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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to__________
Commission file number 0-15899
WELLMAN, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-1671740
- --------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1040 Broad Street, Suite 302
Shrewsbury, New Jersey 07702
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (908) 542-7300
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
Common Stock, New York Stock
$.001 par value Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
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. [ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed on the basis of $16.75 per share (the closing price of
such stock on March 17, 1997 on the New York Stock Exchange): $514,321,932.
The number of shares of the registrant's Common Stock, $.001 par value,
and Class B Common Stock, $.001 par value, outstanding as of March 17, 1997
was 31,113,143 and -0-, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the 1997 Annual Meeting of Stockholders (to be
filed with the Securities and Exchange Commission on or before April 30,
1997) is incorporated by reference in Part III hereof.
2
PART I
Item 1. BUSINESS
- ------ --------
Wellman, Inc. (which, together with its subsidiaries, is herein referred
to as the "Company") was founded in 1927 and incorporated in Delaware in
1985. The principal business of the Company is the manufacture and sale of
polyester products, including Fortrel(R) brand polyester textile fibers,
polyester fibers made from recycled raw materials and PermaClear(TM) PET
(polyethylene terephthalate) packaging resins.
RECENT DEVELOPMENTS
- -------------------
On February 20, 1996, the Company's Board of Directors approved plans to
construct a new PET packaging resin and polyester fiber production facility
in the state of Mississippi. The facility, budgeted to cost $400 million and
expected to commence operation in phases beginning in late 1998, is designed
to provide an additional 700 million pounds of annual production capacity.
See "Capital Investment Program" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook" and
"-Liquidity and Capital Resources."
During the third quarter of 1996, Wellman experienced a labor dispute with
approximately 260 out of 490 workers at its fiber production facility in
Mullagh, Republic of Ireland, which led to the closure of operations at the
facility for 12 weeks. Production was restarted in early October 1996. The
striking workers left their jobs in mid-July 1996 to protest work practice
changes at the facility implemented in early June 1996. The plant is
operating under what are essentially the Company's original staffing and work
practice proposals. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
On December 31, 1995, the Company acquired a PET packaging resins business
located in the Netherlands from Akzo Nobel B.V. See note 2 to the
consolidated financial statements.
The polyester bonded batting and needle-punched fabric operations located
in Charlotte, NC and Commerce, CA were sold during the first quarter of 1996.
PRODUCTS AND MARKETS
- --------------------
The Company's operating structure is organized in three product groups:
the Fibers Group, which is composed of the chemical-based polyester textile
fiber manufacturing operations; the Recycled Products Group (RPG), primarily
consisting of polyester fiber manufacturing operations in the United States
and Europe and their related recycling operations which procure and process
waste raw materials, as well as the nylon engineering resins and wool
businesses; and the Packaging Products Group (PPG), which includes the PET
packaging resins businesses in the United States and Europe, and the PET
sheet and thermoformed packaging products business.
The following table presents the combined net sales (in millions) and
percentage of net sales of the Company by product group for the periods
indicated. In the table, intercompany transactions have been eliminated and
historical exchange rates have been applied to the data.
3
1996 1995 1994
-------------- -------------- --------------
Net % of Net % of Net % of
Sales Total Sales Total Sales Total
----- ----- ----- ----- ------ -----
Fibers Grp $ 450.6 41.0% $ 483.9 43.6% $426.8 45.6%
RPG 369.3 33.6 473.0 42.6 427.9 45.7
PPG 278.9 25.4 152.5 13.8 81.4 8.7
------- ----- ------- ------ ------ ------
TOTAL $1098.8 100.0% $1109.4 100.0% $936.1 100.0%
======= ===== ====== ===== ====== ======
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Fibers Group
- ------------
The Fibers Group manufactures chemical-based polyester staple fibers and
polyester partially-oriented yarn (POY) for sale to the textile industry.
Staple, the primary product produced, is multi-strand fiber cut into short
lengths to simulate certain properties found in natural fibers, such as
cotton and wool, and/or to meet the end product needs of the Company's
customers. POY is a continuous polyester filament. Both products are
marketed under the Fortrel(R) brand.
Staple customers include integrated textile mills and yarn spinners which
process polyester staple into fabric and yarn for a variety of applications,
including apparel, home furnishings and industrial uses. The Company
manufactures polyester textile staple from two petrochemicals, purified
terephthalic acid (PTA) and monoethylene glycol (MEG), at its Palmetto Plant
in Darlington, SC. The stated annual fiber production capacity of the
Palmetto Plant is approximately 500 million pounds.
The Company purchases PTA under an exclusive supply contract with Amoco
Chemical Corporation, the primary domestic supplier. MEG is purchased under
an exclusive supply contract with Oxy Chem Inc. which expires December 31,
1997. The prices of PTA and MEG, which are typically set on a quarterly
basis, have fluctuated in the past and are likely to continue to do so in the
future.
POY is produced at the Company's Fayetteville, NC plant from fiber-grade
polyester resin manufactured from PTA and MEG at the Company's Palmetto
Plant. POY is sold to integrated textile mills and texturizers, which further
process it before making it into fabric for use in apparel, home furnishings
and industrial applications. The stated annual POY production capacity of
the Fayetteville Plant is 130 million pounds.
Recycled Products Group
- -----------------------
The major product manufactured by the RPG is polyester staple fiber for use
as fiberfill (for pillows, comforters and furniture), and in carpets, rugs
and industrial uses. Domestically, these products are made from recycled raw
materials at facilities in Johnsonville and Marion, SC. The stated annual
fiber production capacities of the Johnsonville and Marion Plants are
approximately 260 million and 30 million pounds, respectively.
The Company utilizes two categories of recycled raw materials: producer plant
wastes and postconsumer PET soft drink bottles. Producer wastes include off-
quality or off-spec production, trim and other wastes generated from fiber,
resin or film manufacturing processes. A portion of producer plant waste is
purchased from manufacturers that compete with the Company in the sale of
fiber and resin. The Company obtains postconsumer PET bottles primarily from
deposit return and curbside recycling programs.
4
The Company's recycling operation in Johnsonville, SC is responsible for the
procurement of wastes, which it processes into usable raw materials for the
fibers and engineering resins businesses. As a result, this operation is
primarily an internal supplier. Stated annual capacity to recycle PET
bottles at the Johnsonville location is approximately 190 million pounds.
In Europe, the RPG manufactures polyester staple fiber from recycled raw
materials through Wellman International Limited (WIL), a wholly-owned
subsidiary based in Mullagh, Republic of Ireland. The stated annual fiber
production capacity of WIL is approximately 174 million pounds. WIL's
polyester fibers are used primarily in fiberfill, nonwovens and industrial
applications. WIL exports, primarily to the United Kingdom and continental
Europe, virtually all of its fiber production.
The majority of WIL's raw materials are producer wastes, some of which are
obtained from suppliers who compete with WIL in the fibers business in
Europe. WIL also utilizes as raw material postconsumer PET bottles obtained
from its recycling facility in Spijk, the Netherlands and from third party
purchases. During 1996, the Company opened a PET bottle sorting facility in
Verdun, France, to which it plans to add washing facilities at the end of
1997. After this expansion, WIL will have the capacity to process 50 million
pounds of PET bottles per year.
Including domestic and European production, the Company believes it is the
world's largest producer of polyester staple fiber made from recycled
feedstocks and the world's largest postconsumer PET bottle recycler.
The RPG also produces nylon engineering resins, wool top and anhydrous
lanolin in Johnsonville, SC.
Packaging Products Group
- ------------------------
The PPG primarily manufactures amorphous and solid-stated PET packaging
resins at the Company's Palmetto Plant. Amorphous resin, which is produced
from PTA and MEG, is sold to external customers and used internally for
solid-stating (a process which upgrades the resin). Solid-stated PET resin
is primarily used in the manufacture of soft drink bottles and other food and
beverage packaging and is sold under the PermaClear(TM) brand.
The Company's domestic production capacity for amorphous resin is
approximately 300 million pounds per year, 220 million pounds of which is
solid-stated. The Company expects to commence operation of an additional 200
million pounds per year of solid-stated production capacity in the second
quarter of 1997. See "Capital Investment Program."
On December 31, 1995, the Company acquired a solid-stated PET packaging resin
production facility in Emmen, the Netherlands (Wellman PET Resins Europe BV,
herein referred to as "PET Resins-Europe"). The stated annual production
capacity of this facility, where PTA and MEG are also used as raw materials,
is 110 million pounds. As part of the transaction, the seller and Wellman
entered into a PET resin multi-year take or pay arrangement, under which the
Company purchased 75 million pounds in 1996 and which phases out over the
next four years. Virtually all of the resin is sold to PET bottle and
packaging manufacturers in Europe. See note 2 to the consolidated financial
statements and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The PPG also manufactures PET sheet and thermoformed products from chemical-
based and recycled PET in Ripon, WI.
5
Capital Investment Program
- --------------------------
The Company is currently engaged in a long-term capital investment
program, which began in 1993. The Company's combined 1993, 1994 and 1995
capital expenditures totaled approximately $285 million, while 1996
expenditures were approximately $126 million. Major capital projects
included in the 1996 expenditures were the domestic solid-stated PET resin
expansion expected on-line in the second quarter of 1997 and design and
engineering for the new PET resin and polyester fiber production facility in
Mississippi, expected to commence operation in phases beginning in late 1998.
Capital expenditures are expected to total approximately $400 million over
the next four years. These expenditures primarily include the remaining
construction costs of the PET resin and polyester staple fiber production
facility in Mississippi, the total cost of which is budgeted at approximately
$400 million. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Sales and Marketing
- -------------------
Approximately 50 employees market the majority of the Company's products.
For certain fiber sales outside the United States, the Company also utilizes
representatives or agents.
The Company's polyester fibers are also marketed through various
activities, such as advertising, sales promotion, market analysis, product
development and fashion forecasting, directed to its customers and to
organizations downstream from its customers. As part of this effort, the
Company's marketing personnel encourage downstream purchasers of apparel,
home furnishings and other products to specify to their suppliers the use of
Fortrel(R) brand polyester in their products.
The Company's sales are neither materially dependent upon a single
customer nor seasonal in nature. Sales for PET resin, primarily for soft
drink bottles, may be influenced by weather and the relative price of
aluminum cans.
The Company's markets have historically displayed price and volume
cyclicality. The cost of PTA and MEG is a primary determinant of polyester
fiber and PET resin prices. The polyester fiber markets are subject to
changes in, among other factors, polyester fiber and/or textile product
imports, consumer preferences and spending and retail sales patterns, all of
which are driven by general economic conditions. Consequently, a downturn in
either the U.S., European, or global economy or an increase in imports of
textile or polyester fiber products could adversely affect the Company's
business. Polyester textile fiber demand also may be influenced by the
relative price of substitute fibers, most notably cotton.
Major factors affecting the PET resin market include producer supply and
capacity utilization rates and demand for PET containers, primarily for soft
drinks and other foods and beverages. Worldwide PET resin supply is
currently undergoing significant expansion. Demand for PET resin is also
driven by new product applications and conversion from other materials. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - General."
Competitors
- -----------
Each of the Company's major fiber markets is highly competitive. The
Company competes primarily on the basis of product quality, customer service,
6
brand identity and price. Several competitors are substantially larger than
the Company and have substantially greater economic resources. The Company's
primary competitors are E.I. DuPont de Nemours & Co., the Hoechst Celanese
Corp. (HCC) subsidiary of Hoechst A.G. and Nan Ya Plastics Corp. (Nan Ya).
