WELLMAN INC, 10-Q, 1998-08-07

WELLMAN INC
10-Q, 1998-08-07
PLASTIC MATERIAL, SYNTH RESIN/RUBBER, CELLULOS (NO GLASS)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission file number 0-15899

WELLMAN, INC.
-------------
(Exact name of registrant as specified in its charter)

Delaware 04-1671740
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1040 Broad Street, Shrewsbury, NJ 07702
---------------------------------------
(Address of principal executive offices)

(732) 542-7300
--------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No

As of August 5, 1998, there were 33,780,752 shares of the registrant's
common stock, $.001 par value, outstanding and no shares of Class B common
stock outstanding.

<PAGE>
WELLMAN, INC.

INDEX

Page No.
--------
PART I - FINANCIAL INFORMATION

ITEM 1 - Financial Statements

Condensed Consolidated Statements of Income -
For the three and six months ended June 30, 1998 and 1997 3

Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 . . . . . . . . . . . 4

Condensed Consolidated Statements of Stockholders' Equity. . . 5

Condensed Consolidated Statements of Cash Flows -
For the six months ended June 30, 1998 and 1997 . . . . 6

Notes to Condensed Consolidated Financial Statements . . . . . 7 - 9

ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . .10 - 16

PART II - OTHER INFORMATION

ITEM 4 - Submission of Matters to a Vote of Security Holders. . . .17 - 18

ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 19

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2
<PAGE>
<TABLE>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . $261,268 $279,211 $524,341 $534,359

Cost of sales. . . . . . . . . . . 217,766 237,933 438,614 453,952
-------- -------- -------- --------
Gross profit . . . . . . . . . . . 43,502 41,278 85,727 80,407

Selling, general and
administrative expenses . . . . . 19,036 20,587 38,382 41,130

Restructuring charges. . . . . . . -- 7,469 -- 7,469
-------- -------- -------- --------

Operating income . . . . . . . . . 24,466 13,222 47,345 31,808

Interest expense, net . . . . . . 2,254 3,922 4,632 7,197
-------- -------- -------- --------
Earnings before income taxes . . . 22,212 9,300 42,713 24,611

Income taxes . . . . . . . . . . . 7,800 3,999 15,590 10,583
-------- -------- -------- --------

Net earnings . . . . . . . . . . . $ 14,412 $ 5,301 $ 27,123 $ 14,028
======== ======== ======== ========

Basic net earnings per
common share . . . . . . . . . . $ 0.46 $ 0.17 $ 0.87 $ 0.45
======== ======== ======== ========

Diluted net earnings per
common share. . . . . . . . . . . $ 0.46 $ 0.17 $ 0.86 $ 0.45
======== ======== ======== ========
</TABLE>

See notes to condensed consolidated financial statements.

3
<PAGE>
<TABLE>
WELLMAN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ -- $ --
Accounts receivable, less allowance of $4,811
in 1998 and $ 5,229 in 1997 . . . . . . . . . 121,788 126,106
Inventories. . . . . . . . . . . . . . . . . . 179,186 154,133
Prepaid expenses and other current assets. . . 4,666 3,366
---------- ----------
Total current assets. . . . . . . . . . . . 305,640 283,605
Property, plant and equipment, at cost:
Land, buildings and improvements . . . . . . . 104,776 104,073
Machinery and equipment. . . . . . . . . . . . 735,916 735,144
Construction in progress . . . . . . . . . . . 356,276 251,493
---------- ----------
1,196,968 1,090,710
Less accumulated depreciation. . . . . . . . . 367,030 336,230
---------- ----------
Property, plant and equipment, net. . . . . 829,938 754,480
Cost in excess of net assets acquired, net . . . 265,359 269,756
Other assets, net. . . . . . . . . . . . . . . . 11,275 11,384
---------- ----------
$1,412,212 $1,319,225
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . $ 62,019 $ 73,070
Accrued liabilities. . . . . . . . . . . . . . 38,954 39,590
Current portion of long-term debt. . . . . . . 24,165 208
---------- ----------
Total current liabilities . . . . . . . . . 125,138 112,868
Long-term debt . . . . . . . . . . . . . . . . . 449,881 394,545
Deferred income taxes and other liabilities. . . 179,526 177,378
---------- ----------
Total liabilities . . . . . . . . . . . . . 754,545 684,791
Stockholders' equity:
Common stock, $0.001 par value; 55,000,000
shares authorized, 33,768,823 shares issued
in 1998, 33,638,193 in 1997 . . . . . . . . . 34 34
Class B common stock, $0.001 par value; 5,500,000
shares authorized; no shares issued . . . . . -- --
Paid-in capital. . . . . . . . . . . . . . . . 236,905 234,179
Accumulated other comprehensive income . . . . (643) 372
Retained earnings. . . . . . . . . . . . . . . 470,895 449,373
Less common stock in treasury at cost:
2,500,000 shares. . . . . . . . . . . . . . . (49,524) (49,524)
---------- ----------
Total stockholders' equity. . . . . . . . . 657,667 634,434
---------- ----------
$1,412,212 $1,319,225
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.

