UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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.
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(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, Shrewsbury, NJ 07702
---------------------------------------
(Address of principal executive offices)
(908) 542-7300
--------------
(Registrant's telephone number, including area code)
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
As of November 4, 1996, there were 31,179,969 shares of the registrant's
common stock, $.001 par value, outstanding and no shares of Class B
common stock outstanding.
<PAGE>
WELLMAN, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Condensed Consolidated Statements of Income -
For the three and nine months ended September 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 . . . . . . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity . . . 5
Condensed Consolidated Statements of Cash Flows -
For the nine months ended September 30, 1996 and 1995. . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . .7 - 8
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 9 - 14
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
<PAGE>
<TABLE>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $265,383 $274,586 $850,233 $844,623
Cost of sales 236,302 216,827 731,164 658,172
-------- -------- -------- --------
Gross profit 29,081 57,759 119,069 186,451
Selling, general and
administrative expenses 22,187 22,050 66,883 67,958
-------- -------- -------- --------
Operating income 6,894 35,709 52,186 118,493
Interest expense, net 3,791 2,687 10,793 8,462
Loss on sale of subsidiary --- --- --- 5,500
-------- -------- -------- --------
Earnings before income taxes 3,103 33,022 41,393 104,531
Income taxes 5,933 11,888 20,790 39,062
-------- -------- -------- --------
Net (loss) earnings $ (2,830) $ 21,134 $ 20,603 $ 65,469
======== ======== ======== ========
Net (loss) earnings per
common share $ (0.09) $ 0.63 $ 0.62 $ 1.94
======== ======== ======== ========
Weighted average common shares 32,354 33,680 33,275 33,700
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
WELLMAN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
September 30, December 31,
1996 1995
---------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 19,708 $ 3,893
Accounts receivable, less allowance
of $5,754 in 1996 and $5,335 in 1995 129,082 145,572
Inventories 176,040 200,224
Prepaid expenses and other current assets 1,792 14,614
-------- ----------
Total current assets 326,622 364,303
Property, plant and equipment, at cost:
Land, buildings and improvements 116,366 111,700
Machinery and equipment 735,402 664,494
---------- ----------
851,768 776,194
Less accumulated depreciation 282,999 248,638
---------- ----------
Property, plant and equipment, net 568,769 527,556
Cost in excess of net assets acquired, net 287,849 295,062
Other assets, net 24,626 23,752
---------- ----------
$1,207,866 $1,210,673
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,981 $ 89,104
Accrued liabilities 48,565 50,368
Line of credit with bank -- 6,216
Current portion of long-term debt 147 147
---------- ----------
Total current liabilities 102,693 145,835
Long-term debt 328,740 272,867
Deferred income taxes and other liabilities 147,418 141,625
---------- ----------
Total liabilities 578,851 560,327
Stockholders' equity:
Common stock, $.001 par value; 55,000,000
shares authorized, 33,609,440 shares
issued at September 30, 1996,
33,441,391 at December 31, 1995 34 33
Class B common stock, $.001 par value;
5,500,000 shares authorized -- --
Paid-in capital 233,643 230,008
Foreign currency translation adjustments 7,261 6,849
Retained earnings 426,466 413,456
---------- ----------
667,404 650,346
Less common stock in treasury at cost:
1,870,150 shares at September 30, 1996 38,389 ---
---------- ----------
Total stockholders' equity 629,015 650,346
---------- ----------
$1,207,866 $1,210,673
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
COMMON STOCK
ISSUED CURRENCY
--------------- PAID-IN TRANSLATION RETAINED TREASURY
SHARES AMOUNT CAPITAL ADJUSTMENTS EARNINGS STOCK TOTAL
------ ------ ------- ----------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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 20,603 20,603
Cash dividends ($0.23 per share) (7,593) (7,593)
Exercise of stock options 46 857 857
Issuance of common stock to
employee benefit plans 122 1 2,695 2,696
Tax effect of exercise of stock
option 83 83
Currency translation adjustments 412 412
Purchase of treasury stock (38,389) (38,389)
------ ---- -------- -------- -------- ------- ---------
Balance at September 30, 1996 33,609 $ 34 $ 233,643 $ 7,261 $ 426,466 $(38,389) $ 629,015
====== ==== ======== ======== ======== ======= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
<TABLE>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(In thousands)
<CAPTION>
1996 1995
----- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings $20,603 $65,469
