<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-K/A
(Mark one)

[x]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002
                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from ______________to_________________

                         Commission file number 1-10033

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                                  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.)
       595 Shrewsbury Avenue
       Shrewsbury, New Jersey                            07702
---------------------------------------         -------------------------
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code:  (732) 212-3300

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Securities registered pursuant to Section 12(b) of the Act:

                                                          Name of each exchange
      Title of each class                                  On which registered
-----------------------------                           ------------------------
Common Stock, $.001 par value                           New York Stock Exchange
Common Stock Purchase Rights                            New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

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

         Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or

      The information contained in this Item 9 is furnished pursuant to Item 12
of Form 8-K "Results of Operations and Financial Condition," in accordance with
SEC Release No. 33-8216. This information and the exhibits hereto are being
furnished and shall not be deemed to be "filed" for the purposes of Section 18
of, or otherwise regarded as filed under, the Securities Exchange Act of 1934,
as amended. The information contained in this report shall not be incorporated
by reference into any filing of Forrester Research, Inc. with the SEC, whether
made before or after the date hereof, regardless of any general incorporation
language in such filings.
<PAGE>

information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K----.

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act) Yes [X] No [ ].

         Aggregate market value of the voting stock held by non-affiliates of
the registrant, computed on the basis of $16.75 per share (the closing price of
such stock on June 28, 2002 on the New York Stock Exchange), as of the last day
of the registrant's most recently completed second fiscal quarter: $522,780,498.

         The number of shares of the registrant's Class A Common Stock, $.001
par value, and Class B Common Stock, $.001 par value, outstanding as of March 1,
2003 was 31,868,809 and 0, respectively.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

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                                     PART I

ITEM 1.           BUSINESS

         We are principally engaged in the manufacture and marketing of
PermaClear(R) and EcoClear(R) brand PET (polyethylene terephthalate) packaging
resins and high-quality polyester products including Fortrel(R) brand polyester
fibers. We believe we are the world's largest PET plastics recycler, utilizing a
significant amount of recycled raw materials in our manufacturing operations.

RECENT DEVELOPMENTS

PRIVATE EQUITY INVESTMENT

         In February 2003, we announced that we entered into an agreement with
Warburg Pincus VIII, L.P. ("Warburg Pincus VIII"), a global private equity firm,
to sell up to $125.4 million of perpetual convertible preferred stock. With the
signing of this agreement, Warburg Pincus VIII invested $20.0 million in the
form of a convertible subordinated note that will be automatically converted
into preferred stock upon satisfaction of certain conditions, and received a
warrant to purchase 1.25 million shares of our common stock at an exercise price
of $11.25 per share. Proceeds from the transaction will be used primarily to pay
down existing debt.

         We recognized that substantial amounts of our debt and other
obligations would be maturing on or before July 31, 2004 and that the financial
markets may continue to be volatile. As a result of an evaluation of our
refinancing alternatives by financial advisors that began in April 2002,
management and the board concluded that a private equity investment was needed
to strengthen our balance sheet and improve our liquidity. After conducting a
vigorous, competitive auction process, we entered into a non-binding letter of
intent on November 4, 2002 with Warburg Pincus VIII that provided the basic
economic framework for and the material terms of an investment valued at $11.25
per share for the initial portion of their investment and $11.25 per share, or
if lower, 110% of the volume-weighted average closing price of our common stock
over a specified 20 trading day period for the balance of their investment. The
$11.25 per share price represented a $0.59 (5.5%) premium over the closing price
of our common stock on that date. After the completion of due diligence and
documentation, we entered into a definitive securities purchase agreement with
Warburg Pincus VIII on February 12, 2003 on substantially the same terms agreed
to in the letter of intent providing for the issuance of convertible notes in an
aggregate initial principal amount of up to $49.95 million up to 5,000,000
shares of our Series A preferred stock, 6,700,000 shares of our Series B
preferred stock and warrants to purchase 2,500,000 shares of common stock for up
to $125.4 million in cash (exclusive of the exercise price of the warrants).
Upon consummation of the transaction, which is subject to stockholder approval,
and assuming exercise of all warrants by Warburg Pincus VIII for cash, Warburg
Pincus VIII will own approximately 30% of our outstanding voting securities.
This amount is subject to increase under certain conditions to a maximum of
approximately 49% of our outstanding common stock during the next five years.

         At the time of signing the agreement, we issued to Warburg Pincus VIII
the initial warrant to purchase 1,250,000 shares of our common stock at an
exercise price of $11.25 per share and Warburg Pincus VIII purchased a note in
an initial principal amount of $20 million at par. In addition, we appointed
Oliver Goldstein, a vice president of Warburg Pincus LLC, to our board as a
designee of Warburg Pincus VIII. When certain conditions are met, including
stockholder approval of the transaction, and our obtaining a new $175 million
senior revolving credit facility, the following will occur:

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                  -        the outstanding initial note will automatically
                           convert into shares of Series A preferred stock and
                           Warburg Pincus VIII will purchase for $30 million in
                           cash an additional 2,666,666 shares of Series A
                           preferred stock at $11.25 per share so that it will
                           own an aggregate of approximately 4,500,000 shares of
                           Series A preferred stock;

                  -        Warburg Pincus VIII will purchase 6,700,000 shares of
                           Series B preferred stock at a price per share equal
                           to the Series B purchase price, which is equal to the
                           lower of $11.25 or 110% of the volume - weighted
                           average closing price of our common stock over a
                           20-day period;

                  -        we will issue to Warburg Pincus VIII the additional
                           warrant to purchase 1,250,000 shares of our common
                           stock at an exercise price equal to the Series B
                           purchase price; and

                  -        we will appoint a second director designated by
                           Warburg Pincus VIII to our board.

         If shareholder approval and other conditions are not met, the preferred
stock and, subject to certain exceptions, the additional warrant will not be
issued to Warburg Pincus VIII. In such case, subject to certain conditions,
including our obtaining a new $150 million senior revolving credit facility,
Warburg Pincus VIII will purchase an additional note in the initial principal
amount of $29.95 million at par and a second director designated by Warburg
Pincus VIII will be appointed to our board. The resulting $49.95 million in
initial aggregate principal amount of the notes then outstanding, by their
terms, will not be convertible into Series A preferred stock but will instead be
convertible only into our common stock at a conversion price of $11.25 per
share. Warburg Pincus VIII will continue to hold the initial warrant. The amount
of common stock issuable upon conversion or exercise of the $49.95 million in
initial principal amount of notes and the warrants would be limited to 19.99% of
the common stock outstanding on February 12, 2003.

         If more than that amount of common stock would otherwise be issuable
upon conversion or exercise of the notes and warrants, the excess shares would
not be issued. Instead, upon conversion, Warburg Pincus VIII would be entitled
to receive the cash excess share payment in an amount equal to the excess of the
current market value of our common stock over the conversion price in effect
under the notes for the unissued excess shares. Since the number of shares
issuable would be less than 20% of the number of shares of common stock
outstanding on February 12, 2003, the issuance of the notes and warrants would
not require stockholder approval under the New York Stock Exchange rules.

         This annual report on Form 10-K is not a solicitation of votes for the
transactions referred to above. Such solicitation will occur by way of a proxy
statement related to the special meeting of shareholders that will be held to
consider approval of the transactions.

CONTINUED DUMPING AND SUBSIDY OFFSET ACT (CDO) OF 2000

         In April 1999, three polyester fiberfill producers, including us, filed
an anti-dumping suit against Korea and Taiwan. The suit alleged that polyester
fiberfill producers from these two countries were selling fiberfill in the U.S.
at prices lower than in their own domestic market, resulting in material injury
to U.S. polyester fiberfill producers. In March 2000, the Commerce Department
determined that both countries were dumping polyester fiberfill into the U.S. In
May 2000, the International Trade Commission unanimously ruled that polyester
fiberfill imports from Korea and Taiwan materially injured the United States
domestic polyester fiberfill industry. As a result of this determination and
ruling, anti-dumping duties ranging from 5.7% to 9.5% were imposed on all
Taiwanese polyester fiberfill producers, and duties ranging from 8.0% to 14.0%
were

                                       4

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imposed on most Korean polyester fiberfill producers. These duties are estimates
based upon the producers' past pricing histories. The actual duties are
determined retroactively for each year after year end based upon the pricing
during that year. Importers of polyester fiberfill from covered producers in
these two countries are required to post cash deposits equal to their estimated
anti-dumping duties. The actual import duty rates, when determined on a
retroactive basis, have been below the estimates for several Korean producers.
The total amount of import duties actually owed will depend upon the actual
rates and the amount of goods imported.

         Import duties are normally retained by the government. However, in
October 2000 the U.S. Congress enacted the Continued Dumping and Subsidy Offset
Act of 2000 (the "CDO"). Under the CDO, any anti-dumping duties are paid to the
injured companies and their workers who file claims to that effect. In December
2002, we received approximately $4.4 million of anti-dumping duties from Korean
and Taiwanese producers pursuant to the CDO.

         In January 2003, the World Trade Organization (WTO) declared that the
CDO is inconsistent with certain provisions of the WTO agreement on anti-dumping
and subsidies. This declaration is merely advisory, however, and has no legal
effect. The only body that can alter the CDO is the U.S. Congress. In February
2003, President Bush submitted his fiscal 2004 budget to the US Congress
containing language recommending repeal of the CDO. Presently, Congress has
taken no action on this matter. There is no action that Korea, Taiwan or the WTO
could take that would require us to repay any of the import duties that were
distributed to us in 2002. We cannot ascertain what amounts, if any, we will
receive in 2003 and future years.

DISCONTINUED OPERATIONS

         In January 2002, we announced plans to refocus the strategy of our
polyester fibers business in order to be less dependent on commodity fibers. We
plan to direct our production capacity toward more differentiated, higher
value-added products, taking advantage of our unique production capabilities of
polymer and extrusion fiber manufacturing and our chemical and recycled-based
raw material sources. We believe that this new strategy will enable us to face
the competitive challenges presented by the imports of textile and apparel fiber
and finished goods that continue to adversely affect the domestic fibers market,
particularly the domestic commodity textile fiber markets. As a result of our
review of strategic alternatives, in March 2002 we decided to sell our POY
business and our small recycled fine denier polyester staple fiber business with
manufacturing facilities located in Fayetteville, North Carolina and Marion,
South Carolina, respectively. These businesses are reported as discontinued
operations in our financial statements.

         On June 18, 2002, we sold the property, plant and equipment and
inventory of our POY business. See Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Discontinued Operations."

         The assets of our small recycled fine denier polyester staple fiber
business are reported separately in our Consolidated Balance Sheet at December
31, 2002 and 2001. We expect to sell these assets by the end of first quarter
2003.

IMPACT OF ACCOUNTING CHANGES

         Effective January 1, 2002 we were required to adopt SFAS No. 142,
"Goodwill and Other Intangible Assets." See note 2 to the Consolidated Financial
Statements. Based on this standard, goodwill is no longer amortized, but is
tested at least annually at the reporting unit level for impairment. Goodwill is
tested for impairment by comparing the fair value of the reporting unit to its
carrying value, including goodwill. The fair

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<PAGE>

value is determined based on the present value of estimated future discounted
cash flows. If the fair value exceeds the carrying value, no impairment loss is
recognized. If the carrying value exceeds the fair value, the goodwill of the
reporting unit is potentially impaired. A comparison is then made between the
implied fair value of the goodwill, as defined by SFAS No. 142, and the carrying
value of the goodwill. If the implied fair value is less, an impairment loss
equal to the difference is recognized. This implied fair value then becomes the
new carrying value of the goodwill for future impairment tests.

         The estimate of future discounted cash flows is based upon, among other
things, certain assumptions about future operating performance. Our estimates of
future discounted cash flows may differ from actual cash flows due to, among
other things, changes in economic conditions, our business model, or our
operating performance.

         We completed our initial assessment of goodwill for impairment using
the two-step approach described in SFAS No. 142 and determined that goodwill
related to our FRPG segment was impaired. As required by the Statement, the
carrying value of this goodwill was reduced by $197.1 million to its implied
fair value. The reduction was recorded as a cumulative effect of an accounting
change in our first quarter 2002 financial statements. Application of the
nonamortization provisions of SFAS No. 142 resulted in an increase in our 2002
net earnings of approximately $8.4 million, or $0.26 per diluted share, as
compared to the years ending December 31, 2001 and 2000.

         Effective January 1, 2002, we were required to adopt SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." See note 2 to
the Consolidated Financial Statements. SFAS 144 established criteria to
determine when a long-lived asset is held for sale and whether the results of
operations of a component of an entity that either has been disposed of or is
classified as held for sale should be reported in discontinued operations. In
accordance with SFAS No. 144, when an asset is held for sale, it is measured at
the lower of its carrying amount or fair value less costs of disposal. The fair
value of an asset is the amount at which that asset could be bought or sold in a
current transaction between willing parties. Judgment is required in determining
the fair value of assets and could differ from the actual amount received upon
disposal.

         In accordance with SFAS No. 144, the net assets of our FRPG's POY
business and our small recycled fine denier polyester staple fiber business were
reported as asset disposal groups held for sale at March 31, 2002. See
"Discontinued Operations" above. The net operating results reported for these
businesses, including the loss on disposal of our POY business in June 2002, for
the current year and prior years have been reflected as discontinued operations.

PRODUCTS AND MARKETS

         Our operations are classified into two reportable operating segments:
the Packaging Products Group (PPG) and the Fibers and Recycled Products Group
(FRPG).

         The following table presents the combined net sales and percentage of
net sales for our reportable operating segments for each of the three years in
the period ended December 31, 2002. In the table, we have eliminated
intersegment sales and applied historical exchange rates to the data. These
eliminations are not material.

