10-K

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, 1999. 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 incorporation or organization)	(I.R.S. Employer Identification No.)
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. [   ]

The aggregate market value of the voting stock, consisting solely of common stock, held by non-affiliates of the registrant as of March 17, 2000 was approximately $476 million. On such date, 23,810,077 of such shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders are incorporated by reference into Part III.

The Exhibit Index is located herein beginning at sequential page I-1.

PART I

ITEM 1. DESCRIPTION OF THE BUSINESS.

The Geon Company (Geon or Company) is a leading North American-based performance polymer products and services company that produces compounds, specialty vinyl resins and formulations, engineered calendered film, and other value-added products and services. Geon is a leader in delivering value to customers through its strengths in polymer technology, manufacturing and supply chain processes, information technology, environmental and safety performance, overall quality and operational excellence. Over the past two years, the Company’s strategy has shifted away from commodity PVC resin production, focusing on performance polymer products and related services. Geon has accomplished this transformation through a series of acquisitions and joint ventures, including the formation of Oxy Vinyls, LP (OxyVinyls), Geon’s partnership with Occidental Chemical Corporation (OxyChem), and the acquisition of O’Sullivan Corporation and five formulator businesses in 1998 and 1999. These transactions are discussed in more detail in Notes C, D, and E to the Consolidated Financial Statements. Financial information for each business segment is included in Note S to the Consolidated Financial Statements.

The Company has 30 manufacturing plants in the United States, Canada, England and Australia. Geon also participates in joint ventures with operations in the United States, Canada, Australia, England, Singapore and Colombia. The Company operates in two business segments: Performance Polymers and Services (PP&S) and Resin and Intermediates (R&I).

Performance Polymers and Services:

The PP&S segment is the platform for Geon’s strategic growth. The superior performance attributes provided by the Company’s technology and enhanced by customer support services differentiate Geon’s polymer products from those of its competitors. The PP&S business segment includes:

• Compounds. Geon is one of the world’s largest merchant producers of compounded plastics, with an annual capacity of approximately 1.75 billion pounds. Plastic resins are mixed with diverse additives to form a variety of compounds in the form of cubes, pellets and powders. The attributes of the various compounds range from soft and flexible to tough and impact resistant. Geon participates in the following compound markets:

• custom injection molding — used in appliances, business equipment, telecommunications and pipe fittings;

• custom profile and dry blend — used in construction and housing applications such as vertical blinds, baseboard molding, institutional railings and windows;

• wire and cable — used in building and telecommunication applications;

• custom flexible — used in footwear and medical applications such as intravenous tubing and blood bags; and

• packaging — used for rigid bottles for containing cosmetics, industrial solvents and oils, and foods such as cooking oils.

Most of Geon's compounds are based on PVC resins. Among suppliers of vinyl compounds Geon is ranked first in combined U.S. and Canadian market share in each of these markets, except for the custom flexible market where the Company generally ranks either first or

	second depending upon the specific application. In addition to vinyl, Geon also compounds other polymers, including cross linked polyethylene and thermoplastic elastomers. The Company also manufactures plasticizers. Compound products accounted for 62%, 52% and 39% of consolidated revenues in 1999, 1998, and 1997, respectively. Outside of North America, Geon participates in compounding joint ventures in England, Singapore, Australia and Colombia.
•	Specialty resins. Geon is the leading North American producer of specialty dispersion resins, with an annual capacity of approximately 220 million pounds. Specialty resins have a much finer particle size than vinyl suspension resins and, when combined with plastisizers, are soft and flexible. Customers use these resins to make wire and metal coatings (as used in dishwashers), flooring, carpet backing, wall coverings, automotive interiors and consumer goods.
•	Formulators. Geon processes specialty dispersion resins with different additives, such as plastisizers and fillers, to produce liquid or solid plastisol formulations. In addition, the Company produces formulations using urethanes or latex polymers. Customers use these formulations in applications such as filters, gaskets, screen printing inks, decals, clothing, and other coating applications. The primary markets for these formulations are flooring, consumer goods, (such as footwear and gloves) and automotive. Sales of formulator products totaled 11% and 5% of consolidated sales in 1999 and 1998. The Company had no sales of formulator products in 1997.
•	Engineered films. The Company processes flexible compounds into rolls of various-gauge films, a process known as calendering. Geon supplies vinyl and thermoplastic olefin films for interior automotive applications such as dashboard covers and door panels, and for flexible vinyl sheeting products for a variety of applications in the medical, stationery, upholstery, swimming pool liner, and geomembrane markets. Geon entered the engineered film market with the completion of the transactions with OxyChem in the second quarter of 1999, and expanded its market presence and product capabilities with the acquisition of O’Sullivan Corporation in July 1999.
•	Analytical services. Through Polymer Diagnostic, Inc., Geon’s customers can take advantage of the Company’s state-of-the-art research and testing facilities. Geon currently provides customers with analytical and composition testing services for polymers and adhesives.

In addition, the Company owns a 40% interest in Decillion, LLC, a start-up joint venture with Owens Corning Corporation. The venture was established in December 1998 to manufacture and market a new technology based on a glass fiber and PVC system.

Resin and Intermediates:

The R&I business segment produces PVC resins, vinyl chloride monomer (VCM), and chlor-alkali through the following joint ventures:

• OxyVinyls. This partnership between Geon and OxyChem is North America’s largest producer of PVC resin (4.4 billion pounds of capacity per year) and VCM, and is also a producer of chlorine and caustic soda. The Company owns 24% of this globally-competitive company, to which the Company contributed substantially all of its previous PVC/VCM operations. This 24% interest in OxyVinyls provides Geon the economics of manufacturing PVC resin that roughly approximates the PVC resin needs of the

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	PP&S segment. In addition, OxyVinyls has the capacity to produce annually 920,000 tons of chlorine and 1,012,000 tons of caustic soda.
•	Sunbelt Chlor-Alkali Partnership (Sunbelt). Geon owns 50% of this joint venture with Olin Corporation. The venture produces 250,000 tons of chlorine and 275,000 tons of caustic soda per year.
•	Australian Vinyls Corporation (AVC). Geon owns 37.4% of this PVC resin and compound joint venture with Orica Limited of Australia.

Competition

      The Company competes with major U.S. chemical manufacturers and diversified compounders, some of which have greater financial resources than the Company. Competition in the industry is based upon many factors, the importance of which vary depending on the specific characteristics of the product and the applicable market. These factors range from product performance and customer and technical support to price and availability.

Performance Polymers and Services Segment:

      There is no single PVC compound market and the manner in which the Company competes varies from market to market. However, 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 PVC resin manufacturers some of which are listed below under the “Resin and Intermediates Segment” caption. In the markets for higher performance PVC compounds, such as rigid 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. Although manufacturing margins and prices in these markets tend to be higher and more stable than PVC resin and other compound markets, such areas have higher support requirements comprised of sales, marketing, technical service, customer support and research and development. In the other PVC compound markets (rigid extrusion compounds for custom profiles, window lineals and vertical blinds), the Company competes with other PVC manufacturers and custom compounders.

      In specialty resins, the Company competes primarily with the same North American PVC producers” included in the “Resin and Intermediates ” segment discussion below. Approximately five companies, including Geon and OxyChem account for the majority of specialty resin sales in North America.

      Plastisol formulator competition is characterized by a large number of formulators, most of which are independent, non-public companies. Approximately 10 of these formulators, including Geon, account for the majority of formulator sales in North America.

      Engineered films competition is characterized by a large number of competitors in most of the product markets, with no single manufacturer supplying all markets. Major competitors include: Canadian General Tower, Delphi Automotive Systems, Ellay Corp., Haartz Corp., Intex Plastics Inc., Nanya Plastics Corp., Sandusky Vinyl Products and Vernon Plastics Inc.

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Resin and Intermediates Segment:

      With respect to VCM and PVC resins, the Company competes (through its OxyVinyls joint venture) primarily with five major North American PVC producers: Borden Chemicals and Plastics Limited Partnership; Formosa Plastics Corporation U.S.A. (a subsidiary of Formosa Plastic Group, Taipei, Taiwan); Georgia Gulf 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. At December 31, 1999, the six largest resin producers (one of which is OxyVinyls) accounted for approximately 90% of the total estimated resin capacity. OxyVinyls is the largest North American producer, with approximately 26% of total resin capacity.

Raw Materials

      The primary raw materials utilized by the Company’s PP&S business segment are PVC resin and VCM. Prior to the formation of OxyVinyls, the Company directly owned and operated manufacturing facilities which supplied the majority of its PVC and VCM requirements. Upon the formation of OxyVinyls on April 30, 1999, the Company contributed substantially all of its PVC/VCM operations to the joint venture, and entered into long-term supply contracts with OxyVinyls, under which the majority of Geon’s PVC and all of its VCM requirements will be supplied. These supply contracts have initial terms of 15 years (expiring in 2013) and have provisions for renewal after the initial contract term. The Company believes the supply agreements will assure availability of PVC resin and VCM, technical development and support and competitively priced PVC resin and VCM. The Company further believes that the pricing under these supply contracts provides PVC resin at a competitive cost to the Company.

Research and Development

      The Company has developed substantial research and development capability. The Company’s efforts are devoted to (i) developing new products to satisfy defined market needs, (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) providing support to its manufacturing plants for cost reduction, productivity and quality improvement programs. The Company operates a research and development center in Avon Lake, Ohio supporting compounding and specialty resin operations. The laboratory is equipped with state of the art 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. In addition, the Company’s subsidiary, Polymer Diagnostics, Inc. conducts research for both the Company and its customers. Also, the engineered films and formulator operations maintain appropriate research and development capabilities at various plant locations.

      Expenditures for Company sponsored product research and product development in 1999, 1998 and 1997 were $18.5 million, $15.0 million and $17.1 million, respectively. Expenditures in 2000 are projected to remain at approximately the same level as in 1999.

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Employees

      As of December 31, 1999, the Company had approximately 3,100 employees. The Company has collective bargaining agreements covering approximately 10% of its employees located at various sites. The Company considers its employee relations to be good.

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 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 obligations under this portion of the CAP after the EPA issues guidance concerning the kinds of environmental information that it believes are reportable.

      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.

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      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.

      Additional information about the Company’s environmental liabilities, related expenditures and accruals is included in the Annual Report to Shareholders in “Management’s Discussion and Analysis” under the caption “Environmental Matters” and in Note N to the Consolidated Financial Statements.

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 44 of the Annual Report to Shareholders.

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ITEM 2. PROPERTIES.

Corporate Headquarters & Polymer Diagnostics Inc. — Avon Lake, Ohio

Performance Polymers and Services Facilities:

Vinyl Compounding	Specialty Dispersion Resin	Plastisol Formulators	Engineered Films.
Avon Lake, Ohio	Henry, Illinois	Bolton, England	Burlington, New Jersey
Burlington, New Jersey	Pedricktown, New Jersey	Kennesaw, Georgia	Lebanon, Pennsylvania
Conroe, Texas		Los Angeles, California	Newton Upper Falls,
Farmington, New Jersey		Melbourne, Australia	Massachusetts
Long Beach, California		North Baltimore, Ohio	Winchester, Virginia
Louisville, Kentucky		St. Louis, Missouri	Yerington, Nevada
Niagra Falls, Ontario, Canada		Sullivan, Missouri
Orangeville, Ontario, Canada		Sussex, Wisconsin
Pasadena, Texas		Waukesha, Wisconsin
Plaquemine, Louisiana		Widnes, England
St. Remi de Naperville, Quebec, Canada
Terre Haute, Indiana
Valleyfield, Quebec, Canada
Cartagena, Colombia (joint venture)
Melbourne, Australia (AVC joint venture)
Newton, Aycliffe, England (joint venture)
Singapore (joint venture)

Resin and Intermediates Facilities:

OxyVinyls joint venture — various locations in North America
Sunbelt joint venture — McIntosh, Alabama
AVC joint venture — various locations in Australia

ITEM 3. LEGAL PROCEEDINGS.

      In addition to the matters regarding the environment described above under the heading “Environmental, Health and Safety”, there are various pending or threatened claims, lawsuits and administrative proceedings against the Company 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.

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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. Their ages and positions are as follows:

Name	Age		Position with Company
William F. Patient		65	Retired as Chairman of the Board and Chief Executive Officer in 1999
Thomas A. Waltermire		50	Chairman of the Board, Chief Executive Officer and President
Denis L. Belzile		43	Vice President and General Manager, Specialty Resins and Formulators
Donald P. Knechtges		58	Senior Vice President, Business and Technology Development
V. Lance Mitchell		40	Vice President and General Manager, Compounds
Gregory L. Rutman		57	Vice President, General Counsel and Secretary
W. David Wilson		46	Vice President and Chief Financial Officer

William F. Patient

      Mr. Patient served as Chairman and Chief Executive Officer of Geon from its formation in 1993 until his retirement in mid-1999. Mr. Patient received a degree in Chemical Engineering from Washington University, St. Louis. Prior to the April 1993 Geon Initial Public Offering (IPO) by the BFGoodrich Company (BFG), Mr. Patient served as Senior Vice President of BFG and as President of BFG’s Geon Vinyl Division since May 1989. Prior to joining BFG, Mr. Patient had been associated with Borg-Warner Chemicals since 1962, most recently as Vice President.

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. In May 1999, Mr. Waltermire was appointed Chief Executive Officer and in August 1999, was appointed Chairman of the Board.

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Denis L. Belzile

      Mr. Belzile received a degree in Chemical Engineering from Universite’ Laval in Quebec City in 1980. Mr. Belzile joined BFG in 1989 and served as a plant manager until Geon’s IPO in 1993, when he assumed the role of Manufacturing Manager for Resins, then advanced to Director of the Specialty Resin Business. In 1998, he was appointed as General Manager of Specialty Resins and in October 1999, was appointed Vice President and General Manager of Specialty Resins and Formulators.

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, Technology and Business 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.

Gregory L. Rutman

      Mr. Rutman received a B.A. 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.

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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. The information required under this item appears in the table on page 43 of the Company’s 1999 Annual Report to Stockholders under the caption “Quarterly Data (Unaudited)” and is incorporated herein by reference thereto.

ITEM 6. SELECTED FINANCIAL DATA.

      The information required by this item appears on page 44 of the Company’s 1999 Annual Report to Stockholders 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 17, 18, 20 through 22, 24 and 26 of the Company’s 1999 Annual Report to Stockholders and is incorporated herein by reference thereto. This report 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 44 of the Company’s 1999 Annual Report to Stockholders 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 under the caption “Market Risk Disclosures” on page 22 of the Annual Report to Stockholders, 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 44 of the 1999 Annual Report to Stockholders 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 19, 23, 25 and 27 through 45 of the Company’s 1999 Annual Report to Stockholders and is incorporated herein by reference thereto.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

      None.

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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 contained in the Proxy Statement filed on March 14, 2000 with respect to the 2000 Annual Meeting of Stockholders. 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 contained in the Proxy Statement filed on March 14, 2000 with respect to the 2000 Annual Meeting of Stockholders.

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 contained in the Proxy Statement filed on March 14, 2000 with respect to the 2000 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The information regarding certain relationships and related transactions is incorporated by reference to the information contained in the Proxy Statement filed on March 14, 2000 with respect to the 2000 Annual Meeting of Stockholders.

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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 1999: None.

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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 24, 2000.

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 24, 2000.

Signature		Title
/s/THOMAS A. WALTERMIRE —————————————— Thomas A. Waltermire		Chairman of the Board, Chief Executive Officer, President and Director (Principal Executive Officer)
/s/W. DAVID WILSON —————————————— W. David Wilson		Vice President and Chief Financial Officer (Principal Financial Officer)
/s/GREGORY P. SMITH —————————————— Gregory P. Smith		Corporate Controller (Principal Accounting Officer)
/s/JAMES K. BAKER ——————————————	Director
James K. Baker
/s/GAIL DUFF-BLOOM ——————————————	Director	/s/D. LARRY MOORE ——————————————	Director
Gale Duff-Bloom		D. Larry Moore
/s/J. DOUGLAS CAMPBELL ——————————————	Director	/s/WILLIAM F. PATIENT ——————————————	Director
J. Douglas Campbell		William F. Patient
/s/R. GEOFFREY P. STYLES ——————————————	Director	/s/FARAH M. WALTERS ——————————————	Director
R. Geoffrey P. Styles		Farah M. Walters

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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, 1999

THE GEON COMPANY

F-1

ITEM 14(a)(1) AND (2) AND 14(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, included in the Annual Report of the Registrant to its Stockholders for the year ended December 31, 1999, filed as Exhibit 13.1 to this Form 10-K are incorporated by reference in Item 8.

Consolidated statements of income — Years ended December 31, 1999, 1998 and 1997.

Consolidated balance sheets — December 31, 1999 and 1998.

Consolidated statements of cash flows — Years ended December 31, 1999, 1998 and 1997.

Consolidated statements of stockholders’ equity — Years ended December 31, 1999, 1998 and 1997.

Notes to consolidated financial statements — December 31, 1999.

Quarterly data (unaudited) — Years ended December 31, 1999 and 1998.

Report of Independent Auditors

The following financial statements of subsidiaries not consolidated and 50% or less owned persons filed as Exhibit 13.2 to this Form 10-K are incorporated by reference in Item 14(d):

Consolidated financial statements of Oxy Vinyls, LP from inception through December 31, 1999.

The following consolidated financial statement schedule for the Registrant and its subsidiaries is included in Item 14(d):

Schedule II       Page F-3      Valuation and Qualifying Accounts

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

SCHEDULE II

THE GEON COMPANY AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in millions)

				Charged			Charged
		Balance at		to Costs			to Other						Other		Balance
		Beginning		and			Accounts			Other			Additions		at End of
		of Period		Expenses			(C)			Deductions			(D)		Period
Year Ended December 31, 1999
	Reserves for doubtful accounts	$	4.5	$	(1.3	)	$	—		$	(.8	)(A)	$	1.4	$	3.8
	Accrued liabilities for environmental matters		45.9		1.7			.1			(6.4	)(B)		2.8		44.1
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 matters		27.2		2.4			—			(3.6	)(B)		25.0		51.0

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-3

THE GEON COMPANY
INDEX TO EXHIBITS
(Item 14(a)(3))

Exhibit	Description	Page
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)	(f)
10.2	1995 Incentive Stock Plan, as amended and restated through November 4, 1998 (1)	(f)
10.3	1998 Interim Stock Award Incentive Stock Plan, as amended and restated through November 4, 1998 (1)	(f)
*10.4	1999 Incentive Stock Plan (1)
10.5	Benefit Restoration Plan (Section 415) (1)	(c)
10.6	Benefit Restoration Plan (Section 401(a)(17)) (1)	(c)
10.7	Senior Executive Management Incentive Plan (1)	(c)
10.8	Non-Employee Directors Deferred Compensation Plan effective December 9, 1993, as amended (1)
10.9	Form of Management Continuity Agreement (1)	(c)
10.10	U.S. $130 million (amended to $150 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)
10.10a	Amendment to the aforesaid Credit Agreement	(c)

I-1

Exhibit	Description	Page
10.10b	Amendment Number 2 to the aforesaid Credit Agreement	(c)
10.10c	Amendment Number 3 to the aforesaid Credit Agreement	(c)
10.11	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)
10.14	Amended and Restated Instrument Guaranty dated as of December 19, 1996	(c)
10.15	Amended and Restated Plant Services Agreement between the Company and The B.F. Goodrich Company	(c)
10.16	Amended and Restated Assumption of Liabilities and indemnification Agreement dated March 1 1993 and amended and rested April 27, 1993	(c)
10.17	CDN $135 Million Credit Agreement Between 1250828 Ontario Inc. and Canadian Imperial Bank of Commerce, dated October 27, 1997	(d)
10.17a	Guaranty related to aforesaid Credit Agreement, dated October 27, 1997	(d)
10.17b	Guaranty related to aforesaid Credit Agreement, dated October 30, 1997	(d)
10.18	Partnership Agreement, by and between 1997 Chloralkali Venture Inc., and Olin Sunbelt, Inc.	(b)
10.18a	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)
10.19	Chlorine Sales Agreement, by and between Sunbelt Chlor Alkali Partnership and the Company	(b)
10.20	Intercompany Guarantee Agreement between the Company on the one hand and Olin Corporation and Sunbelt Chlor Alkali Partnership on the other hand	(b)
10.21	Guarantee by the Company of the Series G Sunbelt Chlor Alkali Partnership Guaranteed Secure Senior Notes Due 2017, dated December 22.1997	(d)
10.22	Master Transaction Agreement dated December 22, 1998 between The Geon Company and Occidental Chemical Company	(e)
10.23	Limited Partnership Agreement of OxyVinyls, LP	(g)
10.24	Asset Contribution Agreement - PVC Partnership (Geon)	(g)
10.25	Parent Agreement (Oxy Vinyls, LP)	(g)
10.26	Parent Agreement (PVC Powder Blends, LP) and Business Opportunity Agreement	(g)
*13.1	Annual Report to Stockholders for the Year Ended December 31, 1999
*13.2	Consolidated Financial Statements of Oxy Vinyls, LP and Subsidiaries
*21	Subsidiaries
*23.1	Consent of Independent Auditors — Ernst & Young LLP
*23.2	Consent of Independent Auditors — Arthur Andersen LLP
*27	Financial Data Schedule

* Filed herewith

I-2

(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 10-K for the Year Ended December 31, 1996.
(d)	Incorporated by reference to the corresponding Exhibit filed with the Registrants Form 10-K 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.
(f)	Incorporated by reference to the corresponding Exhibit filed with the Registrant’s Form 10-K for the Year Ended December 31, 1998.
(g)	Incorporated by reference to the corresponding Exhibit filed with the Registrant’s Form 8-K filed on May 13, 1999.
(h)	Incorporated by reference to the corresponding Exhibit filed with the Registrant’s Form 10-Q for the Quarter Ended

I-3 EX-13.1 2 EXHIBIT 13.1 1 Exhibit 13.1 [Logo Geon(TM)] Performance - -------------------------------------------------------------------------------- in polymers [Photograph on cover of] FRONT (LEFT TO RIGHT): Patricia Wallace, Account Representative Bill Peeler, Lead IS&T Analyst/Programmer Bill Blue, Shift Leader - -------------------------------------------------------------------------------- 1999 Annual Report 2 THE COURAGE TO CHANGE THE STRENGTH TO SUCCEED The theme of this annual report, "Performance in Polymers," reflects the outstanding performance of Geon's plants, products - and, most important, of our people. Through their dedicated efforts, we are building a tightly knit network of polymer products and services that provides value to customers and shareholders. This network of value-added businesses is the core of the new Geon -- a company characterized by technical expertise, operational excellence, market knowledge and leadership in information technology. The employees featured in these pages represent 3,100 people at 30 sites in North America, Europe and Australia. Their performance and relentless efforts have transformed an entire company. They are Geon. GEON AT-A-GLANCE

ANNUALIZED REVENUES EMPLOYEES END USE APPLICATIONS PLANT LOCATIONS -------------------------------------------------------------------------------------------------------------------- COMPOUNDS/ $900 million 1,300 Appliance and business Avon Lake, Ohio Orangeville, Ontario, Canada PLASTICIZERS equipment components, Burlington, New Jersey Pasadena, Texas windows, electrical wire Conroe, Texas Plaquemine, Louisiana and cable, bottles, pipe Denver, Colorado St. Remi de Napierville, fittings, automotive trim Farmingdale, New Jersey Quebec, Canada Long Beach, California Terre Haute, Indiana Louisville, Kentucky Valleyfield, Quebec, Canada Niagara Falls, Ontario, Canada ------------------------------------------------------------ COMPOUND HYDRO GEON JOINT VENTURES: Newton Aycliffe, England SPCGEON PTE LTD. Singapore GEON/POLIMEROS ANDINOS Cartagena, Colombia -------------------------------------------------------------------------------------------------------------------- SPECIALTY $110 million 250 Vinyl flooring, carpet Henry, Illinois RESINS backing, automotive com- Pedricktown, New Jersey ponents, fabric coatings, decals and metal coatings -------------------------------------------------------------------------------------------------------------------- FORMULATORS $175 million 350 Automotive, apparel Bolton, England North Baltimore, Ohio and appliance coatings; Widnes, England St. Louis, Missouri sport and recreation Kennesaw, Georgia Sullivan, Missouri gear; signage Los Angeles, California Sussex, Wisconsin Melbourne, Australia Waukesha, Wisconsin -------------------------------------------------------------------------------------------------------------------- ENGINEERED $200 million 1,100 Automotive interiors, Burlington, New Jersey FILMS pool and pond liners, Lebanon, Pennsylvania medical blood and Newton Upper Falls, intravenous bags, Massachusetts bookbinding covers, Winchester, Virginia laminating films Yerington, Nevada -------------------------------------------------------------------------------------------------------------------- RESIN & OXY VINYLS, LP SUNBELT CHLOR-ALKALI AUSTRALIAN VINYLS INTERMEDIATES Geon ownership: 24 percent Geon ownership: 50 percent CORPORATION EQUITY JOINT Partner: OxyChem division of Occidental Partner: Olin Corporation Geon ownership: 37.5 percent VENTURES Petroleum Corporation Products: Chlorine/caustic soda Partner: Orica Limited Products: Polyvinyl chloride (PVC) resins, Products: PVC resins and compounds vinyl chloride monomer (VCM), chlorine/caustic soda

3 The Geon Company FINANCIAL HIGHLIGHTS

Year Ended December 31 (Dollars in Millions, Except Per Share Data) 1999 1998 1997 - ---------------------------------------------------------------------------------------- Sales $ 1,261.2 $ 1,284.4 $ 1,250.0 Employee separation and plant phase-out 0.5 14.6 15.0 Operating income 99.7 41.0 51.7 Net income, before cumulative effect of a change in accounting 106.2 13.8 22.5 Capital expenditures 60.1 40.7 50.9 Depreciation and amortization 44.4 57.9 54.6 Total debt (year-end) 353.3 187.1 227.6 Stockholders' equity (year-end) 334.7 214.1 223.8 Earnings per share, before cumulative effect of a change in accounting, diluted $ 4.37 $ 0.58 $ 0.95 Common shares outstanding (in millions, year-end) 23.7 23.4 23.2 Other data: Operations, before special charges and gain(A) Operating income $ 105.4 $ 55.6 $ 66.7 Net income 52.5 22.7 31.7 Earnings per diluted share $ 2.16 $ 0.96 $ 1.34 Average equity market value 678.8 506.4 494.7 Number of employees (year-end) 3,060 2,384 2,010 Employee and management stock ownership 14% 14% 14% Stockholders (estimated at December 31) 7,000 7,000 7,000

(A)Special charges in 1999, 1998 and 1997 include the employee separation and plant phase-out expense shown in the Financial Highlights above. In addition, 1999 special charges include accelerated depreciation of $1.2 million (pre-tax) related to the compound asset rationalization, $3.2 million (pre-tax) related to acquired profit on inventory of business acquisitions, $0.8 million (pre-tax) representing Geon's share of a restructuring charge recognized by OxyVinyls and a $2.4 million (pre-tax) cumulative effect of a change in accounting for start-up costs. In addition, 1999 included a one-time gain of $93.5 million (pre-tax) related to the formation of OxyVinyls and related transactions. See the Notes to the Consolidated Financial Statements for more information. WANT TO KNOW MORE ABOUT GEON? CHECK OUT OUR WEB SITE: www.geon.com 1 9 9 9 SALES BY SEGMENT Dollars in millions $1,107--------------- 87.8% \ PERFORMANCE \ POLYMERS AND \ SERVICES \ Compounds \ Specialty Resins \ Formulators \ Engineered Films \ \ $154------------------------- [Pie Chart] 12.2% POLYVINYL CHLORIDE (PVC) RESINS AND INTERMEDIATES 1 9 9 9 SALES BY GEOGRAPHIC REGION Dollars in millions $1,056------------- 83.7% \ UNITED \ STATES \ $191------------------ [Pie Chart] 15.2% / CANADA / / $14---------------- 1.1% OTHER 1 4 LETTER TO SHAREHOLDERS DELIVERING ON OUR COMMITMENT [Photograph] - -------------------------------------------------------------------------------- THOMAS A. WALTERMIRE To Our Shareholders: One of the most pleasant duties of a chief executive officer is reporting the results of a very good year. 1999 was such a year for Geon. Looking back, I trust you'll agree that our efforts yielded rewards for you - the best evidence that our strategy to create a new Geon is meeting with great success. In fact, though, our journey toward improved profitability began well before last year. It started right after our IPO in 1993. By taking more than $100 million in costs out of our operations, we learned how to be very competitive, achieve operating excellence and improve our quality. With continuing advances in our integrated information systems, including the successful installation of our new Enterprise Resource Planning (ERP) platform, we tied our businesses together so we could operate efficiently and serve customers in the flawless fashion they deserve. In 1997, we began our transformation. With the creation of strategic operating units, we set the stage for rapid growth via acquisition in our performance polymers business. We also began the search for alternatives for our commodity resin business. With eight successful acquisitions completed to date, we have established new business platforms and strong new earnings streams. By forming the Oxy Vinyls, LP (OxyVinyls) joint venture, we have reduced our exposure to polyvinyl chloride (PVC) resin cycles while maintaining a low-cost position in this key raw material. Our work to date has created a new company with the leading market position in each of our operating units. Our organic growth exceeds the Gross Domestic Product. We are the technology leader in each market we serve. Adding these strengths to our operating excellence and strong raw materials position means we have a business that can deliver consistent bottom-line growth. Geon's Performance Polymers and Services segment, which includes our historical operations in compounds and specialty resins as well as our acquisitions, has demonstrated the capability to generate 2 5 The Geon Company "In 1999, we recorded one of our BEST FINANCIAL PERFORMANCES since Geon became a public company" an operating return on sales that averages in excess of 10 percent. We achieved these results through the efforts of an experienced, dedicated management team - one that I am proud to lead because it knows only one way to play the game: to win! I see that same competitive fire in the eyes of Geon people I meet wherever I travel. I feel privileged to represent this outstanding team. 1999 FINANCIAL RESULTS In 1999, we recorded one of our best financial performances since Geon became a public company. We reached this milestone while margins for PVC resins and chlorine/caustic soda were very depressed for most of the year. Nearly all our earnings came from our Performance Polymers and Services segment. In 1999, revenues were $1.26 billion compared with $1.28 billion in 1998. Net income was $52.5 million, or $2.16 per diluted share, excluding special items, compared with 1998 results of $22.7 million, or $0.96 per diluted share, before a special charge for compound operations consolidation. 1999 HIGHLIGHTS Our successes in 1999 reflected the tremendous team effort at Geon and translated to measurable results for our shareholders: - - ON MAY 1, WE LAUNCHED THE JOINT VENTURE with Occidental Petroleum Corporation's OxyChem division forming OxyVinyls, North America's largest and leading supplier of PVC resins. We retained a 24 percent interest as well as an attractive, long-term raw material supply agreement. The transaction also allowed us to reduce our debt and acquire OxyChem's compounding and engineered films operations. With PVC resin margins beginning to recover in second-half 1999 from their historic lows in 1998, the outlook is bright for earnings from OxyVinyls in 2000. - - WE COMPLETED FOUR IMPORTANT ACQUISITIONS. In addition to the OxyChem businesses, in July we acquired O'Sullivan Corporation, a manufacturer of value-added engineered films. O'Sullivan has a leading position in films for interior applications in automobiles. The combination of O'Sullivan with the OxyChem films business creates a new business platform, engineered films, with strong growth potential. We made two formulator acquisitions. Dennis Chemical gives us increased strength in urethane systems and, with a plant in Commerce, California, an important West Coast presence. Our first foreign acquisition, Acrol of Widnes, England, opens opportunities for growth in Europe. Both Acrol and Dennis are excellent operations that are providing immediate benefits, both financially and competitively. These acquisitions added $200 million in 1999 revenue, and each one was immediately accretive. In 2000, they should add approximately $400 million in sales revenue.(1) (1)See Forward-Looking Statements, page 44. - -------------------------------------------------------------------------------- COMMON STOCK QUARTERLY PRICE RANGE Dollars in millions [Graph] "OUR SUCCESSES IN 1999 REFLECTED THE TREMENDOUS TEAM EFFORT AT GEON AND TRANSLATED TO MEASURABLE RESULTS FOR OUR SHAREHOLDERS." 3 6 The Geon Company

1 9 9 7 1 9 9 8 Synergistics Industries Plast-O-Meric Wilflex Adchem Limited BUSINESS: BUSINESS: BUSINESS: BUILDING BUSINESS: Formulating Formulating Formulating A NEW GEON Compounding - ------------------------------------------------------------------------------------------------------- 1 9 9 9 ACQUISITIONS OxyChem Operations O'Sullivan Acrol Holdings Dennis Chemical Corporation Limited BUSINESS: BUSINESS: Compounding, BUSINESS: BUSINESS: Formulating Engineered Films Engineered Films Formulating