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 43,202 39,906
Amortization 9,958 9,080
Deferred income taxes 5,627 7,539
Common stock issued for stock plans 2,669 3,657
Loss on sale of subsidiary -- 5,500
Changes in assets and liabilities 14,467 (29,891)
------- -------
Net cash provided by operating activities 96,526 101,260
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (90,112) (72,411)
Other investing activities 4,850 17,683
------- -------
Net cash used in investing activities (85,262) (54,728)
------- -------
Cash flows from financing activities:
Net borrowings (repayments) of long-term debt 55,999 (32,464)
Net decrease in line of credit with bank (6,216) --
Dividends paid on common stock (7,593) (6,659)
Exercise of stock options 883 520
Purchase of treasury stock (38,389) --
------- -------
Net cash provided by (used in) financing
activities 4,684 (38,603)
------- -------
Effect of exchange rate changes on cash
and cash equivalents (133) 209
------- -------
Increase in cash and cash equivalents 15,815 8,138
Cash and cash equivalents at beginning of period 3,893 21,556
------- -------
Cash and cash equivalents at end of period $19,708 $29,694
======= =======
Supplemental cash flow data:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 8,857 $ 8,970
Income taxes $ 8,238 $28,341
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
WELLMAN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three and nine months ended
September 30, 1996 and 1995 is unaudited)
(In thousands)
1. BASIS OF PRESENTATION
The results of operations for the three and nine month periods are not
necessarily indicative of those for the full year.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements are presented on a basis consistent with
the audited statements, and all adjustments, which consist only of normal
recurring adjustments necessary to present fairly the financial position and
the results of operations for the periods indicated, have been reflected.
2. NET EARNINGS PER COMMON SHARE
Net earnings per common share is based on the weighted average number
of common and common equivalent shares outstanding.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------- ----------
<S> <C> <C>
Raw materials $ 77,369 $ 85,318
Finished and semi-finished goods 84,348 101,435
Supplies 14,323 13,471
--------- ---------
$ 176,040 $ 200,224
========= =========
</TABLE>
4. 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's policy is to accrue
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 $13,700 and
$24,000. In connection with these expenditures, the Company has accrued
an amount at September 30, 1996 within this range representing management's
best estimate of probable non-capital environmental expenditures. In
addition, future capital expenditures aggregating approximately $10,000 to
$34,000 may be required related to environmental 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.
7
<PAGE>
5. STOCK REPURCHASE PROGRAM
In June 1996, the Company announced its intention to repurchase up to
2.5 million shares of the Company's common stock in the open market. As of
September 30, 1996, 1,870,150 shares had been repurchased.
8
<PAGE>
WELLMAN, INC.
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. Wellman has annual capacity
to manufacture approximately 1.1 billion pounds of fiber and over 500 million
pounds of resin worldwide at five major production facilities in the United
States and Europe. Wellman 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 ethylene glycol (EG), which are purchased
on the open market. The other 40% of fiber production, primarily fiberfill and
carpet fibers, is manufactured by the Recycled Products Group from recycled raw
materials, including postconsumer PET soft drink bottles and producer fiber,
resin and film wastes. The Company's PET resins, produced by the Packaging
Products Group from PTA and EG, 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 and price. It
believes it is the second-largest polyester staple 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 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 U.S. and other regions
of the world. Prices of PTA and EG are a primary determinant of polyester
fiber and PET resin selling prices. Changes in PTA and EG 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. Both fiber and
resin margins experience short-term increases or decreases due to timing of
price changes and market conditions.
9
<PAGE>
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 supply and demand for waste
materials.
The Company's sales are neither materially dependent upon a single customer
nor seasonal in nature. However, fiber sales in the second half of the year
can be affected by changes in the traditional vacation periods of its
customers. Demand, prices and raw material costs for both products may also be
affected by global economic conditions, supply and demand balances, and export
activity. In this regard, the Far East remains the most influential region.
