Business earnings (loss)
before depreciation,
amortization and employee
separation and plant
phase out 121.3 73.5 49.1 (1.3)
- -------------------------------------------------------------------------
Total assets 872.9 497.7 380.0 (4.8)
Capital expenditures 50.9 26.7 24.2 -
=========================================================================
YEAR ENDED DECEMBER 31, 1996:
Net sales $1,144.4 $537.1 $761.1 $(153.8)
Business earnings (loss) 30.9 46.8 (15.5) (.4)
Depreciation and
amortization 54.1 25.5 28.6 --
- -------------------------------------------------------------------------
Business earnings (loss)
before depreciation
and amortization 85.0 72.3 13.1 (.4)
- -------------------------------------------------------------------------
Total assets 736.9 353.4 396.4 (12.9)
Capital expenditures 73.4 38.9 34.5 -
=========================================================================
The PP&S segment includes the 1997 acquisition of Synergistics and the
acquisitions of three plastisol formulators in 1998.
F-21
- --------------------------------------------------------------------------------
<PAGE> 35
THE GEON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Earnings (loss) of equity affiliates are included in the related business
segment earnings (loss) and the investment in equity affiliates is included in
related business segment assets. Amounts related to equity affiliates included
in the business segment information are as follows:
<TABLE>
<CAPTION>
($ in millions) 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (loss) of equity affiliates:
PP&S $ .5 $ .2 $1.0
R&I 3.2 (.5) -
- ---------------------------------------------------------------------
Total 3.7 (.3) 1.0
- ---------------------------------------------------------------------
Investment in equity affiliates:
PP&S 3.2 2.7 1.2
R&I 16.6 17.9 .1
- ---------------------------------------------------------------------
Total 19.8 20.6 1.3
=====================================================================
</TABLE>
The Company's sales are principally to customers in the United States and
Canada, and the majority of the Company's assets are located in these
countries. Below is a summary of sales based on the country from which the sales
originated and assets by location.
<TABLE>
<CAPTION>
($ in millions) 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $1,004.7 $952.7 $869.4
Canada 279.7 246.2 200.0
Other - 51.1 75.0
- ---------------------------------------------------------------------
Long-lived assets:
United States $ 421.3 $381.5 $387.4
Canada 105.5 141.7 73.7
Other 18.1 17.5 18.3
=====================================================================
</TABLE>
NOTE R. WEIGHTED-AVERAGE SHARES USED IN COMPUTING EARNINGS PER SHARE
<TABLE>
<CAPTION>
($ in millions) 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average shares - Basic:
Weighted-average shares outstanding 23.3 23.3 24.2
Less unearned portion of restricted
stock awards included in
outstanding shares (.4) (.4) (.3)
- ---------------------------------------------------------------------
22.9 22.9 23.9
- ---------------------------------------------------------------------
Weighted-average shares - Diluted:
Weighted-average shares outstanding 23.3 23.3 24.2
Plus dilutive impact of stock
options and stock awards .3 .3 .4
- ---------------------------------------------------------------------
23.6 23.6 24.6
=====================================================================
</TABLE>
F-22
- --------------------------------------------------------------------------------
<PAGE> 36
THE GEON COMPANY AND SUBSIDIARIES
OTHER DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTERLY DATA (UNAUDITED) (In millions, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
1998 QUARTERS 1997 Quarters
- ------------------------------------------------------------------------------------------------------------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SALES $301.2 $328.0 $330.7 $324.5 $312.3 $303.7 $333.0 $301.0
EMPLOYEE SEPARATION AND PLANT PHASE OUT 14.6 -- -- -- -- -- 15.0 --
OPERATING INCOME (LOSS) (1.2) 16.5 12.4 9.6 11.4 18.3 14.5 7.8
NET INCOME (LOSS) (3.0) 6.2 4.8 5.8 3.5 10.6 6.1 2.3
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
BASIC $ (.13) $ .27 $ .21 $ .25 $ .15 $ .47 $ .27 $ .10
DILUTED (.13) .26 .20 .25 .15 .45 .26 .10
DIVIDEND PAID PER COMMON SHARE .125 .125 .125 .125 .125 .125 .125 .125
COMMON STOCK PRICE
HIGH $ 24-1/4 $ 26 $ 24-5/8 $ 23-1/2 $ 24-3/16 $ 20-13/16 $ 23-1/8 $ 23-1/4
LOW 16-1/4 17-7/16 19-1/4 19-15/16 20-3/8 18-1/2 20-1/8 18-5/8
</TABLE>
1998: Fourth quarter results include an after tax charge of $8.9 million ($14.6
million before tax) for costs related to plant closings.
1997: Second quarter results include an after tax charge of $9.2 million ($15.0
million before tax) for employee separation costs.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (In millions, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(1)Pro Forma
(Unaudited) Historical
1998 1997 1996 1995 1994 1993 1992 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES $1,284.4 $1,250.0 $1,144.4 $1,267.8 $1,208.6 $972.5 $894.3 $982.8 $969.9
Employee separation and plant phase-out 14.6 15.0 -- 63.9 -- 9.7 14.4 9.7 16.0
Operating income (loss) 37.3 52.0 29.9 63.3 102.1 14.5 (22.9) 18.6 (19.3)
Income (loss) before extraordinary item and
cumulative effect of a change in accounting 13.8 22.5 12.2 32.2 57.9 2.2 (22.1) 6.0 (15.0)
Extraordinary loss on early extinguishment
of debt -- -- -- -- (1.3) -- -- -- --
Cumulative effect of change in method of accounting -- -- -- -- -- (1.1) (57.5) (1.1) (70.4)
NET INCOME (LOSS) 13.8 22.5 12.2 32.2 56.6 1.1 (79.6) 4.9 (85.4)
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER SHARE:
BEFORE EXTRAORDINARY ITEM AND CHANGE IN
METHOD OF ACCOUNTING $.60 $.98 $.51 $1.28 $2.11 $.08 $(.84)
Extraordinary loss -- -- -- -- (.05) -- --
Change in method of accounting -- -- -- -- -- (.04) (2.19)
NET INCOME (LOSS) .60 .98 .51 1.28 2.06 .04 (3.03)
- --------------------------------------------- -------- ------- ------- ----------------- ------- -------- ------ ---------
DILUTED EARNINGS (LOSS) PER SHARE:
BEFORE EXTRAORDINARY ITEM AND CHANGE IN
METHOD OF ACCOUNTING $.58 $.95 $.50 $1.24 $2.08 $.08 $(.84)
Extraordinary loss -- -- -- -- (.05) -- --
Change in method of accounting -- -- -- -- -- (.04) (2.19)
NET INCOME (LOSS) .58 .95 .50 1.24 2.03 .04 (3.03)
DIVIDENDS PER COMMON SHARE .50 .50 .50 .50 .50 .375 --
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA, AT DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $802.0 $872.9 $736.9 $752.0 $791.7 $721.2 $686.9
Long-term debt 135.4 136.4 137.2 137.9 93.0 88.3 18.7
</TABLE>
(1) On February 11, 1993, the Company was formed as a wholly owned subsidiary
of The BFGoodrich Company (BFG) in preparation for the IPO of its common
stock on April 29, 1993. BFG transferred to the Company substantially all
of the operating assets and liabilities of its Geon Vinyl Division, other
than the net assets of the chlor-alkali, ethylene and utility operations of
BFG located principally at Calvert City, Kentucky (Calvert Facilities), in
exchange for the Company's common stock.
The historical results for 1993 and 1992 include the results of operations
associated with the Calvert Facilities through February 28, 1993. The cost
of VCM consumed from the Calvert Facilities was recorded at historical
intercompany cost through April 29, 1993.
The pro forma results for 1993 and 1992 exclude the results of operations
associated with the Calvert Facilities. The data is also presented as if
the Company purchased the VCM associated with the Calvert Facilities at
market prices rather than historical intercompany costs. Subsequent to the
initial public offering of the Company's common stock on April 29, 1993,
purchases of VCM from BFG were at market prices. The pro forma results also
include the cost associated with certain May 1993 bank arrangements, as if
they had occurred at the beginning of 1993.
The historical results include the following business acquisitions from the
acquisition date indicated forward: Synergistics Industries Limited from
October 31, 1997; Plast-O-Meric, Inc., and the Wilflex Division of Flexible
Products Company, from June 1, 1998 and Adchem, Inc. from September 1,
1998.
F-23
- --------------------------------------------------------------------------------
<PAGE> 37
THE GEON COMPANY AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF THE GEON COMPANY:
We have audited the accompanying consolidated balance sheets of The Geon
Company and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule, which appear on pages F-5, F-7, F-9,
F-11 through F-22 and F-25, are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Geon Company and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 28, 1999
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report contains statements concerning trends and other
forward-looking information affecting or relating to the Company and its
industry, including, but not limited to, statements concerning future
development of the Company's business following the completion of the proposed
transactions with OxyChem, the future operations of the proposed joint venture
entities, and the synergies expected to result therefrom, that are intended to
qualify for the protections afforded "forward-looking statements" under the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from such statements for a variety of factors, including but not
limited to (1) unanticipated changes in world, regional, or U.S. PVC consumption
growth rates affecting the Company's markets; (2) unanticipated changes in
global industry capacity or in the rate at which anticipated changes in industry
capacity come online in the PVC, VCM and chlor-alkali industries; (3)
fluctuations in raw material prices and supply, in particular fluctuations
outside the normal range of industry cycles; (4) unanticipated delays in
achieving or inability to achieve cost reduction and employee productivity
goals; (5) inability to achieve or delays in achieving savings related to
business consolidation and restructuring programs; (6) unanticipated production
outages or material costs associated with scheduled or unscheduled maintenance
programs; (7) the impact on the North American vinyl markets and supply/demand
balance resulting from the economic situation in the Far East; (8) the ability
to obtain financing at anticipated rates; (9) unanticipated expenditures
required in conjunction with year 2000 compliance; (10) unanticipated delay in
realizing, or inability to realize, expected costs savings from the proposed
transactions; (11) unanticipated costs or difficulties related to completion of
the proposed transactions or the operation of the joint venture entities; and
(12) unanticipated delays in completing, or inability to complete, the proposed
transactions; (13) lack of day to day operating control, including procurement
or raw material feedstock, of the proposed resin partnership; (14) lack of
direct control over the reliability of delivery and quality of the primary raw
materials (PVC & VCM) utilized in the Company's products; (15) partial control
over investment decisions and dividend distribution policy of the proposed resin
partnership.
F-24
- --------------------------------------------------------------------------------
<PAGE> 38
SCHEDULE II
THE GEON COMPANY AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in millions)
<TABLE>
<CAPTION>
Charged Charged
Balance at to Costs to Other Other Balance at
Beginning and Accounts Other Additions End of
of Period Expenses (C) Deductions (D) Period
--------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
Reserves for doubtful accounts $ 3.9 $ .2 $ (.2) $ (.1) (A) $ 0.7 $ 4.5
Accrued liabilities for environmental
matters 51.0 2.4 (2.2) (5.3) (B) -- 45.9
Year Ended December 31, 1997
Reserves for doubtful accounts $ 2.7 $ (.7) $ -- $ (.1) (A) $ 2.0 $ 3.9
Accrued liabilities for environmental 27.2 2.4 -- (3.6) (B) 25.0 51.0
matters
Year Ended December 31, 1996
Reserves for doubtful accounts $ 2.1 $ .7 $ -- $ (.1) (A) $ -- $ 2.7
Accrued liabilities for environmental 29.1 4.2 -- (6.1) (B) -- 27.2
matters
</TABLE>
Notes:
------
(A) - Accounts charged off
(B) - Represents cash payments during the year
(C) - Translation adjustments
(D) - Represents the additional reserves related to businesses acquired on
the date of acquisition.