- - IN NOVEMBER, WE LAUNCHED A 50/50 PVC COMPOUNDING JOINT VENTURE with Petroquimica Colombiana S.A. (Petco) that positions us in the Andean region of South America. PVC is often referred to as the infrastructure polymer. As the economies of this region develop, we envision a very good opportunity to apply our broad PVC compounding technology. We have had an excellent relationship for many years with Petco, a licensee of our resin technology. - - WE CONTINUE TO DEMONSTRATE OUR SKILLS WITH INFORMATION SYSTEMS. In 1999, we brought the OxyChem compounding and former Synergistics facilities into our ERP system - on time and on budget. Also, we integrated the former OxyChem films operation with O'Sullivan's proprietary information system. This vital step equips us to run our entire engineered films group under one system. We accomplished this integration within two months of the close of the O'Sullivan acquisition. Rapid integration is critical to gaining maximum benefits from the businesses we are bringing to Geon. Our excellent systems give us the foundation to develop a leading e-commerce position in the years ahead. - - WE COMPLETED THE EXPANSION OF OUR HENRY, ILLINOIS, SPECIALTY RESINS PLANT - again, on time and on budget. Our customers already are reaping benefits in product quality and performance. - - IN 1999, WE IMPLEMENTED OUR PREVIOUSLY ANNOUNCED COMPOUND ASSET RATIONALIZATION. We closed the Lindsay, Ontario, Canada, plant and shut down a number of other production lines. Our employees accomplished this while maintaining quality and service levels. We anticipate savings of $9 million in 2000 versus 1998 as a result of the compound consolidation. We intended to close the powder compounding operation at Conroe, Texas, and move the business to our new Pasadena, Texas, facility. Business conditions have been strong, however, and we now expect to keep the Conroe compounding line open at least through 2000. - - WITH ALL OUR ACQUISITIONS AND JOINT VENTURES, we have exercised financial diligence. By doing so, we retain the financial horsepower to fund future aggressive growth. Our debt-to-EBITDA ratio at year's end was 2.8, before the one-time OxyChem transaction gain. [Photograph of Tom Waltermire] - - OUR SAFETY AND ENVIRONMENTAL PERFORMANCE is one of the strongest indicators of our people's commitment to operating excellence. I am proud that Geon remains an industry leader for our low injury rates. It has been exciting to see our acquired businesses reduce their injury rates dramatically. Our acquisitions quickly learn that safeguarding our employees and the environment is both the right thing to do and good business. 4 7 LETTER TO SHAREHOLDERS 2000 OUTLOOK Last year, we stated four goals as we looked to the future: 1 Integrate our acquisitions quickly and successfully 2 Expand our scope beyond vinyl polymers 3 Pursue global opportunities 4 Create, acquire and nurture embryonic ventures We made excellent progress toward all these goals in 1999. Creating and acquiring new ventures is always a special challenge, and we are redoubling our efforts in this important area. We continue to pursue our goal of more than $2 billion in annual revenues by the end of 2000. In addition to organic growth, we anticipate more acquisitions. Look for us to add businesses that build on our market positions and complement our technology strengths. Because of our prudent financial strategy, we still have the resources to reach our revenue goal through acquisitions. Extending our reach with additional polymers remains a priority. We also plan to expand globally based on strong business platforms in North America. We see excellent opportunities to apply our strengths and assist our customers as they expand around the globe. We anticipate improved results for OxyVinyls, which is on track to achieve its targeted $80 million in cost savings by the end of 2000. Strong demand, and little new North American resin capacity until late 2001, should result in higher resin margins in 2000 and substantially higher OxyVinyls earnings compared with 1999 levels. In 1999, Geon's stock price reached an all-time high of nearly $37 per share and outperformed most of our peers. The combination of recent acquisitions, organic growth and contributions from OxyVinyls should provide the earnings growth and improved shareholder value that make for a rewarding investment, today and in the future. As you may perceive, we're excited about what is happening at Geon. We believe we bring unique skills and an enthusiasm that generates opportunities for all our partners: customers, employees, suppliers and, of course, our shareholders. /s/ Tom Waltermire TOM WALTERMIRE Chairman of the Board, President and Chief Executive Officer [Logo] Geon(TM) - -------------------------------------------------------------------------------- Thanks, BILL PATIENT retired as chairman and chief executive officer in Bill 1999. Appropriately, the Board of Directors recognized his achievements by naming him Geon's Founding Chairman. I'd like to thank Bill for creating the solid foundation for our future growth. Everyone at Geon appreciates what he has meant to us. The values, passion for excellence and spirit that make Geon special are a direct reflection of Bill's LEADERSHIP. We wish him all the best as he enjoys this new chapter in his life with his wife, Bonnie, his five children and a growing number of grandchildren. 5 8 Compounds STRONG NORTH AMERICAN BASE, GLOBAL POTENTIAL - -------------------------------------------------------------------------------- [Photograph of Rusty L. Riggen, Quality Control Operator] 9 The Geon Company THE NEW REPLACEMENT WINDOWS IN YOUR HOME. The control panel on your dishwasher. The housing of your computer terminal. The cable on your telephones. Everyday products that contain Geon compounds surround us. Our strengths in technology, service, quality, operating excellence and new market application development have helped Geon become the world's leading provider of vinyl compounds. In North America, we are ranked first or second in every market we serve. Many of our higher-value markets, such as custom injection molding and custom profile, demand the sophisticated chemical recipes, technical service and wide product range for which Geon is known. We measure our success by our customers' success, and believe in the value of that partnership. Although vinyl is the base polymer in about 95 percent of the compounds Geon manufactures, we have begun to expand our polymer portfolio. Today, we market thermoplastic elastomer compounds for hosing and tubing applications and offer Syncure(TM), a cross-linked polyethylene, for the wire and cable market. In 1999, we started up our new Syncure facility in Denver. CUSTOMIZED COMPOUNDING To make compounds, we blend a base polymer with liquid and solid additives chosen for their particular properties. Plasticizers, for example, make compounds soft and flexible for applications such as wire and cable jacketing, tubing and automotive trim. Impact modifiers make compounds tough and rigid for windows, bottles and appliance parts. A range of additional additives -- pigments, stabilizers, lubricants, fillers -- may go into the mix. Geon has been making and selling compounds for almost 50 years, and in that time we have developed the science to introduce the right additives, in exacting amounts and unique ways, to create a technologically superior, consistent product for customers. Our customers process Geon materials into thousands of products for dozens of markets. For example, customers use Geon injection molding compounds to form parts for business equipment and appliances. Geon compounds are extruded into complex shapes for applications such as crown molding, window profiles, medical tubing and communication wire jacketing. 1 9 9 9 ACCOMPLISHMENTS OF COMPOUNDS Established an e-commerce platform Through a customer survey, affirmed Geon's industry leadership in quality performance Achieved leadership position in all market segments Integrated eight previously acquired sites into Geon's information software system Reduced recordable injury rate by 40 percent [Photograph of George E. Frazier, Mix Tower Operator and Jimmie L. Houser, Mix Tower Operator] 7 10 COMPOUNDS CONTINUED - -------------------------------------------------------------------------------- [Photograph of Ted M. Vaughn, Production Technician] COMPOUNDING A GLOBAL OPPORTUNITY As our customers grow globally, so will Geon. With our unique product and manufacturing technologies, we are establishing a network of compound operations around the world. We have joint ventures with Norsk Hydro in Europe, Singapore Polymers in Southeast Asia and Petroquimica Colombiana S.A. in South America. Because of our broad product offering, we can provide new global customers with a wide range of compounds. A YEAR OF ACCOMPLISHMENTS Geon has capacity to produce more than 1.7 billion pounds of compounds annually. In 1999, we leveraged our size to buy compound additives more competitively. We trimmed our non-PVC raw material costs and reduced our non-PVC inventories. A major factor in this improvement was the raw material warehouse we established in Avon Lake, Ohio, to centralize inventory. With orders received across the compound business, the warehouse buys and ships in truckload quantities, at cost savings. Complaints from our compound customers continued to decline, a result of our strong emphasis on quality. We empaneled Quality Councils and continued incentive programs such as Gainsharing, which rewards employees for plant performance on "measurable deliverables" such as quality and productivity. The compounding operations also realized $4 million in cost savings resulting from the consolidation of our asset base. We shut down underutilized production lines at Orangeville, Ontario; St. Remi de Napierville, Quebec; and Conroe, Texas, and we closed the Lindsay, Ontario, plant. The integration of our compound information systems was a milestone that gives us the capability to manage the supply chain on a businesswide basis. On a strategic level, the phased linkage of all our compound sites testifies to Geon's successful pursuit of our goal to be the industry leader in information technology. [Geon Logo] AS OUR CUSTOMERS grow globally, SO WILL GEON. WE ARE ESTABLISHING A NETWORK OF COMPOUND OPERATIONS AROUND THE WORLD. [Photograph of Mary L. Casey, Human Resources Representative] 8 11 The Geon Company [Photograph of Rob L. Karanovich, Mix Tower Operator] Featured Plant: Terre Haute, Indiana PLANT MANAGER: Ron Martin NUMBER OF EMPLOYEES: 120 FIRST STARTUP: 1979 ACQUIRED BY GEON: 1984 MATERIALS PRODUCED: PVC compounds PRODUCT END USES: Pipe and pipe fittings, windows, bottles, battery jar housing, household appliance components, computer housing 9 12 Specialty resins AN INTERNAL SUCCESS STORY Featured Plant: Henry, Illinois PLANT MANAGER: Joel H.Lindahl NUMBER OF EMPLOYEES: 110 FIRST STARTUP: 1958 MATERIALS PRODUCED: Specialty PVC resins PRODUCT END USES: Vinyl flooring, wire and cable coatings, decals and signs [Photograph of Bill J. Grudzinski, Senior Operations Specialist] 13 The Geon Company [Photograph of Bette S. Hulin, Administrative Assistant and Joel H. Lindahl, Plant Manager] GEON'S SPECIALTY RESINS OPERATION IS UNIQUE because it has developed internally, without the aid of acquisitions. Easy to overlook when Geon was widely viewed as a commodity resin producer, specialty resins quietly grew to a position of market leadership that it holds today, with an estimated share exceeding 30 percent. Because specialty resins is an important earnings contributor with strengths in product technology and operating excellence, we retained this part of Geon's resin manufacturing operations when we created the OxyVinyls joint venture. A value-added business in which customers place a premium on service and quality, specialty resins fits the profile of the new Geon. The business also serves as a source of raw material for our formulators operation. We sell some 12 percent of our specialty resins to internal and external formulator customers. Specialty resins are found in literally thousands of end use applications: the coatings that protect dishwasher racks; the vinyl in sheet flooring goods; the soft, protective coating on tool handles; the decals on the sides of highway trucks. With their versatility, specialty resins provide unique solutions to a wide range of needs. TECHNOLOGY LEADERSHIP The primary raw material in Geon's specialty resins is vinyl chloride monomer (VCM), which we purchase from OxyVinyls through a long-term supply arrangement. To make specialty resins, Geon polymerizes VCM in a highly controlled reaction process. Drawing on our strength in technology, we produce a full array of products with properties tailored to specific end use applications. Just as important, we offer customers a consistent set of properties from shipment to shipment. Geon makes two types of specialty resin, which differ primarily in particle size. The finer type, emulsion polymer, has the consistency of talc when dried. It is used in flooring and adhesives. The coarser grade, called micro-dispersion, is used in foams and carpet backing. DESIGNING SOLUTIONS With its uniform product quality and unequaled technical support, Geon's specialty resins business continues to win customers. Our specialty resins team reinforced Geon's leadership position in the flooring market last year by developing and commercializing a superior vinyl foam resin for resilient vinyl floors. And, disposable medical gloves made with Geon specialty resins have earned praise for their high quality. [Geon Logo] 1 9 9 9 ACCOMPLISHMENTS OF SPECIALTY RESINS Completed expansion and modernization of Henry, Illinois, plant, on time and within budget Increased shipments almost 7 percent in a market that grew at a rate less than half that percentage Introduced superior new vinyl foam resin for flooring market Completed full year with no recordable injuries at either of Geon's specialty resins plants [Photograph of Chris L. Grant, PVC Operator] 11 14 Formulators STRONG GROWTH, STRATEGIC OPPORTUNITIES [Photograph of Connie J. Goodmanson, Health & Safety Coordinator] Featured Plant: Sussex, Wisconsin PLANT MANAGER: Timm E. Goodmanson NUMBER OF EMPLOYEES: 105 FIRST STARTUP: 1987 ACQUIRED BY GEON: 1998 MATERIALS PRODUCED: Plastisols, organisols, polyurethanes, vinyl powders PRODUCT END USES: Air filters; tool handle grips; outdoor furniture coating; fishing lures; table edging; automotive interior trim; point-of-purchase displays; hunting targets; packaging foams; fan, dishwasher and closet rack coatings; chain link fence coating 15 The Geon Company [Picture of Timoth C. Anderson, Production Supervisor] THE FIVE COMPANIES THAT COMPRISE GEON'S FORMULATORS operations modify our specialty resins and other polymers to impart special properties, depending on customer needs. The formulators have a diverse, fast-growing product line; with new applications, they achieved organic revenue growth of 10 percent in 1999. Less than two years ago, Geon's formulators group did not exist. Through prudent acquisition of companies with solid financial performance, we built it into the North American market leader. The barriers to entry are significant because Geon's formulators excel at meeting the stringent requirements of customers. Because of the complementary nature of the businesses, Geon has linked the skills and services of the specialty resins and formulators operations. Working together, they gain synergies in technology and marketing strength, plus they offer greater value with more innovative, comprehensive solutions to customer needs. No competitor has looked downstream to create this combination, which differentiates Geon. HOW TO BAKE A "CAKE" Formulating a batch of vinyl plastisol can be compared to mixing cake batter. In a vessel, a mixer blends specialty resins, plasticizer and other additives. The consistency of the resulting plastisol is formulated to meet the intended use. Its viscosity (a measure of a liquid's ability to flow) can vary from waterlike to thick paste. Industrial plastisols have low viscosity, while plastisols for screen printing products have high viscosity and are thick. Viscosity is just one of many properties that is quality checked in the laboratory when the mixing process is complete. Color, foam quality and clarity are other key properties. Although vinyl plastisols, powders and inks account for the bulk of the formulators' business, they are rapidly increasing production of urethane systems and other polymer formulations. Urethane systems have two parts. Geon produces the polyol part, blending polypropylene glycols with additives such as colorants, surfactants, fillers and blowing agents. We buy the second part, isocyanate, for repackaging and sale with the polyol as a complete system. Customers combine the parts to initiate a chemical reaction that cures the product into its final application. The urethane market has tremendous potential. Urethane foams are found everywhere: in steering wheel and handlebar padding, packaging, point-of- purchase displays, even in the "Cheesehead" wedges that fans of Wisconsin sports teams wear to show their loyalty. [Geon Logo] 1 9 9 9 ACCOMPLISHMENTS OF FORMULATORS Completed acquisitions of Acrol Holdings, giving Geon European market accessibility, and Dennis Chemical, resulting in an expanded urethane product offering and West Coast presence Achieved synergy savings of more than $3 million Recorded organic shipment growth of 12 percent, excluding 1999 acquisitions Reduced recordable injury rate by 65 percent [Photograph of Mary E. Nettekoven, Human Resources Generalist] 13 16 Engineered films NEW PLATFORM, NEW PRODUCTS [Photograph of Allen Bobo, Blending/Mixing Operator, #3 Calender] Featured Plant: Winchester, Virginia PLANT MANAGER: Denny Bromley NUMBER OF EMPLOYEES: 660 FIRST STARTUP: 1932 ACQUIRED BY GEON: 1999 MATERIALS PRODUCED: Engineered films, primarily vinyl and olefin roll goods PRODUCT END USES: Automotive instrument panels, door panels, consoles and sun visors, notebook binders, dance floors, checkbook covers, swimming pools, air mattresses 17 The Geon Company WITH TWO MAJOR ACQUISITIONS IN 1999, Geon formed a new business operation, engineered films, that positions the Company to be North America's leading producer of value-added flexible vinyl sheeting. With the May 1 launch of the OxyVinyls joint venture, Geon acquired OxyChem's flexible vinyl film business in Burlington, New Jersey. Two months later, we acquired O'Sullivan Corporation of Winchester, Virginia, widely recognized as a leading supplier of flexible vinyl and olefin sheeting for the automotive and industrial markets. O'Sullivan is known for premium-quality flexible sheeting, and for its technology in embossing, laminating and painting. Burlington is recognized for customized, high-gloss, thin-gauge films. The fusion of this new strength in films technology with Geon's traditional expertise in compounding creates a potent market force and dynamic opportunities for growth. In addition, O'Sullivan's strength in automotive applications complements Geon products such as specialty resins and plastisols, which are sold to this market. Our engineered films acquisitions also bring us complementary proprietary technologies in manufacturing and materials combined with market position and know-how, which forge an excellent platform on which to build. [Photograph of Bill Orndorff, Production Supervisor] MAKING ENGINEERED FILMS Flexible vinyl films start with a vinyl compound. At each site, the raw materials are mixed: about 60 percent vinyl resin, 40 percent plasticizer and additives in proportions appropriate to the end use product. Compounds are customized to meet customer requirements for color, grain, gloss, stiffness and other properties. After mixing, the compound goes through a two-roll mill and then feeds into a calender, where it is heated and squeezed into film at thicknesses ranging from .003 inch to .060 inch. If surface appearance such as a leather or marble design is required, an additional step called embossing takes place as the film comes off the calender. Other value-added processes include painting and laminating of materials such as fabric and foam. NEW APPLICATIONS Consistent with Geon's strategy, the engineered films operation continues its leadership in flexible vinyl films while vigorously pursuing new applications for other polymers, notably thermoplastic olefins (TPOs) and thermoplastic urethanes (TPUs): - - TPO TOPSKINS LAMINATED TO POLYOLEFIN FOAM BACKING are gaining automakers' attention because the materials are both lightweight and durable. A TPO topskin that Geon developed to cover instrument panels received conditional approval from General Motors Corporation, which means GM suppliers can specify the material in their quotes on interior parts business. - - IN INDUSTRIAL MARKETS, GEON IS DEVELOPING DIVERSE SPECIALTY FILMS such as a TPU alloy for hospital inflatable mattresses, which must be both elastic and durable. Other specialty applications include a flexible vinyl movie screen material with high reflectivity and a vinyl-based, toner-resistant overlay for loose-leaf applications. [Geon Logo] 1 9 9 9 ACCOMPLISHMENTS OF ENGINEERED FILMS Chosen by Daimler Chrysler as a "preferred supplier" for North American interior requirements Developed a new engineered films product for flooring wear-layer applications Developed proprietary automotive technology to reduce dashboard reflection in windshields Completed information systems integration of Geon's Burlington site and former O'Sullivan operations [Photograph of Denny Bromley, Director of Manufacturing, Winchester] 15 18 The Geon Company Because we care GEON COMPLETES ANOTHER FINE YEAR IN SAFETY, ENVIRONMENTAL PROTECTION Throughout Geon's short history, we have highlighted our safety and enviromental performance in each annual report. Why do we take the time and space to discuss an area that appears unrelated to our financial results? Because we think it is related! - By working safely and protecting our communities, our employees are operating our facilities with excellence and giving their full attention to quality. When that happens, everyone benefits: our employees, our communities, our customers and our shareholders. AS IN PRIOR YEARS, the men and women of Geon compiled a superlative record for safe, responsible operation in 1999. Our avoidance of recordable and lost-time injuries again placed us at the top of our industry's safety rankings. Our environmental performance was also very good, with no reportable chemical releases. Only two sites experienced minor permit exceedances. We are particularly proud that our newly acquired businesses have wholeheartedly embraced the Geon principle of excellence in these critical areas - as demonstrated by their reduced injury rates and their environmental progress during their brief time with Geon. A PREMIUM ON SAFETY Ten of our sites completed the year with no recordable injuries, which are injuries requiring more than simple first aid. In this select group are Avon Lake Technology Center, Henry, Long Beach, Louisville, Orangeville plasticizer, Pedricktown, St. Remi de Napierville compound and plasticizer, Sullivan and Terre Haute. All these sites qualified for the William F. Patient Safety Award of Excellence, Geon's highest safety honor. We are pleased that 20 Geon sites have achieved a landmark one year or 1 million employee hours without a lost-time injury, which is defined as an injury requiring the affected employee to be away from work at least one day. Leading these top performers are Henry and Terre Haute, with no lost-time injuries in more than 11 years. They are followed by Louisville and Niagara Falls at 10 years; Pedricktown and Long Beach, nine years; Avon Lake Technology Center and Plaquemine, eight years; Orangeville plasticizer, seven years; Orangeville compound, six years; St. Remi plasticizer, four years; and Kennesaw, three years. RESPECT FOR THE ENVIRONMENT With O'Sullivan joining the Geon team in mid-1999, we gained an industry champion at turning what was thought to be scrap into prime product. Through a cooperative effort with customers, O'Sullivan has pioneered the recycling of waste into new engineered films. Qualifying for the W.C. Holbrook Environmental Award of Excellence, Geon's highest environmental tribute, were: Avon Lake compound, Avon Lake Technology Center, Conroe, Farmingdale, Henry, Kennesaw, Long Beach, Louisville, Niagara Falls, North Baltimore, Orangeville compound and plasticizer, Pedricktown, Plaquemine, St. Remi compound and plasticizer, Terre Haute and Valleyfield. EARNING OUTSIDE RECOGNITION Our sites received 23 awards from external organizations in 1999 for superior worker safety and environmental protection. Among the groups honoring us were the Chemical Manufacturers Association, Vinyl Institute, Society of the Plastics Industry, National Safety Council, National Petrochemical & Refiners Association, and the Industrial Accident Prevention Association of Canada. [Photograph of Rod A. Martin, Senior Safety Environmental Operator, Henry, Illinois] SAFETY BY THE NUMBERS - - GEON'S 11 HERITAGE SITES - those predating our first acquisition in 1997 - had only five recordable injuries in 1999 compared with nine recordables in 1998. - - THE 26 LOCATIONS that were with Geon throughout 1999 sustained only two lost-time injuries, the same number recorded in 1998, when we had fewer sites. - - THE FIVE FORMER SYNERGISTICS Industries Limited facilities, which joined us in 1997, have reduced their injuries 82 percent from their pre-Geon days. - - OUR 1998 ACQUISITIONS - the formulators Plast-O-Meric, Wilflex and Adchem - have reduced their injuries 67 percent since they became part of Geon. 16 19 The Geon Company The Geon Company Management's Analysis CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- Net income from operations in 1999 totaled $52.5 million, 130% higher than 1998 on a comparable basis. Total net income was $104.7 million, including special items, which were associated largely with the OxyChem transactions. This strong earnings improvement was due to the Company's strategy of expanding its Performance Polymers and Services (PP&S) business through organic sales growth and strategic acquisitions, as well as an improvement in polyvinyl chloride (PVC) margins. The Company's strategy of becoming a much larger PP&S business resulted in a substantial change in the profile of its business operations in 1999. As discussed in Note C, the transactions with OxyChem were completed on April 30, 1999, and the newly formed partnerships began operations. As a result, on April 30, 1999, substantially all of Geon's North American commodity PVC and vinyl chloride monomer (VCM) operations included in the Resin & Intermediates (R&I) business segment were contributed to Oxy Vinyls, LP (OxyVinyls) in exchange for a 24% interest in the joint venture. Financial results through April 30, 1999, include the consolidation of the commodity PVC/VCM operations. Subsequent to the formation of OxyVinyls, financial results include Geon's 24% share of the earnings of OxyVinyls as earnings from equity affiliates in the R&I business segment. In addition, as discussed in Note C, Geon and OxyChem formed PVC Powder Blends, LP, on April 30, 1999, which is 90% owned by Geon. The operations of this small partnership are consolidated by Geon, with the 10% OxyChem ownership recorded as a minority interest. The Company also acquired from OxyChem a PVC engineered films business and a specialty PVC compound business that are included in the Company's consolidated results after April 30. As discussed in Note D, during the third quarter of 1999, the Company acquired O'Sullivan, Acrol and Dennis Chemical. The post-acquisition results of these acquired companies are included in the Company's consolidated results of operations from the dates of acquisition. 1999 RESULTS OF OPERATIONS - TOTAL COMPANY Total sales for 1999 were $1.261 billion, a decrease of $23.2 million, or 2%, from 1998. This change in sales included an increase of $267.9 million in PP&S sales, driven by acquisitions and organic growth. This growth was offset by the discontinuance of R&I sales upon the formation of OxyVinyls on April 30, 1999. Operating income, net of special items for 1999, was $99.7 million compared with $41.0 million in 1998. Operating income before special charges was $105.4 million compared with $55.6 million in 1998. Both the PP&S and R&I segments had improved operating income in 1999 versus 1998. Selling and administrative expenses increased $6.4 million in 1999 compared with 1998, largely as a result of the incremental selling and administrative expenses of businesses acquired. Depreciation and amortization decreased $13.5 million from 1998 due to the contribution of PVC resin and VCM property and equipment to OxyVinyls at formation, net of the additional goodwill amortization on recent acquisitions. Special items in 1999 included a $1.7 million pre-tax restructuring charge ($1.0 million after tax) consisting of $0.5 million in employee separation and plant phase-out, plus $1.2 million of accelerated depreciation associated with the compound manufacturing asset consolidation (see Note Q for further discussion); Geon's share of an $0.8 million pre-tax charge ($0.5 million after tax) related to OxyVinyls' restructuring of operations; a pre-tax gain of $93.5 million ($57.2 million after tax) related to the transactions with OxyChem (see Note C); and acquired profit on inventory related to business acquisitions of $3.2 million pre-tax ($2.0 million after tax). In addition, the Company recognized a $2.4 million pre-tax charge ($1.5 million after tax) related to the change in accounting for start-up costs (see Note B). In 1998, the Company recognized a restructuring charge related to the compound operations consolidation of $14.6 million ($8.9 million after tax). The effective income tax rate was 39% in 1999 versus 41.5% for 1998, reflecting the effect of a change in foreign versus domestic earnings and the effect of permanent differences such as non-deductible goodwill on the lower pre-tax earnings in 1998. Net income, before special items, was $52.5 million in 1999 compared with $22.7 million in 1998. 17 20 The Geon Company Management's Analysis CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- PERFORMANCE POLYMERS AND SERVICES (PP&S) PP&S sales in 1999 were $1.107 billion, an increase of $267.9 million, or 32%, over 1998. Sales volume increased approximately 34% from 1998, with approximately six percentage points of the volume increase from organic sales growth and the balance from acquired businesses. Organic growth for compounds was led by increased demand for dry blend and rigid profile product, which is used primarily in construction applications. For specialty resins, volume improvements were primarily from carpeting, flooring and formulator customers. Organic sales growth in the formulators group was from increased demand for industrial plastisols, urethanes, and vinyl and automotive powders. The volume growth was partially offset by selling prices that averaged approximately 2% below the prior year. For 1999, operating income before special charges of $109.0 million increased $15.2 million, or 16%, from 1998. Operating income as a percentage of sales was 9.9%, a decrease of approximately 1.3 percentage points from 1998. Acquisitions contributed approximately $24 million of operating income in 1999. The margin of average selling prices over raw material costs was approximately two percentage points lower than in 1998, and was partially offset by savings associated with the compound operations consolidation, overall business market mix and improved operating efficiencies. RESIN AND INTERMEDIATES (R&I) The year-to-year comparison of operating results in the R&I segment is impacted by the formation of OxyVinyls on April 30, 1999, and the resulting changes in the business structure. With the formation of OxyVinyls, Geon's exposure to the PVC and chlor-alkali industries changed significantly. The Company now owns 24% of OxyVinyls, a 4.3 billion-pound PVC producer, compared with its previous ownership of 100% of 2.4 billion pounds of PVC capacity prior to the contribution of these PVC and VCM operations to OxyVinyls. This effectively reduces the Company's exposure to PVC resin industry fluctuations to approximately half the exposure it had prior to formation of OxyVinyls. However, the Company's exposure to fluctuations in caustic soda was increased from approximately 150,000 tons to 380,000 tons annually with the formation of OxyVinyls. The Company's interest in OxyVinyls is accounted for under the equity method. Before the formation of OxyVinyls, the Company's PVC/VCM business was consolidated. The R&I segment operating income for 1999 was $2.1 million, excluding Geon's share of the restructuring charge recognized by OxyVinyls of $0.8 million pre-tax, an improvement of $38.5 million compared with the 1998 loss of $36.4 million. This improvement reflects an increase in the spread between PVC resin selling prices and ethylene and chlorine costs of approximately 3 cents per pound, partially offset by lower chlorine and caustic soda prices and Geon's increased exposure to the chlor-alkali industry. Geon's equity earnings from OxyVinyls of $17.3 million, before a restructuring charge, were partially offset by losses of the Company's equity affiliate, Sunbelt, as chlor-alkali industry pricing was in a cyclical trough that improved slightly late in the year. The OxyVinyls partnership initially has utilized Geon's personnel and systems support. This support will decrease as OxyVinyls develops its own systems and resources to replace the support provided by Geon. The estimated cost of Geon's internal support is reflected in the R&I business segment. The R&I segment support cost is projected to decrease from 1999 levels by approximately $5.0 million in 2000, as efforts are redirected in support of PP&S segment growth. Further, the "Other" segment includes overhead costs previously absorbed by the Company's PVC and VCM business of approximately $4.0 million in 1999. These stranded overhead costs, estimated at $9.0 million in 2000, are expected to support and be absorbed by future acquisitions through the end of the year 2000 (i.e., by the year 2001, the "Other" segment would no longer contain stranded overhead costs arising from the OxyChem transactions). 18 21 The Geon Company - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------

Year Ended December 31, (In millions, except per share data) 1999 1998 1997 ------------------------------------ SALES $ 1,261.2 $ 1,284.4 $ 1,250.0 OPERATING COSTS AND EXPENSES: Cost of sales 1,037.9 1,092.6 1,079.6 Selling and administrative 88.4 82.0 48.8 Depreciation and amortization 44.4 57.9 54.6 Employee separation and plant phase-out 0.5 14.6 15.0 Income (loss) from equity affiliates 9.7 3.7 (0.3) - -------------------------------------------------------------------------------------------------------------- Total operating costs and expenses 1,161.5 1,243.4 1,198.3 - -------------------------------------------------------------------------------------------------------------- OPERATING INCOME 99.7 41.0 51.7 Interest expense (17.7) (16.0) (11.9) Interest income 2.1 1.2 0.7 Other expense, net (3.6) (2.6) (5.9) Gain on formation of joint ventures, net of formation costs 93.5 -- -- - -------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR START-UP COSTS 174.0 23.6 34.6 Income tax expense (67.8) (9.8) (12.1) - -------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING 106.2 13.8 22.5 Cumulative effect of a change in accounting for start-up costs, net of income tax benefit of $0.9 million (1.5) -- -- - -------------------------------------------------------------------------------------------------------------- NET INCOME $ 104.7 $ 13.8 $ 22.5 ============================================================================================================== EARNINGS PER COMMON SHARE: Basic earnings per share before effect of a change in accounting $ 4.56 $ 0.60 $ 0.98 Cumulative effect of a change in accounting (.07) -- -- - -------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 4.49 $ 0.60 $ 0.98 - -------------------------------------------------------------------------------------------------------------- Diluted earnings per share before effect of a change in accounting $ 4.37 $ 0.58 $ 0.95 Cumulative effect of a change in accounting (.06) -- -- - -------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 4.31 $ 0.58 $ 0.95 - -------------------------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE SHARES USED TO COMPUTE EARNINGS PER SHARE: Basic 23.3 22.9 22.9 Diluted 24.3 23.6 23.6 ==============================================================================================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19 22 The Geon Company Management's Analysis CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- 1998 RESULTS OF OPERATIONS - TOTAL COMPANY In 1998, the Company had sales of $1.284 billion. Operating income, before a special charge for employee separation and plant phase-out costs, was $55.6 million. Operating income, before special charges, decreased $11.1 million from 1997, due to a decline in industry PVC resin margins. Partially offsetting the lower PVC industry resin margins were the improved operating results of the 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 PP&S 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 related to the acquisitions. Approximately one-third of the remaining increase related to incentive compensation plans, which are tied to Company performance. The balance was associated with new business development, marketing and costs of 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 above. The Company's income tax rate for 1998 was 41.5% compared with 35.0% in 1997. The increase resulted primarily 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 AND SERVICES (PP&S) PP&S 1998 sales were $839 million, an increase of 38%, or $232 million, over 1997. This growth resulted primarily 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 16% in 1998 over 1997. This increase was due primarily 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 three 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 operations. See Note Q to the Consolidated Financial Statements for further discussion of the charge. RESIN & INTERMEDIATES (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) were estimated to have increased 4% over 1997. In 1998, based on SPI data, export shipments were estimated to have decreased 3% over 1997. Domestic shipments increased approximately 5% over the prior year. Capacity utilization (shipments/capacity) for North America was 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 cents per pound in 1998 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. 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 1997 contribution of the Company's Australian PVC operations to the Australian joint venture with Orica Limited, which eliminated those revenues from consolidated sales in 1998. The balance of the decline was due primarily 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 the prior 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 an operating loss of $36.4 million in 1998, generally resulting from the historic low industry margins. The operating loss represented a decrease 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 $50.0 million on total resin volumes; costs of $3.5 million associated with the second-quarter 1998 maintenance shut-down of the LaPorte, Texas, VCM plant; and annual increases in plant and administrative costs. 20 23 The Geon Company BUSINESS SEGMENT INFORMATION

(In millions) Total PP&S R&I Other ----------------------------------------------- YEAR ENDED DECEMBER 31, 1999: Net sales $ 1,261.2 $ 1,107.1 $ 191.5 $ (37.4) Operating earnings (loss) 99.7 104.1 1.3 (5.7) Employee separation and plant phase-out 0.5 0.5 -- -- Other restructuring costs - accelerated depreciation 1.2 1.2 -- -- Restructuring costs incurred by OxyVinyls 0.8 -- 0.8 -- Charge for acquired profit in inventory 3.2 3.2 -- -- - ------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) before restructuring costs and acquired inventory profit 105.4 109.0 2.1 (5.7) Depreciation and amortization 43.2 33.1 10.1 -- - ------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) before depreciation, amortization, restructuring costs and acquired inventory profit $ 148.6 $ 142.1 $ 12.2 $ (5.7) =================================================================================================================== YEAR ENDED DECEMBER 31, 1998: Net sales $ 1,284.4 $ 839.2 $ 577.7 $ (132.5) Operating earnings (loss) 41.0 79.2 (36.4) (1.8) Employee separation and plant phase-out 14.6 14.6 -- -- - ------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) before restructuring costs 55.6 93.8 (36.4) (1.8) Depreciation and amortization 57.9 28.6 28.8 0.5 - ------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) before depreciation, amortization and restructuring costs $ 113.5 $ 122.4 $ (7.6) $ (1.3) =================================================================================================================== YEAR ENDED DECEMBER 31, 1997: Net sales $ 1,250.0 $ 606.7 $ 817.7 $ (174.4) Operating earnings (loss) 51.7 44.7 16.4 (9.4) Employee separation and plant phase-out 15.0 2.9 4.0 8.1 - ------------------------------------------------------------------------------------------------------------------- Operating 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 -- - ------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) before depreciation, amortization and employee separation and plant phase-out $ 121.3 $ 73.5 $ 49.1 $ (1.3) ===================================================================================================================

21 24 The Geon Company Management's Analysis CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- The consolidated balance sheet at December 31, 1999, reflects the strong financial position of The Geon Company. ASSETS Total assets were $1.163 billion at December 31, 1999, or 45% above 1998. The 1999 increase in total assets was driven primarily by the assets of business acquisitions of $378 million, somewhat offset by net assets contributed to OxyVinyls. The formation of OxyVinyls resulted in all contributed assets and liabilities becoming part of Geon's investment in this equity affiliate. Other unconsolidated equity affiliates include the Company's 50% participation in the Sunbelt chlor-alkali joint venture with Olin Corporation, and a 37.4% ownership in an Australian joint venture with Orica Limited. The Company also holds a 50% participation in each of three compounding joint ventures located in the United Kingdom, Singapore and Colombia. In addition, the Company holds 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 In 1999, the O'Sullivan, Acrol and Dennis acquisitions were funded with variable-rate, short-term credit facilities. The Company received $104 million in cash and collections of retained working capital from the OxyChem transactions, which reduced short-term borrowings. During 1998, the acquisitions of three plastisol formulators were completed. At December 31, 1999, the Company had short-term bank debt of $222 million. At December 31, 1999, the Company had outstanding $125 million in debentures issued in 1995 and maturing 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 approximately $450 million. Other non-current liabilities include most of the Company's accrued environmental liabilities as well as pension accruals. In 1999, the Company returned $11.8 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, 1999, consisted of fixed-rate obligations. To manage interest rate 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, 1999. Cash principal payments required under existing obligations are 2000--$0.4 million, 2001--$0.2 million, 2002--$0.4 mil- lion, 2003--$0.7 million, 2004--$4.6 million, 2005--$75.0 million and $50.0 million thereafter. Weighted-average interest rates on this debt are 7.5% for 2000 through 2002, 7.6% for 2003 and 2004, and 7.5% thereafter. The Company's short-term debt consists entirely of floating-rate obligations. At December 31, 1999, the Company's short-term debt was denominated primarily in U.S. dollars and had an average floating rate of 6.6% based on the lenders reference rate. The Company is also exposed to market risk from changes in foreign currency exchange rates, primarily from its operations in Canada, Australia and Colombia, where assets and liabilities are denominated in local currencies. To manage this risk, the Company periodically enters into foreign currency forward exchange contracts to mitigate the impact of temporary fluctuations in exchange rates. No such contracts were outstanding at December 31, 1999. In addition, the Company has financed its investment in Colombia in the local currency. The Company does not expect foreign currency-denominated assets and liabilities at December 31, 1999, to have a significant impact on earnings or cash flows. 22 25 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------

(In millions, except per share data) December 31, 1999 1998 ---------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 51.2 $ 14.4 Accounts receivable 105.4 70.8 Inventories 168.2 113.9 Deferred income tax assets 27.2 24.6 Prepaid expenses 5.7 11.0 - --------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 357.7 234.7 Property, net 338.4 443.5 Investment in equity affiliates 265.1 19.8 Goodwill and other intangible assets, net 183.1 81.5 Deferred charges and other non-current assets 18.3 22.5 - --------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,162.6 $ 802.0 ========================================================================================================= LIABILITIES CURRENT LIABILITIES Short-term bank debt $ 222.0 $ 50.9 Accounts payable, including amounts payable to related party (See Note N) 148.3 129.1 Accrued expenses 70.0 76.0 Current portion of long-term debt 0.4 0.8 - --------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 440.7 256.8 Long-term debt 130.9 135.4 Deferred income tax liabilities 106.5 32.8 Post-retirement benefits other than pensions 83.9 85.1 Other non-current liabilities, including pensions 60.2 77.8 Minority interest in consolidated subsidiary 5.7 -- - --------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 827.9 $ 587.9 - --------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock, 10.0 shares authorized; no shares issued -- -- Common stock, $0.10 par, authorized 100.0 shares; issued 28.0 in 1999 and 1998 2.8 2.8 Additional paid-in capital 297.3 296.1 Retained earnings 168.3 75.4 Common stock held in treasury, 4.2 shares in 1999 and 4.6 shares in 1998 (104.5) (115.1) Accumulated other non-owner equity changes (29.2) (45.1) - --------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 334.7 214.1 - --------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,162.6 $ 802.0 =========================================================================================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23 26 The Geon Company Management's Analysis CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- In 1999, net cash used by operating and investing activities was $23.2 million, excluding the impact on cash of the OxyChem transactions of $127.7 million and the net cash paid for the businesses acquired of $233.5 million. For the same period in 1998, operating and investing activities (excluding net cash paid for businesses acquired) provided $68.8 million of cash. The transactions with OxyChem generated cash of $127.7 million, consisting of cash received upon the formation of OxyVinyls of $77.5 million and collection of $61.6 million of the $62.3 million of R&I working capital retained upon formation of OxyVinyls, less cash payments of $11.4 million for certain costs directly related to the OxyChem transactions. Geon paid $27 million to acquire OxyChem's engineered films and vinyl compounding businesses. Operating activities provided $48.4 million of cash in 1999, before collection of retained R&I working capital, compared with $106.3 million in 1998. The decrease in operating cash flow is primarily the result of the increase in operating working capital of $18.6 million in 1999 versus a decrease of $34.5 million in 1998, resulting in a year-over-year decrease in cash provided of $53.1 million. Operating working capital increased in 1999 as a result of the build-up of working capital of the businesses acquired from OxyChem, which had minimal working capital at acquisition. Strong sales in the last two months of 1999 and higher raw material costs also contributed to the increase in working capital in 1999 versus 1998. Other uses of cash included cash payments of $7.0 million related to the compound restructuring, final cash payments of $3.0 million related to the 1997 voluntary retirement program, the Company's contribution of $9.8 million to defined benefit pension plans and settlement of liabilities related to the R&I operations, including accrued employee vacations and property taxes of approximately $8.0 million related to facilities contributed to OxyVinyls. Operating activities in 1998 provided cash of $106.3 million, $8.0 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 non-cash charges for depreciation and amortization, employee separation, plant phase-out and deferred tax provision. Other operating uses of cash in 1998 included the LaPorte maintenance turnaround of $6.0 million and severance and other payments of $4.0 million made in connection with employee separation programs in 1997. The 1999 investing activities consisted primarily of investment in new businesses. Businesses acquired included O'Sullivan, Acrol, Dennis, and the Burlington compound and engineered films and Pasadena specialty compound operations from OxyChem. Investments in equity affiliates consisted primarily of Geon's investment in a Colombian compound joint venture. The 1999 increase in the purchases of property is attributable largely to the modernization of the Company's Henry, Illinois, specialty resins plant, which was announced in the fourth quarter of 1998. Partially offsetting the expenditures described above was the net cash received in conjunction with the OxyVinyls formation. The 1998 investing activities consisted primarily of the acquisitions of three plastisol formulators and the purchases of property. Financing activities in 1999 reflected primarily the increase in short-term debt to finance the acquisition of new businesses and the joint venture investment. Dividends of $0.50 per share were paid in both 1999 and 1998. In 1998, short-term debt was reduced from net cash provided from operating and investing activities. 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. The Company increased its short-term credit facilities in September 1999 with the addition of a $150 million, non-renewable revolving credit facility, expiring 364 days from origination. Under an August 1996 Board of Directors resolution, the Company is authorized to repurchase an additional 1.7 million shares of Geon common stock. Certain factors that may affect these forward-looking comments are discussed on page 44. 24 27 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------

Year Ended December 31, (In millions) 1999 1998 1997 ------------------------------- OPERATING ACTIVITIES Net income $ 104.7 $ 13.8 $ 22.5 Adjustments to reconcile net income to net cash provided by operating activities: Gain on formation of joint ventures, net of formation costs (93.5) Employee separation and plant phase-out 0.5 14.6 15.0 Depreciation and amortization 44.4 57.9 54.6 (Income) loss from equity affiliates (9.7) (3.7) 0.3 Provision (benefit) for deferred income taxes 60.4 (1.0) 6.3 Changes in assets and liabilities: Operating working capital: Accounts receivable (31.1) 50.7 (2.8) Inventories (23.9) 16.5 (4.3) Accounts payable 36.4 (32.7) (2.5) Realization of retained working capital of contributed PVC business 61.6 -- -- Accrued expenses (29.1) (2.3) (6.0) Income taxes payable/receivable, net (3.3) 3.3 4.2 Other (7.4) (10.8) 11.0 - ---------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 110.0 106.3 98.3 INVESTING ACTIVITIES Business acquisitions, net of cash acquired (233.5) (57.1) (82.2) Cash received in connection with OxyVinyls formation, net of formation costs paid 66.1 -- -- Purchases of property (60.1) (40.7) (50.9) (Investment in) and distributions and repayment of advances from equity affiliates (11.5) 3.2 17.5 - ---------------------------------------------------------------------------------------------------------------------- NET CASH (USED) PROVIDED BY OPERATING AND INVESTING ACTIVITIES (129.0) 11.7 (17.3) FINANCING ACTIVITIES Change in short-term debt 167.5 (34.4) 72.0 Net issuance (repayment) of long-term debt 2.0 (0.9) (4.0) Net proceeds from issuance of common stock 7.1 1.8 0.3 Repurchase of common stock -- -- (4.1) Dividends (11.8) (11.7) (11.6) - ---------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 164.8 (45.2) 52.6 Effect of exchange rate changes on cash 1.0 (1.2) (4.1) - ---------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 36.8 (34.7) 31.2 Cash and cash equivalents at beginning of year 14.4 49.1 17.9 - ---------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 51.2 $ 14.4 $ 49.1 ======================================================================================================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25 28 The Geon Company Management's Analysis OTHER - -------------------------------------------------------------------------------- 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 $44 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. 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, 1999, by as much as $15 million. Capital expenditures related to the limiting and monitoring of hazardous and non-hazardous wastes amounted to $4 million each year from 1997 through 1999. The Company estimates capital expenditures during 2000 will be approximately $3 million to $4 million. Expenditures related to the remediation of previously contaminated sites are projected to be $15 million to $20 million over the next three 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 N to the Consolidated Financial Statements. 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 characteristics that will command premium prices. The Company is also reviewing and re-engineering its administrative activities on an ongoing basis to streamline operations and reduce costs. YEAR 2000 COMPLIANCE The Company completed a comprehensive project to upgrade its information, technology and manufacturing facilities and its computer hardware and software programs to address potential year 2000 (Y2K) issues. The project consisted of a process of evaluating, testing and remediating or replacing software and hardware where required. The Company's expenditures for Y2K issues were approximately $1 million in 1999, and no further expenditures are anticipated in 2000. The Company also assessed the Y2K compliance of its major customers and suppliers, and found them to be compliant. Based on currently available information, management believes that the most reasonable worst-case scenario of a prospective Y2K failure would be a minor, short-term business interruption. The Company has not yet experienced any material Y2K problems. 26 29 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------