                                       6

<PAGE>

<TABLE>
<CAPTION>
                                      2002                            2001                                2000
                                      ----                            ----                                ----
                           NET SALES      % OF TOTAL        NET SALES     % OF TOTAL           NET SALES      % OF TOTAL
                           ---------      ----------        ---------     ----------           ---------      ----------
<S>                        <C>            <C>               <C>           <C>                  <C>            <C>
($ in millions)
PPG                        $  524.8           51.8%         $  533.2           52.8%           $   499.2          48.9%
FRPG                          489.2           48.2%            476.4           47.2%               522.3          51.1%
                           --------          -----          --------          -----            ---------         -----

Total                      $1,014.0          100.0%         $1,009.6          100.0%           $ 1,021.5         100.0%
                           ========          =====          ========          =====            =========         =====
</TABLE>

         The accounting policies of the reportable operating segments are the
same as those described in the summary of significant accounting policies in
note 1 to the Consolidated Financial Statements. The following table presents
the operating profit (loss) and percentage of operating profit (loss) for our
reportable operating segments for each of the three years in the period ended
December 31, 2002. In the table, we have eliminated intersegment transactions
and applied historical exchange rates to the data. These eliminations are not
material.

<TABLE>
<CAPTION>
                                 2002                              2001                             2000
                                 ----                              ----                             ----
                    OPERATING                         OPERATING                        OPERATING
                  PROFIT (LOSS)          %          PROFIT (LOSS)           %        PROFIT (LOSS)          %
                  -------------        -----        -------------        -------     -------------        -----
<S>               <C>                  <C>          <C>                  <C>         <C>                  <C>
($ in millions)
PPG                  $  50.1           109.6%          $  64.7            183.8%         $ 62.9            94.0%
FRPG                    (4.4)           (9.6)%           (29.5)           (83.8)%           4.0             6.0%
                     -------           -----           -------            -----          ------           -----
Total                $  45.7           100.0%          $  35.2            100.0%         $ 66.9           100.0%
                     =======           =====           =======            =====          ======           =====
</TABLE>

         See note 15 to the Consolidate Financial Statements for reconciliations
to correspon ding totals in the Consolidated Financial Statements and additional
information with regard to our reportable operating segments.

PACKAGING PRODUCTS GROUP

         The PPG manufactures:

         -        Solid-stated PET resin for use in the manufacture of soft
                  drink bottles and other food and beverage packaging,

         -        Amorphous resin for internal solid-stating (a process which
                  upgrades and purifies the resin) and, to a lesser extent, for
                  sale to external customers, and

         -        EcoClear(R) PET resin, utilizing post-consumer beverage
                  bottles to meet customers' recycled content PET resin
                  requirements.

         These resins are produced domestically at our Palmetto, South Carolina
and Pearl River, Mississippi facilities and internationally at our Emmen
facility in the Netherlands (PET Resins - Europe).

         We sell our solid-stated PET resin under the PermaClear(R) and
PermaClear HP(R) brands.

         Customers include United States, South American and European-based
manufacturers of various types of plastic containers. Six PPG customers
represented approximately 67% of the PPG's total net sales for 2002. The
unexpected loss of any of these customers may result in a temporary reduction in
sales and profitability of the PPG.

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<PAGE>

FIBERS AND RECYCLED PRODUCTS GROUP

         The FRPG manufactures:

         -        chemical-based polyester staple fibers for use in apparel,
                  non-wovens, home products, and industrial products,

         -        recycled-based polyester and nylon staple fibers for use in
                  furniture, pillows, comforters, industrial products, carpets
                  and rugs, and

         -        recycled-based polyester and nylon engineering resins for use
                  in the injection molding industry.

         This discussion does not include information with respect to the two
businesses that we decided to sell in March 2002. See "Recent Developments -
Discontinued Operations" above.

         Staple, FRPG's primary product, is multi-strand fiber cut into short
lengths to simulate certain properties found in natural fibers, such as cotton
and wool, and/or to meet the end product needs of our customers. We market these
products under the Fortrel(R) brand.

         Our chemical-based polyester fibers are manufactured at our Palmetto
facility in Darlington, SC. Customers include integrated textile mills, yarn
spinners, and non-woven operations that process polyester staple into yarn
and/or fabric for a variety of applications, including apparel, home products
and industrial uses.

         Domestically, we manufacture polyester and nylon products from recycled
raw materials at our facility in Johnsonville, SC. Our recycling operation in
Johnsonville procures these materials and processes them into usable raw
materials for our fiber and engineering resins businesses.

         In Europe, we manufacture polyester and nylon staple fiber from
recycled raw materials at our production facility in Mullagh, Republic of
Ireland. These fibers, used primarily in fiberfill, carpets, non-wovens and
industrial applications, are exported primarily to the United Kingdom and
continental Europe.

         Our Engineering Resins Division, located in Johnsonville, SC,
manufactures and markets nylon and PET engineering resins under the Wellamid(TM)
, EcoLon(TM), and WELLPET(R) brands to the injection molding industry. We
produce these resins using virgin, post-consumer and post-industrial nylon
compounded with various additives (glass, minerals, fire retardant, etc.) to
impart desired performance characteristics. These resins are used primarily in
automotive and electrical applications.

         No single customer had a material effect on FRPG's sales in 2002.

RAW MATERIALS

         Our Permaclear(R) PET resins are produced by the PPG from purified
terephthalic acid (PTA) and monoethylene glycol (MEG). Ecoclear(R) PET resins
are produced from a combination of chemical and post-consumer recycled raw
materials. Our chemical-based polyester staple fibers are also manufactured from
PTA and MEG. Domestically, we purchase PTA produced by BP Amoco Chemical
Company, the primary domestic supplier, pursuant to long-term supply contracts.
Domestic MEG is purchased under supply contracts with Equistar Chemicals, LP,
BASF Corporation, and Dow Chemical. In Europe, we purchase PTA primarily from BP
Amoco Chemical Company and MEG from Acordis. The prices of PTA and MEG have
fluctuated in the past and are likely to continue to do so in the future.

            Our recycling-based fibers utilize two categories of recycled PET
raw materials: post-consumer containers and post-industrial materials, including
some under long-term supply contracts. We purchase a

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portion of these materials from manufacturers that compete with us in the sale
of fibers and resins. We obtain our domestic post-consumer PET bottles primarily
from curbside recycling and deposit return programs. Post-industrial materials
include off-quality or off-spec production, trim and other materials generated
from fiber, resin, or film manufacturing processes. The raw material mix for our
Johnsonville facility can be varied depending upon market conditions for the
respective raw materials. Historically, the raw material mix has been
approximately 50% post-consumer PET bottle flake and 50% post-industrial
material. The prices of recycled raw materials are variable and determined by
worldwide supply and demand.

         Our European operations purchase recycled raw materials in various
forms throughout Europe. Post-consumer PET containers are purchased from
collection programs. Post-consumer materials are processed initially at our
recycling facilities near Arnhem, the Netherlands, or Verdun, France.

         We believe that we are the world's largest producer of polyester staple
fiber made from recycled feedstocks and the world's largest post-consumer PET
bottle recycler.

         For additional information on our raw materials, see "Forward Looking
Statements; Risks and Uncertainties."

CAPITAL INVESTMENT PROGRAM

         Our capital expenditures in 2002 were approximately $21.7 million,
compared to $28.1 million and $39.4 million for 2001 and 2000, respectively. In
2002, our capital expenditures included approximately $4.7 million of costs to
begin converting fiber grade chip lines at our Palmetto facility to amorphous
resin lines. For additional information, including capital expenditures expected
in 2003, see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Outlook."

SALES AND MARKETING

         Our markets have historically displayed price and volume cyclically. We
sell to a diverse group of customers. Although no single customer represented
more than 10% of our total net sales, six customers represented approximately
34.7% of our total net sales in 2002. See "Forward-Looking Statements; Risks and
Uncertainties."

         Approximately 48 employees market the majority of our products. We also
utilize representatives or agents for certain sales outside the United States.

         Our PET resins are promoted through various activities, including
advertising, sales promotions and market development, into a variety of markets,
including carbonated soft drinks, juices, water, and food. We are actively
involved with our customers in joint end-use product development efforts to meet
the future needs of the food and beverage packaging markets.

         Both North American and global PET resins demand continues to grow,
driven by new product applications for PET and conversions from other packaging
materials to PET. Numerous factors affect the demand for polyester resins,
including substitution of packaging products from glass, aluminum, and paper
into polyester, consumer preferences and spending, general economic conditions,
weather, and the export/import trade balance of polyester resin into the North
American Free Trade Agreement (NAFTA) region. We do not expect a significant
increase in imports of polyester resins into NAFTA in 2003.

         Our polyester fibers are also promoted through various activities
directed to our customers and to organizations downstream from our customers.
These activities include advertising, sales promotion, market

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<PAGE>

analysis and product development. As part of this effort, we encourage
downstream purchasers of apparel, home furnishings and other products to specify
to their suppliers the use of Fortrel(R) brand polyester in their products.

         Numerous factors affect the demand for polyester fiber, including
polyester fiber and/or textile product imports, consumer preferences and
spending, and retail sales patterns, which are driven by general economic
conditions. Imports of products throughout the textile chain continue to impact
the United States fiber markets, particularly the commodity textile fiber
markets, adversely affecting profitability. A downturn in either the U.S.,
European, or global economy or an increase in imports of textile or polyester
fiber products into the U.S. could adversely affect our business. Polyester
textile fiber demand also may be influenced by the relative price of substitute
fibers, most notably cotton.

         For additional information, see Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations - General" and
"Forward-Looking Statements; Risks and Uncertainties."

COMPETITORS

         Each of our major markets is highly competitive. We compete in these
markets primarily on the basis of product quality, price, customer service, and
brand identity. Several competitors are substantially larger than we are and
have substantially greater economic resources.

         In North America, our primary competitors in the PET resins business
are Eastman Chemical Co., KoSa, Gruppo Mossi and Ghisolfi (M&G), Nan Ya Plastics
Corp. (Nan Ya), and Dupont-Akra Americas (DAK Americas). We believe we are
currently the third-largest producer of PET resins in North America,
representing approximately 16% of North American production capacity. In Europe,
our main competitors in the PET resins business are Eastman Chemical Co., KoSa,
DuPontSA, M&G, and Dow Chemical Co. Our share of the European PET resins market
is less than 5%.

         Our primary domestic polyester staple fiber competitors are DAK
Americas, KoSa, and Nan Ya. We believe we are currently the largest producer of
polyester staple in the United States with approximately 30% of U.S. production
capacity. Our main European fiber competitors are MonteFibre, Trevira and
DuPontSA. In Europe, we are the largest supplier of recycled fibers and the
largest supplier of polyester fiber for fiberfill and non-woven applications.
Our share of the total European polyester staple market is less than 15%.

RESEARCH AND DEVELOPMENT

         We have approximately 77 employees devoted to research, development and
technical service activities in our fibers and resins businesses. Research and
development costs were approximately $17.3 million, $14.6 million and $15.5
million for 2002, 2001 and 2000, respectively.

FOREIGN ACTIVITIES

         We operate in international markets. Since a large portion of our
non-U.S. sales are in different currencies, changes in exchange rates may affect
profit margins and sales levels of these operations. In addition, fluctuations
between currencies may also affect our reported financial results. Foreign
exchange contracts and borrowings in local currencies are utilized to manage our
foreign currency exposure. For additional information on these hedges, see Item
7A. "Quantitative and Qualitative Disclosure about Market Risk" and note 14 to
the Consolidated Financial Statements.

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<PAGE>

         Our foreign businesses are subject to certain risks common to foreign
operations and investments in foreign countries, including restrictive action by
local governments, limitations on repatriating funds and changes in currency
exchange rates. See note 15 to the Consolidated Financial Statements and
"Forward-Looking Statements; Risks and Uncertainties" for additional information
relating to our foreign activities.

EMPLOYEES

         As of December 31, 2002, we employed approximately 2,200 people in the
United States and Europe. At December 31, 2002, the Union of Needle Trades,
Industrial and Textile Employees (UNITE) represented 599 employees, of which 360
were union members, at our Johnsonville, SC operations. This contract expires on
May 1, 2005. At WIL, four unions represented 265 of the 478 total employees at
year-end 2002. The wage agreements with these unions expire on May 1, 2003. We
employ 74 people at our PET Resins-Europe operation, with 46 represented by two
unions whose contracts expire on April 30, 2003. We believe that relations with
our employees are satisfactory.

ENVIRONMENTAL MATTERS

         Our facilities are subject to numerous existing and proposed laws and
regulations designed to protect the environment from wastes, emissions and
hazardous substances. We believe we are either in material compliance with all
currently applicable regulations or are operating in accordance with the
appropriate variances and compliance schedules or similar arrangements.

         For additional information relating to environmental matters, see Item
7. "Management's Discussion and Analysis of Financial Position and Results of
Operations - Environmental Matters," "Forward-Looking Statements; Risks and
Uncertainties," and note 9 to the Consolidated Financial Statements.

                                       11

<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

            Our current executive officers are as follows:

<TABLE>
<CAPTION>
        NAME AND AGE                                                    POSITION
----------------------------                      -------------------------------------------------------
<S>                                               <C>
Thomas M. Duff, 55                                Chairman, Chief Executive Officer, and Director
Clifford J. Christenson, 53                       President, Chief Operating Officer, and Director
Keith R. Phillips, 48                             Vice President, Chief Financial Officer
Michael E. Dewsbury, 53                           Vice President, PET Resins Division - U.S.
Audrey L. Goodman, 49                             Vice President, Treasurer
John R. Hobson, 62                                Vice President, Fibers and Recycled Products Group
Mark J. Rosenblum, 49                             Vice President, Chief Accounting Officer and Controller
Ernest G. Taylor, 52                              Vice President, Chief Administrative Officer
Joseph C. Tucker, 55                              Vice President, Corporate Development
</TABLE>

         Officers are elected annually by our Board of Directors. Set forth
below is certain information with respect to our executive officers.

         THOMAS M. DUFF. Mr. Duff was elected Chairman in December 1999. Prior
to December 1999, he was President and has been CEO since 1985.

         CLIFFORD J. CHRISTENSON. Mr. Christenson was elected President in
December 1999 and has been Chief Operating Officer since June 1995.