The Company believes it is currently the second-largest producer of polyester
staple in the United States, representing approximately 28% of U.S.
production capacity.
Primary competitors in the PET packaging resin business, which the Company
entered in 1994, are Eastman Chemical Co., Shell Chemical Co., HCC and Nan
Ya. The Company competes primarily on the basis of resin quality, customer
service and price. The Company's competitors are substantially larger than
the Company and have substantially greater economic resources.
Research and Development
- ------------------------
The Company has approximately 85 employees devoted to research,
development and technical service activities in the fibers, recycling and
resins businesses. The Company has entered into technology sharing
arrangements from time to time with various parties.
Foreign Activities
- ------------------
The Company operates in international markets, primarily through WIL and
PET Resins-Europe. Since most of the sales are in different currencies,
changes in exchange rates may affect profit margins and sales levels of these
operations. In addition, fluctuations between currencies may also affect the
Company's reported financial results. Foreign exchange contracts and
borrowings in local currencies are utilized by the Company to manage its
foreign currency exposure. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources" and notes 2 and 12 to the consolidated financial statements.
The Company's foreign businesses are subject to certain risks customarily
attendant to foreign operations and investments in foreign countries,
including restrictive action by local governments, limitations on
repatriating funds and changes in currency exchange rates. See note 13 to
the consolidated financial statements for additional information relating to
the Company's foreign activities.
Employees
- ---------
As of December 31, 1996, the Company employed a total of approximately
3,200 persons in the United States and Europe. At December 31, 1996, the
Amalgamated Clothing and Textile Workers Union (ACTWU) represented
approximately 1,054 employees at the Company's Johnsonville, SC operations.
Approximately 626 of these employees were members of ACTWU, whose contract
with the Company expires in July 1999. At WIL, approximately 340 out of 480
total employees were represented by four unions at year-end 1996. The wage
agreements with these unions each expire on April 30, 2000. During the third
quarter of 1996, the Company experienced a labor dispute with approximately
260 workers at WIL which led to the closure of that operation for 12 weeks.
The dispute was settled and production was restarted in early October 1996.
Employees at the PET Resins-Europe operation total 65, with 49 represented by
three unions whose contracts expire at the end of 1997. The Company believes
relations with its employees are satisfactory.
Environmental Matters
- ---------------------
The Company's plants are subject to numerous existing and proposed laws
and regulations designed to protect the environment from wastes, emissions
7
and hazardous substances. The Company believes it is either in material
compliance with all currently applicable regulations or is operating in
accordance with the appropriate variances and compliance schedules or similar
arrangements. For additional information relating to environmental matters,
see "Item 7. Management's Discussion and Analysis of Financial Position and
Results of Operations - Environmental Matters" and note 8 to the consolidated
financial statements.
Executive Officers of the Registrant
- ------------------------------------
The current executive officers of the Company are as follows:
Name and Age Position
- ------------ --------
Thomas M. Duff, 49 President, Chief Executive Officer and
Director
Clifford J. Christenson, 47 Executive Vice President, Chief Operating
Officer and Director
Keith R. Phillips, 42 Vice President, Chief Financial Officer
and Treasurer
C.W. Beckwith, 65 Vice President and Director
James P. Casey, 56 Vice President; President, Fibers Group
John R. Hobson, 56 Vice President, Recycled Products Group
Mark J. Rosenblum, 43 Vice President, Chief Accounting Officer
and Controller
Mark H. Tashjian, 34 Vice President, Corporate Development
Ernest G. Taylor, 46 Vice President, Administration
Officers are elected annually by the Board of Directors. Set forth below
is certain information with respect to the Company's executive officers.
Thomas M. Duff. Mr. Duff has been President and CEO of the Company since
its inception in 1985.
Clifford J. Christenson. Mr. Christenson has been Executive Vice
President since October 1993 and Chief Operating Officer since June 1995.
Prior to October 1993 he was Chief Financial Officer and Treasurer since he
joined the Company in 1985 and Vice President since 1986.
Keith R. Phillips. Mr. Phillips has been Vice President, Chief Financial
Officer and Treasurer since October 1993. Prior to joining the Company in
October 1993 he was a partner in Ernst & Young LLP. Mr. Phillips is a
certified public accountant.
C.W. Beckwith. Mr. Beckwith has been Vice President of the Company since
1987.
James P. Casey. Mr. Casey has been President of the Fibers Group since
October 1993. Prior to such time he was Vice President, Marketing since
March 1991.
John R. Hobson. Mr. Hobson has been Vice President, Recycled Products
Group since July 1995. Prior to such time, he served as Vice President of
8
various divisions from January 1992 to July 1995. Prior to 1992, he was
Director of International Sales and (chemical) Raw Material Purchasing.
Mark J. Rosenblum. Mr. Rosenblum has been Vice President, Controller
since September 1989, Chief Accounting Officer since August 1996 and
Controller since he joined the Company in 1985. Mr. Rosenblum is a certified
public accountant.
Mark H. Tashjian. Mr. Tashjian has been Vice President, Corporate
Development since he joined the Company in August 1995. Prior to such time,
he was a partner with Trinity Associates, a management consulting firm, since
1989.
Ernest G. Taylor. Mr. Taylor has been Vice President, Administration
since January 1991.
Item 2. Properties
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The location and general description of the principal manufacturing
properties owned by the Company are set forth in the table below:
Principal Square
Location Functions Footage
- -------- --------- -------
Johnsonville, SC Fiber, Engineering Resins and 2,330,160
Wool Manufacturing, Recycling
Operations and Warehouse
Darlington, SC Fiber and Resin Manufacturing 1,127,000
(Palmetto) and Warehouse
Mullagh, Ireland (1) Fiber Manufacturing 360,161
and Warehouse
Fayetteville, NC Fiber Manufacturing 331,913
and Warehouse
Emmen, the Netherlands Resin Manufacturing and 143,797
Warehouse
- --------------------
(1) WIL's credit facilities are secured by the assets of WIL.
The Company also has manufacturing, marketing and administrative
facilities in Marion, SC, Charlotte, NC, New York, NY, Ripon, WI, Bridgeport,
NJ, Spijk, the Netherlands, Yorkshire, England, Dortmund, Germany and Verdun,
France. The corporate office is located in Shrewsbury, NJ.
Item 3. Legal Proceedings
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
Not applicable.
9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
- ------ -------------------------------------------------------------------
The Company's common stock is listed on the New York Stock Exchange (NYSE)
under the symbol WLM. The following table shows the high, low and closing
sales prices as reported by the NYSE and cash dividends paid per share of
common stock for the last two fiscal years.
Year High Low Close Dividend
- ---- ---- --- ----- --------
1996
- ----
Fourth Quarter $19-1/4 $15-7/8 $17-1/8 $0.08
Third Quarter $23-1/2 $17 $17-1/2 $0.08
Second Quarter $24-7/8 $22-1/8 $23-3/8 $0.08
First Quarter $24-3/8 $18 $23-1/2 $0.07
1995
- ----
Fourth Quarter $27-1/4 $21-1/2 $22-3/4 $0.07
Third Quarter $29-1/2 $23-3/4 $24-1/2 $0.07
Second Quarter $28 $23-1/2 $27-3/8 $0.07
First Quarter $30 $24-3/8 $25-1/4 $0.06
The Company had 1,000 holders of record and, to its knowledge, approximately
20,000 beneficial owners of its common stock as of March 17, 1997.
See note 10 to the consolidated financial statements for information
regarding common stock rights associated with the common stock.
10
Item 6. Selected Consolidated Financial Data
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(In thousands, except Years Ended December 31,
per share data) 1996 1995 1994 1993(2) 1992
- -----------------------------------------------------------------------------
Income Statement Data:
Net sales . . . . . . . . . .$1,098,804 $1,109,398 $936,133 $842,064 $828,200
Cost of sales. . . . . . . . 941,693 886,817 724,874 679,182 639,664
---------- ---------- -------- -------- --------
Gross profit. . . . . . . . . 157,111 222,581 211,259 162,882 188,536
Selling, general and
administrative expenses. . . 88,987 89,704 89,518 86,511 77,439
Interest expense, net . . . . 13,975 11,666 13,741 15,736 23,012
Gain (loss) on divestitures . -- (5,500) -- 12,386 --
---------- ---------- -------- -------- --------
Earnings before income taxes
and cumulative effect of
changes in accounting
principles. . . . 54,149 115,711 108,000 73,021 88,085
Income taxes. . . . . . . . . 27,620 41,657 43,200 32,567 35,801
---------- ---------- -------- -------- --------
Earnings before cumulative
effect of changes in
accounting principles. . . . 26,529 74,054 64,800 40,454 52,284
Cumulative effect of changes
in accounting principles,
net of income taxes. . . . . -- -- -- (9,010) --
---------- ---------- -------- -------- --------
Net earnings. . . . . . . . .$ 26,529 $ 74,054 $ 64,800 $ 31,444 $ 52,284
========== ========== ======== ======== ========
Earnings per common share:
Before cumulative effect of
changes in accounting
principles . . . . . . . .$ 0.81 $ 2.20 $ 1.94 $ 1.23 $ 1.60
Cumulative effect of changes
in accounting principles, net
of income taxes. . . . . . -- -- (0.27) --
---------- ---------- -------- -------- --------
Net earnings. . . . . . . . .$ 0.81 $ 2.20 $ 1.94 $ 0.96 $ 1.60
========== ========== ======== ======== ========
Average common shares . . . . 32,774 33,699 33,417 32,857 32,728
Dividends (1) . . . . . . . .$ 10,085 $ 9,003 $ 7,593 $ 5,885 $ 3,895
Pro forma amounts assuming
the effects of the changes
in accounting principles are
applied retroactively:
Net earnings. . . . . . . . NA NA NA $ 40,454 $ 43,759
Net earnings per share. . . NA NA NA $ 1.23 $ 1.34
December 31,
1996 1995 1994 1993 1992
Balance Sheet Data: ----------------------------------------------
Total assets. . . . . . .$1,203,949 $1,210,673 $1,044,462 $1,015,247 $996,583
Total debt. . . . . . . .$ 319,566 $ 279,230 $ 256,531 $ 312,767 $324,548
Stockholders' equity. . .$ 623,928 $ 650,346 $ 577,573 $ 506,506 $483,268
(1) Dividends paid were $0.31 per share in 1996, $0.27 per share in 1995,
$0.23 per share in 1994, $0.18 per share in 1993 and 0.12 per share in
1992.
(2) 1993 net earnings reflect $15.9 million ($0.48 per share) of accounting
changes and unusual and nonrecurring items.
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------- -----------------------------------------------------------------
GENERAL
The primary business of Wellman, Inc. is the manufacture and marketing of
high-quality polyester products, including Fortrel brand polyester textile
fibers, polyester fibers made from recycled raw materials and PermaClear
brand PET (polyethylene terephthalate) packaging resin. The Company
currently has annual capacity to manufacture approximately 1.1 billion
pounds of fiber and over 400 million pounds of resin worldwide at five major
production facilities in the United States and Europe. The Company expects
to commence operation of an additional 200 million pounds per year of solid-
stated resins production capacity in the second quarter of 1997. The Company
is also the world's largest plastics recycler, utilizing a significant amount
of recycled raw materials in its manufacturing operations.