4
<TABLE>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
(In thousands)
<CAPTION>

COMMON ACCUMULATED
STOCK ISSUED OTHER
--------------- PAID-IN COMPREHENSIVE RETAINED TREASURY
SHARES AMOUNT CAPITAL INCOME EARNINGS STOCK TOTAL
------ ------ ------- ---------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 . 33,612 $34 $233,665 $ 9,853 $429,900 $(49,524) $623,928
Net earnings . . . . . . . . . 30,355 30,355
Currency translation
adjustment. . . . . . . . . (9,481) (9,481)
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
------ --- -------- ------- -------- -------- --------
Balance at December 31, 1997 . 33,638 $34 $234,179 $372 $449,373 $(49,524) $634,434
Net earnings . . . . . . . . . 27,123 27,123
Currency translation
adjustment. . . . . . . . . (1,015) (1,015)
Cash dividends ($0.18 per
share). . . . . . . . . . . . (5,601) (5,601)
Exercise of stock options. . . 54 1,002 1,002
Issuance of restricted stock . 77 1,608 1,608
Tax effect of exercise of
stock options . . . . . . . . 116 116
------ --- -------- ------- -------- -------- --------
Balance at June 30, 1998 . . . 33,769 $34 $236,905 $ (643) $470,895 $(49,524) $657,667
====== === ======== ======= ======== ======== ========

</TABLE>
See notes to condensed consolidated financial statements.

5
<PAGE>
<TABLE>
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . $ 27,123 $14,028
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . 31,571 29,841
Amortization . . . . . . . . . . . . . . . . . 4,368 5,600
Deferred income taxes. . . . . . . . . . . . . 6,048 4,540
Restricted stock issued for compensation . . . 392 --
Changes in assets and liabilities. . . . . . . (36,599) (3,774)
-------- -------

Net cash provided by operating activities . . . . 32,903 50,235
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment. . . . (107,745) (84,787)
Other investing activities. . . . . . . . . . . . -- 5,016
-------- -------

Net cash used in investing activities . . . . . . (107,745) (79,771)
------- -------
Cash flows from financing activities:
Net borrowings of long-term debt. . . . . . . . . 79,443 32,905
Dividends paid on common stock. . . . . . . . . . (5,601) (5,283)
Exercise of stock options . . . . . . . . . . . . 1,002 --
------- -------

Net cash provided by financing
activities . . . . . . . . . . . . . . . . . . . 74,844 27,622
------- -------
Effect of exchange rate changes on cash
and cash equivalents. . . . . . . . . . . . . . . (2) (206)
------- -------

Increase (decrease) in cash and cash equivalents. . --- (2,120)
Cash and cash equivalents at beginning of period. . --- 2,120
------- -------

Cash and cash equivalents at end of period. . . . . $ --- $ ---
======== =======

Supplemental cash flow data:
Cash paid during the period for:
Interest (net of amounts capitalized) . . . . . $ 5,770 $ 8,311
Income taxes. . . . . . . . . . . . . . . . . . $ 7,832 $13,616
Non-cash investing activities financed
through government grants. . . . . . . . . . . . $ 6,639 $10,684
Non-cash settlement of deferred compensation
liability financed through the issuance of
restricted stock . . . . . . . . . . . . . . . . $ 1,216 $ --

</TABLE>
See notes to condensed consolidated financial statements.

6
<PAGE>
WELLMAN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three and six months ended
June 30, 1998 and 1997 is unaudited)
(In thousands)

1. BASIS OF PRESENTATION

The results of operations for the three and six month periods are not
necessarily indicative of those for the full year.

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements are presented on a basis consistent with
the audited statements, and all adjustments, which consist only of normal
recurring adjustments necessary to present fairly the financial position and
the results of operations for the periods indicated, have been reflected.

