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, 1997
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
- --------------------------------- -------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (732) 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. [ ]
<PAGE>
Aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed on the basis of $21.06 per share (the closing price of
such stock on March 20, 1998 on the New York Stock Exchange): $647,348,219.
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 20, 1998
was 31,141,883 and -0-, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the 1998 Annual Meeting of Stockholders (to be
filed with the Securities and Exchange Commission on or before April 30,
1998) is incorporated by reference in Part III hereof.
2
<PAGE>
PART I
Item 1. BUSINESS
- ------ --------
Wellman, Inc. (which, together with its subsidiaries, is herein referred
to as the "Company") is principally engaged in the manufacture and sale of
polyester products, including Fortrel(R) brand polyester textile fibers,
polyester fibers made from recycled raw materials and PermaClear(R) PET
(polyethylene terephthalate) packaging resins.
RECENT DEVELOPMENTS
- -------------------
Construction of the Company's new PET resins and polyester fiber
production facility ("Pearl River Plant") in Mississippi, which is
approximately 50% completed, is expected to commence operation in three
phases beginning in late 1998. The construction is proceeding on plan and
costs to date have approximated the construction budget. Upon completion, it
will have an initial annual capacity of approximately 470 million pounds of
PET packaging resins and 230 million pounds of polyester fiber. See "Capital
Investment Program" and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
During the second quarter of 1997, the Company implemented a restructuring
plan to reduce costs and enhance the competitive position of its European
operations, resulting in a pretax charge of approximately $7.5 million. The
primary components of the restructuring charge relate to the modification of
certain supply and service agreements at the Company's Netherlands-based PET
resins business and termination benefits related to a workforce reduction at
the Company's Irish fiber operation. See note 6 to the consolidated
financial statements and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
On December 30, 1997, the Company sold its subsidiary, Creative Forming,
Inc. (CFI), located in Ripon, WI, to a management and investor group. The
Company incurred a nonrecurring loss on the sale of CFI, which manufactures
thermoformed packaging and extruded sheet primarily from virgin and recycled
PET. See note 3 to the consolidated financial statements and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's Irish fiber operation experienced a fire in July 1997 that
destroyed two out of five warehouses at the site. All damages were covered
by insurance. It is the Company's intention to replace the destroyed
buildings. See note 3 to the consolidated financial statements.
PRODUCTS AND MARKETS
- --------------------
The Company's operating structure is organized in three product groups:
the Fibers Group, 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. CFI was
included in the PPG through the date of sale.
The following table presents the combined net sales (in millions) and
percentage of net sales of the Company by product group for the periods
3
<PAGE>
indicated. In the table, intercompany transactions have been eliminated and
historical exchange rates have been applied to the data.
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
Net % of Net % of Net % of
Sales Total Sales Total Sales Total
----- ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Fibers Grp $ 419.4 38.7% $ 450.6 41.0% $ 483.9 43.6%
RPG 386.2 35.7 372.9 33.9 479.7 43.2
PPG 277.6 25.6 275.3 25.1 145.8 13.2
------- ----- ------- ------ ------ ------
TOTAL $1,083.2 100.0% $1,098.8 100.0% $1,109.4 100.0%
======== ===== ======== ===== ======== ======
- ------------
</TABLE>
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 yarn and fabric 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.
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:
postindustrial materials and postconsumer PET soft drink bottles.
Postindustrial materials include off-quality or off-spec production, trim and
other materials generated from fiber, resin or film manufacturing processes,
a portion of which 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.
The Company's recycling operation in Johnsonville, SC is responsible for
the procurement of these materials, which it processes into usable raw
4
<PAGE>
materials for the fiber and engineering resins businesses. As a result, this
operation is primarily an internal supplier. The raw material mix for the
Johnsonville and Marion Plants is approximately 50% postconsumer PET bottle
flake and 50% postindustrial material.
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 postindustrial materials, 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 facilities in Spijk, the Netherlands and Verdun,
France and from third party purchases. WIL's raw material mix is
approximately 40% postconsumer PET bottle flake and 60% postindustrial
material.
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 Company's Engineering Resins Division, located in Johnsonville, SC,
manufactures and markets nylon engineering resins under the Wellamid (TM)
brand to the injection molding industry. These resins are produced using
virgin, postindustrial and postconsumer nylon compounded with various
additives (glass, minerals, fire retardant, etc.) to impart desired
performance characteristics. These resins are used primarily in automotive,
lawn and garden and electrical applications.
The RPG also produces wool top and anhydrous lanolin in Johnsonville, SC.
Packaging Products Group
- ------------------------
The PPG manufactures solid-stated and amorphous PET packaging resins at
the Company's Palmetto Plant. 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(R) brand. Amorphous resin, which is
produced from PTA and MEG, is used internally for solid-stating (a process
which upgrades the resin) and, to a lesser extent, sold to external
customers.
The Company's domestic production capacity for amorphous resin is
approximately 500 million pounds per year, 420 million pounds of which is
solid-stated. Solid-stated capacity includes a new 200 million pounds per
year production line which commenced operation in the second quarter of 1997.
The Company also has a solid-stated PET packaging resin production
facility in Emmen, the Netherlands ("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. Virtually all of the resin is sold to PET
bottle and packaging manufacturers in Europe. In 1997, the Company incurred
a restructuring charge related to the modification of certain supply and
service agreements at this operation. See note 6 to the consolidated
financial statements and Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
5
<PAGE>
Chemical Raw Materials
- ----------------------
The Company purchases PTA under an exclusive supply contract with Amoco
Chemical Corporation, the primary domestic supplier. MEG is purchased under
a supply contract with Oxy Chem Inc. The Company also has commitments to
supply its new Pearl River Plant scheduled to commence operation in phases
beginning in late 1998. 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. See "Forward Looking Statements; Risks and
Uncertainties."
Capital Investment Program
- --------------------------
Capital expenditures in 1997 were approximately $221 million. Major
capital projects included in the 1997 expenditures were construction costs
associated with the Pearl River Plant in Mississippi, expected to commence
operation in phases beginning in late 1998, and the domestic solid-stated PET
resins expansion which commenced operation in the second quarter of 1997.
Capital expenditures are expected to total approximately $300 million over
the next two years. These expenditures primarily include the remaining
construction costs of the Pearl River Plant, the total construction 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 promoted 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 markets have historically displayed price and volume
cyclicality. The cost of PTA and MEG is a primary determinant of polyester
fiber and PET resins prices. The Company's sales are neither materially
dependent upon a single customer nor seasonal in nature. 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, 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 resins market include producer supply and
capacity utilization rates and demand for PET containers, primarily for soft
drinks and other beverages which may be influenced by weather and the
relative price of aluminum cans. Worldwide PET resins supply has recently
undergone significant expansion. Demand for PET resins 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."
6
<PAGE>
Competitors
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Each of the Company's major fiber markets is highly competitive. The
Company competes primarily on the basis of product quality, customer service,
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 resins 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 fiber, recycling and
resins businesses. The Company has entered into technology sharing
arrangements from time to time with various parties. Research and
development costs were approximately $19.6 million, $18.5 million and $16.9
million for 1997, 1996 and 1995, respectively.
Foreign Activities
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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 14 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 15 to
the consolidated financial statements for additional information relating to
the Company's foreign activities.
Employees
- ---------
As of December 31, 1997, the Company employed a total of approximately
3,100 persons in the United States and Europe. At December 31, 1997, the
Union of Needletrades, Industrial and Textile Employees (UNITE) represented
983 employees at the Company's Johnsonville, SC operations. Approximately
560 of these employees were members of UNITE, whose contract with the Company
expires in July 1999. At WIL, 295 out of 435 total employees were
represented by four unions at year-end 1997. The wage agreements with these
unions each expire on April 30, 2000. Employees at the PET Resins-Europe
operation total 67, with 49 represented by three unions whose contracts
expire in May 1999. The Company believes relations with its employees are
satisfactory.
7
<PAGE>
Environmental Matters
- ---------------------
The Company's plants are subject to numerous existing and proposed laws
and regulations designed to protect the environment from wastes, emissions
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 9 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, 50 President, Chief Executive Officer and
Director
Clifford J. Christenson, 48 Executive Vice President, Chief Operating
Officer and Director
Keith R. Phillips, 43 Vice President, Chief Financial Officer
and Treasurer
James P. Casey, 57 Vice President; President, Fibers Group
John R. Hobson, 57 Vice President, Recycled Products Group
Mark J. Rosenblum, 44 Vice President, Chief Accounting Officer
and Controller
Ernest G. Taylor, 47 Vice President, Chief Administrative
Officer
Joseph C. Tucker, 50 Vice President, Corporate Development
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
joining 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 October 1993 he was a
partner in Ernst & Young LLP. Mr. Phillips is a certified public accountant.
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
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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.
Ernest G. Taylor. Mr. Taylor has been Vice President, Administration
since January 1991. In November 1997 he became Vice President, Chief
Administrative Officer.
Joseph C. Tucker. Dr. Tucker has been Vice President, Corporate
Development since December 1997. Prior to such time, he served as Vice
President and General Manager of PET Resins-Europe from 1995 to 1997 and
Vice President of Manufacturing and Technology from 1993 to 1995.
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 2.3 million
Wool Manufacturing, Recycling
Operations and Warehouse
Darlington, SC Fiber and Resins Manufacturing 1.1 million
(Palmetto) and Warehouse
Mullagh, Ireland (1) Fiber Manufacturing and Warehouse .4 million
Fayetteville, NC Fiber Manufacturing and Warehouse .3 million
Emmen, the Netherlands Resins Manufacturing and Warehouse .1 million
- --------------------
(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, Bridgeport, NJ, Spijk,
the Netherlands, Yorkshire, England, Dortmund, Germany and Verdun, France.
The corporate office is located in Shrewsbury, NJ. The Company is
constructing a new plant in Hancock County, MS (Pearl River Plant). See
Item 1. "Business-Recent Developments" and Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Item 3. Legal Proceedings
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
Not applicable.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
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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.
<TABLE>
<CAPTION>
Year High Low Close Dividend
- ---- ---- --- ----- --------
1997
- ----
<S> <C> <C> <C> <C>
Fourth Quarter $24.56 $17.94 $19.50 $0.09
Third Quarter $24.19 $17.38 $23.19 $0.09
Second Quarter $18.63 $15.13 $17.38 $0.09
First Quarter $18.38 $16.00 $17.50 $0.08
1996
- ----
Fourth Quarter $19.25 $15.88 $17.13 $0.08
Third Quarter $23.50 $17.00 $17.50 $0.08
Second Quarter $24.88 $22.13 $23.38 $0.08
First Quarter $24.38 $18.00 $23.50 $0.07
</TABLE>
The Company had approximately 900 holders of record and, to its knowledge,
approximately 15,000 beneficial owners of its common stock as of March 20,
1998.
See note 11 to the consolidated financial statements for information
regarding common stock rights associated with the common stock.
10
<PAGE>
<TABLE>
Item 6. Selected Consolidated Financial Data
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<CAPTION>
(In thousands, except Years Ended December 31,
per share data) 1997(1) 1996 1995 1994 1993(2)
- -----------------------------------------------------------------------------
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . $1,083,188 $1,098,804 $1,109,398 $936,133 $842,064
Cost of sales. . . . . . 923,278 941,693 886,817 724,874 679,182
---------- ---------- ---------- -------- --------
Gross profit. . . . . . . 159,910 157,111 222,581 211,259 162,882
Selling, general and
administrative expenses. 83,128 88,987 89,704 89,518 86,511
Restructuring charge. . . 7,469 -- -- -- --
Interest expense, net . . 12,160 13,975 11,666 13,741 15,736
Gain (loss) on divestitures
and other, net . . . . . (5,963) -- (5,500) -- 12,386
---------- ---------- ---------- -------- --------
Earnings before income taxes
and cumulative effect of
changes in accounting
principles . . . . . . . 51,190 54,149 115,711 108,000 73,021
Income taxes. . . . . . . 20,835 27,620 41,657 43,200 32,567
---------- ---------- ---------- -------- --------
Earnings before cumulative
effect of changes in
accounting principles. . 30,355 26,529 74,054 64,800 40,454
Cumulative effect of changes
in accounting principles,
net of income taxes. . . -- -- -- -- (9,010)
---------- ---------- ---------- -------- --------
Net earnings. . . . . . . $ 30,355 $ 26,529 $ 74,054 $ 64,800 $ 31,444
========== ========== ========== ======== ========
Basic earnings per common share:
Before cumulative effect of
changes in accounting
principles . . . . . . $ 0.98 $ 0.81 $ 2.22 $ 1.96 $ 1.24
Cumulative effect of changes
in accounting principles,
net of income taxes. . -- -- -- -- (0.28)
---------- ---------- ---------- -------- --------
Basic net earnings
per share. . . . . . . $ 0.98 $ 0.81 $ 2.22 $ 1.96 $ 0.96
========== ========== ========== ======== ========
Average common
shares-basic . . . . . 31,120 32,649 33,322 32,985 32,682
Diluted earnings per common share:
Before cumulative effect of
changes in accounting
principles . . . . . . $ 0.97 $ 0.81 $ 2.20 $ 1.94 $ 1.23
Cumulative effect of changes
in accounting principles,
net of income taxes. . -- -- -- -- (0.27)
---------- ---------- ---------- -------- --------
Diluted net earnings
per share. . . . . . . $ 0.97 $ 0.81 $ 2.20 $ 1.94 $ 0.96
========== ========== ========== ======== ========
Average common
shares-diluted . . . . 31,269 32,774 33,699 33,417 32,857
Dividends (3) . . . . . . $ 10,882 $ 10,085 $ 9,003 $ 7,593 $ 5,885
11
<PAGE>
Pro forma amounts assuming
the effects of the changes
in accounting principles are
applied retroactively:
Net earnings. . . . . NA NA NA NA $ 40,454
Basic net earnings
per share. . . . . . NA NA NA NA $ 1.24
Diluted net earnings
per share. . . . . . NA NA NA NA $ 1.23
</TABLE>
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
Balance Sheet Data: ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets. . . . . .$1,319,225 $1,203,949 $1,210,673 $1,044,462 $1,015,247
Total debt. . . . . . .$ 394,753 $ 319,566 $ 279,230 $ 256,531 $ 312,767
Stockholders' equity. .$ 634,434 $ 623,928 $ 650,346 $ 577,573 $ 506,506
</TABLE>
(1) 1997 net earnings reflect a charge of $8.1 million ($0.26 per diluted
share) of unusual and nonrecurring items.
(2) 1993 net earnings reflect a charge of $15.9 million ($0.48 per diluted
share) of accounting changes and unusual and nonrecurring items.
(3) Dividends paid were $0.35 per share in 1997, $0.31 per share in 1996,
$0.27 per share in 1995,$0.23 per share in 1994 and $0.18 per share in
1993.
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------- -----------------------------------------------------------------
GENERAL
The Company's primary business is the manufacture and marketing of high-
quality polyester products, including Fortrel(R) brand polyester textile
fibers, polyester fibers made from recycled raw materials and PermaClear(R)
brand PET (polyethylene terephthalate) packaging resins. The Company
currently has annual capacity to manufacture approximately 1.1 billion pounds
of fiber and 610 million pounds of resins worldwide at five major production
facilities in the United States and Europe. The Company is also the world's
largest PET plastics recycler, utilizing a significant amount of recycled raw
materials in its manufacturing operations.
The Company plans to substantially increase its polyester fiber and PET
resins production capacity through the construction of its new, state-of-the-
art Pearl River Plant in Mississippi. This facility commences operation in
three phases beginning in late 1998. By the year 2001, this facility is
expected to have annual capacity to manufacture 570 million pounds of resins
and 230 million pounds of fiber. As a result, the Company's production mix
is expected to be approximately 50% fibers and 50% PET resins.
The Fibers Group produces Fortrel(R) textile fibers, which currently
represent approximately 60% of the Company's fiber production. These fibers
are used in apparel and home furnishings and are 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 postindustrial fiber, resin and film materials 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 resins 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 resins 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, which are 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 resins selling prices, are
cyclical. Changes in PTA and MEG prices are driven by worldwide supply and
demand.
13
<PAGE>
Raw material margins for the chemical-based fiber and PET resins
businesses have generally been influenced by supply and demand factors.
Despite growing demand for PET resins, worldwide supply has recently
undergone significant expansion which has adversely affected profitability.
Both fiber and resins margins experience increases or decreases due to timing
of price changes and market conditions.
Raw material margins for the recycled fiber operation tend to be more
variable than those for the chemical-based businesses, primarily because
changes in 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. Sales for PET resins, primarily for soft
drink bottles and other beverages, may be influenced by weather and the
relative price of aluminum cans. Demand, prices and raw material costs for
both fiber and PET resins may be affected by global economic conditions,
supply and demand balances, the prices of competing materials, such as
cotton, and export activity.
RESULTS OF OPERATIONS - 1997 COMPARED TO 1996
Net sales for 1997 remained unchanged as compared to 1996 at $1.1 billion
primarily as a result of higher sales volumes offsetting lower selling
prices. Sales for the Fibers Group decreased 6.9% to $419.4 million in 1997
from $450.6 million in 1996 due to significantly lower polyester fiber
selling prices which more than offset slightly higher sales volumes. Sales
for the Recycled Products Group (RPG) increased 3.6% to $386.2 million in
1997 from $372.9 million in 1996 due to increased polyester fiber sales
volumes and higher sales in other divisions which offset worldwide declines
in polyester fiber selling prices. Sales volumes in 1996 were negatively
impacted by a 12-week strike at the Company's Irish fiber operation, which
kept the facility closed from mid-July through early October. Despite
substantially higher domestic sales volumes, sales for the Packaging Products
Group (PPG) increased only slightly to $277.6 million in 1997 from $275.3 in
1996 as a result of significantly lower worldwide PET resins selling prices.
In the second quarter of 1997, the Company commenced operation of an
additional 200 million pounds per year PET resins production line at its
Darlington, S.C. plant.
Gross profit increased 1.8% to $159.9 million in 1997 from $157.1 million
in 1996. The gross profit margin for 1997 was 14.7% compared to 14.3% for
1996. This was primarily the result of increased profitability in the RPG
which offset lower profitability in the Fibers Group and PPG. The Company's
gross profit in 1996 was negatively impacted by a charge of $7 million to
establish an inventory reserve resulting from large declines in raw material
costs and a 12-week strike at the Company's Irish fiber operation. Gross
profit for the Fibers Group decreased primarily as a result of significantly
lower polyester fiber selling prices offsetting lower overall costs. Gross
profit for the RPG increased significantly in 1997 due in part to increased
sales volumes at the Company's Irish fiber operation as a result of the 1996
period being negatively impacted by the aforementioned strike. In addition,
the increase is attributable to substantially lower worldwide raw material
costs and higher domestic sales volumes for fiber, and increased gross profit
in other divisions. Despite higher domestic sales volumes resulting from the
aforementioned capacity expansion and lower raw material costs, gross profit
for the PPG decreased significantly in 1997 principally due to significantly
lower worldwide PET resins selling prices.