By the year 2000, the Company plans to substantially increase its polyester
fiber and PET resin production capacity through the expansion of existing
facilities over the next few years and construction of a new, state-of-the-art
production facility in Mississippi in 1999. 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.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the three months ended September 30, 1996 decreased 3.4% to
$265.4 million from $274.6 million for the three months ended September 30,
1995. Sales for the Fibers Group declined to $117.5 million in the 1996 period
from $121.0 million in the 1995 period due to lower polyester fiber selling
prices which more than offset improved fiber demand. Sales for the Recycled
Products Group (RPG) decreased to $76.3 million in the 1996 period from $104.1
million in the year-ago period primarily due to a 12-week strike at the
European recycled fibers operation, which kept the facility closed from mid-
July 1996 through the end of the period. In addition, the decline in the RPG's
sales was a result of continued worldwide polyester fiber selling price
declines and the disposition of certain businesses which had sales in the third
quarter of 1995 of $10.9 million. Sales for the Packaging Products Group (PPG)
increased to $71.7 million in 1996 from $49.4 million in 1995 due to the
December 31, 1995 acquisition of a Netherlands-based PET resins business and
increased domestic sales volume. Domestic and European PET resin selling
prices have declined significantly since year-end 1995.
Gross profit for the three months ended September 30, 1996 amounted to
$29.1 million versus $57.8 million for the comparable 1995 period. The gross
profit margin for the 1996 period was 11.0% compared to 21.0% in the 1995
period. Gross profit for the Fibers Group decreased in the 1996 period
compared to the 1995 period due to lower polyester fiber selling prices which
more than offset lower chemical raw material costs. Gross profit for the RPG
also decreased in the 1996 period versus 1995 primarily due to reduced profit
at the European recycled fibers operation stemming from weak business
conditions compounded by the strike. This more than offset increased profits
for the domestic recycled fibers business as a result of lower raw material
costs. Gross profit for the PPG decreased significantly in the 1996 period
compared to the same period in the prior year due to large declines in PET
resins selling prices without corresponding declines in raw material costs.
The 1996 gross profit was also negatively impacted by the inventory charge
described below.
10
<PAGE>
Selling, general and administrative expenses amounted to $22.2 million, or
8.4% of sales, for 1996 compared to $22.1 million, or 8.0% of sales, for 1995.
As a result of the foregoing and the unusual charges described below,
operating income was $6.9 million for the third quarter of 1996 versus $35.7
million for the third quarter of 1995.
Net interest expense was $3.8 million in 1996 compared to $2.7 million in
1995. Interest expense increased due to an increase in outstanding borrowings
and a decrease in interest income.
The effective income tax rate was 191.2% in the third quarter of 1996
versus 36.0% in the comparable 1995 period. See paragraph below regarding
unusual charges for explanation of tax rate increase.
The Company incurred unusual inventory and tax expenses in the third
quarter of 1996. As a result of recent, large declines in raw material costs,
the Company recorded a charge of approximately $7.0 million to establish an
inventory reserve, which lowered third quarter 1996 gross profit. The Company
also provided for an additional $4.4 million in income taxes to reflect a higher
than expected tax rate for the year. This resulted from lower projected pretax
earnings, a significant portion of which were at the European recycled fiber
operation, which is subject to significantly lower tax rates than the U.S.
operations, and the European PET resin operation, which incurred a pretax loss
which has no tax benefit.
As a result of the foregoing, the Company reported a net loss for the three
months ended September 30, 1996 of $2.8 million, or $0.09 per share, compared
to net earnings of $21.1 million, or $0.63 per share, for the three months
ended September 30, 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net sales for the nine months ended September 30, 1996 increased slightly
to $850.2 million from $844.6 million for the nine months ended September 30,
1995. Sales for the Fibers Group decreased to $345.8 million in the 1996
period from $372.8 million in the 1995 period due to lower polyester fiber
selling prices. Sales for the RPG decreased to $276.7 million in the first
nine months of 1996 from $365.1 million in the first nine months of 1995 due to
the 12-week strike at the European recycled fibers operation, which kept the
facility closed from mid-July 1996 through the end of the period. In addition,
the decline in the RPG's sales was a result of decreased polyester fiber
selling prices for the domestic and European recycled fiber operations and the
disposition of certain businesses which had sales in the first nine months of
1995 of $41.2 million. Sales for the PPG increased to $227.8 million in the
first nine months of 1996 from $106.7 million in the year-ago period due to
higher sales volumes resulting from the mid-1995 expansion of domestic PET
resins capacity and the December 31, 1995 acquisition of a Netherlands-based
PET resins business. Domestic and European PET resin selling prices have
declined significantly since year-end 1995.