2. NET EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per share:
Net Income. . . . . . . . . . . . $14,412 $ 5,301 $27,123 $14,028
------- ------- ------- -------
Denominator:
Denominator for basic earnings per
share - weighted average shares. 31,173 31,113 31,156 31,113
Effect of dilutive securities:
Employee stock options and
restricted stock . . . . . . . 463 16 324 24
------- ------- ------- -------
Denominator for diluted earnings
per share-adjusted weighted
average shares . . . . . . . . . 31,636 31,129 31,480 31,137
======= ======= ======= =======
Basic earnings per share. . . . . . $ 0.46 $ 0.17 $ 0.87 $ 0.45
======= ======= ======= =======
Diluted earnings per share. . . . . $ 0.46 $ 0.17 $ 0.86 $ 0.45
======= ======= ======= =======
</TABLE>
3. INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ---------
<S> <C> <C>
Raw materials. . . . . . . . . . . $ 57,134 $ 50,669
Finished and semi-finished goods . 108,406 90,210
Supplies . . . . . . . . . . . . . 13,646 13,254
-------- --------
$179,186 $154,133
======== ========
</TABLE>
4. ENVIRONMENTAL MATTERS

The Company's operations are subject to extensive laws and regulations
governing air emissions, wastewater discharges and solid and hazardous waste

7
<PAGE>
management activities. The Company's policy is to accrue environmental
remediation costs when it is both probable that a liability has been incurred
and the amount can be reasonably estimated. While it is often difficult to
reasonably quantify future environmental-related expenditures, the Company
currently estimates its future non-capital expenditures related to
environmental matters to range between $10,300 and $25,900. In connection
with these expenditures, the Company has accrued an amount at June 30, 1998
within this range representing management's best estimate of probable non-
capital environmental expenditures. In addition, future capital expenditures
aggregating approximately $8,700 to $28,300 may be required related to
environmental matters. These non-capital and capital expenditures are
estimated to be incurred over the next 10 to 20 years. The Company believes
that it is entitled to recover a portion of these expenditures under
indemnification and escrow agreements.

5. COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income for the
Company represents net income adjusted for foreign currency translation
adjustments. Comprehensive income was $16,241 and $2,937 for the three
months ended June 30, 1998 and 1997, respectively, and $26,108 and $8,233 for
the six months ended June 30, 1998 and 1997, respectively.

6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires that costs
incurred during start-up activities, including organization costs, be
expensed as incurred. SOP 98-5 is effective for financial statements for
fiscal years beginning after December 15, 1998. Initial application of SOP
98-5 should be as of the beginning of the fiscal year in which SOP 98-5 is
first adopted and should be reported as a cumulative effect of a change in
accounting principle.

The Company expects to adopt SOP 98-5 in the first quarter of 1999. The
estimated impact of the adoption of SOP 98-5 on the results of operations
will be an after tax charge of approximately $3,000 in the first quarter of
1999 for the cumulative effect of a change in accounting principle. In
addition, start-up costs to be incurred and expensed in 1999 are estimated to
be less than $5,000.

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 in FAS 131, 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

8
<PAGE>
adoption of FAS 131 will not affect results of operations or financial
position.

In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133), effective for fiscal years beginning after June 15, 1999. The Company
expects to adopt the new Statement effective January 1, 2000. The Statement
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. Any portion of a
derivative's change in fair value which is not effective as a hedge of the
underlying assets, liabilities, or firm commitments will be immediately
recognized in earnings. The Company has not yet determined what the effect
of FAS 133 will be on its results of operations or financial position.

9
<PAGE>
WELLMAN, INC.
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 is expected to commence
operation in three phases beginning in late 1998 through the third quarter of
1999. Sales are expected to increase during the course of 1999 as a result
of additional volumes from this facility. By the year 2002, this facility is
expected to have annual capacity to manufacture approximately 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 fourth-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. Since late 1997, the Far East has
been experiencing a significant economic and financial crisis. This crisis
has led to higher imports of polyester fiber, fabric and apparel, and fiber
price pressure in the U.S. and Europe, which has adversely affected
profitability. Global PET resins demand continues to grow, driven by new
product applications for PET and conversions 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;

10
<PAGE>
the prices of competing materials, such as cotton, which can affect demand
for its products; and economic and market conditions in the United States,
Europe, the Far East and other regions of the world.

Raw material margins for the chemical-based fiber and PET resins
businesses have generally been influenced by supply and demand factors.
Worldwide supply of these products, as well as their raw materials, PTA and
MEG, continues to undergo significant expansion. Prices of PTA and MEG,
major determinants of polyester fiber and PET resins selling prices, are
cyclical. Changes in PTA and MEG prices are driven by worldwide supply and
demand. 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 generally move independently from
fiber prices. Recycled raw material costs are primarily dependent upon
worldwide supply and demand for recycled materials.

The Company's sales are not materially dependent upon a single customer.
Sales for PET resins, primarily for soft drink bottles and other beverages,
may be influenced by weather. 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.