14
<PAGE>
Selling, general and administrative expenses amounted to $83.1 million in
1997, or 7.7% of sales, compared to $89.0 million in 1996, or 8.1% of sales.
The decrease is due to reduced costs at the Company's European operations
resulting from the restructuring plan implemented in the second quarter of
1997 (see below) as well as the Company's continued efforts to reduce overall
spending.
During the second quarter of 1997, the Company implemented a restructuring
plan to reduce costs and enhance the competitive position of its European
operations, resulting in a pretax charge of approximately $7.5 million. The
primary components of the restructuring charge relate to the modification
of certain supply and service agreements at the Company's Netherlands-based
PET resins business and termination benefits related to a workforce reduction
at the Company's Irish fiber operation. See note 6 to the consolidated
financial statements.
As a result of the foregoing, operating income was $69.3 million in 1997,
or $76.8 million excluding the restructuring charge, compared to $68.1
million in 1996.
Net interest expense decreased to $12.2 million in 1997 from $14.0 million
in 1996. The decrease in interest expense was due principally to higher
interest capitalization resulting from the Company's ongoing capacity
expansion program. See note 7 to the consolidated financial statements.
In the fourth quarter of 1997, the Company recorded a pretax loss of $6.0
million which decreased net earnings by $3.8 million, or $0.12 per diluted
share. The loss is comprised of two parts: a loss on the sale of a
subsidiary and a gain from an insurance reimbursement related to a warehouse
fire at the Company's Irish fiber operation in July 1997. See note 3 to the
consolidated financial statements.
The effective income tax rate was 40.7% in 1997 compared to 51% in 1996.
The rate decreased primarily as a result of increased earnings at the
Company's Irish fiber operation, which is subject to significantly lower tax
rates than the U.S. operations, and the reduction in foreign operating
losses for which no tax benefit had been provided.
As a result of the foregoing, net earnings for 1997 were $30.4 million, or
$0.97 per diluted share. Excluding the one-time charges, net earnings for
1997 were $38.5 million, or $1.23 per diluted share, compared to $26.5
million, or $0.81 per diluted share in 1996.
OUTLOOK
Demand for the Company's polyester fibers is expected to remain healthy in
1998. However, domestic fiber profit margins remain at historically low
levels primarily due to continued downward pressure on selling prices, which
may continue in 1998.
Domestic PET resins sales volumes are expected to increase in 1998
primarily due to the completion of a domestic expansion in the second quarter
of 1997 and the scheduled start-up of the first PET resins production line at
the Company's Pearl River Plant in late 1998. The Company believes that
profit margins in this business will continue to recover in 1998 over the
historically low levels in 1997.
Operating profit in 1998 is expected to benefit from a restructuring plan
the Company implemented at its European operations in the second quarter of
15
<PAGE>
1997 through which it modified a PET resins take-or-pay supply agreement at
the Netherlands facility and reduced staffing at the Irish fiber operation.
To date, the Company has experienced little effect from the financial
troubles of the Far East which began in 1997. However, the Company is
uncertain what effect the present situation will have on future operations.
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 volumes during the
latter part of 1996. Sales for the RPG decreased 22.3% to $372.9 million
from $479.7 million due primarily to a 12-week strike at the Company's Irish
fiber 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 Irish fiber operations.
Sales for the PPG increased 88.8% to $275.3 million in 1996 from $145.8
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 resins selling prices.
Gross profit decreased 29.4% to $157.1 million in 1996 from $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 from 1995 primarily
due to reduced profit at the Company's Irish fiber 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 fiber 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 costs. 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.
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 compared to $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.
16
<PAGE>
The effective income tax rate was 51% in 1996 compared to 36% in 1995.
This resulted from lower pretax earnings, lower earnings at the Irish
manufacturing operations which benefit from a favorable tax rate, and a
pretax loss at the European PET resins operation which has no tax benefit.
See note 8 to the consolidated financial statements.
As a result of the foregoing, net earnings for 1996 were $26.5 million, or
$0.81 per diluted share, compared to $74.1 million, or $2.20 per diluted
share, in 1995.
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 $9.8 million and $25.2 million. In connection with these
expenditures, the Company has accrued management's best estimate of probable
non-capital environmental expenditures. In addition, aggregate future
capital expenditures related to environmental matters are expected to range
from $9.3 million to $28.6 million. These non-capital and capital
expenditures are expected 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 1997, 1996
and 1995, costs associated with environmental remediation and ongoing
assessment were not significant. See notes 1 and 9 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.
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. See "Forward
Looking Statements; Risks and Uncertainties."
17
<PAGE>
YEAR 2000
The Year 2000 Issue is the result of computer programs written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will be
required to modify certain portions of its software and process equipment so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. The Company presently believes that with
modifications to existing software the Year 2000 Issue will not pose
significant operational problems for its computer systems. However, if such
modifications are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company.
The Company expects to complete its Year 2000 project by mid 1999, which
is prior to any anticipated impact on its operating systems. The total
project cost, which will be expensed as incurred, is not expected to have a
material effect on the results of operations. See "Forward Looking
Statements; Risks and Uncertainties."
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $128.1 million in 1997
compared to $151.9 million in 1996.
Net cash used in investing activities amounted to $197.8 million in 1997
compared to $135.2 million in 1996. Capital spending amounted to $221.2
million in 1997 and $126.0 million in 1996, reflecting the Company's ongoing
capital investment program. Proceeds from divestitures and other amounted to
$18.3 million in 1997 and $4.2 million in 1996.
Net cash provided by financing activities amounted to $67.9 million in
1997 compared to net cash used of $18.4 million in 1996. Net borrowings
were $78.3 million in 1997 compared to $40.3 million in 1996. In 1996, the
Company completed the repurchase of 2.5 million shares of its common stock in
the open market at a cost of $49.5 million.
With the completion of the PET resins capacity expansion at the
Darlington, SC plant in the second quarter of 1997, the remainder of the
Company's ongoing capital investment program consists primarily of the
construction of its Pearl River Plant in Mississippi. The total capitalized
cost of the facility is estimated to be approximately $450 million,
consisting of approximately $400 million of construction costs plus
Mississippi state grants and capitalized interest. This facility,
approximately 50% completed, is expected to be operational in three phases
beginning in late 1998. The Company's planned capital expenditures in 1998
are estimated to range between $210 and $230 million, with aggregate capital
expenditures through the end of 1999 estimated at approximately $300 million.
The exact amount and timing of the capital spending is difficult to predict
since certain projects may extend into 1999 or beyond depending upon
equipment delivery and construction schedules. To receive certain incentives
provided by the state of Mississippi, the Company, in conjunction with the
Mississippi Business Finance Corporation, expects to issue a series of
taxable Rural Economic Development Bonds.
18
<PAGE>
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 EBITDA to exceed 3.5 times interest
expense and requires the Company to maintain a certain net worth. The
financial resources available to the Company at December 31, 1997 include
$310 million under its $330 million revolving credit facility, unused
short-term uncommitted lines of credit aggregating approximately $250
million, and internally generated funds. The Company is pursuing other forms
of financing including the issuance of public or private debt securities.
The Company believes these financial resources and other credit arrangements
will be sufficient to meet its foreseeable working capital, capital
expenditure and dividend payment requirements.
The Company has entered into two types of financial instruments to
minimize its interest rate exposure. One instrument, with a notional amount
of $150 million, was designed to provide a fixed 10 year interest rate of
6.42% (exclusive of corporate spreads) on $150 million of debt if issued on
December 31, 1997 and approximately 6.51% (exclusive of corporate spreads) if
issued on March 31, 1998. The Company has also entered into interest rate
swaps to fix the interest rate on variable rate borrowings, thereby
eliminating substantial interest rate risk. The agreements are for $200
million, $100 million of which were in effect at December 31, 1997, and $100
million with starting dates ranging between February and May 1998. Maturity
dates are a minimum of 5 years and a maximum of 10 years after the starting
date of the swaps. The swaps will effectively fix the rate of interest
between 6.10% and 6.20% on $200 million of borrowings. In aggregate, the
Company estimates it would have had to pay approximately $14.2 million to
terminate these agreements at December 31, 1997.
The Company has entered into forward foreign currency contracts to
exchange Dutch guilders for U.S. dollars with an aggregate notional amount of
$21.8 million at December 31, 1997 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, 1997, the Company estimates it would receive
approximately $0.7 million, if these contracts were terminated.
The Company has also entered into forward foreign currency contracts to
exchange U.S. dollars for German marks with an aggregate notional amount of
$12.6 million at December 31, 1997. 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 January 1998
through March 1999. At December 31, 1997, the Company would have had to
pay approximately $1.4 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,
1997, the notional amount of the forward foreign currency contracts was $15.5
million and the cost to terminate these contracts was not significant.
The Company's estimates with respect to the values of its derivative
instruments are based on readily available dealer quotes.
19
<PAGE>
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131), effective for fiscal years
beginning after December 15, 1997. FAS 131 requires that a public company
report financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined, are components of an enterprise for which
separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and
in assessing performance. The financial information to be reported includes
segment profit or loss, certain revenue and expense items and segment assets
and reconciliations to corresponding amounts in the general purpose financial
statements. FAS 131 also requires information about products and services,
geographic areas of operation, and major customers. The Company has not
completed its analysis of the effect of adoption of FAS 131 on its financial
statement disclosure; however, the adoption of FAS 131 will not affect
results of operations or financial position.
FORWARD LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
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. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. The Company cautions that a number of
important factors could cause actual results for 1998 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.
In addition to those described above, the more prominent risks and
uncertainties inherent in the Company's business are set forth below.
However, this section does not discuss all possible risks and uncertainties
to which the Company is subject, nor can it be assumed necessarily that there
are no other risks and uncertainties which may be more significant to the
Company.
Impact of Economic Conditions
Capacity utilization, which is the demand for product divided by its
supply, is a critical factor affecting the Company's financial performance.
Demand for polyester fiber historically has been cyclical because it is
subject to changes in consumer preferences and spending, retail sales
patterns, and fiber or textile product imports, all of which are driven
20
<PAGE>
primarily by general economic conditions. Demand, prices and raw material
costs for both fiber and PET resins may be affected by global economic
conditions. Supply is expanding for both fiber and resins in the United
States. While expectations are that growth in demand will approximate growth
in supply, any significant expansion in supply over demand could reduce
profitability. A material change in demand, supply or in general economic
conditions or uncertainties regarding future economic prospects could have a
material adverse effect on the Company's results of operations.
Impact of Far Eastern Financial Crisis
In the fourth quarter of 1997, the Far Eastern economies, which are the
largest and were, until recently, the fastest growing polyester market,
experienced a significant economic and financial crisis. This crisis is
expected to affect the size of the market and future expansions. Given the
inherent uncertainties surrounding the Far Eastern polyester markets, it is
unknown what effect the crisis will have on the U.S. polyester fiber and
resins markets. However, given the size of the Far Eastern markets, the
impact could be significant and this could have a material adverse effect on
the Company's results of operations.
Dependency on Availability of Raw Materials
The Company's operations are substantially dependent on the availability
of its two primary raw materials, PTA and MEG. The Company currently relies
on a single source for the supply of PTA and a limited number of sources for
MEG. The effect of the loss of any of such sources, of a disruption in their
business or failure to meet the Company's product needs on a timely basis
would depend primarily upon the length of time necessary to find a suitable
alternative source. At a minimum, temporary shortages in needed raw
materials could have a material adverse effect on the Company's results of
operations. There can be no assurance that precautions taken by the Company
would be adequate or that an alternative source of supply could be located or
developed in a timely manner.
Construction Program
The Company is currently constructing a new PET resins and polyester fiber
production facility in Mississippi at a total estimated capitalized cost of
approximately $450 million. The facility, which is expected to commence
operations in three phases beginning in late 1998, will have an initial
annual capacity of approximately 470 million pounds of PET packaging resins
and 230 million pounds of polyester fiber. However, there can be no
assurance that the Company will be able to commence operations as scheduled,
that it will not encounter significant disruptions in its operations, that
the facility will operate as effectively as expected, or that the Company
will be able to sell at acceptable prices the added volumes from this
facility.
Environmental Matters
Actual costs to be incurred for identified environmental 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.
21
<PAGE>
Year 2000
In addition to the Company's procedures relating to the Year 2000 (see
"Year 2000" above), the Company has initiated formal communications with all
of its significant suppliers and large customers to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to remediate their own Year 2000 Issues. However, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.
The costs of the Company's Year 2000 project and the date on which the
Company believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
- ------- ---------------------------------------------------------
Not applicable.
22
<PAGE>
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, 1997, 1996 and 1995 24
Consolidated Balance Sheets as of December 31, 1997 and 1996 25
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995 26
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 28
Report of Independent Auditors 44
Consolidated financial statement schedules for the years ended
December 31, 1997, 1996 and 1995:
II -- Valuation and qualifying accounts 45
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.
23
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31,
------------------------
(In thousands, except per share data) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . .$1,083,188 $1,098,804 $1,109,398
Cost of sales. . . . . . . . . . . . . . . . 923,278 941,693 886,817
--------- -------- ---------
Gross profit . . . . . . . . . . . . . . . . 159,910 157,111 222,581
Selling, general and administrative expenses 83,128 88,987 89,704
Restructuring charges. . . . . . . . . . . . 7,469 -- --
---------- ---------- ---------
Operating income . . . . . . . . . . . . . . 69,313 68,124 132,877
Interest expense, net. . . . . . . . . . . . 12,160 13,975 11,666
Loss on divestitures and other, net. . . . . 5,963 -- 5,500
---------- ---------- ---------
Earnings before income taxes . . . . . . . . 51,190 54,149 115,711
Income taxes . . . . . . . . . . . . . . . . 20,835 27,620 41,657
---------- ---------- ---------
Net earnings . . . . . . . . . . . . . . . .$ 30,355 $ 26,529 $ 74,054
========== ========== =========
Basic net earnings per common share. . . . .$ 0.98 $ 0.81 $ 2.22
========== ========== =========
Weighted average common shares-basic . . . . 31,120 32,649 33,322
========== ========== =========
Diluted net earnings per common share. . . .$ 0.97 $ 0.81 $ 2.20
========== ========== =========
Weighted average common shares-diluted . . . 31,269 32,774 33,699
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
In thousands, except share data) 1997 1996
- ----------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . $ -- $ 2,120
Accounts receivable, less allowance of $5,229
in 1997 and $2,611 in 1996. . . . . . . . . . . . . 126,106 132,296
Inventories. . . . . . . . . . . . . . . . . . . . . 154,133 158,685
Prepaid expenses and other current assets. . . . . . 3,366 3,947
---------- ----------
Total current assets. . . . . . . . . . . . . . . 283,605 297,048
Property, plant and equipment, at cost:
Land, buildings and improvements . . . . . . . . . . 104,073 102,093
Machinery and equipment. . . . . . . . . . . . . . . 735,144 696,995
Construction in progress . . . . . . . . . . . . . . 251,493 94,583
---------- ----------
1,090,710 893,671
Less accumulated depreciation. . . . . . . . . . . . 336,230 296,043
---------- ----------
Property, plant and equipment, net. . . . . . . . 754,480 597,628
Cost in excess of net assets acquired, net . . . . . . 269,756 290,450
Other assets, net. . . . . . . . . . . . . . . . . . . 11,384 18,823
---------- ----------
$1,319,225 $1,203,949
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . .$ 73,070 $ 64,019
Accrued liabilities. . . . . . . . . . . . . . . . . 39,590 41,320
Current portion of long-term debt. . . . . . . . . . 208 159
---------- ----------
Total current liabilities . . . . . . . . . . . . 112,868 105,498
Long-term debt . . . . . . . . . . . . . . . . . . . . 394,545 319,407
Deferred income taxes and other liabilities. . . . . . 177,378 155,116
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . 684,791 580,021
Stockholders' equity:
Common stock, $0.001 par value; 55,000,000
shares authorized, 33,638,193 shares issued
in 1997, 33,612,464 in 1996 . . . . . . . . . . . . 34 34
Class B common stock, $0.001 par value; 5,500,000
shares authorized; no shares issued . . . . . . . . -- --
Paid-in capital. . . . . . . . . . . . . . . . . . . 234,179 233,665
Foreign currency translation adjustments . . . . . . 372 9,853
Retained earnings. . . . . . . . . . . . . . . . . . 449,373 429,900
Less common stock in treasury at cost:
2,500,000 shares. . . . . . . . . . . . . . . . . . (49,524) (49,524)
---------- ----------
Total stockholders' equity. . . . . . . . . . . . 634,434 623,928
---------- ----------
$1,319,225 $1,203,949
========== ==========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
<TABLE>
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> <S> <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. . . . . . . . . . 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
Net earnings. . . . . . . . . . 30,355 30,355
Cash dividends ($0.35 per share) (10,882) (10,882)
Exercise of stock options . . . 25 453 453
Issuance of restricted stock. . 1 16 16
Tax effect of exercise of stock
options. . . . . . . . . . . . 45 45
Currency translation adjustments (9,481) (9,481)
------ ---- -------- -------- ------- -------- ---------
Balance at December 31, 1997. . 33,638 $ 34 $ 234,179 $ 372 $449,373 $(49,524) $ 634,434
====== ==== ======== ======= ======== ======== =========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
(In thousands) 1997 1996 1995
Cash flows from operating activities: ----- ----- ----
<S> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . .$ 30,355 $ 26,529 $ 74,054
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . 61,351 56,260 53,522
Amortization . . . . . . . . . . . . . . . 11,014 11,685 11,863
Deferred income taxes. . . . . . . . . . . 10,625 8,496 9,435
Common stock issued for stock plans. . . . 16 2,696 4,224
Loss on divestitures and other, net. . . . 5,963 -- 5,500
Changes in assets and liabilities, net of
effects from businesses acquired and divested:
Accounts receivable. . . . . . . . . . . (3,291) 15,760 (11,474)
Inventories. . . . . . . . . . . . . . . (3,128) 32,783 (59,602)
Prepaid expenses and other current assets 343 620 (7,200)
Other assets . . . . . . . . . . . . . . 662 (2,347) (727)
Accounts payable and accrued liabilities (10,845) (9,657) 35,444
Other liabilities. . . . . . . . . . . . 12,346 1,514 (138)
Other. . . . . . . . . . . . . . . . . . 12,742 7,562 3,860
-------- -------- --------
Net cash provided by operating activities. 128,153 151,901 118,761
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment .(221,187) (126,009) (104,696)
Decrease in restricted cash. . . . . . . . . 5,016 879 1,680
Businesses acquired. . . . . . . . . . . . . -- (14,250) (64,249)
Proceeds from divestitures and other . . . . 18,321 4,184 16,230
-------- -------- --------
Net cash used in investing activities. . .(197,850) (135,196) (151,035)
-------- -------- --------
Cash flows from financing activities:
Borrowings under long-term debt. . . . . . . 78,303 40,303 22,834
Repayments of long-term debt . . . . . . . . -- -- (200)
Purchase of treasury stock . . . . . . . . . -- (49,524)
Dividends paid on common stock . . . . . . . (10,882) (10,085) (9,003)
Exercise of stock options. . . . . . . . . . 453 861 846
-------- -------- --------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . 67,874 (18,445) 14,477
-------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents. . . . . . . . . . . . . . . (297) (33) 134
-------- -------- --------
(Decrease) in cash and cash equivalents. . . . (2,120) (1,773) (17,663)
Cash and cash equivalents at beginning of year 2,120 3,893 21,556
-------- -------- --------
Cash and cash equivalents at end of year . . .$ 0 $ 2,120 $ 3,893
======== ======== ========
Supplemental cash flow data:
Cash paid during the year for:
Interest (net of amounts capitalized). . .$ 14,435 $ 15,273 $ 14,320
Income taxes . . . . . . . . . . . . . . . .$ 12,979 $ 8,994 $ 35,263
Non-cash investing activities financed
through government grants . . . . . . . . .$ 24,454 $ 3,226 $ --
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
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(R) PET
(polyethylene terephthalate) packaging resins. Total polyester fiber sales
represented approximately 65% of the Company's 1997 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 resins are United States and Europe-based manufacturers of
various types of plastic containers.
