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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
(X) | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the fiscal year ended December 31, 2003
OR
( ) | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission file number 1-10033
A. | Full title of the plan: Wellman, Inc. Retirement Plan | |||
B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: | |||
Wellman, Inc. 595 Shrewsbury Avenue Shrewsbury, NJ 07702 |
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AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Wellman, Inc. Retirement Plan
For the years ended December 31, 2003 and 2002
with Report of Independent Registered Public Accounting Firm
Wellman, Inc. Retirement Plan
Audited Financial Statements
and Supplemental Schedule
Years ended December 31, 2003 and 2002
Contents
1 | ||||||||
Audited Financial Statements | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
10 | ||||||||
11 | ||||||||
EX-23.1 CONSENT OF ERNST & YOUNG LLP |
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Report of Independent Registered Public Accounting Firm
Employee Benefits Committee
Wellman, Inc.
We have audited the accompanying statements of net assets available for benefits of the Wellman Inc. Retirement Plan as of December 31, 2003 and 2002, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2003 and 2002, and the changes in its net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2003, is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP |
Charlotte, North Carolina
June 18, 2004
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Wellman, Inc. Retirement Plan
Statements of Net Assets Available for Benefits
December 31 | ||||||||
2003 | 2002 | |||||||
Assets | ||||||||
Investments | $ | 136,583,299 | $ | 123,504,066 | ||||
Employer contributions receivable | 3,339,612 | 3,620,554 | ||||||
Accrued income receivable | 170,582 | — | ||||||
Net assets available for benefits | $ | 140,093,493 | $ | 127,124,620 | ||||
See notes to financial statements.
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Wellman, Inc. Retirement Plan
Statements of Changes in Net Assets Available for Benefits
Year ended December 31 | ||||||||
2003 | 2002 | |||||||
Additions | ||||||||
Participant contributions | $ | 3,154,987 | $ | 3,272,964 | ||||
Employer contributions | 3,965,474 | 5,562,180 | ||||||
Net investment income (loss): | ||||||||
Interest and dividends | 3,989,221 | 4,369,662 | ||||||
Net appreciation (depreciation) in fair value of investments | 14,752,060 | (17,798,837 | ) | |||||
Net investment income (loss) | 18,741,281 | (13,429,175 | ) | |||||
Total additions (deductions) | 25,861,742 | (4,594,031 | ) | |||||
Deductions | ||||||||
Distributions to participants | 12,880,574 | 18,602,042 | ||||||
Administrative expenses | 12,295 | 140 | ||||||
Total deductions | 12,892,869 | 18,602,182 | ||||||
Increase (decrease) in net assets available for benefits | 12,968,873 | (23,196,213 | ) | |||||
Net assets available for benefits at beginning of year | 127,124,620 | 150,320,833 | ||||||
Net assets available for benefits at end of year | $ | 140,093,493 | $ | 127,124,620 | ||||
See notes to financial statements.
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Wellman, Inc. Retirement Plan
Notes to Financial Statements
December 31, 2003
1. Description of the Plan
The following description of the Wellman, Inc. Retirement Plan (the “Plan”) provides only general information. Participants should refer to the Summary Plan Description for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering all non-bargaining employees of Wellman, Inc. (the “Company”) who are age twenty-one or older and who have at least three months of service to be eligible to make employee contributions, and who have at least one year of service to be eligible to receive Company contributions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
Contributions
The Plan includes 401(k), money purchase plan (the “Pension”) and discretionary performance provisions. The Pension component is totally funded by Company contributions. For the 2003 and 2002 plan years, the Company’s Pension contribution was 6% of each participant’s eligible compensation plus an additional 5% of the portion of such compensation in excess of the Social Security taxable wage base but less than the statutory defined contribution plan compensation limits. The Plan has met the minimum funding standards of ERISA and the permitted disparity provisions of the Internal Revenue Code (the “Code”).
The Company also sponsors an Employee Stock Ownership Plan (the “ESOP”) to which eligible employees may contribute up to 2% of eligible compensation. For the 2003 and 2002 plan years, Participants could contribute to their 401(k) accounts (as maintained under both the Plan and the ESOP) 1% to 12% on a before-tax or after-tax basis of their compensation through payroll deductions up to the maximum amount per calendar year defined by the Code. In the event a participant elected to contribute to the Plan on a before-tax basis, the Company contributed $.50 for each $1.00 of the participant’s contribution on the first 4% and $1.00 for each $1.00 of the participant’s contribution up to the next 1%, of the participant’s eligible compensation by pay period through September 1, 2003. On September 1, 2003 matching contributions to the Plan were suspended.
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Wellman, Inc. Retirement Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
The performance plan provision of the Plan is funded by Company contributions from net profits at the discretion of the Company. The Company may contribute that amount of its net profits for a given plan year as designated by the Company’s Board of Directors. No performance contribution was made in 2003 or 2002.
The annual additions to a participant’s accounts under the Plan and the ESOP are limited to the lesser of $40,000 or 100% of the participant’s gross compensation.