11
<PAGE>
Gross profit for the nine months ended September 30, 1996 was $119.1
million compared to $186.5 million for the 1995 period. The gross profit
margin for the 1996 period was 14.0% compared to 22.1% in the year-ago period.
Gross profit for the Fibers Group decreased in the first nine months of 1996
versus 1995 due to significantly lower polyester fiber selling prices and
slightly higher production costs associated with weak textile demand in the
first half of the year. Gross profit for the RPG also decreased in the first
nine months of 1996 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.
Despite higher sales volumes resulting from the aforementioned domestic
PET resins expansion and the acquisition of a Netherlands-based PET resins
business, gross profit for the PPG was flat in the first nine months of 1996
compared to the year-ago period as profits were eroded by declining PET resins
selling prices. The 1996 gross profit was also negatively impacted by the
inventory charge described below.
Selling, general and administrative expenses amounted to $66.9 million, or
7.9% of sales, for the 1996 period compared to $68.0 million, or 8.1% of sales,
for the 1995 period.
As a result of the foregoing and the unusual charges described below,
operating income was $52.2 million for the first nine months of 1996 versus
$118.5 million for the comparable 1995 period.
Net interest expense was $10.8 million for the first nine months of 1996
compared to $8.5 million for the first nine months of 1995. Interest expense
increased due to an increase in outstanding borrowings and a decrease in
interest income.
The effective income tax rate was 50.2% in the first nine months of 1996
versus 37.4% in the comparable 1995 period. See paragraph below regarding
unusual charges for explanation of tax rate increase.
The Company incurred unusual inventory and tax expenses in the third
quarter of 1996. As a result of recent, large declines in raw material costs,
the Company recorded a charge of approximately $7.0 million to establish an
inventory reserve, which lowered third quarter and nine months 1996 gross
profit. The Company also experienced a higher than expected tax rate for the
year. This resulted from lower projected pretax earnings, a significant
portion of which were at the European recycled fiber operation, which is
subject to significantly lower tax rates than the U.S. operations, and the
European PET resin operation, which incurred a pretax loss which has no tax
benefit.
As a result of the foregoing, net earnings for the nine months ended
September 30, 1996 were $20.6 million, or $0.62 per share, compared to $65.5
million, or $1.94 per share, for the nine months ended September 30, 1995.
OUTLOOK
Traditional seasonal demand weakness, as well as continued downward
pressure on selling prices, is expected to affect the domestic fiber business
in the fourth quarter. The European fiber market remains weak, with continued
pressure on selling prices. The Company's Irish fiber operation is expected to
benefit from the restart of production due to the end of its recent strike.
12
<PAGE>
PET resin profits have deteriorated primarily due to significant declines
in selling prices, reflecting competitive pressures, without corresponding
declines in raw material costs. Such conditions are expected to continue. A
previously-announced, 200 million pounds per year PET resin capacity expansion
at the Company's Darlington, SC plant is expected to be completed in the first
quarter of 1997. The Company remains committed to its growth strategy,
including the aforementioned domestic resins expansion and the construction of
a new facility located in Mississippi (see below).
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $96.5 million for the nine
months ended September 30, 1996 compared to $101.3 million for the nine months
ended September 30, 1995. The decrease in cash from operations was primarily
the result of significantly lower net earnings.
Net cash used in investing activities totaled $85.3 million in 1996
compared to $54.7 million in 1995. This increase was primarily the result of
additions to property, plant and equipment, due to the Company's long-term
capital investment program (see below), which totaled $90.1 million in 1996
compared to $72.4 million in 1995.