Common Common Accumulated Shares Additional Stock Other Non- (In millions, except per share data; Common Held in Common Paid-in Retained Held in Owner Equity shares in thousands) Shares Treasury Total Stock Capital Earnings Treasury Changes - --------------------------------------------------------------------------------------------------------------------------------- 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 (0.3) 1.8 0.4 Repurchase of common shares 200 (4.1) (4.1) Cash dividends ($0.50 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 0.3 2.9 0.4 Cash dividends ($0.50 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) Non-owner equity changes: Net income 104.7 104.7 Translation adjustment 7.9 7.9 Adjustment of minimum pension liability 7.6 7.6 -------- Total non-owner equity changes 120.2 Stock-based compensation and exercise of options (377) 12.2 1.2 10.6 0.4 Cash dividends ($0.50 per share) (11.8) (11.8) - --------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1999 27,974 4,245 $ 334.7 $ 2.8 $ 297.3 $ 168.3 $ (104.5) $ (29.2) =================================================================================================================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 27 30 The Geon Company Notes TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note A THE COMPANY The Geon Company (Company or Geon), together with its subsidiaries, is the world's largest merchant manufacturer and marketer of polyvinyl chloride (PVC) compounds. On April 30, 1999, the Company completed transactions with Occidental Chemical Corporation (OxyChem), which included the formation of Oxy Vinyls, LP (OxyVinyls), a limited partnership in which Geon has a 24% ownership interest; the formation of a small powder compounding partnership, which is 90% owned by Geon; and the acquisition by Geon of OxyChem's vinyl compounding and engineered films operations. Substantially all of Geon's PVC resin and vinyl chloride monomer (VCM) operating assets and liabilities were contributed to OxyVinyls in this transaction. See Note C for further discussion of the transactions with OxyChem. Geon'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, including three 50%-owned compound joint ventures; specialty resins; plastisol formulators; engineered films; analytical testing services performed by Polymer Diagnostics Inc.; and Decillion, a 40%-owned joint venture with Owens Corning, Inc. As discussed in Note D, Geon's PP&S segment was expanded in 1999 with the third-quarter acquisitions of O'Sullivan Corporation, Acrol Holdings Ltd. and Dennis Chemical, Inc., and the fourth-quarter formation of a joint venture located in South America. Prior to the formation of OxyVinyls, the Resin and Intermediates (R&I) segment included the consolidated results of the Company's commodity suspension and mass PVC resin and VCM operations, substantially all of which were contributed to OxyVinyls on April 30, 1999. Subsequent to the formation of OxyVinyls, as described in Note C, the R&I segment includes Geon's 24% interest in OxyVinyls, accounted for under the equity method. Also included in the R&I segment are 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. See Note S for further information on the Company's two business segments. The Company's sales included exports from North America of $12.7 million, $45.7 million and $36.2 million in 1999, 1998 and 1997, respectively. 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 in which the Company's ownership is 50% 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. Approximately half of the Company's 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 are 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 10 years. Property, plant and equipment are generally depreciated on accelerated methods for income tax purposes. Repair and maintenance costs are expensed as incurred. GOODWILL AND OTHER INTANGIBLE ASSETS 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 35-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, 1999, and 1998, goodwill totaled $180.0 million and $81.5 million, net of accumulated amortization of $6.2 million and $2.4 million, respectively. Amortization expense related to goodwill was $3.8 million, $2.1 million and $0.3 million in 1999, 1998 and 1997, respectively. Other intangible assets include the value assigned to the workforce of businesses acquired in 1999 totaling $3.1 million, net of $0.1 million of accumulated amortization 28 31 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- at December 31, 1999. This asset is being amortized over a 20-year period. FINANCIAL INSTRUMENTS The fair values of cash equivalents, accounts receivable and short-term bank debt approximate their carrying amount because of the short maturity of these 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, 1999, and 1998, the fair value of long-term debt, including debentures, approximated its carrying value. The Company periodically enters into interest rate exchange and foreign currency contracts. Interest rate exchange contracts generally are 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, 1999, the Company had no interest rate exchange contracts or foreign currency contracts outstanding. REVENUE RECOGNITION The Company recognizes revenues at the point of passage of title, which is at the time of shipment. INCOME AND LOSSES FROM EQUITY AFFILIATES The Company recognizes its proportionate share of the income of equity affiliates. Losses of equity affiliates are recognized to the extent of the Company's investment, advances, financial guarantees and other commitments to provide financial support to the investee. Any losses in excess of this are deferred, and reduce the amount of future earnings of the equity investee recognized by the Company. At December 31, 1999, and 1998, there were no deferred losses related to equity investees. 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 $18.5 million, $15.0 million and $17.1 million in 1999, 1998 and 1997, 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 accumulated other non-owner equity changes. The cumulative unrecognized translation adjustment loss was $27.8 million, $35.7 million and $26.9 million at December 31, 1999, 1998 and 1997, 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 In January 1999, the Company adopted the American Institute of Certified Public Accountants Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up Activities." The SOP required that unamortized start-up costs be written off upon adoption of the SOP, and that future start-up costs be expensed as incurred. The Company's portion of Sunbelt's unamortized start-up costs totaling $2.4 million ($1.5 million, net of income tax benefit) was written off as the cumulative effect of a change in accounting, effective January 1, 1999. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement No.133, "Accounting for Derivative Financial Instruments and Hedging Activities," which is required to be adopted beginning in 2001. 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 these estimates. RECLASSIFICATION In 1999, the Company reclassified "Income (Loss) from Equity Affiliates" in the Consolidated Statements of Income to include it in operating income. Certain other amounts for 1998 and 1997 have been reclassified to conform to the 1999 presentation. 29 32 The Geon Company Notes TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note C OXYVINYLS JOINT VENTURE FORMATION On April 30, 1999, the Company completed certain transactions with OxyChem, which included the formation of OxyVinyls, a manufacturer and marketer of PVC resins. OxyVinyls is the largest producer of PVC resins in North America. Geon contributed to OxyVinyls five PVC suspension and mass resin plants and one VCM plant as well as related assets and all the outstanding capital stock of LaPorte Chemicals Corporation, a subsidiary of the Company. In exchange, Geon received a 24% interest in OxyVinyls and OxyVinyls assumed certain liabilities and obligations of Geon, including agreements under which Geon leased a portion of a VCM plant located in LaPorte, Texas, and certain industrial revenue bond debt obligations. OxyChem contributed to OxyVinyls one PVC plant; one VCM plant; a 50% interest in OxyMar, a Texas general partnership that operates a VCM plant; and a portion of a chlor-alkali chemical complex, together with related assets. In exchange, OxyChem received a 76% interest in OxyVinyls, and OxyVinyls assumed certain liabilities and obligations of OxyChem, including certain OxyMar debt. For accounting purposes, Geon's contribution to OxyVinyls is treated as a sale of 76% of its PVC business net assets to OxyChem. In other transactions, Geon and OxyChem formed a small powder compounding partnership, PVC Powder Blends LP (Powder Blends), through contribution of net assets by both companies. Powder Blends manufactures and markets PVC powder compounds and is 90% owned by Geon. OxyChem also sold to Geon for $27.0 million a PVC engineered films and pellet compounding plant located in Burlington, New Jersey, and its specialty pellet compound business located in Pasadena, Texas. The PVC engineered films and specialty pellet compounding businesses are referred to collectively as the "Acquired Businesses." The Acquired Businesses and Powder Blends have been accounted for as a purchase, and Geon has recorded the net assets of these businesses at their estimated fair value. The purchase price allocations reflected in these financial statements are preliminary and may be adjusted as estimated fair values of assets acquired and liabilities assumed are finalized. The Consolidated Financial Statements include the operations of these Acquired Businesses and Powder Blends from April 30, 1999, with a minority interest reflecting OxyChem's 10% ownership in Powder Blends. In conjunction with the foregoing transactions, Geon realized approximately $104.0 million through retention of certain working capital from its businesses contributed to OxyVinyls and the distribution of cash from OxyVinyls. This $104.0 million comprises cash received from OxyChem of $77.5 million and retained working capital of $62.0 million, less $27.0 million paid by Geon to OxyChem for the purchase of the Acquired Businesses and $9.0 million representing Geon's incremental share of OxyVinyls' incremental financing. The Company has recognized a pre-tax gain of $93.5 million as a result of these transactions, representing the excess of the fair value received over the book value of the 76% and 10% of Geon's net assets contributed to OxyVinyls and Powder Blends, respectively. This gain is preliminary, subject to, among other things, the finalization of the fair values of the net assets contributed to the respective partnerships. This gain is net of certain one-time costs directly related to the transactions. The following table details the computation of the gain: (In millions) Geon's proportionate share of the estimated fair value of OxyVinyls $ 251.0 Cash received 77.5 - ----------------------------------------------------------------- 328.5 Net book value of net assets contributed by Geon (211.7) - ----------------------------------------------------------------- 116.8 Ownership percentage sold to OxyChem 76% - ----------------------------------------------------------------- Pre-tax gain on formation of OxyVinyls, before transaction-related costs $ 88.8 ================================================================= Fair value of assets contributed to Powder Blends by OxyChem $ 36.0 Geon's ownership 90% - ----------------------------------------------------------------- 32.4 Less 10% of the net book value of Geon net assets contributed (1.9) - ----------------------------------------------------------------- Pre-tax gain on formation of Powder Blends, before transaction-related costs $ 30.5 ================================================================= Pre-tax gain representing the preliminary estimate of fair value received in excess of amount paid for acquired businesses $ 8.1 ================================================================= Total pre-tax gain before transaction-related costs $ 127.4 Less costs directly associated with the transactions (33.9) - ----------------------------------------------------------------- Total pre-tax gain $ 93.5 ================================================================= 30 33 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The costs incurred that are directly associated with the formation of OxyVinyls and Powder Blends include a one-time payment of $6.4 million to Geon employees who transferred to OxyVinyls; transaction costs (legal, accounting and consulting) of $13.6 million ($6.0 million paid in the last half of 1998, $6.1 million paid in 1999 and an additional $1.5 million expected to be paid in 2000); pension and post-retirement curtailment and special termination benefits of $9.0 million (to be funded through increased annual contributions to the pension and post-retirement plans over approximately 10 years); and the writeoff of capitalized software costs of $4.9 million specifically related to the management information systems of Geon's PVC business. In conjunction with the transactions above, Geon entered into PVC resin and VCM supply agreements with OxyVinyls under which Geon will purchase a substantial portion of its PVC resin and VCM. The agreements have an initial term of 15 years with renewal options. The Company also has entered into various service agreements with the partnerships. Certain pro forma financial information, reflecting the OxyChem transactions as well as the acquisition of O'Sullivan Corporation, is presented in Note E. In addition, summarized financial information related to OxyVinyls is presented in Note F. Note D BUSINESS ACQUISITIONS On July 7, 1999, the Company acquired O'Sullivan Corporation (O'Sullivan), a Virginia corporation, for $12.25 per share, or approximately $192.0 million, including direct acquisition costs. Included in the acquired assets of O'Sullivan was $36.0 million of cash, which was used to partially finance the acquisition. O'Sullivan has 950 employees and is a leading producer of engineered polymer films for the automotive and industrial markets. The Company also acquired Acrol Holdings Limited (Acrol) on July 1, 1999, and Dennis Chemical Company, Inc. (Dennis Chemical) on September 8, 1999. Acrol is headquartered in Widnes, England, and is the United Kingdom's leading formulator of vinyl plastisols. Acrol is also a leading distributor of compounding additives, and manufactures a range of specialty polymer-coated textiles. Dennis Chemical, a custom plastisol formulator of specialty vinyl resins and urethanes, is headquartered in St. Louis, Missouri, with manufacturing facilities in St. Louis and California. The combined purchase price for these formulator acquisitions was approximately $57.0 million. The O'Sullivan, Acrol and Dennis Chemical acquisitions have been 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 dates. The excess of the purchase price paid over the fair value of net assets acquired, totaling approximately $97.0 million, has been recorded as goodwill. The purchase price allocations reflected in these statements are preliminary and may be adjusted as estimated fair values of assets acquired and liabilities assumed are finalized. These acquisitions were financed with short-term credit facilities and available cash on hand, including a portion of the cash held by O'Sullivan at the acquisition date. The Company's results of operations include the results of the acquired businesses from the dates of acquisition. Certain pro forma information, reflecting the O'Sullivan acquisition as well as the OxyChem transactions, is presented in Note E. 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 were recorded at their estimated fair values on the acquisition dates. The excess of the purchase price over the estimated fair value of net assets acquired totaled approximately $24.0 million and has been recorded as goodwill. The acquisitions were financed with the Company's 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 $87.0 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 $64.0 million was recorded as goodwill. 31 34 The Geon Company Notes TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note E PRO FORMA FINANCIAL INFORMATION The following table sets forth the impact of certain unaudited pro forma financial information for the Company assuming that the transactions with OxyChem (discussed in Note C) and the acquisition of O'Sullivan (discussed in Note D) had occurred at the beginning of 1998. This pro forma financial information may not be indicative of the actual impact on the results of operations of Geon had these transactions occurred as of the date assumed, or of the impact on future results of operations. (In millions, except per share data) 1999 1998 --------------------- Sales $ 3.7 $ (115.4) Net (loss) income before cumulative effect of a change in accounting (7.1) 19.1 Net (loss) income (7.1) 19.1 - ------------------------------------------------------------- Basic earnings (loss) per share (0.30) 0.84 - ------------------------------------------------------------- Diluted earnings (loss) per share $ (0.29) $ 0.81 ============================================================= The 1998 pro forma amounts exclude non-recurring items resulting from these transactions. These non-recurring items include the pre-tax gain of $93.5 million recorded on the closing of the OxyChem transactions and a $3.2 million charge related to the acquired profit on inventory. These items are included in the Company's actual results for the year ended December 31, 1999. Note F FINANCIAL INFORMATION OF R&I SEGMENT EQUITY AFFILIATES At December 31, 1999, the Company's R&I segment consisted primarily of investments in equity affiliates. Summarized financial information for all of OxyVinyls, which was formed in April 1999, is presented here. (In millions) 1999 --------- OxyVinyls: Net sales $ 1,067.9 Operating income 71.8 Partnership income as reported by OxyVinyls 63.7 Geon's ownership of OxyVinyls 24% - ---------------------------------------------- Geon's proportionate share of OxyVinyls' earnings 15.3 Amortization of the difference between Geon's investment and its underlying share of OxyVinyls' equity 1.2 - ---------------------------------------------- Earnings of equity affiliate recorded by Geon $ 16.5 - ---------------------------------------------- OxyVinyls: Current assets $ 367.7 Non-current assets 1,021.1 - ---------------------------------------------- Total assets 1,388.8 - ---------------------------------------------- Current liabilities 272.0 Non-current liabilities 102.5 - ---------------------------------------------- Total liabilities $ 374.5 ============================================== The Company's R&I segment also includes the Sunbelt and AVC equity affiliates. Combined summarized financial information for Sunbelt and AVC is presented below. Amounts shown represent the entire operations of these businesses, rather than the Company's proportionate share. (In millions) 1999 1998 -------------------- Net sales $ 200.3 $ 209.1 Operating income 9.6 32.7 Net (loss) income before cumulative effect of a change in accounting (13.5) 11.1 Net (loss) income $ (18.3) $ 11.1 - ------------------------------------------------------------ Current assets $ 67.7 $ 64.0 Non-current assets 226.6 240.1 - ------------------------------------------------------------ Total assets 294.3 304.1 - ------------------------------------------------------------ Current liabilities 57.6 55.4 Non-current liabilities 201.3 200.5 - ------------------------------------------------------------ Total liabilities $ 258.9 $ 255.9 ============================================================ Note G FINANCING ARRANGEMENTS Aggregate maturities of long-term debt during the five years subsequent to December 31, 1999, are: 2000--$0.4 million; 2001--$0.2 million; 2002--$0.4 million; 2003--$0.7 million; and 2004--$4.6 million. Interest paid amounted 32 35 The Geon Company - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- to $16.7 million, $14.5 million and $12.5 million during 1999, 1998 and 1997, respectively. At December 31, long-term debt consisted of the following: (In millions) 1999 1998 ------------------- 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, assumed by OxyVinyls in 1999 -- 7.6 Other 6.3 3.6 - -------------------------------------------------------------- 131.3 136.2 Less current portion 0.4 0.8 - -------------------------------------------------------------- $ 130.9 $ 135.4 ============================================================== At December 31, 1999, the Company had the following unsecured lines of credit, all of which are short term, except for a $100 million revolving credit facility, which will expire December 31, 2001: Number of Permitted (Dollars in millions) Lines Borrowings ---------------------- United States 7 $431.5 Canada 2 22.4 - ---------------------------------------------------- $453.9 ==================================================== At December 31, 1999, approximately $243.0 million of the credit and overdraft facilities was available. The weighted-average interest rate on short-term borrowings was 6.6% at December 31, 1999, and 5.1% at December 31, 1998. The Company's bank agreements contain restrictive covenants and require the maintenance of certain financial ratios. Note H LEASING ARRANGEMENTS The Company leases warehouse space, machinery and equipment, automobiles and railcars under operating leases. Rent expense amounted to $20.9 million, $32.2 million and $32.1 million during 1999, 1998 and 1997, respectively. Prior to the formation of OxyVinyls, the Company leased a VCM production facility and related equipment. OxyVinyls assumed this lease obligation, in addition to certain other lease obligations related to the Company's R&I operations. The future minimum lease payments under non-cancelable operating leases with initial lease terms in excess of one year at December 31, 1999, were as follows: 2000--$5.8 million; 2001--$2.7 million; 2002--$1.9 million; 2003--$0.9 million; 2004--$0.5 million; and thereafter--$0.5 million. Note I 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 $69.6 million, $78.4 million and $79.9 million in 1999, 1998 and 1997, respectively. Accounts receivable at December 31, 1999, and 1998 were net of $85.0 million, 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 J INVENTORIES December 31, (In millions) 1999 1998 -------------------- At FIFO or average cost, which approximates current costs: Finished products and in process $ 96.3 $ 94.3 Raw materials and supplies 92.0 34.2 - -------------------------------------------------------------- 188.3 128.5 Reserve to reduce certain inventories to LIFO basis (20.1) (14.6) - -------------------------------------------------------------- $ 168.2 $ 113.9 ============================================================== Approximately 53% and 56% of the pre-LIFO inventory amounts had been valued by the LIFO method at December 31, 1999, and 1998, respectively. Note K PROPERTY December 31, (In millions) 1999 1998 --------------------- Land and land improvements $ 22.0 $ 32.3 Buildings 153.0 216.5 Machinery and equipment 584.3 956.4 - ------------------------------------------------------- 759.3 1,205.2 Less accumulated depreciation and amortization (420.9) (761.7) - ------------------------------------------------------- $ 338.4 $ 443.5 ======================================================= 33 36 The Geon Company Notes TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- During 1999, property with a net book value of approximately $221.0 million was included in the assets contributed to OxyVinyls. Capital expenditures for 1999 and 1997 included $0.7 million and $2.4 million, respectively, of capitalized interest costs. No interest was capitalized in 1998. Note L OTHER BALANCE SHEET LIABILITIES Non-current (In millions) Accrued Expenses Liabilities ------------------------------------- December 31, December 31, 1999 1998 1999 1998 ------------------------------------- Employment costs $ 28.8 $ 25.5 $ 9.7 $ 5.6 Environmental 7.1 5.5 37.0 40.4 Taxes, other than income 10.4 15.1 -- -- Post-retirement benefits 7.7 7.7 -- -- Pension -- 2.4 12.6 23.0 Employee separation and plant phase-out 2.7 9.2 -- -- Other 13.3 10.6 0.9 8.8 - ------------------------------------------------------------------ $ 70.0 $ 76.0 $ 60.2 $ 77.8 ================================================================== Note M EMPLOYEE BENEFIT PLANS PENSION BENEFIT PLANS The Company has five defined benefit pension plans covering substantially all U.S. employees. The plans covering salaried employees generally provide benefit payments using a formula that is based on employee compensation and length of service. The plans covering union wage employees generally provide 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. Three of the Company's pension plans are unfunded non-qualified pension plans that provide supplemental pension benefits for senior executives. In connection with the acquisition of O'Sullivan, the Company assumed the obligations and assets of O'Sullivan's defined benefit pension plans, covering certain O'Sullivan employees. The following table sets forth as of December 31, 1999, and 1998, 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. CHANGE (In millions) 1999 1998 1999 vs.1998 ----------------------------------- CHANGE IN PLAN ASSETS: Plan assets - beginning of the year $ 243.9 $ 241.8 $ 2.1 Actual return on plan assets 14.2 15.3 (1.1) Company contributions 9.8 5.7 4.1 Acquired businesses 9.5 -- 9.5 Benefits paid (20.9) (18.9) (2.0) - ------------------------------------------------------------------ Plan assets - end of the year 256.5 243.9 12.6 - ------------------------------------------------------------------ Accumulated benefit obligation (ABO) 263.5 263.2 0.3 - ------------------------------------------------------------------ Plan assets less than ABO $ 7.0 $ 19.3 $ (12.3) ================================================================== At December 31, 1999, the accumulated benefit obligation (ABO) liability related to these funded pension plans was 97% funded. The discount rate used to measure the benefit obligation in 1999 was increased by 0.7 percentage point compared with 1998, resulting in a reduction in the ABO liability of approximately $18.0 million, which was offset by the $8.4 million of ABO associated with defined benefit plans of acquired businesses and the $9.0 million of curtailment and special termination benefits expense incurred upon the formation of OxyVinyls. Over the last three years, the Company's contributions have totaled $26.5 million, or $9.8 million above the normal pension expense for the same period. Annual pension expense in 1999 included a charge of $9.0 million for curtailment and special termination benefits related to employees transferred to OxyVinyls. Annual pension expense in 1997 included $10.7 million related to a voluntary retirement program. Annual pension expense for funded and unfunded defined benefit pension plans, including these curtailment and special termination benefits, included the following components: (In millions) 1999 1998 1997 ----------------------------- Service cost for benefits earned $ 3.7 $ 3.9 $ 4.1 Interest cost 21.1 20.1 19.5 Curtailment loss and special termination benefits 9.0 -- 10.7 Expected return on plan assets (22.6) (22.5) (19.6) Amortization of unrecognized losses, transition obligation and prior service cost 2.6 2.6 3.8 - ------------------------------------------------------------------ Pension expense, net $ 13.8 $ 4.1 $ 18.5 ================================================================== 34 37 The Geon Company - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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: CHANGE (In millions) 1999 1998 1999 vs.1998 ----------------------------------- CHANGE IN PROJECTED BENEFIT OBLIGATION (PBO): Benefit obligation - beginning of year $ 302.1 $ 294.1 $ 8.0 Service cost 3.7 3.9 (0.2) Interest cost 21.1 20.1 1.0 Benefits paid (23.5) (19.9) (3.6) Curtailment and special termination benefits 9.0 -- 9.0 Acquired businesses 10.6 -- 10.6 Change in discount rate and other (30.5) 3.9 (34.4) - --------------------------------------------------------------------- Benefit obligation - end of year (PBO) 292.5 302.1 (9.6) Less projected salary increases (22.7) (31.1) 8.4 - --------------------------------------------------------------------- Accumulated benefit obligation (ABO) $ 269.8 $ 271.0 $ (1.2) - --------------------------------------------------------------------- FUNDED STATUS OF THE PLANS: Plan assets less than PBO $ 36.0 $ 58.2 $ (22.2) Unamortized balances: Transitional liability (2.3) (4.4) 2.1 Prior service cost (1.6) (3.9) 2.3 Net actuarial loss (24.7) (44.8) 20.1 Adjustments required to recognize minimum liability 5.2 20.3 (15.1) - --------------------------------------------------------------------- Accrued pension cost - all plans 12.6 25.4 (12.8) - --------------------------------------------------------------------- Accrued pension cost - funded plans with PBO in excess of assets 12.4 24.6 (12.2) Prepaid pension cost - funded plans with assets in excess of PBO (6.1) (8.2) 2.1 Accrued pension cost - unfunded plans $ 6.3 $ 9.0 $ (2.7) ===================================================================== The combined PBO includes the PBO of unfunded plans of $7.0 million and $10.2 million at December 31, 1999, and 1998, respectively. The ABO of these unfunded plans was $6.3 million and $9.1 million at December 31, 1999, and 1998, respectively. The remaining PBO relates to the Company's funded pension plans, including the acquired O'Sullivan plans. At December 31, 1999, the Company had three plans with a PBO and an ABO in excess of the related plan assets. These included the Company's salaried plan and two plans acquired with O'Sullivan. At December 31, 1999, the PBO, ABO and fair value of plan assets for these plans were $283.1 million, $261.1 million and $253.1 million, respectively. At December 31, 1998, the Company's salaried plan had liabilities in excess of the related assets. The PBO, ABO and fair value of related assets for the salaried plan at December 31, 1998, were $268.8 million, $240.0 million and $215.4 million, respectively. Major assumptions used in accounting for the Company's defined benefit pension plans are as follows: 1999 1998 ---------------------- Discount rate for obligations 7.7% 7.0% 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% ========================================================= A charge of $9.0 million for curtailment and special termination benefits was recorded in 1999 relating to the transfer of R&I employees from Geon to OxyVinyls. This charge is included in the gain on formation of joint ventures, net of formation expenses, in the Consolidated Statements of Income. 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 Statements of Income. The Company recorded an intangible asset of $3.2 million and $6.5 million related to both funded and unfunded pension plans as of December 31, 1999, and 1998, respectively. At December 31, 1999, and 1998, the Company's accumulated other non-owner equity changes included $1.3 million and $8.9 million, respectively, related to the adjustment of the minimum pension liability of its pension plans. 35 38 The Geon Company Notes TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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 $(4.1) million, $3.6 million and $(0.5) million in 1999, 1998 and 1997, 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 1999, 1998 and 1997, Company contributions amounted to $7.6 million, $5.4 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 1999, 1998 and 1997, these profit-sharing payments totaled $2.2 million, $1.5 million and $0.8 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 co-insurance. The life insurance plans are generally non-contributory. Below is a reconciliation of the plans' combined benefit obligations for December 31, 1999, and 1998: (In millions) 1999 1998 ------------------ Benefit obligation - beginning of year $ 95.8 $ 94.5 Service cost 0.5 0.4 Interest cost 6.2 6.5 Participant contributions 0.5 0.5 Transfer to OxyVinyls (2.7) -- Business acquisitions and plan amendments 2.4 -- Change in discount rates and other (8.5) 2.1 Benefits paid (8.0) (8.2) - ----------------------------------------------------------------- Benefit obligation - end of year 86.2 95.8 Unrecognized gain (loss) 5.4 (3.0) - ----------------------------------------------------------------- Accrued post-retirement benefit liability $ 91.6 $ 92.8 ================================================================ The annual post-retirement benefit expense for each of the years ended December 31 included the following components: (In millions) 1999 1998 1997 ------------------------ Service cost for benefits earned $0.5 $0.4 $0.4 Interest cost 6.2 6.5 6.5 - ------------------------------------------------------------- Post-retirement expense, net $6.7 $6.9 $6.9 ============================================================= The average assumed rate of increase in the per capita cost of covered benefits was 7.5% for 1999, 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, 1999, by approximately $3.8 million, and the aggregate of the service and interest cost components of net periodic post-retirement benefit cost for 1999 by $0.3 million. The discount rates used in determining the benefit obligation at December 31, 1999, and 1998 were 7.7% and 7.0%, respectively. Note N COMMITMENTS AND RELATED-PARTY INFORMATION 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 generally is 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, 1999, had accruals totaling $44.1 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 31,1999, 36 39 The Geon Company - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- by as much as $15.0 million. The Company's estimate of the liability may be revised as new regulations, technologies or additional information is obtained. Of the $44.1 million accrued for future environmental expenditures, $17.2 million is attributable to future remediation expenditures at the Calvert City, Kentucky, site and less than $0.5 million is attributable to off-site environmental remediation liabilities, including the four sites mentioned previously. The remaining amount is attributable primarily 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 providing for a site-wide remediation program, primarily to remove ethylene dichloride from groundwater, the cost of which has been accrued. Environmental expenses incurred were $1.7 million, $2.4 million and $4.2 million in the years ended December 31, 1999, 1998 and 1997, respectively. GUARANTEES In connection with the formation of OxyVinyls, the Company has guaranteed $42.0 million of OxyVinyls borrowings from Occidental Petroleum Corporation. The Company also has guaranteed $97.5 million of Sunbelt's outstanding senior secured notes, maturing in 2017. RELATED-PARTY TRANSACTIONS The Company purchases a substantial portion of its raw materials under the terms of supply agreements with OxyVinyls. The agreements have an initial term of 15 years with renewal options. The Company also has entered into various service agreements with OxyVinyls. At December 31, 1999, net amounts owed to OxyVinyls, primarily for raw material purchases, totaled approximately $26 million. During 1999, the Company's purchases of raw materials from OxyVinyls totaled approximately $220 million. Note O OTHER EXPENSE, NET (In millions) 1999 1998 1997 -------------------------- Currency exchange gain (loss) $ (1.0) $ 2.9 $ (2.2) Foreign currency exchange contract 0.6 (1.1) -- Discount on sale of trade receivables (3.5) (4.6) (5.0) Other income, net 0.3 0.2 1.3 - ------------------------------------------------------------ $ (3.6) $ (2.6) $ (5.9) ============================================================ Note P INCOME TAXES Income (loss) before income taxes and cumulative effect of a change in accounting consists of the following: (In millions) 1999 1998 1997 -------------------------- Domestic $179.6 $ 5.1 $24.9 Foreign (5.6) 18.5 9.7 - ------------------------------------------------- $174.0 $23.6 $34.6 ================================================= A summary of income tax expense (benefit) follows: (In millions) 1999 1998 1997 ----------------------------- Current: Federal $ -- $ 0.2 $ 0.4 State 1.2 0.6 (1.1) Foreign 5.3 10.0 6.5 - ------------------------------------------------------- Total current 6.5 10.8 5.8 Deferred: Federal 61.3 2.0 6.9 State 6.8 (0.4) 1.8 Foreign (6.8) (2.6) (2.4) - ------------------------------------------------------- Total deferred 61.3 (1.0) 6.3 - ------------------------------------------------------- Total tax expense $ 67.8 $ 9.8 $ 12.1 ======================================================= The income tax rate for financial reporting purposes varied from the federal statutory rate as follows: 1999 1998 1997 ------------------------- Federal statutory income tax rate 35.0% 35.0% 35.0% Increase (decrease): State tax, net of federal benefit 3.0 0.8 1.5 Goodwill 0.5 2.6 -- Differences in rates of foreign operations -- 1.5 2.0 Foreign withholding accrued on unremitted earnings -- -- 1.1 Adjusted prior year's income tax liability -- -- (5.9) Other, net 0.5 1.6 1.3 - ------------------------------------------------------------------- Effective income tax rate 39.0% 41.5% 35.0% =================================================================== 37 40 The Geon Company Notes TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Significant components of the Company's deferred tax liabilities and assets at December 31 were as follows: (In millions) 1999 1998 -------------------- Deferred tax liabilities: Tax over book depreciation $ 39.3 $ 110.2 Equity investments 146.4 4.8 State taxes 6.2 -- Other, net 12.5 14.1 - ----------------------------------------------------------- Total deferred tax liabilities 204.4 129.1 - ----------------------------------------------------------- Deferred tax assets: Post-retirement benefits other than pensions 32.1 32.5 Employment cost and pension 14.0 14.4 Environmental 15.7 14.6 Net operating loss carryforward 34.2 26.4 LIFO inventory 4.8 4.7 Intangibles 2.0 3.7 Alternative minimum tax credit carryforward 5.2 5.5 Foreign tax credit carryforward 5.6 6.4 Foreign tax valuation allowance (5.6) (6.4) State taxes -- 0.6 Other, net 17.1 18.5 - ----------------------------------------------------------- Total deferred tax assets 125.1 120.9 - ----------------------------------------------------------- Net deferred tax liabilities $ 79.3 $ 8.2 =========================================================== SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax assets be reduced by a valuation allowance if it is likely 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, relating principally to accelerated depreciation, will be sufficient to fully recognize its remaining deferred tax assets. In particular, the turnaround of the largest deferred tax assets, related to accounting for post-retirement benefits other than pensions and net operating loss carryforwards, will occur over an extended period of time and, as a result, will be realizable for tax purposes over those future periods. 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, 1999. Regarding the undistributed earnings on which no federal and foreign withholding tax 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 actually been 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 $9.1 million. During 1999, 1998 and 1997, the Company paid income taxes net of refunds of $8.8 million, $7.8 million and $1.9 million, respectively. The Company has a net operating loss carryforward of approximately $97.7 million, of which $8.9 million will expire in 2011, $22.2 million will expire in 2012 and the remaining $66.6 million will expire in 2018. In addition, the Company has foreign tax carryforwards of $5.6 million, which will expire from 2000 through 2004, and an alternative minimum tax credit carryforward of $5.2 million. Note Q EMPLOYEE SEPARATION AND PLANT PHASE-OUT CHARGES During 1999, the Company recorded net employee separation and plant phase-out charges totaling $1.7 million ($1.2 million of which was recorded as additional depreciation expense) related to the consolidation of its compounding operations, which began in the fourth quarter of 1998. In addition, the Company previously recognized a charge of $14.6 million in the fourth quarter of 1998 associated with this consolidation. The plan of consolidation included the closing of two manufacturing facilities and the partial closing of manufacturing lines at other plants. The facilities affected were primarily those of the former Synergistics operations that Geon acquired in 1997. The consolidation resulted in the writeoff of software, machinery and equipment; separation costs associated with the elimination of 201 positions; and costs associated with demolition and lease terminations. The charges recognized in 1999 consisted of accelerated depreciation on software assets at the affected sites totaling $1.2 million, additional site demolition costs of $0.8 million, asset writeoffs of $0.4 million, employee separation of $0.2 million, and professional and consulting services of $1.0 million incurred in connection with the consolidation of operations. The Company also recognized a $1.9 million credit as a reduction to the previous estimates of the total consolidation costs. Demolition activity commenced during the second half of 1999 at all but one location, and the actual costs incurred plus estimated remaining demolition costs are less than the estimates available at the time the plan of consolidation was approved. Demolition at all sites is expected to be completed in 2000. At December 31, 1999, all 201 positions 38 41 The Geon Company - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- had been eliminated and all manufacturing lines and facilities had been closed. Savings from this consolidation are estimated at $4.0 million in 1999 and $9.0 million annually thereafter. The activity related to the charges recognized in 1999 and 1998 is as follows: Nature of (In millions) 1999 1998 Expense ----- ----- --------- Total charges relating to: Employee separation and plant phase-out: Asset writeoffs $ 0.4 $ 5.3 Non-cash Employee separation 0.2 5.0 Cash Site closure costs: Demolition (1.1) 3.3 Cash Legal and professional fees 1.0 1.0 Cash - ----------------------------------------------------------- 0.5 14.6 Depreciation and amortization expense: Accelerated depreciation 1.2 -- Non-cash, included in deprecia- tion and amortization expense - ----------------------------------------------------------- Total charges 1.7 14.6 - ----------------------------------------------------------- 1998 activity related to the charges: Assets written off -- (5.3) Non-cash Legal and professional fees paid -- (0.7) Cash - ----------------------------------------------------------- Restructuring accrual at December 31,1998 -- 8.6 1999 activity related to the charges: Assets written off (0.4) -- Non-cash Employee separation paid (0.2) (3.8) Cash Adjusted estimated demolition 1.1 -- Non-cash Legal and professional fees paid (1.0) (0.3) Cash Accelerated depreciation (1.2) -- Non-cash - ----------------------------------------------------------- Restructuring accrual at December 31,1999 $ -- $ 2.7 =========================================================== 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 has been or will be funded as part of the Company's funding of pension plans. The remaining $7.0 million represented cash payments for enhanced pension benefits and separation costs. During 1999, $2.4 million of enhanced pension benefits and $0.6 million of severance benefits were paid. At December 31, 1999, there were no remaining cash payments to be made, except those related to the funding of pension plans. Note R 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. The term of each option cannot extend beyond 10 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 nonemployee 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 will become exercisable after six years, with accelerated vesting if target stock prices are met. The remainder of these options is exercisable only if the target stock prices are met. 39 42 The Geon Company Notes TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- A summary of stock option activity follows: Weighted-Average (In thousands, except per share data) Shares Exercise Price - --------------------------------------------------------------- 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 January 1,1999 3,808 20.87 Issued 149 24.66 Exercised 451 19.63 Forfeited 37 21.85 - --------------------------------------------------------------- Outstanding at December 31,1999 3,469 21.26 - --------------------------------------------------------------- Exercisable at December 31,1999 2,293 21.15 Exercisable at December 31,1998 2,146 20.70 Exercisable at December 31,1997 2,048 20.35 - --------------------------------------------------------------- At December 31, 1999: Exercisable options: Exercise price: $14.92 - $22.00 1,512 18.79 Exercise price: $22.01 - $30.13 781 25.72 Unexercisable options: Exercise price: $14.92 - $22.00 785 20.56 Exercise price: $22.01 - $33.44 391 23.30 =============================================================== At December 31, 1999, the weighted-average remaining life for options with an exercise price of $22.00 or less was 5.7 years. Options with an exercise price of more than $22.00 had a remaining life of 6.6 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 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 three years. At December 31, 1999, 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 when accounting for 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 $2.1 million in 1999 ($0.09 per diluted share), $1.9 million in 1998 ($0.08 per diluted share) and $2.1 million ($0.09 per diluted share) in 1997. The weighted-average fair value of stock options granted per share was $9.52, $6.53 and $6.23 for 1999, 1998 and 1997, 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 6.1%, 4.8% and 5.4%; an assumed dividend yield of 1.7%, 2.5% and 2.5%; and stock price volatility of 32.7%, 29.9% and 28.5% for 1999, 1998 and 1997, respectively. A seven-year weighted-average life was used for all periods. The compensation cost recognized relating to the stock portion of the annual incentive plans, three-year incentive plan and amortization of restricted stock awarded at the IPO amounted to $5.8 million, $4.9 million and $2.3 million in 1999, 1998 and 1997, 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 $23.38, $20.75 and $19.88 for 1999, 1998 and 1997, respectively. At December 31, 1999, approximately 3.5 million shares were reserved for future issuance upon exercise of stock options previously granted, and approximately 1.0 million shares were available for future grants under the Company's incentive plans. 40 43 The Geon Company - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note S 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 that 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 also are included in the "Other" segment. 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, 1999: Net sales $ 1,261.2 $ 1,107.1 $ 191.5 $ (37.4) Operating earnings (loss) 99.7 104.1 1.3 (5.7) Employee separation and plant phase-out 0.5 0.5 -- -- Other restructuring costs - accelerated depreciation 1.2 1.2 -- -- Restructuring costs incurred by OxyVinyls 0.8 -- 0.8 -- Charge for acquired profit in inventory 3.2 3.2 -- -- - ------------------------------------------------------------------------------------------------------------------ Operating earnings (loss) before restructuring costs and acquired inventory profit 105.4 109.0 2.1 (5.7) Depreciation and amortization 43.2 33.1 10.1 -- - ------------------------------------------------------------------------------------------------------------------ Operating earnings (loss) before depreciation, amortization, restructuring costs and acquired inventory profit 148.6 142.1 12.2 (5.7) - ------------------------------------------------------------------------------------------------------------------ Total assets 1,162.6 905.2 247.7 9.7 Capital expenditures 60.1 49.1 4.0 7.0 - ------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1998: Net sales $ 1,284.4 $ 839.2 $ 577.7 $ (132.5) Operating earnings (loss) 41.0 79.2 (36.4) (1.8) Employee separation and plant phase-out 14.6 14.6 -- -- Operating earnings (loss) before restructuring costs 55.6 93.8 (36.4) (1.8) Depreciation and amortization 57.9 28.6 28.8 0.5 - ------------------------------------------------------------------------------------------------------------------ Operating earnings (loss) before depreciation, amortization and restructuring costs 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 0.2 - ------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1997: Net sales $ 1,250.0 $ 606.7 $ 817.7 $ (174.4) Operating earnings (loss) 51.7 44.7 16.4 (9.4) Employee separation and plant phase-out 15.0 2.9 4.0 8.1 - ------------------------------------------------------------------------------------------------------------------ Operating 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 -- - ------------------------------------------------------------------------------------------------------------------ Operating 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 -- ==================================================================================================================

41 44 The Geon Company Notes TO CONSOLIDATED FINANCIAL STATEMENTS The PP&S segment includes the 1997 acquisition of Synergistics, the 1998 acquisitions of three plastisol formulators and the 1999 acquisitions of O'Sullivan, Acrol and Dennis Chemical. 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:

(In millions) 1999 1998 1997 ------------------------------------ Earnings (loss) of equity affiliates: PP&S $ 0.1 $ 0.5 $ 0.2 R&I 9.6 3.2 (0.5) - ------------------------------------------------------------------ Total $ 9.7 $ 3.7 $ (0.3) - ------------------------------------------------------------------ Investment in equity affiliates: PP&S $ 17.5 $ 3.2 $ 2.7 R&I 247.6 16.6 17.9 - ------------------------------------------------------------------ Total $265.1 $19.8 $20.6 - ------------------------------------------------------------------

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:

(In millions) 1999 1998 1997 ------------------------------------- Net sales: United States $1,056.1 $1,004.7 $952.7 Canada 190.6 279.7 246.2 Other 14.5 - 51.1 Long-lived assets: United States $ 690.2 $ 443.7 $ 400.5 Canada 60.9 105.5 141.7 Other 53.8 18.1 17.5 - ------------------------------------------------------------------

Note T WEIGHTED-AVERAGE SHARES USED IN COMPUTING EARNINGS PER SHARE (In millions) 1999 1998 1997 ------------------------------------- Weighted-average shares - basic: Weighted-average shares outstanding 23.7 23.3 23.3 Less unearned portion of restricted stock awards included in outstanding shares (0.4) (0.4) (0.4) - ------------------------------------------------------------------ 23.3 22.9 22.9 - ------------------------------------------------------------------ Weighted-average shares - diluted: Weighted-average shares outstanding 23.7 23.3 23.3 Plus dilutive impact of stock options and stock awards 0.6 0.3 0.3 - ------------------------------------------------------------------ 24.3 23.6 23.6 - ------------------------------------------------------------------

42 45 The Geon Company The Geon Company Quarter Data (UNAUDITED)

1999 QUARTERS 1998 QUARTERS ---------------------------------------------------------------------------------------- (In millions, except per share data) Fourth Third Second First Fourth Third Second First ---------------------------------------------------------------------------------------- SALES $319.2 $319.3 $296.9 $325.8 $ 301.2 $328.0 $330.7 $324.5 Employee separation and plant phase-out (1.9) -- 1.3 1.1 14.6 -- -- -- Operating income (loss) 27.7 26.0 24.2 21.8 (1.8) 15.4 14.7 12.7 Income (loss) before cumulative effect of a change in accounting 13.9 12.7 68.5 11.1 (3.0) 6.2 4.8 5.8 Net income (loss) 13.9 12.7 68.5 9.6 (3.0) 6.2 4.8 5.8 - -------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share, before cumulative effect of a change in accounting: Basic $ 0.59 $ 0.54 $ 2.95 $ 0.48 $ (0.13) $ 0.27 $ 0.21 $ 0.25 Diluted 0.57 0.52 2.81 0.46 (0.13) 0.26 0.20 0.25 EARNINGS (LOSS) PER SHARE: Basic $ 0.59 $ 0.54 $ 2.95 $ 0.42 (0.13) $ 0.27 $ 0.21 $ 0.25 Diluted 0.57 0.52 2.81 0.40 (0.13) 0.26 0.20 0.25 DIVIDEND PAID PER COMMON SHARE $0.125 $0.125 $0.125 $0.125 0.125 $0.125 $0.125 $0.125 COMMON STOCK PRICE High $ 33 1/2 $ 35 3/4 $ 37 $ 25 7/8 $ 24 1/4 $ 26 $ 24 5/8 $ 23 1/2 Low 24 11/16 25 22 15/16 21 9/16 16 1/4 17 7/16 19 1/4 19 15/16 - ---------------------------------------------------------------------------------------------------------------------------------

1999: FIRST-QUARTER RESULTS INCLUDE A $1.7 MILLION CHARGE ($1.0 MILLION AFTER TAX) FOR EMPLOYEE SEPARATION AND PLANT PHASE-OUT ($0.6 MILLION OF ACCELERATED DEPRECIATION IS INCLUDED IN DEPRECIATION AND AMORTIZATION EXPENSE). SECOND-QUARTER RESULTS INCLUDE A $1.9 MILLION CHARGE ($1.1 MILLION AFTER TAX) FOR EMPLOYEE SEPARATION AND PLANT PHASE-OUT, INCLUDING ACCELERATED DEPRECIATION OF $0.6 MILLION INCLUDED IN DEPRECIATION AND AMORTIZATION EXPENSE. SECOND-QUARTER RESULTS ALSO INCLUDE GEON'S SHARE OF A RESTRUCTURING CHARGE RECOGNIZED BY OXYVINYLS OF $0.8 MILLION ($0.5 MILLION AFTER TAX) AND A $93.5 MILLION GAIN ($57.2 MILLION AFTER TAX) ON THE FORMATION OF JOINT VENTURES. THIRD-QUARTER RESULTS INCLUDE A $3.2 MILLION CHARGE ($2.0 MILLION AFTER TAX) RELATED TO THE ACQUIRED PROFIT IN INVENTORY OF ACQUIRED BUSINESSES. FOURTH-QUARTER RESULTS INCLUDE A REDUCTION IN THE RESTRUCTURING CHARGE OF $1.9 MILLION ($1.1 MILLION AFTER TAX) TO REFLECT REVISED ESTIMATES OF REMAINING COSTS. FOURTH-QUARTER RESULTS ALSO INCLUDE AN ADJUSTMENT TO INCREASE THE GAIN RECOGNIZED ON THE JOINT VENTURE FORMATION OF $0.6 MILLION ($0.4 MILLION AFTER TAX). 1998: FOURTH-QUARTER RESULTS INCLUDE A $14.6 MILLION CHARGE ($8.9 MILLION AFTER TAX) FOR COSTS RELATED TO PLANT CLOSINGS. 43 46 The Geon Company Selected Financial Data - --------------------------------------------------------------------------------