Vesting
A participant’s Pension account is 100% vested upon completion of five years of vesting service with the Company. A participant’s 401(k) account attributable to before-tax and after-tax contributions by the participant and matching contributions is immediately 100% vested. The portion of the participant’s 401(k) account, if any, attributable to the Company’s discretionary performance contributions is 100% vested after three years of service. A participant is also automatically 100% vested in all accounts under the Plan at age 65 or upon death or disability while employed by the Company.
Participant Accounts
Each participant’s account is credited with the Company’s contributions, the participant’s contributions, and Plan earnings based on the participant’s investment fund choices and the performance of those funds. Such earnings are net of any management fees charged to fund shareholders by the investment funds. Forfeited balances of terminated participants’ nonvested accounts are used to reduce future Company contributions. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account. Forfeitures were $254,616 and $101,941 for the years ended December 31, 2003 and 2002, respectively.
Participant Loans
Effective January 1, 2002, the Plan was amended to allow participant loans. Participants may borrow from their accounts (Pension accounts excluded) a minimum of $1,000 up to 50% of their vested balance with a maximum loan of $50,000. Loan terms range from one to five years. The loans are secured by the balance in the participant’s account and bear interest at a rate based upon the prime rate.
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Wellman, Inc. Retirement Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Payment of Benefits
Upon retirement at or after age 65 or, if earlier, death, disability, or termination, the vested balance in the participant’s account is paid to the participant or the participant’s beneficiaries in the form of either a lump-sum distribution, substantially equal annual installments, or a nontransferable annuity contract.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right, under the Plan, to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will have a fully-vested nonforfeitable interest in their share of the trust fund.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements have been prepared on the accrual basis of accounting.
Valuation of Investments and Income Recognition
Marketable securities are stated at fair value. Securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the plan year; investments traded in the over-the-counter market and listed securities for which no sale was reported on the date are valued at the average of the last reported bid and ask prices. The shares of registered investment companies are valued at quoted market prices which represent the net asset values of shares held by the Plan at year-end.
Investment contracts held by the Plan are recorded at their contract values, which approximate fair value, and represent contributions and reinvested income, less any withdrawals plus accrued interest because these investments have fully benefit-responsive features.
Purchases and sales of investments are reflected on the trade dates. Gains and losses on the sale of investments are based on the average cost of the investments. Income from investments is recorded as earned on an accrual basis. Dividends are recorded on the ex-dividend date.
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Wellman, Inc. Retirement Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Certain amounts in the 2002 financial statements have been reclassified to conform with the 2003 presentation.
Administrative Expenses
The Company pays all trustee and record keeping administrative expenses of the Plan; however, certain brokerage commissions and fees associated with participant loans and in-service withdrawals are paid by the participant. Also, the Plan’s investment funds charge management fees to all shareholders of the respective funds, including those Plan participants who are invested in such funds through the Plan.
3. Investments
During 2003 and 2002, the Plan’s investments (including investments bought, sold, and held during the year) appreciated (depreciated) in fair value by $14,752,060 and ($17,798,837), respectively, as follows:
Year ended December 31 | ||||||||
2003 | 2002 | |||||||
Investments at fair value as determined by quoted market price: | ||||||||
Shares of registered investment companies | $ | 16,502,926 | $ | (16,514,462 | ) | |||
Common Stock | (1,750,866 | ) | (1,284,375 | ) | ||||
$ | 14,752,060 | $ | (17,798,837 | ) | ||||
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Wellman, Inc. Retirement Plan
Notes to Financial Statements (continued)
3. Investments (continued)
The fair value of individual investments that represent 5% or more of the Plan’s net assets is as follows:
December 31 | ||||||||
2003 | 2002 | |||||||
Vanguard Institutional Index Fund | $ | 26,933,320 | $ | 21,159,564 | ||||
ABN AMRO Income Plus Fund (formerly LaSalle Income Plus Fund) | 24,778,495 | 21,385,695 | ||||||
Wellman, Inc. Common Stock | 7,767,461 | 9,518,317 | ||||||
Growth Fund of America | 24,272,791 | 18,589,080 | ||||||
MFS Total Return Fund | 17,769,427 | 15,292,936 |
The average yield and crediting interest rate for fully benefit responsive investment contracts held in the trust and accounted for separately from the trust’s investment in the ABN AMRO Income Plus Stable Value Fund is as follows:
December 31 | ||||||||||||
2003 | 2002 | |||||||||||
Allstate Insurance Co. | Matures 08/16/2004 | 7.17 | % | 7.17 | % | |||||||
GE Life Insurance Co. | Matured 11/15/2003 | — | 5.50 | % | ||||||||
Jackson National Contract | Matured 02/18/2003 | — | 6.90 | % | ||||||||
John Hancock Ins. Co. | Matures 10/15/2004 | 7.29 | % | 7.29 | % | |||||||
John Hancock Ins. Co. | Matures 03/06/2006 | 5.77 | % | 5.77 | % | |||||||
Mass Mutual Life Ins. Co. | Matures 07/14/2006 | 5.67 | % | 5.67 | % | |||||||
Metropolitan Life Ins. Co. | Matured 06/16/2003 | — | 6.58 | % | ||||||||
Monumental Life | Matures 12/20/2004 | 7.25 | % | 7.25 | % | |||||||
Pacific Life Ins. Co. | Matures 10/17/2005 | 5.51 | % | 5.51 | % | |||||||
Principal Life Ins. Co. | Matures 04/15/2006 | 5.62 | % | 5.62 | % | |||||||
Transamerica Occidental | Matured 02/15/2003 | — | 5.77 | % | ||||||||
Travelers Group | Matures 01/15/2004 | 5.64 | % | 5.64 | % |
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Wellman, Inc. Retirement Plan
Notes to Financial Statements (continued)
4. Transactions with Parties-in-Interest
Certain investments held by the Plan represent party-in-interest transactions with the trustee. National City Bank is trustee of the Plan and two mutual funds affiliated with National City Bank are investment choices in the Plan. These are the Armada Small Cap Value I Fund and the Armada Government Mortgage Fund I. The Plan offers Wellman, Inc. common stock as an investment option for participants. All transactions relating to shares of Wellman, Inc. common stock bought or sold pursuant to Plan participant investment choices and distributions are effected on the open market by the trustee.
5. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service dated September 3, 2002 stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Employee Benefits Committee believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes the Plan, as amended, is qualified and the related trust is tax exempt.
6. Voluntary Compliance Resolution Program
During 2000, an operational defect in the Plan was identified. Certain employees, who were previously leased employees, did not receive credit toward participation eligibility and vesting for their years of service as leased employees when they became actual employees of the Company. As a result, employee deferrals and employer contributions for those employees were not made in accordance with the terms of the Plan, and, in some cases, Company contributions were erroneously forfeited.
In 2001, the Company voluntarily applied to the IRS to correct the defects through the Voluntary Compliance Resolution Program. During 2002, the Company completed corrective action by contributing $548,438 to participant accounts affected by the operational defect. Final approval of the corrective action by the IRS was received during 2003.
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Wellman, Inc. Retirement Plan
EIN: 04-1671740
Plan Number: 002
Schedule H Line 4(i)
December 31, 2003
(c) | |||||||||||||||
(b) | Description of Investment | (e) | |||||||||||||
Identity of Issue, Borrower, Lessor | Including Maturity Date, Rate of | Current | |||||||||||||
(a) | or Similar Party | Interest, Par or Maturity Value | Value | ||||||||||||
Shares of Registered Investment Companies: | |||||||||||||||
Vanguard Institutional Index Fund | 264,623 | units | $ | 26,933,320 | |||||||||||
PIMCO Total Return Fund | 342,672 | units | 3,670,016 | ||||||||||||
MFS Total Return Fund | 1,176,783 | units | 17,769,427 | ||||||||||||
AIM Basic Value Fund | 83,375 | units | 2,437,887 | ||||||||||||
Growth Fund of America | 989,111 | units | 24,272,791 | ||||||||||||
Armada Small Cap Value Fund | 167,004 | units | 3,620,646 | ||||||||||||
Armada U.S. Gov’t Income Fund | 96,074 | units | 905,974 | ||||||||||||
ING International Value Fund | 154,840 | units | 2,339,637 | ||||||||||||
Strong Advisor Small Cap Value Fund | 159,733 | units | 4,397,456 | ||||||||||||
ABN AMRO Income Plus Fund | 24,778,495 | units | 24,778,495 | ||||||||||||
111,125,649 | |||||||||||||||
*Wellman, Inc. | 760,769 shares of Common Stock | 7,767,461 | |||||||||||||
*Loans to Participants | Interest rates from 6.00% to 6.75% | 2,120,175 | |||||||||||||
Guaranteed Investment Contracts: | |||||||||||||||
Allstate Insurance Company | Matures 08/16/2004; 7.17% per annum | 3,338,785 | |||||||||||||
John Hancock Ins. Co. | Matures 10/15/2004; 7.29% per annum | 1,341,773 | |||||||||||||
John Hancock Ins. Co. | Matures 03/06/2006; 5.77% per annum | 1,571,021 | |||||||||||||
Mass Mutual Life Ins. Co. | Matures 07/14/2006; 5.67% per annum | 2,052,349 | |||||||||||||
Monumental Life | Matures 12/20/2004; 7.25% per annum | 2,003,828 | |||||||||||||
Pacific Life Ins. Co. | Matures 10/17/2005; 5.51% per annum | 2,022,916 | |||||||||||||
Principal Life Ins. Co. | Matures 04/15/2006; 5.62% per annum | 2,079,745 | |||||||||||||
Travelers Group | Matures 01/15/2004; 5.64% per annum | 1,159,597 | |||||||||||||
Total | $ | 136,583,299 | |||||||||||||
*Indicates party-in-interest to the Plan.
Note: Column (d) is not presented as all investments are participant directed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
WELLMAN, INC. RETIREMENT PLAN | ||||||
By: | WELLMAN, INC. EMPLOYEE BENEFITS COMMITTEE | |||||
By: | /s/ Keith R. Phillips | |||||
Name: | Keith R. Phillips | |||||
Title: | Member |
Date: June 28, 2004