F-25
<PAGE> 39
THE GEON COMPANY
INDEX TO EXHIBITS
(Item 14(a)(3))
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
2 Master Transaction Agreement dated December 22, 1998 between The Geon Company and Occidental
Chemical Company (e)
3(i) Restated Certificate of Incorporation (c)
3(ii) Amended and Restated By-Laws (a)
4 Instruments defining rights of security holders, including indentures: (c)
4.1 Specimen Common Stock Certificate (c)
4.2 Rights Agreement, dated May 28, 1993, between the Company and Bank of New York, as Rights Agent (c)
4.3 Indenture dated as of December 1, 1995 between the Company and NBD Bank, Trustee (c)
10 Material Contracts:
10.1 Incentive Stock Plan, as amended and restated through November 4, 1998 (1)
10.2 1995 Incentive Stock Plan, as amended and restated through November 4, 1998 (1)
10.3 1998 Interim Stock Award Incentive Stock Plan, as amended and restated through November 4,
1998 (1)
10.4 Benefit Restoration Plan (Section 415) (1) (c)
10.5 Benefit Restoration Plan (Section 401(a)(17)) (1) (c)
10.6 Senior Executive Management Incentive Plan (1) (c)
10.7 Non-Employee Directors Deferred Compensation Plan effective December 9, 1993, as
amended (1)
10.8 Form of Management Continuity Agreement (1) (c)
10.9 U.S. $130 million Credit Agreement dated as of August 16, 1994 among the Company and Citibank,
N.A. as Agent and NationsBank of North Carolina, N.A. as Co-Agent (c)
10.9a Amendment to the aforesaid Credit Agreement (c)
10.9b Amendment Number 2 to the aforesaid Credit Agreement (c)
10.9c Amendment Number 3 to the aforesaid Credit Agreement (c)
10.10 U.S. $85 million Third Amended and Restated Trade Receivables Purchase and Sale Agreement
among the Company, CIESCO, L.P., Corporate Receivables Corporation and Citicorp N.A., Inc. as
Agent, dated July 31,1997 (d)
10.11 Second Amended and Restated Lease Dated December 19, 1996 between 1994 VCM Inc. and the Company (c)
</TABLE>
I-1
<PAGE> 40
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
10.12 Second Amended and Restated Participation Agreement Dated December 19, 1996 among the Company,
1994 VCM Inc., State Street Bank and Trust Company of Connecticut, National Association and
Citibank, N.A. as Agent. (c)
10.13 Amended and Restated Instrument Guaranty dated as of December 19, 1996 (c)
10.14 Amended and Restated Plant Services Agreement between the Company and The B.F. Goodrich Company
(c)
10.15 Amended and Restated Assumption of Liabilities and indemnification Agreement dated March 1,
1993 and amended and rested April 27, 1993 (c)
10.16 CDN $135 Million Credit Agreement Between 1250828 Ontario Inc. and Canadian Imperial Bank of
Commerce, dated October 27, 1997 (d)
10.16a Guaranty related to aforesaid Credit Agreement, dated October 27, 1997 (d)
10.16b Guaranty related to aforesaid Credit Agreement, dated October 30, 1997 (d)
10.17 Partnership Agreement, by and between 1997 Chloralkali Venture Inc., and Olin Sunbelt, Inc. (b)
10.17a Amendment to aforesaid Partnership Agreement (Section 5.03 of Article 5) (d)
10.18b Amendment to aforesaid Partnership Agreement (Addition of Section 1.12) (d)
10.17 Chlorine Sales Agreement, by and between Sunbelt Chlor Alkali Partnership and the Company (b)
10.19 Intercompany Guarantee Agreement between the Company on the one hand and Olin Corporation and
Sunbelt Chlor Alkali Partnership on the other hand (b)
10.20 Rate Swap Transaction as amended between the Company and NationsBank, N.A. (b)
10.21 Guarantee by the Company of the Series G Sunbelt Chlor Alkali Partnership Guaranteed Secured
Senior Notes Due 2017, dated December 22.1997 (d)
21 Subsidiaries
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
-------------------------------------------------------------------
(1) Indicates management contract or compensatory plan, contract
or arrangement in which one or more directors or executive
officers of the Registrants may be participants.
(a) Incorporated by reference to the corresponding Exhibit filed
with the Registrant's Form 10-Q for the Quarter Ended June
30, 1996
(b) Incorporated by reference to the corresponding Exhibit filed
with the Registrant's Form 10-Q for the Quarter Ended
September 30, 1996
(c) Incorporated by reference to the corresponding Exhibit filed
with the Registrants Form 10K for the Year Ended December 31,
1996.
(d) Incorporated by reference to the corresponding Exhibit filed
with the Registrants Form 10K for the
Year Ended December 31, 1997.
(e) Incorporated by reference to the corresponding Exhibit filed
with the Special Meeting Proxy dated March 30, 1999
I-2
<PAGE> 1
EXHIBIT 10.1
THE GEON COMPANY
INCENTIVE STOCK PLAN
(1993 Plan)
(as amended and restated through November 4, 1998)
PURPOSE
The purpose of the Incentive Stock plan (the "Plan") is to promote the
interests of the stockholders by furthering the long-term performance of The
Geon Company (the "Company") and to enable the Company to be competitive in
encouraging key employees who perform services of special importance to the
management, operation and the development of the business of the Company or its
subsidiaries, to remain in its service, to attract others to it, and to provide
such employees with an additional incentive to contribute to the prosperity of
the Company and its stockholders.
INCENTIVES
Incentives under the plan may be granted in any one or a combination
of (a) stock options which may consist of (i) Incentive Stock Options (or other
statutory stock options) and/or (ii) Non-Qualified Stock Options; (b) Stock
Appreciation Rights; (c) Limited Stock Appreciation Rights; and (d) stock awards
which may consist of (i) Restricted Stock and/or Performance Incentive Stock
(together "Incentives"). All incentives shall be subject to the terms and
conditions set forth herein and to such other terms and conditions as may be
established in the manner prescribed by the Board of Directors.
ADMINISTRATION
To the extent permitted by law the Board may delegate any or all of its
powers under this Plan to a committee (the "Committee") of not less than two
Directors, who are not Officers or employees of the Company, and who are not
eligible to participate in the Plan and have not participated in the Plan for at
least one year. The Board or the Committee may delegate to the chief executive
officer of the Company its duties under the Plan, with respect to not more than
10% of the shares authorized under this Plan, pursuant to such conditions or
limitations as the Board or Committee may establish, except that only the Board
or the Committee may select participants and grant options, appreciation rights
and stock awards to participants who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended. The Board, the Committee or the
chief executive officer, as the case may be, shall be referred to as the
"Granting Authority."
-1-
<PAGE> 2
ELIGIBILITY
Regular key employees of the Company and its subsidiaries, including
officers whether or not Directors, shall be eligible to participate in the Plan.
Directors who are not regular employees are not eligible. Participation in the
Plan shall be limited to those key employees of the Company selected by the
Granting Authority.
STOCK OPTIONS
The Granting Authority may in its discretion from time to time grant to
eligible employees options to purchase, except as provided below, at a cash
price not less than 100% of the fair market value on the date of the grant (the
"option price"), treasury stock or authorized but unissued common stock of the
Company, subject to the conditions set forth in this Plan. Within 60 days of the
Company's initial public offering, the board or the Committee may grant options
to purchase common stock of the Company at less than 100% of the fair market
value to Company employees who hold stock options from The B.F. Goodrich Company
in substitution for such options in compliance with Section 424 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code") on condition that
(i) the eligible employees surrender all their then unexercised stock options
issued by The B.G. Goodrich Company; (ii) the excess of the aggregate fair
market value of all stock subject to the option immediately before such
substitution over the aggregate option price of such stock; and (iii) the new
options do not provide the participant any additional benefits than the
surrendered options.
The Granting Authority, at the time of granting to any employee an
Incentive under the Plan, may designate options Incentive Stock Options pursuant
to Section 422 of the Internal Revenue Code or any other statutory stock option
that may be permitted under the Internal Revenue Code from time to time,
provided, however that (i) the date on which such options and related
appreciation rights shall expire, if not exercised, may not be later than ten
years after the date of grant of the option, (ii) in the case of options
designated as Incentive Stock Options, the aggregate fair market value of stock
optioned to an employee (determined at time of grant) under this plan or any
other plan of this Company and its subsidiaries with respect to which incentive
stock options are exercisable for the first time by such employee during any
calendar year shall be limited to $100,000 (unless such Section 422 limit is
revised, then in conformance with such revision) and (iii) in case of any other
statutory stock option permitted under the Internal Revenue Code, then in
accordance with such provisions as in effect from time to time.
Within the foregoing limitations, the Granting Authority shall have the
authority in its discretion to specify all other terms and conditions, including
but not limited to provisions for the exercise of options in installments, the
time limits during which options may be exercised, and in lieu of payment in
cash, the exercise in whole or in part of options by tendering common stock of
the Company owned by the employee, valued at the fair market value on the date
of exercise or other acceptable forms of consideration equal in value to the
option price. The Board or Committee may, in its discretion, establish rules or
conditions with respect to utilization of common stock for all or part of the
option price. Furthermore, the Board or Committee may, in its discretion,
establish rules or conditions for the surrendering of a portion of a grant in
satisfaction of any withholding tax obligation.
-2-
<PAGE> 3
APPRECIATION RIGHTS
The Granting Authority may, in its discretion, grant Stock Appreciation
Rights and Limited Stock Appreciations Rights (as hereinafter described) in
connection with any stock option, either at the time of grant of such stock
option or any time thereafter during the term of such stock option. Except for
the terms of this Plan with respect to Limited Stock Appreciation Rights, each
such appreciation right shall be subject to the same terms and conditions as the
related stock option and shall be exercisable at such times and to such extent
as the Granting Authority shall determine, but only so long as the related
option is exercisable. The number of both Stock Appreciation Rights or Limited
Stock Appreciation Rights granted shall not exceed the number of shares which
may be purchased upon exercise of a related option. The number of both Stock
Appreciation Rights and Limited Stock Appreciation Rights shall be reduced not
only by the number of appreciation rights exercised but also by the number of
shares purchased upon the exercise of a related option. A related stock option
shall cease to be exercisable to the extent surrendered for the exercise of an
appreciation right.
STOCK APPRECIATION RIGHTS
Upon surrender to the Company of the unexercised related stock option,
or any portion thereof, a Stock Appreciation Right shall entitle the optionee to
receive from the Company in exchange therefor (a) a payment in stock as
determined below, or (b) to the extent determined by the Granting Authority, the
cash equivalent of the fair market value of such payment in stock on the
exercise date had the employee been awarded a payment in stock instead of cash,
or any combination of stock and cash. The number of shares which shall be issued
pursuant to the exercise of Stock Appreciation Rights shall be determined by
dividing (1) the total number of Stock Appreciation Rights being exercised
multiplied by the amount by which the fair market value of a share of common
stock of the Company on the exercise date exceeds the option price of the
related option, by (2) the fair market value of a share of common stock of the
Company on the exercise date. No fractional shares shall be issued.
LIMITED STOCK APPRECIATION RIGHTS
The grant of a Limited Stock Appreciation Right will permit a grantee
to exercise such right for cash during a sixty-day period commencing on the date
on which any of the events described in the definition of Change of Control
occurs, each of which events shall hereinafter be known as a "Change in Control
Event." Notwithstanding the foregoing, however, if the Change in Control Event
occurs within six months after the date on which a Limited Stock Appreciation
Right was granted, then the sixty-day period during which such right may be
exercised for cash shall commence six months after the date on which the Limited
Stock Appreciation Right was granted. The amount of cash received upon the
exercise of any Limited Stock Appreciation Right under either of the preceding
two sentences shall equal the excess, if any, of the fair market value of a
share of the Company's common stock on the date of exercise of the Limited Stock
Appreciation Right, over the option price of the stock option to which the
Limited Stock Appreciation Right relates.
-3-
<PAGE> 4
STOCK AWARDS
The Granting Authority in lieu of or in addition to granting stock
options with or without appreciation rights under this Plan, may make awards
("stock awards") in common stock or denominated in units of common stock. All or
part of any stock award may be subject to conditions established by the Granting
Authority, which may include, but are not limited to, continuous service with
the Company ("Restricted Stock") and attainment of specific performance
objectives ("Performance Stock"). Stock awards may include the awarding of
additional stock ("Additional Stock") upon attainment of performance objectives.