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997

Net sales for the three months ended June 30, 1998 decreased 6.4% to
$261.3 million from $279.2 million for the three months ended June 30, 1997.
This decrease was primarily the result of lower worldwide polyester fiber
selling prices and the loss of sales of Creative Forming, Inc. (CFI), which
was sold in December 1997. Sales for the Fibers Group decreased 14.3% to
$91.8 million in the 1998 period from $107.1 million in the 1997 period due
to lower polyester fiber selling prices. Sales for the Recycled Products
Group (RPG) remained essentially unchanged at $98.2 million in the 1998
period compared to $98.1 million in the year-ago period due primarily to
higher worldwide recycled polyester fiber sales volumes which offset lower
worldwide polyester fiber selling prices. Sales for the Packaging Products
Group (PPG) decreased 3.6% in the 1998 period to $71.3 million from $74.0
million in the 1997 period resulting from increased domestic PET resin sales
offset by the divestiture of CFI, which had sales in the second quarter of
1997 of $5.9 million, and decreased sales volumes at the Company's European
resins operation due to the restructuring in the second quarter of 1997 (see
below).

Gross profit for the three months ended June 30, 1998 increased 5.3% to
$43.5 million for the 1998 period from $41.3 million for the comparable 1997
period. The gross profit margin for the 1998 period was 16.7% compared to
14.8% for the 1997 period. This increase was primarily the result of
increased profitability in the PPG, which offset lower profitability in both
the Fibers Group and the RPG. Gross profit for the PPG increased
significantly in the 1998 period compared to the 1997 period due primarily to
lower worldwide raw material and overall costs. Gross profit for the Fibers
Group decreased in the 1998 period as compared to the 1997 period due to
lower polyester fiber selling prices which more than offset lower raw
material costs. Gross profit for the RPG decreased in the 1998 period as
compared to the year-ago period due primarily to higher domestic raw material
costs and lower worldwide polyester fiber selling prices.

11
<PAGE>
Selling, general and administrative expense amounted to $19.0 million, or
7.3% of sales, for the 1998 period compared to $20.6 million, or 7.4% of
sales, for the 1997 period. The decrease was due to reduced costs at the
Company's European operations resulting from the restructuring plan
implemented in the second quarter of 1997 and the divestiture of CFI.

During the second quarter of 1997, the Company implemented a
restructuring plan designed to reduce costs and enhance the competitive
position of its European operations, resulting in a pre-tax charge of
approximately $7.5 million. The restructuring charge consisted of costs for
reducing the number of pounds required to be purchased under a take-or-pay
supply arrangement and the modification of certain service agreements at its
Netherlands-based PET resins business. The restructuring charge also
included termination benefits related to a workforce reduction at the
Company's Irish fiber operation.

As a result of the foregoing, operating income was $24.5 million for the
second quarter of 1998 compared to $13.2 million, or $20.7 million excluding
the restructuring charge, for the second quarter of 1997.

Interest expense was $2.3 million for the 1998 period compared to $3.9
million for the 1997 period. The decrease in interest expense is due to
higher interest capitalization resulting from the Company's ongoing capital
investment program.

The effective income tax rate was 35.1% in the second quarter of 1998
compared to 43.0% in the comparable 1997 period. The tax rate decreased
primarily as a result of an overall increase in earnings in conjunction with
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 in the three months ended June
30, 1998 were $14.4 million, or $0.46 per diluted share, compared to $5.3
million, or $0.17 per diluted share, for the three months ended June 30,
1997. Excluding the restructuring charge, net earnings for the 1997 period
were $9.6 million, or $0.31 per diluted share.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

Net sales for the six months ended June 30, 1998 decreased 1.9% to $524.3
million from $534.4 million for the six months ended June 30, 1997. This
decrease was primarily the result of lower worldwide polyester fiber selling
prices. Sales for the Fibers Group decreased 9.7% to $191.9 million in the
1998 period from $212.5 million in the 1997 period due to lower polyester
fiber selling prices. Sales for the RPG increased 5.2% to $202.8 million in
the 1998 period from $192.8 million in the year-ago period due primarily to
an increase in worldwide recycled polyester fiber sales volumes and increased
sales in other divisions offsetting lower worldwide polyester fiber selling
prices. Sales for the PPG increased slightly in the 1998 period to $129.7
million from $129.0 million in the 1997 period due to higher worldwide PET
resins selling prices and increased domestic sales volumes offsetting the
divestiture of CFI, which had sales in the first half of 1997 of $11.0
million, and decreased sales volumes at the Company's European resins
operation due to the restructuring in the second quarter of 1997 (see above).