Basis of Presentation
The consolidated financial statements include the accounts of Wellman,
Inc. and its subsidiaries. All material intercompany transactions have been
eliminated.
Certain 1996 and 1995 amounts have been reclassified to conform to the
1997 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 $110,036 and
$98,000 of inventory at December 31, 1997 and 1996, respectively, and the
first-in, first-out (FIFO) method for the remainder. For slow-moving and
off-quality waste raw material which is valued using the LIFO dollar value
method, the lower of cost or market is determined using the item-by-item
method.
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.
28
<PAGE>
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 30 to 40 years. Accumulated amortization
amounted to approximately $70,947 and $64,391 at December 31, 1997 and 1996,
respectively.
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 1997.
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 $0 and $5,000 at December
31, 1997 and 1996, respectively.
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. Long-lived assets to be disposed of are carried at the lower of cost
or fair value less cost to sell when the Company is committed to a plan of
disposal.
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 uses interest rate swaps and other financial instruments to
synthetically manage the interest rate characteristics of its currently
outstanding debt and future debt. These instruments generally fix floating
29
<PAGE>
rate debt at specified interest rates and enable the Company to significantly
eliminate the effect of a change in interest rates from the date it entered
into these transactions.
For the interest-rate swaps, the differential to be paid or received
as interest rates change is recognized as an adjustment of interest expense
related to the debt. The related amount payable to or receivable from
counterparties is included in other liabilities or assets. The fair value of
the agreements and changes in the fair value as a result of changes in market
interest rates are not recognized in the financial statements.
Gains and losses on terminations of interest-rate agreements are deferred
as an adjustment to the carrying amount of the debt and amortized as an
adjustment to interest expense related to the debt over the remaining term of
the original contract life. In the event of the early extinguishment of a
designated current or anticipated debt obligation, any realized or unrealized
gain or loss from the interest-rate agreements would be recognized in income
coincident with the termination of the aforementioned obligation.
The Company uses forward foreign exchange contracts for three purposes.
First, to mitigate the translation exposure that results from investments in
certain foreign subsidiaries; second, to minimize the effects of foreign
currency fluctuations for certain purchase contracts which require payment in
foreign currencies; and third, to minimize the effect changes in foreign
currencies have on certain components of working capital.
Realized and unrealized gains and losses related to forward foreign
exchange contracts used to reduce the risk of certain designated foreign
investments are included in the cumulative translation account in
stockholders' equity. Forward points incurred in these contracts are
recorded as an adjustment to interest expense amortized on a straight-line
basis. Realized gains and losses related to forward foreign exchange
contracts utilized to reduce the effect of foreign currency fluctuations on
purchases are recorded as an adjustment to the cost of the asset. Realized
and unrealized gains and losses related to forward foreign exchange contracts
utilized to reduce the effect of foreign currency fluctuations on working
capital are recognized and offset foreign exchange gains or losses on the
underlying exposure. If the forward foreign exchange contract notional
amounts exceed the amount of the designated foreign investment, purchase
commitment, or working capital component, realized and unrealized gains or
losses on the excess amount are recognized in earnings. The related amounts
due to or from counterparties are included in other assets or liabilities.
The Company also uses an equity-linked investment to hedge its exposure to
compensation expense related to a Supplemental Employee Retirement Plan
(SERP). This equity-linked investment, on which the value fluctuates based
on the market price of the Company's stock, is marked to market and gains or
losses are recognized as an offset to compensation expense related to the
SERP.
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.
30
<PAGE>
Research and Development Costs
Research and development costs are expensed as incurred. Such costs were
approximately $19,600, $18,500 and $16,900 for 1997, 1996 and 1995,
respectively.
Grant Accounting
The Company's Pearl River Plant under construction in Mississippi has
received various grants, including capital and operating grants, from the
state of Mississippi and other local authorities. The capital grants without
stipulated operating requirements are recorded as a reduction of property,
plant and equipment. The capital grants with stipulated operating
requirements 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 1997, 1996, and 1995 results of
operations 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
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of stock options. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
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.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131), effective for fiscal years
beginning after December 15, 1997. FAS 131 requires that a public company
report financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined, are components of an enterprise for which
separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and
in assessing performance. The financial information to be reported includes
segment profit or loss, certain revenue and expense items and segment assets
31
<PAGE>
and reconciliations to corresponding amounts in the general purpose financial
statements. FAS 131 also requires information about products and services,
geographic areas of operation, and major customers. The Company has not
completed its analysis of the effect of adoption of FAS 131 on its financial
statement disclosure; however, the adoption of FAS 131 will not affect
results of operations or financial position.
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
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) is being 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 the acquisition, the Company entered into a contract to
purchase PET resins under a take-or-pay arrangement. The contract required
that 134,000 pounds be purchased on a declining basis during the period from
1997 to 2000. During the second quarter of 1997, the Company recorded a
restructuring charge which included the estimated costs for the modification
of this take-or-pay arrangement as well as certain supply and service
agreements at its Netherlands-based operation. The modification reduced the
number of pounds required to be purchased during the contract period to an
immaterial amount (see note 6).
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 14).
3. DIVESTITURES AND OTHER
On December 30, 1997, the Company sold its thermoformed packaging and
extruded sheet operation located in Ripon, WI for approximately $15,900
resulting in a pretax loss of $8,384. This loss is reported net of a $2,421
gain from an insurance reimbursement related to a warehouse fire at the
Company's Irish fiber operation in July 1997. Together, these events
decreased net earnings by approximately $3,800, or $0.12 per diluted share.
The Company plans to replace the destroyed buildings.
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 diluted share.
32
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
1997 1996
------ ------
<S> <C> <C>
Raw materials . . . . . . . . . . . $ 50,669 $ 65,552
Finished and semi-finished goods. . 90,210 78,280
Supplies. . . . . . . . . . . . . . 13,254 14,853
-------- --------
$154,133 $158,685
======== ========
</TABLE>
At December 31, 1997 and 1996, current replacement cost of inventories
valued using the LIFO method was not in excess of their carrying value.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
------ ------
<S> <C> <C>
Payroll and other compensation. . . $ 7,494 $ 7,573
Retirement plans. . . . . . . . . . 7,681 5,176
Property and other taxes. . . . . . 4,757 4,841
Interest. . . . . . . . . . . . . . 1,621 3,065
Other . . . . . . . . . . . . . . . 18,037 20,665
------- -------
$39,590 $41,320
======= =======
</TABLE>
6. RESTRUCTURING CHARGES
During the second quarter of 1997, the Company implemented a restructuring
plan designed to reduce costs and enhance the overall competitiveness of its
European operations, resulting in a pretax charge of $7,469. Approximately
$4,600 of the restructuring charge is estimated costs for the modification
of certain supply and service agreements at the Company's Netherlands-based
PET resins business. This includes the modification of its take-or-pay
supply arrangement, reducing the number of pounds required to be purchased
during the period from 1997 to 2000 from 134,000 to an immaterial amount.
The restructuring charge also includes $2,400 in termination benefits for 61
employees at its recycled fiber operation in Ireland. Approximately $5,600
was charged against the restructuring accrual during 1997.
33
<PAGE>
7. BORROWING ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
------ ------
<S> <C> <C>
Revolving credit loan facility and competitive
bid loans. . . . . . . . . . . . . $ 20,000 $ 75,000
Uncommitted lines of credit . . . . 214,865 59,699
Serialized senior unsecured notes,
9.18% - 9.26%, due 1998-1999 . . . 80,000 100,000
Economic development revenue bonds, at variable
interest rates, due 2010-2022. . . 49,680 54,500
8.41% senior unsecured note, due 2000 30,000 30,000
Other . . . . . . . . . . . . . . . 208 367
-------- --------
394,753 319,566
Less current portion . . . . . 208 159
-------- --------
$394,545 $319,407
======== ========
</TABLE>
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, 1997, the average interest rate on
borrowings under the Facility was approximately 6.0% and the amount available
to the Company was $310,000.
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, 1997, the maturities on the domestic outstanding borrowings ranged from
15 to 86 days with interest rates ranging from 5.97% to 6.20%. At year-end,
the Company had $250,000 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
$50,895 at December 31, 1997. The average interest rate on the Bonds at
December 31, 1997 was approximately 3.83%.
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.
The Company has entered into two types of financial instruments to
minimize its interest rate exposure. One instrument, with a notional amount
of $150,000, was designed to provide a fixed 10 year interest rate of 6.42%
(exclusive of corporate spreads) on $150,000 of debt if issued on December
31, 1997 and approximately 6.51% if issued on March 31, 1998. The Company
has also entered into interest rate swaps to fix the interest rate on
variable rate borrowings thereby eliminating substantial interest rate risk.
The agreements are for $200,000, $100,000 of which were in effect at December
31, 1997, and $100,000 with starting dates ranging between February and May
34
<PAGE>
1998. Maturity dates are a minimum of 5 years and a maximum of 10 years
after the starting date of the swaps. The swaps will effectively fix the
rates of interest between 6.10% and 6.20% on $200,000 of borrowings. In
aggregate, the Company estimates it would have had to pay approximately
$14,200 to terminate these agreements at December 31, 1997.
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 EBITDA to exceed 3.5 times interest
expense and requires the Company to maintain a certain net worth.
Aggregate maturities of long-term debt for the next five years are as
follows: 1998 -- $208; 1999 -- $40,000; 2000 -- $304,865; 2001 -- $0 and
2002 -- $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 $4,200 at
December 31, 1997. Prepayment of the fixed rate debt could result in
significant penalties.
During 1997, 1996 and 1995, the Company capitalized interest of $9,820,
$4,755, and $3,125, respectively, as part of the cost of capital projects
under construction. Interest expense (net) includes interest income of
$2,402, $2,935 and $2,563 for 1997, 1996 and 1995, respectively.
8. INCOME TAXES
For financial reporting purposes, earnings (loss) before income taxes are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
United States. . . . . . . . . . . . . $53,170 $68,463 $ 83,206
Foreign. . . . . . . . . . . . . . . . (1,980) (14,314) 32,505
------- -------- --------
$51,190 $54,149 $115,711
======= ======== ========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
Current: ------ ------ ------
<S> <C> <C> <C>
Federal. . . . . . . . . . . . . . . $ 8,630 $17,625 $24,900
State. . . . . . . . . . . . . . . . 419 955 3,847
Foreign. . . . . . . . . . . . . . . 1,161 544 3,475
------- ------- -------
10,210 19,124 32,222
------- ------- -------
Deferred:
Federal. . . . . . . . . . . . . . . $ 9,244 $ 7,846 $ 8,085
State. . . . . . . . . . . . . . . . 1,241 1,098 1,205
Foreign. . . . . . . . . . . . . . . 140 (448) 145
------- ------- -------
10,625 8,496 9,435
------- ------- -------
$20,835 $27,620 $41,657
======= ======= =======
</TABLE>
35
<PAGE>
The difference between the provision for income taxes and income taxes
computed at the statutory income tax rate is explained as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed at statutory rate. . . . . . . 35.0% 35.0% 35.0%
State taxes, net of federal benefit . . 1.9 2.5 2.9
Differences in income tax rates between
the United States and foreign countries (5.0) (1.2) (6.3)
Amortization of cost in excess of net
assets acquired. . . . . . . . . . . . 6.0 5.7 2.7
Foreign losses for which no tax benefit
has been provided. . . . . . . . . . . 2.1 10.5 --
Other, net . . . . . . . . . . . . .. . .7 (1.5) 1.7
---- ---- ----
Effective tax rate. . . . . . . . . . . 40.7% 51.0% 36.0%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of these differences are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Inventory . . . . . . . . . . . . . . . $ 6,087 $ 5,170
Depreciation. . . . . . . . . . . . . . 109,670 100,872
Foreign . . . . . . . . . . . . . . . . 3,823 3,956
Other . . . . . . . . . . . . . . . . . 10,114 10,060
-------- -------
Total deferred tax liabilities. . . . . 129,694 120,058
-------- -------
Pension . . . . . . . . . . . . . . . . 2,686 3,009
State deferred benefits . . . . . . . . 5,274 4,695
Long-term liabilities . . . . . . . . . 5,642 7,277
Foreign net operating loss carryforward 6,776 5,693
Other . . . . . . . . . . . . . . . . . 9,505 9,115
-------- -------
Total deferred tax assets . . . . . . . 29,883 29,789
Valuation allowance . . . . . . . . . . 6,776 5,693
-------- -------
Net deferred tax assets . . . . . . . . 23,107 24,096
-------- -------
Net deferred tax liabilities. . . . . . $106,587 $ 95,962
======== =======
</TABLE>
Deferred taxes have not been provided for approximately $110,827 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, 1997 the Company had foreign net operating loss
carryforwards (NOLs) of approximately $19,361 for income tax purposes that
may be carried forward indefinitely. The NOLs resulted from operations of
36
<PAGE>
its European PET resins business. The use of the NOLs is limited to future
taxable income of the European PET resins business. For financial reporting
purposes, no tax benefit (a deferred tax asset) has been provided for these
losses.
9. 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
$9,800 and $25,200 on an undiscounted basis. In connection with these
expenditures, the Company has accrued management's best estimate of probable
non-capital environmental expenditures. In addition, aggregate future
capital expenditures related to environmental matters are expected to range
from approximately $9,300 to $28,600. These non-capital and capital
expenditures are expected 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.
10. RETIREMENT PLANS
The Company has defined benefit plans and defined contribution pension
plans that cover substantially all employees. The Company also has an
employee stock ownership plan (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 $8,014, $7,481,
and $8,351 for the years ended December 31, 1997, 1996 and 1995,respectively.
Expense related to the ESOP amounted to approximately $2,274, $2,369 and
$2,253 for the years ended December 31, 1997, 1996 and 1995, respectively.
Benefits under the Wellman International Limited (WIL) and PET Resins-
Europe defined benefit plans 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 domestic
plans are invested primarily in equity securities, debt securities and money
market instruments. For international plans, assets are invested in insured
products. The pension costs (benefits) of the domestic and foreign defined
benefit plans consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost. . . . . . . . . . . . . . $1,408 $ 598 $ 646
Interest cost on projected benefit
obligations. . . . . . . . . . . . . . 4,669 4,761 4,659
Actual return on plan assets. . . . . . (9,513) (6,587) (9,772)
Net amortization and deferral . . . . . 3,154 481 5,356
------ ------ ------
$ (282) $ (747) $ 889
====== ====== ======
</TABLE>
37
<PAGE>
The following table sets forth the funded status and amounts included in
the Company's consolidated balance sheets at December 31, 1997 and 1996 for
the domestic and foreign defined benefit pension plans:
<TABLE>
<CAPTION>
1997 1996
Actuarial present value of benefit obligations: ---- -----
<S> <C> <C>
Vested benefit obligations. . . . . . $59,268 $62,039
======= =======
Accumulated benefit obligations . . . $59,885 $62,338
======= =======
Projected benefit obligations . . . . $69,373 $71,469
Plan assets at fair market value. . . . 87,161 75,745
------- -------
Funded status . . . . . . . . . . . . . 17,788 4,276
Unrecognized net gain . . . . . . . . . (20,347) (8,940)
Unrecognized net liability at transition 409 489
Unrecognized prior service cost . . . . (954) (1,070)
------- -------
Accrued pension costs . . . . . . . . . $(3,104) $(5,245)
======= =======
</TABLE>
Assumptions used in determining the projected benefit obligation as of
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Domestic plans ------ ------- ------
<S> <C> <C> <C>
Discount rate 7.25% 7.25% 7.25%
Future compensation increase 3.25% 4.25% 4.25%
Rate of return on plan assets 9.0% 9.0% 9.0%
WIL
Discount rate 6.0% 7.0% 7.5%
Future compensation increase 3.5% 4.5% 5.0%
Rate of return on plan assets 6.0% 7.0% 7.5%
PET Resins-Europe
Discount rate 6.0% 6.0% --
Future compensation increase 3.0% 3.0% --
Rate of return on plan assets 6.0% 6.0% --
</TABLE>
11. STOCKHOLDERS' EQUITY
The Company has stock option plans (the Plans) which authorize the grant
of non-qualified stock options (NQSOs). At December 31, 1997, the maximum
number of common shares authorized for grant under the Plans is 2,029,000.
For 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
38
<PAGE>
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 1997, 1996 and 1995, respectively: risk-free interest rate
of 5.84%, 6.33% and 5.63%; a dividend yield of .95%, .84% and .75%;
volatility factors of the expected market price of the Company's common stock
of .424, .433 and .447; and a weighted-average expected life of the option of
7 years. The weighted-average fair value of options granted in 1997, 1996
and 1995 was $9.21, $8.62 and $11.59, respectively.