If the common stock is awarded subject to attainment of performance objectives
or continued service with the Company, the stock may be registered in the
participant's names when initially awarded, but possession of the certificates
for the stock, or appropriate book entry, shall be retained by the Company for
the benefit of participants, subject to the conditions of the stock awards. In
such event, each participant shall have the right to receive all dividends and
other distributions made with respect to stock awards registered in his or her
name and shall have the right to vote or execute proxies with respect to such
registered shares. Stock awards with respect to which the restrictions are not
removed in accordance with the provision of the stock awards shall be forfeited
and shall revert to the treasury of the Company.
ASSIGNABILITY
Incentives granted under this Plan shall not be transferable other than
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Internal Revenue Code and such
Incentive shall be exercisable during the employee's lifetime only by the
employee or by the employee's guardian or legal representative or permitted
transferee or, in the event of death, by the employee's estate or by a person
who acquires the Incentive by bequest or inheritance.
CORPORATE REORGANIZATION
The number and kind of shares authorized for delivery under this Plan
and, if appropriate, the purchase price per share, shall be adjusted
appropriately in the event of any stock split, stock dividend, combination of
shares, merger, consolidation, reorganization, or other change in the nature of
the shares of the Company (any one or more of the foregoing hereinafter a
"corporate reorganization"). The determination of what adjustments, if any, are
appropriate shall be made by the Board or Committee.
-4-
<PAGE> 5
CORPORATE REORGANIZATIONS
In the event of a dissolution or liquidation of the Company or a
merger, consolidation, sale of all or substantially all of its assets, or other
corporate reorganization in which the Company is not the surviving corporation
or any merger in which the Company is the surviving corporation but the holders
of its common stock receive securities of another corporation, any outstanding
options hereunder shall terminate, provided that each optionee shall, in such
event, have the right immediately prior to such dissolution, liquidation,
merger, consolidation, sale of assets or reorganization in which the Company is
not the surviving corporation or any merger in which the Company is the
surviving corporation but the holders of its common stock receive securities of
another corporation, to exercise any unexpired option and/or Stock Appreciation
Right in whole or in part without regard to the exercise date contained in such
option. Nothing herein contained shall prevent the assumption and continuation
of any outstanding option or the substitution of a new option by the surviving
corporation.
-5-
<PAGE> 6
CHANGE IN CONTROL
Options and any related appreciation rights that are not exercisable
shall become immediately exercisable in the event of a Change in Control.
Anything to the contrary notwithstanding, in the event a Change in Control of
the Company shall occur, then an interim removal of restrictions on all or a
portion of the Performance Stock award and the awarding of Additional Stock, if
appropriate, (the "Interim Action") shall be made to each participant within
five days following the occurrence of the Change in Control with respect to all
outstanding Performance Stock awarded to such participant. The Interim Action
with respect to each outstanding Performance Stock award shall be calculated (i)
based upon the performance objectives attained as of the end of the most recent
quarter in the plan cycle related to each such award (the "Determination Date")
ending prior to the Change in Control and as if the Determination Date were the
end of the last quarter in such plan cycle and (ii) based upon the number of
full and partial months through the occurrence of the Change in Control that
have elapsed in the plan cycle with respect to each such Performance Stock
award. The amount of such Interim Action with respect to each such outstanding
Performance Stock award shall be a prorated portion (based upon the number of
full and partial months through the occurrence of the Change in Control that
have elapsed in the plan cycle related to such award) of the amount of the
Performance Stock award that would have been payable to the participant at the
end of the relevant plan cycle, calculated assuming attainment of the greater of
(i) 100% of the performance objective with respect to such plan cycle or (ii)
the actual percentage (annualizing a partial year, if any) of the performance
objective attained as of the Determination Date and as if the Determination Date
were the end of the plan cycle related to such Performance Stock award. The
Interim Action shall not reduce the obligation of the Company to make a final
removal of restrictions or award of additional stock ("Final Action") under the
terms of the Plan, but any Interim Action made with respect to a Performance
Stock award shall be offset against the Final Action, if any, required under the
terms of the Plan with respect to such Performance Stock award at the actual end
of the plan cycle related to such Performance Stock award. Notwithstanding the
foregoing, in no event shall a participant be required to return stock or refund
to the Company, or have offset against any other payment due such participant
from or on behalf of the Company, all or any portion of an Interim Action. In
the event of a Change in Control all restrictions on Restricted Stock shall
lapse and the participant shall immediately receive all Restricted Stock free of
further restrictions. For purposes of the Plan, a Change in Control shall mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of voting securities of the Company where such
acquisition causes such Person to own 20% or more of the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
be deemed to result in a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by
the Company or (iv) any
-6-
<PAGE> 7
acquisition by any corporation pursuant to a transaction that complies
with clauses (i), (ii) and (iii) of subsection (c) below; provided,
further, that if any Person's beneficial ownership of the Outstanding
Company Voting Securities reaches or exceeds 20% as a result of a
transaction described in clause (i) or (ii) above, and such Person
subsequently acquires beneficial ownership of additional voting
securities of the Company, such subsequent acquisition shall be treated
as an acquisition that causes such Person to own 20% or more of the
Outstanding Company Voting Securities; and provided, further, that if
at least a majority of the members of the Incumbent Board determines in
good faith that a Person has acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the Outstanding Company Voting Securities inadvertently, and
such Person divests as promptly as practicable a sufficient number of
shares so that such Person beneficially owns (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) less than 20% of the
Outstanding Company Voting Securities, then no Change of Control shall
have occurred as a result of such Person's acquisition; or
(ii) individuals who, as of November 6, 1996, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to November 6, 1996 whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company or the
acquisition of assets of another corporation ("Business Combination")
or, if consummation of such Business Combination is subject, at the
time of such approval by shareholders, to the consent of any government
or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, such a
Business Combination pursuant to which (i) all or substantially all of
the individuals and entities who were the beneficial owners of the
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation that as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially
-7-
<PAGE> 8
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination and (iii)
at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding any other provision of this Plan, during the 60-day
period from and after a Change of Control (the "Exercise Period"), unless the
Granting Authority shall determine otherwise at the time of grant, an optionee
shall have the right, whether or not the stock option is fully exercisable and
in lieu of the payment of the exercise price for the shares of Common Stock
being purchased under the stock Option and by giving notice to the Company, to
elect (within the Exercise Period) to surrender all or part of the stock option
to the Company and to receive cash, within 30 days of such notice, in an amount
equal to the amount by which the Change of Control Price per share of Common
Stock on the date of such election shall exceed the exercise price per share of
Common Stock under the stock option (the "Spread") multiplied by the number of
shares of Common Stock granted under the stock option as to which the right
granted under this Section shall have been exercised.
For purposes of the Plan "Change of Control Price" shall mean the
higher of (i) the highest reported sales price, regular way, of a share of
Common Stock in any transaction reported on the New York Stock Exchange
Composite Tape or other national exchange on which such shares are listed or on
NASDAQ during the 60-day period prior to and including the date of a Change of
Control or (ii) if the Change of Control is the result of a tender or exchange
offer or a Business Combination, the highest price per share of Common Stock
paid in such tender or exchange offer or Business Combination; provided,
however, that, in the case of Incentive Stock Options and Stock Appreciation
Rights relating to Incentive Stock Options, the Change of Control Price shall be
in all cases the Fair Market Value of the Common Stock on the date such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other noncash consideration, the value of such
securities or other noncash consideration shall be determined in the sole
discretion of the Board.
-8-
<PAGE> 9
SHARES AVAILABLE FOR INCENTIVES
Subject to adjustment as provided in the following paragraph, there is
hereby reserved for issuance under the Plan, 2,500,000 shares in 1993, and in
each calendar year thereafter one% of the outstanding shares of the Company's
Common Stock as of the first business day of each calendar year. The shares
available for granting Incentives in any year shall be increased by the number
of shares available under the Plan in previous years but not covered by
Incentives granted under the Plan in those years plus any shares as to which
options or other benefits granted under the Plan have lapsed, expired,
terminated, forfeited or been canceled for any reason without being exercised.
However, upon surrender of a stock option on exercise of the related
appreciation right, the number or shares subject to the surrendered option shall
be charged against the maximum number of shares issuable under the Plan and
shall not be available for future options.
FAIR MARKET VALUE
For all purposes of this Plan the fair market value of a share of stock
shall be the mean of the high and low prices of the Company's common stock on
the relevant date or, if no sale was made on such date, then on the next
preceding day on which such a sale was made (a) if the Company's stock is listed
on the New York Stock Exchange, as reported on the New York Stock Exchange
Composite Transactions listing (or similar report), or (b) if the Company's
stock is listed on the NASDAQ National Market System, then as reported on such
system, or (c) if not listed on either the New York Stock Exchange or the NASDAQ
National Market System, as determined by the Board or Committee.
TERMINATION OF EMPLOYMENT
Upon the termination of employment of any employee for any reason, his
or her options and any related appreciation rights shall terminate at the time
with respect to all shares which were not then purchasable by him or her,
provided, however, that if the termination of employment is by reason of death,
disability or retirement the Board may in its sole discretion provide that such
options and related appreciation rights shall not terminate upon death,
disability or retirement and may become immediately exercisable or continue to
become exercisable in accordance with the terms of the original grant.
COMPLIANCE WITH LAW
Notwithstanding any other provisions of the Plan, the issuance or
delivery of any shares may be postponed for such period as may be required to
comply with any applicable requirements of any national securities exchange or
any requirements under any other law or regulation applicable to the issuance or
delivery of such shares, and the Company shall not be obligated to issue or
deliver any such shares if the issuance or delivery thereof shall constitute a
violation of any provision of any law or any regulation of any governmental
authority or any national securities exchange.
-9-
<PAGE> 10
EMPLOYMENT
Nothing in the Plan or in any agreement entered into pursuant to the
Plan shall confer upon any participant the right to continue in the employment
of the Company or affect any right which the Company may have to terminate the
employment of such participant.
GRANTING AUTHORITY'S DETERMINATION
The Granting Authority's determinations under the Plan including
without limitation, determinations of the participants to receive awards or
grants, the form, amount and timing of such awards or grants, the terms and
provisions of such awards or grants and the agreements evidencing same, and the
establishment of any performance objectives need not be uniform and may be made
by it selectively among participants who receive, or are eligible to receive
Incentives under the Plan whether or not such participants are similarly
situated.
INTERPRETATION AND AMENDMENT
The Board or Committee shall have the power to interpret the provisions
of this Plan and of all Incentives granted hereunder and the Board shall have
the power to amend this Plan from time to time, provided, however, that no
amendment shall be made without the approval of stockholders which has the
effect of increasing the number of shares of stock subject to this Plan (other
than in connection with a corporate reorganization), changing the class of
employees eligible to participate, reducing the purchase price of shares
pursuant to options to an amount less than 100% of the fair market value on the
date of grant or extending the time during which options may be granted
hereunder, or otherwise materially increasing the benefits accruing to
participants under this Plan. The Granting Authority shall have the authority to
amend the terms of any Incentive granted by it subject to the foregoing
limitations and provided that no such amendment shall deprive any optionee of
any rights thereunder without his written consent unless such amendment or
rescission is required by law. In furtherance and not in limitation of the
authority granted in this paragraph, any interpretation by a majority of the
Incumbent Directors then serving on the Committee or the Board as to whether a
sale or other disposition of assets by the Company or an acquisition of assets
of another corporation constitutes a "sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of assets of
another corporation" for purposes of clause (iii) of the definition of "Change
in Control" above shall be final and binding for all purposes of this Plan and
any Incentive hereunder, notwithstanding that the transaction in question was,
or is contemplated to be, submitted to stockholders of the Company for their
approval and notwithstanding such approval.
-10-
<PAGE> 1
EXHIBIT 10.2
THE GEON COMPANY
1995 INCENTIVE STOCK PLAN
(as amended and restated as of November 4, 1998)
1. Purpose. The Geon Company 1995 Incentive Stock Plan (the "Plan") is
designed to foster and promote the long-term growth and performance of the
Company by enhancing the Company's ability to attract and retain qualified
Directors and key employees and motivating Directors and key employees through
stock ownership and performance-based incentives. To achieve this purpose, this
Plan provides authority for the grant of Stock Options, Director Options,
Restricted Stock, Stock Equivalent Units, Stock Appreciation Rights,
Performance-Based Stock Awards, and other stock and performance-based
incentives.