The Fibers Group produces Fortrel textile fibers, which represent
approximately 60% of the Company's fiber production. These fibers are used
in apparel and home furnishings and produced from two chemical raw materials,
purified terephthalic acid (PTA) and monoethylene glycol (MEG). The other
40% of fiber production, primarily fiberfill and carpet fibers, is
manufactured by the Recycled Products Group from recycled raw materials,
including producer fiber, resin and film wastes and postconsumer PET soft
drink bottles. The Company's PET resins, produced by the Packaging Products
Group from PTA and MEG, are primarily used in the manufacture of clear
plastic soft drink bottles and other food and beverage packaging.
The Company's markets are highly competitive. It competes in these markets
primarily on the basis of product quality, customer service, brand identity
and price. It believes it is the second-largest polyester staple and third-
largest POY producer in the United States and the fourth-largest PET resin
producer in North America. Several of the Company's competitors are
substantially larger than the Company and have substantially greater economic
resources.
Demand for polyester fiber historically has been cyclical, as it is subject
to changes in consumer preferences and spending, retail sales patterns, and
fiber or textile product imports, all of which are driven primarily by
general economic conditions. Global PET resin demand continues to grow,
driven by new product applications for PET and conversion from other
packaging materials to PET.
Several factors significantly affect the Company's profitability: raw
material margins, or the difference (or spread) between product selling
prices and raw material costs; supply and demand for its products; the prices
of competing materials, such as cotton and aluminum, which can affect demand
for its products; and economic and market conditions in the United States,
Europe and other regions of the world. Prices of PTA and MEG, primary
determinants of polyester fiber and PET resin selling prices, are cyclical.
Changes in PTA and MEG prices are driven by worldwide supply and demand.
Raw material margins for the chemical-based fiber and PET resin businesses
have generally been influenced by supply and demand factors. Despite growing
demand for PET resin, worldwide supply is currently undergoing significant
expansion which has adversely affected profitability, and is expected to
continue to do so. Both fiber and resin margins experience increases or
decreases due to timing of price changes and market conditions.
12
Raw material margins for the recycled fiber operation tend to be more
variable than those for the chemical-based businesses, primarily because
recycled raw material costs do not cause changes in fiber prices. Recycled
raw material costs are primarily dependent upon worldwide supply and demand
for waste materials.
The Company's sales are neither materially dependent upon a single customer
nor seasonal in nature. Demand, prices and raw material costs for both
fibers and PET resins may be affected by global economic conditions, supply
and demand balances and export activity.
By the year 2000, the Company plans to substantially increase its polyester
fiber and PET resin production capacity through the expansion of existing
facilities and construction of a new, state-of-the-art production facility in
Mississippi. Most of the expansion will be in PET resin capacity. As a
result, the Company's production mix is expected to be approximately 50%
fibers and 50% PET resins.
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995
Net sales for 1996 remained unchanged as compared to 1995 at $1.1 billion.
This was generally the result of increased sales volumes and lower selling
prices. Sales for the Fibers Group decreased 6.9% to $450.6 million in 1996
from $483.9 million in 1995 due to significantly lower polyester fiber
selling prices which more than offset improved fiber sales volume during the
latter part of 1996. Sales for the Recycled Products Group (RPG) decreased
22.0% to $369.3 million from $473.0 million due primarily to a 12-week strike
at the European recycled fibers operation, which kept the facility closed
from mid-July through early October; and the disposition of certain
businesses which had sales in 1995 of $47.5 million. In addition, the
decline in RPG's sales was a result of lower polyester fiber selling prices
for the domestic and European recycled fibers operations. Sales for the
Packaging Products Group (PPG) increased 82.9% to $278.9 million in 1996
from $152.5 million in 1995 due to higher sales volumes resulting from the
December 31, 1995 acquisition of a Netherlands-based PET resins business and
the mid-1995 expansion of domestic PET resins capacity. This increased
volume more than offset significantly lower worldwide PET resin selling
prices.
Gross profit decreased 29.4% to $157.1 million in 1996 versus $222.6 million
in 1995. The gross profit margin for 1996 was 14.3% compared to 20.1% for
1995. Gross profit for the Fibers Group decreased primarily as a result of
significantly lower fiber selling prices due to weak textile demand in the
first half of the year which more than offset lower chemical raw material
costs. Gross profit for the RPG also decreased in 1996 versus 1995 primarily
due to reduced profit at the European recycled fibers operation stemming from
weak business conditions compounded by the strike, and the discontinuance of
gross profit from divested businesses. This more than offset increased
profits for the domestic recycled fibers business as a result of lower raw
material costs. Despite higher sales volumes resulting from the
aforementioned acquisition of the Netherlands-based PET resins business and
domestic PET resins expansion, the gross profit for the PPG decreased in 1996
due to significantly lower worldwide PET resins selling prices, which more
than offset lower raw material cost. These factors contributed to a loss at
the Netherlands-based PET resins operation. The Company's gross profit for
1996 was also negatively impacted by a $7 million inventory charge resulting
from large declines in raw material costs and selling prices, including a $3
million charge related to the PET resins take or pay arrangement. See note 2
to the consolidated financial statements.
13
Selling, general and administrative expenses amounted to $89.0 million in
1996, or 8.1% of sales, compared to $89.7 million in 1995, or 8.1% of sales.
As a result of the foregoing, operating income decreased to $68.1 million in
1996 versus $132.9 million in 1995.
Net interest expense for 1996 increased to $14.0 million from $11.7 million
for 1995. Interest expense increased as a result of higher average
outstanding borrowings which were partially offset by higher interest
capitalization resulting from the Company's long-term capital investment
program.
The effective income tax rate was 51% in 1996 versus 36% in 1995. This
resulted from lower pretax earnings, lower earnings at its Irish
manufacturing operations which benefit from a favorable tax rate, and a
pretax loss at the European PET resin operation which has no tax benefit.
See note 7 to the consolidated financial statements.
As a result of the foregoing, net earnings for 1996 were $26.5 million, or
$0.81 per share, compared to $74.1 million, or $2.20 per share, in 1995.
OUTLOOK
Demand for polyester fibers and PET packaging resins is expected to improve
in 1997. However, previously announced industry capacity increases are
expected to exceed the higher demand. The Company anticipates increased
capacity utilization rates in its polyester fiber business in 1997, resulting
from the operation of certain domestic production lines which were curtailed
during 1996 due to weak demand and the end of the 12-week labor strike at the
Irish fiber plant in October 1996. PET resin sales volumes are expected to
increase significantly in 1997 due to the start-up of a new 200 million
pounds per year production line at the Darlington, SC facility in the second
quarter of 1997.
However, the higher sales volumes anticipated in 1997 are not expected to
contribute materially to the Company's net earnings. Profit margins for
chemical-based polyester staple fibers and PET resins deteriorated to
historically low levels in 1996, due to large declines in worldwide selling
prices throughout the year which more than offset reduced raw material costs.
Significant additions to PET resin and polyester staple capacity which have
been announced for 1997 are expected to put further pressure on profit
margins. These conditions may result in the Company's European PET resins
business reporting a loss in 1997.
See "Forward Looking Statements" below.
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994
Net sales for 1995 increased 18.5% to $1.1 billion from $936.1 million in
1994. Sales increased during 1995 for each of the Company's three product
groups: Fibers Group sales increased 13.4% to $483.9 million from $426.8
million, RPG sales increased 10.5% to $473.0 million from $427.9 million and
PPG sales increased 87.3% to $152.5 million from $81.4 million. Sales for
the Fibers Group increased due to higher polyester fiber selling prices which
more than offset slightly lower sales volumes. Sales for the RPG increased
due to higher sales at WIL resulting from increased polyester fiber selling
prices which more than offset slightly lower sales volumes. PPG sales
increased in 1995 due to the second quarter expansion of PET resin production
capacity and, to a lesser extent, higher selling prices.
14
Gross profit increased 5.3% to $222.6 million in 1995 versus $211.3 million
in 1994. The gross profit margin for 1995 was 20.1% compared to 22.6% for
1994. Gross profit increased primarily due to increased gross profit at
WIL, primarily due to higher polyester fiber selling prices, and the
aforementioned PET resin expansion. Despite the increase in gross profit,
gross profit margin declined primarily because selling prices increased
during the period while unit gross profit remained relatively unchanged.
Selling, general and administrative expenses amounted to $89.7 million in
1995, or 8.1% of sales, compared to $89.5 million in 1994, or 9.6% of sales.
As a result of the foregoing, operating income increased to $132.9 million in
1995 versus $121.7 million in 1994.
Net interest expense for 1995 decreased to $11.7 million from $13.7 million
for 1994. Interest expense was favorably impacted by a decrease in average
outstanding borrowings and higher interest income, which were partially
offset by an increase in the average cost of variable rate borrowings.
For the year ended December 31, 1995, the Company recorded a pretax loss of
$5.5 million related to the sale of a subsidiary (resulting in a decrease in
net earnings of $3.4 million, or $0.10 per share). For additional
information regarding this loss, see note 3 to the consolidated financial
statements.
The effective tax rate of 36% in 1995 versus 40% in 1994 reflects the
positive impact of strong Irish earnings since the Irish tax rate for
manufacturing operations is significantly lower than the U.S. federal and
state tax rates and, to a lesser extent, there was also the favorable effect
of strong domestic earnings which lessened the effect of nondeductible items
as a relative percentage.
As a result of the foregoing, net earnings for 1995 were $74.1 million, or
$2.20 per share, compared to $64.8 million, or $1.94 per share, in 1994.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive laws and regulations
governing air emissions, wastewater discharges and solid and hazardous waste
management activities. The Company takes a proactive approach in addressing
the applicability of these laws and regulations as they relate to its
manufacturing operations and in proposing and implementing any remedial plans
that may be necessary. The Company has identified certain situations that
will require future capital and non-capital expenditures to maintain or
improve compliance with current environmental laws and regulations as well as
to support planned future expansion. The majority of the identified
situations are found at the Company's largest manufacturing facilities and
primarily deal with groundwater remediation, quality of air emissions and
wastewater treatment processes.
The Company's policy is to expense environmental remediation costs when it
is both probable that a liability has been incurred and the amount can be
reasonably estimated. While it is often difficult to reasonably quantify
future environmental-related expenditures, the Company currently estimates
its future non-capital expenditures related to environmental matters to range
between $13.3 million and $29.2 million. In connection with these
expenditures, the Company has accrued management's best estimate of probable
non-capital environmental expenditures. These amounts include approximately
$4.6 million accrued for preacquisition environmental contingencies relative
to the acquisition discussed in note 2 to the consolidated financial
15
statements. In addition, future capital expenditures aggregating $10.0
million to $36.7 million may be required related to environmental matters.
These non-capital and capital expenditures are estimated to be incurred
during the next 10 to 20 years. The Company believes that it is entitled to
recover a portion of these expenditures under indemnification and escrow
agreements. During 1996 and 1995, costs associated with environmental
remediation and ongoing assessment were not significant. See notes 1 and 8
to the consolidated financial statements.
The measurement of liability is based on an evaluation of currently
available facts with respect to each individual situation and takes into
consideration factors such as existing technology, presently enacted laws and
regulations and prior experience in remediation of contaminated sites. As
assessments and remediation progress at individual sites, these liabilities
are reviewed periodically and adjusted to reflect additional technical and
legal information which becomes available.
The Company believes it is either in material compliance with all currently
applicable regulations or is operating in accordance with the appropriate
variances and compliance schedules or similar arrangements.