Gross profit for the six months ended June 30, 1998 increased 6.6% to
$85.7 million for the 1998 period from $80.4 million for the comparable 1997
period. The gross profit margin for the 1998 period was 16.3% compared to
15.0% for the 1997 period. This increase was primarily the result of

12
<PAGE>
increased profitability in the PPG, which offset lower profitability in both
the Fibers Group and the RPG. Gross profit for the PPG increased
significantly in the 1998 period compared to the 1997 period due primarily to
lower worldwide raw material costs and higher selling prices. Gross profit
for the Fibers Group decreased in the 1998 period as compared to the 1997
period due to lower polyester fiber selling prices which more than offset
lower raw material costs. Gross profit for the RPG decreased in the 1998
period as compared to the year-ago period due primarily to higher domestic
raw material costs and lower worldwide polyester fiber selling prices, which
offset lower raw material costs at the Company's Irish fiber operation.

Selling, general and administrative expense amounted to $38.4 million, or
7.3% of sales, for the 1998 period compared to $41.1 million, or 7.7% of
sales, for the 1997 period. 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 above) and the divestiture of
CFI.

As a result of the foregoing, operating income was $47.3 million for the
first six months of 1998 compared to $31.8 million, or $39.3 million
excluding the restructuring charge, for the comparable 1997 period.

Interest expense was $4.6 million for the 1998 period compared to $7.2
million for the 1997 period. The decrease in interest expense is due to
higher interest capitalization resulting from the Company's ongoing capital
investment program.

The effective income tax rate was 36.5% in the first six months of 1998
compared to 43.0% in the comparable 1997 period. The tax rate decreased
primarily as a result of an overall increase in earnings in conjunction with
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 in the six months ended June
30, 1998 were $27.1 million, or $0.86 per diluted share, compared to $14.0
million, or $0.45 per diluted share for the six months ended June 30, 1997.
Excluding the restructuring charge, net earnings for the 1997 period were
$18.3 million, or $0.59 per diluted share.

OUTLOOK

The worldwide polyester fiber market has begun to experience some effects
from the financial crisis of the Far East which began in late 1997. In the
United States, higher imports of polyester fiber, fabric and apparel have
led to sluggish demand and intense price competition. This situation is
expected to continue and to affect the European polyester fiber market in the
future. Domestic fiber profit margins are expected to remain at low levels
primarily due to continued downward pressure on selling prices.

To date, the PET resins market has experienced little effect from the Far
Eastern financial crisis. However, the Company expects some adverse impact
in the European PET resins market beginning in the second half of 1998.

The Company is nearing completion of construction of its Pearl River
Plant in Mississippi. Resin production at this facility is expected to come
on-line in phases beginning in late 1998 through the second quarter of 1999.
As a result, resins sales are expected to increase during the course of 1999.
The plant's fiber production line is expected to commence operation in the
third quarter of 1999. In line with the current start-up plan, the Company

13
<PAGE>
plans to perform previously delayed maintenance on various production lines
at other facilities over the next 18 months. As a result, fiber volumes are
expected to increase only modestly during the latter part of 1999. The
start-up of the Pearl River Plant and other worldwide fiber and resins
capacity expansions in 1998 and 1999 may result in downward pressure on
selling prices and profit margins during the second half of 1998 and in 1999.

In 1999, the Company's results of operations will be impacted by certain
increased expenses associated with the start-up of the Pearl River Plant.
Interest costs, previously capitalized during the construction of the
facility, will be expensed as incurred. The Company will also begin
depreciating the facility in phases as each production line commences
operation. Additionally, in accordance with SOP 98-5, one-time start-up
costs associated with the new facility that will be expensed are estimated to
be less than $5 million in 1999. Accordingly, net earnings from continuing
operations may be adversely affected during 1999.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operations was $32.9 million for the six months
ended June 30, 1998 compared to $50.2 million for the six months ended June
30, 1997. The decrease in cash from operations was primarily the result of
increased inventory levels in preparation for the start-up of the Company's
Pearl River Plant.

Net cash used in investing activities amounted to $107.7 million in the
first six months of 1998 compared to $79.8 million in the first six months of
1997. Capital spending amounted to $107.7 in the 1998 period compared to
$84.8 million in the 1997 period reflecting the Company's ongoing capital
investment program.

Net cash provided by financing activities amounted to $74.8 million in
the first half of 1998 compared to $27.6 million in the comparable 1997
period. Net borrowings amounted to $79.4 million in the 1998 period compared
to $32.9 million in the 1997 period as a result of the Company's ongoing
capital investment program.

In 1998, the Company adopted a policy that requires all outside members
of the Board of Directors and certain officers to achieve designated levels
of stock ownership over the next five years. Members of management must own
shares of stock valued at up to four times their annual base salary. In
addition, a restricted stock plan was approved by the stockholders at the
annual meeting in May 1998. During the second quarter of 1998, directors and
officers acquired approximately 77,000 shares of restricted stock.

