UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(Mark one)
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2005
OR
o
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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 1-10033
| Delaware | 04-1671740 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 1041 521 Corporate Center Drive | ||
| Fort Mill, South Carolina | 29715 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (803) 835-2000
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
As of April 29, 2005, there were 32,444,627 shares of the registrant’s Class A common stock, $0.001 par value, outstanding and no shares of Class B common stock outstanding.
WELLMAN, INC.
INDEX
| Page No. | ||||||||
PART I — FINANCIAL INFORMATION |
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| 20 | ||||||||
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| 22 | ||||||||
| 23 | ||||||||
| SECTION 302 CERTIFICATION OF CEO | ||||||||
| SECTION 302 CERTIFICATION OF CFO | ||||||||
| SECTION 906 CERTIFICATION OF CEO | ||||||||
| SECTION 906 CERTIFICATION OF CFO | ||||||||
2
ITEM 1. FINANCIAL STATEMENTS
WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In millions, except per share data)
| Three Months ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Net sales |
$ | 386.3 | $ | 293.8 | ||||
Cost of sales |
340.8 | 276.4 | ||||||
Gross profit |
45.5 | 17.4 | ||||||
Selling, general and administrative expenses |
18.1 | 14.5 | ||||||
Non-capitalizable financing costs |
— | 40.2 | ||||||
Provision for uncollectible accounts |
— | 0.3 | ||||||
Restructuring charges |
— | 0.3 | ||||||
Other expense |
1.8 | 1.2 | ||||||
Operating income (loss) |
25.6 | (39.1 | ) | |||||
Interest expense, net |
10.4 | 7.5 | ||||||
Earnings (loss) before income taxes (benefit) |
15.2 | (46.6 | ) | |||||
Income tax expense (benefit) |
4.2 | (18.4 | ) | |||||
Net earnings (loss) |
$ | 11.0 | $ | (28.2 | ) | |||
Net earnings (loss) attributable to common stockholders: |
||||||||
Net earnings (loss) |
$ | 11.0 | $ | (28.2 | ) | |||
Accretion of preferred stock |
(4.0 | ) | (3.0 | ) | ||||
Net earnings (loss) attributable to common stockholders |
$ | 7.0 | $ | (31.2 | ) | |||
Basic net earnings (loss) per common share: |
||||||||
Net earnings (loss) attributable to common stockholders |
$ | 0.22 | $ | (0.99 | ) | |||
Diluted net earnings (loss) per common share: |
||||||||
Net earnings (loss) attributable to common stockholders |
$ | 0.20 | $ | (0.99 | ) | |||
Dividends per common share |
$ | 0.05 | $ | 0.05 | ||||
See Notes to Condensed Consolidated Financial Statements.
3
WELLMAN, INC.
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
| (Unaudited) | (Note 1) | |||||||
ASSETS: |
||||||||
Current assets: |
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Cash and cash equivalents |
$ | 8.2 | $ | 5.6 | ||||
Accounts receivable, less allowance of $2.2 in 2005 and $2.6 in 2004 |
193.3 | 200.2 | ||||||
Inventories |
173.5 | 145.0 | ||||||
Prepaid expenses and other current assets |
25.3 | 27.1 | ||||||
Total current assets |
400.3 | 377.9 | ||||||
Property, plant and equipment, at cost: |
||||||||
Land, buildings and improvements |
139.4 | 140.4 | ||||||
Machinery and equipment |
1,091.0 | 1,095.9 | ||||||
Construction in progress |
16.1 | 11.0 | ||||||
| 1,246.5 | 1,247.3 | |||||||
Less accumulated depreciation |
601.3 | 591.8 | ||||||
Property, plant and equipment, net |
645.2 | 655.5 | ||||||
Goodwill, net |
37.6 | 38.2 | ||||||
Other assets, net |
89.5 | 95.3 | ||||||
| $ | 1,172.6 | $ | 1,166.9 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
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Current liabilities: |
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Accounts payable |
$ | 103.5 | $ | 113.3 | ||||
Accrued liabilities |
42.2 | 49.2 | ||||||
Total current liabilities |
145.7 | 162.5 | ||||||
Long-term debt |
487.5 | 471.5 | ||||||
Deferred income taxes and other liabilities |
108.3 | 106.4 | ||||||
Total liabilities |
741.5 | 740.4 | ||||||
Stockholders’ equity: |
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Series A preferred stock, $0.001 par value, 5,000,000 shares authorized, 4,502,143
shares issued and outstanding |
57.6 | 56.0 | ||||||
Series B preferred stock, $0.001 par value; 6,700,000 shares authorized, issued and
outstanding |
85.7 | 83.3 | ||||||
Class A common stock, $0.001 par value; 100,000,000 shares authorized,
34,944,627 shares issued in 2005 and 34,531,747 in 2004 |
— | — | ||||||
Class B common stock, $0.001 par value, 5,500,000 shares authorized, no shares
issued |