Actual costs to be incurred for identified situations in future periods
may vary from the estimates, given inherent uncertainties in evaluating
environmental exposures due to unknown conditions, changing government
regulations and legal standards regarding liability and evolving related
technologies. Subject to the imprecision in estimating future environmental
costs, the Company believes that compliance with current laws and
regulations will not require significant capital expenditures or have a
material adverse effect on its consolidated financial position or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $151.9 million in 1996 compared
to $118.8 million in 1995. The increase in cash from operations is
attributable to a net decrease in working capital items which was partially
offset by a decrease in net earnings. The working capital ratio was
approximately 2.8 to 1 and 2.5 to 1 at December 31, 1996 and 1995,
respectively.
Net cash used in investing activities amounted to $135.2 million in 1996
compared to $151.0 million in 1995. Capital spending amounted to $126.0
million in 1996 and $104.7 million in 1995, reflecting the Company's ongoing
capital investment program. The Company spent $14.3 million in 1996 and
$64.2 million in 1995 related to an acquisition of a PET resins business in
Europe. Proceeds from the sale of a subsidiary amounted to $4.2 million in
1996 and $16.2 million in 1995.
Net cash used in financing activities amounted to $18.4 million in 1996
versus net cash provided by financing activities of $14.5 million in 1995.
In 1996, the Company completed the repurchase of treasury stock totaling
$49.5 million. Net borrowings (line of credit with bank and long-term debt)
were $40.3 million in 1996 compared to $22.6 million in 1995.
The Company is currently engaged in a long-term capital investment program
to expand its polyester production capacity and estimates that capital
expenditures could aggregate approximately $400 million over the four-year
period from 1997 through 2000. The capital program includes a domestic PET
resins capacity expansion expected to be completed in the second quarter of
1997 and construction of a new domestic polyester production facility
16
budgeted to cost approximately $400 million and to be operational in phases
beginning in late 1998. To receive certain incentives provided by the state
of Mississippi, the Company expects to issue Rural Economic Development
Bonds. The Company believes these bonds, coupled with internally generated
funds, its bank facility and other long term financing are expected to
provide adequate liquidity in the future.
The Company's long-term capital investment program includes approximately
$250.0 million in planned expenditures in 1997. The exact amount and timing
of the capital spending is difficult to predict since certain projects may
extend into 1998 or beyond depending upon equipment delivery and construction
schedules. Significant 1997 capital expenditures include the design and
construction of the new production facility discussed in the preceding
paragraph. See "Item 1. Business - Products and Markets and - Capital
Investment Program".
The Company initiated a plan during the second quarter of 1996 to repurchase
up to 2.5 million shares of its common stock in the open market. At December
31, 1996, 2.5 million shares had been repurchased at a cost of $49.5 million.
The Company's financing agreements contain normal financial and restrictive
covenants. The most restrictive of these covenants permits a maximum
leverage ratio of 55%, requires EBIT to exceed 2.5 times interest expense and
the Company to maintain a certain net worth. Approximately $235 million of
retained earnings at December 31, 1996 is not restricted as to the payment of
dividends. The Company believes that it has the financial resources
available to it to meet its foreseeable working capital, capital expenditure
and dividend payment requirements.
The Company entered into forward interest rate swaps to reduce (hedge) the
impact of interest rate changes for variable rate borrowings associated with
planned capital expenditures over the next four years. The agreements have
an aggregate notional amount of $200 million at December 31, 1996, forward
starting dates ranging from June 1997 to May 1998 and maturity dates of at
least 5 years thereafter. The Company will pay fixed rates of interest
ranging from 6.10% to 6.20%. The Company estimates it would have had to pay
approximately $.5 million at December 31, 1996 to terminate the agreements.
The Company entered into forward foreign currency contracts to exchange Dutch
guilders for U.S. dollars with an aggregate notional amount of $48.8 million
at December 31, 1996 in order to reduce the related impact of foreign
currency translation adjustments. This has the effect of converting a
portion of U.S. debt to local currency (guilder) debt. The Company has
designated these contracts as a hedge of a net investment in a foreign
entity. At December 31, 1996, the Company estimates it would receive
approximately $2.8 million if these contracts were terminated.
During 1996, the Company entered into forward foreign currency contracts to
exchange U.S. dollars for German marks with an aggregate notional amount of
$33.6 million at December 31, 1996. These contracts are designed to reduce
(hedge) the impact of foreign currency fluctuations relative to fixed asset
purchase commitments and have maturity dates ranging from March 1997 through
November 1998. At December 31, 1996, the Company would have had to pay
approximately $1.9 million to terminate these contracts.
The Company's European businesses utilize foreign currency debt and forward
currency contracts to hedge certain of their accounts receivable and
accounts payable denominated in other foreign currencies. At December 31,
1996, the notional amount of such contracts was $21.6 million and the cost to
terminate these contracts was immaterial.
17
The Company's estimates with respect to the values of its derivative
instruments are based on readily available dealer quotes.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation". This Statement defines a fair value method of accounting for
an employee stock option or similar equity instrument and encourages adoption
of that method. The Statement also requires that an employer's financial
statements include certain disclosures about stock-based compensation
arrangements regardless of the method used to account for them. The
Statement is effective for fiscal years beginning after December 15, 1995.
The Company adopted the financial statement disclosure requirement of SFAS
No. 123 and will continue to account for stock-based compensation under the
provisions of Accounting Principles Board Statement No. 25. See note 10 to
the consolidated financial statements.
FORWARD LOOKING STATEMENTS
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company cautions that
a number of important factors could cause actual results for 1997 and beyond
to differ materially from those expressed in any forward-looking statements
made by or on behalf of the Company. Such statements contain a number of
risks and uncertainties, including, but not limited to, demand and
competition for polyester fiber and PET resins, availability and cost of raw
materials, levels of production capacity and announced changes thereto,
changes in interest rates and foreign currency exchange rates, work
stoppages, natural disasters, U.S., European and global economic conditions
and changes in laws and regulations, prices of competing products, such as
cotton and aluminum, and the Company's ability to complete expansions and
other capital projects on time and budget and to maintain the operations of
its existing production facilities. The Company cannot assure that it will
be able to anticipate or respond timely to changes which could adversely
affect its operating results in one or more fiscal quarters. Results of
operations in any past period should not be considered indicative of results
to be expected in future periods. Fluctuations in operating results may
result in fluctuations in the price of the Company's common stock.
18
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
WELLMAN, INC.
Index to Consolidated Financial Statements and Consolidated Financial
Statement Schedules
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 20
Consolidated Balance Sheets as of December 31, 1996 and 1995 21
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 23
Notes to Consolidated Financial Statements 24
Report of Independent Auditors 39
Consolidated financial statement schedules for the years ended
December 31, 1996, 1995 and 1994:
II -- Valuation and qualifying accounts 40
All other schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the
consolidated financial statements and notes thereto.
19
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
(In thousands, except per share data) 1996 1995 1994
- -----------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . . . . . .$1,098,804 $1,109,398 $936,133
Cost of sales. . . . . . . . . . . . . . . . 941,693 886,817 724,874
--------- -------- --------
Gross profit . . . . . . . . . . . . . . . . 157,111 222,581 211,259
Selling, general and administrative expenses 88,987 89,704 89,518
---------- ---------- --------
Operating income . . . . . . . . . . . . . . 68,124 132,877 121,741
Interest expense, net. . . . . . . . . . . . 13,975 11,666 13,741
Loss on divestitures.. . . . . . . . . . . . -- (5,500) --
---------- ---------- --------
Earnings before income taxes . . . . . . . . 54,149 115,711 108,000
Income taxes . . . . . . . . . . . . . . . . 27,620 41,657 43,200
---------- ---------- --------
Net earnings . . . . . . . . . . . . . . . .$ 26,529 $ 74,054 $ 64,800
========== ========== ========
Net earnings per common share. . . . . . . $ 0.81 $ 2.20 $ 1.94
========== ========== ========
Average common shares. . . . . . . . . . . . 32,774 33,699 33,417
========== ========== ========
See notes to consolidated financial statements.
20
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands, except share data) 1996 1995
- ----------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents. . . . . . . . . . . . $ 2,120 $ 3,893
Accounts receivable, less allowance of $ 2,611
in 1996 and $5,335 in 1995. . . . . . . . . . . . . 132,296 145,572
Inventories. . . . . . . . . . . . . . . . . . . . . 158,685 200,224
Prepaid expenses and other current assets. . . . . . 3,947 14,614
---------- ----------
Total current assets. . . . . . . . . . . . . . . 297,048 364,303
Property, plant and equipment, at cost:
Land, buildings and improvements . . . . . . . . . . 122,047 127,555
Machinery and equipment. . . . . . . . . . . . . . . 771,624 648,639
---------- ----------
893,671 776,194
Less accumulated depreciation. . . . . . . . . . . . 296,043 248,638
---------- ----------
Property, plant and equipment, net. . . . . . . . 597,628 527,556
Cost in excess of net assets acquired, net . . . . . . 290,450 295,062
Other assets, net. . . . . . . . . . . . . . . . . . . 18,823 23,752
---------- ----------
$1,203,949 $1,210,673
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . .$ 64,019 $ 89,104
Accrued liabilities. . . . . . . . . . . . . . . . . 41,320 50,368
Line of credit with bank . . . . . . . . . . . . . . -- 6,216
Current portion of long-term debt. . . . . . . . . . 159 147
---------- ----------
Total current liabilities . . . . . . . . . . . . 105,498 145,835
Long-term debt . . . . . . . . . . . . . . . . . . . . 319,407 272,867
Deferred income taxes and other liabilities. . . . . . 155,116 141,625
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . 580,021 560,327
Stockholders' equity:
Common stock, $0.001 par value; 55,000,000
shares authorized, 33,612,464 shares issued
in 1996, 33,441,391 in 1995. . . . . . . . . . . . . 34 33
Class B common stock, $0.001 par value; 5,500,000
shares authorized; no shares issued . . . . . . . . -- --
Paid-in capital. . . . . . . . . . . . . . . . . . . 233,665 230,008
Foreign currency translation adjustments . . . . . . 9,853 6,849
Retained earnings. . . . . . . . . . . . . . . . . . 429,900 413,456
Less common stock in treasury at cost:
2,500,000 shares at December 31, 1996 . . . . . . . (49,524) --
---------- ----------
Total stockholders' equity. . . . . . . . . . . . 623,928 650,346
---------- ----------
$1,203,949 $1,210,673
========== ==========
See notes to consolidated financial statements.
21
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
COMMON STOCK ISSUED CURRENCY
--------------- PAID-IN TRANSLATION RETAINED TREASURY
SHARES AMOUNT CAPITAL ADJUSTMENTS EARNINGS STOCK TOTAL
------ ------ ------- ----------- -------- ----- --------
Balance at December 31, 1993 32,780 $ 33 $ 215,179 $ 96 $ 291,198 $ --- $ 506,506
Net earnings 64,800 64,800
Cash dividends ($0.23 per share) (7,593) (7,593)
Exercise of stock options 235 4,047 4,047
Issuance of common stock to
employee benefit plans 176 3,936 3,936
Issuance of restricted stock 1 23 23
Tax effect of exercise of stock
options 1,167 1,167
Currency translation adjustments 4,687 4,687
------ ---- --------- ------- --------- ---------
Balance at December 31, 1994 33,192 $ 33 $ 224,352 $ 4,783 $ 348,405 $ --- $ 577,573
Net earnings 74,054 74,054
Cash dividends ($0.27 per share) (9,003) (9,003)
Exercise of stock options 90 846 846
Issuance of common stock to
employee benefit plans 158 4,190 4,190
Issuance of restricted stock 1 34 34
Tax effect of exercise of stock
options 586 586
Currency translation adjustments 2,066 2,066
------ ---- --------- ------- --------- ---------
Balance at December 31, 1995 33,441 $ 33 $ 230,008 $ 6,849 $ 413,456 $ --- $ 650,346
------ ---- --------- ------- --------- ---------
Net earnings 26,529 26,529
Cash dividends ($0.31 per share) (10,085) (10,085)
Exercise of stock options 49 861 861
Issuance of common stock to
employee benefit plans 121 1 2,669 2,670
Issuance of restricted stock 1 26 26
Tax effect of exercise of stock
options 101 101
Currency translation adjustments 3,004 3,004
Purchase of treasury stock (49,524) (49,524)
------ ---- -------- -------- -------- ------- ---------
Balance at December 31, 1996 33,612 $ 34 $ 233,665 $ 9,853 $ 429,900 $(49,524) $ 623,928
====== ==== ======== ======== ======== ======= =========
See notes to consolidated financial statements.