Year Ended December 31, (In millions, except per share data) 1999 1998 1997 1996 1995 ---------------------------------------------------------- SALES $ 1,261.2 $ 1,284.4 $ 1,250.0 $ 1,144.4 $ 1,267.8 Employee separation and plant phase-out 0.5 14.6 15.0 -- 63.9 Operating income 99.7 41.0 51.7 30.9 63.3 Income before extraordinary item and cumulative effect of a change in accounting 106.2 13.8 22.5 12.2 32.2 Cumulative effect of change in method of accounting (1.5) -- -- -- -- NET INCOME 104.7 13.8 22.5 12.2 32.2 - ------------------------------------------------------------------------------------------------------------------ BASIC EARNINGS PER SHARE: BEFORE EXTRAORDINARY ITEM AND CHANGE IN METHOD OF ACCOUNTING $ 4.56 $ 0.60 $ 0.98 $ 0.51 $ 1.28 Change in method of accounting (0.07) -- -- -- -- NET INCOME 4.49 0.60 0.98 0.51 1.28 - ------------------------------------------------------------------------------------------------------------------ DILUTED EARNINGS PER SHARE: BEFORE EXTRAORDINARY ITEM AND CHANGE IN METHOD OF ACCOUNTING $ 4.37 $ 0.58 $ 0.95 $ 0.50 $ 1.24 Change in method of accounting (0.06) -- -- -- -- NET INCOME 4.31 0.58 0.95 0.50 1.24 DIVIDENDS PER COMMON SHARE 0.50 0.50 0.50 0.50 0.50 - ------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA, AT DECEMBER 31 Total assets $ 1,162.6 $ 802.0 $ 872.9 $ 736.9 $ 752.0 Long-term debt 130.9 135.4 136.4 137.2 137.9 ==================================================================================================================

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; ADCHEM, INC., FROM SEPTEMBER 1, 1998; ACROL HOLDINGS LIMITED, FROM JULY 1, 1999; O'SULLIVAN CORPORATION, FROM JULY 8, 1999; AND DENNIS CHEMICAL COMPANY, INC., FROM SEPTEMBER 8, 1999. IN ADDITION, 1999 RESULTS OF OPERATIONS REFLECT THE FORMATION OF OXY VINYLS, LP ON APRIL 30, 1999, AND THE CONTRIBUTION OF SUBSTANTIALLY ALL OF GEON'S FORMERLY CONSOLIDATED R&I BUSINESS SEGMENT OPERATIONS TO THE PARTNERSHIP. IN CONNECTION WITH THIS, THE COMPANY ALSO ACQUIRED BUSINESSES FROM OCCIDENTAL CHEMICAL CORPORATION AND FORMED A POWDER COMPOUNDING JOINT VENTURE, ALL OF WHICH ARE INCLUDED IN THE COMPANY'S CONSOLIDATED RESULTS OF OPERATIONS AFTER APRIL 30, 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 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 for a variety of factors including, but not limited to: (1) unanticipated changes in industry or world, regional or U.S. PVC consumption growth rates affecting the Company's markets; (2) unanticipated changes in global industry capacity that come online in the PVC, VCM, ethylene 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) unanticipated delays in realizing, or inability to realize, expected cost savings from acquisitions; (8) unanticipated costs or difficulties and delays related to completion of proposed transactions or the operation of joint venture entities; (9) lack of day-to-day operating control, including procurement of raw material feedstock, of the resin partnership; (10) lack of direct control over the reliability of delivery and quality of the primary raw materials (PVC and VCM) utilized in the Company's products; and (11) partial control over investment decisions and dividend distribution policy of the resin partnership. 44 47 The Geon Company Report of Independent Auditors AND MANAGEMENT REPORT - -------------------------------------------------------------------------------- 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, 1999, and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements, which appear on pages 19, 23, 25, and 27 through 42, are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Oxy Vinyls, LP (a limited partnership in which the Company has a 24% interest) have been audited by other auditors whose report has been furnished to us; insofar as our opinion relates to data included for Oxy Vinyls, LP, it is based solely on their report. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, 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, 1999, and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Cleveland, Ohio January 27, 2000 MANAGEMENT REPORT Management is responsible for the preparation of The Geon Company's consolidated financial statements and all of the related information appearing in this annual report, in accordance with generally accepted accounting principles. Where necessary, this information reflects estimates based upon currently available information and management's judgments. Management is also responsible for maintaining internal accounting controls, with the objectives of providing reasonable assurance that Geon's assets are safeguarded against material loss from unauthorized use or disposition, and that authorized transactions are properly recorded to permit the preparation of accurate financial information. Cost/benefit judgments are an important consideration in this regard. The effectiveness of internal controls is maintained by personnel selection and training, division of responsibilities, establishment and communication of policies, and ongoing internal review programs and audits. Management believes that Geon's internal accounting controls as of December 31, 1999, were effective and adequate to accomplish the objectives described above. Thomas A. Waltermire Chairman and Chief Executive Officer W. David Wilson Vice President and Chief Financial Officer January 27, 2000 45 48 The Geon Company Corporate Information

[Photograph] Thomas A. Waltermire [Photograph] [Photograph] V. Lance Mitchell Donald P. Knechtges [Photograph] Gregory L. Rutman [Photograph] W. David Wilson [Photograph] [Photograph] [Photograph] Denis L. Belzile Diane J. Davie Dennis A. Cocco [Photograph] Kenneth M. Smith [Photograph] [Photograph] John Sheppard Campbell [Photograph] Gregory P. Smith Jean M. Miklosko [Photograph] Glenn E. Higby

EXECUTIVES AND OFFICERS THOMAS A. WALTERMIRE DENIS L. BELZILE JOHN SHEPPARD CAMPBELL Chairman of the Board, President Vice President & General Manager, General Manager, & Chief Executive Officer Specialty Resins & Formulators Engineered Films DONALD P. KNECHTGES DIANE J. DAVIE GLENN E. HIGBY Senior Vice President, Vice President, Director, Technology & Business Development Human Resources Quality, Environment & Safety V. LANCE MITCHELL DENNIS A. COCCO JEAN M. MIKLOSKO Vice President & General Manager, Vice President, Treasurer Compounds Corporate & Investor Affairs GREGORY P. SMITH GREGORY L. RUTMAN Controller Vice President, General Counsel & Secretary KENNETH M. SMITH Vice President, W. DAVID WILSON Information Technology Vice President & Chief Financial Officer

46 49 STOCK EXCHANGE LISTING The Geon Company Common Stock is listed on the New York Stock Exchange. Symbol: GON. STOCKHOLDER INQUIRIES If you have any questions concerning your account as a stockholder, name or address changes, inquiries regarding dividend checks or stock certificates, or if you need tax information regarding your account, please contact our transfer agent: The Bank of New York P.O. Box 11258 Church Street Station New York, New York 10286-1258 Phone: (800) 524-4458 Complimentary copies of Form 10-K and other reports filed with the Securities and Exchange Commission are available from: Investor Affairs Administrator The Geon Company One Geon Center Avon Lake, Ohio 44012 Phone: (440) 930-1444 ANNUAL MEETING The annual meeting of stockholders of The Geon Company will be held April 19, 2000, at 9:00 a.m. at The Forum Conference and Education Center, One Cleveland Center, 1375 East 9th Street, Cleveland, Ohio. The meeting notice and proxy materials were mailed to stockholders with this report. The Geon Company urges all stockholders to vote their proxies so that they can participate in the decisions at the annual meeting. FINANCIAL INFORMATION Security analysts and representatives of financial institutions are invited to contact: W. David Wilson Vice President & Chief Financial Officer Phone: (440) 930-3204 Fax: (440) 930-1002 E-mail: wilsonw@geon.com FINANCIAL INFORMATION & MEDIA CONTACT Dennis A. Cocco Vice President, Corporate & Investor Affairs Phone: (440) 930-1538 Fax: (440) 930-1428 E-mail: coccod@geon.com AUDITORS Ernst & Young LLP 1300 Huntington Building 925 Euclid Avenue Cleveland, Ohio 44115-1405 INTERNET ACCESS Information on The Geon Company's products and services, news releases, EDGAR filings, Form 10-K, 10-Q, etc., as well as an electronic version of this annual report, are available on the Internet at http://www.geon.com. The Geon Company Board of Directors [Picture of] STANDING, LEFT TO RIGHT: Farah M. Walters, Thomas A. Waltermire, R. Geoffrey P. Styles, J. Douglas Campbell, D. Larry Moore SITTING, LEFT TO RIGHT: William F. Patient, James K. Baker, Gale Duff-Bloom THOMAS A. WALTERMIRE, 50 Chairman of the Board, President and Chief Executive Officer JAMES K. BAKER, 68 Retired Chief Executive Officer, Arvin Industries, a worldwide supplier of original equipment and replacement automotive parts; former Chairman, United States Chamber of Commerce 2, 4*, 5 GALE DUFF-BLOOM, 60 President, Company Communications and Corporate Image, J. C. Penney Company, Inc., a major retailer of apparel, jewelry, home furnishings and services through department stores and catalogs 1, 2*, 5 J. DOUGLAS CAMPBELL, 58 Retired President and Chief Executive Officer, Arcadian Corporation, the leading Western Hemisphere producer and marketer of nitrogen chemicals and fertilizers 1, 3, 5* D.LARRY MOORE, 63 Retired President and Chief Operating Officer, Honeywell, Inc., a global enterprise providing electronic automation and control systems for homes, buildings, process control industries and aerospace 1, 2, 3* WILLIAM F. PATIENT, 65 Retired Chairman of the Board and Chief Executive Officer 3, 4 R. GEOFFREY P. STYLES, 69 Retired Vice Chairman, Royal Bank of Canada, Canada's largest bank 1*, 3, 4 FARAH M. WALTERS, 55 President and Chief Executive Officer, University Hospitals of Cleveland and University Hospitals Health System, a leading health care delivery system in northeast Ohio 2, 4 1 Audit Committee 2 Compensation Committee 3 Environmental, Health and Safety Committee 4 Financial Policy Committee 5 Nominating and Governance Committee *DENOTES CHAIRMAN 47 50 - -------------------------------------------------------------------------------- [Picture of (right to left) Dorian Haffelder, Marketing Manager Bonnie C. Norris, Lab Technician Sang H. Lee, Technical Manager, Custom Injection Molding] - -------------------------------------------------------------------------------- [Logo Geon(TM)] ONE GEON CENTER AVON LAKE, OHIO 44012 440.930.1000 www.geon.com EX-13.2 3 EXHIBIT 13.2 1 Exhibit 13.2 Index to Consolidated Financial Statements of Oxy Vinyls, LP and Subsidiaries Page(s) Report of Independent Public Accountants - Consolidated Balance Sheet as of December 31, 1999 1 Consolidated Statement of Operations for the period from April 30, 1999 through December 31, 1999 2 Consolidated Statement of Changes in Partners' Capital for the period from April 30,1999 through December 31, 1999 3 Consolidated Statement of Cash Flows for the period from April 30, 1999 through December 31, 1999 4 Notes to the Consolidated Financial Statements 5-17 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Oxy Vinyls, LP: We have audited the accompanying consolidated balance sheet of Oxy Vinyls, LP and subsidiaries as of December 31, 1999, and the related consolidated statements of operations, changes in partners' capital, and cash flows for the period from April 30, 1999 to December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oxy Vinyls, LP and subsidiaries as of December 31, 1999, and the results of their operations and cash flows for the period from April 30, 1999 to December 31, 1999, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Dallas, Texas, January 25, 2000 3 OXY VINYLS, LP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1999 (Amounts in thousands)

CURRENT ASSETS Cash and cash equivalents $ 19,842 Trade receivables, net of allowance for doubtful accounts of $300 10,522 Other receivables 3,866 Loans receivable from OxyMar 12,500 Receivable from Occidental Receivables, Inc. 200,041 Receivable from Occidental Chemical Corporation, net 12,239 Inventories 105,830 Prepaid expenses 2,849 ---------- Total current assets 367,689 Loans receivable from Occidental Petroleum Corporation, net 28,790 Property, plant and equipment, net 974,394 Other assets 17,903 ---------- TOTAL ASSETS $1,388,776 ========== CURRENT LIABILITIES Current maturities of long-term debt $ 296 Accounts payable 205,753 Accrued liabilities 56,377 Payable to The Geon Company, net 6,270 Foreign income taxes payable 3,278 ---------- Total current liabilities 271,974 Long-term debt, net of current maturities 54,260 Equity investment in unconsolidated subsidiary 25,519 Postretirement benefit obligations 13,268 Deferred credits and other liabilities 9,464 COMMITMENTS AND CONTINGENCIES (NOTE 7) PARTNERS' CAPITAL 1,014,291 ---------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $1,388,776 ==========

The accompanying notes are an integral part of these consolidated financial statements. 1 4 OXY VINYLS, LP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For the Period from April 30, 1999 through December 31, 1999 (Amounts in thousands)

REVENUES Net sales $1,067,890 Equity in earnings of unconsolidated subsidiary 10,480 ---------- 1,078,370 COSTS AND OTHER DEDUCTIONS Cost of sales 963,296 Selling, general and administrative and other operating expenses 43,295 Interest expense, net 4,420 ---------- INCOME FROM OPERATIONS BEFORE FOREIGN INCOME TAXES 67,359 Provision for foreign income taxes 3,699 ---------- NET INCOME $ 63,660 ==========

The accompanying notes are an integral part of these consolidated financial statements. 2 5 OXY VINYLS, LP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL For the Period from April 30, 1999 through December 31, 1999 (Amounts in thousands)

Occidental Occidental 1999 PVC Total PVC LP Inc. PVC LLC Partner Inc. Partners' Capital ----------- ----------- ----------- ----------------- Initial capitalization on April 30, 1999 $ 723,717 $ 9,650 $ 231,589 $ 964,956 Net income 47,745 637 15,278 63,660 Distributions to partners (10,745) (142) (3,438) (14,325) ----------- ----------- ----------- ----------- Balance at December 31, 1999 $ 760,717 $ 10,145 $ 243,429 $ 1,014,291 =========== =========== =========== ===========

The accompanying notes are an integral part of these consoldiated financial statements. 3 6 OXY VINYLS, LP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Period from April 30, 1999 through December 31, 1999 (Amounts in thousands)

CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 63,660 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 48,166 Equity in earnings of unconsolidated subsidiary (10,480) Deferred foreign income taxes 316 Other noncash charge to income 1,533 Changes in operating assets and liabilities: Decrease in trade and other receivables 105,236 Decrease in loans receivable from OxyMar 12,500 Increase in inventories (23,220) Increase in receivables from Occidental Receivables, Inc. (200,041) Increase in prepaid expenses (549) Increase in accounts payable and accrued liabilities 133,023 Increase in foreign income taxes payable 3,278 Increase in receivable from Occidental Chemical Corporation, net (12,239) Increase in payable to The Geon Company, net 6,270 Other operating, net (6,007) --------- Net cash provided by operating activities 121,446 CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (24,525) --------- Net cash used by investing activities (24,525) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from long-term debt 44,000 Distributions to partners (14,325) Increase in loans receivable from Occidental Petroleum Corporation, net (106,790) --------- Net cash used by financing activities (77,115) --------- Increase in cash and cash equivalents 19,806 Cash and cash equivalents, beginning of period 36 --------- Cash and cash equivalents, end of period $ 19,842 =========

The accompanying notes are an integral part of these consolidated financial statements. 4 7 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (1) FORMATION AND OPERATIONS - Oxy Vinyls, LP ("OxyVinyls" or the "Partnership"), a Delaware limited partnership, was formed on April 6, 1999, pursuant to a Limited Partnership Agreement among Occidental PVC LP, Inc. (the "Oxy Limited Partner") and Occidental PVC, LLC (the "Oxy General Partner"), wholly-owned subsidiaries of Occidental Chemical Corporation (OCC) and 1999 PVC Partner Inc., (the "Geon Limited Partner"), a subsidiary of The Geon Company ("Geon"). The contributions and related transactions hereinafter described in this Note were effective, and the Partnership commenced operations, as of April 30, 1999, at which time the Limited Partnership Agreement was amended pursuant to a First Amended and Restated Limited Partnership Agreement dated as of April 30, 1999 (collectively with the Limited Partnership Agreement, the "Partnership Agreement"). Through the Oxy General Partner and the Oxy Limited Partner, OCC indirectly owns a seventy-six percent interest in the Partnership. OCC is an indirect, wholly-owned subsidiary of Occidental Petroleum Corporation (OPC). Through the Geon Limited Partner, Geon indirectly owns a twenty-four percent interest in the Partnership. The Partnership owns and operates polyvinyl chloride (PVC) and vinyl chloride monomer (VCM) assets in the United States that were contributed on behalf of the Oxy General Partner and the Geon Limited Partner, respectively, by OCC and Geon. These assets consist of several manufacturing facilities on the U.S. Gulf Coast, as well as manufacturing facilities in Kentucky and New Jersey and two chlor-alkali and cogeneration facilities near Houston, Texas. A fifty percent equity interest in OxyMar, a Texas general partnership between Oxy VCM Corporation ("Oxy VCM"), an indirect wholly-owned subsidiary of OPC, and US VCM Corporation, a wholly-owned subsidiary of Marubeni Corporation, a Japanese corporation, was contributed to the Partnership through a transfer by the Oxy Limited Partner of the capital stock of Oxy VCM to the Partnership and the subsequent merger of Oxy VCM into the Partnership. OxyMar owns a VCM manufacturing facility at Ingleside, Texas. The Partnership also owns and operates two PVC manufacturing facilities located in Ontario and Alberta, Canada. Ownership of these Canadian assets was acquired through a transfer by Geon Canada Inc., a wholly- owned Canadian subsidiary of Geon, of the capital stock of Oxy Vinyls Canada Inc. ("OxyVinyls Canada") to 3547728 Canada, Inc., an indirect Canadian subsidiary of the Partnership. For the capital stock of OxyVinyls Canada, 3547728 Canada, Inc. paid $36 million U.S. dollars borrowed by the Partnership from OPC and contributed by the Partnership as capital to its subsidiary, LaPorte Chemicals Corp. ("LaPorte") and further contributed by LaPorte to 3547728 Canada Inc. 3547728 Canada Inc. and OxyVinyls Canada were amalgamated with OxyVinyls Canada as the surviving entity. The assets and liabilities contributed on behalf of the Oxy General Partner and the Oxy Limited Partner were recorded at OCC's book basis by the Partnership. The assets and liabilities contributed on behalf of the Geon Limited Partner were recorded at their fair value by the Partnership. Under terms of the Partnership Agreement, net income is allocated among the partners pro rata based on their percentage ownership of the Partnership. Distributions to the partners and any additional cash contributions required by the Partnership are also based on the partners' percentage ownership of the Partnership. The consolidated financial statements include the accounts of OxyVinyls and its wholly-owned subsidiary, LaPorte, as well as LaPorte's subsidiary, OxyVinyls Canada, whose functional currency is the U.S. dollar. All intercompany accounts and transactions have been eliminated. 5 8 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - RISKS AND UNCERTAINTIES - ----------------------- The process of preparing consolidated financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the consolidated financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts, generally by immaterial amounts. Management believes that these estimates and assumptions provide a reasonable basis for the fair presentation of OxyVinyls' financial position and results of operations. Since OxyVinyls' major products are commodities, significant changes in the prices of chemical products could have a significant impact on OxyVinyls' results of operations for any particular period. OxyVinyls had one major customer, Geon, during the period presented, which accounted for 14.5% of total sales. Substantially all of the purchases of key raw materials are supplied by related parties (see Note 10). Additionally OxyVinyls purchases all VCM for its Alberta, Canada facility from one supplier. These purchases totaled approximately $45 million during the period from April 30, 1999 through December 1999. REVENUE RECOGNITION - ------------------- Revenue from product sales is recognized upon shipment of product to the customer. INCOME TAXES - ------------ The Partnership is not subject to U.S. federal or state income taxes as income is reportable directly by the individual partners. However, a provision for Canadian income taxes related to OxyVinyls Canada has been included in the accompanying consolidated financial statements. Deferred foreign income taxes reflect the future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts. The effective tax rate of 42% of Canadian pre-tax earnings is higher than the statutory Canadian federal income tax rate of 38% primarily due to provincial taxes less applicable federal credits. At December 31, 1999, OxyVinyls had deferred tax liabilities of $.3 million, which are included in deferred credits and other liabilities on the consolidated balance sheet. The temporary differences resulting in deferred tax liabilities are primarily related to property, plant and equipment. OxyVinyls is subject to audit by taxing authorities in various tax jurisdictions. Management believes that any required adjustments to OxyVinyls' tax liabilities will not have a material adverse impact on its financial position or results of operations. The current and deferred portion of the provisions for Canadian income taxes were $3.4 million and $.3 million, respectively, for the period from April 30, 1999 through December 31, 1999. FOREIGN CURRENCY - ----------------- The functional currency applicable to OxyVinyls Canadian operations is the U.S. dollar since cash flows are denominated principally in U.S. dollars. The effect of exchange-rate changes or transactions denominated in nonfunctional currencies generated a gain of approximately $.2 million for the period from April 30, 1999 through December 31, 1999. 6 9 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued) CASH AND CASH EQUIVALENTS - ------------------------- Cash equivalents consist of highly liquid certificates of deposits and a restricted bank deposit (see Note 7) with initial maturities of three months or less. Cash equivalents totaled $7.9 million at December 31, 1999. Interest income on deposits with unrelated parties was $.4 million for the period from April 30, 1999 through December 31, 1999. Cash overdrafts are reclassified to accounts payable and amounted to $13.9 million as of December 31, 1999. EQUITY INVESTMENT IN OXYMAR - ---------------------------- OxyMar owns a VCM manufacturing facility at Ingleside, Texas which is operated on OxyMar's behalf by OCC pursuant to an operating agreement. OxyMar is not subject to federal or state income taxes as income is reportable directly by the individual partners. The investment in OxyMar is accounted for under the equity method. At December 31, 1999, the historical underlying equity in net assets of OxyMar exceeded the Partnership's investment in OxyMar by $8 million. The investment deficiency is being amortized on a straight-line basis into income over 25 years. Amortization amounted to $.4 million for the period from April 30, 1999 through December 31, 1999. The following table presents summarized financial information of OxyMar as of December 31, 1999, and for the eight months then ended (in thousands): Net sales $ 303,273 Costs and expenses 281,601 --------- Net income $ 21,672 ========= Current assets $ 92,698 Noncurrent assets $ 363,308 Current liabilities $ 106,602 Noncurrent liabilities $ 384,415 Partners' capital $ (35,011) At December 31, 1999, OPC unconditionally provides guarantees of $192.5 million of OxyMar's obligations, which include private placement bonds and a revolving credit line. See Note 10 regarding OxyVinyls' purchase commitment from OxyMar. Unrealized profits on inventory purchased from OxyMar are deferred by OxyVinyls based on ownership percentage and are recognized upon the ultimate sale to an unaffiliated customer. 7 10 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued) OTHER ASSETS - ------------ Other assets includes certain tangible assets and deferred charges that are amortized over the estimated periods to be benefited (3 - 10 years). MAJOR MAINTENANCE EXPENDITURES - ------------------------------ OxyVinyls uses the accrue-in-advance method to account for major maintenance turnaround expenditures. Under this method, an estimate is made of the costs expected to be incurred in connection with the next planned periodic maintenance shutdown. That estimate is then accrued on a straight-line basis over the period of time until the next planned major maintenance shutdown occurs. The liability for major maintenance turnaround included in accrued liabilities was $13.2 million as of December 31, 1999. EXCHANGES - --------- Finished product exchange transactions, which involve homogeneous commodities held for sale in the ordinary course in the same line of business and do not involve the payment or receipt of cash, are not accounted for as purchases and sales. Any resulting volumetric exchange balances are accounted for as inventory in accordance with the normal inventory valuation policy. ENVIRONMENTAL COSTS - ------------------- Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Reserves for estimated costs that relate to existing conditions caused by past operations and that do not contribute to current or future revenue generation are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the reserves, OxyVinyls uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements. The environmental reserves are based on management's estimate of the most likely cost to be incurred and are reviewed periodically and adjusted as additional or new information becomes available. Probable recoveries or reimbursements are recorded as an asset. Pursuant to the asset contribution agreements of the Partnership, the contributor (OCC or Geon) has an obligation to indemnify OxyVinyls for health, safety and environmental claims that relate to pre-May 1, 1999 activities and that existed as of April 30, 1999 or arise within ten years of that date, except to the extent that OxyVinyls exacerbated or accelerated the claim. As of December 31, 1999, management believes no environmental reserve is required. RESEARCH AND DEVELOPMENT COSTS - ------------------------------ Research and development costs, which are charged to operations as incurred, were $4.4 million for the period from April 30, 1999 through December 31, 1999. 8 11 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued) SUPPLEMENTAL CASH FLOW INFORMATION - ---------------------------------- Cash payments during the period from April 30, 1999 through December 31, 1999 included foreign income taxes of $.1 million. Net interest paid totaled $4.2 million during the period from April 30, 1999 through December 31, 1999. During the period from April 30, 1999 through December 31, 1999, OxyVinyls sold trade receivables to an affiliate, Occidental Receivables, Inc. (ORI), in noncash transactions. See Note 3. FAIR VALUE OF FINANCIAL INSTRUMENTS - ----------------------------------- OxyVinyls values financial instruments as required by Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of Financial Instruments". The carrying amounts of cash and cash equivalents approximate fair value because of the short maturity of those instruments. The estimated fair value of the loans receivable from OxyMar at December 31, 1999 was approximately $12.2 million on a discounted basis using an estimated market rate, compared with a carrying value of $12.5 million. OxyVinyls estimates the fair value of its long-term debt based on the quoted market prices for the same or similar issues or on the yields offered to OxyVinyls for debt of similar rating and similar remaining maturities. The estimated fair value of OxyVinyls' long-term debt at December 31, 1999 was approximately $54.2 million compared with a carrying value of $54.3 million. See Note 6. The carrying value of other on-balance sheet financial instruments approximates fair value. (3) RECEIVABLES - During the period from April 30, 1999 through December 31, 1999, OxyVinyls sold, with limited recourse, to ORI certain trade receivables under a revolving sale program in connection with the ultimate sale for cash of an undivided ownership interest in such receivables by ORI. OxyVinyls has retained the collection responsibility with respect to the receivables sold. An interest in new receivables is sold monthly in noncash transactions representing the net difference between newly created receivables and collections made from customers. The net receivables balance sold as of December 31, 1999, was $200 million, which includes $32 million of OxyVinyls' trade receivables from Geon. 9 12 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (4) INVENTORIES - Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method was used in determining the cost of $65 million of inventories at December 31, 1999. The remaining inventories are accounted for using the first-in, first-out (FIFO) and weighted-average-cost methods. Inventories consisted of the following as of December 31, 1999 (in thousands): Raw materials $ 15,262 Materials and supplies 24,834 Finished goods 78,150 ----------- 118,246 LIFO and lower of cost or market reserve (12,416) ----------- Total inventories $ 105,830 =========== (5) PROPERTY, PLANT AND EQUIPMENT - Property additions and major renewals and improvements are capitalized at cost. Interest costs incurred in connection with major capital expenditures are capitalized and amortized over the lives of the related assets. Depreciation of plant and equipment is primarily provided using the units-of-production method based on estimated total productive life. Property, plant and equipment at December 31, 1999 consisted of the following (in thousands): Land and land improvements $ 32,894 Buildings 103,102 Machinery and equipment 1,435,314 Construction in progress 93,561 ----------- 1,664,871 Accumulated depreciation (690,477) ----------- Property, plant and equipment, net $ 974,394 =========== 10 13 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (6) LONG-TERM DEBT - Long-term debt at December 31, 1999 consisted of the following (in thousands): Pollution control revenue bonds, 6%, due through 2007 $ 10,056 Pollution control revenue bonds, 6.75%, due through 2009 500 Loan payable to Canadian bank under credit agreement, variable rate, 7.16% at December 31, 1999, due in 2004 44,000 -------- 54,556 Current maturities (296) -------- $ 54,260 ======== Minimum principal payments on long-term debt subsequent to 1999 are as follows (in thousands): 2000 $ 296 2001 296 2002 296 2003 322 2004 44,322 Thereafter 9,024 -------- $ 54,556 ======== The pollution control revenue bonds are secured by the equipment purchased with the proceeds of the financing. The Canadian bank loan is payable in U.S. dollars under the terms of the Credit Agreement ("Credit Agreement") entered into by OxyVinyls Canada in December 1999. OxyVinyls Canada may borrow up to $48 million under the terms of the Credit Agreement, which is guaranteed by OPC. Interest is payable quarterly. Interest expense related to long-term external debt was $.5 million for the period April 30, 1999 through December 31, 1999. 11 14 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (7) COMMITMENTS AND CONTINGENCIES - LEASES - ------ At December 31, 1999, future net minimum rental commitments under noncancelable operating leases with terms in excess of one year are as follows (in thousands): 2000 $ 28,727 2001 29,161 2002 19,249 2003 16,717 2004 9,023 Thereafter 60,370 --------- $ 163,247 ========= OxyVinyls leases certain manufacturing facilities in LaPorte, Texas, and railcars under the terms of various related agreements dated April 30, 1999 (collectively, the "LaPorte Lease"). The initial lease term extends through April 20, 2004 and has a provision for annual renewals for an additional five years. Upon termination of the lease, OxyVinyls may purchase the assets based upon their estimated fair values. In the event OxyVinyls does not purchase the assets, the lease provides a residual value guarantee by OxyVinyls of approximately $152 million. Currently, OxyVinyls does not expect to make payments under this provision. Total estimated future rental commitments of $42.4 million under the LaPorte Lease are included in the operating lease commitments above. Actual rent payments under the LaPorte Lease are calculated using variable interest rates. OxyVinyls has restricted bank deposits associated with the LaPorte Lease of $3.5 million as of December 31, 1999. OxyVinyls earns interest on these deposits which will be returned to OxyVinyls upon termination of the LaPorte Lease. All obligations under the LaPorte Lease are guaranteed by OPC. Rent expense was approximately $21.5 million for the period from April 30, 1999 through December 31, 1999. OTHER - ----- OxyVinyls has entered into an agreement providing for the following future payments to purchase brine, a raw material utilized in chlor-alkali production. At December 31, 1999, the net present value of the fixed and determinable portion of the obligation under this agreement was used to collateralize financing of the brine supplier. 2000 $ 820 2001 790 2002 760 2003 730 2004 700 2005 through 2014 5,026 --------- $ 8,826 ========= 12 15 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (7) COMMITMENTS AND CONTINGENCIES - (continued) OxyVinyls has certain other commitments under contracts to purchase electrical power and raw materials and other obligations, all in the ordinary course of business and at market prices. See Note 10 for commitments to related parties. The Partnership also becomes involved in certain legal proceedings in the normal course of business. Management believes that the outcome of such matters will not materially affect the Partnership's consolidated financial position or results of operations. (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - RETIREMENT PLANS - ---------------- OxyVinyls participates in various defined contribution retirement plans sponsored by OPC for its salaried, domestic union and nonunion hourly, and certain foreign national employees that provide for periodic contributions by OxyVinyls based on plan-specific criteria, such as base pay, age level, and/or employee contributions. OxyVinyls contributed and expensed approximately $4.7 million under the provisions of these plans during the period from April 30, 1999 through December 31, 1999. MEDICAL AND POSTRETIREMENT BENEFITS - ----------------------------------- OxyVinyls provides medical and dental benefits and life insurance coverage for certain active, retired and disabled employees and their eligible dependents. The benefits generally are funded by OxyVinyls as the benefits are paid during the year. The cost of providing these benefits is based on claims filed and insurance premiums paid for the period. The total benefits costs, including postretirement costs, were approximately $5 million during the period from April 30, 1999 through December 31, 1999. The following table sets forth the components of the net periodic benefit costs for OxyVinyls' postretirement benefit plans for the period from April 30, 1999 through December 31, 1999 (in thousands): Service cost - benefits earned during the period $ 625 Interest cost on benefit obligations 827 ------- Net periodic postretirement benefit cost $ 1,452 ======= OxyVinyls' postretirement benefit plans are accrued based on various assumptions and discount rates, as described below. The actuarial assumptions used could change in the near term as a result of changes in expected future trends and other factors which, depending on the nature of the changes, could cause increases or decreases in the liabilities accrued. 13 16 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - (continued) MEDICAL AND POSTRETIREMENT BENEFITS - (continued) ----------------------------------- The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation for OxyVinyls' postretirement benefit plans (in thousands): Changes in benefit obligation: Benefit obligation - April 30, 1999 $ 11,816 Service cost - benefits earned during the period 625 Interest cost on projected benefit obligations 827 Actuarial gain (1,326) -------- Benefit obligation - December 31, 1999 $ 11,942 ======== The postretirement benefit obligations were determined by application of the terms of medical and dental benefits and life insurance coverage, including the effect of established maximums on covered costs, together with relevant actuarial assumptions and health care cost trend rates projected at a Consumer Price Index (CPI) increase of 3 percent as of December 31, 1999. Participants pay for all medical cost increases in excess of increases in the CPI. Consequently, increases in the assumed healthcare cost trend rates beyond the CPI increase would have no impact on the postretirement benefit obligation at December 31, 1999. The discount rate used in determining the benefit obligation was 7.75 percent as of December 31, 1999. Pursuant to the asset contribution agreements of the Partnership, the contributors (OCC and Geon) retained liability for, and have an obligation to indemnify the Partnership with respect to, such contributors' employee benefit and welfare plans and programs (including existing retirees and disabled) and any claims by or on behalf of employees of OxyVinyls that are attributable to their employment with the contributor prior to May 1, 1999. Obligations related to postretirement benefits attributable to active employees at April 30, 1999 were assumed by OxyVinyls. The following sets forth the funded status and amount recognized in OxyVinyls' consolidated balance sheet for the postretirement benefit obligations at December 31, 1999 (in thousands): Funded status $ (11,942) Unrecognized net gain (1,326) --------- Postretirement benefit obligations $ (13,268) ========= 14 17 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (9) CASH MANAGEMENT AND CREDIT AND DEPOSIT FACILITIES AGREEMENT WITH OPC - OxyVinyls participates in OPC's centralized cash management system for its domestic operations. OxyVinyls maintains a concentration account to collect cash receipts and to fund disbursements. OPC funds any negative cash balances and collects any excess cash balances on a daily basis in the concentration account under the terms of a Cash Management and Credit and Deposit Facilities Agreement between OPC and OxyVinyls (the "Agreement"). Under terms of the Agreement, OPC has committed to loan OxyVinyls, on a revolving basis, up to $88.2 million as of December 31, 1999. The Agreement provides that the maximum revolving loan commitment be reduced by $22.2 million over the remaining term of the Agreement based on certain cash flow results of OxyVinyls. Geon has guaranteed $42.3 million of the OxyVinyls' loans payable to OPC. This guarantee terminates on the later of April 30, 2002 or when OxyVinyls attains a defined amount of earnings before income taxes, depreciation, and amortization. OPC loans to OxyVinyls cannot decrease below a minimum required balance of $42.3 million before the termination of the Geon guarantee. As of December 31, 1999, loans payable to OPC under the Agreement were $42.3 million. In order to maintain the loan above the minimum required balance, any excess cash collected by OPC is held in the form of interest bearing deposits under terms of the Agreement. These deposits are considered loans receivable from OPC. As of December 31, 1999, the balance of loans receivable from OPC was $71.1 million. The OxyVinyls' loans payable and receivable to/from OPC, including interest, has been combined and recorded as loans receivable from OPC, net in the accompanying consolidated balance sheet. Loans payable to OPC accrue interest at the reported one-month London Interbank Offered Rate (LIBOR) plus a calculated variable margin. Loans receivable from OPC accrue interest at the reported one-month LIBOR. Interest expense under the Agreement, net of interest income of $.4 million, totaled $4.4 million for the period from April 30, 1999 through December 31, 1999. Fees payable to OPC under the Agreement totaled $.4 million for the period from April 30, 1999 through December 31, 1999, and are included in other operating expenses. The Agreement may be terminated by either OxyVinyls or OPC after the termination of the Geon guarantee, at which date any outstanding loans as well as any accrued interest and fees payable become due. (10) RELATED PARTY TRANSACTIONS - OxyVinyls sells PVC to Geon under the terms of a sales agreement that expires on December 31, 2013. The agreement requires Geon to purchase its and its affiliates' annual PVC requirements in North America from OxyVinyls in excess of 290 million pounds. On the first 880 million pounds of PVC supplied in any calendar year, Geon will pay a price which is based upon cost and market considerations. Geon will purchase all volumes over 880 million pounds in any calendar year at a competitive market price. 15 18 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (10) RELATED PARTY TRANSACTIONS - (continued) OxyVinyls sells VCM to OCC and Geon under the terms of separate sales agreements that expire on December 31, 2013. The agreements require that OCC and Geon purchase at market price all of their VCM requirements for production of PVC in North America from OxyVinyls. Under the terms of the agreements, Geon and OCC receive an integration credit on the first 210 million and 215 million pounds purchased in any year, respectively, to compensate for surrendered purchasing power on major feedstocks. OxyVinyls' sales of PVC and VCM to OCC and Geon under the terms of these agreements was approximately $25.9 million and $220 million, respectively, during the period from April 30, 1999 through December 31, 1999. OxyVinyls sells chlor-alkali and other specialty products to OCC under the terms of a sales agreement that expires on December 31, 2013. This agreement requires OCC to purchase all chlor-alkali and specialty products produced by OxyVinyls' which are not required for its internal uses at market price and OxyVinyls full manufacturing cost, respectively. This agreement also requires OxyVinyls to pay OCC a fee for marketing excess chlor-alkali products to third parties. OxyVinyls sold $102.7 million of chlor-alkali and specialty products to OCC and paid $14.7 million to OCC for the marketing fee during the period from April 30, 1999 through December 31, 1999. OxyVinyls purchases ethylene from Equistar Chemicals LP, an equity investee of OCC ("Equistar"), under the terms of two agreements. The first agreement requires that OxyVinyls purchase at market price, 600 million pounds of ethylene in 1999, 250 million pounds during the year 2000 and 200 million pounds in each of the years 2001 through 2003 for the LaPorte VCM facility. This agreement expires December 31, 2003. Under the terms of the second agreement, OxyVinyls purchases ethylene requirements for the Deer Park VCM and OxyMar facilities at Equistar's weighted average selling price, as defined in the agreement. This agreement expires on December 31, 2013. OxyVinyls purchased $91.3 million of ethylene from Equistar under the terms of these agreements during the period from April 30, 1999 through December 31, 1999. OxyVinyls purchases chlorine from Sunbelt Chlor Alkali Partnership, an equity investee of Geon ("Sunbelt"), under the terms of an agreement that expires on December 31, 2094. This agreement requires OxyVinyls to purchase at market price, less a discount, all chlorine produced by Sunbelt at its chlorine manufacturing process facility in McIntosh, Alabama, up to a maximum of 250 thousand tons per year. OxyVinyls purchased $16.4 million of chlorine from Sunbelt under the terms of this agreement during the period from April 30, 1999 through December 31, 1999. OxyVinyls purchases VCM from OxyMar under the terms of a VCM purchase agreement that runs until such time as OPC, either directly or through its affiliates, ceases to own an equity interest in OxyMar. The agreement requires OxyVinyls to purchase each year at market prices a minimum of 700 million of the first 1.1 billion pounds of VCM produced and 530 million pounds of the next 1 billion pounds produced by OxyMar. Total purchases under this agreement were $204.6 million for the period from April 30, 1999 through December 31, 1999. 16 19 OXY VINYLS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (10) RELATED PARTY TRANSACTIONS - (continued) OxyVinyls incurs costs charged by OCC and Geon under the terms of various service and shared facilities agreements. These agreements are in effect generally so long as services continue to be provided between parties and/or facilities continue to be shared. Under the provisions of these agreements, OxyVinyls receives from and makes payments to Geon and OCC for shared facilities at Louisville, Kentucky, Pedricktown, New Jersey and Pasadena, Texas. In some cases the agreements contain renewal options at negotiated prices. The net total of these costs was approximately $0.1 million for the period from April 30, 1999 through December 31, 1999. Additionally, OxyVinyls incurs costs for administrative and other support services paid to OCC and Geon which totaled approximately $7.8 million and $6.2 million, respectively, for the period from April 30, 1999 through December 31, 1999. OxyVinyls incurred net railcar rent expense payable to OCC and Geon of approximately $4.3 million and $.5 million, respectively, for the period from April 30, 1999 through December 31, 1999. As of December 31, 1999, OxyVinyls had a net receivable from OCC of $12.2 million and a net payable to Geon of $6.3 million. (11) VALUATION AND QUALIFYING ACCOUNTS - Approximately 30 employees at various manufacturing facilities were identified in a workforce reduction plan that will be completed in the second quarter of 2000. Certain severance costs of $.9 million and relocation costs of $.9 million were accrued in connection with the formation of the Partnership. Also severance and relocation costs of $2.1 million and $.2 million, respectively, were accrued and charged to expense during the period from April 30, 1999 to December 31, 1999. Total accrued severance and relocation is recorded in accrued liabilities and the amount charged to expense during the period from April 30, 1999 to December 31, 1999, is recorded in selling, general and administrative and other operating expenses. The following table presents the activity of accrued severance and relocation liabilities and allowance for doubtful accounts for the period from April 30, 1999 to December 31, 1999 (in millions).

