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 March 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, 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 May 2, 1996, there were 33,570,173 shares of the registrant's
common stock, $.001 par value, issued and outstanding and no shares of Class B
common stock outstanding.
<PAGE>
WELLMAN, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Condensed Consolidated Statements of Income -
For the three months ended March 31, 1996 and 1995. . . . 3
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995. . . . . . . . . . . 4
Condensed Consolidated Statements of Stockholders' Equity. . . 5
Condensed Consolidated Statements of Cash Flows -
For the three months ended March 31, 1996 and 1995. . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . 7
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 8 - 9
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
<PAGE>
<TABLE>
<CAPTION>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
THREE MONTHS
ENDED MARCH 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Net sales $301,001 $276,066
Cost of sales 256,354 213,994
-------- --------
Gross profit 44,647 62,072
Selling, general and administrative
expenses 21,953 22,501
-------- --------
Operating income 22,694 39,571
Interest expense, net 3,938 2,899
-------- --------
Earnings before income taxes 18,756 36,672
Income taxes 7,047 13,935
-------- --------
Net earnings $ 11,709 $ 22,737
======== ========
Net earnings per common share $ 0.35 $ 0.67
======== ========
Weighted average common shares 33,663 33,684
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
WELLMAN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,755 $ 3,893
Accounts receivable, less allowance
of $5,480 in 1996 and $5,335 in 1995 152,895 145,572
Inventories 204,920 200,224
Prepaid expenses and other current assets 3,768 14,614
------------ ------------
Total current assets 377,338 364,303
Property, plant and equipment, at cost:
Land, buildings and improvements 127,320 127,555
Machinery and equipment 668,437 648,639
------------ ------------
795,757 776,194
Less accumulated depreciation 256,151 248,638
------------ ------------
Property, plant and equipment, net 539,606 527,556
Cost in excess of net assets acquired, net 292,893 295,062
Other assets, net 19,966 23,752
------------ ------------
$ 1,229,803 $ 1,210,673
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 94,401 $ 89,104
Accrued liabilities 46,701 50,368
Line of credit with bank -- 6,216
Current portion of long-term debt 147 147
------------ ------------
Total current liabilities 141,249 145,835
Long-term debt 282,306 272,867
Deferred income taxes and other liabilities 144,613 141,625
------------ ------------
Total liabilities 568,168 560,327
Stockholders' equity:
Common stock, $.001 par value; 55,000,000
shares authorized, 33,551,719 shares
issued and outstanding in 1996,
33,441,391 in 1995 34 33
Class B common stock, $.001 par value;
5,500,000 shares authorized -- --
Paid-in capital 232,329 230,008
Foreign currency translation adjustments 6,453 6,849
Retained earnings 422,819 413,456
------------ ------------
Total stockholders' equity 661,635 650,346
------------ ------------
$ 1,229,803 $ 1,210,673
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
COMMON STOCK CURRENCY
--------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT CAPITAL ADJUSTMENTS EARNINGS TOTAL
-------- ------ --------- ----------- --------- ---------
<S> <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 11,709 11,709
Cash dividends ($0.07 per share) (2,346) (2,346)
Exercise of stock options 28 530 530
Issuance of common stock to
employee benefit plans 83 1 1,791 1,792
Currency translation adjustments (396) (396)
------- ----- -------- ------- ------- --------
Balance at March 31, 1996 33,552 $ 34 $232,329 $ 6,453 $ 422,819 $ 661,635
======= ===== ======== ======= ======= ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands)
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $11,709 $22,737
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 14,088 12,525
Amortization 2,878 3,057
Deferred income taxes 2,482 2,644
Common stock issued for stock plans 1,792 1,851
Changes in assets and liabilities 2,693 10,531
------- -------
Net cash provided by operating activities 35,642 53,345
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (30,397) (25,267)
Decrease in restricted cash 311 989
Proceeds from divestitures 4,185 -
------- -------
Net cash used in investing activities (25,901) (24,278)
------- -------
Cash flows from financing activities:
Net borrowings (repayments) of long-term debt 9,463 (11,425)
Decrease in line of credit with bank (6,216) -
Dividends paid on common stock (2,346) (1,994)
Exercise of stock options 530 111
------- -------
Net cash provided by (used in) financing
activities 1,431 (13,308)
------- -------
Effect of exchange rate changes on cash
and cash equivalents 690 482
------- -------
Increase in cash and cash equivalents 11,862 16,241
Cash and cash equivalents at beginning of period 3,893 21,556
------- -------
Cash and cash equivalents at end of period $15,755 $37,797
======= =======
Supplemental cash flow data:
Cash paid (received)during the period for:
Interest (net of amounts capitalized) $ 1,582 $ 2,316
Income taxes $(8,970) $ 144
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
WELLMAN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended
March 31, 1996 and 1995 is unaudited)
(In thousands)
1. BASIS OF PRESENTATION
The results of operations for the three 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
<TABLE>
<CAPTION>
Inventories consist of the following:
March 31, December 31,
1996 1995
--------- ---------
<S> <C> <C>
Raw materials $ 82,975 $ 97,043
Finished and semi-finished goods 125,027 113,778
Supplies 15,233 14,281
--------- ---------
223,235 225,102
Less adjustments of certain
inventories to a LIFO basis (18,315) (24,878)
--------- ---------
$ 204,920 $ 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 $12,000 and
$29,000. In connection with these expenditures, the Company has accrued
approximately $23,700 at March 31, 1996 representing management's best
estimate of probable non-capital environmental expenditures. In addition,
future capital expenditures aggregating approximately $12,000 to $35,000
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>
WELLMAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995
Net sales for the three months ended March 31, 1996 increased 9% to $301.0
million from $276.1 million for the three months ended March 31, 1995. Sales
increased in the 1996 period for the Packaging Products Group (PPG) due to the
1995 second quarter expansion of PET (polyethylene terephthalate) resins
production capacity and the December 31, 1995 acquisition of a
Netherlands-based PET resins operation. Sales decreased in the 1996 period for
the Fibers Group due to lower sales volumes. Sales decreased in 1996 for the
Recycled Products Group (RPG) due to lower sales volumes for the domestic
recycled fibers business and the impact of divested businesses.