22
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands) 1996 1995 1994
Cash flows from operating activities: ----- ----- ----
Net earnings. . . . . . . . . . . .. $ 26,529 $ 74,054 $ 64,800
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation . . . . . . . . . . . 56,260 53,522 45,201
Amortization . . . . . . . . . . . 11,685 11,863 14,322
Deferred income taxes. . . . . . . 8,496 9,435 5,878
Common stock issued for stock plans 2,696 4,224 3,959
Loss on divestitures . . . . . . . -- 5,500 --
Changes in assets and liabilities, net
of effects from businesses acquired
and divested:
Accounts receivable. . . . . . . 15,760 (11,474) (20,528)
Inventories. . . . . . . . . . . 32,783 (59,602) 12,439
Prepaid expenses and other current
assets. . . . . . . . . . . . . 620 (7,200) (7,132)
Other assets . . . . . . . . . . (2,347) (727) 1,332
Accounts payable and accrued liabilities (9,657) 35,444 7,031
Other liabilities. . . . . . . . 1,514 (138) (984)
Other. . . . . . . . . . . . . . 7,562 3,860 6,079
-------- -------- --------
Net cash provided by operating activities 151,901 118,761 132,397
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment. (126,009) (104,696) (74,310)
Decrease in restricted cash. . . . . 879 1,680 4,779
Businesses acquired. . . . . . . . . (14,250) (64,249) --
Proceeds from divestitures . . . . . 4,184 16,230 --
-------- -------- --------
Net cash used in investing activities (135,196) (151,035) (69,531)
-------- -------- --------
Cash flows from financing activities:
Borrowings under long-term debt. . . 46,519 16,618 --
Repayments of long-term debt . . . . -- (200) (56,791)
Purchase of treasury stock (49,524)
Increase(decrease) in line of credit
with bank . . . . . . . . . . . . . (6,216) 6,216 --
Dividends paid on common stock . . . (10,085) (9,003) (7,593)
Exercise of stock options. . . . . . 861 846 4,047
-------- -------- --------
Net cash provided by (used in) financing
activities . . . . . . . . . .. . (18,445) 14,477 (60,337)
-------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . (33) 134 276
-------- -------- --------
Increase (decrease) in cash and
cash equivalents . . . . . . . . . . . (1,773) (17,663) 2,805
Cash and cash equivalents at beginning of year 3,893 21,556 18,751
-------- -------- --------
Cash and cash equivalents at end of year $ 2,120 $ 3,893 $ 21,556
======== ======== ========
Supplemental cash flow data:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 15,273 $ 14,320 $ 15,115
Income taxes. . . . . . . . . . . . $ 8,994 $ 35,263 $ 37,487
See notes to consolidated financial statements.
23
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Wellman, Inc. (the Company) is an international manufacturing company
operating primarily in the United States, Ireland and the Netherlands. The
Company's principal line of business is the manufacture of high-quality
polyester products, including Fortrel(R) brand polyester textile fibers,
polyester fibers made from recycled raw materials and PermaClear(TM) PET
(polyethylene terephthalate) packaging resin. Total polyester fiber sales
represented approximately 67% of the Company's 1996 sales. The principal
markets for polyester fibers are apparel, home furnishings, carpet and
industrial manufacturers in the United States and Europe. The principal
markets for PET resin are United States and Europe-based manufacturers of
various types of plastic packaging products.
Basis of Presentation
The consolidated financial statements include the accounts of Wellman,
Inc. and its subsidiaries. All material intercompany transactions have been
eliminated.
Certain 1995 and 1994 amounts have been reclassified to conform to the
1996 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Sales to customers are recorded when goods are shipped.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for approximately $98,000 and
$122,000 of inventory at December 31, 1996 and 1995, respectively, and the
first-in, first-out (FIFO) method for the remainder.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Depreciation is
provided based on the estimated useful lives of the related assets and is
computed on the straight-line method. Estimated useful lives for buildings
and improvements are 15 to 30 years and 5 to 13 years for machinery and
equipment.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired is amortized on the straight-line
method over periods ranging from 20 to 40 years. Accumulated amortization
amounted to approximately $64,391 and $55,054 at December 31, 1996 and 1995,
respectively.
24
The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of goodwill and other intangibles is to
review the carrying value of goodwill and other intangibles if the facts and
circumstances suggest that they may be impaired. If this review indicates
that goodwill and other intangibles will not be recoverable, as determined
based on undiscounted future cash flows of the Company, the carrying value of
goodwill and other intangibles will be reduced to estimated fair value. No
impairments were noted in 1996.
Other Assets
Other assets are comprised of deferred charges related to certain of the
Company's debt agreements and other intangible assets that are amortized over
periods ranging from one to 20 years. Additionally, other assets include
cash restricted for use obtained from borrowings under economic development
revenue bonds in the amount of approximately $5,000 and $5,900 at December
31, 1996 and 1995, respectively (see note 6).
Impairment of Long-Lived Assets
The Company accounts for the impairment of long-lived assets under FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" (FAS 121). FAS 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. The adoption of FAS 121 did not impact the consolidated financial
statements of the Company.
Income Taxes
Income taxes have been provided using the liability method. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities. Deferred income taxes resulting from such differences are
recorded based on the enacted tax rates that will be in effect when the
differences are expected to reverse.
Environmental Expenditures
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be
reasonably estimated. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current
or future revenue generation, are expensed or charged to the aforementioned
liability.
Derivative Financial Instruments
The Company has limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used as hedges to
manage well-defined interest rate (see note 6) and foreign currency risks
(see notes 2 and 12). There is currently no accounting required for the
forward interest rate swaps due to the forward starting dates and designation
as a hedge. The gain or loss from forward foreign currency contracts related
to the hedge of a net investment in a foreign entity is accounted for as a
component of foreign currency translation adjustments. Discounts or premiums
on forward contracts (the difference between the current spot exchange rate
and the forward exchange rate at inception of the contract) are amortized to
25
income over the contract lives using the straight-line method. Gains and
losses on hedges of receivables denominated in foreign currencies are
recognized in income and offset the foreign exchange gains and losses on the
underlying transactions. Gains and losses on contracts which hedge foreign
currency denominated commitments, primarily purchases of fixed assets, are
deferred and included in the basis of the transactions underlying the
commitments.
Foreign Currency Translation
The financial statements of foreign entities have been translated into
U.S. dollar equivalents in accordance with the Financial Accounting Standards
Board's (FASB) Statement No. 52, "Foreign Currency Translation." Adjustments
resulting from the translation of the financial statements of foreign
entities are excluded from the determination of earnings and accumulated in a
separate component of stockholders' equity.
Research and Development Costs
Research and development costs are expensed as incurred. Such costs were
approximately $18,500, $16,900 and $16,100 for 1996, 1995 and 1994,
respectively.
Grant Accounting
The Company's manufacturing facility under construction in Mississippi has
received various grants from the state of Mississippi and other local
authorities. These grants include capital and operating grants. The capital
grants are recorded as deferred revenue and amortized into income as the
requirements stipulated in the grant are satisfied. The operating grants are
recorded as a reduction of operating expenses in the period the reduction
occurs. The impact of grants on the 1996, 1995, and 1994 consolidated
financial statements was immaterial.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
and directors with an exercise price equal to or greater than the fair value
of the shares at the date of grant. The Company accounts for stock option
grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense for the
stock option grants.
Earnings Per Common Share
Earnings per common share is based on the weighted average number of
common and common equivalent shares outstanding.
Cash and Cash Equivalents
The Company considers all short-term investments purchased with a maturity
of three months or less to be cash equivalents for purposes of the
consolidated statements of cash flows.
2. ACQUISITION
On December 31, 1995, the Company acquired the Netherlands-based PET resins
business (the Business) of Akzo Nobel (Akzo) for a purchase price of
approximately $78,500. The acquisition has been accounted for under the
purchase method and the results of the operations of the acquired business
26
have been included in the consolidated financial statements since the date
of acquisition. The purchase price was allocated based on estimated fair
values at the date of the acquisition. The excess of the purchase price over
assets acquired (goodwill) will be amortized on a straight-line basis over 30
years.
Although unlikely, the Company may be required to make contingent payments to
Akzo based on contribution margin as defined in the agreement. The cost of
any subsequent payments will be allocated to goodwill.
The pro forma effects of the acquisition for 1995 have not been presented due
to the immaterial impact of operations of the Business on the Company's
consolidated financial statements.
In connection with this acquisition, the Company entered into a contract to
purchase PET resin under a take or pay arrangement. The Company purchased
75,000 pounds in 1996. The contract requires that 134,000 pounds be
purchased on a declining basis during the period from 1997 to 2000. The
purchase price of these volumes is essentially the cost of the raw materials
to produce the product plus a processing fee. During 1996 the Company
incurred operating losses with respect to this contract and has accrued
approximately $3,000 as its best estimate of probable future losses with
respect to this contract in the first half of 1997. The Company cannot
reasonably estimate losses, if any, beyond that period. It is reasonably
possible that the Company's estimate of future losses with respect to this
contract will change in the near term.
Also, in conjunction with this acquisition, the Company has entered into
forward foreign currency contracts to exchange Dutch guilders for U.S.
dollars in order to reduce the related impact of foreign currency translation
adjustments (see note 12).
3. DIVESTITURES
In the first quarter of 1996, the Company sold its polyester bonded
batting and needle-punched fabric operations located in Charlotte, NC and
Commerce, CA for their approximate book value. In August 1995, the Company
sold substantially all of the businesses of its New England CRInc. (CRInc.)
subsidiary for approximately $16,230. The Company recorded a pretax loss on
the sale of $5,500, which decreased 1995 net earnings by approximately
$3,400, or $0.10 per share. The operating results of the divested businesses
have not had a material impact on the Company's consolidated financial
statements.
4. INVENTORIES
Inventories consist of the following:
December 31,
1996 1995
------ ------
Raw materials . . . . . . . . . . . $ 65,552 $ 85,318
Finished and semi-finished goods. . 78,280 101,435
Supplies. . . . . . . . . . . . . . 14,853 13,471
-------- --------
$158,685 $200,224
======== ========
At December 31, 1996 and 1995, the excess of current replacement cost over
the carrying value of inventories costed using the LIFO method amounted to
approximately $-0- and $24,878, respectively.
