The Geon Company History
Cleveland, Ohio 44131
Telephone: (216) 447-6000
Fax: (216) 447-6408
Sales: $972.5 million
Stock Exchanges: New York
SICs: 2821 Plastics Materials and Resins
The Geon Company is the world's largest producer of vinyl compounds and a leading North American producer of polyvinyl chloride (PVC) resins, with 13 manufacturing plants in the United States, Canada, and Australia. When it was spun off from The BFGoodrich Company in March of 1993, Geon became the only North American public company dedicated solely to the development, production, and marketing of vinyl, the second most widely used plastic in the world. Geon distinguished itself from its competitors by emphasizing high-end markets and specialty vinyl plastics used for such products as computers, appliance housings, and automotive parts. While with Goodrich, Geon spent heavily on research and market development, but since parting ways it has aggressively trimmed costs to ensure profitability. Bill Patient, president and CEO of Geon, told Chemical Week, "'Our costs were out of line with global industry. And we needed to start using our own technology. The truth is we were licensing better than we were practicing."'
BFGoodrich was founded in 1870 by Dr. Benjamin Franklin Goodrich in Akron, Ohio. The original Goodrich product was a cotton-covered fire hose. Research and development was always given a high priority at Goodrich, and within its first 20 years, the company became known as the rubber industry problem-solver. The first rubber research laboratory in the United States was set up by Charles Cross Goodrich, son of the founder, in 1895. The Goodrich inventors improved on all types of products, including golf balls. In addition, they developed an efficient rubber reclamation process which would be used by the industry for decades.
Polyvinyls were the fortuitous result of the Goodrich policy of research and development. A company scientist working on developing a rubber product that adhered to metal discovered a chemical product that did just the opposite. In addition, the new product did not deteriorate when exposed to rubber-damaging processes. By pioneering polyvinyl chloride in 1926, Goodrich founded the vinyl plastic industry. Early PVC applications included waterproof raincoats and umbrellas. The company's polyvinyls became known as Geon and Koroseal and the versatile materials, which could be used in soft or hard form, eventually found their way into a variety of commonly used products, including electrical insulation, floor tiling, garden hoses, draperies, and luggage.
In the 1930s Goodrich scientific developments included the first airplane De-Icer, the endless band vehicle track used for farm and military vehicles, and the first commercial production of synthetic rubber. Of these developments, company president John Lyon Collyer saw great potential in and put great emphasis on the production of synthetic rubber. There was an enormous market for U.S.-made rubber because, prior to World War II, the nation was importing 90 percent of its rubber supply from the Far East. During the war Goodrich became heavily involved in rubber production for the military.
Though Goodrich focused on rubber, it also saw potential in its chemical business. The Goodrich Chemical Company was established in 1943 and built the first commercialized PVC plants. Its main products were vinyl materials (Geon), plasticizers, special-purpose rubbers, rubber manufacturing chemicals, and general chemicals. In 1948 a new research center was opened to further pure science, as well as applications, in the fields of rubber, chemicals, plastics, chemurgy, and the new field of nuclear energy.
By the early 1950s the company's largest division was tires, but the company could not seem to capitalize on its research and creativity. After inventing the first radial tires in the 1960s, Goodrich could not sell them to car manufacturers or American consumers. Five years later, French tire manufacturer Michelin successfully introduced radial tires. Goodrich's marketing ineptness, which wasted its pioneering research, was recognized throughout the industry. "Long the tire industry research leader," Forbes contributor Robert J. Flaherty wrote, "... Goodrich has been the butt of a joke repeated in Akron for four decades: Goodrich invents it, Firestone copies it and Goodyear sells it."
A bitter takeover attempt in 1969 forced the Goodrich board to make some changes. In 1972 O. Pendleton Thomas, an oil company executive, took over command of Goodrich and restructured, closing money losing plants and modernizing others. Thomas also implemented cutbacks on the types of tires produced and moved toward greater emphasis on chemicals and plastics. Thomas timed the company's shift away from tires well, for the 1970s marked the downfall of the American tire industry.
In 1979, when John D. Ong took over as chair and CEO, Goodrich was fourth among tire manufacturers, behind Goodyear, Firestone, and Michelin. The recession years of the early 1980s were some of the worst in history for the tire industry. In 1981 Goodrich dropped out of the original-equipment tire market, no longer selling directly to the automobile manufacturers, and instead concentrated on the higher-margin replacement tire market. In spite of the recession, the company was able to break even.
In the wake of the tire industry downfall, Ong expanded Goodrich's PVC business. By the end of 1981, 51 percent of total assets and one-third of the company's $3 billion in sales were attributable to Goodrich's chemical group. The 100-year-old tire manufacturer was on its way to becoming a chemical company. Goodrich focused on one product group, polyvinyl chloride resins and compounds, an area in which it had already become a dominant supplier. Uniroyal, another American tire manufacturer, was also moving in the direction of chemicals, creating a broad product mix of chemicals and elastomers (a plastic and rubber combination). Other tire manufacturers, pressed by foreign competition and the longer lasting radial tire, were also increasing their chemical production, but not in the sweeping way in which Goodrich and Uniroyal were proceeding.