         KEITH R. PHILLIPS. Mr. Phillips has been Vice President and Chief
Financial Officer since October 1993. He was also Treasurer from October 1993 to
March 2001. Mr. Phillips is a certified public accountant.

         MICHAEL E. DEWSBURY. Mr. Dewsbury has been Vice President, PET Resins
Division - U.S. since April 1999. Prior to that he was Business Manager - PET
Resins Division since joining us in September 1991.

         AUDREY L. GOODMAN. Ms. Goodman has been Vice President, Treasurer since
March 2001. She was Assistant Treasurer from May 1990 to March 2001.

         JOHN R. HOBSON. Mr. Hobson has been Vice President, Fibers and Recycled
Products Group since May 1999. Prior to that, he was Vice President, Recycled
Products Group since July 1995.

         MARK J. ROSENBLUM. Mr. Rosenblum has been Vice President, Controller
since September 1989, and Chief Accounting Officer since August 1996. Mr.
Rosenblum is a certified public accountant.

         ERNEST G. TAYLOR. Mr. Taylor has been Vice President, Administration
since January 1991. In November 1997 he became Vice President, Chief
Administrative Officer.

         JOSEPH C. TUCKER. Dr. Tucker has been Vice President, Corporate
Development since December 1997. Prior to such time, he served as Vice President
and General Manager of PET Resins-Europe from 1995 to 1997.

                                       12

<PAGE>

         AVAILABLE INFORMATION

         We file electronically with the Securities and Exchange Commission (or
SEC) our annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934. The public may read or copy any materials we file with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address
of that site is http://www.sec.gov.

         You may obtain a free copy of our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to
those reports on the day of filing with the SEC on our website on the World Wide
Web at http://www.wellmaninc.com contacting the Investor Relations Officer at
our corporate offices by calling (732) 212-3321, or by sending an e-mail message
to dennis.sabourin@wellmaninc.com.

ITEM 2.           PROPERTIES

         The location, principal products produced and stated annual production
capacity of our major manufacturing facilities are set forth in the table below.
We own each of these properties.

<TABLE>
<CAPTION>
                                                                                        STATED ANNUAL
                                                                                      PRODUCTION CAPACITY
            LOCATION                              PRINCIPAL PRODUCTS                (IN MILLIONS OF POUNDS)
-------------------------------                   ------------------                -----------------------
<S>                                               <C>                               <C>
Darlington, SC (Palmetto)                         PET resins (1)                              720
Hancock County, MS (Pearl River)                  PET resins (2)                              510
Emmen, the Netherlands                            PET resins                                  118
Darlington, SC (Palmetto)                         Polyester staple fiber                      505
Johnsonville, SC                                  Polyester staple fiber                      242
Mullagh, Ireland                                  Polyester staple fiber                      174
Johnsonville, SC                                  Engineering resins                           62
</TABLE>

--------------------
(1)      This includes 260 million pounds of amorphous resin capacity.

(2)      Staple fiber production assets at Pearl River Facility are currently
         idle. See Item 7. "Management's Discussion and Analysis of Financial
         Condition and Results of Operations--Idle Assets."

                                       13

<PAGE>

ITEM 3.           LEGAL PROCEEDINGS

         In January 2001, we received a document subpoena in connection with a
federal grand jury investigation of pricing practices in the polyester staple
industry. We have cooperated and continue to cooperate with the investigation by
producing documents in response to this subpoena. In September 2002 the U.S.
Department of Justice announced the indictment of a former sales manager of one
of our competitors for conspiring to fix prices and allocate customers for
polyester staple beginning in September 1999 and ending in January 2001. On
October 31, 2002, the U.S. Department of Justice announced that it was filing
informations against another competitor and one of its former officers as a
result of their agreement to plead guilty to participating in a conspiracy to
fix prices and allocate customers in the polyester staple industry. Neither we
nor any of our employees have been charged with any wrongdoing, and we
vehemently deny that we or any of our employees have engaged in price fixing or
customer allocation.

         Following the disclosure of the investigation, the indictment of a
competitor's employee and the informations and guilty pleas of another
competitor and its employee, the producers of polyester fiber, including
Wellman, have been named in various civil actions asserting claims substantially
based on the indictment and informations. These proceedings are summarized
below.

         Wellman and certain other companies have been named as defendants in
nineteen federal actions brought by direct purchasers of polyester staple fiber
for alleged violation of U.S. antitrust laws. In each lawsuit, the plaintiffs
allege that the defendants engaged in a conspiracy to fix the price of polyester
staple fiber in violation of the Sherman Act. In seventeen of the cases, the
plaintiff purports to represent a class of all persons who directly purchased
polyester staple fiber and were similarly affected by such alleged conduct. Two
of the cases are brought by plaintiffs who do not purport to represent a class.
All of the federal plaintiffs seek damages of unspecified amounts, attorney's
fees and costs and unspecified relief. In addition, certain of the actions claim
restitution, injunction against alleged illegal conduct and other equitable
relief. The federal suits are pending in the U.S. District Court for the
Northern District of California, U.S. District Court for the District of New
Jersey, U.S. District Court for the Middle District of North Carolina, U.S.
District Court for the Western District of North Carolina and U.S. District
Court for the District of South Carolina. The Judicial Panel on Multi-District
Litigation ruled on April 22, 2003 to transfer all the federal cases to the
Western District of North Carolina for coordinated or consolidated pretrial
proceedings.

         In addition to the direct purchaser actions discussed above,
thirty-three purported class actions alleging violations of federal antitrust
laws, state antitrust or unfair competition laws and certain state consumer
protection acts have been filed in one federal court and various state courts on
behalf of purported classes of indirect purchasers of polyester staple fiber
products. In each lawsuit, the plaintiffs allege that the defendants engaged in
a conspiracy to fix prices of polyester staple fiber products. In addition,
certain of the actions claim restitution, injunction against alleged illegal
conduct and other equitable relief. One indirect purchaser case is pending in
the U.S. District Court for the Western District of North Carolina and is
subject to the order issued by the Judicial Panel on Multi-District Litigation
for coordination or consolidation with the other federal cases. The rest of the
indirect purchaser cases were filed in Arizona, California, the District of
Columbia, Florida, Kansas, Massachusetts, Michigan, New Mexico, North Carolina,
South Dakota, Tennessee, West Virginia and Wisconsin. The case filed in West
Virginia has been removed to federal court. A motion to remand is pending. If
not remanded, this case will also be transferred to the Western District of
North Carolina by the Judicial Panel on Multi-District Litigation for
coordination or consolidation with the other federal cases. The case filed in
Wisconsin was removed to federal court and subsequently remanded to the Circuit
Court for Dane County, Wisconsin. In all of these cases, the plaintiffs seek
damages of unspecified amounts, attorney's fees and costs and unspecified
relief.

                                       14

<PAGE>
Recently, Wellman and certain other companies were named in an action filed in
the Superior Court of Justice for Ontario, Canada, by a plaintiff purporting to
represent a class of direct and indirect purchasers of polyester staple fiber.
This complaint asserts claims under Canadian law. It contains three counts that
ask for compensatory damages of $50 million (Canadian) each. The extent to which
these three counts are duplicative and overlapping is unclear. The complaint
also contains one count asking for punitive damages of $10 million (Canadian).

         In addition to the foregoing, Wellman may become subject to additional
proceedings and lawsuits under federal and state antitrust and unfair
competition laws. Furthermore, the federal grand jury investigation is ongoing
and additional indictments may result. We intend to vigorously defend against
the civil claims and any civil or criminal claims or proceedings that may be
brought against us in the future. Because of the early stage and complexity of
the U.S. Department of Justice investigation and the related civil claims, we
have not formed an opinion about whether these proceedings will have a material
adverse effect on our consolidated financial position or results of operations.

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

     None.

                                     PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

MARKET INFORMATION

         Our common stock is listed on the New York Stock Exchange (NYSE) under
the symbol WLM. The following table shows the high and low sales prices as
reported by the NYSE and cash dividends paid per share of common stock for the
last two fiscal years.

<TABLE>
<CAPTION>
     YEAR                                       HIGH                         LOW                      DIVIDEND
     ----                                      ------                       ------                    --------
<S>                                            <C>                          <C>                       <C>
2002
Fourth Quarter                                 $13.99                       $ 9.20                      $0.09
Third Quarter                                  $16.80                       $13.05                      $0.09
Second Quarter                                 $18.22                       $14.89                      $0.09
First Quarter                                  $16.98                       $12.74                      $0.09

2001
Fourth Quarter                                 $15.49                       $10.96                      $0.09
Third Quarter                                  $17.96                       $10.57                      $0.09
Second Quarter                                 $19.50                       $16.25                      $0.09
First Quarter                                  $19.99                       $13.69                      $0.09
</TABLE>

         We had 754 holders of record as of March 10, 2003.

         See note 11 to the Consolidated Financial Statements for information
regarding common stock rights associated with our common stock.

                                       15

<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

         On February 12, 2003, we sold to Warburg Pincus VIII in a private
placement a convertible subordinated note in the aggregate principal amount of
$20.0 million that will be automatically converted into preferred stock upon
shareholder approval and a warrant to purchase 1.25 million shares of our common
stock at an exercise price of $11.25 per share. For additional information, see
Item 1. "Recent Developments - Private Equity Investment." The offer and sale of
these securities were exempt from the registrant requirements of the Securities
Act of 1933 (the Act) pursuant to the exemption under Section 4(2).

         On September 17, 2002 and December 20, 2001, we sold to John Hancock
Life Insurance Company in private placements senior unsecured notes in the
principle amounts of $25.0 million and $40.0 million, respectively. These notes
bear interest at 7.46% and 7.55%, respectively, and mature in 2009 and 2011,
respectively. The offer and sale of these securities were exempt from the
registrant requirements of the Act pursuant to the exemption under Section 4(2).

         On November 16, 2001, we sold to Metropolitan Life Insurance Company in
a private placement a senior unsecured note in the principal amount of $35.0
million. This note bears interest at a floating rate based on LIBOR and matures
in 2004. The offer and sale of this security was exempt for the registrant
requirements of the Act pursuant to the exemption under Section 4(2).

                                       16

<PAGE>

ITEM 6.           SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                          YEARS ENDED DECEMBER 31,
(In thousands, except per share data)                                         2002              2001(1)           2000(1)
                                                                          ------------       ------------      ------------
<S>                                                                       <C>                <C>               <C>
Income Statement Data:
Net sales                                                                  $ 1,013,968       $ 1,009,560       $ 1,021,543
Cost of sales                                                                  898,745           901,539           887,183
                                                                           -----------       -----------       -----------
Gross profit                                                                   115,223           108,021           134,360
Selling, general and administrative expenses                                    73,900            72,788            68,214
Restructuring charges (benefit)                                                     --                --              (793)
Other Income                                                                     4,365                --                --
                                                                           -----------       -----------       -----------
Operating income (loss)                                                         45,688            35,233            66,939
Interest expense, net                                                           10,254            17,957            17,959
Loss on cancellation of fixed-ratefinancial instrument                              --                --                --
                                                                           -----------       -----------       -----------
Earnings (loss) from continuing operations before income taxes
(benefit)                                                                       35,434            17,276            48,980

Income tax expense (benefit)                                                     9,036             3,854            13,563
                                                                           -----------       -----------       -----------
Earnings (loss) from continuing operations                                      26,398            13,422            35,417
Earnings (loss) from discontinued operations, net of income tax                (23,651)           (5,033)           (2,649)
                                                                           -----------       -----------       -----------
Earnings (loss) before cumulative effect of accounting change                    2,747             8,389            32,768
Cumulative effect of accounting change, net of tax                            (197,054)               --                --
                                                                           -----------       -----------       -----------
Net earnings (loss)                                                        $  (194,307)(2)   $     8,389(3)    $    32,768(4)
                                                                           ===========       ===========       ===========

Basic net earnings (loss) per common share:
  Continuing operations                                                    $      0.84       $      0.43       $      1.13
  Discontinued operations                                                        (0.75)            (0.16)            (0.09)
  Cumulative effect of accounting change                                         (6.24)               --                --
                                                                           -----------       -----------       -----------
  Net earnings (loss)                                                      $     (6.15)      $      0.27       $      1.04
                                                                           ===========       ===========       ===========

Basic weighted-average common shares outstanding                                31,579            31,542            31,367
                                                                           ===========       ============      ===========

Diluted net earnings (loss) per common share:
  Continuing operations                                                    $      0.82       $      0.42       $      1.11
  Discontinued operations                                                        (0.73)            (0.16)            (0.08)
  Cumulative effect of accounting change                                         (6.16)               --                --
                                                                           -----------       -----------       -----------
  Net earnings (loss)                                                      $     (6.07)      $      0.26       $      1.03
                                                                           ===========       ===========       ===========
Diluted weighted-average common shares outstanding                              32,015            32,031            31,884
                                                                           ===========       ===========       ===========
Dividends (7)                                                              $    11,467       $    11,461       $    11,390
                                                                           ===========       ===========       ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
(In thousands, except per share data)                                        1999(1)         1998(1)
                                                                         ------------       -----------
<S>                                                                      <C>                <C>
Income Statement Data:
Net sales                                                                 $   849,416       $   859,828
Cost of sales                                                                 766,303           740,302
                                                                          -----------       -----------
Gross profit                                                                   83,113           119,526
Selling, general and administrative expenses                                   70,405            70,897
Restructuring charges (benefit)                                                17,382             6,861
Other Income                                                                       --                --
                                                                          -----------       -----------
Operating income (loss)                                                        (4,674)           41,768
Interest expense, net                                                          13,281             8,302
Loss on cancellation of fixed-rate financial instrument                            --            23,314
                                                                          -----------       -----------
Earnings (loss) from continuing operations before income taxes
(benefit)                                                                     (17,955)           10,152
Income tax expense (benefit)                                                   (5,705)            3,869
                                                                          -----------       -----------

Earnings (loss) from continuing operations                                    (12,250)            6,283
Earnings (loss) from discontinued operations, net of income tax                  (946)            6,217
                                                                          -----------       -----------
Earnings (loss) before cumulative effect of accounting change                 (13,196)           12,500
Cumulative effect of accounting change, net of tax                             (1,769)               --
                                                                          -----------       -----------
Net earnings (loss)                                                       $   (14,965)(5)   $    12,500(6)
                                                                          ===========      ============

Basic net earnings (loss) per common share:
  Continuing operations                                                   $     (0.39)      $      0.20
  Discontinued operations                                                       (0.03)             0.20
  Cumulative effect of accounting change                                        (0.06)               --
                                                                          -----------       -----------
  Net earnings (loss)                                                     $     (0.48)      $      0.40
                                                                          ===========       ===========

Basic weighted-average common shares outstanding                               31,203            31,178
                                                                          ===========       ===========

Diluted net earnings (loss) per common share:
  Continuing operations                                                   $     (0.39)      $      0.20
  Discontinued operations                                                       (0.03)             0.20
  Cumulative effect of accounting change                                        (0.06)               --
                                                                          -----------       -----------
  Net earnings (loss)                                                     $     (0.48)      $      0.40
                                                                          ===========       ===========

Diluted weighted-average common shares outstanding                             31,203            31,391
                                                                          ===========       ===========
Dividends (7)                                                             $    11,310       $    11,253
                                                                          ===========       ===========
</TABLE>

                                       17

<PAGE>

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                   2002               2001              2000               1999                 1998
                                ---------          ----------        ----------         ----------           ----------
<S>                             <C>                <C>               <C>                <C>                  <C>
Balance Sheet Data:
Total assets                    $ 965,210          $1,234,430        $1,332,184         $1,329,387           $1,482,898
Total debt                      $ 236,909          $  333,144        $  381,521         $  405,974           $  556,548
Stockholders' equity            $ 426,698          $  612,739        $  625,525         $  602,364           $  638,128
</TABLE>

(1)      The income statement data for these periods have been reclassified to
         reflect separately the earnings (loss) from discontinued operations.
         See Item 7. "Management's Discussion and Analysis of Financial
         Condition and Results of Operations -- Discontinued Operations" and
         note 2 to the Consolidated Financial Statements.