27
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
1996 1995
------ ------
Payroll and other compensation. . . $ 7,573 $11,069
Retirement plans. . . . . . . . . . 5,176 8,215
Property and other taxes. . . . . . 4,841 3,947
Interest. . . . . . . . . . . . . . 3,065 2,419
Other . . . . . . . . . . . . . . . 20,665 24,718
------- -------
$41,320 $50,368
======= =======
6. BORROWING ARRANGEMENTS
Long-term debt consists of the following:
December 31,
1996 1995
------ ------
Revolving credit loan facility and competitive
bid loans . . . . . . . . . . . . . $ 75,000 $ 75,000
Uncommitted lines of credit . . . . 59,699 13,000
Serialized senior unsecured notes,
9.02% - 9.26%, due 1997-1999 . . . 100,000 100,000
Economic development revenue bonds, at variable
interest rates, due 2010-2022. . . 54,500 54,500
8.41% senior unsecured note, due 2000 30,000 30,000
Other . . . . . . . . . . . . . . . 367 514
-------- --------
319,566 273,014
Less current portion . . . . . 159 147
-------- --------
$319,407 $272,867
======== ========
On February 8, 1995, the Company entered into an unsecured $330,000
Revolving Credit Loan (the Facility) maturing in February 2000 that replaced
a reducing revolving loan facility. The terms of the Facility provide the
Company the ability to borrow under competitive bid loans (CBLs) which reduce
the availability under the Facility and bear interest at the offering bank's
prevailing interest rate. The Facility has no scheduled principal repayments
and any borrowings under non-CBLs bear interest, at the Company's option, at
(1) the higher of (a) the prime rate or (b) the federal funds rate plus
0.50%, (2) the LIBOR rate plus applicable margin or (3) the CD rate plus
applicable margin. At December 31, 1996, the average interest rate on
borrowings under the Facility was approximately 5.75%.
Terms, rates and maturity dates for the uncommitted lines of credit are
agreed upon by the Bank and the Borrower at each borrowing date. At December
31, 1996, the maturities on the outstanding borrowings ranged from 62 to 154
days with interest rates ranging from 5.54% to 5.77%. At year-
end, the Company had $115,000 available under these lines.
The economic development revenue bonds (the Bonds) are tenderable by the
holders and are secured by letters of credit aggregating approximately
$55,800 at December 31, 1996. The average interest rate on the Bonds at
December 31, 1996 was approximately 3.73%.
28
The Bonds and borrowings under the Facility, serialized senior unsecured
notes, CBLs and uncommitted lines of credit are classified as long-term in
accordance with the Company's intention and ability to refinance such
obligations on a long-term basis.
During June 1995, the Company entered into forward interest rate swaps to
reduce (hedge) the impact of interest rate changes for variable rate
borrowings associated with planned capital expenditures over the next four
years. The agreements include an aggregate notional amount of $200,000 at
December 31, 1996, forward starting dates ranging from June 1997 to May 1998
and maturity dates of at least 5 years thereafter. The Company will pay
fixed rates of interest ranging from 6.10% to 6.20%. The Company estimates
it would have had to pay approximately $500 and $7,200, at December 31, 1996
and 1995, respectively, to terminate the agreements.
The Company's financing agreements contain normal financial and
restrictive covenants. Based on the net worth covenant, approximately
$235,000 of retained earnings at December 31, 1996 is not restricted as to
the payment of dividends.
Aggregate maturities of long-term debt for the next five years are as
follows: 1997 -- $159; 1998 -- $40,193; 1999 -- $40,015; 2000 -- $239,199
and 2001 -- $0.
The carrying amounts of the Company's borrowings under its variable rate
credit agreements approximate their fair value. The fair values of the
Company's fixed rate credit agreements are estimated using discounted cash
flow analyses based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements. The fair value of the Company's
fixed rate debt exceeded the carrying value by approximately $5,800 at
December 31, 1996. Prepayment of the fixed rate debt could result in
significant penalties.
During 1996, 1995 and 1994, the Company capitalized interest of $4,755,
$3,125 and $2,920, respectively, as part of the cost of capital projects
under construction. Interest expense (net) includes interest income of
$2,935, $2,563 and $2,000 for 1996, 1995 and 1994, respectively.
7. INCOME TAXES
For financial reporting purposes, earnings (loss) before income taxes are
as follows:
Years Ended December 31,
1996 1995 1994
------ ------ ------
United States. . . . . . . . . . . . . $68,463 $ 83,206 $ 89,073
Foreign. . . . . . . . . . . . . . . . (14,314) 32,505 18,927
------- -------- --------
$54,149 $115,711 $108,000
======= ======== ========
29
Significant components of the provision for income taxes are as follows:
Years Ended December 31,
1996 1995 1994
------ ------ ------
Current:
Federal. . . . . . . . . . . . . . . $17,625 $24,900 $30,208
State. . . . . . . . . . . . . . . . 955 3,847 5,129
Foreign. . . . . . . . . . . . . . . 544 3,475 1,985
------- ------- -------
$19,124 $32,222 $37,322
------- ------- -------
Deferred:
Federal. . . . . . . . . . . . . . . $ 7,846 $ 8,085 $ 5,239
State. . . . . . . . . . . . . . . . 1,098 1,205 680
Foreign. . . . . . . . . . . . . . . (448) 145 (41)
------- ------- -------
8,496 9,435 5,878
------- ------- -------
$27,620 $41,657 $43,200
======= ======= =======
The difference between the provision for income taxes and income taxes
computed at the statutory income tax rate is explained as follows:
Years Ended December 31,
1996 1995 1994
---- ---- ----
Computed at statutory rate. . . . . . . 35.0% 35.0% 35.0%
State taxes, net of federal benefit . . 2.5 2.9 3.5
Differences in income tax rates between
the United States and foreign countries (1.2) (6.3) (3.4)
Amortization of cost in excess of net
assets acquired. . . . . . . . . . . . 5.7 2.7 2.9
Foreign losses for which no tax benefit
has been provided. . . . . . . . . . . 10.5 -- --
Other, net . . . . . . . . . . . . .. . (1.5) 1.7 2.0
---- ---- ----
Effective tax rate. . . . . . . . . . . 51.0% 36.0% 40.0%
==== ==== ====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
30
reporting purposes and the amounts used for income tax purposes. The tax
effects of these differences are as follows:
December 31,
1996 1995
---- ----
Inventory . . . . . . . . . . . . . . . $ 5,170 $ 6,580
Depreciation. . . . . . . . . . . . . . 100,872 91,702
Foreign . . . . . . . . . . . . . . . . 3,956 4,364
Other . . . . . . . . . . . . . . . . . 10,060 9,503
-------- -------
Total deferred tax liabilities. . . . . 120,058 112,149
-------- -------
Pension . . . . . . . . . . . . . . . . 3,009 3,521
State deferred benefits . . . . . . . . 4,695 4,291
Long-term liabilities . . . . . . . . . 7,277 7,178
Foreign net operating loss carry forward 5,693 --
Other . . . . . . . . . . . . . . . . . 9,115 9,693
-------- -------
Total deferred tax assets . . . . . . . 29,789 24,683
Valuation allowance . . . . . . . . . . 5,693 --
-------- -------
Net deferred tax assets . . . . . . . . 24,096 24,683
-------- -------
Net deferred tax liabilities. . . . . . $ 95,962 $ 87,466
======== =======
Deferred taxes have not been provided for approximately $99,763 of
undistributed earnings of foreign subsidiaries. The Company intends to
reinvest such undistributed earnings for an indefinite period except for
distributions upon which incremental taxes would not be material. If all
such earnings were distributed, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax credits) and foreign
withholding taxes. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable because of the complexities
associated with its hypothetical calculation.
At December 31, 1996, the Company had foreign net operating loss
carryforwards (NOLs) of approximately $16,266 for income tax purposes that
may be carried forward indefinitely. The NOLs resulted from operations of
its European PET resin business. The use of the NOLs is limited to future
taxable income of the European PET resin business. For financial reporting
purposes, no tax benefit (a deferred tax asset) has been provided for these
losses.
8. ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive laws and regulations
governing air emissions, wastewater discharges and solid and hazardous waste
management activities. As discussed in note 1, the Company's policy is to
expense environmental remediation costs when it is both probable that a
liability has been incurred and the amount can be reasonably estimated.
While it is often difficult to reasonably quantify future environmental-
related expenditures, the Company currently estimates its future non-capital
expenditures related to environmental matters to range between approximately
$13,300 and $29,200. In connection with these expenditures, the Company has
accrued management's best estimate of probable non-capital environmental
expenditures. This amount includes approximately $4,600 accrued for
preacquisition environmental contingencies relative to the acquisition
discussed in note 2. In addition, future capital expenditures aggregating
approximately $10,000 to $36,700 may be required related to environmental
31
matters. These non-capital and capital expenditures are estimated to be
incurred over the next 10 to 20 years. The Company believes that it is
entitled to recover a portion of these expenditures under indemnification and
escrow agreements.
9. RETIREMENT PLANS
The Company has defined benefit and defined contribution pension plans
that cover substantially all employees. The Company also has an employee
stock ownership plan (the ESOP) covering substantially all domestic
employees. The defined contribution plan and the ESOP provide for Company
contributions based on the earnings of eligible employees. Expense related
to the defined contribution plan amounted to approximately $7,481, $8,351 and
$7,840 for the years ended December 31, 1996, 1995 and 1994, respectively.
Expense related to the ESOP amounted to approximately $2,369, $2,253 and
$2,354 for the years ended December 31, 1996, 1995 and 1994, respectively.
Benefits under the Wellman International Limited (WIL) and PET Resins-
Europe defined benefit plan are based on employees' compensation and length
of service, while benefits under defined benefit plans covering domestic
employees are based on employees' compensation and length of service or at
stated amounts based on length of service. The Company's policy is to fund
amounts which are actuarially determined to provide the plans with sufficient
assets to meet future benefit payment requirements. Assets of the plans are
invested primarily in equity securities and commingled trust funds. The
pension costs (benefits) of the domestic and foreign defined benefit plans
consist of the following:
Years Ended December 31,
1996 1995 1994
------ ------ ------
Service cost. . . . . . . . . . . . . $ 598 $ 646 $ (479)
Interest cost on projected benefit
obligations. . . . . . . . . . . . . 4,761 4,659 3,938
Actual return on plan assets. . . . . (6,587) (9,772) (621)
Net amortization and deferral . . . . 481 5,356 (3,030)
------ ------ ------
$ (747) $ 889 $ (192)
====== ====== ======
The following table sets forth the funded status and amounts included in
the Company's consolidated balance sheets at December 31, 1996 and 1995 for
the domestic and foreign defined benefit pension plans:
1996 1995
Actuarial present value of benefit obligations: ---- -----
Vested benefit obligations. . . . . . $62,039 $47,191
======= =======
Accumulated benefit obligations . . . $62,338 $47,335
======= =======
Projected benefit obligations . . . . $71,469 $60,453
Plan assets at fair market value. . . . 75,745 59,974
------- -------
Funded status . . . . . . . . . . . . . 4,276 (479)
Unrecognized net gain . . . . . . . . . (8,940) (6,901)
Unrecognized net (asset) liability at transition 489 (79)
Unrecognized prior service cost . . . . (1,070) (1,169)
------- --------
Accrued pension costs . . . . . . . . . $(5,245) $(8,628)
======= ========
32
Assumptions used in determining the projected benefit obligation as of
December 31 were as follows:
1996 1995 1994
Domestic plans ------ ------- ------
Discount rate 7.25% 7.25% 8.25%
Future compensation increase 4.25% 4.25% 4.75%
Rate of return on plan assets 9.0% 9.0% 8.0%
WIL
Discount rate 7.0% 7.5% 9.0%
Future compensation increase 4.5% 5.0% 6.5%
Rate of return on plan assets 7.0% 7.5% 9.0%
PET Resins-Europe
Discount rate 6.0%
Future compensation increase 3.0%
Rate of return on plan assets 6.0%
10. STOCKHOLDERS' EQUITY
The Company has stock option plans (the Plans) which authorize the grant of
non-qualified stock options (NQSOs). The maximum number of common shares
authorized for grant under the Plans is 3,588,000. For substantially all
options granted in connection with the Plans, the option period extends for
11 years from the date of grant with the shares vesting at 20% per year over
the first five years. The option price for such options is equal to the fair
value of the Company's common stock at the date of grant.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options at least
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. The alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models for determining
compensation expense.