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.
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:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
Pro forma net earnings $29,051 $25,889 $74,037
Pro forma basic earnings per common share $ 0.93 $ 0.79 $ 2.22
Pro forma diluted earnings per common share $ 0.93 $ 0.79 $ 2.20
</TABLE>
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, 1997 follows:
<TABLE>
<CAPTION>
Weighted
Average Price
Shares Per Share
------ ---------
<S> <C> <C>
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
Granted. . . . . . . . . . . . . . . . . . . . 8,000 18.94
Exercised. . . . . . . . . . . . . . . . . . . (25,050) 18.06
Cancelled. . . . . . . . . . . . . . . . . . . (244,120) 22.20
--------- ------
Outstanding December 31, 1997. . . . . . . . . . 2,450,328 $21.22
========= ======
</TABLE>
39
<PAGE>
At December 31, 1997, 1996 and 1995, options for 1,562,685, 1,326,595 and
1,040,301 shares, respectively, were exercisable. At December 31, 1997,
2,029,000 shares were available for future option grants. The following
summarizes information related to stock options outstanding at December 31,
1997:
<TABLE>
<CAPTION>
Range of exercise prices $11.63 to $19.88 $20.63 to $34.38
---------------- ----------------
<S> <C> <C>
Number outstanding at December 31, 1997 1,348,298 1,102,030
Weighted average remaining contractual life 7.3 years 7.2 years
Weighted average exercise price of
options outstanding $17.48 $25.79
Number exercisable at December 31, 1997 809,635 753,050
Weighted average exercise price of
options exercisable $17.75 $26.06
</TABLE>
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
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.
12. EARNINGS PER SHARE
<TABLE>
<CAPTION>
The following table sets forth the computation of basic and diluted
earnings per share: 1997 1996 1995
------ ------- ------
Numerator for basic and diluted
earnings per share:
Net Income $ 30,355 $ 26,529 $ 74,054
-------- -------- --------
Denominator:
<S> <C> <C> <C>
Denominator for basic earnings per
share - weighted average shares 31,120 32,649 33,322
Effect of dilutive securities:
Employee stock options 149 125 377
-------- -------- --------
Denominator for diluted earnings per
share - adjusted weighted average share 31,269 32,774 33,699
======== ======== ========
Basic earnings per share $ 0.98 $ 0.81 $ 2.22
======== ======== ========
Diluted earnings per share $ 0.97 $ 0.81 $ 2.20
======== ======== ========
</TABLE>
40
<PAGE>
13. 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: 1998 -- $6,865; 1999 -$5,276; 2000 -
$4,872; 2001 -- $4,538; 2002 -- $3,747 and thereafter -- $6,086.
Rent expense for cancelable and noncancelable operating leases was $6,232
$6,059, and $5,778 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company has made certain commitments to expand its polyester
production capacity, including the construction of its Pearl River Plant
in Mississippi, with the first stage expected to be completed in late 1998.
The anticipated construction cost to complete this facility at December 31,
1997 is approximately $190,000.
See notes 7 and 9 for information related to the 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.
14. 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
$21,800 and $48,800 at December 31, 1997 and 1996, 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.
The Company entered into forward foreign currency contracts to exchange
U.S. dollars for German marks with an aggregate notional amount of $12,600
and $33,600 at December 31, 1997 and 1996, respectively. 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 January 1998 through March 1999.
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 $15,500 and $21,600 at December 31, 1997 and
1996, 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 7 and temporary
cash investments and trade accounts receivable. The counterparties to the
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
41
<PAGE>
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, accounts payable and
equity-linked investment: The carrying amounts reported in the consolidated
balance sheets approximate their fair value.
Borrowing arrangements: See note 7.
Interest rate instruments: 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Nonderivatives
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 0 $ 0 $ 2,120 $ 2,120
Accounts receivable 126,106 126,106 132,296 132,296
Accounts payable 73,070 73,070 64,019 64,019
Borrowing arrangements 394,753 398,953 319,566 325,325
Derivatives-receive (pay):
Interest rate instruments (91) (14,152) -- (487)
Forward foreign currency
contracts 322 (893) -- 932
Equity-linked investment 2,131 2,131 -- --
</TABLE>
15. 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(R)
PET packaging resins.
Net sales and operating income for the years ended December 31, 1997, 1996
and 1995 and identifiable assets at the end of each year, classified by the
major geographic areas in which the Company operates, are as follows:
42
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
Net sales ------ ------ ------
<S> <C> <C> <C>
U.S. . . . . . . . . . . . . . . . . $ 898,787 $ 885,193 $ 952,663
Europe . . . . . . . . . . . . . . . 184,401 213,611 156,735
---------- ---------- ----------
$1,083,188 $1,098,804 $1,109,398
========== ========== ==========
Operating income (loss)
U.S. . . . . . . . . . . . . . . . . $ 74,389 $ 83,390 $ 101,623
Europe . . . . . . . . . . . . . . . (5,076) (15,266) 31,254
---------- ---------- ----------
$ 69,313 $ 68,124 $ 132,877
========== ========== ==========
Identifiable assets
U.S. . . . . . . . . . . . . . . . . $1,217,517 $1,082,077 $1,011,952
Europe . . . . . . . . . . . . . . . 101,708 121,872 198,721
---------- ---------- ----------
$1,319,225 $1,203,949 $1,210,673
========== ========== ==========
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for the years ended December 31, 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, Total
Quarter ended 1997 1997(1) 1997 1997(2) 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $255,148 $279,211 $264,682 $284,147 $1,083,188
Gross profit 39,939 42,088 38,851 39,032 159,910
Net earnings 8,727 5,301 9,775 6,552 30,355
Basic net earnings
per common share $ 0.28 $ 0.17 $ 0.31 $ 0.21 $ 0.98
Diluted net earnings
per common share $ 0.28 $ 0.17 $ 0.31 $ 0.21 $ 0.97
- -----------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, Total
Quarter ended 1996 1996 1996(3) 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
Basic net earnings (loss)
per common share $0.35 $0.35 $(0.09) $0.19 $0.81
Diluted net earnings (loss)
per common share $0.35 $0.35 $(0.09) $0.19 $0.81
</TABLE>
(1) Quarterly net earnings reflect a pretax restructuring charge of $7,469
which decreased net earnings by approximately $4,300 ($0.14 per diluted
share).
(2) Quarterly net earnings reflect a pretax charge of $5,963 related to the
sale of a subsidiary which was partially offset by a gain from an
insurance reimbursement at the Company's Irish fiber operation.
This charge decreased net earnings by approximately $3,800 ($0.12 per
diluted share).
(3) 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 diluted
share), and an additional $4,400 ($0.14 per diluted share) in income
taxes related to a change in estimate to reflect a higher than expected
tax rate for the year.
43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wellman, Inc.
We have audited the accompanying consolidated balance sheets of Wellman,
Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. 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 6% in 1997
and 7% in 1996 and total revenues constituting 10% in 1997, 10% in 1996 and
14% in 1995 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, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1997, 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
February 12, 1998
44
<PAGE>
SCHEDULE II
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Other Deductions of Year
----------- --------- -------- ----- ---------- -------
Allowance for doubtful
accounts receivable:
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1997 $2,611 $2,187 $ 824(c) $ 393(b) $5,229
====== ====== ====== ====== ======
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
====== ====== ====== ====== ======
</TABLE>
(a) Primarily foreign currency translation adjustments, except for purchase
accounting adjustments of approximately ($930) and $1,250 for 1996 and 1995,
respectively, related to the acquisition discussed in note 2 to the
consolidated financial statements.
(b) Accounts written off.
(c) Primarily recovered of accounts previously written off.
45
<PAGE>
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 and Other Information" in the Company's Proxy Statement for the
1998 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission on or before April 30, 1998 are hereby incorporated by
reference herein.
Item 11. Executive Compensation
- ------- ----------------------
"Compensation of Directors and Officers" in the Company's Proxy Statement
for the 1998 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission on or before April 30, 1998 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 1998 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 1998 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 1998 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission on or before April 30, 1998 is hereby incorporated by
reference herein.
46
<PAGE>
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
is 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(a)(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)(1) 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)
47
<PAGE>
4(a)(2) First Amendment to Loan Agreement dated June 4, 1997 by and among
the Company and Fleet National Bank, as agent, and certain other
financial institutions
4(b) 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(c) 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(d) 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(e) 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(f) 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(g)(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(g)(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(h) 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(i) 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)
4(j) Loan Agreement between the Company and Centric Capital Corporation
dated as of November 19, 1997
48
<PAGE>
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) Third Amendment to Employment Agreement dated as of January 1,
1997 between the Company and Thomas M. Duff (Exhibit 10(a) of
the Company's Form 10-Q for the quarter ended March 31, 1997
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) 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(e) 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(f) 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(g) 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(h) Management Incentive Compensation Plan, as amended
10(i) 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(j) 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(k) 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(l) 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)
49
<PAGE>
10(m) Executive Retirement Restoration Plan, as amended
10(n) Wellman, Inc. 1997 Stock Option Plan (Exhibit 10(b) of the
Company's Form 10-Q for the quarter ended June 30, 1997
incorporated by reference herein)
10(o) Deferred Compensation and Restricted Stock Plan
Other Material Agreements
- -------------------------
10(p) 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(q) 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(r) 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 (Exhibit 10(u) of the Company's Form 10-K for
the year ended December 31, 1996 incorporated by reference herein)
21 Subsidiaries
23(a) Consent of Ernst & Young LLP
23(b) Consent of KPMG
27(a) Financial Data Schedule
27(b) Restated Financial Data Schedules
28(a) Report of KPMG
(b) Reports on Form 8-K
-------------------
None.
50
<PAGE>
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 25,
1998.
WELLMAN, INC.
/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 25, 1998.
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
51
<PAGE>
/s/ James E. Rogers Director
- -------------------------
James E. Rogers
/s/ Raymond C. Tower Director
- -------------------------
Raymond C. Tower
/s/ Roger A. Vandenberg Director
- -------------------------
Roger A. Vandenberg
52
<PAGE>
EXHIBIT 4(a)(2)
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT is entered into as of June 4, 1997
by and among Wellman, Inc., a Delaware corporation (the "Borrower"), Fleet
National Bank, a national banking association, in its capacity as agent for
itself and the other Banks (the "Agent") and the Banks.
RECITALS
WHEREAS, capitalized terms used in this First Amendment to Loan Agreement
(the "Amendment") and not expressly defined herein shall have the respective
meanings assigned thereto in that certain Loan Agreement dated as of February
8, 1995 among the Borrower, the Agent and the Banks (the "Loan Agreement").
WHEREAS, the Borrower, the Banks and the Agent desire to amend the Loan
Agreement as provided in this Amendment.
NOW THEREFORE, in consideration of the terms and conditions set forth
herein and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by each of the parties hereto, the Borrower,
the Banks and the Agent hereby mutually agree as follows:
1. Effective as of the date hereof, the Loan Agreement is hereby amended as
follows:
(a) Section 1.01 of the Loan Agreement is amended by inserting the
following definition immediately after the definition of
"Capitalized Lease Obligations":
"Cash Equivalent Investments" means any amount reflected on
Borrower's consolidated balance sheet as cash or cash equivalent
investments to the extent such Investments and other amounts are
freely tradable.
(b) Section 1.01 of the Loan Agreement is further amended by deleting
the definition of "EBIT" and inserting the following definition in
substitution therefor:
"EBITDA" means, for any fiscal period of the Borrower, Borrower's
Net Income from Continuing Operations for such fiscal period, plus
the amount of income tax expense for such fiscal period, minus the
amount of income tax benefit for such fiscal period, plus Interest
Expense for such fiscal period, minus the amount of interest income
for such fiscal period, plus the amount of depreciation and
amortization for such fiscal period as reflected on Company's
Consolidated Cash Flow, all the foregoing additions and
subtractions being added or subtracted only to the extent included
in the calculation of Borrower's Net Income from Continuing
Operations for the Borrower fiscal period in question and all as
determined on a consolidated basis for the Borrower in accordance
with GAAP.
(c) The term "EBIT" is amended to read "EBITDA" wherever such term
appears in the Loan Agreement.
(d) In Section 1.01 the definition of "Net Income from Continuing
Operations" is amended by changing the word "...effective..." to
"...effect..." in line 5 thereof.
<PAGE>
(e) Section 5.01(J) of the Loan Agreement is hereby amended to read as
follows:
"(J) Maintain EBITDA Coverage at the end of each fiscal quarter of
the Borrower ending after March 31, 1997 of not less than 3.5
to 1.0; provided, however, that for purposes of calculating
compliance with this Section 5.01(J) the computation of
EBITDA shall exclude losses or gains from the operations of
or discontinuation(s) of any business(es) of Borrower, or any
portion(s) or unit(s) thereof (such business or portion or
unit thereof being referred to as an "Affected Business") if
(x) the Borrowers Board of Directors has committed or
authorized the closure or disposition of such Affected
Business and (y) the aggregate book value of the Affected
Business' Tangible Assets as of the end of the quarter
immediately prior to such loss was less than 10% of the
Consolidated Tangible Assets as of the end of the quarter
immediately prior to such loss and (z) that any loss or gain
relating to the Affected Business or gain or loss on closure
or disposition of such Affected Business is a separately
stated line item on the Borrower's consolidated income
statement and/or separately disclosed in the footnotes, all
of the foregoing to be calculated in accordance with GAAP;
provided that the aggregate amount of such losses net of such
gains from all Affected Businesses that may be so excluded
from and after April 1, 1997 shall not exceed twenty percent
(20%) of Consolidated Stockholders' Equity as of the quarter
ending immediately prior to the quarter for which compliance
with this Section 5.01(J) is being determined."
(f) Section 5.01(K) of the Loan Agreement is hereby amended to read as
follows:
"(K) Leverage Ratio. Maintain at the end of each of Borrower's
fiscal quarters a Leverage Ratio of not greater than .55 to
1.0; provided, that solely for purposes of calculating
Borrower's compliance with this covenant, there shall be
subtracted from Adjusted Indebtedness the excess of (A)
Borrower's Cash Equivalent Investments at such date over (B)
the sum of (i) $10,000,000 and (ii) the amount of federal
income taxes that would be payable (if any) if Borrower's
Cash Equivalent Investments held outside the United States
were repatriated to the United States at the end of such
quarter, and taxed at the Assumed Rate. For purposes of this
Section 5.01(K) the term "Assumed Rate" means the greater of
zero or the difference between (a) the highest federal income
tax rate in the United States applicable to domestic
corporations and (b) the highest income tax rate applicable
to Borrower or its Subsidiaries, as appropriate, on the Cash
Equivalent Investments in the jurisdiction in which such Cash
Equivalent Investments are held at the end of such quarter.
(g) Exhibit D to the Loan Agreement will be appropriately modified to
reflect the changes provided for in this Amendment.
Section 2. Representations and Warranties. The Borrower hereby
represents and warrants that (i) it has full power and authority to execute
and deliver this Amendment and to perform its obligation hereunder, (ii) it
2
<PAGE>
has taken all corporate action necessary for the execution and delivery by it
of this Amendment and the performance by it of its obligations hereunder, and
(iii) this Amendment constitutes its valid and binding obligation enforceable
against it in accordance with its terms except to the extent enforceability
may be subject to bankruptcy, insolvency, moratorium and other similar laws
affecting the rights of creditors generally or the application of principles
of equity, whether in an action at law or proceeding in equity.
Section 3. Reference to and Effect Upon the Loan Agreement.
3.1 The Loan Agreement, as specifically amended hereby, is hereby
ratified, confirmed and approved and shall remain in full force and effect.
3.2 The execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of the Agent or any Bank
under the Loan Agreement, nor constitute an amendment of any provision of the
Loan Agreement, except as specifically set forth herein. Upon the
effectiveness of this Amendment (i) each reference in the Loan Agreement to
"this Agreement", "hereunder", "hereof", "herein" or words of similar import
shall mean and be a reference to the Loan Agreement as amended by this
Amendment; and (ii) each reference in any Note or Related Document to the
Loan Agreement shall mean and be a reference to the Loan Agreement as amended
by this Amendment.
Section 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York without regard
to its conflict of laws provisions.
Section 5. Headings. Article and Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
Section 6. Counterparts. This Agreement may be executed and delivered in
any number of counterparts each of which shall be deemed an original, and
this Agreement shall be effective when at least one counterpart hereof has
been executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Loan Agreement to be executed as a sealed instrument by their respective
officers thereunto duly authorized as of the date first written above.
WELLMAN, INC.
By: /s/ Audrey Goodman
-----------------------
Name: Audrey Goodman
Title: Assistant Treasurer
FLEET NATIONAL BANK, as Agent and
as a Bank
By:
------------------------
Name:
Title:
3
<PAGE>
FLEET NATIONAL BANK, as successor to
Natwest Bank N.A.
By:
------------------------
Name:
Title:
FLEET NATIONAL BANK, as successor to
Shawmut Bank, N.A.
By:
------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 4(j)
LOAN AGREEMENT
November 19,1997
Wellman, Inc.
1040 Broad Street, Suite 302
Shrewsbury, New Jersey 07702
Ladies and Gentlemen:
We are pleased to make available to you an uncommitted credit facility for
general corporate purposes on tthe terms set forth in this letter.
1. We agree to consider from time to time, in our sole discretion, your
requests that we make Aadvances (as hereafter defined) to you, on either
an interest bearing or a discount basis, in an aggregate amount not to
exceed at any one time outstanding the amount set forth on Schedule I
hereto as the "Facility Amount," on the terms and conditions set forth
below. This letter is not a commitment to lend but rather sets forth the
procedures to be used in connection with your requests for our making of
Advances to you from time to time on or prior to the termination hereof
pursuant to paragraph 11 hereof and, in the event that we make Advances
to you hereunder, your obligations to us with respect thereto. The
Advances shall be evidenced by the "grid" promissory note executed by you
in substantially the form of the promissory note attached hereto (the
"Note").
2. As used herein, the following terms shall have the following meanings
(terms defined in the singular to have the corresponding meanings when
used in the plural, and vice versa):
"Advance" means any advance that we shall make to you hereunder pursuant
to your request as provided herein. Unless otherwise required by the
context, any reference herein or in the Note to the amount of an Advance
shall be construed to refer to the Discounted Proceeds thereof actually
remitted to you or to your account as proved herein.