(2)      Net earnings for 2002 include $2,837, or $0.09 per diluted share, in
         proceeds received under the Continued Dumping and Subsidy Offset Act of
         2000, a charge of $2,600, or $0.08 per diluted share, for expected
         losses on accounts receivable, and a cumulative effect of an accounting
         change of ($197,054) or $(6.16) per diluted share. For additional
         information, see Item 7. Management's Discussion and Analysis of
         Financial Condition and Results of Operations and note 2 to the
         Consolidated Financial Statements.

(3)      Net earnings for 2001 include the after-tax financial impact of the
         property damage and other costs associated with a production outage of
         $6,433, or $0.20 per diluted share, and income from property damage
         claims and business interruption insurance of $6,855, or $0.21 per
         diluted share. For additional information, see Item 7. "Management's
         Discussion and Analysis of Financial Condition and Results of
         Operations - Production Outages."

(4)      Net earnings for 2000 include the after-tax effects of income from
         business interruption insurance of $3,290, or $0.10 per diluted share,
         a charge for the activities necessary to idle the Pearl River staple
         fiber production assets of $1,268, or $0.04 per diluted share, and a
         restructuring benefit of $554, or $0.02 per diluted share.

(5)      Net loss for 1999 includes the after-tax effects of a restructuring
         charge of $11,875, or $0.38 per diluted share, costs associated with
         production outages of $6,145, or $0.20 per diluted share, and the
         cumulative effect of an accounting change of $1,769, or $0.06 per
         diluted share.

(6)      Net earnings for 1998 include the after-tax effects of a loss of
         $14,804, or $0.47 per diluted share, on the termination of a fixed-rate
         treasury lock commitment, a lower-of-cost-or-market inventory
         adjustment of $5,486, or $0.17 per diluted share, and a restructuring
         charge of $4,357, or $0.14 per diluted share.

(7)      Dividends paid were $0.36 per share in 2002, 2001, 2000, 1999, and
         1998.

                                       18

<PAGE>

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

GENERAL

         We are principally engaged in the manufacture and marketing of
PermaClear(R) and EcoClear(R) brand PET resins and high-quality polyester
products, including Fortrel(R) brand polyester fibers. We believe we are the
world's largest PET plastics recycler, utilizing a significant amount of
recycled raw materials in our manufacturing operations. At December 31, 2002, we
had annual operating capacity to manufacture approximately 1.4 billion pounds of
PET resins and 0.9 billion pounds of polyester staple fiber at five major
production facilities in the United States and Europe. See Item 1.
"Business-Recent Developments" for information concerning businesses
discontinued in the first quarter of 2002, and see "Outlook" below for
information on our ability to convert certain fiber capacity to PET packaging
resins.

         Our operations are classified into two reportable operating segments:
the Packaging Products Group (or PPG) and the Fibers and Recycled Products Group
(or FRPG). Our PermaClear(R) PET and HP(R) resins are produced by the PPG from
purified terephtalic acid (PTA) and monoethylene glycol (MEG) and EcoClear(R)
PET resins are produced from a combination of chemical and post-consumer
recycled raw materials. These resins are primarily used in the manufacture of
plastic soft drink bottles and other food and beverage packaging. The FRPG
produces Fortrel(R) fibers, which are primarily used in apparel, non-wovens,
home products, and industrial products. These fibers are also produced from PTA
and MEG. In addition, Fortrel(R) polyester and nylon for use primarily in
furniture, pillows, comforters, industrial products, carpets and rugs, are
manufactured from recycled PET raw materials, including post-consumer containers
and post-industrial materials.

         Demand for both North American and global PET resins continues to grow,
driven by new product applications for PET and conversions from other packaging
materials to PET. Demand for polyester fibers historically has been cyclical. It
is subject to changes in consumer preferences and spending, retail sales
patterns, and fiber and textile product imports. Imports of products throughout
the textile chain continue to impact the United States fiber markets, adversely
affecting our profitability.

         Our profitability is primarily determined by our raw material margins,
which is the difference between product selling prices and raw material costs.
Both PET resin and fiber raw material margins increase or decrease as a result
of supply and demand factors and competitive conditions. Given our substantial
unit volumes, the impact on profitability of changes in raw material margins is
significant. A $.01 change in raw material margin on approximately 2.0 billion
pounds of resin and fiber volume results in an annual change of approximately
$20 million in pretax income. See "Outlook" below for information on raw
material prices in 2003.

         Selling prices and raw material costs each may be affected by actions
of our competitors, global economic and market conditions, export and import
activity, and the prices of competing materials.

         Seasonal factors, such as weather and the vacation and holiday closings
of our facilities or those of our customers, may also affect our operations.

                                       19

<PAGE>

CRITICAL ACCOUNTING POLICIES

         Our consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Estimates are based on historical experience, information
received from third parties and on various other assumptions that we believe to
be reasonable under the circumstances. Actual results may differ from those
estimates.

         Our significant accounting policies are described in note 1 to the
Consolidated Financial Statements included in Item 8 of this Form 10-K. We
believe the following critical accounting policies, among others, involve
significant judgments and estimates used in the preparation of the consolidated
financial statements. The critical accounting policies have been reviewed with
our Audit Committee of the Board of Directors.

         ACCOUNTS RECEIVABLE

         We perform periodic credit evaluations of our customers' financial
condition and generally do not require collateral. We have established a reserve
for uncollectible accounts receivable based on our evaluation of the
credit-worthiness of our customers and the potential risks inherent in their
businesses. A considerable amount of judgment is required in assessing the
ultimate realization of these receivables, especially in light of the difficult
economic conditions facing our customers. These judgments could vary
significantly from actual amounts realized, resulting in changes in bad debt
expense and allowances. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. We increased our reserve for
uncollectible accounts by $4.0 million in the fourth quarter of 2002.

         INVENTORY VALUATION

         Inventories are stated at the lower of cost or market. Cost is
principally determined by the first-in, first-out method. The physical condition
(i.e., quality) of the inventories is also considered in establishing its
valuation. These judgments are estimates, which could vary significantly, either
favorably or unfavorably, from actual requirements for various reasons,
including changes in future economic conditions, customer inventory levels, or
competitive conditions that differ from our expectations. Changes in our
inventory valuation resulting from such variances would affect our cost of
sales.

         PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are carried at cost. Depreciation for
assets is provided based on their estimated useful lives and is computed on the
straight-line method and the units of production method. Changes in
circumstances such as technological advances, changes to our capital strategy,
or changes to our business model could result in the actual lives differing from
our estimates, in which case our earnings could be affected.

         Effective January 1, 2002, we were required to adopt SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets." See note 2 to
the Consolidated Financial Statements. SFAS 144 established criteria to
determine when a long-lived asset is held for sale and whether the results of
operations of a component of an entity that either has been disposed of or is
classified as held for sale should be reported in discontinued operations. In
accordance with SFAS No. 144, when an asset is held for sale, it is measured at
the lower of its carrying amount or fair value less costs of disposal. The fair
value of an asset is the amount at which that asset could be bought or sold in a
current transaction between willing parties. Judgment is required in determining
the fair value of the assets and could differ from the actual amount received
upon disposal.

                                       20

<PAGE>

         GOODWILL AND OTHER INTANGIBLES

         Through December 31, 2001, we amortized goodwill on a straight-line
method over periods ranging from 30 to 40 years. Effective January 1, 2002, we
were required to adopt SFAS No. 142 "Goodwill and Other Intangible Assets." See
note 2 to the Consolidated Financial Statements. Based on this standard,
goodwill is no longer amortized, but is tested at least annually at the
reporting unit level for impairment. Goodwill is tested for impairment by
comparing the fair value of the reporting unit to its carrying value, including
goodwill. The fair value is determined based on the present value of estimated
future discounted cash flows. If the fair value exceeds the carrying value, no
impairment loss is recognized. If the carrying value exceeds the fair value, the
goodwill of the reporting unit is potentially impaired. A comparison is then
made between the implied fair value of the goodwill, as defined by SFAS No. 142,
and the carrying value of the goodwill. If the implied fair value is less, an
impairment loss equal to the difference is recognized. This implied fair value
then becomes the new carrying value of the goodwill for future impairment tests.

         The estimate of future discounted cash flows is based upon, among other
things, certain assumptions about future operating performance. Our estimates of
future discounted cash flows may differ from actual cash flows due to, among
other things, changes in economic conditions, our business model, or our
operating performance.

         DEFERRED TAX ASSETS

         We record a valuation allowance to reduce our deferred tax assets to
the amount that we believe is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event we
were to determine that we would not be able to realize the recorded value of our
net deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to income in the period such determination was made. Likewise,
should we determine that we would be able to realize our deferred tax assets in
the future in excess of their net recorded amount, an adjustment to the deferred
tax assets would increase income in the period such determination was made.

         PENSION BENEFITS

         Our pension benefit costs and liabilities are calculated utilizing
various actuarial assumptions and methodologies prescribed under SFAS No. 87,
"Employers' Accounting for Pensions." We utilize certain assumptions, including,
but not limited to, the selection of the discount rate, the expected rate of
return on plan assets, projected salary increases, and mortality rates. The
actuarial assumptions used in our pension reporting are reviewed annually and
compared to external benchmarks to assure our pension obligations are fairly
stated. Changes in assumptions and future investment returns could affect our
pension expense and related funding requirements.

         ENVIRONMENTAL LIABILITY

         Our operations are subject to extensive laws and regulations governing
air emissions, wastewater discharges, and solid and hazardous waste management
activities. Our policy is to expense environmental remediation costs when it is
both probable that a liability has been incurred and the amount can be
reasonably estimated. The accruals represent our best estimate of probable
non-capital environmental expenditures. The final resolution of these
contingencies could result in expenses different than current accruals, and
therefore have an impact on our consolidated financial results in a future
reporting period.

                                       21

<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (or FIN 46), "Consolidation of Variable Interest
Entities." FIN 46 requires a variable interest entity to be consolidated by a
parent company if that company is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to receive a majority of
the entity's residual returns or both. A variable interest entity is a
corporation, partnership, trust or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. These variable interest entities are
commonly referred to as special-purpose entities or off-balance sheet
financings. A variable interest entity often holds financial assets, including
loans or receivables, real estate or other property. A variable interest entity
may be essentially passive or it may engage in research and development or other
activities on behalf of another company. The consolidation requirements of FIN
46 apply immediately to variable interest entities created after January 31,
2003. The consolidation requirements of FIN 46 apply to older entities in the
first fiscal year or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply to all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established.

         The only contractual obligation that may be impacted by FIN 46 is a
sale and leaseback transaction we entered into in 1999. We expect to restructure
the sale and leaseback transaction prior to July 1, 2003. If we are successful,
the sale and leaseback transaction will not be impacted by FIN 46. Otherwise, we
will consolidate the transaction and either record the impact as a cumulative
effect of an accounting change or restate the prior years' financial
information. Other than normal financial risks, we do not have any exposure to
risks as a result of this transaction. We do not expect the adoption of FIN 46
to affect our compliance with debt covenants. See Table II below and note 3 to
the Consolidated Financial Statements.

DISCONTINUED OPERATIONS

         In January 2002, we announced plans to refocus the strategy of our
polyester fibers business in order to be less dependent on commodity fibers. We
plan to direct our production capacity toward more differentiated, higher
value-added products, taking advantage of our unique production capabilities of
polymer and extrusion fiber manufacturing and our chemical and recycled-based
raw material sources. We believe that this new strategy will enable us to face
the competitive challenges presented by the imports of textile and apparel fiber
and finished goods that continue to adversely affect the domestic fibers market,
particularly the domestic commodity textile market. As a result of our review of
strategic alternatives, in March 2002 we decided to sell our POY business and
our small recycled fine denier polyester staple fiber business with
manufacturing facilities located in Fayetteville, North Carolina and Marion,
South Carolina, respectively. These businesses are reported as discontinued
operations in our financial statements.