Pro forma information regarding net earnings and earnings per common share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated as of the date of
grant using a Black-Scholes option pricing model with the following
assumptions for 1996 and 1995, respectively: risk-free interest rate of
6.33% and 5.63%; a dividend yield of .84% and .75%; volatility factors of
the expected market price of the Company's common stock of .433 and .447;
and a weighted-average expected life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
33
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
1996 1995
----- -----
Pro forma net earnings $25,889 $74,037
Pro forma earnings per common share $ 0.79 $ 2.20
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
2000.
A summary of the Company's stock option activity and related information for
the three years ended December 31, 1996 follows:
Weighted
Average
Price
Shares Per Share
------ ---------
Outstanding December 31, 1993. . . . . . . . . . 1,782,397 $19.63
Granted. . . . . . . . . . . . . . . . . . . . 400,900 29.25
Exercised. . . . . . . . . . . . . . . . . . . (235,116) 17.21
Cancelled. . . . . . . . . . . . . . . . . . . (80,550) 22.24
--------- ------
Outstanding December 31, 1994. . . . . . . . . . 1,867,631 21.89
Granted. . . . . . . . . . . . . . . . . . . . 428,000 22.75
Exercised. . . . . . . . . . . . . . . . . . . (89,597) 9.44
Cancelled. . . . . . . . . . . . . . . . . . . (57,560) 23.35
--------- ------
Outstanding December 31, 1995. . . . . . . . . . 2,148,474 22.54
Granted. . . . . . . . . . . . . . . . . . . . 643,900 17.00
Exercised. . . . . . . . . . . . . . . . . . . (49,386) 17.44
Cancelled. . . . . . . . . . . . . . . . . . . (31,490) 25.32
--------- ------
Outstanding December 31, 1996. . . . . . . . . . 2,711,498 $21.28
========= ======
At December 31, 1996, options for 1,326,595 shares were exercisable and
59,514 shares were available for future option grants. The weighted-average
fair value of options granted in 1996 and 1995 was $8.62 and $11.59,
respectively. The following summarizes information related to stock options
outstanding at December 31, 1996:
Range of exercise prices $11.63 to $19.88 $20.63 to $34.38
---------------- ----------------
Number outstanding at December 31, 1996 1,468,715 1,242,783
Weighted average remaining contractual life 8.3 years 8.2 years
Weighted average exercise price of
options outstanding $17.49 $25.77
Number exercisable at December 31, 1996 697,575 629,020
Weighted average exercise price of
options exercisable $17.96 $26.65
On August 6, 1991, the Board of Directors declared a dividend of one
common stock purchase right (a Right) for each outstanding share of common
stock. Each Right, when exercisable, will entitle the registered holder to
purchase from the Company one share of common stock at an exercise price of
$90 per share (the Purchase Price), subject to certain adjustments. The
34
Rights are not represented by separate certificates and are only exercisable
when a person or group of affiliated or associated persons acquires or
obtains the right to acquire 20% or more of the Company's outstanding common
shares (an Acquiring Person) or announces a tender or exchange offer that
would result in any person or group beneficially owning 20% or more of the
Company's outstanding common shares. In the event any person becomes an
Acquiring Person, the Rights would give holders the right to buy, for the
Purchase Price, common stock with a market value of twice the Purchase Price.
The Rights expire on August 5, 2001, unless extended by the Board of
Directors or redeemed earlier by the Company at a redemption price of $0.01
per Right.
Although the Rights should not interfere with a business combination
approved by the Board of Directors, they may cause substantial dilution to a
person or group that attempts to acquire the Company on terms not approved by
the Board, except pursuant to an offer conditioned on a substantial number of
Rights being acquired.
11. COMMITMENTS AND CONTINGENCIES
Approximate minimum rental commitments under noncancelable leases
(principally for buildings and equipment) during each of the next five years
and thereafter are as follows: 1997 -- $3,057; 1998 -$2,713; 1999 -- $1,243;
2000 -- $1,038; 2001 -- $903; and thereafter -- $1,378.
Rent expense for cancelable and noncancelable operating leases was $6,059,
$5,778 and $6,548 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Company has made certain commitments to expand its polyester
production capacity, including the construction of its new polyester resin
and fiber facility in Mississippi, with the first stage expected to be
completed in late 1998. The anticipated cost to complete this facility at
December 31, 1996 is approximately $365,000.
See notes 2, 6 and 8 for information related to the take or pay
arrangement, outstanding letters of credit and environmental matters,
respectively.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of the matters will not have a material adverse effect, if any,
on the Company's consolidated financial position or results of operations.
12. FINANCIAL INSTRUMENTS
The Company has entered into forward foreign currency contracts to
exchange Dutch guilders for U.S. dollars with an aggregate notional amount of
$48,800 and $57,700 at December 31, 1996 and 1995, respectively, in order to
reduce the related impact of foreign currency translation adjustments. The
Company has designated these contracts as a hedge of a net investment in a
foreign entity.
During 1996, the Company entered into forward foreign currency contracts
to exchange U.S. dollars for German marks with an aggregate notional amount
of $33,600 at December 31, 1996. These contracts are designed to reduce
(hedge) the impact of foreign currency fluctuations relative to fixed asset
purchase commitments and have maturity dates ranging from March 1997 through
November 1998.
35
The Company's European businesses utilize foreign currency debt and
forward currency contracts to hedge certain of their accounts receivable and
accounts payable denominated in other foreign currencies. The notional
amount of such contracts was $21,600 and $7,500 at December 31, 1996 and
1995, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of foreign currency and
interest rate contracts described above and in notes 2 and 6 and temporary
cash investments and trade accounts receivable. The counterparties to the
off-balance sheet contractual arrangements are a diverse group of major
financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not
anticipate nonperformance by the other parties, and no material loss would be
expected from nonperformance by any one of such counterparties. The Company
places its temporary cash investments with high credit quality institutions.
Concentration of credit risk with respect to trade accounts receivable is
managed by an in-house professional credit staff or is insured. The Company
performs periodic credit evaluations of its customers' financial condition
and generally does not require collateral.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents, accounts receivable and accounts payable: The
carrying amounts reported in the consolidated balance sheets approximate
their fair value.
Borrowing arrangements: See note 6.
Forward interest rate swaps: The fair value of interest rate instruments
is the estimated amounts that the Company would receive or pay to terminate
the agreements at the reporting date, taking into account current interest
rates and the current creditworthiness of the counterparties.
All of the Company's estimates of fair value and termination cost/benefit
for its derivative financial instruments are based on readily available
dealer quotes as to the amounts the Company would receive or pay to terminate
the contracts.
The following table summarizes the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1996 and 1995:
36
1996 1995
------------------ -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Nonderivatives
Cash and cash equivalents $ 2,120 $ 2,120 $ 3,893 $ 3,893
Accounts receivable 132,296 132,296 145,572 145,572
Accounts payable 64,019 64,019 89,104 89,104
Borrowing arrangements 319,566 325,325 279,230 289,230
Derivatives-receive (pay):
Forward interest rate swaps -- (487) -- (7,200)
Forward foreign currency
contracts -- 932 -- --
13. BUSINESS SEGMENT AND GEOGRAPHIC AREAS
The Company operates in one business segment: principally the manufacture
and sale of polyester products, including Fortrel(R) brand polyester textile
fibers, polyester fibers made from recycled raw materials and PermaClear(TM)
PET packaging resins.
Net sales and operating income for the years ended December 31, 1996, 1995
and 1994 and identifiable assets at the end of each year, classified by the
major geographic areas in which the Company operates, are as follows:
1996 1995 1994
------ ------ ------
Net sales
U.S. . . . . . . . . . . . . . . . . $ 885,193 $ 952,663 $ 824,034
Europe . . . . . . . . . . . . . . . 213,611 156,735 112,099
---------- ---------- ----------
$1,098,804 $1,109,398 $ 936,133
========== ========== ==========
Operating income
U.S. . . . . . . . . . . . . . . . . $ 83,390 $ 101,623 $ 103,909
Europe . . . . . . . . . . . . . . . (15,266) 31,254 17,832
---------- ---------- ----------
$ 68,124 $ 132,877 $ 121,741
========== ========== ==========
Identifiable assets
U.S. . . . . . . . . . . . . . . . . $1,082,077 $1,011,952 $ 940,957
Europe . . . . . . . . . . . . . . . 121,872 198,721 103,505
---------- ---------- ----------
$1,203,949 $1,210,673 $1,044,462
========== ========== ==========
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the years ended December 31, 1996 and
1995 is summarized as follows:
- -----------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, Total
Quarter ended 1996 1996 1996(2) 1996 1996
- -----------------------------------------------------------------------------
Net sales $ 301,001 $ 283,850 $ 265,383 $ 248,570 $1,098,804
Gross profit 44,647 45,341 29,081 38,042 157,111
Net earnings (loss) 11,709 11,729 (2,830) 5,921 26,529
Net earnings per
common share (loss) $0.35 $0.35 $(0.09) $0.19 $0.81
37
- -----------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, Total
Quarter ended 1995 1995(1) 1995 1995 1995
- -----------------------------------------------------------------------------
Net sales $276,066 $293,971 $274,586 $264,775 $1,109,398
Gross profit 62,072 66,620 57,759 36,130 222,581
Net earnings 22,736 21,599 21,134 8,585 74,054
Net earnings per
common share $0.67 $0.64 $0.63 $0.26 $2.20
(1) Quarterly net earnings reflect a pretax loss of $5,500, which
decreased net earnings by approximately $3,400 ($0.10 per share),
related to the sale of CRInc.
(2) Quarterly net earnings reflect a pretax inventory charge of $7,000
resulting from declining raw material costs and selling prices which
decreased net earnings by approximately $4,300 ($0.13 per share), and an
additional $4,400 ($0.14 per share) in income taxes related to a change
in estimate to reflect a higher than expected tax rate for the year.
38
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wellman, Inc.
We have audited the accompanying consolidated balance sheets of Wellman,
Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included
the financial statement schedules listed in the Index at Item 8. These
consolidated financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits. We did
not audit the financial statements and schedules of a wholly owned subsidiary
of the Company, which statements reflect total assets constituting 7% in 1996
and 9% in 1995 and total revenues constituting 10% in 1996, 14% in 1995 and
12% in 1994 of the related consolidated totals. Those financial statements
and schedules were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to data included for such
wholly-owned subsidiary, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits 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 Wellman, Inc. at
December 31, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. Also,
in our opinion, based on our audits and the report of other auditors, the
related financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Charlotte, North Carolina
February 12, 1997
39
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
(In thousands)
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Other Deductions of Year
----------- --------- -------- ----- ---------- -------
Allowance for doubtful
accounts receivable:
Year ended
December 31, 1996 $5,335 $1,813 $ (961)(a) $3,576(b) $ 2,611
====== ====== ====== ====== =======
Year ended
December 31, 1995 $4,733 $1,391 $1,301(a) $2,090(b) $ 5,335
====== ====== ====== ====== =======
Year ended
December 31, 1994 $4,232 $1,101 $ 155 (a) $ 755(b) $ 4,733
====== ====== ====== ====== =======
(a) Primarily foreign currency translation adjustments, except for 1996 and
1995, which include purchase accounting adjustments of approximately ($930)
and $1,250, respectively, related to the acquisition discussed in note 2 to
the consolidated financial statements.