2. Definitions.
(a) "Affiliate" - This term has the meaning given to it in
Rule 12b-2 under the Exchange Act.
(b) "Award" - The grant of Stock Options, Director Options,
Restricted Stock, Stock Equivalent Units, Stock Appreciation Rights,
Performance-Based Stock Awards, and other stock and performance-based incentives
under this Plan.
(c) "Award Agreement" - Any agreement between the Company and
a Participant that sets forth terms, conditions, and restrictions applicable to
an Award.
(d) "Board of Directors " - The Board of Directors of the
Company,
(e) "Change of Control" - A "Change of Control" means:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
voting securities of the Company where such acquisition causes
such Person to own 20% or more of the combined voting power of
the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (a), the following
acquisitions shall not be deemed to result in a Change of
Control: (i) any acquisition directly from the Company, (ii)
any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to
a transaction that complies with clauses (i), (ii) and (iii)
of subsection (c) below; provided, further, that if any
Person's beneficial ownership of the Outstanding Company
Voting Securities reaches or exceeds 20% as a result of a
transaction
1
<PAGE> 2
described in clause (i) or (ii) above, and such Person
subsequently acquires beneficial ownership of additional
voting securities of the Company, such subsequent acquisition
shall be treated as an acquisition that causes such Person to
own 20% or more of the Outstanding Company Voting Securities;
and provided, further, that if at least a majority of the
members of the Incumbent Board determines in good faith that a
Person has acquired beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the Outstanding Company Voting Securities
inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares so that such Person
beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) less than 20% of the
Outstanding Company Voting Securities, then no Change of
Control shall have occurred as a result of such Person's
acquisition; or
(ii) individuals who, as of November 6, 1996,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to November 6, 1996 whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) The approval by the shareholders of the Company
of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation
("Business Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
shareholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a
Business Combination pursuant to which (i) all or
substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
2
<PAGE> 3
Outstanding Company Voting Securities, (ii) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(f) "Change of Control Price" - the higher of (i) the highest
reported sales price, regular way, of a share of Common Stock in any transaction
reported on the New York Stock Exchange Composite Tape or other national
exchange on which such shares are listed or on NASDAQ during the 60-day period
prior to and including the date of a Change of Control or (ii) if the Change of
Control is the result of a tender or exchange offer or a Business Combination,
the highest price per share of Common Stock paid in such tender or exchange
offer or Business Combination; provided, however, that, in the case of Incentive
Stock Options and Stock Appreciation Rights relating to Incentive Stock Options,
the Change of Control Price shall be in all cases the Fair Market Value of the
Common Stock on the date such Incentive Stock Option or Stock Appreciation Right
is exercised. To the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other noncash
consideration, the value of such securities or other noncash consideration shall
be determined in the sole discretion of the Board.
(g) "Code" - The Internal Revenue Code of 1986, or any law
that supersedes or replaces it, as amended from time to time.
(h) "Committee" - The Compensation Committee of the Board of
Directors, or any other committee of the Board of Directors that the Board of
Directors authorizes to administer this Plan. The Committee will be constituted
in a manner that satisfies all applicable legal requirements, including
satisfying the disinterested administration standard set forth in Rule 16b-3
and the outside director requirement under Section 162(m).
(i) "Common Stock" or "stock" - Common Stock, $.10 par value,
of the Company, including authorized and unissued shares and treasury shares.
(j) "Company" - The Geon Company, a Delaware corporation, and
its direct and indirect subsidiaries.
3
<PAGE> 4
(k) "Continuing Director" - A Director following a Change of
Control who was a Director prior to such Change of Control or who was
recommended or elected to succeed a Continuing Director by a majority of the
Continuing Directors then in office.
(l) "Director" - A director of the Company.
(m) "Director Option" - A right to purchase Common Stock
granted to a Director pursuant to Section 7.
(n) "Exchange Act" - The Securities Exchange Act of 1934, as
amended, or any law that supersedes or replaces it, as the same may be amended
from time to time.
(o) "Fair Market Value" of Common Stock - The Fair Market
Value of a share of Common Stock on any particular date means the mean of the
high and low prices of the Common Stock on the relevant date or, if no sale was
made on such date, then on the next preceding day on which such a sale was made
(a) if the Common Stock is listed on the New York Stock Exchange, as reported on
the New York Stock Exchange Composite Transactions listing (or similar report),
or (b) if the Common Stock is listed on the NASDAQ National Market System, then
as reported on such system, or (c) if not listed on either the New York Stock
Exchange or the NASDAQ National Market System, as determined by the Board or
Committee.
(p) "Incentive Stock Option" - A Stock Option that meets the
requirements of Section 422 of the Code.
(q) "Non-Employee Director" - A Director who is not an
employee of the Company.
(r) "Notice of Award" - Any notice by the Committee to a
Participant that advises the Participant of the grant of an Award or sets forth
terms, conditions, and restrictions applicable to an Award.
(s) "Participant" - Any person to whom an Award has been
granted under this Plan.
(t) "Performance-Based Stock Award" - A Stock Award granted to
a Participant pursuant to Section 8.
(u) "Restricted Stock" - An Award of Common Stock subject to
restrictions or risk of forfeiture.
(v) "Rule 16b-3" - Rule 16b-3 under the Exchange Act as the
same may be amended, modified, superseded or replaced from time to time.
4
<PAGE> 5
(w) "Section 162(m) " - Section 162(m) of the Code, together
with the regulations promulgated by the Internal Revenue Service thereunder, as
the same may be amended, modified, superseded or replaced from time to time.
(x) "Stock Appreciation Right" - This tern has the meaning
given to it in Section 6(b)(ii).
(y) "Stock Award" - This term has the meaning given to it in
Section 6(b)(iii).
(z) "Stock Equivalent Unit" - An Award that is valued by
reference to the value of Common Stock.
(aa) "Stock Option" - This term has the meaning given to it
in Section 6(b)(iv).
3. Eligibility. All key employees of the Company and its Affiliates,
including officers whether or not Directors, are eligible for the grant of
Awards (other than Director Options). The selection of key employees to receive
Awards (other than Director Options) will be within the discretion of the
Committee. More than one Award may be granted to the same key employee.
All Non-Employee Directors are eligible for the grant of
Director Options, as provided in Section 7. Non-Employee Directors are not,
however, eligible for the grant of any Awards other than Director Options.
4. Common Stock Available for Awards; Adjustment.
(a) Number of Shares of Common Stock. Subject to adjustment as
provided for in Section 4(d), the aggregate number of shares of Common Stock
that may be subject to Awards granted under this Plan shall be 2,500,000 shares
of Common Stock. The assumption of awards granted by an organization acquired by
the Company, or the grant of Awards under this Plan in substitution for any such
awards, will not reduce the number of shares of Common Stock available for the
grant of Awards under this Plan.
Common Stock Subject to an Award that expires or is forfeited,
terminated, or canceled will again be available for grant under this Plan,
without reducing the number of shares of Common Stock available for grant of
Awards under this Plan, except to the extent that the availability of those
shares of Common Stock would cause this Plan or any Awards granted under this
Plan to fail to qualify for the exemption provided by Rule 16b-3.
Notwithstanding the foregoing, Common Stock subject to awards of Stock Options
and Stock Appreciation Rights to Participants who are employees which expire or
are forfeited, terminated, or canceled in the same year such Award is granted
will, upon such expiration or forfeiture, termination, or cancellation, continue
to be counted against the maximum number of shares with respect to which Options
and
5
<PAGE> 6
Stock Appreciation Rights may be granted under this Plan in such year to such
Participants holding the expired or forfeited, terminated or canceled Stock
Options or Stock Appreciation Rights.
(b) Limitations on Certain Awards. (i) The aggregate number of
shares of Common Stock that may be issued upon exercise of Incentive Stock
Options is 2,000,000.
(ii) The maximum number of shares with respect to
which Options (including Incentive Stock Options) and Stock
Appreciation Rights may be granted under this Plan in any one
fiscal year is (A) 100,000 as to any individual Participant
who is an employee (other than the Chief Executive Officer or
the Chief Operating Officer of the Company) and (B) 205,000 as
to any individual Participant who is the Chief Executive
Officer or the Chief Operating Officer of the Company.
(iii) The aggregate number of shares of Restricted
Stock (other than Restricted Stock which is a
Performance-Based Stock Award) that may be awarded under this
Plan is 2,000,000.
(c) No Fractional Shares. No fractional shares will be issued,
and the Committee will determine the manner in which the value of fractional
shares will be treated.
(d) Adjustment. In the event of any change in the number of
shares of Common Stock by reason of a merger, consolidation, reorganization,
recapitalization, or similar transaction, or in the event of a stock dividend,
stock split, or distribution to stockholders (other than normal cash dividends),
the Committee will adjust the number and class of shares that may be issued
under this Plan, the number and class of shares subject to outstanding Awards,
the exercise price applicable to outstanding Awards, and the Fair Market Value
of the shares of Common Stock and other value determinations applicable to
outstanding Awards.
6
<PAGE> 7
5. Administration.
(a) Committee. This Plan will be administered by the
Committee. The Committee will, subject to the terms of this Plan, have the
authority to: (i) select the eligible employees who will receive Awards, (ii)
grant Awards (other than Director Options), (iii) determine the number and types
of Awards to be granted to employees, (iv) determine the terms, conditions,
vesting periods, and restrictions applicable to Awards (other than Director
Options), (v) adopt, alter, and repeal administrative rules and practices
governing this Plan, (vi) interpret the terms and provisions of this Plan and
any Awards granted under this Plan, (vii) prescribe the forms of any Notices of
Award, Award Agreements, or other instruments relating to Awards, and (viii)
otherwise supervise the administration of this Plan. Except as provided in the
immediately following sentence, all decisions by the Committee will be made with
the approval of not less than a majority of its members. In furtherance and not
in limitation of the authority granted in clause (vi) of this paragraph, any
interpretation by a majority of the Incumbent Directors then serving or the
Committee as to whether a sale or other disposition of assets by the Company or
an acquisition of assets of another corporation constitutes a "sale or other
disposition of all or substantially all of the assets of the Company or the
acquisition of assets of another corporation" for purposes of clause (iii) of
the definition of "Change of Control" in Section 2(e) hereof shall be final and
binding for all purposes of this Plan and any Awards hereunder, notwithstanding
that the transaction in question was, or is contemplated to be, submitted to
stockholders of the Company for their approval and notwithstanding such
approval.
(b) Delegation. The Committee may delegate any of its
authority to any other person or persons that it deems appropriate, provided the
delegation does not cause this Plan or any Awards granted under this Plan to
fail to qualify for the exemption provided by Rule 16b-3 under the Exchange Act.
(c) Decisions Final. All decisions by the Committee, and by
any other person or persons to whom the Committee has delegated authority, will
be final and binding on all persons.
7
<PAGE> 8
6. Awards.
(a) Grant of Awards. The Committee will determine the type or
types of Awards to be granted to each Participant and will set forth in the
related Notice of Award or Award Agreement the terms, conditions, vesting
periods, and restrictions applicable to each Award. Awards may be granted singly
or in combination or tandem with other Awards, except to the extent that any
grants in combination or tandem would impair the exemption for performance based
compensation provided for under Section 162(m). Awards may also be granted in
replacement of, or in substitution for, other awards granted by the Company,
whether or not granted under this Plan, except that, with respect to
Performance-Based Stock Awards, the new Award must also be wholly contingent on
the attainment of performance goals established by the Committee; without
limiting the foregoing, if a Participant pays all or part of the exercise price
or taxes associated with an Award by the transfer of Common Stock or the
surrender of all or part of an Award (including the Award being exercised), the
Committee may, in its discretion, grant a new Award (which, in the case of
Awards intended to replace Performance-Based Stock Awards, must also be wholly
contingent on the attainment of performance goals established by the Committee)
to replace the shares of Common Stock that were transferred or the Award that
was surrendered. The Company may assume awards granted by an organization
acquired by the Company or may grant Awards in replacement of, or in
substitution for, any such awards.
(b) Types of Awards. Awards may include, but are not limited
to, the following:
(i) Director Option - A right to purchase Common
Stock granted to a Director pursuant to Section 7.