         On June 18, 2002, we sold the property, plant and equipment and
inventory of our POY business. The aggregate sales price was $1.7 million in
cash (including the reimbursement of certain business expenses) and the
assumption of certain liabilities. The total loss on disposal of the assets of
our POY business for the year ended December 31, 2002 was $16.2 million, net of
taxes. The net loss is included in discontinued operations in our Consolidated
Statements of Operations.

         The assets of our small recycled fine denier polyester staple fiber
business are reported separately in our Consolidated Balance Sheet at December
31, 2002 and 2001. We recorded an impairment charge of $4.7 million, net of
taxes, in the first quarter of 2002 to reflect the assets at their fair value
less costs of disposal. We expect to sell these assets by the end of the first
quarter of 2003.

         The net operating results for the POY and recycled fine denier
polyester staple fiber businesses for the year ending December 31, 2002 have
been reflected as discontinued operations in our Consolidated Statements

                                       22

<PAGE>

of Operations. In addition, information for all prior years presented has been
reclassified in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144 to reflect separately the assets of the discontinued operations
and the loss from discontinued operations.

IDLE ASSETS

          We completed the construction of our Pearl River facility in 2000.
This facility consists of two resin lines and one polyester staple fiber line.
In December 2000, we idled the fiber line because of the expected over-supply of
polyester staple fiber in the United States in 2001. Since this line is
depreciated using the units of production depreciation method, no depreciation
expense has been charged with respect to this line since December 2000. It has a
net book value of approximately $192.0 million at December 31, 2002. In June
2002, Wellman announced plans to modify the fiber line to enable it to produce
either PET resin or polyester fiber. This will allow us to take advantage of the
expected growth in the PET resins industry, while maintaining our ability to
respond to future fiber needs. In December 2002, we announced plans to delay the
modification originally scheduled to begin in the first quarter 2004 until we
are able to improve the project's economic return. For additional information on
idle assets, see note 1 to the Consolidated Financial Statements.

         We performed an impairment analysis of the Pearl River facility and
determined that the assets were not impaired at December 31, 2002. Our analysis
demonstrated that we had no impairment because this facility is expected to
generate sufficient cash flow during its useful life provided our average
margins do not decline by more than 33% from today's levels. We expect the
currently idled assets at this facility to begin generating additional cash
flows beginning in early 2005. We assume the facility will operate at 85% of
stated annual production capacity.

         RESULTS OF OPERATIONS

         2002 COMPARED TO 2001

         Total net sales from continuing operations for 2002 increased $4.4
million, or 0.4%, to $1,014.0 million from $1,009.6 million in 2001 due to the
following:

<TABLE>
<CAPTION>
                                 PPG         FRPG         TOTAL
                               -------      -------      -------
<S>                            <C>          <C>          <C>
Net selling prices             $ (61.9)      $ (18.0)     $ (79.9)
Sales volumes                     49.8          25.9         75.7
Foreign currency translation       3.7           4.9          8.6
                               -------       -------      -------
                               $  (8.4)      $  12.8      $   4.4
                               =======       =======      =======
</TABLE>

         Total costs of sales from continuing operations for 2002 decreased $2.8
million, or 0.3%, to $898.7 million from $901.5 million due to the following:

<TABLE>
<CAPTION>
                                 PPG          FRPG        TOTAL
                               -------      -------      -------
<S>                            <C>          <C>          <C>
Raw material costs             $ (13.9)     $ (17.0)     $ (30.9)
Plant added costs                 11.8          7.2         19.0
Foreign currency translation       4.8          4.3          9.1
                               -------      -------      -------
                               $   2.7      $  (5.5)     $  (2.8)
                               =======      =======      =======
</TABLE>

                                       23

<PAGE>

         Lower raw material costs were the result of lower unit costs, partially
offset by higher production volumes. Plant costs were higher in the aggregate as
a result of higher production levels, but were lower on a unit-cost basis.
During 2001, our operations were negatively impacted by a production outage that
increased our costs by approximately $9.9 million, or $0.20 per diluted share,
and lowered our volumes. These costs were offset by business interruption
insurance of approximately $10.6 million. See note 6 to the Consolidated
Financial Statements.

         Our lower raw material costs were partially offset by higher plant
costs. These included higher net periodic pension costs, which are primarily due
to the changes in net amortization and deferral for our foreign plans in 2002.
Our Irish plans amortize annual actuarial gains (losses) over a five-year period
(without regard to any corridor) provided the minimum GAAP amortization
requirements are met each year. In 2002, our net amortization and deferral was
recognized using the minimum amortization requirement that limited the
recognition of the actuarial gain that year. This was the first year that the
minimum amortization requirement reduced the recognition of previously realized
actuarial gains that were being amortized over five years. Therefore, our net
periodic pension cost was greater than the prior two years because of this
requirement. We also expect to record pension expense for our Irish pension plan
in 2003 in part because of the minimum amortization requirement.

         As a result of the foregoing, gross profit increased 6.7% to $115.2
million in 2002 compared to $108.0 million in 2001. The gross profit margin was
11.4% in 2002 compared to 10.7% in 2001.

         Selling, general and administrative expenses were $73.9 million, or
7.3% of sales, in 2002 compared to $72.8 million, or 7.2% of sales, in 2001.
Expenses for 2001 included amortization of goodwill totaling $8.4 million.
Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires that goodwill amortization be discontinued
and replaced with annual tests of impairment. For additional information, see
note 2 to the Consolidated Financial Statements. Excluding the amortization
expense for goodwill from the prior year, selling, general and administrative
expenses increased in 2002 by $9.5 million. The increase in 2002 was due
primarily to bad debt expense of approximately $4.0 million for unexpected
losses on accounts receivable, costs associated with new strategic initiatives
of $3.2 million, and higher professional fees of $1.9 million due to the
on-going Department of Justice investigation of the staple fiber industry. We
increased our reserve for uncollectible accounts receivable by $4.0 million in
the fourth quarter of 2002. Our textile customer base faces competitive
challenges presented by the imports of textile and apparel finished goods that
continue to adversely affect their profitability. Two of our FRPG customers
filed unexpected bankruptcy proceedings in January 2003. Our trade accounts
receivable balances from these customers were $5.6 million at December 31, 2002,
of which $1.6 million was collected in January 2003. The reserve was established
based on the expected uncollectibility of the trade accounts receivables.

         Other income for 2002 consisted of proceeds of $4.4 million received
under the Continued Dumping and Subsidy Offset Act of 2000. For additional
information, see Item 1. "Recent Developments - Continued Dumping and Subsidy
Offset Act of 2000."

         As a result of the foregoing, we reported operating income of $45.7
million in 2002 compared to $35.2 million in 2001.

         Net interest expense was $10.3 million in 2002 compared to $18.0
million in 2001. The decrease was due to a lower average debt balance and lower
average interest rates during 2002.

         Our effective tax rate for 2002 on income from continuing operations
was 25.5% compared to 22.3% in 2001. The principal item affecting our rate was
foreign earnings, which are taxed at rates lower than U.S. rates. The amount of
foreign earnings declined in 2002 compared to 2001; however, this was offset by
the elimination of the amortization of non-deductible goodwill.

                                       24

<PAGE>

         As a result of the foregoing, net earnings from continuing operations
were $26.4 million, or $0.82 per diluted share, for the 2002 period compared to
$13.4 million, or $0.42 per diluted share, for 2001.

         We reported a net loss from discontinued operations of $(23.7) million,
or $(0.73) per diluted share, and $(5.0) million, or $(0.16) per diluted share,
for 2002 and 2001, respectively. We adopted a plan in March 2002 to sell our POY
business and our small recycled fine denier polyester staple fiber business, the
assets of which were previously reported as part of our FRPG. On June 18, 2002
we sold our POY business and reported a loss on disposal. For additional
information, see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Discontinued Operations" and note 2 to the
Consolidated Financial Statements.

         As required by SFAS No. 142, we completed our initial assessment of
goodwill using the two-step approach described in the Statement and determined
that the goodwill related to our FRPG segment was impaired. As a result, the
carrying value of this goodwill was reduced by $197.1 million to its implied
value. The reduction was recorded as a cumulative effect of accounting change in
our first quarter 2002 financial statements. For additional information, see
note 2 to the Consolidated Financial Statements.

         As a result of the foregoing, we reported a net loss of $(194.3)
million, or $(6.07) per diluted share, for 2002, compared to net earnings of
$8.4 million, or $0.26 per diluted share, for 2001.

2001 COMPARED TO 2000

         Total net sales from continuing operations for 2001 decreased $12.0
million, or 1.2%, to $1,009.6 million from $1,021.5 million in 2000 due to the
following:

<TABLE>
<CAPTION>
                                 PPG          FRPG        TOTAL
                               -------      --------     -------
<S>                            <C>          <C>          <C>
Sales volumes                  $  38.0      $ (42.2)     $  (4.2)
Net selling prices                (2.0)        (0.7)        (2.7)
Foreign currency translation      (2.1)        (3.0)        (5.1)
                               -------      -------      -------
                               $  33.9      $ (45.9)     $ (12.0)
                               =======      =======      =======
</TABLE>

         Total costs of sales from continuing operations for 2001 increased
$14.4 million, or 1.6%, to $901.5 million from $887.2 million due to the
following:

<TABLE>
<CAPTION>
                                 PPG          FRPG        TOTAL
                               -------      --------     -------
<S>                            <C>          <C>          <C>
Raw material costs             $  22.5      $ ( 9.5)     $  13.0
Plant added costs                  8.5         (3.0)         5.5
Foreign currency translation      (1.4)        (2.7)        (4.1)
                               -------      -------      -------
                               $  29.6      $ (15.2)     $  14.4
                               =======      =======      =======
</TABLE>

         During 2001, our operations were negatively impacted by a production
outage that increased our costs by approximately $9.9 million, or $0.20 per
diluted share, and lowered our sales volumes. See note 6 to the Consolidated
Financial Statements.

         As a result of the foregoing, gross profit decreased 19.6% to $108.0
million in 2001 compared to $134.4 million in 2000. The gross profit margin was
10.7% in 2001 compared to 13.2% in 2000.

                                       25

<PAGE>

         Selling, general and administrative expenses were $72.8 million, or
7.2% of sales, in 2001 compared to $68.2 million, or 6.7% of sales, in 2000.
This increase was partially due to increased selling costs of new products, wage
increases, and increased professional fees due to the on-going Department of
Justice investigation of the staple fiber industry.

         During the second quarter of 1999, we implemented an overall cost
reduction and productivity improvement plan, which was completed in the fourth
quarter of 2000. In 2000, we recognized restructuring income of $0.8 million
($0.5 million after tax), or $0.02 per diluted share, from over-accruals related
to this plan.

         As a result of the foregoing, we reported operating income of $35.2
million in 2001 compared to $66.9 million in 2000.

         Net interest expense was $18.0 million in both 2001 and 2000.

         Our effective tax rate for 2001 on income from continuing operations
was 22.3% compared to 27.7% in 2000. The principal items which affected our rate
were foreign earnings, which are taxed at rates lower than U.S. rates, and
amortization of nondeductible goodwill. The net effect of these two items was a
reduction in the tax rate.

         As a result of the foregoing, net earnings from continuing operations
were $13.4 million, or $0.42 per diluted share, for the 2001 period compared to
$35.4 million, or $1.11 per diluted share, for 2000.

         We reported a net loss from discontinued operations of $(5.0) million,
or $(0.16) per diluted share, and $(2.6) million, or (0.08) per diluted share,
for 2001 and 2000, respectively. We adopted a plan in March 2002 to sell our POY
business and our small recycled fine denier polyester staple fiber business, the
assets of which were previously reported as part of our FRPG. On June 18, 2002
we sold our POY business and reported a loss on disposal. In accordance with
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
we restated all prior years' information. For additional information, see Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Discontinued Operations" and note 2 to the Consolidated Financial
Statements.

         As a result of the foregoing, we reported net earnings of $8.4 million,
or $0.26 per diluted share, for 2001, compared to net earnings of $32.8 million,
or $1.03 per diluted share, for 2000.

OUTLOOK

         The following statements are forward-looking statements and should be
read in conjunction with "Forward-Looking Statements; Risks and Uncertainties"
below.

         We expect 2003 to be more profitable than 2002 due to expected
increases in PET resin volumes and margins.

         We expect domestic PET resins capacity utilization to increase in
future years because PET resins demand is expected to grow faster than announced
capacity increases. We expect demand for PET resins to grow in traditional PET
packaging markets, as well as in new markets and products. These new products
include food products like spaghetti sauce, vegetables, and jellies that require
higher filling temperatures. In addition, resin customers have indicated they
expect to use more of our recycled content resin. Increased capacity utilization
is expected to result in increased margins in the industry.

                                       26

<PAGE>

         We successfully implemented two significant selling price increases in
our domestic PET resins business on January 1, 2003 and March 1, 2003 and have
announced an additional selling price increase of $0.08 per pound effective
April 1, 2003. These increases are primarily to offset sharply higher chemical
raw material costs. While we anticipate increasing PET resin margins in 2003,
given the competitive nature of our business and other market influences, there
can be no assurance that this will occur.

         We expect the poor economic conditions in the domestic fibers market to
continue as imports throughout the textile chain, especially from China,
continue to adversely impact this market.

         We successfully implemented a significant selling price increase in our
domestic fibers business on March 2, 2003 and have announced additional selling
price increases of 11% to 14% effective April 6, 2003. These increases are
expected to offset sharply higher chemical raw material costs. However, there
can be no assurance that we will maintain our raw material margins.

         To compete with imports of textile products, our Fibers Group continues
to introduce differentiated high value-added products. We expect these products
to have a small positive impact on raw material margins in 2003.

         In 2003, we expect to sell approximately 1.1 billion pounds of PET
resins and 850 million pounds of polyester staple fibers. We intend to continue
to focus on cost reductions and expect that these reductions will more than
offset operating cost increases. We anticipate our depreciation and amortization
to be between $45-$50 million and capital expenditures to be between $25-$30
million.