Gross profit for the three months ended March 31, 1996 amounted to $44.6
million versus $62.1 million for the 1995 period. The gross profit margin for
1996 was 14.8% compared to 22.5% in 1995. Gross profit for the Fibers Group
decreased primarily due to lower sales volumes and increased raw material and
production costs. RPG gross profit was lower primarily due to the
aforementioned decrease in sales volumes and the pass-through of only a portion
of increased raw material costs. PPG gross profit was higher due to increased
sales volumes.
Selling, general and administrative expenses amounted to $21.9 million, or
7.3% of sales, for 1996 compared to $22.5 million, or 8.2% of sales, for 1995.
As a result of the foregoing, operating income was $22.7 million for the
first three months of 1996 versus $39.6 million for the first three months of
1995.
Net interest expense, which was $3.9 million in 1996 compared to $2.9
million in 1995, was unfavorably impacted in 1996 by lower interest income.
The effective income tax rate was 37.5% in the first quarter of 1996 versus
38% in the comparable 1995 period.
As a result of the foregoing, net earnings in the first three months of
1996 were $11.7 million, or $0.35 per share, compared to $22.7 million, or
$0.67 per share, for the first three months of 1995.
OUTLOOK
The Company is experiencing difficult worldwide market conditions in its
polyester fiber and PET resins businesses. Fiber profit margins are expected
to be under pressure in 1996 due to lower sales and production volumes and
resultant higher unit costs. PET resins profit margins are also expected to be
under pressure due to increased competition and weakening European demand. The
aforementioned PET resins expansion and acquisition of a PET resins operation
in Europe are expected to benefit the Company strategically and financially in
1996 and beyond.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $35.6 million for the three
months ended March 31, 1996 compared to $53.3 million for the three months
ended March 31, 1995. The decrease in cash from operations was primarily the
result of significantly lower net earnings and changes in working capital
items.
8
<PAGE>
Net cash used in investing activities amounted to $25.9 million in 1996
compared to $24.3 million in 1995. Capital spending amounted to $30.4 million
in 1996 compared to $25.3 million in 1995.
Net cash provided by financing activities amounted to $1.4 million for 1996
and net cash used in financing activities amounted to $13.3 million for 1995.
In 1996, there were net borrowings of long-term debt of $9.5 million compared
to net repayments of $11.4 million in 1995. The bank line of credit, which is
related to the aforementioned European PET resins acquisition, was repaid in
full during the first quarter of 1996.
The Company is currently engaged in a long-term capital investment program
and estimates that capital expenditures could aggregate approximately $700
million over the next five years. The capital program includes construction
of a new domestic production facility estimated to cost approximately $400
million and expected to be operational in phases beginning in late 1998.
Internally generated funds, the current bank facility and other credit
arrangements are expected to fund the construction.
The Company's long-term capital investment program includes approximately
$170 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 expansion of domestic
PET resins production capacity and design and construction of the new
production facility discussed in the preceding paragraph.
The Company's financing agreements contain normal financial and restrictive
covenants. The most restrictive indebtedness covenant related to those
agreements permits a maximum leverage ratio of 55%, which would allow the
Company to incur additional debt approximating $525 million at March 31, 1996.
The Company's leverage ratio at March 31, 1996 was 29.9%. Under the most
restrictive covenant, approximately $235 million of retained earnings at March
31, 1996 was not restricted as to the payment of dividends. The Company
believes that the financial resources available to it, including $250 million
available at March 31, 1996 under its $330 million revolving credit facility
(the Facility), unused short-term uncommitted lines of credit aggregating
$167.5 million and internally generated funds will be sufficient to meet its
foreseeable working capital, capital expenditure and dividend payment
requirements.
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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.
(b) Reports on Form 8-K.
The Company filed a Form 8-K dated February 28, 1996 for the
purpose of filing an amendment to its Rights Agreement dated August 6,
1991. The amendment provides for modifications of the definitions of
Acquiring Person and Distribution Date to raise from 15% to 20% the
percentage of stock ownership needed to cause a Distribution Date to
occur (as such capitalized terms are defined in the Rights Agreement).
10
<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 May 14, 1996 By /s/ Keith R. Phillips
------------- ------------------------
Keith R. Phillips
Vice President, Chief Financial
Officer and Treasurer (Principal
Financial Officer)
Dated May 14, 1996 By /s/ Mark J. Rosenblum
------------- ------------------------
Mark J. Rosenblum
Vice President, Controller
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS for first quarter 1996 10-q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,755
<SECURITIES> 0
<RECEIVABLES> 158,375
<ALLOWANCES> 5,480
<INVENTORY> 204,920
<CURRENT-ASSETS> 377,338
<PP&E> 795,757
<DEPRECIATION> 256,151
<TOTAL-ASSETS> 1,229,803
<CURRENT-LIABILITIES> 141,249
<BONDS> 282,306
<COMMON> 34
0
0
<OTHER-SE> 661,601
<TOTAL-LIABILITY-AND-EQUITY> 1,229,803
<SALES> 301,001
<TOTAL-REVENUES> 301,001
<CGS> 256,354
<TOTAL-COSTS> 256,354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,938
<INCOME-PRETAX> 18,756
<INCOME-TAX> 7,047
<INCOME-CONTINUING> 11,709
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,709
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