— | — | ||||||
Paid-in capital |
246.4 | 245.5 | ||||||
Common stock warrants |
4.9 | 4.9 | ||||||
Accumulated other comprehensive income |
25.3 | 31.0 | ||||||
Retained earnings |
60.7 | 55.3 | ||||||
Less common stock in treasury at cost: 2,500,000 shares |
(49.5 | ) | (49.5 | ) | ||||
Total stockholders’ equity |
431.1 | 426.5 | ||||||
| $ | 1,172.6 | $ | 1,166.9 | |||||
See Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Class A | Common | Other | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Paid-In | Stock | Comprehensive | Retained | Treasury | |||||||||||||||||||||||||||||||||||||||||
| Stock Issued | Stock Issued | Stock Issued | Capital | Warrants | Income | Earnings | Stock | Total | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2003 |
4.5 | $ | 51.0 | 6.7 | $ | 76.0 | 34.4 | $ | — | $ | 245.3 | $ | 4.9 | $ | 25.2 | $ | 112.7 | $ | (49.5 | ) | $ | 465.6 | ||||||||||||||||||||||||||
Net loss |
(38.8 | ) | (38.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments |
10.3 | 10.3 | ||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability
adjustments |
(2.1 | ) | (2.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Fair value of derivatives |
(2.4 | ) | (2.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive loss |
(33.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($0.20 per share) |
(6.3 | ) | (6.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Equity transaction costs |
(0.1 | ) | (0.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Accretion of preferred stock |
5.0 | 7.3 | (12.3 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options, net |
— | — | 0.2 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net |
0.1 | — | 0.1 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2004 |
4.5 | 56.0 | 6.7 | 83.3 | 34.5 | — | 245.5 | 4.9 | 31.0 | 55.3 | (49.5 | ) | 426.5 | |||||||||||||||||||||||||||||||||||
Net earnings |
11.0 | 11.0 | ||||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments |
(6.4 | ) | (6.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Fair value of derivatives |
0.7 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income |
5.3 | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends ($0.05 per share) |
(1.6 | ) | (1.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Accretion of preferred stock |
1.6 | 2.4 | (4.0 | ) | — | |||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options, net |
— | 0.2 | 0.2 | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock, net |
0.4 | 0.7 | 0.7 | |||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2005
(unaudited) |
4.5 | $ | 57.6 | 6.7 | $ | 85.7 | 34.9 | $ | — | $ | 246.4 | $ | 4.9 | $ | 25.3 | $ | 60.7 | $ | (49.5 | ) | $ | 431.1 | ||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
5
WELLMAN, INC.
| 2005 | 2004 | |||||||
Cash flows from operating activities: |
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Net earnings (loss) |
$ | 11.0 | $ | (28.2 | ) | |||
Adjustments to reconcile net earnings (loss) to net cash used in operating
activities: |
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Depreciation |
14.0 | 13.6 | ||||||
Amortization |
4.8 | 3.1 | ||||||
Amortization in interest expense, net |
0.9 | 0.8 | ||||||
Deferred income taxes and other |
3.1 | (19.4 | ) | |||||
Non-capitalizable financing costs |
— | 21.0 | ||||||
Changes in assets and liabilities |
(39.5 | ) | (42.0 | ) | ||||
Net cash used in operating activities |
(5.7 | ) | (51.1 | ) | ||||
Cash flows from investing activities: |
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Additions to property, plant and equipment |
(6.5 | ) | (1.9 | ) | ||||
Purchase of sale-leaseback assets |
— | (150.0 | ) | |||||
Pre-payment of raw material contract |
— | (77.1 | ) | |||||
Net cash used in investing activities |
(6.5 | ) | (229.0 | ) | ||||
Cash flows from financing activities: |
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Borrowings under long-term debt, net |
15.8 | 114.7 | ||||||
Termination of swaps |
— | (11.9 | ) | |||||
Dividends paid on common stock |
(1.6 | ) | (1.5 | ) | ||||
Debt issuance costs |
— | (18.0 | ) | |||||
Exercise of employee stock options |
0.2 | — | ||||||
Net cash provided by financing activities |
14.4 | 83.3 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
0.4 | 0.3 | ||||||
Increase (decrease) in cash and cash equivalents |
2.6 | (196.5 | ) | |||||
Cash and cash equivalents at beginning of period |
5.6 | 205.5 | ||||||
Cash and cash equivalents at end of period |
$ | 8.2 | $ | 9.0 | ||||
See Notes to Condensed Consolidated Financial Statements.