         In June 2002, we announced the delay in the conversion of a polyester
staple fiber line at our Pearl River facility to a swing line. This line would
allow the production of either polyester staple fiber or PET resin. While we do
not plan to start this project in 2003, we expect to announce the timetable for
construction by the end of 2003.

         In January 2003, Moody's Investors Service lowered our credit rating to
Ba2 with a stable outlook. As a result, we are currently rated below investment
grade by both Moody's and Standard & Poor's. In February 2003, we signed a
securities purchase agreement that will permit the issuance and sale of up to
$125.4 million of preferred stock and warrants to Warburg Pincus VIII if certain
conditions are met, including shareholder approval of the proposal and our
entering into a new 3-year $175 million senior revolving credit facility that
retires our existing $275 million senior revolving credit facility. We expect
the change in our credit rating to increase our financing costs, which would be
offset by the expected reduction in interest expense as a result of lower debt
if the equity investment is consummated. In February 2003, after the
announcement of the private equity investment, Standard & Poor's improved our
rating from BB+ with a negative outlook to BB+ with a stable outlook.

CAPITAL RESOURCES AND LIQUIDITY

         Net cash provided by operations, including both continuing and
discontinued operations, was $128.3 million, for 2002 compared to $91.3 million
for 2001. Cash from operations in 2002 included a $20.2 million tax refund,
approximately $20.2 million from decreases in working capital (exclusive of the
current portion of long-term debt), and $4.4 million received under the
Continued Dumping and Subsidy Offset Act of 2000.

         Net cash used in investing activities amounted to $20.1 million in 2002
compared to $28.1 million in 2001. Capital expenditures were $21.7 million in
2002 compared to $28.1 million in 2001. For information about expected capital
expenditures in 2003, see "Outlook" above.

                                       27

<PAGE>

         Net cash used in financing activities (principally related to debt
repayments) amounted to $110.1 million in 2002 compared to $61.3 million in
2001. This resulted from lower capital expenditures and improved cash flow from
operations in 2002.

            The following table describes our debt facilities, providing details
as to the maturity of these facilities and amounts outstanding at December 31,
2002, as well as available funding from both committed and uncommitted
facilities.

                TABLE I

<TABLE>
<CAPTION>
                                                         DECEMBER 31, 2002 (IN MILLIONS)
                                                                                                        AMOUNTS
                                                                                       AMOUNTS         AVAILABLE
                                                                                      AVAILABLE          UNDER
                                            TOTAL                        AMOUNT       UNDER ALL        COMMITTED
                        MATURITY           FACILITY       COMMITMENT   OUTSTANDING    FACILITIES       FACILITIES
                        --------           --------       ----------   -----------    ----------       ----------
<S>                     <C>                <C>            <C>          <C>            <C>              <C>
Uncommitted Lines
  of Credit (1)            N/A             $  75.0            N/A        $   25.5      $   49.5

Prudential Note (2)      Feb 2003          $  50.0        $    50.0      $   50.0

Revolving Bank
  Facility (3)          Sept 2003          $ 275.0        $   275.0      $    5.0      $  270.0         $  270.0

Metropolitan Note (4)    Nov 2004          $  35.0        $    35.0      $   35.0

Hancock Note (5)         Dec 2011          $  40.0        $    40.0      $   40.0

Hancock Note (6)        Sept 2009          $  25.0        $    25.0      $   25.0

Industrial Revenue
  Bonds (7)                  2010+         $  50.7        $    50.7      $   50.7

Financial Instruments
  and Other (8)            N/A             $   5.7            N/A        $    5.7
                                           -------                       --------      --------         --------

Total                                      $ 556.4                       $  236.9      $  319.5         $  270.0
                                           =======                       ========      ========         ========
</TABLE>

         (1) We have uncommitted lines of credit from banks. Gene rally these
lines of credit can be terminated at any time as long as we have not borrowed
against them. We use these lines to borrow at competitive rates on a short-term
basis.

         (2) We borrowed $50.0 million from Prudential Insurance Company in
February 2000 at an interest rate of 8.41% as senior unsecured indebtedness with
a single principal payment due in February 2003. This debt was repaid on its
maturity date. In conjunction with this financing, we entered into interest rate
swaps, which effectively converted the total amount of this fixed-rate debt to
floating-rate debt. These swaps were terminated during 2002, resulting in a gain
of $1.5 million. This gain, $0.4 million at December 31, 2002, is included in
"Financial Instruments and Other" in Table 1 and is being recognized as a
reduction in interest expense over the remaining life of the debt.

                                       28

<PAGE>

         (3) We initially entered into a 4-year $325.0 million unsecured
revolving credit agreement in September 1999. In April 2000, we voluntarily
reduced the commitment to $275.0 million. Amounts are borrowed under this
facility at floating rates and normally have maturities of six months or less.
This facility matures in September 2003. Management expects to enter into a new
facility during the first half of 2003.

         (4) We borrowed $35.0 million from Metropolitan Life Insurance Company
in November 2001 as senior unsecured indebtedness at a floating interest rate
based on Libor, payable quarterly, with a single principal payment due in
November 2004.

         (5) We borrowed $40.0 million from John Hancock Life Insurance Company
in December 2001 as senior unsecured indebtedness at an interest rate of 7.55%,
payable semi-annually, with a single principal payment due in December 2011. In
conjunction with this financing, we entered into interest rate swaps, which
effectively convert the total amount of this fixed-rate debt to floating-rate
debt. See (8) below for more information on our derivative financial
instruments.

         (6) We borrowed $25.0 million from John Hancock Life Insurance Company
in September 2002 as senior unsecured indebtedness at an annual fixed rate of
7.46%, payable semi-annually, with a single principal payment due in September
2009.

         (7) We issued $50.7 million of Industrial Revenue Bonds in the 1990's.
These are senior unsecured bonds. We intend to redeem $9.5 million of the
Industrial Revenue Bonds in March 2003, in conjunction with the sale of our
Marion facility. The remaining bonds mature on various dates beginning in 2010.
These bonds bear interest at a floating rate and are supported by letters of
credit that may be terminated upon 13 months notice. If a letter of credit is
terminated, we would have to replace it, arrange for other security, or redeem
the Bonds.

         (8) We have various financial instruments described below, in Item 7A.
"Quantitative and Qualitative Disclosure about Market Risk" and in note 14 to
the Consolidated Financial Statements. The financial instruments have a net
value at December 31, 2002 of approximately $5.3 million that is accounted for
as a reduction of our debt obligations.

         In addition to our debt commitments, we have entered into other
commitments and contractual obligations that obligate us to make specified
payments in the future. The following table summarizes the total amounts due as
of December 31, 2002 under all debt agreements (see the Amounts Outstanding in
the table above), commitments and other contractual obligations. The table
indicates the years in which payments are due under the contractual obligations.
This table includes commitments and other contractual obligations, including
those with unconsolidated entities or financial partnerships (variable interest
entities). In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" that establishes new criteria for
determining if variable interest entities should be consolidated. For additional
information, including the impact on our Consolidated Financial Statements, see
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Impact of Recently Issued Accounting Pronouncements."
Historically, we have been able to pay, renew or refinance these contractual
obligations in advance of their termination dates and expect to maintain this
ability for the foreseeable future. See "Forward-Looking Statements; Risk and
Uncertainties."

                                       29

<PAGE>

                TABLE II

<TABLE>
<CAPTION>
                                                  PAYMENTS DUE BY PERIOD (IN MILLIONS)
      CONTRACTUAL
      OBLIGATIONS                    TOTAL          2003          2004          2005         AFTER 2005
      -----------                   --------      --------      --------      --------      -----------
<S>                                 <C>           <C>           <C>           <C>           <C>
Debt Agreements
  (see Table I)                     $  236.9      $   70.4      $   35.0                     $  131.5

Receivables
  Securitization (1)                    64.2          64.2

Operating Leases
  including Sale and
  Leaseback (2)                        187.6          17.9         161.5           5.3            2.9

Raw Material
  Purchase
  Obligations (3)                      115.7          19.3          19.3          19.3           57.8
                                    --------      --------      --------      --------       --------

Total                               $  604.4      $  171.8      $  215.8      $   24.6       $  192.2
                                    ========      ========      ========      ========       ========
</TABLE>

         (1) We replaced our existing receivables purchase agreement in
September 2002. Under the new agreement, we may continue to sell without
recourse up to $80.0 million in an undivided interest in certain of our domestic
trade accounts receivable at a discount, on a revolving basis, through an
unconsolidated receivables subsidiary. This type of funding permits us to obtain
funds at a rate lower than the borrowing rates available on our uncommitted
lines or our revolving credit agreement. The program was structured as a
three-year facility; however, the program must be renewed annually. Although we
expect to renew the program, if it is not renewed or replaced, we would not be
able to sell our receivables in this manner and our receivables and debt as
reflected on our Consolidated Financial Statements would each increase by the
amount of the receivables that would otherwise have been sold at that time.

         (2) The resin assets at our Palmetto facility were sold in June 1999 in
a sale and leaseback transaction. The equipment was purchased from us for its
fair market value (as verified by an independent appraisal) of $150.0 million.
Under the 5-year operating lease we entered into for this equipment, our rental
payments as the lease is currently structured are expected to be approximately
$10.3 million per annum for the remainder of the lease, which is lower than the
financing cost we otherwise would have incurred if we had borrowed the fair
market value of the equipment at the time of the transaction. In addition to
this transaction, we have normal operating leases with aggregate rental payments
approximating $7.6 million in 2003 and varying amounts thereafter.

         (3) We have entered into several contracts for varying terms of up to
ten years to purchase raw materials. One raw material contract requires us to
make unconditional minimum annual payments of $19.3 million per year through
December 2008. The supplier used our contract to obtain financing that expires
in March 2004. If the financing cannot be replaced, then in order for us to
preserve our favorable raw material pricing under this contract we would pay the
present value of the remaining minimum payments ($75 million as of March 2004).
Any such accelerated payments would reduce our payments during the remaining
term of the contract. We

                                       30

<PAGE>

anticipate that we will have sufficient liquidity, if necessary, to make this
payment, including availability under our revolving credit facility. This
contract represents less than one third of our annual raw material purchases.

         Except for certain of the contractual obligations discussed above, we
did not have any material relationships with unconsolidated entities or
financial partnerships, often referred to as special purpose entities, for the
purpose of facilitating off-balance sheet arrangements with contractually narrow
or limited purposes.

         Many of the contractual obligations in Table II contain provisions that
change the costs of the obligations (e.g., interest rates) based on our credit
ratings. As of January 2003, we were rated as non-investment grade by both
rating agencies. We are currently rated BB+ with a stable outlook by Standard
and Poor's (S&P) and Ba2 with a stable outlook by Moody's Investors Service
(Moody's). As a result of Moody's changes to our rating in January 2003, we
expect our interest costs under these contractual obligations to increase by
approximately $3.0 million in 2003 compared to 2002.

         Substantially all of the contractual obligations in Table II contain
normal financial and restrictive covenants. The principal financial covenants
require that we maintain a debt to capital ratio of less than 55% and a ratio of
EBITDA (earnings before charges for interest, taxes, depreciation and
amortization) from continuing operations to our net interest expense (both for
the previous four quarters) of greater than 3.5 to 1. At December 31, 2002, our
debt to capital ratio was 35.7% and our ratio of EBITDA to net interest was 9.9:
1.0. These obligations also contain covenants that prohibit liens except in
certain situations. Certain subsidiaries have guaranteed substantially all of
our indebtedness for borrowed money. These obligations also contain cross
acceleration and cross payment default provisions for amounts greater than $10.0
million. At December 31, 2002, we were in compliance with the covenants and
expect to remain in compliance for the foreseeable future. See note 7 to the
Consolidated Financial Statements. However, if current business conditions
deteriorate or certain events occur (including those set forth in "Forward
Looking Statements, Risks and Uncertainties" below), we may breach these
covenants, in which case substantially all of these contractual obligations
would immediately become due and payable. If this occurred, there is no
certainty these obligations could be refinanced. If these obligations were
refinanced under those circumstances, there is a high probability that we would
incur increased costs and some or all of the contractual obligations would be
classified as debt on our balance sheet.

         The financial resources available to us at December 31, 2002 included
$319.5 million under our revolving credit facility and unused short-term
uncommitted lines of credit, and internally generated funds. Based on our debt
level as of December 31, 2002, we could have had an average of approximately
$284.1 million of additional debt outstanding during the year without amending
the terms of our debt agreements. Our current financing sources are primarily
dependent on the bank and commercial paper markets since these are the lowest
cost funds available. The availability and cost of these funds can change in a
short period of time for a variety of reasons. As a result, we cannot be sure
that low cost financing will continue to be available to us. However, we believe
our financial resources will be sufficient to meet our foreseeable needs for
working capital, capital expenditures and dividends. In addition, we have
entered into an agreement to sell up to $125.4 million of perpetual convertible
preferred stock to Warburg Pincus VIII. For additional information, see Item 1.
"Recent Developments - Private Equity Investment."

                                       31

<PAGE>

ENVIRONMENTAL MATTERS

         Our operations are subject to extensive laws and regulations governing
air emissions, wastewater discharges and solid and hazardous waste management
activities. We take a proactive approach in addressing the applicability of
these laws and regulations as they relate to our manufacturing operations and in
proposing and implementing any remedial plans that may be necessary. We have
identified certain situations that will require future capital and non-capital
expenditures to maintain or improve compliance with current environmental laws
and regulations. The majority of the identified situations are found at our
largest manufacturing facilities and primarily deal with groundwater
remediation, quality of air emissions and wastewater treatment processes.