(b) Accounts written off.
40
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------- ---------------------------------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before April 30, 1997 are hereby incorporated by reference herein.
Item 11. Executive Compensation
- ------- ----------------------
"Compensation of Directors and Officers" in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission on or before April 30, 1997 is hereby incorporated by
reference herein. Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
"Introduction" and "Election of Directors" in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 1997 are hereby
incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
"Compensation of Directors and Officers" in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission on or before April 30, 1997 is hereby incorporated by
reference herein.
41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------- ----------------------------------------------------------------
(a) 1. Financial Statements
--------------------
The consolidated financial statements included in Item 8 are filed
as part of this annual report.
2. Financial Statement Schedules
-----------------------------
The consolidated financial statement schedule included in Item 8
are filed as part of this annual report.
3. Exhibits
--------
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant
has not filed herewith any instrument with respect to long-term debt
which does not exceed 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis. The registrant hereby
agrees to furnish a copy of any such instrument to the Securities
and Exchange Commission upon request.
Exhibit Number Description
- -------------- -----------
3(a)(1) Restated Certificate of Incorporation (Exhibit 3.1 of the
Company's Registration Statement on Form S-1, File No. 33-13458,
refiled as Exhibit 3(a)(1) of the Company's Form 10-K for the year
ended December 31, 1993, incorporated by reference herein)
3(a)(2) Certificate of Amendment to Restated Certificate of Incorporation
(Exhibit 3(a)(2) of the Company's Registration Statement on Form
S-4, File No. 33-31043, refiled as Exhibit 3(a)(2) of the
Company's Form 10-K for the year ended December 31, 1993,
incorporated by reference herein)
3(a)(3) Certificate of Amendment to Restated Certificate of Incorporation
(Exhibit 28 of the Company's Registration Statement on Form S-8,
File No. 33-38491, refiled as Exhibit 3(a)(3) of the Company's
Form 10-K for the year ended December 31, 1993, incorporated by
reference herein)
3(a)(4) Certificate of Amendment to Restated Certificate of Incorporation
(Exhibit 3(c)(4) of the Company's Form 10-K for the year ended
December 31, 1993 incorporated by reference herein)
3(b) By-Laws, as amended (Exhibit 3(b) of the Company's Form 10-K for
the year ended December 31, 1993 incorporated by reference herein)
4(a) Loan Agreement dated February 8, 1995 by and between the Company
and Fleet National Bank, as agent, and certain other financial
institutions (Exhibit 4(a) of the Company's Form 10-K for the year
ended December 31, 1994 incorporated by reference herein)
42
4(b) Loan Agreement between the Authority and the Company, dated as of
December 1, 1992 (Exhibit 4(w) of the Company's Form 10-K for the
year ended December 31, 1992 incorporated by reference herein)
4(c) Promissory Note dated May 15, 1992 of the Company to the City of
Florence, SC (Exhibit 4(x) of the Company's Form 10-K for the year
ended December 31, 1992 incorporated by reference herein)
4(d) Registration Rights Agreement dated as of August 12, 1985 by and
among the Company, Thomas M. Duff and others (Exhibit 4.7 of the
Company's Registration Statement on Form S-1, File No. 33-13458,
incorporated by reference herein)
4(e) Loan Agreement between South Carolina Jobs - Economic Development
Authority (the "Authority") and the Company dated as of December
1, 1990 (Exhibit 4(n) of the Company's Form 10-K for the year
ended December 31, 1990 incorporated by reference herein)
4(f) First Supplemental Loan Agreement between the Authority and the
Company dated as of April 1, 1991 (Exhibit 4(a) of the Company's
Form 10-Q for the quarter ended June 30, 1991 incorporated by
reference herein)
4(g) Note Purchase Agreement dated as of June 14, 1991 between the
Company and the Purchasers named in Schedule I thereto (Exhibit
4(b) of the Company's Form 10-Q for the quarter ended June 30,
1991 incorporated by reference herein)
4(h)(1) Rights Agreement dated as of August 6, 1991 between the Company
and First Chicago Trust Company of New York, as Rights Agent
(Exhibit 1 of the Company's Form 8-K dated as of August 6, 1991
incorporated by reference herein)
4(h)(2) Amendment to Rights Agreement dated February 26, 1996 between the
Company and Continental Stock Transfer and Trust Company (Exhibit
4.1 of the Company's Form 8-K dated February 28, 1996 incorporated
by reference herein)
4(i) Loan Agreement between the Authority and the Company dated as of
June 1, 1992 (Exhibit 4(u) of the Company's Form 10-Q for the
quarter ended June 30, 1992 incorporated by reference herein)
4(j) Note Purchase Agreement between the Company and Teachers Insurance
and Annuity Association of America dated July 28, 1992 (Exhibit
4(v) of the Company's Form 10-Q for the quarter ended June 30,
1992 incorporated by reference herein)
43
Executive Compensation Plans and Arrangements
- ---------------------------------------------
10(a) Wellman, Inc. 1985 Amended and Restated Incentive Stock Option Plan
(Exhibit 4 of the Company's Registration Statement on Form S-8/S-3,
File No. 33-54077, incorporated by reference herein)
10(b)(1) Employment Agreement dated as of January 1, 1990 between the
Company and Thomas M. Duff (Exhibit 10(b)(1) of the Company's Form
10-K for the year ended December 31, 1994 incorporated by reference
herein)
10(b)(2) Second Amendment to Employment Agreement dated as of January 1,
1995 between the Company and Thomas M. Duff (Exhibit 10(b)(2) of
the Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
10(c) Employment Agreement dated as of December 1, 1994 between the
Company and Clifford J. Christenson (Exhibit 10(c) of the Company's
Form 10-K for the year ended December 31, 1994 incorporated by
reference herein)
10(d) Service Agreement dated as of June 26, 1991 between Wellman
International Investments Limited and Charles William Beckwith
(Exhibit 10(g) of the Company's Form 10-K for the year ended
December 31, 1991 incorporated by reference herein)
10(e) Employment Agreement dated as of December 1, 1994 between the
Company and Keith R. Phillips (Exhibit 10(e) of the Company's Form
10-K for the year ended December 31, 1994 incorporated by reference
herein)
10(f) Employment Agreement dated as of December 1, 1994 between the
Company and James P. Casey (Exhibit 10(f) of the Company's Form
10-K for the year ended December 31, 1994 incorporated by reference
herein)
10(g) Employment Agreement dated as of December 1, 1994 between the
Company and Paul D. Apostol (Exhibit 10(g) of the Company's Form
10-K for the year ended December 31, 1994 incorporated by reference
herein)
10(h) Employment Agreement dated as of January 1, 1996 between the
Company and Mark Tashjian (Exhibit 10(b) of the Company's Form 10-K
for the year ended December 31, 1995 incorporated by reference
herein)
10(i) Employment Agreement dated as of May 21, 1996 between the Company
and John R. Hobson (Exhibit 10(a) of the Company's Form 10-Q for
the period ended June 30, 1996 incorporated by reference herein)
10(j) Directors Stock Option Plan dated as of December 2, 1991
(Exhibit 4(a) of the Company's Registration Statement on Form S-8,
File No. 33-44822, incorporated by reference herein)
10(k) Management Incentive Compensation Plan (Exhibit 10(h) of the
Company's Form 10-K for the year ended December 31, 1993
incorporated by reference herein)
44
10(l) Summary of Executive Life Insurance Plan (Exhibit 10.22 of the
Company's Registration Statement on Form S-1, File No. 33-13458,
incorporated by reference herein)
10(m) Description of Directors' Restricted Stock Plan (Exhibit 10(k)
of the Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
10(n) Directors Deferred Compensation Plan (Exhibit 10(l) of the
Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
10(o) Amended and Restated Directors' Retirement Plan (Exhibit 10(m)
of the Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
10(p) Executive Retirement Restoration Plan (Exhibit 10(n) of the
Company's Form 10-K for the year ended December 31, 1994
incorporated by reference herein)
Other Material Agreements
- -------------------------
10(q) Environmental Agreement dated as of August 8, 1985, by and among
the Company, Arthur O. Wellman, Jr., and Edward R. Sacks (Exhibit
10.12 of the Company's Registration Statement on Form S-1, File No.
33-13458, incorporated by reference herein)
10(r) Post-Closing Escrow Agreement dated August 12, 1985 by and among
the Company, Arthur O. Wellman, Jr., Edward R. Sacks and certain
other parties (Exhibit 10.2 of the Company's Registration Statement
on Form S-1, File No. 33-13458, incorporated by reference herein)
10(s) Letter Agreement, relating to certain environmental matters, dated
August 17, 1987, by and among Fiber Industries, Inc. (FI), Hoechst
Celanese Corp. (HCC) and Celanese Fibers Inc. (Celanese) (Exhibit
10.3 of FI's Registration Statement on Form S-1, File No. 33-20626,
incorporated herein by reference)
10(t) Trademark Assignment and License, dated January 28, 1988, by and
among FI, HCC and Celanese (Exhibit 10.14 of FI's Registration
Statement on Form S-1, File No. 33-20626, incorporated herein by
reference)
10(u) Inducement Agreement dated April 16, 1996, by and among Wellman of
Mississippi, Inc., the Mississippi Department of Economic and
Community Development acting for and on behalf of the State of
Mississippi, the Mississippi Business Financial Corporation and
certain other parties
10(v) PET Supply Agreement, dated December 28, 1995 by and among Wellman
B.V. and Akzo Nobel Fibers, B.V., as amended by letter dated August
23, 1996
21 Subsidiaries
23(a) Consent of Ernst & Young LLP
23(b) Consent of KPMG
28(a) Report of KPMG
45
(b) Reports on Form 8-K
-------------------
None.
46
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,
1997.
WELLMAN, INC.
By /s/ Thomas M. Duff
------------------------------
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 24, 1997.
Signatures Title
---------- -----
/s/ Thomas M. Duff
- -------------------------- President, Chief Executive Officer and
Thomas M. Duff Director (Principal Executive Officer)
/s/ Keith R. Phillips
- -------------------------- Vice President, Chief Financial Officer and
Keith R. Phillips Treasurer (Principal Financial Officer)
/s/ Mark J. Rosenblum
- -------------------------- Vice President, Chief Accounting Officer and
Mark J. Rosenblum Controller (Principal Accounting Officer)
/s/ James B. Baker
- -------------------------- Director
James B. Baker
/s/ C. William Beckwith Director
- --------------------------
C. William Beckwith
/s/ Clifford J. Christenson Director
- --------------------------
Clifford J. Christenson
/s/ Peter H. Conze Director
- --------------------------
Peter H. Conze
/s/ Allan R. Dragone Director
- --------------------------
Allan R. Dragone
/s/ Richard F. Heitmiller Director
- --------------------------
Richard F. Heitmiller
/s/ Jonathan M. Nelson Director
- -------------------------
Jonathan M. Nelson
47
/s/ James E. Rogers Director
- -------------------------
James E. Rogers
/s/ Raymond C. Tower Director
- -------------------------
Raymond C. Tower
/s/ Roger A. Vandenberg Director
- -------------------------
Roger A. Vandenberg
48