(ii) Stock Appreciation Right - A right to receive a
payment, in cash or Common Shares, equal to the excess of (A)
the Fair Market Value of a specified number of shares of
Common Stock on the date the right is exercised over (B) the
Fair Market Value on the date the right is granted. The right
may be conditioned upon the occurrence of certain events, such
as a Change of Control of the Company, or may be
unconditional, as determined by the Committee.
(iii) Stock Award - An Award that is made in Common
Stock, Restricted Stock, or Stock Equivalent Units or that is
otherwise based on, or valued in whole or in part by reference
to, the Common Shares, including Performance-Based Stock
Awards. All or any part of any Stock Award may be subject to
such conditions, restrictions, and risks of forfeiture, as and
to the extent established by the Committee and, with respect
to Performance-Based Stock Awards, such conditions and
restrictions as may be required under Section 162(m), so that
the Performance-Based Stock Awards constitute
performance-based compensation thereunder. Stock Awards may be
based on the Fair Market Value of the Common Stock, or on
other specified values or methods of valuation, as determined
by the Committee.
8
<PAGE> 9
(iv) Stock Option - A right to purchase a specified
number of shares of Common Stock; during a specified period,
and at a specified exercise price, all as determined by the
Committee. A Stock Option may be an Incentive Stock Option or
a Stock Option that does not qualify as an Incentive Stock
Option (a "non-qualified Stock Option"). In addition to the
terms, conditions, vesting periods, and restrictions
established by the Committee, Incentive Stock Options must
comply with the requirements of Section 422 of the Code. The
exercise price of a Stock Option, including a non-qualified
Stock Option, may be no less than the Fair Market Value of the
Common Shares on the date the Stock Option is granted.
(v) Performance-Based Stock Awards - A Stock Award
granted to a Participant pursuant to Section 8.
7. Director Options.
(a) Grant of Director Options; Number of Shares of Common
Stock. Upon approval of this Plan at the 1995 Annual Meeting of Stockholders,
each Non-Employee Director of the Company will receive a Director Option for
5,000 shares of Common Stock on the date of such meeting. Each Non-Employee
Director who first becomes a Director at any time thereafter, will receive a
Director Option for 5,000 shares of Common Stock on the date that he or she is
first elected or appointed as a Non-Employee Director. Each Director who ceases
to be an employee of the Company during his or her term in office will receive a
Director Option on the date that he or she is first elected as a Director after
ceasing to be an employee. Each Non-Employee Director who receives a Director
Option under this Plan and continues in office will receive an additional
Director Option for 1,000 shares of Common Stock annually on each anniversary
date of the date on which the previous Director Option was received. No action
by the Committee will be required to effect the grant of these Director Options.
Notwithstanding the provisions of Section 14, the number of shares of Common
Stock to which the annual Director Options relates may not be amended more than
once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, as amended, or the rules thereunder.
(b) Exercise Price. The purchase price of the Common Stock
subject to each Director Option will be the Fair Market Value of the Common
Shares at the date of grant.
(c) Date Director Options Become Exercisable. Each Director
Option will become exercisable one year after the date of grant or upon the
earlier occurrence of a Change of Control.
(d) Expiration Date. Unless terminated earlier pursuant to
the next sentence, each Director Option will terminate, and the right of the
holder to purchase Common Stock upon exercise of the Director Option will
expire, at the close of business on the tenth anniversary date
9
<PAGE> 10
of the date of grant. Each Director Option will terminate, and the right of the
holder to purchase Common Stock upon exercise of the Director Option will
expire, upon the completion of a transaction of the type identified in Sections
2(e) (3) and (4), but only if provision satisfactory to the Committee is made
for the payment to the holder of the Director Option of the excess of (i) the
Fair Market Value of the Common Stock subject to the Director Option immediately
prior to the completion of the transaction over (ii) the exercise price.
(e) Not Incentive Stock Options. None of the Director Options
will be Incentive Stock Options.
(f) Continuous Service as a Director. No Director Option may
be exercised unless the Non-Employee Director to whom the Director Option was
granted has continued to be a Non-Employee Director from the time of grant
through the time of exercise, except as provided in this Section 7(f).
(i) If the service in office of a Non-Employee
Director is terminated due to the death of the Non-Employee
Director, the Non-Employee Director's estate, executor,
administrator, personal representative, or beneficiary will
have the right to exercise the Director Option in whole or in
part prior to the earlier of (i) 12 months after the date of
the holder's death and (ii) the expiration of the Director
Option.
(ii) If a Non-Employee Director ceases to be a
Non-Employee Director by reason of his employment by the
Company, the Director Option granted to that Non-Employee
Director will be treated the same as Stock Options held by
employees and will continue to be exercisable prior to the
expiration of the Director Option, subject to the limitations
on exercise following termination of employment established by
the Committee pursuant to Section 12.
(iii) If the service in office of a Non-Employee
Director is terminated for any reason other than those set
forth in Sections 7(f)(i) and 7(f)(ii), the holder of the
Director Option may exercise the Director Option in whole or
in part only with the consent of the Committee. In any such
event, the consent of the Committee must be obtained and the
Director Option exercised prior to the earlier of (i) three
months after the date of the termination of service in office
of a Non-Employee Director and (ii) the expiration of the
Director Option.
10
<PAGE> 11
8. Performance-Based Stock Awards.
(a) Performance-Based Stock Awards. The Committee may, in its
discretion, grant Stock Awards valued by reference to shares of Common Stock
that are wholly contingent on the attainment of performance goals established by
the Committee from time to time. The performance goals will relate to one or
more of the following performance measures, as determined by the Committee for
each applicable performance period: (i) return to stockholders, (ii) cash flow,
(iii) return on equity, (iv) Company created income (for example, income due to
Company initiated cost reductions or productivity improvements), (v) sales
growth, (vi) earnings and earnings growth, (vii) return on assets, (viii) stock
price, (ix) earnings per share, (x) market share, (xi) customer satisfaction,
and (xii) safety and/or environmental performance. Any such performance goals
and the applicable performance measures will be determined by the Committee at
the time of grant and reflected in a written award agreement. The number or
value of Performance-Based Stock Awards that will be paid out to any Participant
at the end of the applicable performance period, which may be one year or longer
as determined by the Committee, will depend on the extent to which the Company
attains the established performance goals.
(b) Maximum Amount of Performance-Based Stock Awards. No
participant who is an employee may be awarded Performance-Based Stock Awards
in any one fiscal year in excess of an aggregate of 50,000 shares of Common
Stock. The maximum dollar value, based on the Fair Market Value of the number of
shares of Common Stock awarded, of any Performance-Based Stock Award to any
Participant who is an employee shall not exceed $1,200,000 in any one fiscal
year.
9. Deferral of Payment.
With the approval of the Committee, the delivery of the Common
Stock, cash, or any combination thereof subject to an Award (other than
Director Options) may be deferred, either in the form of installments or a
single future delivery. The Committee may also permit selected Participants to
defer the payment of some or all of their Awards, as well as other compensation,
in accordance with procedures established by the Committee to assure that the
recognition of taxable income is deferred under the Code. Deferred amounts may,
to the extent permitted by the Committee, be credited as cash or Stock
Equivalent Units. The Committee may also establish rules and procedures for the
crediting of interest on deferred cash payments and dividend equivalents on
Stock Equivalent Units.
10. Payment of Exercise Price. The exercise price of a Stock Option,
Director Option, and any Stock Award for which the Committee has established an
exercise price may be paid in cash, by the transfer of Common Stock, by the
surrender of all or part of an Award (including the Award being exercised), or
by a combination of these methods, as and to the extent permitted by the
Committee. The Committee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the purpose of
this Plan.
11
<PAGE> 12
In the event shares of Restricted Stock are used to pay the
exercise price of a Stock Award, a number of the shares of Common Stock issued
upon the exercise of the Award equal to the number of shares of Restricted Stock
used to pay the exercise price will be subject to the same restrictions as the
Restricted Stock.
11. Taxes Associated with Award. Prior to the payment of an Award, the
Company may withhold, or require a Participant to remit to the Company, an
amount sufficient to pay any Federal, state, and local taxes associated with the
Award. The Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Participant to pay any or all taxes associated
with the Award in cash, by the transfer of Common Stock, by the surrender of all
or part of an Award (including the Award being exercised), including
Performance-Based Stock Awards, or by a combination of these methods. The
Committee may permit a Participant to pay any or all taxes associated with an
Incentive Stock Option in cash, by the transfer of Common Stock, or by a
combination of these methods.
12. Termination of Employment. Subject to Section 13, if the employment
of a Participant terminates for any reason, all unexercised, deferred, and
unpaid Awards may be exercisable or paid only in accordance with rules
established by the Committee. Subject to the foregoing exception, these rules
may provide, as the Committee deems appropriate, for the expiration,
continuation, or acceleration of the vesting of all or part of the Awards.
13. Change of Control. In the event of a Change of Control of the
Company, unless and to the extent otherwise determined by the Board of
Directors, (i) all Stock Appreciation Rights and Stock Options then outstanding
will become fully exercisable as of the date of the Change of Control and (ii)
all restrictions and conditions applicable to Restricted Stock and other Stock
Awards, including Performance-Based Stock Awards, will be deemed to have been
satisfied as of the date of the Change of Control. Any such determination by the
Board of Directors that is made after the occurrence of a Change of Control will
not be effective unless a majority of the Directors then in office are
Continuing Directors and the determination is approved by a majority of the
Continuing Directors.
Notwithstanding any other provision of this Plan, during the
60-day period from and after a Change of Control (the "Exercise Period"), unless
the Committee shall determine otherwise at the time of grant, an optionee shall
have the right, whether or not the Stock Option is fully exercisable and in lieu
of the payment of the exercise price for the shares of Common Stock being
purchased under the Stock Option and by giving notice to the Company, to elect
(within the Exercise Period) to surrender all or part of the Stock Option to the
Company and to receive cash, within 30 days of such notice, in an amount equal
to the amount by which the Change of Control Price per share of Common Stock on
the date of such election shall exceed the exercise price per share of Common
Stock under the Stock Option (the "Spread") multiplied by the number of shares
of Common Stock granted under the Stock Option as to which the right granted
under this Section shall have been exercised.
12
<PAGE> 13
14. Amendment, Suspension, or Termination of this Plan; Amendment of
Outstanding Awards.
(a) Amendment, Suspension, or Termination of this Plan. The
Board of Directors may amend, suspend, or terminate this Plan at any time.
Stockholder approval for any such amendment will be required only to the extent
necessary to preserve the exemption provided by Rule 16b-3 for this Plan and
Awards granted under this Plan.
13
<PAGE> 14
(b) Amendment of Outstanding Awards. The Committee may, in
its discretion, amend the terms of any Award (other than a Director Option),
including, waiving, in whole or in part, any restrictions or conditions
applicable to, or accelerating the vesting of, any Award, prospectively or
retroactively, but no such amendment may impair the rights of any Participant
without his or her consent or cause Awards intended to qualify as performance
based compensation under Section 162(m) to fail to so qualify.
15. Awards to Foreign Nationals and Employees Outside the United
States. To the extent that the Committee deems appropriate to comply with
foreign law or practice and to further the purpose of this Plan, the Committee
may, without amending this Plan, (i) establish special rules applicable to
Awards granted to Participants who are foreign nationals, are employed outside
the United States, or both, including rules that differ from those set forth in
this Plan, and (ii) grant Awards to such Participants in accordance with those
rules.
16. Nonassignability. Unless otherwise determined by the Committee, (i)
no Award granted under this Plan may be transferred or assigned by the
Participant to whom it is granted other than by will, pursuant to the laws of
descent and distribution, or pursuant to a qualified domestic relations order
and (ii) an Award granted under this Plan may be exercised, during the
Participant's lifetime, only by the Participant or by the Participant's guardian
or legal representative; except that, no Incentive Stock Option may be
transferred or assigned pursuant to a qualified domestic relations order or
exercised, during the Participant's lifetime, by the Participant's guardian or
legal representative.
17. Governing Law. The interpretation, validity, and enforcement of
this Plan will, to the extent not governed by the Code or the securities laws of
the United States, be governed by the laws of the State of Ohio.
18. Rights of Employees. Nothing in this Plan will confer upon any
Participant the right to continued employment by the Company or limit in any way
the Company's right to terminate any Participant's employment at will.