         Our policy is to expense environmental remediation costs when it is
both probable that a liability has been incurred and the amount can be
reasonably estimated. While it is often difficult to reasonably quantify future
environmental-related expenditures, we currently estimate our future non-capital
expenditures related to environmental matters to range between $5.7 million and
$20.2 million. In connection with these expenditures, we have accrued
undiscounted liabilities of approximately $9.3 million and $10.5 million at
December 31, 2002 and 2001, respectively, which are reflected as other
noncurrent liabilities in our Consolidated Balance Sheet. These accruals
represent our best estimate of probable non-capital environmental expenditures.
In addition, aggregate future capital expenditures related to environmental
matters are expected to range from $6.5 million to $17.0 million. These
non-capital and capital expenditures are expected to be incurred during the next
10 to 20 years. We believe that we are entitled to recover a portion of these
expenditures under indemnification and escrow agreements. During 2002, 2001 and
2000, net expenses associated with environmental remediation and ongoing
assessment were not significant. For additional information, see notes 1 and 9
to the Consolidated Financial Statements.

         We base the measurement of liability on an evaluation of currently
available facts with respect to each individual situation and take into
consideration factors such as existing technology, presently enacted laws and
regulations and prior experience in remediation of contaminated sites. As
assessments and remediation progress at individual sites, we review these
liabilities periodically and adjust them to reflect additional technical and
legal information that becomes available.

         We believe we are either in material compliance with all currently
applicable regulations or are operating in accordance with the appropriate
variances and compliance schedules or similar arrangements. In February 2003, we
received a notice from the South Carolina Department of Health and Environmental
Controls of violations regarding air emissions and related record-keeping for
our Palmetto and Johnsonville, SC facilities. No further action, other than a
minor fine, is expected. Subject to the imprecision in estimating future
environmental costs, we believe that compliance with current laws and
regulations will not require significant capital expenditures or have a material
adverse effect on our consolidated financial position or results of operations.
See "Forward-Looking Statements; Risks and Uncertainties."

FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES

         Statements contained in this Form 10-K that are not historical facts,
including those made in the "Outlook" section above, 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," "expects,"
"anticipates," and similar expressions are intended to identify forward-looking
statements. These statements are made as of the date of this report based upon
current expectations, and we undertake no obligation to update this information.
These forward-looking statements involve certain risks and uncertainties,
including, but not limited to: demand and competition for PET resins and
polyester fiber; the financial condition of our customers;

                                       32

<PAGE>

availability and cost of raw materials; availability and cost of petrochemical
feedstock necessary for the production process; the impact of a governmental
investigation of pricing practices in the polyester staple fiber industry;
availability of financing, changes in financial markets, interest rates, credit
ratings, and foreign currency exchange rates; tax risks; U.S., European, Asian
and global economic conditions; prices and volumes of imports; work stoppages;
levels of production capacity and profitable operation of assets; changes in
laws and regulations; prices of competing products; natural disasters and acts
of terrorism; and maintaining the operations of our existing production
facilities. Actual results may differ materially from those expressed herein.
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 our common stock.

         In addition to those described above, the more prominent risks and
uncertainties inherent in our business are set forth below. However, this
section does not discuss all possible risks and uncertainties to which we are
subject, nor can it be assumed necessarily that there are no other risks and
uncertainties which may be more significant to us.

ECONOMIC CONDITIONS AFFECT THE SUPPLY AND DEMAND OF OUR PRODUCTS.

         Capacity utilization, which is the demand for product divided by its
supply, is a critical factor affecting our financial performance. Demand for
polyester fiber historically has been cyclical because it is subject to changes
in consumer preferences and spending, retail sales patterns, and fiber or
textile product imports. Demand, prices and raw material costs for both PET
resins and fiber may be affected by global economic conditions. Worldwide supply
is expanding for both resins and fiber. Any significant expansion in supply over
demand could reduce our profitability. A material change in demand, supply or in
general economic conditions or uncertainties regarding future economic prospects
could have a material adverse effect on our profitability.

THE FINANCIAL CONDITION OF OUR CUSTOMERS IMPACTS OUR PROFITABILITY.

         Our customers include the manufacturers of plastic containers and
textile mills, yarn spinners, and the injection molding industry. The PPG has
six customers that represented approximately 67.0% of the PPG's total net sales
in 2002. The FRPG does not have any single customer that has a material effect
on the segment. If our customers have financial difficulties, this could affect
our profitability by decreasing our sales and/or resulting in the
uncollectibility of accounts receivable.

FIBER AND TEXTILE IMPORTS CONTINUE TO ADVERSELY IMPACT OUR MARGINS.

         The U.S. and European fiber and textile markets continue to be severely
impacted by imports, principally from Asian countries. Imports of fiber and
fiber products continue to cause an over-supply which decreases fiber margins.
The price and volume of imports have and are expected to continue to
significantly impact the profitability of our businesses.

OUR OPERATIONS ARE DEPENDENT ON THE AVAILABILITY AND COST OF OUR RAW MATERIALS.

         Our operations are substantially dependent on the availability and cost
of our two primary raw materials, PTA and MEG. We currently rely on a single
producer for our domestic supply of PTA and a limited number of sources for MEG.
The effect of the loss of any producer, a disruption in their businesses or a
failure to meet our product needs on a timely basis would depend primarily upon
the length of time necessary to find a suitable alternative source. At a
minimum, temporary shortages in needed raw materials could have a material
adverse effect on our results of operations. We cannot be sure that the
precautions we have taken would be adequate or that an alternative source of
supply could be located or developed in a timely manner.

                                       33

<PAGE>

         The prices of PTA and MEG, purchased pursuant to long-term contracts,
have fluctuated in the past and may fluctuate in the future. Recycled raw
materials are purchased from many different suppliers, including some under
long-term supply contracts. The prices of recycled raw materials are variable
and determined by worldwide supply and demand.

THE GOVERNMENTAL INVESTIGATION OF PRICING PRACTICES IN THE POLYESTER STAPLE
FIBER INDUSTRY COULD ADVERSELY IMPACT OUR PROFITABILITY.

         In January 2001, we received a document subpoena in connection with a
federal grand jury investigation of pricing practices in the polyester staple
industry. We have cooperated and continue to cooperate with the investigation by
producing documents in response to this subpoena. In September 2002 the U.S.
Department of Justice announced the indictment of a former sales manager of one
of our competitors for conspiring to fix prices and allocate customers for
polyester staple beginning in September 1999 and ending in January 2001. On
October 31, 2002, the U.S. Department of Justice announced that it was filing
informations against another competitor and one of its former officers as a
result of their agreement to plead guilty to participating in a conspiracy to
fix prices and allocate customers in the polyester staple industry. Neither we
nor any of our employees have been charged with any wrongdoing, and we
vehemently deny that we or any of our employees have engaged in price fixing or
customer allocation.

         Following the disclosure of the investigation, the indictment of a
competitor's employee and the informations and guilty pleas of another
competitor and its employee, the producers of polyester fiber, including
Wellman, have been named in various civil actions asserting claims substantially
based on the indictment and informations. These proceedings are summarized
below.

         Wellman and certain other companies have been named as defendants in
nineteen federal actions brought by direct purchasers of polyester staple fiber
for alleged violation of U.S. antitrust laws. In each lawsuit, the plaintiffs
allege that the defendants engaged in a conspiracy to fix the price of polyester
staple fiber in violation of the Sherman Act. In seventeen of the cases, the
plaintiff purports to represent a class of all persons who directly purchased
polyester staple fiber and were similarly affected by such alleged conduct. Two
of the cases are brought by plaintiffs who do not purport to represent a class.
All of the federal plaintiffs seek damages of unspecified amounts, attorney's
fees and costs and unspecified relief. In addition, certain of the actions claim
restitution, injunction against alleged illegal conduct and other equitable
relief. The federal suits are pending in the U.S. District Court for the
Northern District of California, U.S. District Court for the District of New
Jersey, U.S. District Court for the Middle District of North Carolina, U.S.
District Court for the Western District of North Carolina and U.S. District
Court for the District of South Carolina. The Judicial Panel on Multi-District
Litigation ruled on April 22, 2003 to transfer all the federal cases to the
Western District of North Carolina for coordinated or consolidated pretrial
proceedings.

         In addition to the direct purchaser actions discussed above,
thirty-three purported class actions alleging violations of federal antitrust
laws, state antitrust or unfair competition laws and certain state consumer
protection acts have been filed in one federal court and various state courts on
behalf of purported classes of indirect purchasers of polyester staple fiber
products. In each lawsuit, the plaintiffs allege that the defendants engaged in
a conspiracy to fix prices of polyester staple fiber products. In addition,
certain of the actions claim restitution, injunction against alleged illegal
conduct and other equitable relief. One indirect purchaser case is pending in
the U.S. District Court for the Western District of North Carolina and is
subject to the order issued by the Judicial Panel on Multi-District Litigation
for coordination or consolidation with the other federal cases. The rest of the
indirect purchaser cases were filed in Arizona, California, the District of
Columbia, Florida, Kansas, Massachusetts, Michigan, New Mexico, North Carolina,
South Dakota, Tennessee, West Virginia and Wisconsin. The case filed in West
Virginia has been removed to federal court. A motion to remand is pending. If
not remanded, this case will also be transferred to the Western District of
North Carolina by the Judicial Panel

                                       34

<PAGE>

on Multi-District Litigation for coordination or consolidation with the other
federal cases. The case filed in Wisconsin was removed to federal court and
subsequently remanded to the Circuit Court for Dane County, Wisconsin. In all of
these cases, the plaintiffs seek damages of unspecified amounts, attorney's fees
and costs and unspecified relief.

         Recently, Wellman and certain other companies were named in an action
filed in the Superior Court of Justice for Ontario, Canada, by a plaintiff
purporting to represent a class of direct and indirect purchasers of polyester
staple fiber. This complaint asserts claims under Canadian law. It contains
three counts that ask for compensatory damages of $50 million (Canadian) each.
The extent to which these three counts are duplicative and overlapping is
unclear. The complaint also contains one count asking for punitive damages of
$10 million (Canadian).

         In addition to the foregoing, Wellman may become subject to additional
proceedings and lawsuits under federal and state antitrust and unfair
competition laws. Furthermore, the federal grand jury investigation is ongoing
and additional indictments may result. We intend to vigorously defend against
the civil claims and any civil or criminal claims or proceedings that may be
brought against us in the future. Because of the early stage and complexity of
the U.S. Department of Justice investigation and the related civil claims, we
have not formed an opinion about whether these proceedings will have a material
adverse effect on our consolidated financial position or results of operations.

THE AVAILABILITY AND COSTS OF OUR FINANCING COULD ADVERSELY AFFECT OUR
PROFITABILITY.

         Certain events could reduce our access to financing and/or increase our
financing costs. We are dependent on the banks and commercial paper markets for
our financing. These markets are volatile and the availability of financing and
interest rates fluctuate based on conditions in the markets and lenders'
perception of our business. The bank markets can be influenced by the economy,
by the general credit environment, by the credit environment of our industry,
and by the performance of the individual financial institution. The commercial
paper markets can be influenced by other financial markets. In addition, our
ability to borrow at competitive costs is influenced by our public debt ratings.
Significant disruptions in these markets or lowering of our credit ratings could
reduce our access to funds and/or increase our cost of funds. In addition, if
current business conditions deteriorated or other events occurred that resulted
in a breach of our covenants under our debt and certain other contractual
obligations, all amounts due under these obligations would immediately become
due and payable. If this occurred, there is no certainty these obligations could
be refinanced and, if they were, we would probably incur increased costs and
some or all of the obligations would be classified as debt on our balance sheet.
For additional information, see "Capital Resources and Liquidity" above.

CHANGES IN FOREIGN CURRENCY EXCHANGE RATES COULD ADVERSELY AFFECT OUR
PROFITABILITY.

         A large portion of our profitability is earned in entities where the
functional currency is not the U.S. dollar. When these currencies weaken against
the dollar, our profitability and the value of our investment in the foreign
subsidiary decreases. In addition, our foreign subsidiaries conduct business in
currencies other than their functional currency. Changes in the relative
strength of these currencies can adversely affect the profitability of the
foreign subsidiaries in their functional currency. A portion of the net assets
of these subsidiaries is denominated in other than their functional currency.
While we reduce our foreign currency exposure by using appropriate hedges, our
foreign subsidiaries still have net assets denominated in currencies other than
their functional currency and may experience foreign exchange losses. As a
result, a material change in foreign currency exchange rates could affect our
profitability.

                                       35

<PAGE>

REGULATORY CHANGES MAY AFFECT THE DEMAND FOR OUR PRODUCTS.

         Some of the end uses of our products are subject to federal and/or
state regulations. Adverse changes in these regulations could affect the demand
for our products and adversely affect our profitability.

ADDITIONAL LIABILITIES MAY BE PROPOSED BY TAX AUTHORITIES.

         We have entered into global tax planning initiatives in the normal
course of our business. These initiatives are subject to normal review by tax
authorities. It is possible that additional liabilities may be proposed by tax
authorities as a result of these reviews and that some of the reviews could be
resolved unfavorably.

INCREASES IN ENERGY COSTS COULD ADVERSELY AFFECT OUR PROFITABILITY.

         Increases in energy costs impact our profitability by increasing our
raw materials costs and production costs. The prices of substantially all of our
raw materials are impacted by changes in petrochemical costs. Our facilities
utilize natural gas as their primary energy source, although some have the
ability to switch a portion of their consumption to fuel oil. An increase in
these costs could adversely affect our profitability.

ACTUAL COSTS FOR ENVIRONMENTAL MATTERS MAY VARY FROM THE ESTIMATES.

         Actual costs and future estimated costs for identified environmental
situations may change. Given the inherent uncertainties in evaluating
environmental exposures due to unknown conditions, changing government
regulations and legal standards regarding liability and evolving related
technologies, we could have higher future environmental expenditures.

ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

DERIVATIVE FINANCIAL INSTRUMENTS

         We do not hold or issue derivative financial instruments for trading
purposes. We use derivative financial instruments to manage our exposure to
fluctuations in interest rates and foreign exchange rates. For additional
discussion of our use of such instruments, see notes 1, 2, 7 and 14 to the
Consolidated Financial Statements.