Balance at Balance at Beginning Charged to End of of Period Expense Deductions Period --------- ------- ---------- ------ Allowance for doubtful accounts $ - $ .3 $ - $ .3 Accrued severance and relocation $ 1.8 $ 2.3 $ (.9)(a) $ 3.2

(a) Payments under the Partnership's plan for termination and relocation of certain employees. 17 EX-21 4 EXHIBIT 21 1 EXHIBIT 21 THE GEON COMPANY SUBSIDIARIES Jurisdiction of NAME Incorporation - ---- ------------- 1997 Chlor-Alkali Venture Inc. Alabama The Geon Company Australia Limited Australia Auseon Limited Australia Australian Vinyls Corporation (1) Australia Wilflex Australasia PTY Ltd. Australia Diversified Compounders, Inc. California Geon Canada Inc. Canada LP Holdings, Inc. Canada Geon Polimeros Andinos S.A. (2) Colombia (6) Resintech, S.A. Costa Rica 1999 General Compounding Partnership Inc. Delaware (6) 1999 Limited Compounding Partnership Inc. Delaware 1999 PVC Partner Inc. Delaware (6) Decillion Inc. Delaware (5) Lincoln & Southern Railroad Company Delaware Oxy Vinyls, LP (3) Delaware (6) PVC Powder Blends, LP (4) Delaware (6) Sunbelt Chlor-Alkali Partnership (2) Delaware (6) Acrol Holdings Limited England Geon Engineering Vinyls Limited England Hydro Geon (2) England (6) Wilflex Europe Limited England Regalite Plastics Corporation Massachusetts Dennis Chemical Urethane Redevelopment Missouri O'Sullivan Plastics Corporation Nevada Geon Development Inc. Ohio Polymer Diagnostics Inc. Ohio SPC Geon PTE LTD. (2) Singapore Shawnee Holdings, Inc. Virginia Geon Engineered Films Inc. Virginia Inversiones The Geon Company de Venezuela C.A. Venezuela Plast-O-Meric, Inc. Wisconsin NOTES: - ----- (1) Owned 37.4% by the Company (2) Owned 50% by the Company. (3) Owned 24% by the Company (4) Owned 90% by the Company (5) Owned 40% by the Company (6) Partnership EX-23.1 5 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Geon Company of our report dated January 27, 2000, included in the 1999 Annual Report to the Stockholders of The Geon Company. Our audit also included the financial statement schedule of The Geon Company listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also 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, in the Registration Statement (Form S-8 No. 33-65518) pertaining to The Geon Company Retirement Plus Savings Plan for Wage Employees, in the Registration Statement (Form S-8 No. 333-81025) pertaining to The Geon Company 1998 Interim Stock Plan, and in the Registration Statement (Form S-8 No. 333-81027) pertaining to The Geon Company 1999 Incentive Stock Plan of our report dated January 27, 2000, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of The Geon Company. /s/ ERNST & YOUNG LLP Cleveland, Ohio March 23, 2000 EX-23.2 6 EXHIBIT 23.2 1 Exhibit 23.2 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report on Oxy Vinyls, LP included in this Form 10-K, into The Geon Company's previously filed Registration Statement File Nos. 33-92398, 33-80262, 33-62112, 33-65520, 33-65518, 33-80522, 333-81027, and 333-81025. /s/ Arthur Andersen LLP Dallas, Texas March 24, 2000 EX-27.1 7 EXHIBIT 27.1

<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, 1999 AND 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000,000 <PERIOD-TYPE> YEAR <FISCAL-YEAR-END> DEC-31-1999 <PERIOD-START> JAN-01-1999 <PERIOD-END> DEC-31-1999 <CASH> 51 <SECURITIES> 0 <RECEIVABLES> 109 <ALLOWANCES> 4 <INVENTORY> 168 <CURRENT-ASSETS> 358 <PP&E> 759 <DEPRECIATION> 421 <TOTAL-ASSETS> 1,163 <CURRENT-LIABILITIES> 441 <BONDS> 131 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 3 <OTHER-SE> 332 <TOTAL-LIABILITY-AND-EQUITY> 1,163 <SALES> 1,261 <TOTAL-REVENUES> 1,261 <CGS> 1,038 <TOTAL-COSTS> 1,171 <OTHER-EXPENSES> (101) <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 18 <INCOME-PRETAX> 174 <INCOME-TAX> 68 <INCOME-CONTINUING> 106 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 2 <NET-INCOME> 105 <EPS-BASIC> 4.49 <EPS-DILUTED> 4.31

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EX-13.1

   1

                                                                    Exhibit 13.1

      [Logo Geon(TM)]

      Performance
- --------------------------------------------------------------------------------
                           in polymers

[Photograph on cover of]
  FRONT (LEFT TO RIGHT):
  Patricia Wallace, Account Representative
  Bill Peeler, Lead IS&T Analyst/Programmer
  Bill Blue, Shift Leader
- --------------------------------------------------------------------------------


1999 Annual Report


   2


THE COURAGE TO CHANGE

THE STRENGTH TO SUCCEED

         The theme of this annual report, "Performance in Polymers," reflects
the outstanding performance of Geon's plants, products - and, most important, of
our people. Through their dedicated efforts, we are building a tightly knit
network of polymer products and services that provides value to customers and
shareholders. This network of value-added businesses is the core of the new
Geon -- a company characterized by technical expertise, operational excellence,
market knowledge and leadership in information technology. The employees
featured in these pages represent 3,100 people at 30 sites in North America,
Europe and Australia. Their performance and relentless efforts have transformed
an entire company. They are Geon.

         GEON  AT-A-GLANCE




               ANNUALIZED
               REVENUES       EMPLOYEES   END USE APPLICATIONS        PLANT LOCATIONS
               --------------------------------------------------------------------------------------------------------------------
                                                                                       
   COMPOUNDS/  $900 million   1,300       Appliance and business      Avon Lake, Ohio                  Orangeville, Ontario, Canada
 PLASTICIZERS                             equipment components,       Burlington, New Jersey           Pasadena, Texas
                                          windows, electrical wire    Conroe, Texas                    Plaquemine, Louisiana
                                          and cable, bottles, pipe    Denver, Colorado                 St. Remi de Napierville,
                                          fittings, automotive trim   Farmingdale, New Jersey            Quebec, Canada
                                                                      Long Beach, California           Terre Haute, Indiana
                                                                      Louisville, Kentucky             Valleyfield, Quebec, Canada
                                                                      Niagara Falls, Ontario, Canada
                                                                      ------------------------------------------------------------
                                                                                            COMPOUND   HYDRO GEON
                                                                                     JOINT VENTURES:     Newton Aycliffe, England
                                                                                                       SPCGEON PTE LTD.
                                                                                                         Singapore
                                                                                                       GEON/POLIMEROS ANDINOS
                                                                                                         Cartagena, Colombia
               --------------------------------------------------------------------------------------------------------------------
    SPECIALTY  $110 million   250         Vinyl flooring, carpet      Henry, Illinois
       RESINS                             backing, automotive com-    Pedricktown, New Jersey
                                          ponents, fabric coatings,
                                          decals and metal coatings
               --------------------------------------------------------------------------------------------------------------------
  FORMULATORS  $175 million   350         Automotive, apparel         Bolton, England                  North Baltimore, Ohio
                                          and appliance coatings;     Widnes, England                  St. Louis, Missouri
                                          sport and recreation        Kennesaw, Georgia                Sullivan, Missouri
                                          gear; signage               Los Angeles, California          Sussex, Wisconsin
                                                                      Melbourne, Australia             Waukesha, Wisconsin
               --------------------------------------------------------------------------------------------------------------------
   ENGINEERED  $200 million   1,100       Automotive interiors,       Burlington, New Jersey
        FILMS                             pool and pond liners,       Lebanon, Pennsylvania
                                          medical blood and           Newton Upper Falls,
                                          intravenous bags,             Massachusetts
                                          bookbinding covers,         Winchester, Virginia
                                          laminating films            Yerington, Nevada
               --------------------------------------------------------------------------------------------------------------------
      RESIN &  OXY VINYLS, LP                                SUNBELT CHLOR-ALKALI                AUSTRALIAN VINYLS
INTERMEDIATES  Geon ownership: 24 percent                    Geon ownership: 50 percent          CORPORATION
 EQUITY JOINT  Partner: OxyChem division of Occidental       Partner: Olin Corporation           Geon ownership: 37.5 percent
     VENTURES    Petroleum Corporation                       Products: Chlorine/caustic soda     Partner: Orica Limited
               Products: Polyvinyl chloride (PVC) resins,                                        Products: PVC resins and compounds
                 vinyl chloride monomer (VCM),
                 chlorine/caustic soda



   3

                                                                The Geon Company


FINANCIAL HIGHLIGHTS




                                                           Year Ended December 31

(Dollars in Millions, Except Per Share Data)            1999         1998        1997
- ----------------------------------------------------------------------------------------
                                                                    
Sales                                                $ 1,261.2   $ 1,284.4    $  1,250.0
Employee separation and plant phase-out                    0.5        14.6          15.0
Operating income                                          99.7        41.0          51.7
Net income, before cumulative effect
  of a change in accounting                              106.2        13.8          22.5
Capital expenditures                                      60.1        40.7          50.9
Depreciation and amortization                             44.4        57.9          54.6
Total debt (year-end)                                    353.3       187.1         227.6
Stockholders' equity (year-end)                          334.7       214.1         223.8
Earnings per share, before cumulative effect
  of a change in accounting, diluted                 $    4.37   $    0.58    $     0.95
Common shares outstanding (in millions, year-end)         23.7        23.4          23.2

Other data:
Operations, before special charges and gain(A)
       Operating income                              $   105.4   $    55.6    $     66.7
       Net income                                         52.5        22.7          31.7
       Earnings per diluted share                    $    2.16   $    0.96    $     1.34
Average equity market value                              678.8       506.4         494.7
Number of employees (year-end)                           3,060       2,384         2,010
Employee and management stock ownership                     14%         14%           14%
Stockholders (estimated at December 31)                  7,000       7,000         7,000


(A)Special charges in 1999, 1998 and 1997 include the employee separation and
plant phase-out expense shown in the Financial Highlights above. In addition,
1999 special charges include accelerated depreciation of $1.2 million (pre-tax)
related to the compound asset rationalization, $3.2 million (pre-tax) related to
acquired profit on inventory of business acquisitions, $0.8 million (pre-tax)
representing Geon's share of a restructuring charge recognized by OxyVinyls and
a $2.4 million (pre-tax) cumulative effect of a change in accounting for
start-up costs. In addition, 1999 included a one-time gain of $93.5 million
(pre-tax) related to the formation of OxyVinyls and related transactions. See
the Notes to the Consolidated Financial Statements for more information.

WANT TO KNOW MORE

        ABOUT GEON?

        CHECK OUT OUR WEB SITE:

        www.geon.com


1 9 9 9
SALES BY SEGMENT
Dollars in millions

$1,107---------------
87.8%                \
PERFORMANCE           \
POLYMERS AND           \
SERVICES                \
  Compounds              \
  Specialty Resins        \
  Formulators              \
  Engineered Films          \
                             \
$154-------------------------  [Pie Chart]
12.2%
POLYVINYL
CHLORIDE (PVC)
RESINS AND
INTERMEDIATES

1 9 9 9
SALES BY GEOGRAPHIC
REGION
Dollars in millions

$1,056-------------
83.7%               \
UNITED               \
STATES                \

$191------------------  [Pie Chart]
15.2%                 /
CANADA               /
                    /
$14----------------
1.1%
OTHER


                                                                               1

   4

LETTER TO SHAREHOLDERS


                       DELIVERING ON OUR COMMITMENT




                                                                    [Photograph]

- --------------------------------------------------------------------------------
                                                      THOMAS A. WALTERMIRE

To Our Shareholders:

            One of the most pleasant duties of a chief executive officer is
   reporting the results of a very good year. 1999 was such a year for Geon.
   Looking back, I trust you'll agree that our efforts yielded rewards for you -
   the best evidence that our strategy to create a new Geon is meeting with
   great success. In fact, though, our journey toward improved profitability
   began well before last year.

            It started right after our IPO in 1993. By taking more than $100
   million in costs out of our operations, we learned how to be very
   competitive, achieve operating excellence and improve our quality. With
   continuing advances in our integrated information systems, including the
   successful installation of our new Enterprise Resource Planning (ERP)
   platform, we tied our businesses together so we could operate efficiently and
   serve customers in the flawless fashion they deserve.

            In 1997, we began our transformation. With the creation of strategic
   operating units, we set the stage for rapid growth via acquisition in our
   performance polymers business. We also began the search for alternatives for
   our commodity resin business. With eight successful acquisitions completed to
   date, we have established new business platforms and strong new earnings
   streams. By forming the Oxy Vinyls, LP (OxyVinyls) joint venture, we have
   reduced our exposure to polyvinyl chloride (PVC) resin cycles while
   maintaining a low-cost position in this key raw material.

         Our work to date has created a new company with the leading market
   position in each of our operating units. Our organic growth exceeds the Gross
   Domestic Product. We are the technology leader in each market we serve.
   Adding these strengths to our operating excellence and strong raw materials
   position means we have a business that can deliver consistent bottom-line
   growth.

         Geon's Performance Polymers and Services segment, which includes our
   historical operations in compounds and specialty resins as well as our
   acquisitions, has demonstrated the capability to generate

                                                                               2
   5

                                                                The Geon Company

                        "In 1999, we recorded one of our

                               BEST FINANCIAL PERFORMANCES

                             since Geon became a public company"

an operating return on sales that averages in excess of 10 percent. We achieved
these results through the efforts of an experienced, dedicated management team -
one that I am proud to lead because it knows only one way to play the game: to
win! I see that same competitive fire in the eyes of Geon people I meet wherever
I travel. I feel privileged to represent this outstanding team.

1999 FINANCIAL RESULTS In 1999, we recorded one of our best financial
performances since Geon became a public company. We reached this milestone while
margins for PVC resins and chlorine/caustic soda were very depressed for most of
the year. Nearly all our earnings came from our Performance Polymers and
Services segment.

         In 1999, revenues were $1.26 billion compared with $1.28 billion in
1998. Net income was $52.5 million, or $2.16 per diluted share, excluding
special items, compared with 1998 results of $22.7 million, or $0.96 per diluted
share, before a special charge for compound operations consolidation.

1999 HIGHLIGHTS Our successes in 1999 reflected the tremendous team effort at
Geon and translated to measurable results for our shareholders:


- - ON MAY 1, WE LAUNCHED THE JOINT VENTURE with Occidental Petroleum
Corporation's OxyChem division forming OxyVinyls, North America's largest and
leading supplier of PVC resins. We retained a 24 percent interest as well as an
attractive, long-term raw material supply agreement. The transaction also
allowed us to reduce our debt and acquire OxyChem's compounding and engineered
films operations. With PVC resin margins beginning to recover in second-half
1999 from their historic lows in 1998, the outlook is bright for earnings from
OxyVinyls in 2000.

- - WE COMPLETED FOUR IMPORTANT ACQUISITIONS. In addition to the OxyChem
businesses, in July we acquired O'Sullivan Corporation, a manufacturer of
value-added engineered films. O'Sullivan has a leading position in films for
interior applications in automobiles. The combination of O'Sullivan with the
OxyChem films business creates a new business platform, engineered films, with
strong growth potential.

      We made two formulator acquisitions. Dennis Chemical gives us increased
strength in urethane systems and, with a plant in Commerce, California, an
important West Coast presence. Our first foreign acquisition, Acrol of Widnes,
England, opens opportunities for growth in Europe. Both Acrol and Dennis are
excellent operations that are providing immediate benefits, both financially and
competitively.

      These acquisitions added $200 million in 1999 revenue, and each one was
immediately accretive. In 2000, they should add approximately $400 million in
sales revenue.(1)

(1)See Forward-Looking Statements, page 44.

- --------------------------------------------------------------------------------
COMMON STOCK QUARTERLY PRICE RANGE
Dollars in millions

[Graph]

"OUR SUCCESSES
            IN 1999 REFLECTED THE TREMENDOUS
            TEAM EFFORT AT GEON AND TRANSLATED
            TO MEASURABLE RESULTS FOR OUR
            SHAREHOLDERS."

                                                                               3

   6

The Geon Company



                   1 9 9 7                    1 9 9 8
                                                                       
                   Synergistics Industries    Plast-O-Meric       Wilflex          Adchem
                   Limited
                                              BUSINESS:           BUSINESS:        BUSINESS:
BUILDING           BUSINESS:                  Formulating         Formulating      Formulating
  A NEW GEON       Compounding
- -------------------------------------------------------------------------------------------------------
                   1 9 9 9
  ACQUISITIONS     OxyChem Operations         O'Sullivan          Acrol Holdings   Dennis Chemical
                                              Corporation         Limited
                   BUSINESS:                                                       BUSINESS:
                   Compounding,               BUSINESS:           BUSINESS:        Formulating
                   Engineered Films           Engineered Films    Formulating



- - IN NOVEMBER, WE LAUNCHED A 50/50 PVC COMPOUNDING JOINT VENTURE with
Petroquimica Colombiana S.A. (Petco) that positions us in the Andean region of
South America. PVC is often referred to as the infrastructure polymer. As the
economies of this region develop, we envision a very good opportunity to apply
our broad PVC compounding technology. We have had an excellent relationship for
many years with Petco, a licensee of our resin technology.

- - WE CONTINUE TO DEMONSTRATE OUR SKILLS WITH INFORMATION SYSTEMS. In 1999, we
brought the OxyChem compounding and former Synergistics facilities into our ERP
system - on time and on budget. Also, we integrated the former OxyChem films
operation with O'Sullivan's proprietary information system. This vital step
equips us to run our entire engineered films group under one system. We
accomplished this integration within two months of the close of the O'Sullivan
acquisition. Rapid integration is critical to gaining maximum benefits from
the businesses we are bringing to Geon. Our excellent systems give us the
foundation to develop a leading e-commerce position in the years ahead.

- - WE COMPLETED THE EXPANSION OF OUR HENRY, ILLINOIS, SPECIALTY RESINS PLANT -
again, on time and on budget. Our customers already are reaping benefits in
product quality and performance.

- - IN 1999, WE IMPLEMENTED OUR PREVIOUSLY ANNOUNCED COMPOUND ASSET
RATIONALIZATION. We closed the Lindsay, Ontario, Canada, plant and shut down a
number of other production lines. Our employees accomplished this while
maintaining quality and service levels. We anticipate savings of $9 million in
2000 versus 1998 as a result of the compound consolidation. We intended to close
the powder compounding operation at Conroe, Texas, and move the business to our
new Pasadena, Texas, facility. Business conditions have been strong, however,
and we now expect to keep the Conroe compounding line open at least through
2000.

- - WITH ALL OUR ACQUISITIONS AND JOINT VENTURES, we have exercised financial
diligence. By doing so, we retain the financial horsepower to fund future
aggressive growth. Our debt-to-EBITDA ratio at year's end was 2.8, before the
one-time OxyChem transaction gain.



[Photograph of Tom Waltermire]



- - OUR SAFETY AND ENVIRONMENTAL PERFORMANCE is one of the strongest indicators of
our people's commitment to operating excellence. I am proud that Geon remains an
industry leader for our low injury rates. It has been exciting to see our
acquired businesses reduce their injury rates dramatically. Our acquisitions
quickly learn that safeguarding our employees and the environment is both the
right thing to do and good business.


                                                                               4
   7

                                                          LETTER TO SHAREHOLDERS

2000 OUTLOOK Last year, we stated four goals as we looked to the future:

1 Integrate our acquisitions quickly and successfully

2 Expand our scope beyond vinyl polymers

3 Pursue global opportunities

4 Create, acquire and nurture embryonic ventures

         We made excellent progress toward all these goals in 1999. Creating and
acquiring new ventures is always a special challenge, and we are redoubling our
efforts in this important area.

         We continue to pursue our goal of more than $2 billion in annual
revenues by the end of 2000. In addition to organic growth, we anticipate more
acquisitions. Look for us to add businesses that build on our market positions
and complement our technology strengths. Because of our prudent financial
strategy, we still have the resources to reach our revenue goal
through acquisitions.

         Extending our reach with additional polymers remains a priority. We
also plan to expand globally based on strong business platforms in North
America. We see excellent opportunities to apply our strengths and assist our
customers as they expand around the globe.

         We anticipate improved results for OxyVinyls, which is on track to
achieve its targeted $80 million in cost savings by the end of 2000. Strong
demand, and little new North American resin capacity until late 2001, should
result in higher resin margins in 2000 and substantially higher OxyVinyls
earnings compared with 1999 levels.

         In 1999, Geon's stock price reached an all-time high of nearly $37 per
share and outperformed most of our peers. The combination of recent
acquisitions, organic growth and contributions from OxyVinyls should provide the
earnings growth and improved shareholder value that make for a rewarding
investment, today and in the future.

         As you may perceive, we're excited about what is happening at Geon. We
believe we bring unique skills and an enthusiasm that generates opportunities
for all our partners: customers, employees, suppliers and, of course, our
shareholders.



/s/ Tom Waltermire

TOM WALTERMIRE
Chairman of the Board, President
and Chief Executive Officer


[Logo] Geon(TM)

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

Thanks,       BILL PATIENT retired as chairman and chief executive officer in
   Bill       1999. Appropriately, the Board of Directors recognized his
              achievements by naming him Geon's Founding Chairman.

              I'd like to thank Bill for creating the solid foundation for our
              future growth. Everyone at Geon appreciates what he has meant to
              us. The values, passion for excellence and spirit that make Geon
              special are a direct reflection of Bill's LEADERSHIP. We wish him
              all the best as he enjoys this new chapter in his life with his
              wife, Bonnie, his five children and a growing number of
              grandchildren.

                                                                               5

   8

Compounds
         STRONG NORTH AMERICAN BASE, GLOBAL POTENTIAL

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

                                            [Photograph of Rusty L. Riggen,
                                             Quality Control Operator]




   9

                                                                The Geon Company


THE NEW REPLACEMENT WINDOWS IN YOUR HOME. The control panel on your dishwasher.
The housing of your computer terminal. The cable on your telephones. Everyday
products that contain Geon compounds surround us.

         Our strengths in technology, service, quality, operating excellence and
new market application development have helped Geon become the world's leading
provider of vinyl compounds. In North America, we are ranked first or second in
every market we serve. Many of our higher-value markets, such as custom
injection molding and custom profile, demand the sophisticated chemical recipes,
technical service and wide product range for which Geon is known. We measure our
success by our customers' success, and believe in the value of that partnership.

         Although vinyl is the base polymer in about 95 percent of the compounds
Geon manufactures, we have begun to expand our polymer portfolio. Today, we
market thermoplastic elastomer compounds for hosing and tubing applications and
offer Syncure(TM), a cross-linked polyethylene, for the wire and cable market.
In 1999, we started up our new Syncure facility in Denver.

         CUSTOMIZED COMPOUNDING To make compounds, we blend a base polymer with
liquid and solid additives chosen for their particular properties. Plasticizers,
for example, make compounds soft and flexible for applications such as wire and
cable jacketing, tubing and automotive trim. Impact modifiers make compounds
tough and rigid for windows, bottles and appliance parts.

         A range of additional additives -- pigments, stabilizers, lubricants,
fillers -- may go into the mix. Geon has been making and selling compounds for
almost 50 years, and in that time we have developed the science to introduce the
right additives, in exacting amounts and unique ways, to create a
technologically superior, consistent product for customers.

         Our customers process Geon materials into thousands of products for
dozens of markets. For example, customers use Geon injection molding compounds
to form parts for business equipment and appliances. Geon compounds are extruded
into complex shapes for applications such as crown molding, window profiles,
medical tubing and communication wire jacketing.

1 9 9 9
ACCOMPLISHMENTS OF
COMPOUNDS

Established an e-commerce platform

Through a customer survey, affirmed Geon's industry leadership in quality
performance

Achieved leadership position in all market segments

Integrated eight previously acquired sites into Geon's information software
system

Reduced recordable injury rate by 40 percent

[Photograph of  George E. Frazier,
Mix Tower Operator and Jimmie L. Houser,
Mix Tower Operator]

                                                                               7

   10

COMPOUNDS CONTINUED
- --------------------------------------------------------------------------------

                 [Photograph of Ted M. Vaughn,
                  Production Technician]


COMPOUNDING A GLOBAL OPPORTUNITY As our customers grow globally, so will Geon.
With our unique product and manufacturing technologies, we are establishing a
network of compound operations around the world. We have joint ventures with
Norsk Hydro in Europe, Singapore Polymers in Southeast Asia and Petroquimica
Colombiana S.A. in South America. Because of our broad product offering, we can
provide new global customers with a wide range of compounds.

A YEAR OF ACCOMPLISHMENTS Geon has capacity to produce more than 1.7 billion
pounds of compounds annually. In 1999, we leveraged our size to buy compound
additives more competitively. We trimmed our non-PVC raw material costs and
reduced our non-PVC inventories. A major factor in this improvement was the raw
material warehouse we established in Avon Lake, Ohio, to centralize inventory.
With orders received across the compound business, the warehouse buys and ships
in truckload quantities, at cost savings.

         Complaints from our compound customers continued to decline, a result
of our strong emphasis on quality. We empaneled Quality Councils and continued
incentive programs such as Gainsharing, which rewards employees for plant
performance on "measurable deliverables" such as quality and productivity.

         The compounding operations also realized $4 million in cost savings
resulting from the consolidation of our asset base. We shut down underutilized
production lines at Orangeville, Ontario; St. Remi de Napierville, Quebec; and
Conroe, Texas, and we closed the Lindsay, Ontario, plant.

         The integration of our compound information systems was a milestone
that gives us the capability to manage the supply chain on a businesswide basis.
On a strategic level, the phased linkage of all our compound sites testifies to
Geon's successful pursuit of our goal to be the industry leader in information
technology.  [Geon Logo]


     AS OUR CUSTOMERS
grow
   globally,
     SO WILL GEON. WE
     ARE ESTABLISHING A
     NETWORK OF COMPOUND
     OPERATIONS AROUND
     THE WORLD.

     [Photograph of
     Mary L. Casey,
     Human Resources Representative]

                                                                               8

   11

                                                                The Geon Company

[Photograph of Rob L. Karanovich,
 Mix Tower Operator]


Featured Plant:
Terre Haute, Indiana

PLANT MANAGER: Ron Martin     NUMBER OF EMPLOYEES: 120     FIRST STARTUP: 1979
ACQUIRED BY GEON: 1984    MATERIALS PRODUCED: PVC compounds  PRODUCT END USES:
Pipe and pipe fittings, windows, bottles, battery jar housing, household
appliance components, computer housing

                                                                               9

   12

Specialty
    resins

         AN INTERNAL SUCCESS STORY

         Featured Plant:
         Henry, Illinois
         PLANT MANAGER: Joel H.Lindahl  NUMBER OF EMPLOYEES: 110
         FIRST STARTUP: 1958   MATERIALS PRODUCED: Specialty
         PVC resins   PRODUCT END USES: Vinyl flooring, wire and
         cable coatings, decals and signs

         [Photograph of Bill J. Grudzinski,
          Senior Operations Specialist]



   13

                                                                The Geon Company

[Photograph of Bette S. Hulin,
 Administrative Assistant and
 Joel H. Lindahl,
 Plant Manager]

GEON'S SPECIALTY RESINS OPERATION IS UNIQUE because it has developed internally,
without the aid of acquisitions. Easy to overlook when Geon was widely viewed as
a commodity resin producer, specialty resins quietly grew to a position of
market leadership that it holds today, with an estimated share exceeding 30
percent.

         Because specialty resins is an important earnings contributor with
strengths in product technology and operating excellence, we retained this part
of Geon's resin manufacturing operations when we created the OxyVinyls joint
venture.

         A value-added business in which customers place a premium on service
and quality, specialty resins fits the profile of the new Geon. The business
also serves as a source of raw material for our formulators operation. We sell
some 12 percent of our specialty resins to internal and external formulator
customers.

         Specialty resins are found in literally thousands of end use
applications: the coatings that protect dishwasher racks; the vinyl in sheet
flooring goods; the soft, protective coating on tool handles; the decals on the
sides of highway trucks. With their versatility, specialty resins provide unique
solutions to a wide range of needs.

TECHNOLOGY LEADERSHIP The primary raw material in Geon's specialty resins is
vinyl chloride monomer (VCM), which we purchase from OxyVinyls through a
long-term supply arrangement.

         To make specialty resins, Geon polymerizes VCM in a highly controlled
reaction process. Drawing on our strength in technology, we produce a full array
of products with properties tailored to specific end use applications. Just as
important, we offer customers a consistent set of properties from shipment to
shipment.

         Geon makes two types of specialty resin, which differ primarily in
particle size. The finer type, emulsion polymer, has the consistency of talc
when dried. It is used in flooring and adhesives. The coarser grade, called
micro-dispersion, is used in foams and carpet backing.

DESIGNING SOLUTIONS With its uniform product quality and unequaled technical
support, Geon's specialty resins business continues to win customers.

Our specialty resins team reinforced Geon's leadership position in the flooring
market last year by developing and commercializing a superior vinyl foam resin
for resilient vinyl floors. And, disposable medical gloves made with Geon
specialty resins have earned praise for their high quality. [Geon Logo]

1 9 9 9
ACCOMPLISHMENTS OF
SPECIALTY RESINS

Completed expansion and modernization of Henry, Illinois, plant, on time and
within budget

Increased shipments almost 7 percent in a market that grew at a rate less than
half that percentage

Introduced superior new vinyl foam resin for flooring market

Completed full year with no recordable injuries at either of Geon's specialty
resins plants

[Photograph of
Chris L. Grant,
PVC Operator]

                                                                              11

   14


          Formulators
                STRONG GROWTH, STRATEGIC OPPORTUNITIES

                [Photograph of Connie J. Goodmanson,
                 Health & Safety Coordinator]


                Featured Plant:
                Sussex, Wisconsin
                PLANT MANAGER: Timm E. Goodmanson NUMBER OF EMPLOYEES: 105
                FIRST STARTUP: 1987  ACQUIRED BY GEON: 1998  MATERIALS PRODUCED:
                Plastisols, organisols, polyurethanes, vinyl powders
                PRODUCT END USES: Air filters; tool handle grips; outdoor
                furniture coating; fishing lures; table edging; automotive
                interior trim; point-of-purchase displays; hunting targets;
                packaging foams; fan, dishwasher and closet rack coatings;
                chain link fence coating


   15

                                                                The Geon Company

[Picture of Timoth C. Anderson,
 Production Supervisor]

THE FIVE COMPANIES THAT COMPRISE GEON'S FORMULATORS operations modify our
specialty resins and other polymers to impart special properties, depending on
customer needs. The formulators have a diverse, fast-growing product line; with
new applications, they achieved organic revenue growth of 10 percent in 1999.

Less than two years ago, Geon's formulators group did not exist. Through prudent
acquisition of companies with solid financial performance, we built it into the
North American market leader. The barriers to entry are significant because
Geon's formulators excel at meeting the stringent requirements of customers.

Because of the complementary nature of the businesses, Geon has linked the
skills and services of the specialty resins and formulators operations. Working
together, they gain synergies in technology and marketing strength, plus they
offer greater value with more innovative, comprehensive solutions to customer
needs. No competitor has looked downstream to create this combination, which
differentiates Geon.

HOW TO BAKE A "CAKE" Formulating a batch of vinyl plastisol can be compared to
mixing cake batter. In a vessel, a mixer blends specialty resins, plasticizer
and other additives. The consistency of the resulting plastisol is formulated to
meet the intended use. Its viscosity (a measure of a liquid's ability to flow)
can vary from waterlike to thick paste. Industrial plastisols have low
viscosity, while plastisols for screen printing products have high viscosity and
are thick.

         Viscosity is just one of many properties that is quality checked in the
laboratory when the mixing process is complete. Color, foam quality and clarity
are other key properties.

         Although vinyl plastisols, powders and inks account for the bulk of the
formulators' business, they are rapidly increasing production of urethane
systems and other polymer formulations. Urethane systems have two parts. Geon
produces the polyol part, blending polypropylene glycols with additives such as
colorants, surfactants, fillers and blowing agents. We buy the second part,
isocyanate, for repackaging and sale with the polyol as a complete system.
Customers combine the parts to initiate a chemical reaction that cures the
product into its final application.

The urethane market has tremendous potential. Urethane foams are found
everywhere: in steering wheel and handlebar padding, packaging, point-of-
purchase displays, even in the "Cheesehead" wedges that fans of Wisconsin sports
teams wear to show their loyalty. [Geon Logo]

1 9 9 9
ACCOMPLISHMENTS OF
FORMULATORS

Completed acquisitions of Acrol Holdings, giving Geon European market
accessibility, and Dennis Chemical, resulting in an expanded urethane product
offering and West Coast presence

Achieved synergy savings of more than $3 million

Recorded organic shipment growth of 12 percent, excluding 1999 acquisitions

Reduced recordable injury rate by 65 percent


[Photograph of Mary E. Nettekoven,
Human Resources Generalist]

                                                                              13



   16

Engineered
       films

     NEW PLATFORM, NEW PRODUCTS

[Photograph of Allen Bobo,
Blending/Mixing Operator,
#3 Calender]

Featured Plant:
Winchester, Virginia
PLANT MANAGER: Denny Bromley   NUMBER OF EMPLOYEES: 660   FIRST STARTUP: 1932
ACQUIRED BY GEON: 1999   MATERIALS PRODUCED: Engineered films, primarily vinyl
and olefin roll goods PRODUCT END USES: Automotive instrument panels, door
panels, consoles and sun visors, notebook binders, dance floors, checkbook
covers, swimming pools, air mattresses


   17



                                                                The Geon Company

WITH TWO MAJOR ACQUISITIONS IN 1999, Geon formed a new business operation,
engineered films, that positions the Company to be North America's leading
producer of value-added flexible vinyl sheeting.

         With the May 1 launch of the OxyVinyls joint venture, Geon acquired
OxyChem's flexible vinyl film business in Burlington, New Jersey. Two months
later, we acquired O'Sullivan Corporation of Winchester, Virginia, widely
recognized as a leading supplier of flexible vinyl and olefin sheeting for the
automotive and industrial markets. O'Sullivan is known for premium-quality
flexible sheeting, and for its technology in embossing, laminating and painting.
Burlington is recognized for customized, high-gloss, thin-gauge films.

         The fusion of this new strength in films technology with Geon's
traditional expertise in compounding creates a potent market force and dynamic
opportunities for growth. In addition, O'Sullivan's strength in automotive
applications complements Geon products such as specialty resins and plastisols,
which are sold to this market.

Our engineered films acquisitions also bring us complementary proprietary
technologies in manufacturing and materials combined with market position and
know-how, which forge an excellent platform on which to build.

[Photograph of Bill Orndorff,
Production Supervisor]

MAKING ENGINEERED FILMS Flexible vinyl films start with a vinyl compound. At
each site, the raw materials are mixed: about 60 percent vinyl resin, 40 percent
plasticizer and additives in proportions appropriate to the end use product.
Compounds are customized to meet customer requirements for color, grain, gloss,
stiffness and other properties.

         After mixing, the compound goes through a two-roll mill and then feeds
into a calender, where it is heated and squeezed into film at thicknesses
ranging from .003 inch to .060 inch.

         If surface appearance such as a leather or marble design is required,
an additional step called embossing takes place as the film comes off the
calender. Other value-added processes include painting and laminating of
materials such as fabric and foam.

NEW APPLICATIONS Consistent with Geon's strategy, the engineered films operation
continues its leadership in flexible vinyl films while vigorously pursuing new
applications for other polymers, notably thermoplastic olefins (TPOs) and
thermoplastic urethanes (TPUs):

- - TPO TOPSKINS LAMINATED TO POLYOLEFIN FOAM BACKING are gaining automakers'
attention because the materials are both lightweight and durable. A TPO topskin
that Geon developed to cover instrument panels received conditional approval
from General Motors Corporation, which means GM suppliers can specify the
material in their quotes on interior parts business.

- - IN INDUSTRIAL MARKETS, GEON IS DEVELOPING DIVERSE SPECIALTY FILMS such as a
TPU alloy for hospital inflatable mattresses, which must be both elastic and
durable. Other specialty applications include a flexible vinyl movie screen
material with high reflectivity and a vinyl-based, toner-resistant overlay for
loose-leaf applications. [Geon Logo]

1 9 9 9
ACCOMPLISHMENTS OF
ENGINEERED FILMS

Chosen by Daimler Chrysler as a "preferred supplier" for North American interior
requirements

Developed a new engineered films product for flooring wear-layer applications

Developed proprietary automotive technology to reduce dashboard reflection in
windshields

Completed information systems integration of Geon's Burlington site and former
O'Sullivan operations

[Photograph of Denny Bromley,
Director of Manufacturing, Winchester]

                                                                              15

   18


The Geon Company

Because we care
GEON COMPLETES ANOTHER FINE YEAR IN
SAFETY, ENVIRONMENTAL PROTECTION

Throughout Geon's short history, we have highlighted our safety and enviromental
performance in each annual report. Why do we take the time and space to discuss
an area that appears unrelated to our financial results? Because we think it is
related! - By working safely and protecting our communities, our employees are
operating our facilities with excellence and giving their full attention to
quality. When that happens, everyone benefits: our employees, our communities,
our customers and our shareholders.

AS IN PRIOR YEARS, the men and women of Geon compiled a superlative record for
safe, responsible operation in 1999.

         Our avoidance of recordable and lost-time injuries again placed us at
the top of our industry's safety rankings. Our environmental performance was
also very good, with no reportable chemical releases. Only two sites experienced
minor permit exceedances.

         We are particularly proud that our newly acquired businesses have
wholeheartedly embraced the Geon principle of excellence in these critical
areas - as demonstrated by their reduced injury rates and their environmental
progress during their brief time with Geon.

A PREMIUM ON SAFETY Ten of our sites completed the year with no recordable
injuries, which are injuries requiring more than simple first aid. In this
select group are Avon Lake Technology Center, Henry, Long Beach, Louisville,
Orangeville plasticizer, Pedricktown, St. Remi de Napierville compound and
plasticizer, Sullivan and Terre Haute. All these sites qualified for the William
F. Patient Safety Award of Excellence, Geon's highest safety honor.

         We are pleased that 20 Geon sites have achieved a landmark one year or
1 million employee hours without a lost-time injury, which is defined as an
injury requiring the affected employee to be away from work at least one day.

         Leading these top performers are Henry and Terre Haute, with no
lost-time injuries in more than 11 years. They are followed by Louisville and
Niagara Falls at 10 years; Pedricktown and Long Beach, nine years; Avon Lake
Technology Center and Plaquemine, eight years; Orangeville plasticizer, seven
years; Orangeville compound, six years; St. Remi plasticizer, four years; and
Kennesaw, three years.

RESPECT FOR THE ENVIRONMENT With O'Sullivan joining the Geon team in mid-1999,
we gained an industry champion at turning what was thought to be scrap into
prime product. Through a cooperative effort with customers, O'Sullivan has
pioneered the recycling of waste into new engineered films.

         Qualifying for the W.C. Holbrook Environmental Award of Excellence,
Geon's highest environmental tribute, were: Avon Lake compound, Avon Lake
Technology Center, Conroe, Farmingdale, Henry, Kennesaw, Long Beach, Louisville,
Niagara Falls, North Baltimore, Orangeville compound and plasticizer,
Pedricktown, Plaquemine, St. Remi compound and plasticizer, Terre Haute and
Valleyfield.

EARNING OUTSIDE RECOGNITION Our sites received 23 awards from external
organizations in 1999 for superior worker safety and environmental protection.
Among the groups honoring us were the Chemical Manufacturers Association, Vinyl
Institute, Society of the Plastics Industry, National Safety Council, National
Petrochemical & Refiners Association, and the Industrial Accident Prevention
Association of Canada.


[Photograph of Rod A. Martin,
Senior Safety Environmental Operator,
Henry, Illinois]

SAFETY BY THE NUMBERS

- - GEON'S 11 HERITAGE SITES - those predating our first acquisition in 1997 - had
only five recordable injuries in 1999 compared with nine recordables in 1998.

- - THE 26 LOCATIONS that were with Geon throughout 1999 sustained only two
lost-time injuries, the same number recorded in 1998, when we had fewer sites.

- - THE FIVE FORMER SYNERGISTICS Industries Limited facilities, which joined us in
1997, have reduced their injuries 82 percent from their pre-Geon days.

- - OUR 1998 ACQUISITIONS - the formulators Plast-O-Meric, Wilflex and Adchem -
have reduced their injuries 67 percent since they became part of Geon.

                                                                              16

   19


The Geon Company                                                The Geon Company

Management's Analysis       CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

        Net income from operations in 1999 totaled $52.5 million, 130% higher
than 1998 on a comparable basis. Total net income was $104.7 million, including
special items, which were associated largely with the OxyChem transactions. This
strong earnings improvement was due to the Company's strategy of expanding its
Performance Polymers and Services (PP&S) business through organic sales growth
and strategic acquisitions, as well as an improvement in polyvinyl chloride
(PVC) margins.

        The Company's strategy of becoming a much larger PP&S business resulted
in a substantial change in the profile of its business operations in 1999.

        As discussed in Note C, the transactions with OxyChem were completed on
April 30, 1999, and the newly formed partnerships began operations. As a result,
on April 30, 1999, substantially all of Geon's North American commodity PVC and
vinyl chloride monomer (VCM) operations included in the Resin & Intermediates
(R&I) business segment were contributed to Oxy Vinyls, LP (OxyVinyls) in
exchange for a 24% interest in the joint venture. Financial results through
April 30, 1999, include the consolidation of the commodity PVC/VCM operations.
Subsequent to the formation of OxyVinyls, financial results include Geon's 24%
share of the earnings of OxyVinyls as earnings from equity affiliates in the R&I
business segment.

        In addition, as discussed in Note C, Geon and OxyChem formed PVC Powder
Blends, LP, on April 30, 1999, which is 90% owned by Geon. The operations of
this small partnership are consolidated by Geon, with the 10% OxyChem ownership
recorded as a minority interest. The Company also acquired from OxyChem a PVC
engineered films business and a specialty PVC compound business that are
included in the Company's consolidated results after April 30.

        As discussed in Note D, during the third quarter of 1999, the Company
acquired O'Sullivan, Acrol and Dennis Chemical. The post-acquisition results of
these acquired companies are included in the Company's consolidated results of
operations from the dates of acquisition.

1999 RESULTS OF OPERATIONS - TOTAL COMPANY

        Total sales for 1999 were $1.261 billion, a decrease of $23.2 million,
or 2%, from 1998. This change in sales included an increase of $267.9 million
in PP&S sales, driven by acquisitions and organic growth. This growth was
offset by the discontinuance of R&I sales upon the formation of OxyVinyls on
April 30, 1999.