19. Effective and Termination Dates.
(a) Effective Date. This Plan will become effective on the
date it is approved by the stockholders.
(b) Termination Date. This Plan will continue in effect until
terminated by the Board of Directors.
14
<PAGE> 1
EXHIBIT 10.3
THE GEON COMPANY
1998 INTERIM STOCK AWARD PLAN
(as amended and restated through November 4, 1998)
1. Purpose. The Geon Company 1998 Interim Stock Award Plan (the "Plan")
is designed to foster and promote the long-term growth and performance of the
Company by enhancing the Company's ability to attract and retain qualified key
employees and motivating key employees through stock ownership and
performance-based incentives. To achieve this purpose, this Plan provides
authority for the grant of Stock Options, Restricted Stock, Stock Equivalent
Units, Stock Appreciation Rights, Performance-Based Stock Awards, and other
stock and performance-based incentives.
2. Definitions.
(a) "Affiliate" - This term has the meaning given to it in
Rule 12b-2 under the Exchange Act.
(b) "Award" - The grant of Stock Options, Restricted Stock,
Stock Equivalent Units, Stock Appreciation Rights, Performance-Based Stock
Awards, and other stock and performance-based incentives under this Plan.
(c) "Award Agreement" - Any agreement between the Company and
a Participant that sets forth terms, conditions, and restrictions applicable to
an Award.
(d) "Board of Directors " - The Board of Directors of the
Company,
(e) "Change of Control" - A "Change of Control" means:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
voting securities of the Company where such acquisition causes
such Person to own 20% or more of the combined voting power of
the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (a), the following
acquisitions shall not be deemed to result in a Change of
Control: (i) any acquisition directly from the Company, (ii)
any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to
a transaction that complies with clauses (i), (ii) and (iii)
of subsection (c) below; provided, further, that if any
Person's beneficial ownership of the Outstanding Company
Voting Securities reaches or exceeds 20% as a result of a
transaction
1
<PAGE> 2
described in clause (i) or (ii) above, and such Person
subsequently acquires beneficial ownership of additional
voting securities of the Company, such subsequent acquisition
shall be treated as an acquisition that causes such Person to
own 20% or more of the Outstanding Company Voting Securities;
and provided, further, that if at least a majority of the
members of the Incumbent Board determines in good faith that a
Person has acquired beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the Outstanding Company Voting Securities
inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares so that such Person
beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) less than 20% of the
Outstanding Company Voting Securities, then no Change of
Control shall have occurred as a result of such Person's
acquisition; or
(ii) individuals who, as of November 6, 1996,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to November 6, 1996 whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) The approval by the shareholders of the Company
of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation
("Business Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
shareholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a
Business Combination pursuant to which (i) all or
substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
2
<PAGE> 3
Outstanding Company Voting Securities, (ii) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(f) "Change of Control Price" - the higher of (i) the highest
reported sales price, regular way, of a share of Common Stock in any transaction
reported on the New York Stock Exchange Composite Tape or other national
exchange on which such shares are listed or on NASDAQ during the 60-day period
prior to and including the date of a Change of Control or (ii) if the Change of
Control is the result of a tender or exchange offer or a Business Combination,
the highest price per share of Common Stock paid in such tender or exchange
offer or Business Combination; provided, however, that, in the case of Incentive
Stock Options and Stock Appreciation Rights relating to Incentive Stock Options,
the Change of Control Price shall be in all cases the Fair Market Value of the
Common Stock on the date such Incentive Stock Option or Stock Appreciation Right
is exercised. To the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other noncash
consideration, the value of such securities or other noncash consideration shall
be determined in the sole discretion of the Board.
(g) "Code" - The Internal Revenue Code of 1986, or any law
that supersedes or replaces it, as amended from time to time.
(h) "Committee" - The Compensation Committee of the Board of
Directors, or any other committee of the Board of Directors that the Board of
Directors authorizes to administer this Plan. The Committee will be constituted
in a manner that satisfies all applicable legal requirements, including
satisfying the disinterested administration standard set forth in Rule 16b-3 and
the outside director requirement under Section 162(m).
(i) "Common Stock" or "stock" - Common Stock, $.10 par value,
of the Company, including authorized and unissued shares and treasury shares.
(j) "Company" - The Geon Company, a Delaware corporation, and
its direct and indirect subsidiaries.
3
<PAGE> 4
(k) "Continuing Director" - A Director following a Change of
Control who was a Director prior to such Change of Control or who was
recommended or elected to succeed a Continuing Director by a majority of the
Continuing Directors then in office.
(l) "Director" - A director of the Company.
(m) "Exchange Act" - The Securities Exchange Act of 1934, as
amended, or any law that supersedes or replaces it, as the same may be amended
from time to time.
(n) "Fair Market Value" of Common Stock - The Fair Market
Value of a share of Common Stock on any particular date means the mean of the
high and low prices of the Common Stock on the relevant date or, if no sale was
made on such date, then on the next preceding day on which such a sale was made
(a) if the Common Stock is listed on the New York Stock Exchange, as reported on
the New York Stock Exchange Composite Transactions listing (or similar report),
or (b) if the Common Stock is listed on the NASDAQ National Market System, then
as reported on such system, or (c) if not listed on either the New York Stock
Exchange or the NASDAQ National Market System, as determined by the Board or
Committee.
(o) "Incentive Stock Option" - A Stock Option that meets the
requirements of Section 422 of the Code.
(p) "Non-Employee Director" - A Director who is not an
employee of the Company.
(q) "Notice of Award" - Any notice by the Committee to a
Participant that advises the Participant of the grant of an Award or sets forth
terms, conditions, and restrictions applicable to an Award.
(r) "Participant" - Any person to whom an Award has been
granted under this Plan.
(s) "Performance-Based Stock Award" - A Stock Award granted to
a Participant pursuant to Section 7.
(t) "Restricted Stock" - An Award of Common Stock subject to
restrictions or risk of forfeiture.
(u) "Rule 16b-3" - Rule 16b-3 under the Exchange Act as the
same may be amended, modified, superseded or replaced from time to time.
(v) "Section 162(m)" - Section 162(m) of the Code, together
with the regulations promulgated by the Internal Revenue Service thereunder, as
the same may be amended, modified, superseded or replaced from time to time.
4
<PAGE> 5
(w) "Stock Appreciation Right" - This term has the meaning
given to it in Section 6(b)(ii).
(x) "Stock Award" - This term has the meaning given to it in
Section 6(b)(iii).
(y) "Stock Equivalent Unit" - An Award that is valued by
reference to the value of Common Stock.
(z) "Stock Option" - This term has the meaning given to it in
Section 6(b)(iv).
3. Eligibility. All key employees of the Company and its Affiliates,
including officers whether or not Directors, are eligible for the grant of
Awards. The selection of key employees to receive Awards will be within the
discretion of the Committee. More than one Award may be granted to the same key
employee. Non-Employee Directors are not, however, eligible for the grant of any
Awards.
4. Common Stock Available for Awards; Adjustment.
(a) Number of Shares of Common Stock. Subject to adjustment as
provided for in Section 4(d), the aggregate number of shares of Common Stock
that may be subject to Awards granted under this Plan shall be 350,000 shares of
Common Stock. The assumption of awards granted by an organization acquired by
the Company, or the grant of Awards under this Plan in substitution for any such
awards, will not reduce the number of shares of Common Stock available for the
grant of Awards under this Plan.
Common Stock Subject to an Award that expires or is forfeited,
terminated, or canceled will again be available for grant under this Plan,
without reducing the number of shares of Common Stock available for grant of
Awards under this Plan, except to the extent that the availability of those
shares of Common Stock would cause this Plan or any Awards granted under this
Plan to fail to qualify for the exemption provided by Rule 16b-3.
Notwithstanding the foregoing, Common Stock subject to awards of Stock Options
and Stock Appreciation Rights to Participants who are employees which expire or
are forfeited, terminated, or canceled in the same year such Award is granted
will, upon such expiration or forfeiture, termination, or cancellation, continue
to be counted against the maximum number of shares with respect to which Options
and Stock Appreciation Rights may be granted under this Plan in such year to
such Participants holding the expired or forfeited, terminated or canceled Stock
Options or Stock Appreciation Rights.
(b) Limitations on Certain Awards. (i) The aggregate number of
shares of Common Stock that may be issued upon exercise of Incentive Stock
Options is 280,000.
(ii) The maximum number of shares with respect to
which Options (including Incentive Stock Options) and Stock
Appreciation Rights may be granted under this Plan in any
5
<PAGE> 6
one fiscal year is (A) 100,000 as to any individual Participant who is an
employee (other than the Chief Executive Officer or the Chief Operating Officer
of the Company) and (B) 200,000 as to any individual Participant who is the
Chief Executive Officer or the Chief Operating Officer of the Company.
(iii) The aggregate number of shares of Restricted
Stock (other than Restricted Stock which is a
Performance-Based Stock Award) that may be awarded under this
Plan is 280,000.
(c) No Fractional Shares. No fractional shares will be issued,
and the Committee will determine the manner in which the value of fractional
shares will be treated.
(d) Adjustment. In the event of any change in the number of
shares of Common Stock by reason of a merger, consolidation, reorganization,
recapitalization, or similar transaction, or in the event of a stock dividend,
stock split, or distribution to stockholders (other than normal cash dividends),
the Committee will adjust the number and class of shares that may be issued
under this Plan, the number and class of shares subject to outstanding Awards,
the exercise price applicable to outstanding Awards, and the Fair Market Value
of the shares of Common Stock and other value determinations applicable to
outstanding Awards.
5. Administration.
(a) Committee. This Plan will be administered by the
Committee. The Committee will, subject to the terms of this Plan, have the
authority to: (i) select the eligible employees who will receive Awards, (ii)
grant Awards, (iii) determine the number and types of Awards to be granted to
employees, (iv) determine the terms, conditions, vesting periods, and
restrictions applicable to Awards, (v) adopt, alter, and repeal administrative
rules and practices governing this Plan, (vi) interpret the terms and provisions
of this Plan and any Awards granted under this Plan, (vii) prescribe the forms
of any Notices of Award, Award Agreements, or other instruments relating to
Awards, and (viii) otherwise supervise the administration of this Plan. Except
as provided in the immediately following sentence, all decisions by the
Committee will be made with the approval of not less than a majority of its
members. In furtherance and not in limitation of the authority granted in clause
(vi) of this paragraph, any interpretation by a majority of the Incumbent
Directors then serving on the Committee as to whether a sale or other
disposition of assets by the Company or an acquisition of assets of another
corporation constitutes a "sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another
corporation" for purposes of clause (iii) of the definition of "Change of
Control" in Section 2(e) hereof shall be final and binding for all purposes of
this Plan and any Awards hereunder, notwithstanding that the transaction in
question was, or is contemplated to be, submitted to stockholders of the Company
for their approval and notwithstanding such approval.
(b) Delegation. The Committee may delegate any of its
authority to any other person or persons that it deems appropriate, provided the
delegation does not cause this Plan or
6
<PAGE> 7
any Awards granted under this Plan to fail to qualify for the exemption provided
by Rule 16b-3 under the Exchange Act.
(c) Decisions Final. All decisions by the Committee, and by
any other person or persons to whom the Committee has delegated authority, will
be final and binding on all persons.
6. Awards.
(a) Grant of Awards. The Committee will determine the type or
types of Awards to be granted to each Participant and will set forth in the
related Notice of Award or Award Agreement the terms, conditions, vesting
periods, and restrictions applicable to each Award. Awards may be granted singly
or in combination or tandem with other Awards. Awards may also be granted in
replacement of, or in substitution for, other awards granted by the Company,
whether or not granted under this Plan, except that, with respect to
Performance-Based Stock Awards, the new Award must also be wholly contingent on
the attainment of performance goals established by the Committee; without
limiting the foregoing, if a Participant pays all or part of the exercise price
or taxes associated with an Award by the transfer of Common Stock or the
surrender of all or part of an Award (including the Award being exercised), the
Committee may, in its discretion, grant a new Award (which, in the case of
Awards intended to replace Performance-Based Stock Awards, must also be wholly
contingent on the attainment of performance goals established by the Committee)
to replace the shares of Common Stock that were transferred or the Award that
was surrendered. The Company may assume awards granted by an organization
acquired by the Company or may grant Awards in replacement of, or in
substitution for, any such awards.