"Discounted Amount" of any Advance means the amount by which the Stated
Amount of such Advance exceeds the Discounted Proceeds of such Advance.
"Discounted Proceeds" of any Advance means the net proceeds of such
Advance transferred or wired to you or to your account in accordance with
the last sentence of Paragraph 3 hereof.
"Stated Amount" of any Advance means the full stated or face amount of
such Advance, which in all circumstances shall be equal to the sum of (x)
the Discounted Proceeds of such Advance plus (y) the Discount Amount of
such Advance.
3. The Stated Amount of each Advance shall be in an amount at least equal to
the amount set forth on Schedule I hereto as the "Minimum Advance
Amount", or any integral multiple of $1,000 in excess thereof. Each
1
<PAGE>
Advance and shall be made upon (i) your request to us by telephone,
telecopy, fax, or letter, given by any of the persons listed on Exhibit A
hereto or otherwise designated by your Treasurer in writing ("Designated
Persons") that you wish to borrow money on a specified date, in a specific
amount and for a specified term (which shall, in no event, be longer than
the number of days set forth on Schedule I hereto as the "Maximum Term");
and Discount Amount and Stated Amount applicable to any such Advance. On
the date of any such Advance, we will make such Advance available to you in
same day funds by directing our administrative agent to transfer or wire
the net proceeds of such Advance to an account designated in writing by
your Treasurer.
4. Our agreement and acceptance of this letter, together with your
furnishing us certified copies of resolutions of your board of directors
authorizing your Treasurer to execute this letter and any documents
delivered pursuant hereto and allow Designated Persons to request
Advances, together with specimen signatures of such Designated Persons,
shall constitute a representation and warranty by you that (a) the
execution, delivery and performance of this letter has been duly
authorized by all necessary corporate action and does not contravene any
law, or any contractual or legal restriction, applicable to you and (b)
no authorization or approval or other action by, and no notice to or
filing with, any government authority or regulatory body is required for
such execution, delivery and performance or for the making of any
Advance.
5. Each request by you for an Advance shall constitute a representation and
warranty by you, as of the making of such Advance and giving effect to
the application of the proceeds therefrom, that (ai) no payment default
has occurred and is continuing under any agreement or instrument relating
to any of your indebtedness in excess of $20 million relating to moneys
borrowed, (b) such Advance when made will constitute your legal, valid
and binding obligation, (c) such Advance is being incurred, and will be
repaid at maturity, in its full Stated Amount, in the ordinary course of
your business out of the cash flow generated in the normal day-to-day
conduct, operations, and financing activities of your business (to
include refinancings), and (d) no event has occurred and no circumstance
exists as a result of which the information which you have provided to us
in connection herewith would include an untrue statement of a material
fact or omit to state any material fact or any fact necessary to make the
statements contained therein, in light of the circumstances under which
they were made, not misleading. In no event shall an Advance be made if
any of your representations in Paragraph 4 hereof, or in this Paragraph
5, shall fail to be true and correct in all respects on the date of such
Advance.
6. You shall repay the full Stated Amount of each Advance, and in the case
of an Advance made on an interest bearing basis shall pay interest on
such Advances, in accordance with the terms hereof and of the Note. You
shall have no right to prepay any portion of any Advance or unpaid
principal amount of any Advance prior to its stated maturity.
7. You shall ensure that each payment hereunder and under the Notes is made
before 2:00 p.m. (eastern time) on the day when due in lawful money of
the United States of America to our account, The Centric Capital
Corporation Commercial Paper Account, Account Number 55-46737, ABA Number
071000013, at The First National Bank of Chicago, One First National
Plaza, Chicago, Illinois, 60670 in same day funds. All computations of
2
<PAGE>
interest shall be made on the basis of a year of 360 days, for the actual
number of days (including the first day but excluding the last day)
elapsed.
8. Whenever any payment to be made hereunder shall be otherwise due on a
Saturday, a Sunday or other day of the year on which banks are required
or authorized to close in New York City, New York, Winston-Salem, North
Carolina or Chicago, Illinois (any other day being a "Business Day"),
such payment shall be made on the next succeeding Business Day.
9. You agree that you will not apply the proceeds of any Advance to purchase
or carry margin stock within the meaning of Regulation G issued by the
Board of Governors of the Federal Reserve System.
10. We shall incur no liability to you in acting upon any telephone,
telecopy, telex, fax, or letter request or communication which we believe
in the absence of gross negligence to have been given by a Designated
Person or in otherwise acting in good faith under this letter. Further,
all documents required to be executed in conjunction with Advances under
this letter may be signed by any Designated Person.
11. This letter shall remain in effect until terminated by either you or us
by giving prior written notice of termination hereof to the other party
hereto, but no such termination shall affect your obligations with
respect to the Advances hereunder outstanding at the time of such
termination.
12. All communications hereunder shall be in writing (other than the
communication provided for in the second sentence of Paragraph 14 and
part (i) of paragraph 3 herein) and mailed, telecopied, telephoned,
faxed, or delivered to the address specified on Schedule I hereto for you
and for us, or as to each party, to such other address as may be
designated by such party in a written notice to the other party. Written
communication shall be effective upon receipt unless such communication
is mailed in which case it shall be effective three Business Days after
deposit in first class mail.
13. We may assign to one or more banks or other entities all or any part of,
or may grant participations to one or more banks or other entities in or
to all or any part of, any Advance or Advances hereunder and under the
Note. You may not assign your rights or obligations hereunder or any
interest herein.
14. You agree to pay on demand all reasonable costs, expenses including, but
not limited to, outside legal fees and losses, if any, incurred by us in
connection with the enforcement of this letter or the Note.
15. You agree to furnish us with such financial statements or other
information as we may reasonably request. Any such information that is
not generally available to the public shall be confidentially maintained
by us and shall not be disseminated outside of our organization except as
might be required by legal or regulatory bodies. You shall promptly
notify us of any change in the short term or long term ratings assigned
by any statistical rating organization to any of your outstanding
indebtedness.
16. If any of the following events shall occur and be continuing:
3
<PAGE>
(a) you shall fail to pay any amount due hereunder or under the Note
when the same becomes due and payable; or
(b) any representation or warranty made by you (or any of your officers)
in connection with any Advance or otherwise in connection with the Note
shall prove to have been incorrect in any material respect when made; or
(c) you shall, without prior written notification, merge or consolidate
with or into any person or entity and you are not the surviving entity to
such transaction, or shall convey, transfer, lease or dispose of (whether
in one transaction or in a series of transactions) all or substantially
all of your assets other than sale of inventory in the ordinary course of
business to, any person or entity; or
(d) you shall fail to perform or observe, without prompt notification,
any other material term, covenant or agreement in connection with any
Advance or otherwise in connection with the Note on your part to be
performed or observed; or
(e) you shall fail to pay any principal of or premium or interest on any
indebtedness for money borrowed, in excess of $20,000,000 (excluding
indebtedness evidenced by the Note), when the same becomes due and
payable (whether by scheduled maturity, required prepayments,
acceleration, demand or otherwise), and such failure shall continue after
the applicable grace period, if any, specified in the agreement or
instrument relating to such indebtedness; or any other event shall occur
or condition shall exist under any agreement or instrument relating to
such indebtedness and shall continue after the applicable grace period,
if any, specified in such agreement or instrument, if the effect of such
condition is to accelerate the maturity of such indebtedness; or any such
indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior
to the stated maturity thereof; or
(f) you shall generally not pay your debts as such debts become due, or
shall admit in writing your inability to pay your debts generally, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against you seeking to adjudicate
you as bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of you or your debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry
of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for you or any substantial part of
your property and such action is unresolved after 60 days; or you shall
take any corporate action to authorize any of the actions set forth above
in this subsection (f);
then, and in any such event, we may declare the Note and all amounts
payable thereunder to be forthwith due and payable, whereupon the Note
and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind all of
which you hereby expressly waive; provided however, that in the event of
an actual or deemed entry of an order for relief with respect to you
under the Federal Bankruptcy Code, the Note and all such other amounts
shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby
expressly waived by you.
4
<PAGE>
17. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
18. You agree that you will not institute against or join any other person in
instituting against us any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other proceeding under any
federal or state bankruptcy or similar law, for one year and a day after
the latest maturing commercial paper note issued by us is paid in full.
19. At our option, we may, upon notice that either Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc., or Moody's
Investors Service, Inc. has (i) lowered or downgraded its short term
commercial paper or corporate bond or other short term ratings of you, or
(ii) placed your securities on a watch list of securities singled out for
surveillance, with either negative or developing implications in a Rating
Category, amend Schedule I hereof to provide for an amended "Facility
Amount" and amended "Maximum Term."
20. The obligations under this Agreement are solely our corporate
obligations. No recourse shall be had for the payment of any amount
owing by you or us hereunder or any other obligation or claim of or
against you or us arising out of or based upon this Agreement against any
of our respective stockholders, employees, officers, directors or
incorporators.
21. You irrevocably agree that any legal action, suit or proceeding against
us arising out of this Agreement may be brought in the United States
District Court for the State of New York, or in the courts of the State
of New York and hereby irrevocably accept and submit to the non-exclusive
jurisdiction of each of the aforesaid courts in personam, generally and
unconditionally with respect to any action, suit or proceeding for you
and in respect of your properties, assets and revenues. You further
irrevocably agree to the service of any legal process, summons, notices
and documents out of any of the aforesaid courts by mailing copies
thereof by registered or certified air mail, postage prepaid, to you at
your address designated pursuant to this Agreement. Nothing herein shall
in any way be deemed to limit our ability to serve any such legal
process, summons, notices and documents in any other manner, as may be
permitted by applicable law or to obtain jurisdiction over you, or bring
action, suits or proceedings against you in such other jurisdictions, and
in such manner, as may be permitted by applicable law.
If the terms of this letter are satisfactory to you, please indicate your
agreement and acceptance thereof by signing a counterpart of this letter
and returning it to us.
Very truly yours,
CENTRIC CAPITALFUNDING CORPORATION
By: /s/ Jennifer Mooney
----------------------------
Wachovia Bank, N.A.
Jennifer Mooney, Vice President
Agreed and Accepted:
Wellman, Inc.
By: /s/ Keith R. Phillips
----------------------------
Name & Title: Keith R. Phillips, VP, Chief Financial Officer and Treasurer:
5
<PAGE>
SCHEDULE I
to
Loan Agreement dated as of November 19, 1997
between Centric Capital Corporation and Wellman, Inc.
amended promissory note dated 1/16/98
(i) For the purposes of Section 1 and 2 of this Loan Agreement:
The "Facility Amount" is $200,000,000
The "Minimum Advance Amount" is $5,000,000
The "Maximum Term" is 270 days.
The "Minimum Term" is 14 days.
(ii) For the purpose of Section 11 of this Loan Agreement:
The address for written communications to you is:
Wellman, Inc.
1040 Broad Street, Suite 302
Shrewsbury, New Jersey 07702
Attention: Audrey Goodman
Telephone Number: 732-935-7312
Fax Number: 732-935-7349
The address for written communications to us is:
Centric Capital Corporation
c/o Wachovia Bank of Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, GA 30303
Attention: Jennifer A. Mooney
Mail Code: GA-370
Telephone Number: 404-332-5104
Fax Number: 404-332-6898
(iii) For the purposes of this Loan Agreement, instructions for wire transfer
of funds to you are:
Name of Bank: Fleet National Bank, Providence, Rhode Island
Bank ABA Number: 011 500 010
Account Name: WS Subsidiary
Account Number: 10 691 1002
6
<PAGE>
Exhibit A
to
Loan Agreement dated as of November 19, 1997
between Centric Funding Corporation and Wellman, Inc.
For the purpose of Section 2 of this Loan Agreement, the "Designated Persons"
are:
Name Title
---- -----
Keith R. Phillips CFO and Treasurer
Audrey Goodman Assistant Treasurer
Mair Petracco Assistant Cash Manager
<PAGE>
Promissory Note
DATE: January 16, 1998 $ 200,000,000.00
FOR VALUE RECEIVED, the undersigned (hereinafter called the "Borrower"),
HEREBY PROMISES TO PAY to the order of Centric Funding Corporation
(hereinafter called the "Lender") the entire State Amount (as such term is
defined in the loan Agreement hereinafter referred to) of each Advanced (as
defined below) on the date mutually agreed to by the Lender and the Borrower
at the time of such Advance as the maturity date thereof.
(a) in the case of an Advance made on an interest bearing basis, the
principal amount of such Advance made by the Lender to the Borrower, on the
date mutually agreed to by the Lender and the Borrower at the time of such
Advance as the maturity date thereof, together with interest (computed on the
basis of a year of 360 days for the actual number of days, including the
first day but excluding the last day, elapsed) on the principal amount of
each Advance outstanding from time to time from and including the date on
which such Advance is made until the maturity date of such Advance at an
interest rate per annum mutually agreed to by the Lender and the Borrower at
the time of such Advance, payable on the maturity date of such Advance; and
(b) in the case of each Advance made on a discount basis by the Lender
to the Borrower, the stated or face amount of such Advance, on the date
mutually agreed to by the Lender and the Borrower at the time of such Advance
as the maturity date thereof.
Any overdue principal amount and overdue amount of interest, reasonable fees
or other amounts payable hereunder or under the Loan Agreement referred to
below shall bear interest, payable on demand, at a fluctuating interest rate
per annum equal to the Prime Rate plus 2%, but in no event greater than the
highest rate allowed by applicable law. As used herein, "Prime Rate" shall
mean the prime rate of U.S. money center commercial banks as published in the
Wall Street Journal. Changes in the Prime Rate shall be effective as of the
day of each such change.
The Borrower shall have no right to prepay all or any portion of any
unpaid principal amount of any Advance.
The Borrower shall ensure that payment of principal and interest
hereunder is made prior to 12:00 p.m. (eastern time) on the day when due in
lawful money of the United States of America to the Lender's account, The
Centric Funding Corporation Commercial Paper Account, Account Number 55-
46737, ABA Number 071000013 at The First National Bank of Chicago, One First
National Plaza, Chicago, Illinois, 60670 in same day funds. Whenever any
payment to be made hereunder shall be otherwise due on a day other than a
Business Day (as defined in the Loan Agreement) such payment shall be made on
the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest.
The Borrower hereby authorizes the Lender to endorse on the grid
attached hereto the date and amount of each Advance made by the Lender to the
Borrower hereunder, the maturity date thereof, the rate of discount
applicable thereto, the Discounted Proceeds and the Discount Amount (as such
terms are defined in the Loan Agreement referred to below) thereof and all
payments made on account thereof, provided that the failure to do so shall
not affect the obligation of the Borrower to the Lender.
The Borrower also agrees to pay on demand all reasonable costs and
expenses (including fees and expenses of counsel) incurred by the Lender in
enforcing this Promissory Note.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
This Promissory Note is the "grid" promissory note referred to in, and
is entitled to the benefits of, the Loan Agreement dated November 19, 1997
(the "Loan Agreement"), between the Borrower and the Lender, which Loan
Agreement, among other things, sets forth procedures to be used in connection
with the Borrower's periodic requests that the Lender make advances (the
"Advances") to the Borrower from time to time in an aggregate amount not to
exceed at any time outstanding the amount first above mentioned.
Wellman, Inc.
By: /s/ Keith R. Phillips
-------------------------
Name & Title: Keith Phillips
Chief Financial Officer
EXHIBIT 10(h)
WELLMAN, INC.
Amended and Restated Plan Summary
Wellman, Inc. Management Incentive Compensation Plan for the Executive Group
ARTICLE I
NAME
1.1 The Plan shall be known as the "Wellman, Inc. Management Incentive
Compensation Plan for the Executive Group."
ARTICLE II
STATEMENT OF PURPOSE
2.1 The purpose of the Plan is to provide a system of incentive compensation
that will promote the maximization of shareholder value over the long-term.
In order to align management incentives with shareholder interests, this Plan
will tie incentive compensation to Modified Cash Flow Economic Value Added,
as defined below, and, thereby, reward management for increasing shareholder
value.
ARTICLE III
DEFINITIONS
3.1 Plan Year is the fiscal year of the Company which is the calendar year.
3.2 Effective Date is January 1, 1992. The Plan is amended January 1, 1997.
3.3 Committee means the Compensation Committee of the Board of Directors of
Wellman, Inc. or any successor committee.
3.4 Participating Group means a business division or group of business
divisions that is identified by the Committee for measuring performance and
calculating the incentive bonus. An individual participant's incentive
compensation may be determined based on the performance of any combination of
Participating Groups as determined by the Committee.
3.5 Salary means the participant's weighted average base salary for the
entire Plan Year.
3.6 Modified Cash Flow Economic Value Added or McFEVA means the amount
calculated by subtracting a capital charge, which is the net assets employed
in the Participating Group multiplied by the Participating Group's cost of
employing that capital, from the modified cash flow (MCF) of the
Participating Group. The MCF is the Participating Group's operating income
<PAGE>
appropriately modified for unusual events, as included in the consolidated
income statement of the Company, plus its depreciation less its maintenance
of business capital expenditures and its allocated Corporate administrative
and R&D expenses.
McFEVA = MCF - (Net Assets Employed X Cost of Capital)
3.7 McFEVA Target means the annual performance, as measured in McFEVA terms,
that must be achieved by a given Participating Group in order for its
participants to be eligible to earn the McFEVA portion of the Target Bonus.
3.8 Strategic Objective means an objective that has been assigned to a Plan
participant for which a portion of the bonus will be earned if the objective
is achieved. Strategic Objectives generally support longer term McFEVA
performance and, along with the McFEVA Target, make up the two bonus
measurement components.
3.9 Target Bonus Percentage is the percentage of Salary a participant will
be eligible to earn in bonus if the McFEVA Target and Strategic Objectives
are both met. A Target Bonus Percentage is assigned to each participant by
the Committee based on the participant's relative job position.
3.10 Target Bonus means the amount of dollars eligible to be earned when the
participant meets the McFEVA Target for the assigned Participating Group(s)
and accomplishes his Strategic Objectives. Bonus amounts above and below the
Target Bonus can be earned depending on McFEVA performance and the
accomplishment of Strategic Objectives.
3.11 Allocation Percentage means the percentage split, assigned to each Plan
participant by the Committee, of the Target Bonus between the two Plan
measurement components, McFEVA Target and Strategic Objectives.
3.12 Management Incentive Plan Payment means the sum of the Strategic
Objective portion of the Target Bonus, which is subject to review and
modification by the Committee.