        Operating income, net of special items for 1999, was $99.7 million
compared with $41.0 million in 1998. Operating income before special charges was
$105.4 million compared with $55.6 million in 1998. Both the PP&S and R&I
segments had improved operating income in 1999 versus 1998.

        Selling and administrative expenses increased $6.4 million in 1999
compared with 1998, largely as a result of the incremental selling and
administrative expenses of businesses acquired. Depreciation and amortization
decreased $13.5 million from 1998 due to the contribution of PVC resin and VCM
property and equipment to OxyVinyls at formation, net of the additional goodwill
amortization on recent acquisitions.

        Special items in 1999 included a $1.7 million pre-tax restructuring
charge ($1.0 million after tax) consisting of $0.5 million in employee
separation and plant phase-out, plus $1.2 million of accelerated depreciation
associated with the compound manufacturing asset consolidation (see Note Q for
further discussion); Geon's share of an $0.8 million pre-tax charge ($0.5
million after tax) related to OxyVinyls' restructuring of operations; a pre-tax
gain of $93.5 million ($57.2 million after tax) related to the transactions with
OxyChem (see Note C); and acquired profit on inventory related to business
acquisitions of $3.2 million pre-tax ($2.0 million after tax). In addition, the
Company recognized a $2.4 million pre-tax charge ($1.5 million after tax)
related to the change in accounting for start-up costs (see Note B). In 1998,
the Company recognized a restructuring charge related to the compound operations
consolidation of $14.6 million ($8.9 million after tax).

        The effective income tax rate was 39% in 1999 versus 41.5% for 1998,
reflecting the effect of a change in foreign versus domestic earnings and the
effect of permanent differences such as non-deductible goodwill on the lower
pre-tax earnings in 1998.

        Net income, before special items, was $52.5 million in 1999 compared
with $22.7 million in 1998.


                                                                              17
   20


The Geon Company

Management's Analysis       CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

PERFORMANCE POLYMERS AND SERVICES (PP&S) PP&S sales in 1999 were $1.107 billion,
an increase of $267.9 million, or 32%, over 1998. Sales volume increased
approximately 34% from 1998, with approximately six percentage points of the
volume increase from organic sales growth and the balance from acquired
businesses. Organic growth for compounds was led by increased demand for dry
blend and rigid profile product, which is used primarily in construction
applications. For specialty resins, volume improvements were primarily from
carpeting, flooring and formulator customers. Organic sales growth in the
formulators group was from increased demand for industrial plastisols,
urethanes, and vinyl and automotive powders. The volume growth was partially
offset by selling prices that averaged approximately 2% below the prior year.

        For 1999, operating income before special charges of $109.0 million
increased $15.2 million, or 16%, from 1998. Operating income as a percentage of
sales was 9.9%, a decrease of approximately 1.3 percentage points from 1998.
Acquisitions contributed approximately $24 million of operating income in 1999.
The margin of average selling prices over raw material costs was approximately
two percentage points lower than in 1998, and was partially offset by savings
associated with the compound operations consolidation, overall business market
mix and improved operating efficiencies.

RESIN AND INTERMEDIATES (R&I) The year-to-year comparison of operating results
in the R&I segment is impacted by the formation of OxyVinyls on April 30, 1999,
and the resulting changes in the business structure. With the formation of
OxyVinyls, Geon's exposure to the PVC and chlor-alkali industries changed
significantly. The Company now owns 24% of OxyVinyls, a 4.3 billion-pound PVC
producer, compared with its previous ownership of 100% of 2.4 billion pounds of
PVC capacity prior to the contribution of these PVC and VCM operations to
OxyVinyls. This effectively reduces the Company's exposure to PVC resin industry
fluctuations to approximately half the exposure it had prior to formation of
OxyVinyls. However, the Company's exposure to fluctuations in caustic soda was
increased from approximately 150,000 tons to 380,000 tons annually with the
formation of OxyVinyls. The Company's interest in OxyVinyls is accounted for
under the equity method. Before the formation of OxyVinyls, the Company's
PVC/VCM business was consolidated.

        The R&I segment operating income for 1999 was $2.1 million, excluding
Geon's share of the restructuring charge recognized by OxyVinyls of $0.8 million
pre-tax, an improvement of $38.5 million compared with the 1998 loss of $36.4
million. This improvement reflects an increase in the spread between PVC resin
selling prices and ethylene and chlorine costs of approximately 3 cents per
pound, partially offset by lower chlorine and caustic soda prices and Geon's
increased exposure to the chlor-alkali industry. Geon's equity earnings from
OxyVinyls of $17.3 million, before a restructuring charge, were partially offset
by losses of the Company's equity affiliate, Sunbelt, as chlor-alkali industry
pricing was in a cyclical trough that improved slightly late in the year.

        The OxyVinyls partnership initially has utilized Geon's personnel and
systems support. This support will decrease as OxyVinyls develops its own
systems and resources to replace the support provided by Geon. The estimated
cost of Geon's internal support is reflected in the R&I business segment. The
R&I segment support cost is projected to decrease from 1999 levels by
approximately $5.0 million in 2000, as efforts are redirected in support of PP&S
segment growth. Further, the "Other" segment includes overhead costs previously
absorbed by the Company's PVC and VCM business of approximately $4.0 million
in 1999. These stranded overhead costs, estimated at $9.0 million in 2000, are
expected to support and be absorbed by future acquisitions through the end of
the year 2000 (i.e., by the year 2001, the "Other" segment would no longer
contain stranded overhead costs arising from the OxyChem transactions).

                                                                              18

   21
                                                                The Geon Company

- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------




                                                                                 Year Ended December 31,

(In millions, except per share data)                                         1999         1998         1997
                                                                          ------------------------------------
                                                                                         
SALES                                                                     $ 1,261.2    $ 1,284.4    $ 1,250.0
OPERATING COSTS AND EXPENSES:
Cost of sales                                                               1,037.9      1,092.6      1,079.6
Selling and administrative                                                     88.4         82.0         48.8
Depreciation and amortization                                                  44.4         57.9         54.6
Employee separation and plant phase-out                                         0.5         14.6         15.0
Income (loss) from equity affiliates                                            9.7          3.7         (0.3)
- --------------------------------------------------------------------------------------------------------------
   Total operating costs and expenses                                       1,161.5      1,243.4      1,198.3
- --------------------------------------------------------------------------------------------------------------
OPERATING INCOME                                                               99.7         41.0         51.7
Interest expense                                                              (17.7)       (16.0)       (11.9)
Interest income                                                                 2.1          1.2          0.7
Other expense, net                                                             (3.6)        (2.6)        (5.9)
Gain on formation of joint ventures, net of formation costs                    93.5           --           --
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE
   IN ACCOUNTING FOR START-UP COSTS                                           174.0         23.6         34.6
Income tax expense                                                            (67.8)        (9.8)       (12.1)
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING                     106.2         13.8         22.5
Cumulative effect of a change in accounting for start-up costs,
   net of income tax benefit of $0.9 million                                   (1.5)          --           --
- --------------------------------------------------------------------------------------------------------------
NET INCOME                                                                $   104.7    $    13.8    $    22.5
==============================================================================================================

EARNINGS PER COMMON SHARE:
   Basic earnings per share before effect of a change in accounting       $     4.56   $     0.60   $     0.98
   Cumulative effect of a change in accounting                                  (.07)          --           --
- --------------------------------------------------------------------------------------------------------------
   Basic earnings per share                                               $     4.49   $     0.60   $     0.98
- --------------------------------------------------------------------------------------------------------------
   Diluted earnings per share before effect of a change in accounting     $     4.37   $     0.58   $     0.95
   Cumulative effect of a change in accounting                                  (.06)          --           --
- --------------------------------------------------------------------------------------------------------------
   Diluted earnings per share                                             $     4.31   $     0.58   $     0.95
- --------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE SHARES USED TO COMPUTE EARNINGS PER SHARE:
   Basic                                                                       23.3         22.9         22.9
   Diluted                                                                     24.3         23.6         23.6
==============================================================================================================



SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                              19

   22

The Geon Company

Management's Analysis       CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

1998 RESULTS OF OPERATIONS - TOTAL COMPANY

         In 1998, the Company had sales of $1.284 billion. Operating income,
before a special charge for employee separation and plant phase-out costs, was
$55.6 million. Operating income, before special charges, decreased $11.1 million
from 1997, due to a decline in industry PVC resin margins. Partially offsetting
the lower PVC industry resin margins were the improved operating results of the
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 PP&S 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 related to the acquisitions.
Approximately one-third of the remaining increase related to incentive
compensation plans, which are tied to Company performance. The balance was
associated with new business development, marketing and costs of 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 above.
The Company's income tax rate for 1998 was 41.5% compared with 35.0% in 1997.
The increase resulted primarily 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 AND SERVICES (PP&S) PP&S 1998 sales were $839 million, an
increase of 38%, or $232 million, over 1997. This growth resulted primarily 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 16% in 1998 over 1997. This increase was due primarily
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 three
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
operations. See Note Q to the Consolidated Financial Statements for further
discussion of the charge.

RESIN & INTERMEDIATES (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) were estimated to have increased 4% over 1997. In
1998, based on SPI data, export shipments were estimated to have decreased 3%
over 1997. Domestic shipments increased approximately 5% over the prior year.
Capacity utilization (shipments/capacity) for North America was 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 cents per
pound in 1998 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.

        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 1997
contribution of the Company's Australian PVC operations to the Australian joint
venture with Orica Limited, which eliminated those revenues from consolidated
sales in 1998. The balance of the decline was due primarily 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 the prior 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 an operating loss of $36.4
million in 1998, generally resulting from the historic low industry margins.
The operating loss represented a decrease 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 $50.0
million on total resin volumes; costs of $3.5 million associated with the
second-quarter 1998 maintenance shut-down of the LaPorte, Texas, VCM plant; and
annual increases in plant and administrative costs.

                                                                              20
   23


                                                                The Geon Company

BUSINESS SEGMENT INFORMATION




(In millions)                                                           Total        PP&S        R&I        Other
                                                                    -----------------------------------------------
                                                                                              
YEAR ENDED DECEMBER 31, 1999:
   Net sales                                                        $  1,261.2   $  1,107.1   $  191.5    $  (37.4)
   Operating earnings (loss)                                              99.7        104.1        1.3        (5.7)
   Employee separation and plant phase-out                                 0.5          0.5         --          --
   Other restructuring costs - accelerated depreciation                    1.2          1.2         --          --
   Restructuring costs incurred by OxyVinyls                               0.8           --        0.8          --
   Charge for acquired profit in inventory                                 3.2          3.2         --          --
- -------------------------------------------------------------------------------------------------------------------
   Operating earnings (loss) before restructuring costs and
      acquired inventory profit                                          105.4        109.0        2.1        (5.7)
   Depreciation and amortization                                          43.2         33.1       10.1          --
- -------------------------------------------------------------------------------------------------------------------
   Operating earnings (loss) before depreciation, amortization,
      restructuring costs and acquired inventory profit             $    148.6   $    142.1   $   12.2    $   (5.7)
===================================================================================================================

YEAR ENDED DECEMBER 31, 1998:
   Net sales                                                        $  1,284.4   $    839.2   $  577.7    $ (132.5)
   Operating earnings (loss)                                              41.0         79.2      (36.4)       (1.8)
   Employee separation and plant phase-out                                14.6         14.6         --          --
- -------------------------------------------------------------------------------------------------------------------
   Operating earnings (loss) before restructuring costs                   55.6         93.8      (36.4)       (1.8)
   Depreciation and amortization                                          57.9         28.6       28.8         0.5
- -------------------------------------------------------------------------------------------------------------------
   Operating earnings (loss) before depreciation,
      amortization and restructuring costs                          $    113.5   $    122.4   $   (7.6)   $   (1.3)
===================================================================================================================

YEAR ENDED DECEMBER 31, 1997:
   Net sales                                                        $  1,250.0   $    606.7   $  817.7    $ (174.4)
   Operating earnings (loss)                                              51.7         44.7       16.4        (9.4)
   Employee separation and plant phase-out                                15.0          2.9        4.0         8.1
- -------------------------------------------------------------------------------------------------------------------
   Operating 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          --
- -------------------------------------------------------------------------------------------------------------------
   Operating earnings (loss) before depreciation, amortization
      and employee separation and plant phase-out                   $    121.3   $     73.5   $   49.1    $   (1.3)
===================================================================================================================



                                                                              21

   24

The Geon Company

Management's Analysis       CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------

        The consolidated balance sheet at December 31, 1999, reflects the strong
financial position of The Geon Company.

ASSETS

        Total assets were $1.163 billion at December 31, 1999, or 45% above
1998. The 1999 increase in total assets was driven primarily by the assets of
business acquisitions of $378 million, somewhat offset by net assets contributed
to OxyVinyls. The formation of OxyVinyls resulted in all contributed assets and
liabilities becoming part of Geon's investment in this equity affiliate. Other
unconsolidated equity affiliates include the Company's 50% participation in the
Sunbelt chlor-alkali joint venture with Olin Corporation, and a 37.4% ownership
in an Australian joint venture with Orica Limited. The Company also holds a 50%
participation in each of three compounding joint ventures located in the United
Kingdom, Singapore and Colombia. In addition, the Company holds 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

        In 1999, the O'Sullivan, Acrol and Dennis acquisitions were funded with
variable-rate, short-term credit facilities. The Company received $104 million
in cash and collections of retained working capital from the OxyChem
transactions, which reduced short-term borrowings. During 1998, the acquisitions
of three plastisol formulators were completed. At December 31, 1999, the Company
had short-term bank debt of $222 million.

        At December 31, 1999, the Company had outstanding $125 million in
debentures issued in 1995 and maturing 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 approximately $450 million.

        Other non-current liabilities include most of the Company's accrued
environmental liabilities as well as pension accruals. In 1999, the Company
returned $11.8 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, 1999, consisted
of fixed-rate obligations. To manage interest rate 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, 1999. Cash principal payments required under
existing obligations are 2000--$0.4 million, 2001--$0.2 million, 2002--$0.4 mil-
lion, 2003--$0.7 million, 2004--$4.6 million, 2005--$75.0 million and $50.0
million thereafter. Weighted-average interest rates on this debt are 7.5% for
2000 through 2002, 7.6% for 2003 and 2004, and 7.5% thereafter. The Company's
short-term debt consists entirely of floating-rate obligations. At December 31,
1999, the Company's short-term debt was denominated primarily in U.S. dollars
and had an average floating rate of 6.6% based on the lenders reference rate.

        The Company is also exposed to market risk from changes in foreign
currency exchange rates, primarily from its operations in Canada, Australia and
Colombia, where assets and liabilities are denominated in local currencies. To
manage this risk, the Company periodically enters into foreign currency
forward exchange contracts to mitigate the impact of temporary fluctuations in
exchange rates. No such contracts were outstanding at December 31, 1999. In
addition, the Company has financed its investment in Colombia in the local
currency. The Company does not expect foreign currency-denominated assets and
liabilities at December 31, 1999, to have a significant impact on earnings or
cash flows.

                                                                              22

   25

- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------





(In millions, except per share data)                                                      December 31,
                                                                                        1999        1998
                                                                                   ----------------------
                                                                                           
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                          $     51.2    $   14.4
Accounts receivable                                                                     105.4        70.8
Inventories                                                                             168.2       113.9
Deferred income tax assets                                                               27.2        24.6
Prepaid expenses                                                                          5.7        11.0
- ---------------------------------------------------------------------------------------------------------
   TOTAL CURRENT ASSETS                                                                 357.7       234.7

Property, net                                                                           338.4       443.5
Investment in equity affiliates                                                         265.1        19.8
Goodwill and other intangible assets, net                                               183.1        81.5
Deferred charges and other non-current assets                                            18.3        22.5
- ---------------------------------------------------------------------------------------------------------
   TOTAL ASSETS                                                                    $  1,162.6    $  802.0
=========================================================================================================

LIABILITIES
CURRENT LIABILITIES
Short-term bank debt                                                               $    222.0    $   50.9
Accounts payable, including amounts payable to related party (See Note N)               148.3       129.1
Accrued expenses                                                                         70.0        76.0
Current portion of long-term debt                                                         0.4         0.8
- ---------------------------------------------------------------------------------------------------------
   TOTAL CURRENT LIABILITIES                                                            440.7       256.8

Long-term debt                                                                          130.9       135.4
Deferred income tax liabilities                                                         106.5        32.8
Post-retirement benefits other than pensions                                             83.9        85.1
Other non-current liabilities, including pensions                                        60.2        77.8
Minority interest in consolidated subsidiary                                              5.7          --
- ---------------------------------------------------------------------------------------------------------
   TOTAL LIABILITIES                                                               $    827.9    $  587.9
- ---------------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY
Preferred stock, 10.0 shares authorized; no shares issued                                  --          --
Common stock, $0.10 par, authorized 100.0 shares; issued 28.0 in 1999 and 1998            2.8         2.8
Additional paid-in capital                                                              297.3       296.1
Retained earnings                                                                       168.3        75.4
Common stock held in treasury, 4.2 shares in 1999 and 4.6 shares in 1998               (104.5)     (115.1)
Accumulated other non-owner equity changes                                              (29.2)      (45.1)
- ---------------------------------------------------------------------------------------------------------
   TOTAL STOCKHOLDERS' EQUITY                                                           334.7       214.1
- ---------------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $  1,162.6    $  802.0
=========================================================================================================




SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                              23

   26

The Geon Company

Management's Analysis       CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

         In 1999, net cash used by operating and investing activities was $23.2
million, excluding the impact on cash of the OxyChem transactions of $127.7
million and the net cash paid for the businesses acquired of $233.5 million. For
the same period in 1998, operating and investing activities (excluding net cash
paid for businesses acquired) provided $68.8 million of cash.

        The transactions with OxyChem generated cash of $127.7 million,
consisting of cash received upon the formation of OxyVinyls of $77.5 million and
collection of $61.6 million of the $62.3 million of R&I working capital retained
upon formation of OxyVinyls, less cash payments of $11.4 million for certain
costs directly related to the OxyChem transactions. Geon paid $27 million to
acquire OxyChem's engineered films and vinyl compounding businesses.

        Operating activities provided $48.4 million of cash in 1999, before
collection of retained R&I working capital, compared with $106.3 million in
1998. The decrease in operating cash flow is primarily the result of the
increase in operating working capital of $18.6 million in 1999 versus a decrease
of $34.5 million in 1998, resulting in a year-over-year decrease in cash
provided of $53.1 million. Operating working capital increased in 1999 as a
result of the build-up of working capital of the businesses acquired from
OxyChem, which had minimal working capital at acquisition. Strong sales in the
last two months of 1999 and higher raw material costs also contributed to the
increase in working capital in 1999 versus 1998. Other uses of cash included
cash payments of $7.0 million related to the compound restructuring, final cash
payments of $3.0 million related to the 1997 voluntary retirement program, the
Company's contribution of $9.8 million to defined benefit pension plans and
settlement of liabilities related to the R&I operations, including accrued
employee vacations and property taxes of approximately $8.0 million related to
facilities contributed to OxyVinyls. Operating activities in 1998 provided cash
of $106.3 million, $8.0 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 non-cash charges for
depreciation and amortization, employee separation, plant phase-out and deferred
tax provision. Other operating uses of cash in 1998 included the LaPorte
maintenance turnaround of $6.0 million and severance and other payments of $4.0
million made in connection with employee separation programs in 1997.

The 1999 investing activities consisted primarily of investment in new
businesses. Businesses acquired included O'Sullivan, Acrol, Dennis, and the
Burlington compound and engineered films and Pasadena specialty compound
operations from OxyChem. Investments in equity affiliates consisted primarily of
Geon's investment in a Colombian compound joint venture. The 1999 increase in
the purchases of property is attributable largely to the modernization of the
Company's Henry, Illinois, specialty resins plant, which was announced in the
fourth quarter of 1998. Partially offsetting the expenditures described above
was the net cash received in conjunction with the OxyVinyls formation. The 1998
investing activities consisted primarily of the acquisitions of three plastisol
formulators and the purchases of property.

        Financing activities in 1999 reflected primarily the increase in
short-term debt to finance the acquisition of new businesses and the joint
venture investment. Dividends of $0.50 per share were paid in both 1999 and
1998. In 1998, short-term debt was reduced from net cash provided from operating
and investing activities.

        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.
The Company increased its short-term credit facilities in September 1999 with
the addition of a $150 million, non-renewable revolving credit facility,
expiring 364 days from origination.

        Under an August 1996 Board of Directors resolution, the Company is
authorized to repurchase an additional 1.7 million shares of Geon common stock.

        Certain factors that may affect these forward-looking comments are
discussed on page 44.

                                                                              24

   27

- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------




                                                                                            Year Ended December 31,
(In millions)                                                                             1999        1998       1997
                                                                                       -------------------------------
                                                                                                      
OPERATING ACTIVITIES
Net income                                                                             $  104.7    $   13.8    $  22.5
Adjustments to reconcile net income to net cash provided by operating activities:
   Gain on formation of joint ventures, net of formation costs                            (93.5)
   Employee separation and plant phase-out                                                  0.5        14.6       15.0
   Depreciation and amortization                                                           44.4        57.9       54.6
   (Income) loss from equity affiliates                                                    (9.7)       (3.7)       0.3
   Provision (benefit) for deferred income taxes                                           60.4        (1.0)       6.3
   Changes in assets and liabilities:
      Operating working capital:
        Accounts receivable                                                               (31.1)       50.7       (2.8)
        Inventories                                                                       (23.9)       16.5       (4.3)
        Accounts payable                                                                   36.4       (32.7)      (2.5)
      Realization of retained working capital of contributed PVC business                  61.6          --         --
      Accrued expenses                                                                    (29.1)       (2.3)      (6.0)
      Income taxes payable/receivable, net                                                 (3.3)        3.3        4.2
      Other                                                                                (7.4)      (10.8)      11.0
- ----------------------------------------------------------------------------------------------------------------------
   NET CASH PROVIDED BY OPERATING ACTIVITIES                                              110.0       106.3       98.3

INVESTING ACTIVITIES
Business acquisitions, net of cash acquired                                              (233.5)      (57.1)     (82.2)
Cash received in connection with OxyVinyls formation, net of formation costs paid          66.1          --         --
Purchases of property                                                                     (60.1)      (40.7)     (50.9)
(Investment in) and distributions and repayment of advances from equity affiliates        (11.5)        3.2       17.5
- ----------------------------------------------------------------------------------------------------------------------
   NET CASH (USED) PROVIDED BY OPERATING AND INVESTING ACTIVITIES                        (129.0)       11.7      (17.3)

FINANCING ACTIVITIES
Change in short-term debt                                                                 167.5       (34.4)      72.0
Net issuance (repayment) of long-term debt                                                  2.0        (0.9)      (4.0)
Net proceeds from issuance of common stock                                                  7.1         1.8        0.3
Repurchase of common stock                                                                   --          --       (4.1)
Dividends                                                                                 (11.8)      (11.7)     (11.6)
- ----------------------------------------------------------------------------------------------------------------------
   NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                                       164.8       (45.2)      52.6

Effect of exchange rate changes on cash                                                     1.0        (1.2)      (4.1)
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                           36.8       (34.7)      31.2
Cash and cash equivalents at beginning of year                                             14.4        49.1       17.9
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                               $   51.2    $   14.4    $  49.1
======================================================================================================================



SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                              25
   28

The Geon Company

Management's Analysis       OTHER
- --------------------------------------------------------------------------------

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 $44 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. 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,
1999, by as much as $15 million. Capital expenditures related to the limiting
and monitoring of hazardous and non-hazardous wastes amounted to $4 million each
year from 1997 through 1999. The Company estimates capital expenditures during
2000 will be approximately $3 million to $4 million. Expenditures related to the
remediation of previously contaminated sites are projected to be $15 million to
$20 million over the next three 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 N to the
Consolidated Financial Statements.

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 characteristics that will command premium prices. The
Company is also reviewing and re-engineering its administrative activities on an
ongoing basis to streamline operations and reduce costs.

YEAR 2000 COMPLIANCE

        The Company completed a comprehensive project to upgrade its
information, technology and manufacturing facilities and its computer hardware
and software programs to address potential year 2000 (Y2K) issues. The project
consisted of a process of evaluating, testing and remediating or replacing
software and hardware where required. The Company's expenditures for Y2K issues
were approximately $1 million in 1999, and no further expenditures are
anticipated in 2000. The Company also assessed the Y2K compliance of its major
customers and suppliers, and found them to be compliant. Based on currently
available information, management believes that the most reasonable worst-case
scenario of a prospective Y2K failure would be a minor, short-term business
interruption. The Company has not yet experienced any material Y2K problems.

                                                                              26

   29

- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------




                                                    Common                                                    Common   Accumulated
                                                    Shares                             Additional             Stock     Other Non-
(In millions, except per share data;   Common       Held in                  Common     Paid-in   Retained    Held in  Owner Equity
shares in thousands)                   Shares       Treasury      Total      Stock      Capital   Earnings    Treasury    Changes
- ---------------------------------------------------------------------------------------------------------------------------------
                                                                                                  
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                   (0.3)                   1.8        0.4
Repurchase of common shares                            200          (4.1)                                         (4.1)
Cash dividends ($0.50 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                    0.3                    2.9        0.4
Cash dividends ($0.50 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)

Non-owner equity changes:
   Net income                                                      104.7                             104.7
   Translation adjustment                                            7.9                                                      7.9
   Adjustment of minimum
      pension liability                                              7.6                                                      7.6
                                                                --------
Total non-owner equity changes                                     120.2
Stock-based compensation and
   exercise of options                                (377)         12.2                    1.2                   10.6        0.4
Cash dividends ($0.50 per share)                                   (11.8)                            (11.8)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999              27,974        4,245      $  334.7    $    2.8   $  297.3   $  168.3    $ (104.5)   $ (29.2)
=================================================================================================================================



SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                              27

   30

The Geon Company

Notes                  TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Note A
THE COMPANY

        The Geon Company (Company or Geon), together with its subsidiaries, is
the world's largest merchant manufacturer and marketer of polyvinyl chloride
(PVC) compounds. On April 30, 1999, the Company completed transactions with
Occidental Chemical Corporation (OxyChem), which included the formation of Oxy
Vinyls, LP (OxyVinyls), a limited partnership in which Geon has a 24% ownership
interest; the formation of a small powder compounding partnership, which is 90%
owned by Geon; and the acquisition by Geon of OxyChem's vinyl compounding and
engineered films operations. Substantially all of Geon's PVC resin and vinyl
chloride monomer (VCM) operating assets and liabilities were contributed to
OxyVinyls in this transaction. See Note C for further discussion of the
transactions with OxyChem.

        Geon'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, including three 50%-owned compound joint ventures;
specialty resins; plastisol formulators; engineered films; analytical testing
services performed by Polymer Diagnostics Inc.; and Decillion, a 40%-owned joint
venture with Owens Corning, Inc. As discussed in Note D, Geon's PP&S segment was
expanded in 1999 with the third-quarter acquisitions of O'Sullivan Corporation,
Acrol Holdings Ltd. and Dennis Chemical, Inc., and the fourth-quarter formation
of a joint venture located in South America.

        Prior to the formation of OxyVinyls, the Resin and Intermediates (R&I)
segment included the consolidated results of the Company's commodity suspension
and mass PVC resin and VCM operations, substantially all of which were
contributed to OxyVinyls on April 30, 1999. Subsequent to the formation of
OxyVinyls, as described in Note C, the R&I segment includes Geon's 24% interest
in OxyVinyls, accounted for under the equity method. Also included in the R&I
segment are 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. See Note S for further information on the Company's
two business segments.

        The Company's sales included exports from North America of $12.7
million, $45.7 million and $36.2 million in 1999, 1998 and 1997, respectively.

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 in which the Company's ownership is 50%
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. Approximately
half of the Company's 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 are 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 10 years. Property,
plant and equipment are generally depreciated on accelerated methods for
income tax purposes. Repair and maintenance costs are expensed as incurred.

GOODWILL AND OTHER INTANGIBLE ASSETS 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 35-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, 1999, and 1998, goodwill totaled $180.0 million and $81.5
million, net of accumulated amortization of $6.2 million and $2.4 million,
respectively. Amortization expense related to goodwill was $3.8 million, $2.1
million and $0.3 million in 1999, 1998 and 1997, respectively.

        Other intangible assets include the value assigned to the workforce of
businesses acquired in 1999 totaling $3.1 million, net of $0.1 million of
accumulated amortization

                                                                              28
   31


- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------


at December 31, 1999. This asset is being amortized over a 20-year period.

FINANCIAL INSTRUMENTS The fair values of cash equivalents, accounts receivable
and short-term bank debt approximate their carrying amount because of the short
maturity of these 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, 1999, and 1998, the
fair value of long-term debt, including debentures, approximated its carrying
value.

        The Company periodically enters into interest rate exchange and foreign
currency contracts. Interest rate exchange contracts generally are 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, 1999, the Company had no interest rate exchange contracts or
foreign currency contracts outstanding.

REVENUE RECOGNITION The Company recognizes revenues at the point of passage of
title, which is at the time of shipment.

INCOME AND LOSSES FROM EQUITY AFFILIATES The Company recognizes its
proportionate share of the income of equity affiliates. Losses of equity
affiliates are recognized to the extent of the Company's investment, advances,
financial guarantees and other commitments to provide financial support to the
investee. Any losses in excess of this are deferred, and reduce the amount of
future earnings of the equity investee recognized by the Company. At December
31, 1999, and 1998, there were no deferred losses related to equity investees.

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
$18.5 million, $15.0 million and $17.1 million in 1999, 1998 and 1997,
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
accumulated other non-owner equity changes. The cumulative unrecognized
translation adjustment loss was $27.8 million, $35.7 million and $26.9 million
at December 31, 1999, 1998 and 1997, 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 In January 1999, the Company adopted the American
Institute of Certified Public Accountants Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-up Activities." The SOP required that
unamortized start-up costs be written off upon adoption of the SOP, and that
future start-up costs be expensed as incurred. The Company's portion of
Sunbelt's unamortized start-up costs totaling $2.4 million ($1.5 million, net of
income tax benefit) was written off as the cumulative effect of a change in
accounting, effective January 1, 1999.

RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting
Standards Board issued Statement No.133, "Accounting for Derivative Financial
Instruments and Hedging Activities," which is required to be adopted beginning
in 2001. 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 these estimates.

RECLASSIFICATION In 1999, the Company reclassified "Income (Loss) from Equity
Affiliates" in the Consolidated Statements of Income to include it in operating
income. Certain other amounts for 1998 and 1997 have been reclassified to
conform to the 1999 presentation.

                                                                              29

   32


The Geon Company

Notes                  TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Note C
OXYVINYLS JOINT VENTURE FORMATION

        On April 30, 1999, the Company completed certain transactions with
OxyChem, which included the formation of OxyVinyls, a manufacturer and marketer
of PVC resins. OxyVinyls is the largest producer of PVC resins in North America.

        Geon contributed to OxyVinyls five PVC suspension and mass resin plants
and one VCM plant as well as related assets and all the outstanding capital
stock of LaPorte Chemicals Corporation, a subsidiary of the Company. In
exchange, Geon received a 24% interest in OxyVinyls and OxyVinyls assumed
certain liabilities and obligations of Geon, including agreements under which
Geon leased a portion of a VCM plant located in LaPorte, Texas, and certain
industrial revenue bond debt obligations. OxyChem contributed to OxyVinyls one
PVC plant; one VCM plant; a 50% interest in OxyMar, a Texas general
partnership that operates a VCM plant; and a portion of a chlor-alkali chemical
complex, together with related assets. In exchange, OxyChem received a 76%
interest in OxyVinyls, and OxyVinyls assumed certain liabilities and obligations
of OxyChem, including certain OxyMar debt. For accounting purposes, Geon's
contribution to OxyVinyls is treated as a sale of 76% of its PVC business net
assets to OxyChem.

        In other transactions, Geon and OxyChem formed a small powder
compounding partnership, PVC Powder Blends LP (Powder Blends), through
contribution of net assets by both companies. Powder Blends manufactures and
markets PVC powder compounds and is 90% owned by Geon. OxyChem also sold to Geon
for $27.0 million a PVC engineered films and pellet compounding plant located in
Burlington, New Jersey, and its specialty pellet compound business located in
Pasadena, Texas. The PVC engineered films and specialty pellet compounding
businesses are referred to collectively as the "Acquired Businesses." The
Acquired Businesses and Powder Blends have been accounted for as a purchase, and
Geon has recorded the net assets of these businesses at their estimated fair
value. The purchase price allocations reflected in these financial statements
are preliminary and may be adjusted as estimated fair values of assets acquired
and liabilities assumed are finalized. The Consolidated Financial Statements
include the operations of these Acquired Businesses and Powder Blends from April
30, 1999, with a minority interest reflecting OxyChem's 10% ownership in Powder
Blends.

        In conjunction with the foregoing transactions, Geon realized
approximately $104.0 million through retention of certain working capital from
its businesses contributed to OxyVinyls and the distribution of cash from
OxyVinyls. This $104.0 million comprises cash received from OxyChem of $77.5
million and retained working capital of $62.0 million, less $27.0 million paid
by Geon to OxyChem for the purchase of the Acquired Businesses and $9.0 million
representing Geon's incremental share of OxyVinyls' incremental financing.

        The Company has recognized a pre-tax gain of $93.5 million as a result
of these transactions, representing the excess of the fair value received over
the book value of the 76% and 10% of Geon's net assets contributed to OxyVinyls
and Powder Blends, respectively. This gain is preliminary, subject to, among
other things, the finalization of the fair values of the net assets contributed
to the respective partnerships. This gain is net of certain one-time costs
directly related to the transactions. The following table details the
computation of the gain:

(In millions)

Geon's proportionate share of the
  estimated fair value of OxyVinyls                      $  251.0
Cash received                                                77.5
- -----------------------------------------------------------------
                                                            328.5
Net book value of net assets contributed by Geon           (211.7)
- -----------------------------------------------------------------
                                                            116.8
Ownership percentage sold to OxyChem                           76%
- -----------------------------------------------------------------
Pre-tax gain on formation of OxyVinyls,
  before transaction-related costs                       $   88.8
=================================================================
Fair value of assets contributed to
  Powder Blends by OxyChem                               $   36.0
Geon's ownership                                               90%
- -----------------------------------------------------------------
                                                             32.4
Less 10% of the net book value of
  Geon net assets contributed                                (1.9)
- -----------------------------------------------------------------
Pre-tax gain on formation of Powder Blends,
  before transaction-related costs                       $   30.5
=================================================================
Pre-tax gain representing the preliminary estimate
  of fair value received in excess of amount
  paid for acquired businesses                           $    8.1
=================================================================
Total pre-tax gain before transaction-related costs      $  127.4
Less costs directly associated with the transactions        (33.9)
- -----------------------------------------------------------------
Total pre-tax gain                                       $   93.5
=================================================================
                                                                              30

   33

- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

        The costs incurred that are directly associated with the formation of
OxyVinyls and Powder Blends include a one-time payment of $6.4 million to Geon
employees who transferred to OxyVinyls; transaction costs (legal, accounting and
consulting) of $13.6 million ($6.0 million paid in the last half of 1998, $6.1
million paid in 1999 and an additional $1.5 million expected to be paid in
2000); pension and post-retirement curtailment and special termination benefits
of $9.0 million (to be funded through increased annual contributions to the
pension and post-retirement plans over approximately 10 years); and the writeoff
of capitalized software costs of $4.9 million specifically related to the
management information systems of Geon's PVC business.

        In conjunction with the transactions above, Geon entered into PVC resin
and VCM supply agreements with OxyVinyls under which Geon will purchase a
substantial portion of its PVC resin and VCM. The agreements have an initial
term of 15 years with renewal options. The Company also has entered into various
service agreements with the partnerships.

        Certain pro forma financial information, reflecting the OxyChem
transactions as well as the acquisition of O'Sullivan Corporation, is presented
in Note E. In addition, summarized financial information related to OxyVinyls
is presented in Note F.

Note D

BUSINESS ACQUISITIONS

        On July 7, 1999, the Company acquired O'Sullivan Corporation
(O'Sullivan), a Virginia corporation, for $12.25 per share, or approximately
$192.0 million, including direct acquisition costs. Included in the acquired
assets of O'Sullivan was $36.0 million of cash, which was used to partially
finance the acquisition. O'Sullivan has 950 employees and is a leading producer
of engineered polymer films for the automotive and industrial markets.

        The Company also acquired Acrol Holdings Limited (Acrol) on July 1,
1999, and Dennis Chemical Company, Inc. (Dennis Chemical) on September 8, 1999.
Acrol is headquartered in Widnes, England, and is the United Kingdom's leading
formulator of vinyl plastisols. Acrol is also a leading distributor of
compounding additives, and manufactures a range of specialty polymer-coated
textiles. Dennis Chemical, a custom plastisol formulator of specialty vinyl
resins and urethanes, is headquartered in St. Louis, Missouri, with
manufacturing facilities in St. Louis and California. The combined purchase
price for these formulator acquisitions was approximately $57.0 million.

        The O'Sullivan, Acrol and Dennis Chemical acquisitions have been
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 dates. The excess of the purchase price paid over the
fair value of net assets acquired, totaling approximately $97.0 million, has
been recorded as goodwill. The purchase price allocations reflected in these
statements are preliminary and may be adjusted as estimated fair values of
assets acquired and liabilities assumed are finalized. These acquisitions were
financed with short-term credit facilities and available cash on hand, including
a portion of the cash held by O'Sullivan at the acquisition date. The Company's
results of operations include the results of the acquired businesses from the
dates of acquisition. Certain pro forma information, reflecting the O'Sullivan
acquisition as well as the OxyChem transactions, is presented in Note E.

        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 were recorded at their estimated fair values on the
acquisition dates. The excess of the purchase price over the estimated fair
value of net assets acquired totaled approximately $24.0 million and has been
recorded as goodwill. The acquisitions were financed with the Company's
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 $87.0
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 $64.0 million was recorded as goodwill.

                                                                              31

   34
The Geon Company

Notes                  TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Note E
PRO FORMA FINANCIAL INFORMATION

        The following table sets forth the impact of certain unaudited pro forma
financial information for the Company assuming that the transactions with
OxyChem (discussed in Note C) and the acquisition of O'Sullivan (discussed in
Note D) had occurred at the beginning of 1998. This pro forma financial
information may not be indicative of the actual impact on the results of
operations of Geon had these transactions occurred as of the date assumed, or of
the impact on future results of operations.

(In millions, except per share data)      1999         1998
                                        ---------------------
Sales                                   $   3.7      $ (115.4)
Net (loss) income before cumulative
  effect of a change in accounting         (7.1)         19.1
Net (loss) income                          (7.1)         19.1
- -------------------------------------------------------------
Basic earnings (loss) per share           (0.30)         0.84
- -------------------------------------------------------------
Diluted earnings (loss) per share       $ (0.29)     $   0.81
=============================================================

        The 1998 pro forma amounts exclude non-recurring items resulting from
these transactions. These non-recurring items include the pre-tax gain of $93.5
million recorded on the closing of the OxyChem transactions and a $3.2 million
charge related to the acquired profit on inventory. These items are included in
the Company's actual results for the year ended December 31, 1999.

Note F

FINANCIAL INFORMATION OF R&I SEGMENT
EQUITY AFFILIATES

        At December 31, 1999, the Company's R&I segment consisted primarily of
investments in equity affiliates. Summarized financial information for all of
OxyVinyls, which was formed in April 1999, is presented here.

(In millions)                           1999
                                     ---------
OxyVinyls:
  Net sales                          $ 1,067.9
  Operating income                        71.8
  Partnership income as reported
    by OxyVinyls                          63.7
Geon's ownership of OxyVinyls               24%
- ----------------------------------------------
Geon's proportionate share of
  OxyVinyls' earnings                     15.3
Amortization of the difference
  between Geon's investment
  and its underlying share of
  OxyVinyls' equity                        1.2
- ----------------------------------------------
Earnings of equity affiliate
  recorded by Geon                   $    16.5
- ----------------------------------------------
OxyVinyls:
  Current assets                     $   367.7
  Non-current assets                   1,021.1
- ----------------------------------------------
  Total assets                         1,388.8
- ----------------------------------------------
  Current liabilities                    272.0
  Non-current liabilities                102.5
- ----------------------------------------------
  Total liabilities                  $   374.5
==============================================

        The Company's R&I segment also includes the Sunbelt and AVC equity
affiliates. Combined summarized financial information for Sunbelt and AVC is
presented below. Amounts shown represent the entire operations of these
businesses, rather than the Company's proportionate share.

(In millions)                              1999        1998
                                        --------------------
Net sales                               $  200.3    $  209.1
Operating income                             9.6        32.7
Net (loss) income before cumulative
  effect of a change in accounting         (13.5)       11.1
Net (loss) income                       $  (18.3)   $   11.1
- ------------------------------------------------------------
Current assets                          $   67.7    $   64.0
Non-current assets                         226.6       240.1
- ------------------------------------------------------------
  Total assets                             294.3       304.1
- ------------------------------------------------------------
Current liabilities                         57.6        55.4
Non-current liabilities                    201.3       200.5
- ------------------------------------------------------------
  Total liabilities                     $  258.9    $  255.9
============================================================

Note G

FINANCING ARRANGEMENTS

        Aggregate maturities of long-term debt during the five years subsequent
to December 31, 1999, are: 2000--$0.4 million; 2001--$0.2 million; 2002--$0.4
million; 2003--$0.7 million; and 2004--$4.6 million. Interest paid amounted

                                                                              32

   35


                                                                The Geon Company

- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------


to $16.7 million, $14.5 million and $12.5 million during 1999, 1998 and 1997,
respectively. At December 31, long-term debt consisted of the following:

(In millions)                                 1999       1998
                                           -------------------
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, assumed by
  OxyVinyls in 1999                              --        7.6
Other                                           6.3        3.6
- --------------------------------------------------------------
                                              131.3      136.2
Less current portion                            0.4        0.8
- --------------------------------------------------------------
                                           $  130.9   $  135.4
==============================================================

        At December 31, 1999, the Company had the following unsecured lines of
credit, all of which are short term, except for a $100 million revolving credit
facility, which will expire December 31, 2001:

                              Number of   Permitted
(Dollars in millions)          Lines      Borrowings
                              ----------------------
United States                    7          $431.5
Canada                           2            22.4
- ----------------------------------------------------
                                            $453.9
====================================================

        At December 31, 1999, approximately $243.0 million of the credit and
overdraft facilities was available. The weighted-average interest rate on
short-term borrowings was 6.6% at December 31, 1999, and 5.1% at December 31,
1998.