(b) Types of Awards. Awards may include, but are not limited
to, the following:
(i) Stock Appreciation Right - A right to receive a
payment, in cash or Common Shares, equal to the excess of (A)
the Fair Market Value of a specified number of shares of
Common Stock on the date the right is exercised over (B) the
Fair Market Value on the date the right is granted. The right
may be conditioned upon the occurrence of certain events, such
as a Change of Control of the Company, or may be
unconditional, as determined by the Committee.
(ii) Stock Award - An Award that is made in Common
Stock, Restricted Stock, or Stock Equivalent Units or that is
otherwise based on, or valued in whole or in part by reference
to, the Common Shares, including Performance-Based Stock
Awards. All or any part of any Stock Award may be subject to
such conditions, restrictions, and risks of forfeiture, as and
to the extent established by the Committee. Stock Awards may
be based on the Fair Market
7
<PAGE> 8
Value of the Common Stock, or on other specified values or
methods of valuation, as determined by the Committee.
(iii) Stock Option - A right to purchase a specified
number of shares of Common Stock, during a specified period,
and at a specified exercise price, all as determined by the
Committee. A Stock Option may be an Incentive Stock Option or
a Stock Option that does not qualify as an Incentive Stock
Option (a "non-qualified Stock Option"). In addition to the
terms, conditions, vesting periods, and restrictions
established by the Committee, Incentive Stock Options must
comply with the requirements of Section 422 of the Code. The
exercise price of an Incentive Stock Option may be no less
than the Fair Market Value of the Common Shares on the date
the Stock Option is granted.
(iii) Performance-Based Stock Awards - A Stock Award
granted to a Participant pursuant to Section 7.
7. Performance-Based Stock Awards.
(a) Performance-Based Stock Awards. The Committee may, in its
discretion, grant Stock Awards valued by reference to shares of Common Stock
that are wholly contingent on the attainment of performance goals established by
the Committee from time to time. The performance goals will relate to one or
more of the following performance measures, as determined by the Committee for
each applicable performance period: (i) return to stockholders, (ii) cash flow,
(iii) return on equity, (iv) Company created income (for example, income due to
Company initiated cost reductions or productivity improvements), (v) sales
growth, (vi) earnings and earnings growth, (vii) return on assets, (viii) stock
price, (ix) earnings per share, (x) market share, (xi) customer satisfaction,
and (xii) safety and/or environmental performance. Any such performance goals
and the applicable performance measures will be determined by the Committee at
the time of grant and reflected in a written award agreement. The number or
value of Performance-Based Stock Awards that will be paid out to any Participant
at the end of the applicable performance period, which may be one year or longer
as determined by the Committee, will depend on the extent to which the Company
attains the established performance goals.
(b) Maximum Amount of Performance-Based Stock Awards. No
participant who is an employee may be awarded Performance-Based Stock Awards in
any one fiscal year in excess of an aggregate of 50,000 shares of Common Stock.
The maximum dollar value, based on the Fair Market Value of the number of shares
of Common Stock awarded, of any Performance-Based Stock Award to any Participant
who is an employee shall not exceed $1,200,000 in any one fiscal year.
8
<PAGE> 9
8. Deferral of Payment.
With the approval of the Committee, the delivery of the Common
Stock, cash, or any combination thereof subject to an Award may be deferred,
either in the form of installments or a single future delivery. The Committee
may also permit selected Participants to defer the payment of some or all of
their Awards, as well as other compensation, in accordance with procedures
established by the Committee to assure that the recognition of taxable income is
deferred under the Code. Deferred amounts may, to the extent permitted by the
Committee, be credited as cash or Stock Equivalent Units. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents on Stock Equivalent Units.
9. Payment of Exercise Price. The exercise price of a Stock Option and
any Stock Award for which the Committee has established an exercise price may be
paid in cash, by the transfer of Common Stock, by the surrender of all or part
of an Award (including the Award being exercised), or by a combination of these
methods, as and to the extent permitted by the Committee. The Committee may
prescribe any other method of paying the exercise price that it determines to be
consistent with applicable law and the purpose of this Plan.
In the event shares of Restricted Stock are used to pay the
exercise price of a Stock Award, a number of the shares of Common Stock issued
upon the exercise of the Award equal to the number of shares of Restricted Stock
used to pay the exercise price will be subject to the same restrictions as the
Restricted Stock.
10. Taxes Associated with Award. Prior to the payment of an Award, the
Company may withhold, or require a Participant to remit to the Company, an
amount sufficient to pay any Federal, state, and local taxes associated with the
Award. The Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Participant to pay any or all taxes associated
with the Award in cash, by the transfer of Common Stock, by the surrender of all
or part of an Award (including the Award being exercised), including
Performance-Based Stock Awards, or by a combination of these methods. The
Committee may permit a Participant to pay any or all taxes associated with an
Incentive Stock Option in cash, by the transfer of Common Stock, or by a
combination of these methods.
11. Termination of Employment. Subject to Section 12, if the employment
of a Participant terminates for any reason, all unexercised, deferred, and
unpaid Awards may be exercisable or paid only in accordance with rules
established by the Committee. Subject to the foregoing exception, these rules
may provide, as the Committee deems appropriate, for the expiration,
continuation, or acceleration of the vesting of all or part of the Awards.
9
<PAGE> 10
12. Change of Control. In the event of a Change of Control of the
Company, unless and to the extent otherwise determined by the Board of
Directors, (i) all Stock Appreciation Rights and Stock Options then outstanding
will become fully exercisable as of the date of the Change of Control and (ii)
all restrictions and conditions applicable to Restricted Stock and other Stock
Awards, including Performance-Based Stock Awards, will be deemed to have been
satisfied as of the date of the Change of Control. Any such determination by the
Board of Directors that is made after the occurrence of a Change of Control will
not be effective unless a majority of the Directors then in office are
Continuing Directors and the determination is approved by a majority of the
Continuing Directors.
Notwithstanding any other provision of this Plan, during the
60-day period from and after a Change of Control (the "Exercise Period"), unless
the Committee shall determine otherwise at the time of grant, an optionee shall
have the right, whether or not the Stock Option is fully exercisable and in lieu
of the payment of the exercise price for the shares of Common Stock being
purchased under the Stock Option and by giving notice to the Company, to elect
(within the Exercise Period) to surrender all or part of the Stock Option to the
Company and to receive cash, within 30 days of such notice, in an amount equal
to the amount by which the Change of Control Price per share of Common Stock on
the date of such election shall exceed the exercise price per share of Common
Stock under the Stock Option (the "Spread") multiplied by the number of shares
of Common Stock granted under the Stock Option as to which the right granted
under this Section shall have been exercised.
13. Amendment, Suspension, or Termination of this Plan; Amendment of
Outstanding Awards.
(a) Amendment, Suspension, or Termination of this Plan. The
Board of Directors may amend, suspend, or terminate this Plan at any time.
Stockholder approval for any such amendment will be required only to the extent
necessary to preserve the exemption provided by Rule 16b-3 for this Plan and
Awards granted under this Plan.
(b) Amendment of Outstanding Awards. The Committee may, in its
discretion, amend the terms of any Award, including, waiving, in whole or in
part, any restrictions or conditions applicable to, or accelerating the vesting
of, any Award, prospectively or retroactively, but no such amendment may impair
the rights of any Participant without his or her consent or cause Awards
intended to qualify as performance based compensation under Section 162(m) to
fail to so qualify.
14. Awards to Foreign Nationals and Employees Outside the United
States. To the extent that the Committee deems appropriate to comply with
foreign law or practice and to further the purpose of this Plan, the Committee
may, without amending this Plan, (i) establish special rules applicable to
Awards granted to Participants who are foreign nationals, are employed outside
the United States, or both, including rules that differ from those set forth in
this Plan, and (ii) grant Awards to such Participants in accordance with those
rules.
10
<PAGE> 11
15. Nonassignability. Unless otherwise determined by the Committee, (i)
no Award granted under this Plan may be transferred or assigned by the
Participant to whom it is granted other than by will, pursuant to the laws of
descent and distribution, or pursuant to a qualified domestic relations order
and (ii) an Award granted under this Plan may be exercised, during the
Participant's lifetime, only by the Participant or by the Participant's guardian
or legal representative; except that, no Incentive Stock Option may be
transferred or assigned pursuant to a qualified domestic relations order or
exercised, during the Participant's lifetime, by the Participant's guardian or
legal representative.
16. Governing Law. The interpretation, validity, and enforcement of
this Plan will, to the extent not governed by the Code or the securities laws of
the United States, be governed by the laws of the State of Ohio.
17. Rights of Employees. Nothing in this Plan will confer upon any
Participant the right to continued employment by the Company or limit in any way
the Company's right to terminate any Participant's employment at will.
18. Effective and Termination Dates.
(a) Effective Date. This Plan will become effective on the
date of its adoption by the Board of Directors.
(b) Termination Date. This Plan will continue in effect until
terminated by the Board of Directors.
11
<PAGE> 1
EXHIBIT 10.7
THE GEON COMPANY
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
(Effective December 9, 1993)
(Amended February 1, 1996, November 6, 1996, and November 4, 1998)
ARTICLE I
PURPOSE OF THE PLAN
The purpose of The Geon Company (the "Company") Deferred Compensation
Plan for Non-Employee Directors is to provide any Non-Employee Director of the
Company the option to defer receipt of the compensation payable for services as
a Director and to build loyalty to the Company through increased ownership in
the Company's Common Stock.
ARTICLE II
DEFINITIONS
As used herein, the following words shall have the meaning stated after
them unless otherwise specifically provided:
2.1 "Calendar Year" shall mean the twelve month period January 1
through December 31.
2.2 "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of voting securities of the Company where such
acquisition causes such Person to own 20% or more of the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
be deemed to result in a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii)
any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of
subsection (c) below; provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities
reaches or exceeds 20% as a result of a transaction described in clause
(i) or (ii) above, and such Person subsequently acquires beneficial
ownership of additional voting securities of the Company, such
<PAGE> 2
subsequent acquisition shall be treated as an acquisition that causes
such Person to own 20% or more of the Outstanding Company Voting
Securities; and provided, further, that if at least a majority of the
members of the Incumbent Board determines in good faith that a Person
has acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the Outstanding
Company Voting Securities inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares so that such
Person beneficially owns (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) less than 20% of the Outstanding Company Voting
Securities, then no Change of Control shall have occurred as a result
of such Person's acquisition; or
(ii) individuals who, as of November 6, 1996, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to November 6, 1996 whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(iii) The consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another
corporation ("Business Combination"); excluding, however, such a
Business Combination pursuant to which (i) all or substantially all of
the individuals and entities who were the beneficial owners of the
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation that as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
-2-
<PAGE> 3
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
2.3 "Committee" shall mean the Compensation Committee described in
Section 8.1 hereof.
2.4 "Common Stock" shall mean the Common Stock, par value $0.10 per
share, of the Company.
2.5 "Company" shall mean The Geon Company.
2.6 "Director" shall mean any non-employee director of the Company.
ARTICLE III
ELECTIONS BY DIRECTORS
3.1 Election to Defer. A Director may elect to defer receipt of the
compensation payable to him or her for future services as a Director. Such
election shall be made on an election form specified by the Committee ("Election
Form"). Such election shall indicate the portion of the Director's compensation
to be invested in an interest-bearing account and the portion of such
compensation to be invested in Common Stock.
3.2 Effectiveness of Elections. Elections shall be effective and
irrevocable upon the delivery of an Election Form to the Committee.
Notwithstanding anything to the contrary set forth herein, the effective date of
any transaction in which amounts deferred hereunder are invested in Common Stock
shall be not less than six months after the date of such election. Subject to
the provisions of Article VI, amounts deferred pursuant to such elections shall
be distributed at the time and in the manner set forth in such election.