With the completion of the PET resins capacity expansion at the
Darlington, SC plant in the second quarter of 1997, the major portion of the
Company's ongoing capital investment program is the construction of its Pearl
River Plant in Mississippi. The total capitalized cost of the facility is
estimated to range between $470 and $500 million. This facility,
approximately 76% completed, is expected to be operational in three phases
beginning in late 1998 through the third quarter of 1999. The Company's
planned aggregate capital expenditures in the remainder of 1998 and through
the end of 1999 are estimated to range between $210 and $240 million. The
exact amount and timing of the capital spending is difficult to predict due
to equipment delivery and construction schedules.

The Company's financing agreements contain normal financial and
restrictive covenants. Certain subsidiaries have guaranteed substantially
all of the Company's indebtedness for borrowed money. The financial
resources available to the Company at June 30, 1998 include $260 million
14
<PAGE>
under its $330 million revolving credit facility, unused short-term
uncommitted lines of credit aggregating approximately $221 million, and
internally generated funds. The Company is considering other forms of
financing including the issuance of public securities. On July 30, 1998, the
Company filed a shelf registration statement covering the issuance of up to
$400 million of debt and/or equity securities. The Company believes these
financial resources and other credit arrangements will be sufficient to meet
its foreseeable working capital, capital expenditure and dividends.

The Company has entered into two types of financial instruments relating
to interest rate stabilization. One instrument, with a notional amount of
$150 million, was designed to provide a fixed 10-year interest rate on $150
million of debt of approximately 6.6% (exclusive of corporate spreads)
if issued by September 15, 1998. The Company has also entered into interest
rate swaps with an aggregate notional amount of $200 million at June 30, 1998
to fix the interest rate on variable rate borrowings. These agreements have
maturity dates which range from a minimum of 5 years to a maximum of 10 years
from their inception dates (ranging from June 1997 to May 1998). The swaps
will effectively fix the rate of interest between 6.10% and 6.20% (exclusive
of corporate spreads) on $200 million of borrowings. In aggregate, the
Company estimates it would have had to pay approximately $19.8 million to
terminate these agreements at June 30, 1998.

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 June 30, 1998 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 June 30, 1998, the amount the Company would have received had
these contracts been terminated was not significant.

The Company has also entered into forward foreign currency contracts to
exchange U.S. dollars for German marks with an aggregate notional amount of
$3.7 million at June 30, 1998. 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 July 1998 through
March 1999. At June 30, 1998, the cost to terminate these contracts was
immaterial.

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 June 30, 1998,
the notional amount of such contracts was $11.4 million and the cost to
terminate these contracts was immaterial.

The Company's estimates with respect to the values of its derivative
instruments are based on readily available dealer quotes.

YEAR 2000

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. In addition, the
Company has initiated formal communications with all of its significant
suppliers and larger customers to determine the extent to which the Company's

15
<PAGE>
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issues. 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). The Company expects to adopt
SOP 98-5 in the first quarter of 1999. The estimated impact of the adoption
of SOP 98-5 on the results of operations will be an after tax charge of
approximately $3 million in the first quarter of 1999 for the cumulative
effect of a change in accounting principle. In addition, start-up costs to
be incurred and expensed in 1999 are estimated to be less than $5 million.
See note 6 to the condensed consolidated financial statements.

In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133), effective for fiscal years beginning after June 15, 1999. The Company
has not yet determined what the effect of FAS 133 will be on its results of
operations or financial position. See note 6 to the condensed consolidated
financial statements.

FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES

Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. 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 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.

For a more complete description of the prominent risks and uncertainties
inherent in the Company's business, see the Company's Form 10-K for the year
ended December 31, 1997.
16
<PAGE>
PART II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) The Annual Meeting of Stockholders was held on May 19, 1998.

(b) Not applicable.

1. The nominees for election as directors for the ensuing year, and
until their successors are elected and qualified, received the
following votes:
Name For Against/Withheld
---- --- ----------------

Thomas M. Duff 26,179,575 481,430

Clifford J. Christenson 26,155,307 505,698

James B. Baker 26,192,326 468,679

Allan R. Dragone 26,173,347 487,658

Richard F. Heitmiller 26,187,351 473,654

Jonathan M. Nelson 26,184,756 476,249

James E. Rogers 26,196,305 464,700

Raymond C. Tower 26,172,365 488,640

Roger A. Vandenberg 26,191,320 469,685

As a result, all of the above nominees were elected to the
Board.(*)

2. The proposal to ratify the selection by the Board of Directors of
Ernst & Young LLP as independent auditors to audit the Company's
books and accounts for the fiscal year ending December 31, 1998
received the following votes: 26,540,914 votes cast for, 88,088
votes cast against, 32,003 abstentions. As a result, the Board's
selection of Ernst & Young LLP was approved.(*)

3. The proposal to ratify the adoption of the Deferred Compensation
and Restricted Stock Plan received the following votes:
24,066,753 votes cast for, 2,513,134 votes cast against, 81,118
abstentions. As a result, the adoption of the Deferred
Compensation and Restricted Stock Plan was approved.(*)

4. The stockholder proposal to request the Board of Directors to
redeem the shareholder rights issued on August 6, 1991 unless the
issue is approved by the majority of stockholders received the
following votes: 15,024,748 votes cast for, 7,138,312 votes
cast against, 239,596 abstentions and 4,258,349 broker non-votes.
As a result, the stockholder proposal was approved.