        The Company's bank agreements contain restrictive covenants and require
the maintenance of certain financial ratios.

Note H

LEASING ARRANGEMENTS

        The Company leases warehouse space, machinery and equipment, automobiles
and railcars under operating leases. Rent expense amounted to $20.9 million,
$32.2 million and $32.1 million during 1999, 1998 and 1997, respectively. Prior
to the formation of OxyVinyls, the Company leased a VCM production facility and
related equipment. OxyVinyls assumed this lease obligation, in addition to
certain other lease obligations related to the Company's R&I operations.

        The future minimum lease payments under non-cancelable operating leases
with initial lease terms in excess of one year at December 31, 1999, were as
follows: 2000--$5.8 million; 2001--$2.7 million; 2002--$1.9 million; 2003--$0.9
million; 2004--$0.5 million; and thereafter--$0.5 million.

Note I

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 $69.6 million, $78.4 million and
$79.9 million in 1999, 1998 and 1997, respectively. Accounts receivable at
December 31, 1999, and 1998 were net of $85.0 million, 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 J

INVENTORIES
                                                December 31,
(In millions)                                1999         1998
                                          --------------------
At FIFO or average cost, which
   approximates current costs:
    Finished products and in process      $   96.3    $   94.3
    Raw materials and supplies                92.0        34.2
- --------------------------------------------------------------
                                             188.3       128.5
Reserve to reduce certain inventories
  to LIFO basis                              (20.1)      (14.6)
- --------------------------------------------------------------
                                          $  168.2    $  113.9
==============================================================

        Approximately 53% and 56% of the pre-LIFO inventory amounts had been
valued by the LIFO method at December 31, 1999, and 1998, respectively.

Note K

PROPERTY
                                        December 31,
(In millions)                        1999        1998
                                  ---------------------
Land and land improvements        $   22.0    $    32.3
Buildings                            153.0        216.5
Machinery and equipment              584.3        956.4
- -------------------------------------------------------
                                     759.3      1,205.2
Less accumulated depreciation
  and amortization                  (420.9)      (761.7)
- -------------------------------------------------------
                                  $  338.4    $   443.5
=======================================================

                                                                              33

   36

The Geon Company

Notes                  TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

        During 1999, property with a net book value of approximately $221.0
million was included in the assets contributed to OxyVinyls. Capital
expenditures for 1999 and 1997 included $0.7 million and $2.4 million,
respectively, of capitalized interest costs. No interest was capitalized in
1998.

Note L

OTHER BALANCE SHEET LIABILITIES
                                                    Non-current
(In millions)                 Accrued Expenses      Liabilities
                             -------------------------------------
                                 December 31,       December 31,
                               1999      1998      1999      1998
                             -------------------------------------
Employment costs             $  28.8   $  25.5   $   9.7   $   5.6
Environmental                    7.1       5.5      37.0      40.4
Taxes, other than income        10.4      15.1        --        --
Post-retirement benefits         7.7       7.7        --        --
Pension                           --       2.4      12.6      23.0
Employee separation and
   plant phase-out               2.7       9.2        --        --
Other                           13.3      10.6       0.9       8.8
- ------------------------------------------------------------------
                             $  70.0   $  76.0   $  60.2   $  77.8
==================================================================

Note M

EMPLOYEE BENEFIT PLANS

        PENSION BENEFIT PLANS The Company has five defined benefit pension plans
covering substantially all U.S. employees. The plans covering salaried employees
generally provide benefit payments using a formula that is based on employee
compensation and length of service. The plans covering union wage employees
generally provide 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. Three of the Company's pension plans are unfunded
non-qualified pension plans that provide supplemental pension benefits for
senior executives. In connection with the acquisition of O'Sullivan, the Company
assumed the obligations and assets of O'Sullivan's defined benefit pension
plans, covering certain O'Sullivan employees.

        The following table sets forth as of December 31, 1999, and 1998, 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.

                                                            CHANGE
(In millions)                        1999        1998    1999 vs.1998
                                  -----------------------------------
CHANGE IN PLAN ASSETS:
Plan assets - beginning
   of the year                    $  243.9    $  241.8    $   2.1
Actual return on plan assets          14.2        15.3       (1.1)
Company contributions                  9.8         5.7        4.1
Acquired businesses                    9.5          --        9.5
Benefits paid                        (20.9)      (18.9)      (2.0)
- ------------------------------------------------------------------
Plan assets - end of the year        256.5       243.9       12.6
- ------------------------------------------------------------------
Accumulated benefit
   obligation (ABO)                  263.5       263.2        0.3
- ------------------------------------------------------------------
Plan assets less than ABO         $    7.0    $   19.3    $ (12.3)
==================================================================

        At December 31, 1999, the accumulated benefit obligation (ABO) liability
related to these funded pension plans was 97% funded. The discount rate used to
measure the benefit obligation in 1999 was increased by 0.7 percentage point
compared with 1998, resulting in a reduction in the ABO liability of
approximately $18.0 million, which was offset by the $8.4 million of ABO
associated with defined benefit plans of acquired businesses and the $9.0
million of curtailment and special termination benefits expense incurred upon
the formation of OxyVinyls. Over the last three years, the Company's
contributions have totaled $26.5 million, or $9.8 million above the normal
pension expense for the same period.

        Annual pension expense in 1999 included a charge of $9.0 million for
curtailment and special termination benefits related to employees transferred to
OxyVinyls. Annual pension expense in 1997 included $10.7 million related to a
voluntary retirement program. Annual pension expense for funded and unfunded
defined benefit pension plans, including these curtailment and special
termination benefits, included the following components:

(In millions)                          1999       1998       1997
                                     -----------------------------
Service cost for benefits earned     $   3.7    $   3.9    $   4.1
Interest cost                           21.1       20.1       19.5
Curtailment loss and special
  termination benefits                   9.0         --       10.7
Expected return on plan assets         (22.6)     (22.5)     (19.6)
Amortization of unrecognized
  losses, transition obligation
  and prior service cost                 2.6        2.6        3.8
- ------------------------------------------------------------------
Pension expense, net                 $  13.8    $   4.1    $  18.5
==================================================================

                                                                              34

   37
                                                                The Geon Company

- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

        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:

                                                            CHANGE
(In millions)                        1999        1998    1999 vs.1998
                                  -----------------------------------
CHANGE IN PROJECTED BENEFIT
   OBLIGATION (PBO):
Benefit obligation -
   beginning of year              $  302.1    $  294.1    $   8.0
Service cost                           3.7         3.9       (0.2)
Interest cost                         21.1        20.1        1.0
Benefits paid                        (23.5)      (19.9)      (3.6)
Curtailment and special
   termination benefits                9.0          --        9.0
Acquired businesses                   10.6          --       10.6
Change in discount rate
   and other                         (30.5)        3.9      (34.4)
- ---------------------------------------------------------------------
Benefit obligation -
   end of year (PBO)                 292.5       302.1       (9.6)
Less projected salary
   increases                         (22.7)      (31.1)       8.4
- ---------------------------------------------------------------------
Accumulated benefit
   obligation (ABO)               $  269.8    $  271.0    $  (1.2)
- ---------------------------------------------------------------------
FUNDED STATUS OF THE PLANS:
Plan assets less than PBO         $   36.0    $   58.2    $ (22.2)
Unamortized balances:
   Transitional liability             (2.3)       (4.4)       2.1
   Prior service cost                 (1.6)       (3.9)       2.3
   Net actuarial loss                (24.7)      (44.8)      20.1
   Adjustments required to
      recognize minimum
      liability                        5.2        20.3      (15.1)
- ---------------------------------------------------------------------
Accrued pension cost -
   all plans                          12.6        25.4      (12.8)
- ---------------------------------------------------------------------
   Accrued pension cost -
      funded plans with PBO
      in excess of assets             12.4        24.6      (12.2)
   Prepaid pension cost -
      funded plans with
      assets in excess of PBO         (6.1)       (8.2)       2.1
   Accrued pension cost -
      unfunded plans              $    6.3    $    9.0    $  (2.7)
=====================================================================

        The combined PBO includes the PBO of unfunded plans of $7.0 million and
$10.2 million at December 31, 1999, and 1998, respectively. The ABO of these
unfunded plans was $6.3 million and $9.1 million at December 31, 1999, and 1998,
respectively. The remaining PBO relates to the Company's funded pension plans,
including the acquired O'Sullivan plans. At December 31, 1999, the Company had
three plans with a PBO and an ABO in excess of the related plan assets. These
included the Company's salaried plan and two plans acquired with O'Sullivan. At
December 31, 1999, the PBO, ABO and fair value of plan assets for these plans
were $283.1 million, $261.1 million and $253.1 million, respectively. At
December 31, 1998, the Company's salaried plan had liabilities in excess of the
related assets. The PBO, ABO and fair value of related assets for the salaried
plan at December 31, 1998, were $268.8 million, $240.0 million and $215.4
million, respectively.

        Major assumptions used in accounting for the Company's defined benefit
pension plans are as follows:

                                      1999         1998
                                   ----------------------
Discount rate for obligations         7.7%         7.0%
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%
=========================================================

        A charge of $9.0 million for curtailment and special termination
benefits was recorded in 1999 relating to the transfer of R&I employees from
Geon to OxyVinyls. This charge is included in the gain on formation of joint
ventures, net of formation expenses, in the Consolidated Statements of Income. 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 Statements of Income. The Company recorded an intangible asset of
$3.2 million and $6.5 million related to both funded and unfunded pension plans
as of December 31, 1999, and 1998, respectively. At December 31, 1999, and 1998,
the Company's accumulated other non-owner equity changes included $1.3 million
and $8.9 million, respectively, related to the adjustment of the minimum pension
liability of its pension plans.
                                                                              35

   38
The Geon Company

Notes                  TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

        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 $(4.1) million, $3.6 million and $(0.5) million in
1999, 1998 and 1997, 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 1999, 1998 and 1997, Company contributions amounted to $7.6
million, $5.4 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 1999, 1998 and 1997, these
profit-sharing payments totaled $2.2 million, $1.5 million and $0.8 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 co-insurance. The life
insurance plans are generally non-contributory. Below is a reconciliation of the
plans' combined benefit obligations for December 31, 1999, and 1998:

(In millions)                                   1999        1998
                                              ------------------
Benefit obligation -
  beginning of year                           $  95.8    $  94.5
  Service cost                                    0.5        0.4
  Interest cost                                   6.2        6.5
  Participant contributions                       0.5        0.5
  Transfer to OxyVinyls                          (2.7)        --
  Business acquisitions and
    plan amendments                               2.4         --
  Change in discount rates and other             (8.5)       2.1
  Benefits paid                                  (8.0)      (8.2)
- -----------------------------------------------------------------
Benefit obligation - end of year                 86.2       95.8
  Unrecognized gain (loss)                        5.4       (3.0)
- -----------------------------------------------------------------
Accrued post-retirement benefit liability     $  91.6    $  92.8
================================================================

        The annual post-retirement benefit expense for each of the years ended
December 31 included the following components:

(In millions)                        1999      1998      1997
                                     ------------------------
Service cost for benefits earned     $0.5      $0.4      $0.4
Interest cost                         6.2       6.5       6.5
- -------------------------------------------------------------
Post-retirement expense, net         $6.7      $6.9      $6.9
=============================================================

        The average assumed rate of increase in the per capita cost of covered
benefits was 7.5% for 1999, 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,
1999, by approximately $3.8 million, and the aggregate of the service and
interest cost components of net periodic post-retirement benefit cost for 1999
by $0.3 million.

        The discount rates used in determining the benefit obligation at
December 31, 1999, and 1998 were 7.7% and 7.0%, respectively.

Note N

COMMITMENTS AND RELATED-PARTY INFORMATION

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 generally is 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, 1999, had accruals totaling $44.1 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 31,1999,

                                                                              36
   39

                                                                The Geon Company

- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

by as much as $15.0 million. The Company's estimate of the liability may be
revised as new regulations, technologies or additional information is obtained.

        Of the $44.1 million accrued for future environmental expenditures,
$17.2 million is attributable to future remediation expenditures at the Calvert
City, Kentucky, site and less than $0.5 million is attributable to off-site
environmental remediation liabilities, including the four sites mentioned
previously. The remaining amount is attributable primarily 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 providing for a site-wide remediation program, primarily to remove
ethylene dichloride from groundwater, the cost of which has been accrued.
Environmental expenses incurred were $1.7 million, $2.4 million and $4.2 million
in the years ended December 31, 1999, 1998 and 1997, respectively.

GUARANTEES In connection with the formation of OxyVinyls, the Company has
guaranteed $42.0 million of OxyVinyls borrowings from Occidental Petroleum
Corporation. The Company also has guaranteed $97.5 million of Sunbelt's
outstanding senior secured notes, maturing in 2017.

RELATED-PARTY TRANSACTIONS The Company purchases a substantial portion of its
raw materials under the terms of supply agreements with OxyVinyls. The
agreements have an initial term of 15 years with renewal options. The Company
also has entered into various service agreements with OxyVinyls. At December 31,
1999, net amounts owed to OxyVinyls, primarily for raw material purchases,
totaled approximately $26 million. During 1999, the Company's purchases of raw
materials from OxyVinyls totaled approximately $220 million.

Note O

OTHER EXPENSE, NET

(In millions)                       1999      1998      1997
                                  --------------------------
Currency exchange gain (loss)     $ (1.0)   $  2.9    $ (2.2)
Foreign currency
  exchange contract                  0.6      (1.1)     --
Discount on sale of
  trade receivables                 (3.5)     (4.6)     (5.0)
Other income, net                    0.3       0.2       1.3
- ------------------------------------------------------------
                                  $ (3.6)   $ (2.6)   $ (5.9)
============================================================

Note P

INCOME TAXES

        Income (loss) before income taxes and cumulative effect of a change in
accounting consists of the following:

(In millions)           1999       1998      1997
                       --------------------------
Domestic               $179.6     $ 5.1     $24.9
Foreign                  (5.6)     18.5       9.7
- -------------------------------------------------
                       $174.0     $23.6     $34.6
=================================================

        A summary of income tax expense (benefit) follows:

(In millions)                1999       1998       1997
                          -----------------------------
Current:
  Federal                 $    --    $   0.2    $   0.4
  State                       1.2        0.6       (1.1)
  Foreign                     5.3       10.0        6.5
- -------------------------------------------------------
    Total current             6.5       10.8        5.8
Deferred:
  Federal                    61.3        2.0        6.9
  State                       6.8       (0.4)       1.8
  Foreign                    (6.8)      (2.6)      (2.4)
- -------------------------------------------------------
    Total deferred           61.3       (1.0)       6.3
- -------------------------------------------------------
    Total tax expense     $  67.8    $   9.8    $  12.1
=======================================================

        The income tax rate for financial reporting purposes varied from the
federal statutory rate as follows:

                                          1999      1998      1997
                                          -------------------------
Federal statutory income tax rate         35.0%     35.0%     35.0%
Increase (decrease):
  State tax, net of federal benefit        3.0       0.8       1.5
  Goodwill                                 0.5       2.6        --
  Differences in rates of
    foreign operations                      --       1.5       2.0
  Foreign withholding accrued
    on unremitted earnings                  --        --       1.1
  Adjusted prior year's income
    tax liability                           --        --      (5.9)
  Other, net                               0.5       1.6       1.3
- -------------------------------------------------------------------
  Effective income tax rate               39.0%     41.5%     35.0%
===================================================================

                                                                              37

   40

The Geon Company

Notes                  TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

        Significant components of the Company's deferred tax liabilities and
assets at December 31 were as follows:

(In millions)                             1999        1998
                                       --------------------
Deferred tax liabilities:
  Tax over book depreciation           $   39.3    $  110.2
  Equity investments                      146.4         4.8
  State taxes                               6.2          --
  Other, net                               12.5        14.1
- -----------------------------------------------------------
    Total deferred tax liabilities        204.4       129.1
- -----------------------------------------------------------
Deferred tax assets:
  Post-retirement benefits
    other than pensions                    32.1        32.5
  Employment cost and pension              14.0        14.4
  Environmental                            15.7        14.6
  Net operating loss carryforward          34.2        26.4
  LIFO inventory                            4.8         4.7
  Intangibles                               2.0         3.7
  Alternative minimum tax
    credit carryforward                     5.2         5.5
  Foreign tax credit carryforward           5.6         6.4
  Foreign tax valuation allowance          (5.6)       (6.4)
  State taxes                                --         0.6
  Other, net                               17.1        18.5
- -----------------------------------------------------------
      Total deferred tax assets           125.1       120.9
- -----------------------------------------------------------
      Net deferred tax liabilities     $   79.3    $    8.2
===========================================================

        SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax
assets be reduced by a valuation allowance if it is likely 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, relating principally to accelerated depreciation, will
be sufficient to fully recognize its remaining deferred tax assets. In
particular, the turnaround of the largest deferred tax assets, related to
accounting for post-retirement benefits other than pensions and net operating
loss carryforwards, will occur over an extended period of time and, as a result,
will be realizable for tax purposes over those future periods.

        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, 1999. Regarding the undistributed earnings on which no federal and
foreign withholding tax 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 actually been 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 $9.1 million.

        During 1999, 1998 and 1997, the Company paid income taxes net of refunds
of $8.8 million, $7.8 million and $1.9 million, respectively. The Company has a
net operating loss carryforward of approximately $97.7 million, of which $8.9
million will expire in 2011, $22.2 million will expire in 2012 and the remaining
$66.6 million will expire in 2018. In addition, the Company has foreign tax
carryforwards of $5.6 million, which will expire from 2000 through 2004, and an
alternative minimum tax credit carryforward of $5.2 million.

Note Q

EMPLOYEE SEPARATION AND PLANT PHASE-OUT CHARGES

        During 1999, the Company recorded net employee separation and plant
phase-out charges totaling $1.7 million ($1.2 million of which was recorded as
additional depreciation expense) related to the consolidation of its compounding
operations, which began in the fourth quarter of 1998. In addition, the Company
previously recognized a charge of $14.6 million in the fourth quarter of 1998
associated with this consolidation.

        The plan of consolidation included the closing of two manufacturing
facilities and the partial closing of manufacturing lines at other plants. The
facilities affected were primarily those of the former Synergistics operations
that Geon acquired in 1997. The consolidation resulted in the writeoff of
software, machinery and equipment; separation costs associated with the
elimination of 201 positions; and costs associated with demolition and lease
terminations.

        The charges recognized in 1999 consisted of accelerated depreciation on
software assets at the affected sites totaling $1.2 million, additional site
demolition costs of $0.8 million, asset writeoffs of $0.4 million, employee
separation of $0.2 million, and professional and consulting services of $1.0
million incurred in connection with the consolidation of operations. The Company
also recognized a $1.9 million credit as a reduction to the previous estimates
of the total consolidation costs. Demolition activity commenced during the
second half of 1999 at all but one location, and the actual costs incurred plus
estimated remaining demolition costs are less than the estimates available at
the time the plan of consolidation was approved. Demolition at all sites is
expected to be completed in 2000. At December 31, 1999, all 201 positions

                                                                              38

   41
                                                                The Geon Company

- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

had been eliminated and all manufacturing lines and facilities had been closed.
Savings from this consolidation are estimated at $4.0 million in 1999 and $9.0
million annually thereafter.

        The activity related to the charges recognized in 1999 and 1998 is as
follows:

                                                  Nature of
(In millions)                  1999     1998        Expense
                              -----    -----      ---------
Total charges relating to:
  Employee separation and
    plant phase-out:
      Asset writeoffs         $ 0.4    $ 5.3       Non-cash
      Employee separation       0.2      5.0           Cash
  Site closure costs:
      Demolition               (1.1)     3.3           Cash
      Legal and
        professional fees       1.0      1.0           Cash
- -----------------------------------------------------------
                                0.5     14.6
  Depreciation and
    amortization expense:
      Accelerated depreciation  1.2       --      Non-cash,
                                                included in
                                                  deprecia-
                                                   tion and
                                               amortization
                                                    expense
- -----------------------------------------------------------
    Total charges               1.7     14.6
- -----------------------------------------------------------
1998 activity related
  to the charges:
    Assets written off           --     (5.3)      Non-cash
    Legal and professional
      fees paid                  --     (0.7)          Cash
- -----------------------------------------------------------
Restructuring accrual at
  December 31,1998               --      8.6
1999 activity related
  to the charges:
    Assets written off         (0.4)      --       Non-cash
    Employee separation paid   (0.2)    (3.8)          Cash
    Adjusted estimated
      demolition                1.1       --       Non-cash
    Legal and professional
      fees paid                (1.0)    (0.3)          Cash
    Accelerated depreciation   (1.2)      --       Non-cash
- -----------------------------------------------------------
Restructuring accrual at
  December 31,1999             $ --    $ 2.7
===========================================================

        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 has been or
will be funded as part of the Company's funding of pension plans. The remaining
$7.0 million represented cash payments for enhanced pension benefits and
separation costs. During 1999, $2.4 million of enhanced pension benefits and
$0.6 million of severance benefits were paid. At December 31, 1999, there were
no remaining cash payments to be made, except those related to the funding of
pension plans.

Note R

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. The term of each option cannot extend
beyond 10 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 nonemployee
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 will become
exercisable after six years, with accelerated vesting if target stock prices are
met. The remainder of these options is exercisable only if the target stock
prices are met.
                                                                             39

   42
The Geon Company

Notes                  TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

        A summary of stock option activity follows:

                                               Weighted-Average
(In thousands, except per share data)  Shares   Exercise Price
- ---------------------------------------------------------------
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 January 1,1999           3,808         20.87
Issued                                    149         24.66
Exercised                                 451         19.63
Forfeited                                  37         21.85
- ---------------------------------------------------------------
Outstanding at December 31,1999         3,469         21.26
- ---------------------------------------------------------------
Exercisable at December 31,1999         2,293         21.15
Exercisable at December 31,1998         2,146         20.70
Exercisable at December 31,1997         2,048         20.35
- ---------------------------------------------------------------
At December 31, 1999:
  Exercisable options:
    Exercise price: $14.92 - $22.00     1,512         18.79
    Exercise price: $22.01 - $30.13       781         25.72
  Unexercisable options:
    Exercise price: $14.92 - $22.00       785         20.56
    Exercise price: $22.01 - $33.44       391         23.30
===============================================================

        At December 31, 1999, the weighted-average remaining life for options
with an exercise price of $22.00 or less was 5.7 years. Options with an exercise
price of more than $22.00 had a remaining life of 6.6 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 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 three years. At December 31, 1999, 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 when accounting for 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 $2.1 million in 1999 ($0.09 per
diluted share), $1.9 million in 1998 ($0.08 per diluted share) and $2.1 million
($0.09 per diluted share) in 1997. The weighted-average fair value of stock
options granted per share was $9.52, $6.53 and $6.23 for 1999, 1998 and 1997,
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 6.1%, 4.8% and 5.4%; an assumed dividend yield of
1.7%, 2.5% and 2.5%; and stock price volatility of 32.7%, 29.9% and 28.5% for
1999, 1998 and 1997, respectively. A seven-year weighted-average life was used
for all periods.

        The compensation cost recognized relating to the stock portion of the
annual incentive plans, three-year incentive plan and amortization of restricted
stock awarded at the IPO amounted to $5.8 million, $4.9 million and $2.3 million
in 1999, 1998 and 1997, 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 $23.38, $20.75 and $19.88 for 1999, 1998 and 1997, respectively.

        At December 31, 1999, approximately 3.5 million shares were reserved for
future issuance upon exercise of stock options previously granted, and
approximately 1.0 million shares were available for future grants under the
Company's incentive plans.

                                                                              40

   43

                                                                The Geon Company

- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Note S

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 that 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 also are included in the "Other" segment. 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, 1999:
  Net sales                                                        $  1,261.2   $  1,107.1   $  191.5    $  (37.4)
  Operating earnings (loss)                                              99.7        104.1        1.3        (5.7)
  Employee separation and plant phase-out                                 0.5          0.5         --          --
  Other restructuring costs - accelerated depreciation                    1.2          1.2         --          --
  Restructuring costs incurred by OxyVinyls                               0.8           --        0.8          --
  Charge for acquired profit in inventory                                 3.2          3.2         --          --
- ------------------------------------------------------------------------------------------------------------------
  Operating earnings (loss) before restructuring costs
    and acquired inventory profit                                       105.4        109.0        2.1        (5.7)
  Depreciation and amortization                                          43.2         33.1       10.1          --
- ------------------------------------------------------------------------------------------------------------------
  Operating earnings (loss) before depreciation, amortization,
    restructuring costs and acquired inventory profit                   148.6        142.1       12.2        (5.7)
- ------------------------------------------------------------------------------------------------------------------
  Total assets                                                        1,162.6        905.2      247.7         9.7
  Capital expenditures                                                   60.1         49.1        4.0         7.0
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998:
  Net sales                                                        $  1,284.4   $    839.2   $  577.7    $ (132.5)
  Operating earnings (loss)                                              41.0         79.2      (36.4)       (1.8)
  Employee separation and plant phase-out                                14.6         14.6         --          --
  Operating earnings (loss) before restructuring costs                   55.6         93.8      (36.4)       (1.8)
  Depreciation and amortization                                          57.9         28.6       28.8         0.5
- ------------------------------------------------------------------------------------------------------------------
  Operating earnings (loss) before depreciation, amortization
    and restructuring costs                                             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         0.2
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997:
  Net sales                                                        $  1,250.0   $    606.7   $  817.7    $ (174.4)
  Operating earnings (loss)                                              51.7         44.7       16.4        (9.4)
  Employee separation and plant phase-out                                15.0          2.9        4.0         8.1
- ------------------------------------------------------------------------------------------------------------------
  Operating 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          --
- ------------------------------------------------------------------------------------------------------------------
  Operating 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          --
==================================================================================================================



                                                                              41

   44
The Geon Company


Notes                         TO CONSOLIDATED FINANCIAL STATEMENTS


         The PP&S segment includes the 1997 acquisition of Synergistics, the
1998 acquisitions of three plastisol formulators and the 1999 acquisitions of
O'Sullivan, Acrol and Dennis Chemical.

         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:



(In millions)                     1999       1998      1997
                             ------------------------------------
                                                
Earnings (loss) of
   equity affiliates:
     PP&S                           $ 0.1     $ 0.5      $ 0.2
     R&I                              9.6       3.2       (0.5)
- ------------------------------------------------------------------
     Total                          $ 9.7     $ 3.7     $ (0.3)
- ------------------------------------------------------------------
Investment in equity affiliates:
     PP&S                          $ 17.5     $ 3.2      $ 2.7
     R&I                            247.6      16.6       17.9
- ------------------------------------------------------------------
     Total                         $265.1     $19.8      $20.6
- ------------------------------------------------------------------


         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:



(In millions)                    1999       1998      1997
                             -------------------------------------
                                               
Net sales:
   United States                 $1,056.1  $1,004.7     $952.7
   Canada                           190.6     279.7      246.2
   Other                             14.5       -         51.1
Long-lived assets:
   United States                 $  690.2  $  443.7   $  400.5
   Canada                            60.9     105.5      141.7
   Other                             53.8      18.1       17.5
- ------------------------------------------------------------------




Note T

WEIGHTED-AVERAGE SHARES USED IN COMPUTING
EARNINGS PER SHARE

(In millions)                       1999      1998     1997
                             -------------------------------------
                                                 
Weighted-average shares - basic:
   Weighted-average
     shares outstanding               23.7      23.3      23.3
   Less unearned portion of
     restricted stock awards
     included in outstanding
     shares                           (0.4)     (0.4)     (0.4)
- ------------------------------------------------------------------
                                      23.3      22.9      22.9
- ------------------------------------------------------------------
Weighted-average shares - diluted:
   Weighted-average
     shares outstanding               23.7      23.3      23.3
   Plus dilutive impact of stock
     options and stock awards          0.6       0.3       0.3
- ------------------------------------------------------------------
                                      24.3      23.6      23.6
- ------------------------------------------------------------------


42
   45
The Geon Company                                           The Geon Company

Quarter Data                                    (UNAUDITED)



                                                      1999 QUARTERS                                  1998 QUARTERS
                                         ----------------------------------------------------------------------------------------

(In millions, except per share data)         Fourth     Third     Second     First         Fourth     Third    Second     First
                                         ----------------------------------------------------------------------------------------
                                                                                                
SALES                                       $319.2        $319.3    $296.9      $325.8   $ 301.2    $328.0    $330.7    $324.5
Employee separation and
   plant phase-out                            (1.9)         --         1.3         1.1      14.6       --        --        --
Operating income (loss)                       27.7         26.0       24.2        21.8      (1.8)     15.4      14.7      12.7
Income (loss) before cumulative effect
   of a change in accounting                  13.9         12.7       68.5        11.1      (3.0)      6.2       4.8       5.8
Net income (loss)                             13.9         12.7       68.5         9.6      (3.0)      6.2       4.8       5.8
- --------------------------------------------------------------------------------------------------------------------------------

Earnings (loss) per share, before
   cumulative effect of a change
   in accounting:
     Basic                                   $ 0.59       $ 0.54    $ 2.95      $ 0.48   $ (0.13)   $ 0.27    $ 0.21    $ 0.25
     Diluted                                   0.57         0.52      2.81        0.46     (0.13)     0.26      0.20      0.25

EARNINGS (LOSS) PER SHARE:
     Basic                                   $ 0.59       $ 0.54    $ 2.95      $ 0.42     (0.13)   $ 0.27    $ 0.21    $ 0.25
     Diluted                                   0.57         0.52      2.81        0.40     (0.13)     0.26      0.20      0.25

DIVIDEND PAID PER COMMON SHARE               $0.125       $0.125    $0.125      $0.125     0.125    $0.125    $0.125    $0.125

COMMON STOCK PRICE
     High                                    $ 33 1/2     $  35 3/4 $  37       $ 25 7/8 $  24 1/4 $  26      $  24 5/8 $ 23 1/2
     Low                                       24 11/16      25        22 15/16   21 9/16   16 1/4    17 7/16    19 1/4   19 15/16
- ---------------------------------------------------------------------------------------------------------------------------------


1999:    FIRST-QUARTER RESULTS INCLUDE A $1.7 MILLION CHARGE ($1.0 MILLION AFTER
         TAX) FOR EMPLOYEE SEPARATION AND PLANT PHASE-OUT ($0.6 MILLION OF
         ACCELERATED DEPRECIATION IS INCLUDED IN DEPRECIATION AND AMORTIZATION
         EXPENSE). SECOND-QUARTER RESULTS INCLUDE A $1.9 MILLION CHARGE ($1.1
         MILLION AFTER TAX) FOR EMPLOYEE SEPARATION AND PLANT PHASE-OUT,
         INCLUDING ACCELERATED DEPRECIATION OF $0.6 MILLION INCLUDED IN
         DEPRECIATION AND AMORTIZATION EXPENSE. SECOND-QUARTER RESULTS ALSO
         INCLUDE GEON'S SHARE OF A RESTRUCTURING CHARGE RECOGNIZED BY OXYVINYLS
         OF $0.8 MILLION ($0.5 MILLION AFTER TAX) AND A $93.5 MILLION GAIN
         ($57.2 MILLION AFTER TAX) ON THE FORMATION OF JOINT VENTURES.
         THIRD-QUARTER RESULTS INCLUDE A $3.2 MILLION CHARGE ($2.0 MILLION AFTER
         TAX) RELATED TO THE ACQUIRED PROFIT IN INVENTORY OF ACQUIRED
         BUSINESSES. FOURTH-QUARTER RESULTS INCLUDE A REDUCTION IN THE
         RESTRUCTURING CHARGE OF $1.9 MILLION ($1.1 MILLION AFTER TAX) TO
         REFLECT REVISED ESTIMATES OF REMAINING COSTS. FOURTH-QUARTER RESULTS
         ALSO INCLUDE AN ADJUSTMENT TO INCREASE THE GAIN RECOGNIZED ON THE JOINT
         VENTURE FORMATION OF $0.6 MILLION ($0.4 MILLION AFTER TAX).

1998:    FOURTH-QUARTER RESULTS INCLUDE A $14.6 MILLION CHARGE ($8.9 MILLION
         AFTER TAX) FOR COSTS RELATED TO PLANT CLOSINGS.

                                                                              43
   46


The Geon Company

Selected Financial Data
- --------------------------------------------------------------------------------




                                                                          Year Ended December 31,

(In millions, except per share data)                       1999         1998        1997        1996        1995
                                                        ----------------------------------------------------------
                                                                                         
SALES                                                   $ 1,261.2    $ 1,284.4   $ 1,250.0   $ 1,144.4   $ 1,267.8
Employee separation and plant phase-out                       0.5         14.6        15.0          --        63.9
Operating income                                             99.7         41.0        51.7        30.9        63.3
Income before extraordinary item and cumulative
  effect of a change in accounting                          106.2         13.8        22.5        12.2        32.2
Cumulative effect of change in method of accounting          (1.5)          --          --          --          --
NET INCOME                                                  104.7         13.8        22.5        12.2        32.2
- ------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
BEFORE EXTRAORDINARY ITEM AND CHANGE IN
  METHOD OF ACCOUNTING                                  $    4.56    $    0.60   $    0.98  $     0.51   $    1.28
Change in method of accounting                              (0.07)          --          --          --          --
NET INCOME                                                   4.49         0.60        0.98        0.51        1.28
- ------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
BEFORE EXTRAORDINARY ITEM AND CHANGE IN
  METHOD OF ACCOUNTING                                  $    4.37    $    0.58   $    0.95  $     0.50   $    1.24
Change in method of accounting                              (0.06)          --          --          --          --
NET INCOME                                                   4.31         0.58        0.95        0.50        1.24

DIVIDENDS PER COMMON SHARE                                   0.50         0.50        0.50        0.50        0.50
- ------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA, AT DECEMBER 31

Total assets                                            $ 1,162.6    $   802.0   $   872.9   $   736.9   $   752.0
Long-term debt                                              130.9        135.4       136.4       137.2       137.9
==================================================================================================================



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; ADCHEM, INC., FROM SEPTEMBER 1, 1998; ACROL
HOLDINGS LIMITED, FROM JULY 1, 1999; O'SULLIVAN CORPORATION, FROM JULY 8, 1999;
AND DENNIS CHEMICAL COMPANY, INC., FROM SEPTEMBER 8, 1999. IN ADDITION, 1999
RESULTS OF OPERATIONS REFLECT THE FORMATION OF OXY VINYLS, LP ON APRIL 30, 1999,
AND THE CONTRIBUTION OF SUBSTANTIALLY ALL OF GEON'S FORMERLY CONSOLIDATED R&I
BUSINESS SEGMENT OPERATIONS TO THE PARTNERSHIP. IN CONNECTION WITH THIS, THE
COMPANY ALSO ACQUIRED BUSINESSES FROM OCCIDENTAL CHEMICAL CORPORATION AND FORMED
A POWDER COMPOUNDING JOINT VENTURE, ALL OF WHICH ARE INCLUDED IN THE COMPANY'S
CONSOLIDATED RESULTS OF OPERATIONS AFTER APRIL 30, 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 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 for a
variety of factors including, but not limited to: (1) unanticipated changes in
industry or world, regional or U.S. PVC consumption growth rates affecting the
Company's markets; (2) unanticipated changes in global industry capacity that
come online in the PVC, VCM, ethylene 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) unanticipated delays in realizing, or inability to realize,
expected cost savings from acquisitions; (8) unanticipated costs or difficulties
and delays related to completion of proposed transactions or the operation of
joint venture entities; (9) lack of day-to-day operating control, including
procurement of raw material feedstock, of the resin partnership; (10) lack of
direct control over the reliability of delivery and quality of the primary raw
materials (PVC and VCM) utilized in the Company's products; and (11) partial
control over investment decisions and dividend distribution policy of the resin
partnership.

                                                                              44

   47

The Geon Company

Report of Independent
Auditors                    AND MANAGEMENT REPORT
- --------------------------------------------------------------------------------

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, 1999, and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements, which appear on pages 19, 23, 25, and 27 through 42, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of Oxy Vinyls, LP (a limited partnership in which the Company has a
24% interest) have been audited by other auditors whose report has been
furnished to us; insofar as our opinion relates to data included for Oxy Vinyls,
LP, it is based solely on their report.

        We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and the report of other
auditors provide a reasonable basis for our opinion.

        In our opinion, based on our audits and the report of other auditors,
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, 1999, and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.

/s/ Ernst & Young LLP

Cleveland, Ohio
January 27, 2000



MANAGEMENT REPORT

        Management is responsible for the preparation of The Geon Company's
consolidated financial statements and all of the related information appearing
in this annual report, in accordance with generally accepted accounting
principles. Where necessary, this information reflects estimates based upon
currently available information and management's judgments.

        Management is also responsible for maintaining internal accounting
controls, with the objectives of providing reasonable assurance that Geon's
assets are safeguarded against material loss from unauthorized use or
disposition, and that authorized transactions are properly recorded to permit
the preparation of accurate financial information. Cost/benefit judgments are an
important consideration in this regard. The effectiveness of internal controls
is maintained by personnel selection and training, division of responsibilities,
establishment and communication of policies, and ongoing internal review
programs and audits.

        Management believes that Geon's internal accounting controls as of
December 31, 1999, were effective and adequate to accomplish the objectives
described above.

Thomas A. Waltermire
Chairman and Chief Executive Officer

W. David Wilson
Vice President and Chief Financial Officer

January 27, 2000

                                                                              45

   48

The Geon Company


Corporate Information




                                                                       

   [Photograph]
Thomas A. Waltermire
                                               [Photograph]
                        [Photograph]        V. Lance Mitchell
                     Donald P. Knechtges                         [Photograph]
                                                               Gregory L. Rutman       [Photograph]
                                                                                     W. David Wilson

 [Photograph]          [Photograph]      [Photograph]
Denis L. Belzile      Diane J. Davie   Dennis A. Cocco
                                                                                       [Photograph]
                                                                                     Kenneth M. Smith

          [Photograph]                                                 [Photograph]
      John Sheppard Campbell                      [Photograph]       Gregory P. Smith
                                                Jean M. Miklosko
                               [Photograph]
                              Glenn E. Higby






EXECUTIVES AND OFFICERS

                                                                       
THOMAS A. WALTERMIRE                    DENIS L. BELZILE                      JOHN SHEPPARD CAMPBELL
Chairman of the Board, President        Vice President & General Manager,     General Manager,
& Chief Executive Officer               Specialty Resins & Formulators        Engineered Films

DONALD P. KNECHTGES                     DIANE J. DAVIE                        GLENN E. HIGBY
Senior Vice President,                  Vice President,                       Director,
Technology & Business Development       Human Resources                       Quality, Environment & Safety

V. LANCE MITCHELL                       DENNIS A. COCCO                       JEAN M. MIKLOSKO
Vice President & General Manager,       Vice President,                       Treasurer
Compounds                               Corporate & Investor Affairs
                                                                              GREGORY P. SMITH
GREGORY L. RUTMAN                                                             Controller
Vice President,
General Counsel & Secretary                                                   KENNETH M. SMITH
                                                                              Vice President,
W. DAVID WILSON                                                               Information Technology
Vice President &
Chief Financial Officer



                                                                              46

   49


STOCK EXCHANGE LISTING
The Geon Company Common Stock is listed on the New York Stock Exchange.
Symbol: GON.

STOCKHOLDER INQUIRIES
If you have any questions concerning your account as a stockholder, name or
address changes, inquiries regarding dividend checks or stock certificates, or
if you need tax information regarding your account, please contact our transfer
agent:
     The Bank of New York
     P.O. Box 11258
     Church Street Station
     New York, New York 10286-1258
     Phone: (800) 524-4458

Complimentary copies of Form 10-K and other reports filed with the Securities
and Exchange Commission are available from:
     Investor Affairs Administrator
     The Geon Company
     One Geon Center
     Avon Lake, Ohio 44012
     Phone: (440) 930-1444

ANNUAL MEETING
The annual meeting of stockholders of The Geon Company will be held April 19,
2000, at 9:00 a.m. at The Forum Conference and Education Center, One Cleveland
Center, 1375 East 9th Street, Cleveland, Ohio.

The meeting notice and proxy materials were mailed to stockholders with this
report. The Geon Company urges all stockholders to vote their proxies so that
they can participate in the decisions at the annual meeting.

FINANCIAL INFORMATION
Security analysts and representatives of financial institutions are invited to
contact:
     W. David Wilson
     Vice President & Chief Financial Officer
     Phone: (440) 930-3204
     Fax: (440) 930-1002
     E-mail: wilsonw@geon.com

FINANCIAL INFORMATION & MEDIA CONTACT
     Dennis A. Cocco
     Vice President, Corporate & Investor Affairs
     Phone: (440) 930-1538
     Fax: (440) 930-1428
     E-mail: coccod@geon.com

AUDITORS
     Ernst & Young LLP
     1300 Huntington Building
     925 Euclid Avenue
     Cleveland, Ohio 44115-1405

INTERNET ACCESS
Information on The Geon Company's products and services, news releases, EDGAR
filings, Form 10-K, 10-Q, etc., as well as an electronic version of this annual
report, are available on the Internet at http://www.geon.com.