3.3 Amendment and Termination of Elections. A Director may terminate or
amend his or her election to defer receipt of compensation by written notice
delivered to the Committee six months prior to the commencement of the period
with respect to which such compensation will be earned. Amendments which serve
only to change the beneficiary designation shall be permitted at any time and as
often as necessary. Amounts credited to a Director's Account pursuant to Section
5.2 hereof prior to the effective date of any termination or amendment shall not
be affected thereby and shall be paid at the time and in the manner specified in
the election form in effect when the deferral occurred.
-3-
<PAGE> 4
ARTICLE IV
COMMON STOCK AVAILABLE UNDER THE PLAN
4.1 Common Stock. The aggregate number of shares of Common Stock that
may be granted under this Plan in any fiscal year of the Company during the term
of this Plan will be equal to one tenth of one percent (0.1 %) of the number of
shares of Common Stock outstanding as of the first day of that fiscal year.
4.2 Adjustment. In the event of any change in the Common Stock of the
Company by reason of a merger, consolidation, reorganization, or similar
transaction, or in the event of a stock dividend, stock split, or distribution
to shareholders (other than normal cash dividends), the Committee will adjust
the number and class of shares that may be issued under this Plan, the number
and class of shares subject to outstanding deferrals, and the fair market value
of the Common Stock, and other determinations applicable to outstanding awards.
ARTICLE V
ACCOUNTS
5.1 Accounts. The Company shall establish and maintain a Deferred
Compensation Account (an "Account") for each Director who elects to defer
compensation under the Plan. If the Director elects to have deferred
compensation invested in an interest-bearing account, the Company shall credit
the Account of the Director with an amount equal to one hundred percent (100%)
of the compensation deferred pursuant to this Plan. In the event that a Director
elects to have some or all of his or her compensation invested in Common Stock,
then the Company shall credit the Account of the Director with an amount equal
to one hundred twenty-five percent (125%) of such compensation, in the form of a
number of shares of Common Stock, valued at its Fair Market Value. As used
herein, the Fair Market Value of Common Stock shall be the average of the high
and low prices of the Company's Common Stock as reported on the composite tape
for securities listed on the New York Stock Exchange for the date immediately
preceding the date of crediting the Account, provided that if no sales of Common
Stock were made on said exchange on that date, the Fair Market Value shall be
the average of the high and low prices of Common Stock as reported on said
composite tape for the preceding day on which sales of Common Stock were made on
said Exchange. The Accounts shall be credited as of the date on which the
compensation would otherwise have been paid to the Director, if not deferred
under the Plan.
5.2 Adjustment of Accounts. As of December 31 of each Calendar Year and
on such other dates as the Committee directs, the fair market value of the
Account of each Director shall be determined by crediting to the Account an
amount equal to the income earned during the Calendar Year, or other appropriate
period, the number of shares of Common Stock credited to the Account, and then
determining the fair market value of the shares and other amounts credited to
the Account.
-4-
<PAGE> 5
ARTICLE VI
PAYMENT OF ACCOUNTS
6.1 Time of Payment. Payment of the amount credited to a Director's
Account shall commence upon a date which is not more than thirty days after the
earlier of (i) the attainment of the date specified (not younger than age 55) in
his Election Form or (ii) upon a Change of Control.
6.2 [WITH RESPECT TO AMOUNTS DEFERRED PRIOR TO JANUARY 1, 1996] Method
of Payment. The amount credited to a Director's Deferred Compensation Account
shall be paid, in whole or in part, to the Director in a lump sum and/or in
annual installments over a period of not more than ten years as specified in
each Director's Election Form. Deferred Compensation Accounts shall be paid in
kind, in cash, or shares of Common Stock, as credited to the Account.
[WITH RESPECT TO AMOUNTS DEFERRED FROM AND AFTER JANUARY 1, 1996]
Method of Payment. The amount credited to a Director's Deferred Compensation
Account shall be paid, in whole or in part, to the Director in a lump sum and/or
in annual installments over a period of not more than ten years as specified in
each Director's Election Form. A Director may elect to change his or her
original payment period election, as specified in such Director's Election Form;
provided, that (i) such change is approved by the Committee, (ii) the election
to change is made at least 18 months prior to date specified in the electing
Director's Election Form on which payment of the amount credited to the
Director's account is to commence, and (iii) a Director may make such an
election to change only one time, an such election to change shall apply to all
of the Director's Election Forms with respect to amounts deferred under the Plan
from and after January 1, 1996. In the event that a Director who makes an
election to change is a member of the Committee, such Director shall abstain
from the Committee's determination whether or not to approve the change.
Deferred Compensation Accounts shall be paid in kind, in cash, or shares of
Common Stock, as credited to the Account.
6.3 Hardship Distribution. Prior to the time a Director's Account
becomes payable, the Committee, in its sole discretion, may elect to distribute
all or a portion of the Director's Account in the event such Director requests a
distribution on account of severe financial hardship. For purposes of this Plan,
severe financial hardship shall be deemed to exist in the event the Committee
determines that a Director needs a distribution to meet immediate and heavy
financial needs resulting from a sudden or unexpected illness or accident of the
Director or a member of his or her family, loss of the Director's property due
to casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Director. A distribution
based on financial hardship shall not exceed the amount required to meet the
immediate financial need created by the hardship. The amount of a Director's
Account shall be reduced by the amount of any hardship distribution to such
Director.
6.4 Designation of Beneficiary. Upon the death of a Director, the
amount credited to his or her Account shall be paid to the beneficiary or
beneficiaries designated by him or her. If there is no designated beneficiary,
or no designated beneficiary surviving at a Director's death,
-5-
<PAGE> 6
payment of a Director's Account shall be made to his or her estate. Beneficiary
designations shall be made in writing. A Director may designate a new
beneficiary or beneficiaries at any time by notifying the Committee.
6.5 Taxes. In the event any taxes are required by law to be withheld or
paid from any payments made pursuant to the Plan, the appropriate amounts shall
be deducted from such payments and transmitted to the appropriate taxing
authority.
ARTICLE VII
CREDITORS
7.1 Claims of the Company's Creditors. The rights of a Director or his
or her beneficiaries to any payment under the Plan shall be no greater than the
rights of an unsecured creditor of the Company.
ARTICLE VIII
ADMINISTRATION
8.1 Appointment of Committee. The Board of Directors of the Company
shall appoint a Committee consisting of not less than three persons to
administer the Plan. Members of the Committee shall hold office at the pleasure
of the Board of Directors and may be dismissed at any time with or without
cause. Such persons serving on the Committee need not be members of the Board of
Directors of the Company.
8.2 Powers of the Committee. The Committee shall administer the Plan
and resolve all questions of interpretation arising under the Plan with the help
of legal counsel, if necessary. Whenever directions, designations, applications,
requests or other notices are to be given by a Director under the Plan, they
shall be filed with the Committee. The Committee shall have no discretion with
respect to Plan contributions or distributions but shall act in an
administrative capacity only. Except as provided in the immediately following
sentence, all decisions by the Committee will be made with the approval of not
less than a majority of its members. In furtherance and not in limitation of the
authority granted in clause (vi) of this paragraph, any interpretation by a
majority of the Incumbent Directors then serving on the Committee as to whether
a sale or other disposition of assets by the Company or an acquisition of assets
of another corporation constitutes a "sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of assets of
another corporation" for purposes of clause (iii) of the definition of "Change
of Control" in Section 2.2 hereof shall be final and binding for all purposes of
this Plan and any Accounts hereunder, notwithstanding that the transaction in
question was, or is contemplated to be, submitted to stockholders of the Company
for their approval and notwithstanding such approval
-6-
<PAGE> 7
ARTICLE IX
MISCELLANEOUS
9.1 Term of Plan. The Company reserves the right to amend or terminate
the Plan at any time; provided, however, that no amendment or termination shall
affect the rights of Directors to amounts previously credited to their Accounts
pursuant to Section 5.1 or to future income to be credited to their Accounts
pursuant to Section 5.2.
9.2 Assignment. No right or interest of any Director (or any person
claiming through or under such Director) in any benefit or payment herefrom
other than the surviving spouse of such Director after he or she is deceased,
shall be assignable or transferable in any manner or be subject to alienation,
anticipation, sale, pledge, encumbrance, or other legal process or in any manner
be liable for or subject to the debts or liabilities of such Director. If any
Director or any such person (other than the surviving spouse of such Director
after he or she is deceased) shall attempt to or shall transfer, assign,
alienate, anticipate, sell, pledge, or otherwise encumber his or her benefits
hereunder or any part thereof, or if by reason of his or her bankruptcy or other
event happening at any time such benefits would devolve upon anyone else or
would not be enjoyed by him or her, then the Committee, in its discretion, may
terminate his or her interest in any such benefit to the extent the Committee
considers necessary or advisable to prevent or limit the effects of such
occurrence. Termination shall be effected by filing a written "termination
declaration" with the Committee records and making reasonable efforts to deliver
a copy to such Director or his or her legal representative.
As long as any Director is alive, any benefits affected by the
termination may, in the Committee's sole and absolute judgment, be paid to or
expended for the benefit of such Director, his or her spouse, his or her
children or any other person or persons in fact dependent upon him or her in
such a manner as the Committee shall deem proper. Upon the death of any
Director, all benefits withheld from him or her and not paid to others in
accordance with the preceding sentence shall be distributed to such Director's
estate or to his or her creditors and if such Director shall have descendants,
including adopted children, then living, distribution shall be made to such
Director's then living descendants, including adopted children, per stirpes.
9.3 Effective Date of Plan. The Plan shall be effective as of December
9, 1993, subject to approval by the stockholders of the Company. Any amounts
credited to a Director's Deferred Compensation Account prior to such stockholder
approval shall be contingent on such approval.
-7-
<PAGE> 1
EXHIBIT 21
THE GEON COMPANY
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- ---------------
<S> <C>
1997 Chlor-Alkali Venture Inc. Alabama
The Geon Company Australia Limited Australia
Auseon Limited Australia
Australian Vinyls Corporation (1) Australia
Flexible Products Company of Australasia, PTY, Ltd. Australia
Geon Canada Inc. Canada
Synergistics Industries Limited Canada (4)
LP Holdings, Inc. Canada
Synergistics Industries (CO), Inc. Colorado (5)
Geon Development Inc. Delaware
Synergistics Chemicals Inc. Delaware (5)
La Porte Chemicals Corp. Delaware
Lincoln & Southern Railroad Company Delaware
Polymer Diagnostics Inc. Delaware
Sunbelt Chlor-Alkali Partnership (2) Delaware (3)
Synergistics Industries (NJ), Inc. Delaware (5)
Wilflex, Inc. Delaware (6)
Geon Engineering Vinyls Limited England
Hydro Geon (2) England (3)
Adchem, Inc. Georgia (6)
SPC Geon PTE LTD. (2) Singapore
Synergistics Industries (TX), Inc. Texas
Inversiones The Geon Company de Venezuela C.A. Venezuela
Plast-O-Meric, Inc. Wisconsin
</TABLE>
Notes:
(1) Owned 37.4% by the Company
(2) Owned 50% by the Company.
(3) Partnership
(4) Effective 1/1/99, this entity was merged into Geon Canada Inc.
(5) These U.S. Synergistics companies were merged into the parent (The Geon
Company) effective 1/1/99.
(6) Adchem, Inc. and Wilflex, Inc., were merged into Plast-O-Meric, Inc.
effective 1/1/99.
<PAGE> 1
EXHIBIT 23
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
January 28, 1999, with respect to the consolidated financial statements and
schedule of The Geon Company included in this Annual Report (Form 10-K) for the
year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE GEON COMPANY AND SUBSIDIARIES AS OF DECEMBER
31, 1998 AND DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 74
<ALLOWANCES> 4
<INVENTORY> 114
<CURRENT-ASSETS> 235
<PP&E> 1,205
<DEPRECIATION> 762
<TOTAL-ASSETS> 802
<CURRENT-LIABILITIES> 257
<BONDS> 135
0
0
<COMMON> 3
<OTHER-SE> 211
<TOTAL-LIABILITY-AND-EQUITY> 802
<SALES> 1,284
<TOTAL-REVENUES> 1,284
<CGS> 1,093
<TOTAL-COSTS> 1,247
<OTHER-EXPENSES> (1)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 24
<INCOME-TAX> 10
<INCOME-CONTINUING> 14
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14
<EPS-PRIMARY> .60
<EPS-DILUTED> .58
</TABLE>