Unfortunately, excess capacity and poor pricing plagued the PVC business in the early 1980s, when the industry was in its deepest decline since the Depression. Total PVC production in the United States fell by 6.6 percent from 1981 to 1982, dropping plant capacity to 55 percent. In 1982 general-purpose PVC was selling at 25 cents a pound, two cents below the industry recognized break-even point for PVC manufacturers. That year Goodrich lost more than $30 million.
By the spring of 1983 the PVC market was in an upswing and Goodrich increased its PVC prices eight cents per pound in April. Goodrich had about 23 percent of the market at the time and was the only fully integrated PVC supplier in the world, with seven plant sites in production. The company was not only twice the size of second-ranked Tenneco but was also the low-cost producer. Even though Goodrich was increasing its debt load to expand its PVC business, buyers on Wall Street seemed to approve, with the stock reaching a 14-year high. The company recorded profits of $35 million on revenues of $3.2 billion. From 1979 to 1983 Ong had cut the workforce by 30 percent to 30,000 and put $1.3 billion into operations. He was also touting PVC as the basis of the company's growth. Capacity utilization was up to 80 percent in the plants.
The 1983 upswing in the PVC industry was short-lived, leaving a glut of the product from industry-wide plant expansions. In 1984, 200 jobs, or 25 percent of salaried employees, were cut from Goodrich's Chemical Group. The industry had adequately adjusted to the cyclical nature of its business. Low-margin commodity resins (providing the seasonal construction industry with pipes, siding, flooring coverings, and other building uses) were the mainstay of the industry, using almost 50 percent of all PVC. To establish steadiness for Goodrich's PVC business, Ong pursued production of finished PVC products such as bottles--a potentially huge market.
Goodrich's strategy in the mid 1980s was to expand specialty chemical activities and increase investment in aerospace activities. The company made four chemical manufacturer purchases and four aerospace acquisitions in three years. Goodrich also increased its research and development expenditures and created separate sales forces for the three specialty chemical units. In the second quarter of 1984, specialty-resins, which were enhanced with heat stabilizers and other additives, accounted for 55 percent of Goodrich's PVC sales, significantly more than the industry-wide average of 40 percent.
In 1984, however, Business Week claimed that Goodrich was experiencing a high turnover of management and that the Geon division, with two operating chiefs in three years, was experiencing low employee morale. Market miscalculations and management mistakes had plagued Geon for some time. The $700 million sunk into the PVC division from 1979 to 1984 had yielded an operating income of only $131 million. With its staff of applications researchers and marketers, Goodrich found itself competing with bare-bones operations such as Formosa Plastics and Shintech.
In the mid 1980s Goodrich tried to streamline its PVC production. Goodrich closed an outmoded, high-cost PVC resin facility, eliminating 170 million pounds per year of capacity. Nevertheless, Goodrich remained the largest PVC producer in the United States, with more than one billion pounds per year. The company also sold its unprofitable Convent, Louisiana, plant. The $250 million ethylene dichloride plant, completed in 1981, was part of the company's move toward backward integration into chemicals that were used to produce PVC. The Convent project was begun when it was cheaper to produce intermediate products due to scarcity of raw materials and high inflation. A predicted long-term chemical shortage failed to materialize and elevated gas prices boosted the energy cost to run the plant. In addition, PVC growth was overestimated and the price of low-grade resin, which made up a large segment of the market, was unstable. A total of $500 million in assets were divested in the restructuring. Those pieces of the business consisted of 25 percent of 1984 revenues generated, but operated at a loss of $22 million. After restructuring, Goodrich was down more than a billion in sales from its sales peak of $3.3 billion in 1984. But PVC was still the world's second-largest-selling plastic and the Geon Vinyl Division remained the largest producer of PVC in North America, grossing $865.8 million in 1985.
Specialty chemicals and aerospace were the clear focus of the company in the late 1980s because of their fast growth potential. Ann Slakter wrote in 1986, "Goodrich is heavily committed to the PVC business; its product line includes general- and special-purpose resins, special-purpose vinyl chloride monomer and caustic soda." In 1987 Geon Vinyl Division had sales of $1.06 billion and an operating income of $143.5 million. PVCs consisted of 49 percent of the company's total sales of $2.17 billion, with specialty chemicals bringing in 32 percent of sales, aerospace 15 percent, and industrial products four percent. While over 50 percent of the company's revenues had been from tires in the early 1980s, Goodrich moved further from its tire roots in 1986 by entering into a 50--50 joint venture with Uniroyal that combined their tire operations. When U.S. demand for PVC was high and export demand strong due to a weak dollar in 1988, Goodrich sold its 50 percent stake in Uniroyal-Goodrich Tire, leaving Goodrich with core businesses of polyvinyl chloride, special chemicals, and aerospace.