                                                                The Geon Company

Board of Directors

[Picture of] STANDING, LEFT TO RIGHT: Farah M. Walters, Thomas A. Waltermire, R.
Geoffrey P. Styles, J. Douglas Campbell, D. Larry Moore SITTING, LEFT TO RIGHT:
William F. Patient, James K. Baker, Gale Duff-Bloom

THOMAS A. WALTERMIRE, 50
Chairman of the Board, President
and Chief Executive Officer

JAMES K. BAKER, 68
Retired Chief Executive Officer,
Arvin Industries, a worldwide
supplier of original equipment
and replacement automotive
parts; former Chairman, United
States Chamber of Commerce
2, 4*, 5

GALE DUFF-BLOOM, 60
President, Company Communications
and Corporate Image, J. C. Penney
Company, Inc., a major retailer of
apparel, jewelry, home furnishings
and services through department
stores and catalogs
1, 2*, 5

J. DOUGLAS CAMPBELL, 58
Retired President and Chief
Executive Officer, Arcadian
Corporation, the leading Western
Hemisphere producer and marketer
of nitrogen chemicals and fertilizers
1, 3, 5*

D.LARRY MOORE, 63
Retired President and Chief
Operating Officer, Honeywell, Inc.,
a global enterprise providing
electronic automation and control
systems for homes, buildings,
process control industries and
aerospace
1, 2, 3*

WILLIAM F. PATIENT, 65
Retired Chairman of the Board
and Chief Executive Officer
3, 4

R. GEOFFREY P. STYLES, 69
Retired Vice Chairman,
Royal Bank of Canada,
Canada's largest bank
1*, 3, 4

FARAH M. WALTERS, 55
President and Chief Executive
Officer, University Hospitals
of Cleveland and University
Hospitals Health System, a
leading health care delivery
system in northeast Ohio
2, 4

1 Audit Committee   2 Compensation Committee   3 Environmental, Health and
Safety Committee   4 Financial Policy Committee   5 Nominating and Governance
Committee
*DENOTES CHAIRMAN

                                                                              47

   50

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

[Picture of (right to left)
Dorian Haffelder,
  Marketing Manager
Bonnie C. Norris,
  Lab Technician
Sang H. Lee,
  Technical Manager,
  Custom Injection Molding]

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

[Logo Geon(TM)]   ONE GEON CENTER

                  AVON LAKE, OHIO  44012

                  440.930.1000

                  www.geon.com

EX-13.2

   1


                                                                    Exhibit 13.2

                  Index to Consolidated Financial Statements of
                         Oxy Vinyls, LP and Subsidiaries



                                                              Page(s)
Report of Independent Public Accountants                         -
Consolidated Balance Sheet as of December 31, 1999               1
Consolidated Statement of Operations for the
   period from April 30, 1999 through December 31, 1999          2
Consolidated Statement of Changes in Partners'
   Capital for the period from April 30,1999
   through December 31, 1999                                     3
Consolidated Statement of Cash Flows for the period
   from April 30, 1999 through December 31, 1999                 4
Notes to the Consolidated Financial Statements                   5-17

   2


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Oxy Vinyls, LP:


We have audited the accompanying consolidated balance sheet of Oxy Vinyls, LP
and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, changes in partners' capital, and cash flows for the
period from April 30, 1999 to December 31, 1999. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oxy Vinyls, LP and subsidiaries
as of December 31, 1999, and the results of their operations and cash flows for
the period from April 30, 1999 to December 31, 1999, in conformity with
generally accepted accounting principles.


/s/ Arthur Andersen LLP

Dallas, Texas,
January 25, 2000

   3

                         OXY VINYLS, LP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                December 31, 1999
                             (Amounts in thousands)




                                                                         
CURRENT ASSETS
      Cash and cash equivalents                                             $   19,842
      Trade receivables, net of allowance for doubtful accounts of $300         10,522
      Other receivables                                                          3,866
      Loans receivable from OxyMar                                              12,500
      Receivable from Occidental Receivables, Inc.                             200,041
      Receivable from Occidental Chemical Corporation, net                      12,239
      Inventories                                                              105,830
      Prepaid expenses                                                           2,849
                                                                            ----------

           Total current assets                                                367,689

Loans receivable from Occidental Petroleum Corporation, net                     28,790

Property, plant and equipment, net                                             974,394

Other assets                                                                    17,903
                                                                            ----------

           TOTAL ASSETS                                                     $1,388,776
                                                                            ==========

CURRENT LIABILITIES
      Current maturities of long-term debt                                  $      296
      Accounts payable                                                         205,753
      Accrued liabilities                                                       56,377
      Payable to The Geon Company, net                                           6,270
      Foreign income taxes payable                                               3,278
                                                                            ----------

           Total current liabilities                                           271,974

Long-term debt, net of current maturities                                       54,260

Equity investment in unconsolidated subsidiary                                  25,519

Postretirement benefit obligations                                              13,268

Deferred credits and other liabilities                                           9,464

COMMITMENTS AND CONTINGENCIES (NOTE 7)

PARTNERS' CAPITAL                                                            1,014,291
                                                                            ----------

           TOTAL LIABILITIES AND PARTNERS' CAPITAL                          $1,388,776
                                                                            ==========



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

                                        1

   4


                         OXY VINYLS, LP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
          For the Period from April 30, 1999 through December 31, 1999
                             (Amounts in thousands)




REVENUES

                                                                       
      Net sales                                                            $1,067,890

      Equity in earnings of unconsolidated subsidiary                          10,480
                                                                           ----------

                                                                            1,078,370

COSTS AND OTHER DEDUCTIONS

      Cost of sales                                                           963,296

      Selling, general and administrative and other operating expenses         43,295

      Interest expense, net                                                     4,420
                                                                           ----------

INCOME FROM OPERATIONS BEFORE FOREIGN INCOME TAXES                             67,359

      Provision for foreign income taxes                                        3,699
                                                                           ----------

NET INCOME                                                                 $   63,660
                                                                           ==========




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

                                        2


   5

                         OXY VINYLS, LP AND SUBSIDIARIES
             CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
          For the Period from April 30, 1999 through December 31, 1999
                             (Amounts in thousands)




                                             Occidental        Occidental       1999 PVC           Total
                                             PVC LP Inc.        PVC LLC        Partner Inc.  Partners' Capital
                                             -----------      -----------      -----------   -----------------

                                                                                    
Initial capitalization on April 30, 1999     $   723,717      $     9,650      $   231,589      $   964,956

Net income                                        47,745              637           15,278           63,660

Distributions to partners                        (10,745)            (142)          (3,438)         (14,325)
                                             -----------      -----------      -----------      -----------

Balance at December 31, 1999                 $   760,717      $    10,145      $   243,429      $ 1,014,291
                                             ===========      ===========      ===========      ===========



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

                                       3

   6

                         OXY VINYLS, LP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
          For the Period from April 30, 1999 through December 31, 1999
                             (Amounts in thousands)




                                                                                
CASH FLOW FROM OPERATING ACTIVITIES:
      Net income                                                                  $  63,660
      Adjustments to reconcile net income to net cash
        provided by operating activities:
           Depreciation and amortization                                             48,166
           Equity in earnings of unconsolidated subsidiary                          (10,480)
           Deferred foreign income taxes                                                316
           Other noncash charge to income                                             1,533
      Changes in operating assets and liabilities:
           Decrease in trade and other receivables                                  105,236
           Decrease in loans receivable from OxyMar                                  12,500
           Increase in inventories                                                  (23,220)
           Increase in receivables from Occidental Receivables, Inc.               (200,041)
           Increase in prepaid expenses                                                (549)
           Increase in accounts payable and accrued liabilities                     133,023
           Increase in foreign income taxes payable                                   3,278
           Increase in receivable from Occidental Chemical Corporation, net         (12,239)
           Increase in payable to The Geon Company, net                               6,270
      Other operating, net                                                           (6,007)
                                                                                  ---------

Net cash provided by operating activities                                           121,446

CASH FLOW FROM INVESTING ACTIVITIES:
      Capital expenditures                                                          (24,525)
                                                                                  ---------

Net cash used by investing activities                                               (24,525)

CASH FLOW FROM FINANCING ACTIVITIES:
      Proceeds from long-term debt                                                   44,000
      Distributions to partners                                                     (14,325)
      Increase in loans receivable from Occidental Petroleum Corporation, net      (106,790)
                                                                                  ---------

Net cash used by financing activities                                               (77,115)
                                                                                  ---------

Increase in cash and cash equivalents                                                19,806

Cash and cash equivalents, beginning of period                                           36
                                                                                  ---------

Cash and cash equivalents, end of period                                          $  19,842
                                                                                  =========





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

                                        4

   7

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


(1)      FORMATION AND OPERATIONS -

         Oxy Vinyls, LP ("OxyVinyls" or the "Partnership"), a Delaware limited
partnership, was formed on April 6, 1999, pursuant to a Limited Partnership
Agreement among Occidental PVC LP, Inc. (the "Oxy Limited Partner") and
Occidental PVC, LLC (the "Oxy General Partner"), wholly-owned subsidiaries of
Occidental Chemical Corporation (OCC) and 1999 PVC Partner Inc., (the "Geon
Limited Partner"), a subsidiary of The Geon Company ("Geon"). The contributions
and related transactions hereinafter described in this Note were effective, and
the Partnership commenced operations, as of April 30, 1999, at which time the
Limited Partnership Agreement was amended pursuant to a First Amended and
Restated Limited Partnership Agreement dated as of April 30, 1999 (collectively
with the Limited Partnership Agreement, the "Partnership Agreement"). Through
the Oxy General Partner and the Oxy Limited Partner, OCC indirectly owns a
seventy-six percent interest in the Partnership. OCC is an indirect,
wholly-owned subsidiary of Occidental Petroleum Corporation (OPC). Through the
Geon Limited Partner, Geon indirectly owns a twenty-four percent interest in the
Partnership.

         The Partnership owns and operates polyvinyl chloride (PVC) and vinyl
chloride monomer (VCM) assets in the United States that were contributed on
behalf of the Oxy General Partner and the Geon Limited Partner, respectively, by
OCC and Geon. These assets consist of several manufacturing facilities on the
U.S. Gulf Coast, as well as manufacturing facilities in Kentucky and New Jersey
and two chlor-alkali and cogeneration facilities near Houston, Texas. A fifty
percent equity interest in OxyMar, a Texas general partnership between Oxy VCM
Corporation ("Oxy VCM"), an indirect wholly-owned subsidiary of OPC, and US VCM
Corporation, a wholly-owned subsidiary of Marubeni Corporation, a Japanese
corporation, was contributed to the Partnership through a transfer by the Oxy
Limited Partner of the capital stock of Oxy VCM to the Partnership and the
subsequent merger of Oxy VCM into the Partnership. OxyMar owns a VCM
manufacturing facility at Ingleside, Texas.

         The Partnership also owns and operates two PVC manufacturing facilities
located in Ontario and Alberta, Canada. Ownership of these Canadian assets was
acquired through a transfer by Geon Canada Inc., a wholly- owned Canadian
subsidiary of Geon, of the capital stock of Oxy Vinyls Canada Inc. ("OxyVinyls
Canada") to 3547728 Canada, Inc., an indirect Canadian subsidiary of the
Partnership. For the capital stock of OxyVinyls Canada, 3547728 Canada, Inc.
paid $36 million U.S. dollars borrowed by the Partnership from OPC and
contributed by the Partnership as capital to its subsidiary, LaPorte Chemicals
Corp. ("LaPorte") and further contributed by LaPorte to 3547728 Canada Inc.
3547728 Canada Inc. and OxyVinyls Canada were amalgamated with OxyVinyls Canada
as the surviving entity.

         The assets and liabilities contributed on behalf of the Oxy General
Partner and the Oxy Limited Partner were recorded at OCC's book basis by the
Partnership. The assets and liabilities contributed on behalf of the Geon
Limited Partner were recorded at their fair value by the Partnership.

         Under terms of the Partnership Agreement, net income is allocated among
the partners pro rata based on their percentage ownership of the Partnership.
Distributions to the partners and any additional cash contributions required by
the Partnership are also based on the partners' percentage ownership of the
Partnership.

         The consolidated financial statements include the accounts of OxyVinyls
and its wholly-owned subsidiary, LaPorte, as well as LaPorte's subsidiary,
OxyVinyls Canada, whose functional currency is the U.S. dollar. All intercompany
accounts and transactions have been eliminated.

                                       5

   8


                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -

     RISKS AND UNCERTAINTIES -
     -----------------------

         The process of preparing consolidated financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues and expenses. Such estimates primarily relate to unsettled transactions
and events as of the date of the consolidated financial statements. Accordingly,
upon settlement, actual results may differ from estimated amounts, generally by
immaterial amounts. Management believes that these estimates and assumptions
provide a reasonable basis for the fair presentation of OxyVinyls' financial
position and results of operations.

         Since OxyVinyls' major products are commodities, significant changes in
the prices of chemical products could have a significant impact on OxyVinyls'
results of operations for any particular period. OxyVinyls had one major
customer, Geon, during the period presented, which accounted for 14.5% of total
sales.

         Substantially all of the purchases of key raw materials are supplied by
related parties (see Note 10). Additionally OxyVinyls purchases all VCM for its
Alberta, Canada facility from one supplier. These purchases totaled
approximately $45 million during the period from April 30, 1999 through December
1999.

     REVENUE RECOGNITION -
     -------------------

         Revenue from product sales is recognized upon shipment of product to
the customer.

     INCOME TAXES -
     ------------

         The Partnership is not subject to U.S. federal or state income taxes as
income is reportable directly by the individual partners. However, a provision
for Canadian income taxes related to OxyVinyls Canada has been included in the
accompanying consolidated financial statements.

         Deferred foreign income taxes reflect the future tax consequences of
temporary differences between the tax bases of assets and liabilities and their
financial reporting amounts. The effective tax rate of 42% of Canadian pre-tax
earnings is higher than the statutory Canadian federal income tax rate of 38%
primarily due to provincial taxes less applicable federal credits. At December
31, 1999, OxyVinyls had deferred tax liabilities of $.3 million, which are
included in deferred credits and other liabilities on the consolidated balance
sheet. The temporary differences resulting in deferred tax liabilities are
primarily related to property, plant and equipment.

         OxyVinyls is subject to audit by taxing authorities in various tax
jurisdictions. Management believes that any required adjustments to OxyVinyls'
tax liabilities will not have a material adverse impact on its financial
position or results of operations. The current and deferred portion of the
provisions for Canadian income taxes were $3.4 million and $.3 million,
respectively, for the period from April 30, 1999 through December 31, 1999.

     FOREIGN CURRENCY  -
     -----------------

         The functional currency applicable to OxyVinyls Canadian operations is
the U.S. dollar since cash flows are denominated principally in U.S. dollars.
The effect of exchange-rate changes or transactions denominated in nonfunctional
currencies generated a gain of approximately $.2 million for the period from
April 30, 1999 through December 31, 1999.

                                       6

   9

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

     CASH AND CASH EQUIVALENTS -
     -------------------------

         Cash equivalents consist of highly liquid certificates of deposits and
a restricted bank deposit (see Note 7) with initial maturities of three months
or less. Cash equivalents totaled $7.9 million at December 31, 1999.

         Interest income on deposits with unrelated parties was $.4 million for
the period from April 30, 1999 through December 31, 1999.

         Cash overdrafts are reclassified to accounts payable and amounted to
$13.9 million as of December 31, 1999.

     EQUITY INVESTMENT  IN OXYMAR -
     ----------------------------

         OxyMar owns a VCM manufacturing facility at Ingleside, Texas which is
operated on OxyMar's behalf by OCC pursuant to an operating agreement. OxyMar is
not subject to federal or state income taxes as income is reportable directly by
the individual partners. The investment in OxyMar is accounted for under the
equity method.

         At December 31, 1999, the historical underlying equity in net assets of
OxyMar exceeded the Partnership's investment in OxyMar by $8 million. The
investment deficiency is being amortized on a straight-line basis into income
over 25 years. Amortization amounted to $.4 million for the period from April
30, 1999 through December 31, 1999. The following table presents summarized
financial information of OxyMar as of December 31, 1999, and for the eight
months then ended (in thousands):

                  Net sales                 $ 303,273
                  Costs and expenses          281,601
                                            ---------
                  Net income                $  21,672
                                            =========

                  Current assets            $  92,698
                  Noncurrent assets         $ 363,308
                  Current liabilities       $ 106,602
                  Noncurrent liabilities    $ 384,415
                  Partners' capital         $ (35,011)

         At December 31, 1999, OPC unconditionally provides guarantees of $192.5
million of OxyMar's obligations, which include private placement bonds and a
revolving credit line.

         See Note 10 regarding OxyVinyls' purchase commitment from OxyMar.
Unrealized profits on inventory purchased from OxyMar are deferred by OxyVinyls
based on ownership percentage and are recognized upon the ultimate sale to an
unaffiliated customer.


                                       7

   10

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

     OTHER ASSETS -
     ------------

         Other assets includes certain tangible assets and deferred charges that
are amortized over the estimated periods to be benefited (3 - 10 years).

     MAJOR MAINTENANCE EXPENDITURES -
     ------------------------------

         OxyVinyls uses the accrue-in-advance method to account for major
maintenance turnaround expenditures. Under this method, an estimate is made of
the costs expected to be incurred in connection with the next planned periodic
maintenance shutdown. That estimate is then accrued on a straight-line basis
over the period of time until the next planned major maintenance shutdown
occurs. The liability for major maintenance turnaround included in accrued
liabilities was $13.2 million as of December 31, 1999.

     EXCHANGES -
     ---------

         Finished product exchange transactions, which involve homogeneous
commodities held for sale in the ordinary course in the same line of business
and do not involve the payment or receipt of cash, are not accounted for as
purchases and sales. Any resulting volumetric exchange balances are accounted
for as inventory in accordance with the normal inventory valuation policy.

     ENVIRONMENTAL COSTS -
     -------------------

         Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Reserves for estimated costs that relate
to existing conditions caused by past operations and that do not contribute to
current or future revenue generation are recorded when environmental remedial
efforts are probable and the costs can be reasonably estimated. In determining
the reserves, OxyVinyls uses the most current information available, including
similar past experiences, available technology, regulations in effect, the
timing of remediation and cost-sharing arrangements. The environmental reserves
are based on management's estimate of the most likely cost to be incurred and
are reviewed periodically and adjusted as additional or new information becomes
available. Probable recoveries or reimbursements are recorded as an asset.

         Pursuant to the asset contribution agreements of the Partnership, the
contributor (OCC or Geon) has an obligation to indemnify OxyVinyls for health,
safety and environmental claims that relate to pre-May 1, 1999 activities and
that existed as of April 30, 1999 or arise within ten years of that date, except
to the extent that OxyVinyls exacerbated or accelerated the claim.

         As of December 31, 1999, management believes no environmental reserve
is required.

     RESEARCH AND DEVELOPMENT COSTS -
     ------------------------------

         Research and development costs, which are charged to operations as
incurred, were $4.4 million for the period from April 30, 1999 through December
31, 1999.

                                       8

   11

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)

     SUPPLEMENTAL CASH FLOW INFORMATION -
     ----------------------------------

         Cash payments during the period from April 30, 1999 through December
31, 1999 included foreign income taxes of $.1 million. Net interest paid totaled
$4.2 million during the period from April 30, 1999 through December 31, 1999.

         During the period from April 30, 1999 through December 31, 1999,
OxyVinyls sold trade receivables to an affiliate, Occidental Receivables, Inc.
(ORI), in noncash transactions. See Note 3.

     FAIR VALUE OF FINANCIAL INSTRUMENTS -
     -----------------------------------

         OxyVinyls values financial instruments as required by Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of
Financial Instruments". The carrying amounts of cash and cash equivalents
approximate fair value because of the short maturity of those instruments. The
estimated fair value of the loans receivable from OxyMar at December 31, 1999
was approximately $12.2 million on a discounted basis using an estimated market
rate, compared with a carrying value of $12.5 million. OxyVinyls estimates the
fair value of its long-term debt based on the quoted market prices for the same
or similar issues or on the yields offered to OxyVinyls for debt of similar
rating and similar remaining maturities. The estimated fair value of OxyVinyls'
long-term debt at December 31, 1999 was approximately $54.2 million compared
with a carrying value of $54.3 million. See Note 6. The carrying value of other
on-balance sheet financial instruments approximates fair value.


(3)      RECEIVABLES -

         During the period from April 30, 1999 through December 31, 1999,
OxyVinyls sold, with limited recourse, to ORI certain trade receivables under a
revolving sale program in connection with the ultimate sale for cash of an
undivided ownership interest in such receivables by ORI. OxyVinyls has retained
the collection responsibility with respect to the receivables sold. An interest
in new receivables is sold monthly in noncash transactions representing the net
difference between newly created receivables and collections made from
customers. The net receivables balance sold as of December 31, 1999, was $200
million, which includes $32 million of OxyVinyls' trade receivables from Geon.

                                       9

   12


                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

(4)      INVENTORIES -

         Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) method was used in determining the cost of $65 million of
inventories at December 31, 1999. The remaining inventories are accounted for
using the first-in, first-out (FIFO) and weighted-average-cost methods.
Inventories consisted of the following as of December 31, 1999 (in thousands):

                  Raw materials                                   $    15,262
                  Materials and supplies                               24,834
                  Finished goods                                       78,150
                                                                  -----------
                                                                      118,246
                  LIFO and lower of cost or market reserve            (12,416)
                                                                  -----------
                  Total inventories                               $   105,830
                                                                  ===========


(5)      PROPERTY, PLANT AND EQUIPMENT -

         Property additions and major renewals and improvements are capitalized
at cost. Interest costs incurred in connection with major capital expenditures
are capitalized and amortized over the lives of the related assets. Depreciation
of plant and equipment is primarily provided using the units-of-production
method based on estimated total productive life. Property, plant and equipment
at December 31, 1999 consisted of the following (in thousands):

         Land and land improvements                               $    32,894
         Buildings                                                    103,102
         Machinery and equipment                                    1,435,314
         Construction in progress                                      93,561
                                                                  -----------
                                                                    1,664,871
         Accumulated depreciation                                    (690,477)
                                                                  -----------
         Property, plant and equipment, net                       $   974,394
                                                                  ===========

                                       10
   13

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999



(6)      LONG-TERM DEBT -

         Long-term debt at December 31, 1999 consisted of the following (in
         thousands):

         Pollution control revenue bonds, 6%, due through 2007         $ 10,056
         Pollution control revenue bonds,  6.75%, due through 2009          500
         Loan payable to Canadian bank under credit agreement,
           variable rate, 7.16% at December 31, 1999, due in 2004        44,000
                                                                       --------
                                                                         54,556
         Current maturities                                                (296)
                                                                       --------
                                                                       $ 54,260
                                                                       ========

         Minimum principal payments on long-term debt subsequent to 1999 are as
         follows (in thousands):

                                 2000                                  $    296
                                 2001                                       296
                                 2002                                       296
                                 2003                                       322
                                 2004                                    44,322
                                 Thereafter                               9,024
                                                                       --------
                                                                       $ 54,556
                                                                       ========

         The pollution control revenue bonds are secured by the equipment
purchased with the proceeds of the financing.

         The Canadian bank loan is payable in U.S. dollars under the terms of
the Credit Agreement ("Credit Agreement") entered into by OxyVinyls Canada in
December 1999. OxyVinyls Canada may borrow up to $48 million under the terms of
the Credit Agreement, which is guaranteed by OPC. Interest is payable quarterly.

         Interest expense related to long-term external debt was $.5 million
for the period April 30, 1999 through December 31, 1999.

                                       11


   14


                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


(7)      COMMITMENTS AND CONTINGENCIES -

     LEASES -
     ------

         At December 31, 1999, future net minimum rental commitments under
noncancelable operating leases with terms in excess of one year are as follows
(in thousands):

         2000                                     $  28,727
         2001                                        29,161
         2002                                        19,249
         2003                                        16,717
         2004                                         9,023
         Thereafter                                  60,370
                                                  ---------
                                                  $ 163,247
                                                  =========

         OxyVinyls leases certain manufacturing facilities in LaPorte, Texas,
and railcars under the terms of various related agreements dated April 30, 1999
(collectively, the "LaPorte Lease"). The initial lease term extends through
April 20, 2004 and has a provision for annual renewals for an additional five
years. Upon termination of the lease, OxyVinyls may purchase the assets based
upon their estimated fair values. In the event OxyVinyls does not purchase the
assets, the lease provides a residual value guarantee by OxyVinyls of
approximately $152 million. Currently, OxyVinyls does not expect to make
payments under this provision. Total estimated future rental commitments of
$42.4 million under the LaPorte Lease are included in the operating lease
commitments above. Actual rent payments under the LaPorte Lease are calculated
using variable interest rates. OxyVinyls has restricted bank deposits associated
with the LaPorte Lease of $3.5 million as of December 31, 1999. OxyVinyls earns
interest on these deposits which will be returned to OxyVinyls upon termination
of the LaPorte Lease. All obligations under the LaPorte Lease are guaranteed by
OPC.

         Rent expense was approximately $21.5 million for the period from April
30, 1999 through December 31, 1999.

     OTHER -
     -----

         OxyVinyls has entered into an agreement providing for the following
future payments to purchase brine, a raw material utilized in chlor-alkali
production. At December 31, 1999, the net present value of the fixed and
determinable portion of the obligation under this agreement was used to
collateralize financing of the brine supplier.

         2000                                     $     820
         2001                                           790
         2002                                           760
         2003                                           730
         2004                                           700
         2005 through 2014                            5,026
                                                  ---------
                                                  $   8,826
                                                  =========

                                       12

   15

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


(7)      COMMITMENTS AND CONTINGENCIES - (continued)

         OxyVinyls has certain other commitments under contracts to purchase
electrical power and raw materials and other obligations, all in the ordinary
course of business and at market prices.

         See Note 10 for commitments to related parties.

         The Partnership also becomes involved in certain legal proceedings in
the normal course of business. Management believes that the outcome of such
matters will not materially affect the Partnership's consolidated financial
position or results of operations.


(8)      RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -

     RETIREMENT PLANS -
     ----------------

         OxyVinyls participates in various defined contribution retirement plans
sponsored by OPC for its salaried, domestic union and nonunion hourly, and
certain foreign national employees that provide for periodic contributions by
OxyVinyls based on plan-specific criteria, such as base pay, age level, and/or
employee contributions. OxyVinyls contributed and expensed approximately $4.7
million under the provisions of these plans during the period from April 30,
1999 through December 31, 1999.

     MEDICAL AND POSTRETIREMENT BENEFITS -
     -----------------------------------

         OxyVinyls provides medical and dental benefits and life insurance
coverage for certain active, retired and disabled employees and their eligible
dependents. The benefits generally are funded by OxyVinyls as the benefits are
paid during the year. The cost of providing these benefits is based on claims
filed and insurance premiums paid for the period. The total benefits costs,
including postretirement costs, were approximately $5 million during the period
from April 30, 1999 through December 31, 1999.

         The following table sets forth the components of the net periodic
benefit costs for OxyVinyls' postretirement benefit plans for the period from
April 30, 1999 through December 31, 1999 (in thousands):

         Service cost - benefits earned during the period       $   625
         Interest cost on benefit obligations                       827
                                                                -------
         Net periodic postretirement benefit cost               $ 1,452
                                                                =======

         OxyVinyls' postretirement benefit plans are accrued based on various
assumptions and discount rates, as described below. The actuarial assumptions
used could change in the near term as a result of changes in expected future
trends and other factors which, depending on the nature of the changes, could
cause increases or decreases in the liabilities accrued.

                                       13

   16

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

(8)      RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - (continued)

     MEDICAL AND POSTRETIREMENT BENEFITS - (continued)
     -----------------------------------

         The following table sets forth the reconciliation of the beginning and
ending balances of the benefit obligation for OxyVinyls' postretirement benefit
plans (in thousands):

           Changes in benefit obligation:
             Benefit obligation - April 30, 1999                $ 11,816
             Service cost - benefits earned during the period        625
             Interest cost on projected benefit obligations          827
             Actuarial gain                                       (1,326)
                                                                --------
             Benefit obligation - December 31, 1999             $ 11,942
                                                                ========

         The postretirement benefit obligations were determined by application
of the terms of medical and dental benefits and life insurance coverage,
including the effect of established maximums on covered costs, together with
relevant actuarial assumptions and health care cost trend rates projected at a
Consumer Price Index (CPI) increase of 3 percent as of December 31, 1999.
Participants pay for all medical cost increases in excess of increases in the
CPI. Consequently, increases in the assumed healthcare cost trend rates beyond
the CPI increase would have no impact on the postretirement benefit obligation
at December 31, 1999. The discount rate used in determining the benefit
obligation was 7.75 percent as of December 31, 1999.

         Pursuant to the asset contribution agreements of the Partnership, the
contributors (OCC and Geon) retained liability for, and have an obligation to
indemnify the Partnership with respect to, such contributors' employee benefit
and welfare plans and programs (including existing retirees and disabled) and
any claims by or on behalf of employees of OxyVinyls that are attributable to
their employment with the contributor prior to May 1, 1999. Obligations related
to postretirement benefits attributable to active employees at April 30, 1999
were assumed by OxyVinyls.


         The following sets forth the funded status and amount recognized in
OxyVinyls' consolidated balance sheet for the postretirement benefit obligations
at December 31, 1999 (in thousands):

         Funded status                                      $ (11,942)
         Unrecognized net gain                                 (1,326)
                                                            ---------
         Postretirement benefit obligations                 $ (13,268)
                                                            =========


                                       14

   17


                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999


(9)      CASH MANAGEMENT AND CREDIT AND DEPOSIT FACILITIES AGREEMENT WITH OPC -

         OxyVinyls participates in OPC's centralized cash management system for
its domestic operations. OxyVinyls maintains a concentration account to collect
cash receipts and to fund disbursements. OPC funds any negative cash balances
and collects any excess cash balances on a daily basis in the concentration
account under the terms of a Cash Management and Credit and Deposit Facilities
Agreement between OPC and OxyVinyls (the "Agreement").

         Under terms of the Agreement, OPC has committed to loan OxyVinyls, on a
revolving basis, up to $88.2 million as of December 31, 1999. The Agreement
provides that the maximum revolving loan commitment be reduced by $22.2 million
over the remaining term of the Agreement based on certain cash flow results of
OxyVinyls.

         Geon has guaranteed $42.3 million of the OxyVinyls' loans payable to
OPC. This guarantee terminates on the later of April 30, 2002 or when OxyVinyls
attains a defined amount of earnings before income taxes, depreciation, and
amortization.

         OPC loans to OxyVinyls cannot decrease below a minimum required balance
of $42.3 million before the termination of the Geon guarantee. As of December
31, 1999, loans payable to OPC under the Agreement were $42.3 million. In order
to maintain the loan above the minimum required balance, any excess cash
collected by OPC is held in the form of interest bearing deposits under terms of
the Agreement. These deposits are considered loans receivable from OPC. As of
December 31, 1999, the balance of loans receivable from OPC was $71.1 million.
The OxyVinyls' loans payable and receivable to/from OPC, including interest, has
been combined and recorded as loans receivable from OPC, net in the accompanying
consolidated balance sheet.

         Loans payable to OPC accrue interest at the reported one-month London
Interbank Offered Rate (LIBOR) plus a calculated variable margin. Loans
receivable from OPC accrue interest at the reported one-month LIBOR. Interest
expense under the Agreement, net of interest income of $.4 million, totaled $4.4
million for the period from April 30, 1999 through December 31, 1999. Fees
payable to OPC under the Agreement totaled $.4 million for the period from April
30, 1999 through December 31, 1999, and are included in other operating
expenses.

         The Agreement may be terminated by either OxyVinyls or OPC after the
termination of the Geon guarantee, at which date any outstanding loans as well
as any accrued interest and fees payable become due.

(10)     RELATED PARTY TRANSACTIONS -

         OxyVinyls sells PVC to Geon under the terms of a sales agreement that
expires on December 31, 2013. The agreement requires Geon to purchase its and
its affiliates' annual PVC requirements in North America from OxyVinyls in
excess of 290 million pounds. On the first 880 million pounds of PVC supplied in
any calendar year, Geon will pay a price which is based upon cost and market
considerations. Geon will purchase all volumes over 880 million pounds in any
calendar year at a competitive market price.

                                       15


   18

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

(10)     RELATED PARTY TRANSACTIONS - (continued)

         OxyVinyls sells VCM to OCC and Geon under the terms of separate sales
agreements that expire on December 31, 2013. The agreements require that OCC and
Geon purchase at market price all of their VCM requirements for production of
PVC in North America from OxyVinyls. Under the terms of the agreements, Geon and
OCC receive an integration credit on the first 210 million and 215 million
pounds purchased in any year, respectively, to compensate for surrendered
purchasing power on major feedstocks. OxyVinyls' sales of PVC and VCM to OCC and
Geon under the terms of these agreements was approximately $25.9 million and
$220 million, respectively, during the period from April 30, 1999 through
December 31, 1999.

         OxyVinyls sells chlor-alkali and other specialty products to OCC under
the terms of a sales agreement that expires on December 31, 2013. This agreement
requires OCC to purchase all chlor-alkali and specialty products produced by
OxyVinyls' which are not required for its internal uses at market price and
OxyVinyls full manufacturing cost, respectively. This agreement also requires
OxyVinyls to pay OCC a fee for marketing excess chlor-alkali products to third
parties. OxyVinyls sold $102.7 million of chlor-alkali and specialty products to
OCC and paid $14.7 million to OCC for the marketing fee during the period from
April 30, 1999 through December 31, 1999.

         OxyVinyls purchases ethylene from Equistar Chemicals LP, an equity
investee of OCC ("Equistar"), under the terms of two agreements. The first
agreement requires that OxyVinyls purchase at market price, 600 million pounds
of ethylene in 1999, 250 million pounds during the year 2000 and 200 million
pounds in each of the years 2001 through 2003 for the LaPorte VCM facility. This
agreement expires December 31, 2003. Under the terms of the second agreement,
OxyVinyls purchases ethylene requirements for the Deer Park VCM and OxyMar
facilities at Equistar's weighted average selling price, as defined in the
agreement. This agreement expires on December 31, 2013. OxyVinyls purchased
$91.3 million of ethylene from Equistar under the terms of these agreements
during the period from April 30, 1999 through December 31, 1999.

         OxyVinyls purchases chlorine from Sunbelt Chlor Alkali Partnership, an
equity investee of Geon ("Sunbelt"), under the terms of an agreement that
expires on December 31, 2094. This agreement requires OxyVinyls to purchase at
market price, less a discount, all chlorine produced by Sunbelt at its chlorine
manufacturing process facility in McIntosh, Alabama, up to a maximum of 250
thousand tons per year. OxyVinyls purchased $16.4 million of chlorine from
Sunbelt under the terms of this agreement during the period from April 30, 1999
through December 31, 1999.

         OxyVinyls purchases VCM from OxyMar under the terms of a VCM purchase
agreement that runs until such time as OPC, either directly or through its
affiliates, ceases to own an equity interest in OxyMar. The agreement requires
OxyVinyls to purchase each year at market prices a minimum of 700 million of the
first 1.1 billion pounds of VCM produced and 530 million pounds of the next 1
billion pounds produced by OxyMar. Total purchases under this agreement were
$204.6 million for the period from April 30, 1999 through December 31, 1999.

                                       16

   19

                         OXY VINYLS, LP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1999

(10)     RELATED PARTY TRANSACTIONS - (continued)

         OxyVinyls incurs costs charged by OCC and Geon under the terms of
various service and shared facilities agreements. These agreements are in effect
generally so long as services continue to be provided between parties and/or
facilities continue to be shared. Under the provisions of these agreements,
OxyVinyls receives from and makes payments to Geon and OCC for shared facilities
at Louisville, Kentucky, Pedricktown, New Jersey and Pasadena, Texas. In some
cases the agreements contain renewal options at negotiated prices. The net total
of these costs was approximately $0.1 million for the period from April 30, 1999
through December 31, 1999. Additionally, OxyVinyls incurs costs for
administrative and other support services paid to OCC and Geon which totaled
approximately $7.8 million and $6.2 million, respectively, for the period from
April 30, 1999 through December 31, 1999. OxyVinyls incurred net railcar rent
expense payable to OCC and Geon of approximately $4.3 million and $.5 million,
respectively, for the period from April 30, 1999 through December 31, 1999.

         As of December 31, 1999, OxyVinyls had a net receivable from OCC of
$12.2 million and a net payable to Geon of $6.3 million.


(11)     VALUATION AND QUALIFYING ACCOUNTS -

         Approximately 30 employees at various manufacturing facilities were
identified in a workforce reduction plan that will be completed in the second
quarter of 2000. Certain severance costs of $.9 million and relocation costs of
$.9 million were accrued in connection with the formation of the Partnership.
Also severance and relocation costs of $2.1 million and $.2 million,
respectively, were accrued and charged to expense during the period from April
30, 1999 to December 31, 1999. Total accrued severance and relocation is
recorded in accrued liabilities and the amount charged to expense during the
period from April 30, 1999 to December 31, 1999, is recorded in selling, general
and administrative and other operating expenses.

         The following table presents the activity of accrued severance and
relocation liabilities and allowance for doubtful accounts for the period from
April 30, 1999 to December 31, 1999 (in millions).




                                                Balance at                           Balance at
                                                Beginning    Charged to                End of
                                                of Period     Expense     Deductions   Period
                                                ---------     -------     ----------   ------
                                                                            
            Allowance for doubtful accounts     $   -          $  .3        $   -       $  .3

            Accrued severance and relocation    $ 1.8          $ 2.3        $ (.9)(a)   $ 3.2



         (a) Payments under the Partnership's plan for termination and
             relocation of certain employees.

                                       17

EX-21

   1



                                                                      EXHIBIT 21

                                THE GEON COMPANY
                                  SUBSIDIARIES


                                                                 Jurisdiction of
NAME                                                             Incorporation
- ----                                                             -------------

1997 Chlor-Alkali Venture Inc.                                   Alabama
The Geon Company Australia Limited                               Australia
Auseon Limited                                                   Australia
Australian Vinyls Corporation (1)                                Australia
Wilflex Australasia PTY Ltd.                                     Australia
Diversified Compounders, Inc.                                    California
Geon Canada Inc.                                                 Canada
LP Holdings, Inc.                                                Canada
Geon Polimeros Andinos S.A. (2)                                  Colombia (6)
Resintech, S.A.                                                  Costa Rica
1999 General Compounding Partnership Inc.                        Delaware (6)
1999 Limited Compounding Partnership Inc.                        Delaware
1999 PVC Partner Inc.                                            Delaware (6)
Decillion Inc.                                                   Delaware (5)
Lincoln & Southern Railroad Company                              Delaware
Oxy Vinyls, LP (3)                                               Delaware (6)
PVC Powder Blends, LP (4)                                        Delaware (6)
Sunbelt Chlor-Alkali Partnership (2)                             Delaware (6)
Acrol Holdings Limited                                           England
Geon Engineering Vinyls Limited                                  England
Hydro Geon (2)                                                   England (6)
Wilflex Europe Limited                                           England
Regalite Plastics Corporation                                    Massachusetts
Dennis Chemical Urethane Redevelopment                           Missouri
O'Sullivan Plastics Corporation                                  Nevada
Geon Development Inc.                                            Ohio
Polymer Diagnostics Inc.                                         Ohio
SPC Geon PTE LTD. (2)                                            Singapore
Shawnee Holdings, Inc.                                           Virginia
Geon Engineered Films Inc.                                       Virginia
Inversiones The Geon Company de Venezuela C.A.                   Venezuela
Plast-O-Meric, Inc.                                              Wisconsin

NOTES:
- -----
(1) Owned 37.4% by the Company
(2) Owned 50% by the Company.
(3) Owned 24% by the Company
(4) Owned 90% by the Company
(5) Owned 40% by the Company
(6) Partnership

EX-23.1

   1
                                                                    EXHIBIT 23.1

                         CONSENT OF INDEPENDENT AUDITORS



We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Geon Company of our report dated January 27, 2000, included in the 1999
Annual Report to the Stockholders of The Geon Company.

Our audit also included the financial statement schedule of The Geon Company
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

We also 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, in
the Registration Statement (Form S-8 No. 33-65518) pertaining to The Geon
Company Retirement Plus Savings Plan for Wage Employees, in the Registration
Statement (Form S-8 No. 333-81025) pertaining to The Geon Company 1998 Interim
Stock Plan, and in the Registration Statement (Form S-8 No. 333-81027)
pertaining to The Geon Company 1999 Incentive Stock Plan of our report dated
January 27, 2000, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of The Geon Company.


                                                   /s/ ERNST & YOUNG LLP

Cleveland, Ohio
March 23, 2000

EX-23.2

   1
                                                                    Exhibit 23.2

                    Consent of Independent Public Accountants



As independent public accountants, we hereby consent to the incorporation of our
report on Oxy Vinyls, LP included in this Form 10-K, into The Geon Company's
previously filed Registration Statement File Nos. 33-92398, 33-80262, 33-62112,
33-65520, 33-65518, 33-80522, 333-81027, and 333-81025.

/s/ Arthur Andersen LLP
Dallas, Texas
March 24, 2000

EX-27.1

 

<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, 1999 AND 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME FOR THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000,000

                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                              51
<SECURITIES>                                         0
<RECEIVABLES>                                      109
<ALLOWANCES>                                         4
<INVENTORY>                                        168
<CURRENT-ASSETS>                                   358
<PP&E>                                             759
<DEPRECIATION>                                     421
<TOTAL-ASSETS>                                   1,163
<CURRENT-LIABILITIES>                              441
<BONDS>                                            131
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             3
<OTHER-SE>                                         332
<TOTAL-LIABILITY-AND-EQUITY>                     1,163
<SALES>                                          1,261
<TOTAL-REVENUES>                                 1,261
<CGS>                                            1,038
<TOTAL-COSTS>                                    1,171
<OTHER-EXPENSES>                                 (101)
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                  18
<INCOME-PRETAX>                                    174
<INCOME-TAX>                                        68
<INCOME-CONTINUING>                                106
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            2
<NET-INCOME>                                       105
<EPS-BASIC>                                       4.49
<EPS-DILUTED>                                     4.31


 

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