17
<PAGE>
(*) Under the rules of the New York Stock Exchange, brokers holding
shares in street name have the authority to vote certain matters when
they have not received instructions from the beneficial owners.
Brokers that did not receive such instructions were entitled to vote
on proposals 1 through 3. As a result, broker non-votes had no
effect on the outcome of these proposals.

(d) Not applicable.

18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

4(a) 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.

10(a) Wellman, Inc. Amended and Restated Executive Retirement
Restoration Plan, effective as of January 1, 1993, and as
amended, effective as of June 1, 1998.

10(b) Wellman, Inc. Deferred Compensation and Restricted Stock Plan,
effective as of February 17, 1998, and as amended, effective as
of June 1, 1998.

27 Financial Data Schedule.

(b) Reports on Form 8-K.

None.

19
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

WELLMAN, INC.

Dated August 7, 1998 By /s/ Keith R. Phillips
------------- ------------------------
Keith R. Phillips
Chief Financial Officer,
Vice President and Treasurer
(Principal Financial Officer)

Dated August 7, 1998 By /s/ Mark J. Rosenblum
------------- ------------------------
Mark J. Rosenblum
Chief Accounting Officer,
Vice President and Controller
(Principal Accounting Officer)

20
<PAGE>

EXHIBIT 10(a)

WELLMAN, INC.

AMENDED AND RESTATED
EXECUTIVE RETIREMENT RESTORATION PLAN

Effective as of January 1, 1993,
and as Amended, Effective as of June 1, 1998

<PAGE>
TABLE OF CONTENTS

SECTION TITLE PAGE
PREAMBLE 4
I. DEFINITIONS 4
1.1 Beneficiary 4
1.2 Code 4
1.3 Committee 4
1.4 Company 4
1.5 Company Contribution Credits 4
1.6 Company Contribution Credits Account 4
1.7 Compensation 4
1.8 Contribution Credits Account 5
1.9 Deferral Election Form 5
1.10 Disability 5
1.11 Employee Contribution Credits 5
1.12 Employee Contribution Credits Account 5
1.13 ESOP 5
1.14 IRS 5
1.15 Limited Compensation 5
1.16 Participant 5
1.17 Plan 6
1.18 Plan Year 6
1.19 Qualified Retirement Plans 6
1.20 Retirement 6
1.21 Retirement Plan 6

2
<PAGE>

TABLE OF CONTENTS

(CONTINUED)

SECTION TITLE PAGE
1.22 Service 6
1.23 The Masculine Gender 6

II ELIGIBILITY FOR RETIREMENT BENEFITS 6
III CONTRIBUTIONS TO THE PLAN 7
3.1 Amount of Company Contribution Credits 7
3.2 Amount of Employee Contribution Credits 8
3.3 Crediting of Earnings 8-9
IV DISTRIBUTABLE EVENTS AND DISTRIBUTION OF AMOUNTS 9
4.1 Retirement 9
4.2 Death 9
4.3 Termination of Employment 10
4.4 Withdrawals/Loans Not Allowed 10

V MISCELLANEOUS 10-12

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 June 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 paid under the Wellman, Inc. Management Incentive Compensation Plan
(other than such bonuses and Wellman, Inc. Management Incentive Compensation

4
<PAGE>
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
Credits allocated to his Employee Contribution Credits Account for the
ensuing Plan Year by so electing on a new Deferral Election Form.

5
<PAGE>
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.
Effective May 31, 1997, the Plan Year was a short Plan Year of June 1, 1997
to February 28, 1998. Effective March 1, 1998, the Plan Year will be the
twelve month period beginning March 1 and ending the following February 28.

1.19 "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.

1.20 "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.

1.21 "Retirement Plan" shall mean the Wellman, Inc. Retirement Plan.

1.22 "Service" shall mean a Participant's Service as defined in the ESOP.

1.23 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.

6
<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.

7
<PAGE>

Any Participant who receives a hardship withdrawal from the Retirement Plan
r the ESOP is prohibited from having Employee Contributions credited to this
Plan and all other plans maintained by the Company for a twelve (12) month
period beginning as of the first day of the month following receipt of the
hardship withdrawal.