In 1989 William Patient, a chemical industry vice-president forced into early retirement, was hired to run the Geon division. In 1991 Goodrich entered the PVC recycling business by becoming one of three partners in the first large commercial PVC recycling facility, located in Hamilton, Ontario. Goodrich was responsible for purchasing and recompounding the PVC that was reclaimed. In another recycling partnership, the company introduced the first blow-molded bottles using recycled PVC. But in 1991 the Geon division lost $135 million on $1.2 billion in revenues. Patient saw that Goodrich was pushing itself as a specialty chemical maker but really was a high-cost producer of a commodity product. Goodrich was spending a lot on research and development instead of cutting costs.
In 1993 Geon was spun off from Goodrich, with Patient staying on as president, CEO, and chairman. Patient told Forbes, "'We took a clean sheet of paper and started over."' During the week following the announcement of the initial public offering, Goodrich stock plummeted some 18 percent. Goodrich had been selling itself as a PVC and chemical company and the impending sale came as a surprise to shareholders and analysts who had foreseen a strong resurgence in the PVC industry and had bought Goodrich shares as a value play. While the Geon Division had produced 35 percent of sales and consisted of 50 percent of the company's assets, it also had experienced six quarters of loses since 1991. Geon sold at $18 per share in April in the first of two offerings. The second public offering in November sold at $20 per share. Goodrich raised $700 million in the sale and planned to increase its investments in aerospace and specialty chemicals.
Geon, now a newly independent company, was the third largest PVC resin supplier in North America, with 1.94 billion pounds of capacity. Shintech had 2.3 billion pounds of capacity per year, followed by OxyChem with 2.1 billion. At the time of the sale the PVC maker had 2,500 employees; 14 businesses with resin-making compounding sites in the United States, Canada, and Australia; and a 50 percent share in a PVC compounding plant in England. Shintech was the low-cost resin and compounding company.
In a strategy designed to make Geon the recognized low-cost provider in the industry, product offerings in both resins and compounds were reduced and consolidated. The number of raw materials needed for manufacturing processes was also reduced. While this was being accomplished, Geon began targeting high-performance custom-molded compounds for future growth, thereby shifting the company away from some of the volatility in the PVC resins business.
In 1993 the U.S. PVC industry sold a record 10.5 billion pounds on the heels of eight consecutive years of six percent average growth. The upswing was led by an improved housing market and construction demand for residential siding, windows, and flooring. The industry was again at a high rate of capacity and the year ended unusually, with price increases and no typical year-end slowdown.
Due to the economic recession in Europe and Japan, though, world growth in PVC was weak in 1993, at five percent, and U.S. exports were flat. The majority of Geon PVC sales, 87 percent, were in North America. The Far East PVC growth was twice that of North America but Geon had only a small part of that market. The company's fiscal 1993 debt-to-capital ratio was 32 percent. Revenues broke down with 52 percent coming from vinyl resins, 39 percent from vinyl compounds, nine percent from vinyl chloride monomer, licensing, and other income. The number of employees had fallen by 35 percent since 1991 and was at 1,930 by year-end. Three high-cost resin plants had been closed, eliminating 500 million pounds or 25 percent of 1991 total resin production capability.
In 1994 Geon announced plans to increase vinyl chloride monomer (VCM) capacity in one of its plants at least 50 percent by 1996. The move would make the company less dependent on competition for raw materials while providing the raw material for PVC production at a lower cost than could be obtained by purchasing it from an outside supplier. Due to environmental concerns, chlorine use was declining in the paper industry, which lowered demand for one of the raw materials which Geon continued to purchase. In terms of future capacity, 1.5 billion pounds of U.S. PVC capacity was predicted to come onstream by mid-1996, causing a possible shift in demand and pricing.
Forbes contributor Dyan Machan wrote, "(Geon) is ..., under Patient, a splendid example of how a producer of a commodity product can be run profitably." In 1991 the company was losing money and was a high-cost commodity producer. By the end of 1993 the company was trimmer, more focused, and in the black, with Geon stock reflecting a healthy 32 percent total return since the initial public offering. According to Geon's third quarter report of 1994, compound shipments were up 15 percent for the first nine months of the year and net income stood at $38.5 million (compared with net income for 1993 of $5.6 million). With 50 years of experience as a technological leader and its new-found independence, Geon could retain its position as a world-class competitor in the industry it created.
Principal Subsidiaries: Geon Canada; Geon Australia.
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Source: International Directory of Company Histories, Vol. 11. St. James Press, 1995.