3.13 Cause in the context of a termination of employment means only one or
more of the following: (i) the commission in the course of employment of any
dishonest or fraudulent act; (ii) a conviction of a felony (from which,
through lapse of time or otherwise, no successful appeal shall have been
made) whether or not committed in the course of employment; (iii) the willful
refusal to carry out reasonable instructions of the Board of Directors of
Wellman, Inc. which has a material adverse effect upon the Company or any of
its subsidiaries; and (iv) the willful disclosure of any trade secrets or
material confidential corporate information to persons not authorized to know
same.
3.14 Change of Control shall be deemed to have occurred when (i) any
"person" or "group" (as such terms are used in Sections 13(d)(3) and 14(d)(2)
2
<PAGE>
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than the Company, any of its subsidiaries, or any employee benefit plan
of the Company or of any subsidiary, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding securities; or (ii) during any period
of two consecutive years (not including any period prior to the Effective
Date), individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors of the Company then still in office who were directors of the
Company at the beginning of the period.
ARTICLE IV
PLAN ADMINISTRATION
4.1 The Plan shall be administered by the Committee which shall have
exclusive and absolute authority and discretion to interpret the Plan, to
establish and modify rules for the administration of the Plan, to impose such
conditions and restrictions as it determines appropriate with respect to the
Plan and to take such other actions and make such other determinations as it
may deem necessary or advisable for the implementation and administration of
the Plan. All actions taken and all interpretations and determinations made
by the Committee in good faith shall be final and binding upon the
participants, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan.
4.2 This Plan may be amended, suspended or terminated any time at the sole
discretion of the Board of Directors of Wellman, Inc., provided, however,
that no such change in the Plan shall be effective to eliminate or diminish
the distribution of any award earned by a participant before the date of such
amendment, suspension or termination. Notice of any such amendment,
suspension or termination shall be given promptly to each participant.
ARTICLE V
PARTICIPATION
5.1 The participants in the Plan consist of those employees who are
Officers, Vice Presidents, and other senior executives identified by the
Committee.
3
<PAGE>
ARTICLE VI
DESCRIPTION OF PLAN OPERATION
6.1 Each Plan participant will be assigned to a Participating Group(s) by
the Committee as appropriate to their given job scope and responsibility.
Annual McFEVA targets for the Participating Groups will be established by the
Committee and will apply to all Plan participants in the Participating Group.
Also, each Plan participant will be assigned Strategic Objectives by the
Committee that they are personally responsible for achieving in order to
maximize their Management Incentive Plan Payment hereunder.
A Target Bonus Percentage will also be assigned to each Plan participant by
the Committee that represents the percentages of Salary that will be eligible
to be paid for meeting the McFEVA Target and achieving the Strategic
Objectives. Each Plan participant will also be assigned by the Committee an
Allocation Percentage that specifies the portion of the Target Bonus that is
allocated to meeting the McFEVA Target and the portion that is allocated to
achieving the Strategic Objectives. Strategic Objectives will have an
Allocation Percentage less than or equal to 50 percent.
Performance payment ranges will be created around the McFEVA Target for each
Participating Group to allow amounts less than or greater than the Target
Bonus amount to be paid for the McFEVA measurement component. The Committee
will establish the performance payment ranges.
At the conclusion of each Plan Year, each Plan participant's Management
Incentive Plan Payment will be calculated by determining the extent that the
McFEVA Target and Strategic Objectives were achieved and applying the
Allocation Percentage for each of the two measurement components to the
Target Bonus amount. The amount of the Management Incentive Plan Payment
payable to each participant will be determined by the Committee.
Following are the calculations for determining a participant's Management
Incentive Plan Payment:
Management Incentive Plan Payment = McFEVA Portion + Strategic Objectives
Portion
McFEVA Portion = Salary(Target Bonus %)(McFEVA Allocation %)(McFEVA
Performance %)
Strategic Objectives Portion = Salary (Target Bonus %) (Strategic Objectives
Allocation %) ( Percent of Strategic Objectives Achieved)
Management Incentive Plan Payments will be paid during the month of March
following the Plan Year.
4
<PAGE>
ARTICLE VII
CHANGE IN STATUS DURING THE PLAN YEAR
7.1 Disability. A participant shall be deemed "permanently disabled" if,
because of physical or mental condition, the participant is unable for a
period of at least one year to perform the principal duties of his/her
occupation as determined by a Company-approved physician. A participant shall
receive a pro rata bonus based on the number of full months worked for the
year in which the disability started. The payment shall be made at the
regular time for making bonus payments (March following the Plan Year).
7.2 Death. A participant's beneficiary, as designated for the life
insurance program, shall receive a pro rata bonus based on the number of full
months worked for the Plan Year in which they die. The payment will be made
at the regular time for making bonus payments (March following the Plan
Year).
7.3 Retirement. A participant who retires from the Company upon or after
reaching age 55 shall receive a pro rata bonus based on the number of full
months worked for the Plan Year in which he/she retires. The payment will be
made at the regular time for making bonus payments (March following the Plan
Year).
7.4 Resignation or Termination for Cause. Termination of employment for
Cause or voluntary termination by a participant results in the forfeiture of
any award for the Plan Year in which employment terminates.
7.5 Termination without Cause. A participant who is terminated for reasons
other than those described above will receive a pro rata portion of that Plan
Year's award. The payment will be made at the regular time for making bonus
payments (March following the Plan Year) or as mutually agreed by the
Committee and the terminated participant.
7.6 No Guarantee. Participation in the Plan provides no guarantee that a
bonus under the Plan will be paid in any year. Similarly, the payment of an
Award under the Plan in one Plan Year or selection as a participant is no
guarantee that a bonus under the Plan will be paid in any subsequent Plan
Year.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Withholding of Taxes. The Company shall have the right to withhold the
amount of taxes which, in the determination of the Company, are required to
be withheld under law with respect to any amount due or paid under the Plan.
8.2 Expenses. All expenses and costs in connection with the adoption and
administration of the Plan shall be borne by the Company.
5
<PAGE>
8.3 No prior Right or Offer. Except and until expressly granted pursuant to
the Plan, nothing in the Plan shall be deemed to give any employee any
contractual or other right to participate in the benefits of the Plan.
8.4 Disputed Claims for Benefits. In the event a participant (a "claimant")
has a dispute with respect to any of the benefits provided hereunder, the
claimant shall submit evidence satisfactory to the Committee of facts
establishing his entitlement to a payment under the Plan. Any claim with
respect to any of the benefits provided under the Plan shall be made in
writing within ninety (90) days of the annual Plan payment date. Failure by
the claimant to submit his or her claim within such ninety (90) day period
shall bar the claimant from any claim for benefits under the Plan. In
reaching its decision, the Committee shall have complete discretionary
authority to determine all questions arising in the interpretation and
administration of the Plan, to construe the terms of the Plan, including any
doubtful or disputed terms and the eligibility of a participant for benefits.
8.5 Rights Personal to Employee. Any rights provided to an employee under
the Plan shall be personal to such employee, shall not be transferable
(except by will or pursuant to the laws of descent or distribution), and
shall be exercisable, during his or her lifetime, only by such employee.
8.6 Confidentiality. Specific details of any calculations under the Plan
must remain confidential and because of the individuality of the Awards,
participants should not share information with each other.
8.7 Wellman, Inc. Profit Sharing Plan. Participants in the Wellman, Inc.
Management Incentive Compensation Plan for the Executive Group are not
eligible to participate in the Wellman, Inc. Profit Sharing Plan.
8.8 Change of Control. Upon any Change of Control, unless the Committee in
its sole discretion determines otherwise prior to the Change of Control, the
benefits of the Plan will be paid to all participants within 45 days of the
Change of Control date. Plan payment will be based on the full Plan Year's
forecasted results as defined in the most recent monthly financial forecast
prior to the Change of Control date using the most recent annual base salary
of each participant.
8.9 No Continued Employment. Neither the establishment of the Plan, the
assignment of targets nor the grant of an award hereunder shall be deemed to
constitute an express or implied contract of employment for any period of
time or in any way abridge the rights of the Company to determine the terms
and conditions of employment or to terminate the employment of any employee
with or without cause at any time.
8.10 No Vested Rights. Except as otherwise provided herein, no employee or
other person shall have any claim of right (legal, equitable, or otherwise)
to any award, allocation, or distribution and no officer or employee of the
Company or any other person shall have any authority to make representations
6
<PAGE>
or agreements to the contrary. No interest conferred herein to a participant
shall be assignable or subject to claim by a participant's creditors.
8.11 Not Part of Other Benefits. The benefits provided in this Plan shall
not be deemed a part of any other benefit provided by the Company to its
employees. The Company assumes no obligation to Plan participants except as
specified herein. This is a complete statement of the terms and conditions
of the Plan.
Revised: January, 1997
EXHIBIT 10(m)
WELLMAN, INC.
AMENDED AND RESTATED
EXECUTIVE RETIREMENT RESTORATION PLAN
Effective as of January 1, 1993,
and as Amended, Effective as of April 1, 1998
<PAGE>
TABLE OF CONTENTS
SECTION TITLE PAGE
- ------- ----- ----
PREAMBLE 1
I DEFINITIONS 1
1.1 Beneficiary 1
1.2 Code 1
1.3 Committee 1
1.4 Company 1
1.5 Company Contribution Credits 1
1.6 Company Contribution Credits Account 1
1.7 Compensation 1-2
1.8 Contribution Credits Account 2
1.9 Deferral Election Form 2
1.10 Disability 2
1.11 Employee Contribution Credits 2
1.12 Employee Contribution Credits Account 2
1.13 ESOP 2
1.14 IRS 2
1.15 Limited Compensation 2
1.16 Participant 2-3
1.17 Plan 3
1.19 Plan Year 3
1.19 Profit Sharing Plan 3
1.20 Qualified Retirement Plans 3
1.21 Retirement 3
1.22 Retirement Plan 3
2
<PAGE>
TABLE OF CONTENTS
(CONTTNUED)
SECTION TITLE PAGE
- ------- ----- ----
1.23 Service 3
1.24 The Masculine Gender 3
II ELIGIBILITY FOR RETIREMENT BENEFITS 3
III CONTRIBUTIONS TO THE PLAN 4
3.1 Amount of Company Contribution Credits 4
3.2 Amount of Employee Contribution Credits 4
3.3 Crediting of Earnings 5
IV DISTRIBUTABLE EVENTS AND DISTRIBUTION
OF AMOUNTS 6
4.1 Retirement 6
4.2 Death 6
4.3 Termination of Employment 6-7
4.4 Withdrawals/Loans Not Allowed 7
V MISCELLANEOUS 7-8
3
<PAGE>
PREAMBLE
The purpose of the Wellman, Inc. Executive Retirement Restoration Plan is to
provide for a selected group of senior executives an unfunded, non-qualified
defined contribution plan whose purposes are to (1) restore employer
contributions which cannot be made to the Company's qualified retirement
plans on behalf of these executives due to various IRS restrictions imposed
on such plans and (2) provide a mechanism for these executives to defer
compensation which cannot be contributed to the Company's qualified
retirement plan due to similar and additional IRS restrictions.
The Company plans whose employer contributions and employee deferral
opportunities are restored within this Plan include the following:
- the Wellman, Inc. Employee Stock Ownership Plan and Trust; and
- the Wellman, Inc. Retirement Plan.
The senior executives who are eligible to participate in this Plan will be
nominated and confirmed by the Compensation Committee of the Board of
Directors of Wellman, Inc. Each eligible executive must complete a Deferral
Election Form prior to the beginning of the period for which such deferrals
shall become effective.
This Plan shall initially be effective January 1, 1993, and as amended, shall
be effective as of April 1, 1998, with a proviso that any compensation
deferred by the executive into this Plan shall not be taken out of
compensation earned prior to the effective date of the executive's election.
SECTION I
DEFINITIONS
1.1 "Beneficiary" shall mean any person or persons last designated by the
Participant to receive amounts payable in accordance with this Plan in the
event of the Participant's death. In the absence of such designated person
or persons, the Participant's beneficiary shall be deemed to be his estate.
1.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.3 "Committee" shall mean the Compensation Committee as appointed by the
Board of Directors of the Company, which has been given authority by the
Board of Directors to designate Participants and to administer the Plan.
1.4 "Company" means Wellman, Inc. and all affiliated employers participating
in the Qualified Retirement Plans.
1.5 "Company Contribution Credits" shall mean the amount of Company
contributions allocated to a Participant's account for any Plan Year to
restore lost Company contributions under the Qualified Retirement Plans in
accordance with Section 3.1.
1.6 "Company Contribution Credits Account" shall mean the account that will
be established by the Company to which shall be credited the Participant's
Company Contribution Credits plus any earnings credited thereon in accordance
with Section 3.3.
1.7 "Compensation" shall mean the base compensation paid to a Participant
during a Plan Year with respect to services performed for the Company plus
bonuses and payments made under the Profit Sharing Plan (other than such
1
<PAGE>
bonuses and Profit Sharing Plan payments received after the Participant's
termination of employment with the Company) plus any elective contributions
made by the Company on behalf of the Participant with respect to such Plan
Year which are not includible in his gross income under Sections 125 or
402(g) of the Code or as deferred under this Plan as Employee Contribution
Credits plus any amounts deferred under the Wellman, Inc. Deferred
Compensation and Restricted Stock Plan which are not includible in his gross
income, determined without regard to any limitation imposed under Section
401(a)(17) of the Code. In no event shall Compensation include any
compensation attributable to a Participant's receipt or exercise of any stock
options.
1.8 "Contribution Credits Account" shall mean the sum of the Company
Contribution Credits Account and Employee Contribution Credits Account.
1.9 "Deferral Election Form" shall mean the form made available by the
Committee to a Participant which, when properly executed by the Participant,
effects his participation in the Plan for the next following Plan Year.
However, within the first year in which the Participant has become eligible
for the Plan, the Participant may make a Deferral Election which effects his
participation in the Plan with respect to Compensation earned following his
election but within the same Plan Year. A Deferral Election, once made,
shall continue in effect from Plan Year to Plan Year until it is modified or
revoked. Such change shall only be effective as of the first day of the Plan
Year following the Plan Year in which it is executed.
1.10 "Disability" shall mean total disability as determined by the
Committee.
1.11 "Employee Contribution Credits" shall mean the amount of employee
contributions allocated to a Participant's account for any Plan Year based on
the Participant's election to defer Compensation in accordance with Section
3.2.
1.12 "Employee Contribution Credits Account" shall mean the account that
will be established by the Company to which shall be credited the
Participant's Employee Contribution Credits plus any earnings credited
thereon in accordance with Section 3.3.
1.13 "ESOP" shall mean the Wellman, Inc. Employee Stock Ownership Plan and
Trust.
1.14 "IRS" shall mean the Internal Revenue Service.
1.15 "Limited Compensation" shall mean a Participant's Compensation as
defined in Section 1.7 but determined with regard to the limitation imposed
under Section 40l(a)(17) of the Code.
1.16 "Participant" shall mean an individual who is in a select group of
management or highly compensated employees of the Company designated as a
Participant by the Committee. An employee shall become a Participant in the
Plan once he is selected by, named, or identified in the resolutions of the
Committee for inclusion in the Plan, and subsequently completes a Deferral
Election Form which provides for amounts to be credited to this Plan in
accordance with Section 3.2.
A Participant shall have the right exercisable within thirty days prior to
the beginning of any calendar year to elect to have Employee Contribution
2
<PAGE>
Credits allocated to his Employee Contribution Credits Account for the
ensuing Plan Year by so electing on a new Deferral Election Form.
If a Participant does not execute and file a new Deferral Election Form
with the Committee, the Deferral Election previously made by the Participant
shall continue in effect.
1.17 "Plan" shall mean the Wellman, Inc. Executive Retirement Restoration
Plan.
1.18 "Plan Year" shall mean the period from January 1, 1993 to December 31,
1993 and the twelve month period ending each December 31 thereafter.
1.19 "Profit Sharing Plan" shall mean the Wellman, Inc. Employee Profit
Sharing Plan.
1.20 "Qualified Retirement Plans" shall mean the following basic retirement
plans sponsored by Wellman, Inc. for its employees: (a) the ESOP and (b) the
Retirement Plan.
1.21 "Retirement" shall mean the termination of a Participant's employment
with the Company, and any member of the same controlled group of
corporations, as defined in Section 1563(a) of the Code, on one of the
retirement dates specified in Section II.
1.22 "Retirement Plan" shall mean the Wellman, Inc. Retirement Plan.
1.23 "Service" shall mean a Participant's Service as defined in the ESOP.
1.24 The masculine gender, where appearing in the Plan, will be deemed to
include the feminine gender, and the singular may include the plural, unless
the context clearly indicates the contrary. Wherever appropriate, terms used
in this Plan shall have the meaning assigned to such terms under the
Qualified Retirement Plans.
SECTION II
ELIGIBILITY FOR RETIREMENT BENEFITS
Each Participant is eligible to retire and receive a benefit under this Plan
upon his Retirement beginning on one of the following dates:
(a) "Normal Retirement Date", which is the date the Participant attains
his 65th birthday;
(b) "Early Retirement Date", which is the date on or after the date the
Participant attains his 55th birthday and completes 5 years of
Service;
(c) "Postponed Retirement Date", which is the date following the
Participant's Normal Retirement Date on which the Participant
terminates employment with the Company. To the extent permitted by
law, the Company reserves the right to require that a Participant
obtain written consent from the Committee to continue his employment
beyond his Normal Retirement Date in accordance with this Section II;
(d) "Disability Retirement Date", which is the date on which the
Participant's employment is terminated due to Disability.
3
<PAGE>
SECTION III
CONTRIBUTIONS TO THE PLAN
3.1 Amount of Company Contribution Credits The Company Contribution Credits
for a Participant under this Plan on behalf of each Plan Year shall equal the
sum of the following: (a) the excess, if any, of (i) the amount of Pension
Contributions and Performance Contributions under the Retirement Plan to
which the Participant would have been entitled based on his Compensation and
without regard to Code restrictions on contributions made by or on behalf of
the Participant over (ii) the amount of Pension Contributions and Performance
Contributions actually contributed by the Company to the Retirement Plan
based on his Limited Compensation; (b) the excess, if any, of (i) the amount
of Basic Contributions under the ESOP to which the Participant would have
been entitled based on his Compensation and without regard to Code
restrictions on contributions made by or on behalf of the Participant over
(ii) the amount of Basic Contributions actually contributed by the Company to
the ESOP based on his Limited Compensation; and (c) the excess, if any, of
(i) the combined amount of Company matching contributions under the
Retirement Plan and the ESOP to which the Participant would have been
entitled without regard to Code restrictions on contributions made by or on
behalf of the Participant based on (A) the sum of his Employee Contribution
Credits as defined under this Plan and his Compensation Deferral
Contributions under the Retirement Plan and under the ESOP and (B) the actual
matching contribution percentages for the Plan Year over (ii) the combined
amount of Company matching contributions actually contributed to the
Retirement Plan and ESOP based on the Compensation Deferral Contributions
made on behalf of the Participant to these plans and the actual matching
contribution percentages for the Plan Year. With respect to a Participant
whose date of employment occurs during the Plan Year in which he is first
eligible to participate, the calculation of Company Contribution Credits
under this Section 3.1 shall be made under the presumption that the
Participant was eligible upon his date of employment with the Company to
participate in the Retirement Plan and the ESOP, but without presuming
contributions on his behalf.