3.3 Crediting of Earnings

(A) Sub-Accounts

Each Participant's Company Contribution Credits Account and Employee
Contribution Credits Account shall be comprised of three sub-accounts: a
Money Market Account, a Fixed Income 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 Fixed Income Account. As of February 28th 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 February 28th of each Plan Year thereafter, a
portion of the dollar value of the Participant's existing Stock Account shall
be automatically transferred to the Fixed Income Account. The portion so
transferred shall be a ratio the numerator of which is the number of February
28ths 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 February 28th on or following a
Participant's 55th birthday, 1/10th of the value of the Stock Account on that
February 28th will be transferred to the Cash Account, as of the second
February 28th, 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 plan quarter (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 plan quarter (or other period specified by the
Compensation Committee), as reported by the Trustee for the ESOP.

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 Plan Year in which such dividends are
paid, as reported by the Trustee for the ESOP.

The value of share units 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 Trustee for the ESOP.

The amount allocated as a credit to the Money Market Account shall be
converted to a cash balance to be credited with interest as follows: Interest

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<PAGE>

shall be credited on a monthly basis in each Money Market 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 the investment fund specified by the Compensation Committee
for such month.

(D) Fixed Income Account

The amount allocated as a credit to the Fixed Income 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 Fixed Income 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 the investment fund specified by the Compensation Committee
for such month.

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
Money Market Account, then from the Fixed Income 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 plan 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.

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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
f 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:

Years of Service Percent Vested
---------------- --------------

Less than One 0%
One 20%
Two 40%
Three 60%
Four 80%
Five 100%

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 Committee 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

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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.

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 Committee reserves the right to suspend, cancel, or forfeit the
portion of the installment payouts with respect to the Company Contribution

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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.

<PAGE>

EXHIBIT 10(b)

WELLMAN, INC.
DEFERRED COMPENSATION AND RESTRICTED STOCK PLAN

Effective as of February 17, 1998,
and As Amended, Effective as of June 1, 1998

SECTION I. PURPOSE OF THE PLAN

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 as amended, shall be
effective as of June 1, 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 Beneficiary means any person, estate or trust entitled to receive the
certificate or certificates representing shares of Common Stock upon which
the restrictions have lapsed upon the death of a Participant, including
contingent Beneficiaries.

2.4 Board means the Board of Directors of the Company.

2.5 Business Day means any day on which the New York Stock Exchange is open
and the Common Stock is traded.

2.6 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

<PAGE>
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.

2.7 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.

2.8 Committee means the Compensation Committee of the Board or any
successor committee.

2.9 Common Stock means the Common Stock, $.001 par value, of Wellman, Inc.

2.10 Company means Wellman, Inc. and its subsidiaries with domestic
operations.

2.11 Disability shall have the meaning specified in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended.

2.12 Effective Date shall have the meaning set forth in subsection 1.2
hereof.

2.13 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.

2.14 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.

2.15 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.

2.16 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.

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<PAGE>
2.17 Plan means this Wellman, Inc. Deferred Compensation and Restricted
Stock Plan, as it may be amended from time to time.

2.18 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.

2.19 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.

2.20 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.

2.21 Retirement means retirement from the Company on or after 55 years of
age.

2.22 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

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<PAGE>
stockholders, or any other change affecting shares or the Company's
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. (a) 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.

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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.

(b) For purposes of Section 4.1 and this Section 4.2, any Participant who
receives a hardship withdrawal from the Wellman, Inc. Retirement Plan or the
Wellman, Inc. Employee Stock Ownership Plan shall be prohibited from having
any deferred compensation contributions made to this Plan and all others
plans maintained by the Company for a twelve (12) month period beginning as
of the first day of the month following receipt of the hardship withdrawal.

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

5
<PAGE>
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 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

6
<PAGE>
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 Beneficiary).

(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
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

7
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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.

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>

<ARTICLE> 5
<LEGEND>
ART. 5 FDS for second quarter 1998 10-q
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 126,599
<ALLOWANCES> 4,811
<INVENTORY> 179,186
<CURRENT-ASSETS> 305,640
<PP&E> 1,196,968
<DEPRECIATION> 367,030
<TOTAL-ASSETS> 1,412,212
<CURRENT-LIABILITIES> 125,138
<BONDS> 449,881
0
0
<COMMON> 34
<OTHER-SE> 657,633
<TOTAL-LIABILITY-AND-EQUITY> 1,412,212
<SALES> 524,341
<TOTAL-REVENUES> 524,341
<CGS> 438,614
<TOTAL-COSTS> 438,614
<OTHER-EXPENSES> 38,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,632
<INCOME-PRETAX> 42,713
<INCOME-TAX> 15,590
<INCOME-CONTINUING> 27,123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,123
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.86

</TABLE>