6
WELLMAN, INC.
1.
|
BASIS OF PRESENTATION |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
The Condensed Consolidated Balance Sheet (“Balance Sheet”) at December 31, 2004 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Wellman, Inc.’s (which, together with its subsidiaries, is herein referred to as the “Company ”) annual report on Form 10-K for the year ended December 31, 2004.
Certain 2004 amounts have been reclassified to conform to the 2005 presentation.
2.
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INVENTORIES |
Inventories consisted of the following:
| March 31, | December 31, | |||||||
| 2005 | 2004 | |||||||
Raw materials |
$ | 55.7 | $ | 47.5 | ||||
Finished and semi-finished goods |
110.3 | 90.2 | ||||||
Supplies |
7.5 | 7.3 | ||||||
| $ | 173.5 | $ | 145.0 | |||||
3.
|
RESTRUCTURING CHARGES |
In November 2003, the Company announced a plan with Company-wide cost reduction initiatives that included eliminating levels of management, reducing the number of employees, and other organizational and administrative consolidations and changes. The Company incurred severance and contract termination costs in its FRPG segment of $0.3 in the first quarter of 2004 associated with this plan. These costs were reflected in operating income (loss) in the Condensed Consolidated Statements of Operations. The following represents changes in the accruals since December 31, 2003.
7
| Severance | ||||
| Costs | ||||
Accrual balances at December 31, 2003 |
$ | 6.1 | ||
Accruals during the first quarter of 2004 |
0.3 | |||
Cash payments |
(4.4 | ) | ||
Currency translation adjustments |
(0.1 | ) | ||
Accrual balances at March 31, 2004 |
1.9 | |||
Accruals during the remainder of 2004 |
2.6 | |||
Cash payments during the remainder of 2004 |
(3.1 | ) | ||
Currency translation adjustments during the
remainder of 2004 |
0.2 | |||
Accrual balances at December 31, 2004 |
1.6 | |||
Accruals during the first quarter of 2005 |
— | |||
Cash payments |
(1.0 | ) | ||
Currency translation adjustments |
(0.1 | ) | ||
Accrual balances at March 31, 2005 |
$ | 0.5 | ||
The reduction in the number of employees was completed by the end of 2004; however, due to union negotiations, certain payments were not made in 2004 but are expected to be paid out during 2005.
4.
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OTHER EXPENSE |
Other expense for the three months ended March 31, 2005 and 2004 was $1.8 and $1.2, respectively. Other expense consisted of legal fees and other expenses in connection with an investigation by the Department of Justice (“DOJ”) into pricing in the polyester staple fiber industry (which the DOJ has since abandoned) and related civil litigation (“Legal Costs”).
5.
|
NET EARNINGS (LOSS) PER COMMON SHARE |
The following table sets forth the computation of basic and diluted net earnings (loss) attributable to common stockholders per common share for the periods indicated:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Numerator: |
||||||||
Net earnings (loss) |
$ | 11.0 | $ | (28.2 | ) | |||
Accretion of preferred stock |
(4.0 | ) | (3.0 | ) | ||||
Basic net earnings (loss) attributable to common stockholders |
7.0 | (31.2 | ) | |||||
Effect of dilutive securities: |
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Accretion of preferred stock |
4.0 | — | ||||||
Diluted net earnings (loss) attributable to common stockholders |
$ | 11.0 | $ | (31.2 | ) | |||
8
| Three Months Ended | ||||||||
| March 31, | ||||||||