3.2 Amount of Employee Contribution Credits The Employee Contribution
Credits for a Participant under this Plan on behalf of each Plan Year shall
equal the excess, if any, of (i) the Compensation Deferral Contributions
which would have been made on behalf of the Participant under the Retirement
Plan and under the ESOP based on his Compensation and without regard to Code
restrictions on contributions made by or on behalf of the Participant over
(ii) the amount of Compensation Deferral Contributions actually made on
behalf of the Participant to the Retirement Plan and ESOP based on his
Limited Compensation. With respect to a Participant whose date of employment
occurs during the Plan Year in which he is first eligible to participate, the
calculation of Employee Contribution Credits under this Section 3.2 shall be
made under the presumption that the Participant was eligible upon his date of
employment with the Company to participate in the Retirement Plan and the
ESOP, but without presuming contributions on his behalf.
The amount of Employee Contribution Credits for any Plan Year will be
determined by a properly executed Deferral Election Form which requires the
Employee to irrevocably agree to make the maximum Compensation Deferral
Contributions for the applicable Plan Year as permitted under the Retirement
Plan and ESOP.
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3.3 Crediting of Earnings
(A) Sub-Accounts
Each Participant's Company Contribution Credits Account and Employee
Contribution Credits Account shall be comprised of two sub-accounts: a
Cash Account and a Stock Account.
For Plan Years up to and including the earlier of the Plan Year in which a
Participant attains age 55 or incurs a distributable event under Section
IV, new Company Contribution Credits and Employee Contribution Credits
shall be credited to the Stock Account. For Plan Years thereafter, new
Company Contribution Credits and Employee Contribution Credits shall be
credited to the Cash Account. As of December 31st of the earlier of the
Plan Year in which the Participant attains age 55 or incurs a
distributable event under Section IV, and as of December 31st of each Plan
Year thereafter, a portion of the dollar value of the Participant's
existing Stock Account shall be automatically transferred to the Cash
Account. The portion so transferred shall be a ratio the numerator of
which is the number of December 31sts that have occurred since the earlier
of the date that the Participant attained age 55 or incurred a
distributable event and the denominator of which is 10. For example, as of
the first December 31st on or following a Participant's 55th birthday,
1/10th of the value of the Stock Account will be transferred to the Cash
Account, as of the second December 31st, 2/10ths, and so on.
(B) Stock Account
The amount allocated as a credit to the Stock Account shall be converted
to share units as follows: Amounts credited as of a date in any calendar
month (or such other period not to exceed a year as may be specified by
the Compensation Committee in a duly adopted resolution) shall be
converted to a number of share units determined on the basis of the
closing price of shares of common stock of Wellman, Inc. on the New York
Stock Exchange on the last trading day of that month (or other period
specified by the Compensation Committee), as reported by The Wall Street
Journal.
Share units shall be credited with dividend equivalents as and when
dividends are declared on shares of common stock of Wellman, Inc. Such
credits shall be converted to additional share units determined on the
basis of the closing price of shares of common stock of Wellman, Inc. on
the New York Stock Exchange on the last trading day of the year in which
such dividends are paid, as reported by The Wall Street Journal.
The value of share united credited to a Participant hereunder as of any
relevant date shall equal the closing price of shares of common stock of
Wellman, Inc. on the New York Stock Exchange on such date or the nearest
preceding trading date, as reported by The Wall Street Journal.
(C) Cash Account
The amount allocated as a credit to the Cash Account shall be converted to
a cash balance to be credited with interest as follows: Interest shall be
credited on a monthly basis in each Cash Account and shall be determined
by multiplying the beginning balance of such account less distributions
for such month by the rate of interest equal to the total return earned by
an index or investment fund specified by the Compensation Committee for
such month.
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SECTION IV
DISTRIBUTABLE EVENTS AND DISTRIBUTION OF AMOUNTS
4.1 Retirement
A Participant who reaches Retirement and retires from the Company shall
receive his Contribution Credits Account in ten annual installments payable
as of the beginning of each Plan Year following his Retirement date. Such
installments shall equal the Contribution Credits Account as of the end of
the Plan Year in which the Participant shall retire or terminate employment
divided by the appropriate number of remaining annual installments. Payments
to a Participant or Beneficiary shall be made first from the Participant's
Cash Account and then from the Participant's Stock Account, as those sub-
accounts are defined pursuant to Section 3.3 of the Plan.
At the discretion of the Compensation Committee, the entire Contribution
Credits Account may be payable in a single lump sum distribution based on
market value of the Participant's account as of the end of a calendar quarter
following the Participant's Retirement. Once a lump sum distribution is made
to the Participant, there shall be no further benefits payable to the
Participant or his Beneficiary from the Plan.
All payments to Participants and Beneficiaries from the Plan shall be made in
cash.
4.2 Death
At the time that an Employee becomes a Participant, he shall designate in
writing a Beneficiary to receive any payments to which he would have been
entitled under the terms of the Plan. The Beneficiary referred to in this
paragraph may be designated or changed by the Participant (without the
consent of any prior Beneficiary) on a form provided by the Committee and
delivered to the Committee before his death. If no such Beneficiary shall
have been designated, or if no designated Beneficiary shall survive the
Participant, payments shall be made to the Participant's estate.
If the Participant's employment is terminated because of death, then the
Company shall deem the Participant to be fully vested and make payments to
his designated Beneficiary in the same manner and to the extent as provided
in Section 4.1 as if the Participant had retired on the date of his death.
4.3 Termination of Employment
In the event a Participant's employment with the Company terminates after
five years of Service for reasons other than Retirement or death, the Company
shall make payment to the Participant of the entire Contribution Credits
Account in the same manner and to the extent provided in Section 4.1 as if
the person retired on the date of termination. If the Participant's
employment terminates prior to five years of Service, the entire Employee
Contribution Credits Account and only the vested portion, if any, of the
Company Contribution Credits Account will be available for payment to the
Participant in the same manner and to the extent provided in Section 4.1 as
if the person retired on the date of termination. The Company Contribution
Credits Account shall become vested, or non-forfeitable, to the Participant
in twenty percent (20%) increments based on the Participant's years of
Service as follows:
6
<PAGE>
<TABLE>
<CAPTION>
Years of Service Percent Vested
---------------- --------------
<S> <C>
Less than One 0%
One 20%
Two 40%
Three 60%
Four 80%
Five 100%
</TABLE>
4.4 Withdrawals/Loans Not Allowed
No benefits shall be paid nor loans granted from this Plan while a
Participant is an employee of the Company. Benefits from the Plan shall be
paid solely in accordance with the provisions of Sections 4.1, 4.2 and 4.3 of
the Plan.
SECTION V
MISCELLANEOUS
5.1 The Company may, in its sole discretion, terminate, suspend or amend
this Plan at any time or from time to time, in whole or in part. Upon
termination, the Company shall pay to each Participant the entire value of
his
Contribution Credits Account which would have been available had the
Participant had a termination of Service after five years of Service. The
Company will make payments in either installments or a single lump sum as
soon as practicable after the effective date of the termination of the Plan.
All payments to Participants pursuant to this Section 5.1 shall be made in
cash.
5.2 Nothing contained herein will confer upon any Participant the right to
be retained in the service of the Company, nor will it interfere with the
right of the Company to discharge or otherwise deal with Participants without
regard to the existence of this Plan.
5.3 The Company's obligations under this Plan shall be unfunded and an
unsecured promise to pay. The Company shall not be obligated under any
circumstances to fund its financial obligations under this Plan. All assets
which the Company may acquire to help cover its financial liabilities are and
remain general assets of the Company subject to the claims of its creditors.
The Company does not give, and the Plan does not give, any beneficial
ownership interest in any asset of the Company to a Participant or his
Beneficiary. All rights of ownership in any assets are and remain in the
Company. The Company's liability for payment of benefits shall be determined
only under the provisions of this Plan as it may be amended from time to
time.
Notwithstanding the above, the Company reserves the right to establish a
Rabbi Trust for this Plan similar to the trust described in Revenue Procedure
92-64 or any successor thereto or as otherwise provided in the Code.
5.4 The rights of a Participant or any Beneficiary of the Participant shall
be solely those of an unsecured general creditor of the Company. A
Participant or Beneficiary of the Participant shall have the right to receive
those payments specified under this Plan only from the Company. These
parties have no right to look to any specific or special property separate
from the Company to satisfy a claim for benefit payments.
7
<PAGE>
A Participant agrees that neither he nor his Beneficiary shall have any
right, claim, security interest, or any beneficial ownership interest
whatsoever in any general asset that the Company may acquire or use to help
support its financial obligations under this Plan. Any general asset used or
acquired by the Company in connection with the liabilities it has assumed
under this Plan shall not be deemed to be held under any trust for the
benefit of the Participant or his Beneficiary, and no general asset shall be
considered security for the performance of the obligations of the Company.
Any such asset shall remain a general, unpledged and unrestricted asset of
the Company.
A Participant also understands and agrees that his participation in the
acquisition of any general asset for the Company shall not constitute a
representation to the Participant or his Beneficiary that any of them has a
special or beneficial interest in any general asset.
5.5 To the maximum extent permitted by law, no benefit under this Plan shall
be assignable or subject in any manner to alienation, sale, transfer, claims
of creditors, pledge, attachment or encumbrances of any kind.
5.6 The Committee may adopt rules and regulations to assist it in the
administration of the Plan. The Committee has sole and absolute discretion
to interpret all provisions of the Plan and to determine entitlement to
benefits under the Plan. The decision by the Committee regarding the Plan's
provisions and benefits is final.
5.7 The Plan shall be binding upon the Company and any successor company
through merger, acquisition or consolidation, and upon a Participant, his
Beneficiary, heirs, executors and administrators.
5.8 The Company may, in its sole discretion, permit the Participant to take
a leave of absence for a period determined by the Committee. During such
leave, the Participant will still be considered to be in the continuous
employment of the Company for purposes of this Plan.
5.9 Each Participant shall receive a copy of this Plan or any amendments
thereto and the Committee will make available for inspection by any
Participant a copy of any rules and regulations used by the Committee in
administering the Plan. Each Participant shall also be notified of any
suspension or termination of this Plan.
5.10 The Company reserves the right to indefinitely or permanently suspend
the portion of the installment payouts with respect to the Company
Contribution Credits Account should a Participant, upon his termination of
employment or Retirement from the Company, begin working on a consulting
basis or as an employee of a competing organization. The Participant will
continue to receive the remaining installment payments with respect to his
Employee Contribution Credits Account.
The determination of whether the Participant is associated with the competing
organization will be left solely up to the Committee and such determination
will be final.
5.11 This Plan is established under and will be construed according to the
laws of the State of Delaware, except to the extent preempted by ERISA or
other federal regulations.
8
<PAGE>
EXHIBIT 10(o)
WELLMAN, INC.
DEFERRED COMPENSATION AND RESTRICTED STOCK PLAN
SECTION I. PURPOSE OF THE PLAN
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1.1 Purpose of the Plan. Wellman, Inc. (the "Company") has adopted a
Statement of Policy with respect to Stock Ownership of Directors and Officers
(the "Statement of Policy") to promote and create significant ownership of
the Company's Common Stock by members of the Company's Board of Directors and
senior management. The Statement of Policy is intended to promote the
interests of the Company and its stockholders by increasing the ownership of
Common Stock by the directors and senior management so that, as stockholders
themselves, those individuals will be more likely to represent the views and
interests of other stockholders and to motivate them to manage the Company
for long-term growth and profitability. This Plan has been adopted to
implement and promote the Statement of Policy and to enhance the Company's
ability to attract and retain persons who will make substantial contributions
to the Company's future success.
1.2 Effective Date. The Plan is effective on February 17, 1998 (the
"Effective Date"), subject to approval and ratification by the Company's
stockholders no later than September 30, 1998, and will continue in effect
until terminated by the Board. Compensation may be deferred, Restricted
Stock Awards granted and Restricted Stock may be purchased and issued under
the Plan prior to stockholder approval, subject to the condition that such
compensation shall be paid to Participants and grants and purchases shall be
canceled and any shares shall be returned to the Company by the affected
participants in the event that the stockholders have not approved the Plan by
September 30, 1998.
SECTION II. DEFINITIONS
- ------------------------
2.1 Annual Bonus means the cash portion of any Incentive Award.
2.2 Base Salary means the annual salary paid by the Company to a management
Participant for performance of his job excluding any benefits, Incentive
Award, bonuses or any component of pay other than the base amount.
2.3 Board means the Board of Directors of the Company.
2.4 Business Day means any day on which the New York Stock Exchange is open
and the Common Stock is traded.
2.5 Cause in the context of a termination of employment means only one or
more of the following: (i) the commission in the course of employment of any
dishonest or fraudulent act; (ii) a conviction of a felony (from which,
through lapse of time or otherwise, no successful appeal shall have been
made) whether or not committed in the course of employment; (iii) the willful
refusal to carry out reasonable instructions of the Board which has a
material adverse affect upon the Company or any of its subsidiaries; and (iv)
the willful disclosure of any trade secrets or material confidential
corporate information to persons not authorized to know same.
1
<PAGE>
2.6 Change in Control shall be deemed to have occurred when (i) any "person"
or "group" (as such terms are used in Sections 13(d)(3) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than
the Company, any of its subsidiaries, or any employee benefit plan of the
Company or of any subsidiary, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding securities; or (ii) during any period
of two consecutive years (not including any period prior to the Effective
Date), individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors of the Company then still in office who were directors of the
Company at the beginning of the period.
2.7 Committee means the Compensation Committee of the Board or any successor
committee.
2.8 Common Stock means the Common Stock, $.001 par value, of Wellman, Inc.
2.9 Company means Wellman, Inc. and its subsidiaries with domestic
operations.
2.10 Disability shall have the meaning specified in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended.
2.11 Effective Date shall have the meaning set forth in subsection 1.2
hereof.
2.12 Exercise Price means ( i ) for Restricted Stock Awards granted after
1998, 85% of the average of the highest and lowest sales prices of the Common
Stock as reported on the New York Stock Exchange on the last Business Day of
the prior calendar year and on each of the fifteen (15) Business Days before
and after that date, and (ii) for Restricted Stock Awards granted in 1998,
85% of the average of the highest and lowest sales prices of the Common
Stock as reported on the New York Stock Exchange on the date the Plan is
approved by the stockholders and on each of the fifteen (15) Business Days
before and after that date.
2.13 Fair Market Value means the average of the highest and lowest sales
prices of the Common Stock as reported on the New York Stock Exchange on the
date of termination of employment or service of a Participant and on each of
the fifteen (15) Business Days before and after that date.
2.14 Incentive Award means an award under any incentive plan (other than a
stock option plan and this Plan) designated by the Committee that entitles
the recipient to shares of Common Stock, cash or a combination of Common
Stock and cash.
2.15 Participant means a non-employee director of the Company, any domestic
executive officer listed in the Company's most recent Annual Report on Form
10-K or otherwise designated by the Committee, any other member of management
of the Company as designated by the Committee, or a consultant to the Company
selected to participate in the Plan by the Committee.
2.16 Plan means this Wellman, Inc. Deferred Compensation and Restricted
Stock Plan, as it may be amended from time to time.
2
<PAGE>
2.17 Restricted Period means the three year period commencing on the January
1st of the year in which a Restricted Stock Award is granted pursuant to this
Plan during which the restrictions imposed by Section V hereof shall apply;
provided, however, that upon request of the Participant at least six months
before the expiration of the Restricted Period (including any extended
Restricted Period) and prior to termination of employment (regardless of the
reason for termination), the Restricted Period may be extended for a period
of not less than two years.
2.18 Restricted Stock means shares of Common Stock which are issued by the
Company under this Plan subject to forfeiture, restrictions on transfer and
such other restrictions as are set forth in Section V hereof or as the
Committee may determine in accordance with the provisions of Section V of
this Plan.
2.19 Restricted Stock Award means an award that provides for a Participant
to acquire one share of Restricted Stock on the date compensation is deferred
which is equal to the Exercise Price.
2.20 Retirement means retirement from the Company on or after 55 years of
age.
2.21 Subsidiary means a domestic corporation of which more than 50% of the
total combined voting power of all classes of stock entitled to vote is
owned, directly or indirectly, by Wellman, Inc.
Unless the context clearly requires otherwise, the masculine pronoun whenever
used shall include the feminine and neuter pronouns, the singular shall
include the plural and the plural shall include the singular.
SECTION III. GENERAL TERMS
- ---------------------------
3.1 Administration of the Plan. The Plan shall be administered by the
Committee which shall have exclusive and absolute authority and discretion to
interpret the Plan, to establish and modify rules for the administration of
the Plan, to impose such conditions and restrictions as it determines
appropriate with respect to the Plan and to take such other actions and make
such other determinations as it may deem necessary or advisable for the
implementation and administration of the Plan. All actions taken and all
interpretations and determinations made by the Committee in good faith shall
be final and binding upon the Participants, the Company and all other
interested persons. No member of the Committee shall be personally liable
for any action, determination or interpretation made in good faith with
respect to the Plan.
3.2 Shares Subject to the Plan. The Common Stock to be issued as Restricted
Stock under the Plan may be either authorized but unissued shares or treasury
shares. The aggregate number of shares of Common Stock which may be issued
under the Plan may not exceed one million (1,000,000) shares, subject,
however, to the adjustments provided in subsection 3.3 in the event of stock
splits, stock dividends, exchanges of shares or the like occurring after the
Effective Date. No Restricted Stock may be issued under the Plan which would
cause such maximum limit to be exceeded.