Net cash provided by financing activities totaled $4.7 million for 1996.
In 1995, net cash used in financing activities totaled $38.6 million. Net
borrowings of long-term debt and bank line of credit totaled $49.8 million in
1996 compared to repayments of $32.5 million in 1995. In addition, the Company
initiated the purchase of treasury stock in 1996 totaling $38.4 million at
September 30, 1996.
The Company is currently engaged in a long-term capital investment program
to expand the capacity of its business and estimates that capital expenditures
could aggregate approximately $500 million over the five-year period from 1996
through 2000. The capital program includes a domestic PET resins capacity
expansion expected to be completed in the first quarter of 1997 and
construction of a new domestic polyester production facility expected to cost
approximately $400 million and to be operational in phases beginning in late
1998. Internally generated funds, the current bank facility described below,
and other credit arrangements are expected to fund the construction.
The Company's long-term capital investment program includes approximately
$120 million in planned expenditures in 1996. The exact amount and timing of
the capital spending is difficult to predict since certain projects may extend
into 1997 or beyond depending upon equipment delivery and construction
schedules. Significant 1996 capital expenditures include the aforementioned
expansion of domestic PET resins production capacity and design and
construction of the new domestic polyester production facility.
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
September 30, 1996, 1,870,150 shares had been repurchased. The stock purchases
are being financed from available cash and borrowings.
13
<PAGE>
The Company's financing agreements contain normal financial and restrictive
covenants. The Company believes that the financial resources available to it,
including $235.0 million available at September 30, 1996 under its $330 million
revolving credit facility, unused short-term uncommitted lines of credit
aggregating $116.1 million, internally generated funds, and other credit
arrangements will be sufficient to meet its foreseeable working capital,
capital expenditures, stock repurchases and dividend payment requirements.
The Company has 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 five years. The agreements
include an aggregate notional amount of $200 million at September 30, 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%. At September 30, 1996, the Company estimates it
would have had a $2.8 million aggregate benefit if it had terminated these
agreements.
In conjunction with the aforementioned European acquisition, the Company
entered into forward foreign currency contracts to exchange Dutch guilders
for U.S. dollars with an aggregate notional amount of $56.7 million at
September 30, 1996 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. The Company intends to renew
these contracts on a continuous basis. At September 30, 1996, the fair value
of the contracts (determined through readily available dealer quotes)
approximated their carrying amount.
The Company utilizes forward foreign currency contracts to hedge certain of
its accounts receivable, accounts payable, and firm purchase commitments
denominated in other foreign currencies. At September 30, 1996, the Company
estimates it would have had to pay approximately $1 million to terminate these
agreements.
FORWARD LOOKING STATEMENTS
Statements contained in this Form 10-Q 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 1996 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, U.S.
and global economic conditions, 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.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLMAN, INC.
Dated November 12, 1996 By /s/ Keith R. Phillips
----------------- ------------------------
Keith R. Phillips
Vice President, Chief Financial
Officer and Treasurer (Principal
Financial Officer)
Dated November 12, 1996 By /s/ Mark J. Rosenblum
--------------- ------------------------
Mark J. Rosenblum
Chief Accounting Officer,
Controller and Vice President
(Principal Accounting Officer)
16
??
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS for third quarter 1996 10-q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 19,708
<SECURITIES> 0
<RECEIVABLES> 134,836
<ALLOWANCES> 5,754
<INVENTORY> 176,040
<CURRENT-ASSETS> 326,622
<PP&E> 851,768
<DEPRECIATION> 282,999
<TOTAL-ASSETS> 1,207,866
<CURRENT-LIABILITIES> 102,693
<BONDS> 328,740
<COMMON> 34
0
0
<OTHER-SE> 629,015
<TOTAL-LIABILITY-AND-EQUITY> 1,207,866
<SALES> 850,233
<TOTAL-REVENUES> 850,233
<CGS> 731,164
<TOTAL-COSTS> 731,164
<OTHER-EXPENSES> 66,883
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,793
<INCOME-PRETAX> 41,393
<INCOME-TAX> 20,790
<INCOME-CONTINUING> 20,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,603
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