3.3 Adjustments. In the event of any stock dividend, stock split,
combination or exchange of shares, merger, consolidation, spin-off or other
distribution (other than normal cash dividend) of the Company assets to
stockholders, or any other change affecting shares or the Company's
3
<PAGE>
capitalization, such adjustments as the Committee in its discretion may deem
appropriate to reflect such change or to fairly preserve the intended
benefits of the Plan shall be made. In addition, any shares issued by the
Company through the assumption or substitution of outstanding stock awards or
award commitments from an acquired company or other entity shall not reduce
the shares available for issuance under the Plan.
SECTION IV. DEFERRED COMPENSATION AND RESTRICTED STOCK AWARDS
- --------------------------------------------------------------
4.1 Mandatory Deferred Compensation.
(a) Participants are required to defer the following amounts of compensation
earned after January 1, 1998:
(i) Non-employee directors of the Company must defer 50% of their
director's retainer fees;
(ii) Employees who are participants in the Wellman, Inc. Management
Incentive Compensation Plan must defer payment of any amounts earned over the
target percentage defined therein; and
(iii) At the discretion of the Committee and on terms determined by the
Committee, consultants may contractually commit to defer full or partial
payment of consulting fees.
The Participants will be granted Restricted Stock Awards as follows:
(i) Non-employee directors, on January 20th of each year,
(ii) Participants in the Wellman, Inc. Management Incentive Compensation
Plan, when the amount earned over the target percentage is determined; and
(iii) Consultants, as determined by the Committee.
(b) Each employee Participant who fails to achieve his targeted stock
ownership as provided in the Statement of Policy as of December 31st of any
year shall be required to defer his entire Annual Bonus earned in such year
and his Base Salary increase (if any) for the next year. Each Director
Participant who fails to achieve his targeted stock ownership as provided in
the Statement of Policy as of December 31st of any year shall be required to
defer the remainder of his director's retainer fees for the next year. The
Participant will be granted a Restricted Stock Award within three months
following the date he did not achieve his targeted stock ownership.
4.2 Voluntary Deferred Compensation. Not later than 45 days after a
Participant first becomes a Participant in the Plan and not later than
December 15 preceding the next full calendar year thereafter (i.e., December
15, 1998 for compensation earned in 1999), the Participant may make an
irrevocable election on a form provided by the Company to defer a specified
dollar amount of his Base Salary, Annual Bonus and any other cash
remuneration. Participants may only defer the following amounts:
(i) Participants who are employees may defer up to: (a) 100% of their
Base Salary for the period from April 1, 1998 to December 31, 1998 and 100%
of their Annual Bonus and any other cash remuneration earned in 1998 and (ii)
50% of their Base Salary, Annual Bonus and any other cash remuneration in all
future years.
(ii) Directors may defer up to 100% of their annual retainer, meeting
fees and other cash remuneration for the period from April 1, 1998 to
December 31, 1998 and in all future years.
4
<PAGE>
The Participant will receive a Restricted Stock Award approximately 35 days
after his election to defer compensation for 1998 and on January 20th of any
year thereafter.
4.3 Termination of Directors Retirement and Deferred Compensation Plans.
Subject to the discretion of the Committee, non-employee director
Participants shall receive Restricted Stock as set forth below in
satisfaction of any amounts payable to them in connection with the
termination of the Wellman, Inc. Directors Retirement Plan and the Wellman,
Inc. Directors Deferred Compensation Plan. In the case of the Directors
Retirement Plan, the number of shares of Restricted Stock issued in exchange
for the accrued benefit as of December 31, 1997 shall be equal to the accrued
benefit divided by 85 % of the average of the highest and lowest sales prices
of the Common Stock as reported on the New York Stock Exchange on the date
the Plan is approved by the stockholders and on each of the fifteen (15)
Business Days before and after that date. In the case of the Directors
Deferred Compensation Plan, the number of shares of Restricted Stock issued
in exchange for the accrued benefit on the date the plan is terminated shall
be equal to the number of shares of phantom stock held in the Directors
Deferred Compensation Plan on the date this Plan is approved by the
stockholders.
SECTION V. RIGHTS AND TERMS OF RESTRICTED STOCK
- ------------------------------------------------
5.1 Terms of Restricted Stock.
(a) Each Restricted Stock Award granted pursuant to the Plan will provide
for the exchange of the applicable Participant's deferred compensation for
Restricted Stock within fifteen (15) months after the date of grant. The
Restricted Stock shall be issued when a Participant's compensation is
actually deferred and exchanged for Restricted Stock pursuant to a Restricted
Stock Award. In the event a Participant is granted a Restricted Stock Award
and compensation is not actually deferred for whatever reason, no Restricted
Stock shall be issued.
(b) Each grant of a Restricted Stock Award pursuant to subsections 4.1 and
4.2 and each issuance of Restricted Stock pursuant to subsection 4.3 shall be
embodied in an agreement signed by the Participant and the Company (the
"Agreement"). The Agreement (i) shall provide that the Restricted Stock
Award and any Restricted Stock issuable thereunder or hereunder shall be
subject to the provisions of the Plan, (ii) shall provide that Participants
who received Restricted Stock Awards pursuant to subsections 4.1(b) and 4.2
shall not be able to sell stock (except shares acquired upon exercise of an
option granted pursuant to a stock option plan of the Company and disposed of
within 30 days of such exercise) during the period these Restricted Stock
Awards are exercisable unless they receive permission of the Committee (which
will generally be granted only if there are extenuating circumstances), and
(iii) shall contain such other provisions as the Committee may prescribe not
inconsistent with the Plan.
(c) All Restricted Stock Awards granted and Restricted Stock issued pursuant
to this Plan shall be subject to the following restrictions: (i) a
Participant shall not be entitled to delivery of a certificate evidencing the
shares of Restricted Stock until the expiration or termination of the
Restricted Period and the satisfaction of any and all other conditions
specified in the Agreement applicable to such shares of Restricted Stock;
(ii) none of the Restricted Stock Awards or shares of Restricted Stock may be
sold, transferred, assigned, pledged or otherwise encumbered or disposed of
5
<PAGE>
during the Restricted Period and until the satisfaction of any and all other
conditions specified in the Agreement applicable to such Restricted Stock;
and (iii) any Restricted Stock Awards or shares of Restricted Stock which are
forfeited shall be returned to the Company and all rights of the Participant
with respect to such Restricted Stock Awards or shares of Restricted Stock
shall terminate without further obligation on the part of the Company upon
the occurrence of any of the events set forth below in subsection 5.4.
5.2 Custody of Shares of Restricted Stock; Rights with Respect to Stock.
(a) Any certificates representing shares of Restricted Stock issued under
the Plan shall be issued in the Participant's name but shall be held by the
Company during the Restricted Period. The Company shall serve as attorney-
in-fact for the Participant during the Restricted Period with full power and
authority in the Participant's name to assign and convey to the Company any
shares of Restricted Stock held by the Company for such Participant if the
Participant forfeits the shares under the terms of the Restricted Stock.
Each certificate representing shares of Restricted Stock may bear a legend
referring to the Plan and the risk of forfeiture of the shares and stating
that such shares are nontransferable until all restrictions have been
satisfied and the legend has been removed.
(b) Upon the purchase of Restricted Stock pursuant to the Plan and the
issuance of a certificate or certificates representing such Restricted Stock,
the Participant shall thereupon be a stockholder and have all the rights of a
stockholder with respect to such shares, including the right to vote and
receive all dividends or other distributions made or paid with respect to
such shares; provided, however, that such Restricted Stock and any new,
additional or different securities the Participant may become entitled to
receive with respect to such Restricted Stock by virtue of a stock split,
dividend or other change in the corporate or capital structure of the
Company, shall be subject to the restrictions described in subsection 5.1
hereof.
5.3 Distribution of Restricted Stock. If a Participant who receives shares
of Restricted Stock under the Plan remains in the continuous employment or
service of the Company during the entire Restricted Period and otherwise does
not forfeit such shares pursuant to subsection 5.4 hereof, all restrictions
applicable to the shares of Restricted Stock shall lapse upon expiration of
the Restricted Period, and a certificate or certificates representing the
shares of Common Stock that were granted to the Participant in the form of
shares of Restricted Stock shall be delivered to the Participant.
5.4 Forfeiture.
(a) If a Participant's service or employment is terminated before the
expiration of the Restricted Period by the Company without Cause or by reason
of Retirement, Disability or death of the Participant, the Committee shall
determine when the restrictions applicable to the shares of Restricted Stock
held by the Company for such Participant shall lapse, giving appropriate
consideration to each individual situation, provided that in no event shall
the restrictions continue longer than those in effect on the date of such
termination. On each of the respective dates, the certificate or certificates
representing the shares of Common Stock upon which the restrictions have
lapsed shall be delivered to the Participant (or in the event of the
Participant's death, to his estate).
(b) If a Participant's service or employment is terminated before the
expiration of the Restricted Period by the Company for Cause or by the
6
<PAGE>
Participant at any time, the Participant shall forfeit all Restricted Stock
and shall receive a cash payment equal to the lower of 85% of the Fair Market
Value of the Restricted Stock or the deferred compensation used to acquire
the Restricted Stock.
(c) In the case of any consultant Participant, any events of forfeiture
shall be determined by the Committee in its sole discretion (including but
not limited to confidentiality and competitive issues) and shall be set forth
in the Agreement with respect to the Restricted Stock Award granted to such
consultant.
(d) If a Participant's service is terminated for any reason before a
Restricted Stock Award is exchanged for Restricted Stock, then the
Participant shall forfeit all rights under the Restricted Stock Award.
5.5 Change of Control. Upon any Change of Control, unless the Committee in
its sole discretion determines otherwise prior to the Change of Control, all
restrictions applicable to shares of Restricted Stock shall immediately lapse
and the certificate or certificates representing the shares of Common Stock
that were granted to the Participants in the form of shares of Restricted
Stock shall be delivered to the Participants. In addition, each Participant
shall have the right to deliver to the Company cash and receive unrestricted
Common Stock for any unexchanged Restricted Stock Award.
5.6 Waiver of Restrictions. The Committee, in its sole discretion, may at
any time waive any or all restrictions with respect to any Restricted Stock
Award or shares of Restricted Stock.
SECTION VI. MISCELLANEOUS
- --------------------------
6.1 Termination and Amendment. The Board at any time may amend or terminate
the Plan. Notwithstanding any expiration or termination of the Plan, unless
otherwise determined by the Committee, the provisions relating to Restricted
Stock Awards and Restricted Stock contained in Sections II, III, IV, V and VI
shall continue to apply with respect to all Restricted Stock Awards or shares
of Restricted Stock outstanding as of the date of expiration or termination.
6.2 Withholding. Each Participant shall pay to the Company any amount
necessary to satisfy applicable federal, state or local tax withholding
requirements attributable to the grant of a Restricted Stock Award, the
issuance of Restricted Stock under the Plan, or upon the vesting of such
Restricted Stock, promptly upon notification of the amount due. If these
amounts are not paid when requested, then at the election of the Committee,
these amounts may be withheld from the shares of Common Stock that otherwise
would be distributed to such Participant pursuant to the Plan.
6.3 Legal and Other Requirements. The grant of Restricted Stock Awards and
the distribution of shares of Restricted Stock shall be subject to the
condition that if at any time the Company determines in its discretion that
the satisfaction of withholding tax or other tax liabilities, or the listing,
registration or qualification of any shares of Common Stock upon any
securities exchange or under any federal or state law, or the consent or
approval of any regulatory body, is necessary or desirable as a condition of,
or in connection with such grant or distribution, then in any such event,
such grant or distribution shall not be effective unless such liabilities
have been satisfied or such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
7
<PAGE>
6.4 Choice of Law. The Plan, its validity, interpretation and
administration and the rights and obligations of all persons having an
interest therein shall be governed by and construed in accordance with the
laws of the State of Delaware, except to the extent that such laws may be
preempted by federal law.
6.5 Fractional Shares. The Company shall not be required to issue or
deliver any fractional share of Restricted Stock issuable under this Plan but
shall round each issuance of shares of Restricted Stock hereunder up to the
nearest whole share.
6.6 No Employment Contract. The Plan shall not confer upon any Participant
any right to continued employment by the Company nor shall the Plan in any
way interfere with the right of the Company to terminate the employment of
any Participant at any time.
6.7 Section 83(b) Elections. A Participant who files an election with the
Internal Revenue Service to include the fair market value of any shares of
Restricted Stock in gross income during a Restricted Period shall promptly
furnish the Company with a copy of such election together with the amount of
any federal, state, local or other taxes required to be withheld (if any) to
enable the Company to claim an income tax deduction with respect to such
election.
8
<PAGE>
EXHIBIT 21
Subsidiaries
------------
Company Name Jurisdiction of Incorporation
------------ -----------------------------
ALG, Inc. Delaware
Carpet Recycling of Georgia, Inc. Georgia
CJC, Ltd. Bermuda
CWB, Ltd. Bermuda
DRS Holdings NV Netherlands Antilles
Fiber Industries, Inc. Delaware
JCT, Ltd. Bermuda
Josdav, Inc. Delaware
KRP, Ltd. Bermuda
Materials Recovery of California, Inc. Massachusetts
Middlewich Limited Ireland
MRF, Inc. Delaware
Pavebury, Ltd. d/b/a Wellman International Ireland
Prince, Inc. Delaware
Resins Finance BV Netherlands
Shobara Limited Ireland
Warehouse Associates, Inc. South Carolina
Wellman BV Netherlands
Wellman Exports VI, Inc. US Virgin Islands
Wellman Fibres Ltd. United Kingdom
Wellman Finance CV Netherlands
Wellman France Recyclage Sarl France
Wellman International Handelsgesellschaft Gmbh Germany
Wellman International Investments, Limited Ireland
Wellman International Limited Ireland
Wellman of Mississippi, Inc. Delaware
Wellman PAC New Jersey
Wellman PET Resins Europe BV Netherlands
Wellman Polymers, Ld. United Kingdom
Wellman Resins LLC Delaware
Wellman Scholarship Foundation, Inc. South Carolina
Wellman UK Holdings Ltd. United Kingdom
Wellman Voluntary Employees Benefit
Association South Carolina
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements (Form
S-8, Nos. 33-17196, 33-44822, 33-44877, 33-44876, 33-22459, 33-38491,
33-54075, 33-54079, 33-54077 333-47833, 333-28273 and Form S-3, No. 33-36001)
pertaining to various stock option, employee savings, and deferred
compensation and restricted stock plans of Wellman, Inc. of our report dated
February 12, 1998, with respect to the consolidated financial statements and
financial statement schedules included in this Annual Report (Form 10-K) of
Wellman, Inc.
Ernst & Young LLP
Charlotte, North Carolina
March 20, 1998
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements (Form
S-8, Nos. 33-17196, 33-44822, 33-44877, 33-44876, 33-22459, 33-38491,
33-54075, 33-54079, 33-54077, 333-47833, 333-28273 and Form S-3, No.
33-6001) pertaining to various stock option and employee savings plans of
Wellman, Inc. of our report dated 29 January 1998, with respect to the
consolidated financial statements of Wellman International Limited and
Subsidiaries at 31 December 1997 and 1996 and for each of the three years in
the period ended 31 December 1997, included in this Annual Report (Form
10-K) of Wellman, Inc.
KPMG
Chartered Accountants
Registered Auditors
Dublin, Ireland
23 March 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS for fiscal year 10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 131,335
<ALLOWANCES> 5,229
<INVENTORY> 154,133
<CURRENT-ASSETS> 283,605
<PP&E> 1,090,710
<DEPRECIATION> 336,230
<TOTAL-ASSETS> 1,319,225
<CURRENT-LIABILITIES> 112,868
<BONDS> 394,545
0
0
<COMMON> 34
<OTHER-SE> 634,400
<TOTAL-LIABILITY-AND-EQUITY> 1,319,225
<SALES> 1,083,188
<TOTAL-REVENUES> 1,083,188
<CGS> 923,278
<TOTAL-COSTS> 923,278
<OTHER-EXPENSES> 90,597
<LOSS-PROVISION> 5,963
<INTEREST-EXPENSE> 12,160
<INCOME-PRETAX> 51,190
<INCOME-TAX> 20,835
<INCOME-CONTINUING> 30,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,355
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.97
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS for Restated Years
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1995 JUN-30-1996 SEP-30-1997
<CASH> 3,893 15,616 10,054
<SECURITIES> 0 0 0
<RECEIVABLES> 150,907 154,997 129,174
<ALLOWANCES> 5,335 5,446 4,945
<INVENTORY> 200,224 204,226 154,607
<CURRENT-ASSETS> 364,303 371,026 292,306
<PP&E> 776,194 832,131 1,034,527
<DEPRECIATION> 248,638 271,191 325,747
<TOTAL-ASSETS> 1,210,673 1,243,234 1,294,176
<CURRENT-LIABILITIES> 145,835 124,801 102,709
<BONDS> 272,867 304,614 385,725
0 0 0
0 0 0
<COMMON> 33 33 34
<OTHER-SE> 650,313 668,011 632,332
<TOTAL-LIABILITY-AND-EQUITY> 1,210,673 1,243,234 1,294,176
<SALES> 1,109,398 584,851 799,041
<TOTAL-REVENUES> 1,109,398 584,851 799,041
<CGS> 886,817 494,863 678,163
<TOTAL-COSTS> 886,817 494,863 678,163
<OTHER-EXPENSES> 95,204 44,696 70,032
<LOSS-PROVISION> 1,391 0 0
<INTEREST-EXPENSE> 11,666 7,002 10,211
<INCOME-PRETAX> 115,711 38,290 40,635
<INCOME-TAX> 41,657 14,857 16,831
<INCOME-CONTINUING> 74,054 23,433 23,804
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 74,054 23,433 23,804
<EPS-PRIMARY> 2.22 0.70 0.77
<EPS-DILUTED> 2.20 0.69 0.76
</TABLE>
EXHIBIT 28(a)
REPORT OF INDEPENDENT AUDITORS TO THE MEMBERS OF WELLMAN INTERNATIONAL
LIMITED
- -----------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Wellman
International Limited and subsidiaries at 31 December 1997 and 1996, and the
related consolidated profit and loss accounts, retained earnings, and changes
in financial position for each of the three years in the period ended 31
December 1997, all expressed in Irish pounds (not presented separately
herewith). These financial statements are the responsibility of the
company's directors. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, expressed in
Irish pounds, present fairly, in all material respects, the consolidated
financial position of Wellman International Limited and subsidiaries at 31
December 1997 and 1996, and the consolidated results of operations and
changes in financial position for each of the three years in the period ended
31 December 1997 in conformity with accounting principles generally accepted
in the United States of America.
KPMG
Chartered Accountants
Registered Auditors
Dublin, Ireland
29 January 1998