INTEREST RATE RISK

         Because our obligations under our bank facilities, bid loans and
uncommitted lines of credit bear interest at floating rates, our earnings and
cash flows are affected by changes in prevailing interest rates. A 10% increase
in market interest rates from those at December 31, 2002 and 2001 would reduce
income before income taxes by approximately $1.0 million and $1.8 million,
respectively, and reduce cash flow from operations by $1.1 million and $1.9
million, respectively. Our interest rate financial instruments at December 31,
2002 exactly match the terms of the $40.0 million of fixed-rate debt. Any
potential decrease in the fair value of our interest rate financial instruments
will be offset by changes in the value of our fixed-rate debt.

                                       36

<PAGE>

FOREIGN CURRENCY RISK

         We use foreign currency debt and foreign currency purchase and sale
contracts with terms of less than one year to hedge our exposure to changes in
foreign currency exchange rates. These financial instruments are primarily used
to hedge certain accounts receivable denominated in foreign currencies. If
foreign currency exchange rates at December 31, 2002 and 2001 adversely changed
by 10%, the fair value of these financial instruments outstanding at December
31, 2002 and 2001 would decline by approximately $4.1 million and $0.8 million,
respectively. However, such loss in fair value would be substantially offset by
an increase in the fair value of our underlying exposure. Our sensitivity
analysis of the effects of changes in foreign currency exchange rates does not
factor in any potential changes in any underlying hedged amount or changes in
sales levels affected by changes in local currency prices.

                                       37

<PAGE>

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                WELLMAN, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT
                                  SCHEDULES

<TABLE>
<S>                                                                                                                     <C>
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000                              39
Consolidated Balance Sheets as of December 31, 2002 and 2001                                                            40
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000                    41
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000                              42
Notes to Consolidated Financial Statements                                                                              43
Report of Independent Auditors                                                                                          72
Consolidated financial statement schedules for the years ended December 31, 2002, 2001 and 2000:
     II - Valuation and qualifying accounts                                                                             73
</TABLE>

         All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.

                                       38

<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
(In thousands, except per share data)                               2002              2001               2000
                                                                 ----------        ----------         ----------
<S>                                                              <C>               <C>                <C>
Net sales                                                        $1,013,968        $1,009,560         $1,021,543
Cost of sales                                                       898,745           901,539            887,183
                                                                 ----------        ----------         ----------
Gross profit                                                        115,223           108,021            134,360
Selling, general and administrative expenses                         73,900            72,788             68,214
Restructuring benefit                                                    --                --                793
Other income                                                          4,365                --                 --
                                                                 ----------        ----------         ----------
Operating income                                                     45,688            35,233             66,939
Interest expense, net                                                10,254            17,957             17,959
                                                                 ----------        ----------         ----------
Earnings from continuing operations before income taxes              35,434            17,276             48,980
Income tax expense                                                    9,036             3,854             13,563
                                                                 ----------        ----------         ----------
Earnings from continuing operations                                  26,398            13,422             35,417
Loss from discontinued operations, net of income tax                (23,651)           (5,033)            (2,649)
                                                                 ----------        ----------         ----------
Earnings before cumulative effect of accounting change                2,747             8,389             32,768
Cumulative effect of accounting change                             (197,054)               --                 --
                                                                 ----------        ----------         ----------
Net earnings (loss)                                              $ (194,307)       $    8,389         $   32,768
                                                                 ==========        ==========         ==========

Basic net earnings (loss) per common share:
    Continuing operations                                        $     0.84        $     0.43         $     1.13
    Discontinued operations                                      $    (0.75)       $    (0.16)        $    (0.09)
    Cumulative effect of accounting change                            (6.24)               --                 --
                                                                 ----------        ----------         ----------
    Net earnings (loss)                                          $    (6.15)       $     0.27         $     1.04
                                                                 ==========        ==========         ==========
Basic weighted-average common shares outstanding                     31,579            31,542             31,367
                                                                 ==========        ==========         ==========

Diluted net earnings (loss) per common share:
    Continuing operations                                        $     0.82        $     0.42         $     1.11
    Discontinued operations                                      $    (0.73)       $    (0.16)        $    (0.08)
    Cumulative effect of accounting change                            (6.16)               --                 --
                                                                 ----------        ----------         ----------
    Net earnings (loss)                                          $    (6.07)       $     0.26         $     1.03
                                                                 ==========        ==========         ==========
Diluted weighted-average common shares outstanding                   32,015            32,031             31,884
                                                                 ==========        ==========         ==========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       39

<PAGE>

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
(In thousands, except share data)                                                     2002               2001
                                                                                   ----------         ----------
<S>                                                                                <C>                <C>
Assets:
Current assets:
  Cash and cash equivalents                                                        $       --         $    1,814
  Accounts receivable, less allowance of $7,675 in 2002 and $3,871 in 2001             68,762             54,674
  Inventories                                                                         113,306            137,290
  Inventories, discontinued operations                                                    949              8,774
  Prepaid expenses and other current assets                                             7,245              5,631
                                                                                   ----------         ----------
     Total current assets                                                             190,262            208,183
Property, plant and equipment, at cost:
  Land, buildings and improvements                                                    153,700            150,874
  Machinery and equipment                                                           1,020,401            994,284
  Construction in progress                                                              7,564              8,771
                                                                                   ----------         ----------
                                                                                    1,181,665          1,153,929
  Less accumulated depreciation                                                       480,605            426,000
                                                                                   ----------         ----------
     Property, plant and equipment, net                                               701,060            727,929
Property, plant and equipment discontinued operations, net                                876             31,500
Goodwill, net                                                                          35,041            230,458
Other assets, net                                                                      37,971             36,360
                                                                                   ----------         ----------
                                                                                   $  965,210         $1,234,430
                                                                                   ==========         ==========
Liabilities and Stockholders' Equity:
Current liabilities:
  Accounts payable                                                                 $   68,671         $   57,398
  Accrued liabilities                                                                  29,991             34,439
  Current portion of long-term debt                                                    70,405                 --
  Other                                                                                 9,289             13,789
                                                                                   ----------         ----------
     Total current liabilities                                                        178,356            105,626
Long-term debt                                                                        166,504            333,144
Deferred income taxes and other liabilities                                           193,652            182,921
                                                                                   ----------         ----------
     Total liabilities                                                                538,512            621,691
                                                                                   ----------         ----------
Stockholders' equity:
  Common stock, $0.001 par value; 55,000,000 shares authorized, 34,368,809
   shares issued in 2002 and 34,335,437 in 2001                                            34                 34
  Class B common stock, $0.001 par value; 5,500,000 shares authorized; no
    shares issued                                                                          --                 --
  Paid-in capital                                                                     248,499            247,560
  Accumulated other comprehensive loss                                                 (3,243)           (22,037)
  Retained earnings                                                                   230,932            436,706
  Less common stock in treasury at cost:  2,500,000 shares                            (49,524)           (49,524)
                                                                                   ----------         ----------
     Total stockholders' equity                                                       426,698            612,739
                                                                                   ----------         ----------
                                                                                   $  965,210         $1,234,430
                                                                                   ==========         ==========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       40

<PAGE>

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                     ACCUMULATED
                                                        COMMON                          OTHER
                                                     STOCK ISSUED        PAID-IN    COMPREHENSIVE   RETAINED    TREASURY
                                                 SHARES       AMOUNT     CAPITAL        LOSS        EARNINGS      STOCK     TOTAL
                                                --------    ---------    --------     ---------    ----------   ---------  --------
<S>                                             <C>         <C>          <C>        <C>            <C>          <C>        <C>
(In thousands)
Balance at December 31, 1999                      33,939    $      34    $239,473    $  (6,019)    $  418,400   $ (49,524) $602,364
Net earnings                                                                                           32,768                32,768
Currency translation adjustments                                                        (3,184)                              (3,184)
Minimum pension liability adjustment                                                    (1,460)                              (1,460)
                                                                                                                           --------
  Total comprehensive income                                                                                                 28,124
Cash dividends ($0.36 per share)                                                                      (11,390)              (11,390)
Exercise of stock options, net                        82                    1,525                                             1,525
Contribution of common stock to employee
   benefit plan                                      192                    3,797                                             3,797
Issuance of restricted stock, net                     44                      683                                               683
Amortization of deferred compensation, net                                    422                                               422
                                                --------    ---------    --------    ---------     ----------   ---------  --------
Balance at December 31, 2000                      34,257           34     245,900      (10,663)       439,778     (49,524)  625,525
Net earnings                                                                                            8,389                 8,389
Currency translation adjustments                                                        (6,311)                              (6,311)
Minimum pension liability adjustment                                                    (4,951)                              (4,951)
Fair value of derivatives                                                                 (112)                                (112)
                                                                                                                           --------
  Total comprehensive loss                                                                                                   (2,985)
Cash dividends ($0.36 per share)                                                                      (11,461)              (11,461)
Exercise of stock options, net                        44                      775                                               775
Issuance of restricted stock, net                     34                      340                                               340
Amortization of deferred compensation, net                                    545                                               545
                                                --------    ---------    --------    ---------     ----------   ---------  --------
Balance at December 31, 2001                      34,335           34     247,560      (22,037)       436,706     (49,524)  612,739
Net loss                                                                                             (194,307)             (194,307)
Currency translation adjustments                                                        21,413                               21,413
Minimum pension liability adjustment                                                    (3,751)                              (3,751)
Fair value of derivatives                                                                1,132                                1,132
                                                                                                                           --------
  Total comprehensive loss                                                                                                 (175,513)
Cash dividends ($0.36 per share)                                                                      (11,467)              (11,467)
Exercise of stock options, net                         2                       15                                                15
Issuance of restricted stock, net                     32                      376                                               376
Amortization of deferred compensation, net                                    548                                               548
                                                --------    ---------    --------    ---------     ----------   ---------  --------
Balance at December 31, 2002                      34,369    $      34    $248,499    $  (3,243)    $  230,932   $ (49,524) $426,698
                                                ========    =========    ========    =========     ==========   =========  ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       41

<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31,
                                                                               2002             2001             2000
                                                                             --------         --------        ----------
<S>                                                                          <C>              <C>             <C>
(In thousands)
Cash flows from operating activities:
  Net earnings (loss)                                                        $(194,307)       $  8,389        $   32,768
  Adjustments to reconcile net earnings (loss) to net cash provided
   by operating activities:
    Depreciation                                                                56,301          57,936            58,880
    Amortization                                                                 1,279           9,886             9,849
    Deferred income taxes and other                                              3,869         (11,175)            6,617
    Contribution of common stock to employee benefit plan                           --              --             3,797
    Restructuring benefit                                                           --              --              (793)
    Cumulative effect of accounting change                                     197,054              --                --
    Impairment loss, discontinued operations                                    29,407              --                --
    Loss on sale of business                                                     2,701              --                --
    Changes in assets and liabilities:
      Accounts receivable                                                       (8,948)         33,090           (12,108)
      Inventories                                                               34,887          30,003           (18,901)
      Prepaid expenses and other current assets                                 (1,328)         (1,151)             (998)
      Other assets                                                               2,261          (6,583)          (10,267)
      Accounts payable, accrued liabilities, and other current
        liabilities                                                              1,522         (27,136)            2,202
      Other liabilities                                                           (114)         (2,675)           (3,547)
      Other                                                                      3,718             672             4,260
                                                                             ---------        --------        ----------
     Net cash provided by operating activities                                 128,302          91,256            71,759
                                                                             ---------        --------        ----------
Cash flows from investing activities:
  Additions to property, plant and equipment                                   (21,653)        (28,084)          (39,418)
  Proceeds from sale of assets                                                   1,505              --               321
                                                                             ---------        --------        ----------
     Net cash used in investing activities                                     (20,148)        (28,084)          (39,097)
                                                                             ---------        --------        ----------
Cash flows from financing activities:
  Proceeds from debt                                                            25,000          75,000            50,000
  Repayments of debt                                                          (124,010)       (125,932)          (73,044)
  Issuance of restricted stock, net                                                376             340               683
  Dividends paid on common stock                                               (11,467)        (11,461)          (11,390)
  Exercise of stock options, net                                                    15             775             1,525
                                                                             ---------        --------        ----------
     Net cash used in financing activities                                    (110,086)        (61,278)          (32,226)
                                                                             ---------        --------        ----------
Effect of exchange rate changes on cash and cash equivalents                       118             (80)              436
                                                                             ---------        --------        ----------
Change in cash and cash equivalents                                             (1,814)          1,814                 0
Cash and cash equivalents at beginning of year                                   1,814               0                 0
                                                                             ---------        --------        ----------
Cash and cash equivalents at end of year                                     $       0        $  1,814        $        0
                                                                             =========        ========        ==========
Supplemental cash flow data:
  Cash paid (received) during the year for:
    Interest (net of amounts capitalized)                                    $  10,299        $ 19,344        $   17,540
    Income taxes                                                             $ (18,703)       $    (40)       $   (8,327)
</TABLE>

See Notes to Consolidated Financial Statements.

                                       42

<PAGE>

Notes to Consolidated Financial Statements
(In thousands, except share and per share data)

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

         Wellman, Inc. and its subsidiaries (the Company) is an international
manufacturing company operating primarily in the United States, Ireland and the
Netherlands. The Company primarily manufactures PermaClear(R) and EcoClear(R)
PET (polyethylene terephthalate) packaging and HP resins and high-quality
polyester products, including Fortrel(R) brand polyester fibers. The principal
markets for PET resins are United States, South American, and European-based
manufacturers of various types of plastic containers. The principal markets for
polyester and nylon staple fibers are apparel, home furnishings, carpet and
industrial manufacturers in the United States, Mexico, and Europe.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of Wellman,
Inc. and subsidiaries. All material intercompany transactions have been
eliminated.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

REVENUE RECOGNITION

         Revenue is recognized when the title and risk of loss have passed to
the customer, there is persuasive evidence of an arrangement, delivery has
occurred, the sales price is determinable, and collectibility is assured. Sales
for the company's FRPG are recorded at the point of shipment (FOB shipping
point), since both title and risk of loss have transferred to the customer.
Sales for the Company's PPG that are shipped via common carrier (truck) are
recognized at point of shipment (FOB shipping point). For railcar shipments, the
Company recognizes revenue at the point of shipment (FOB shipping point) or at
the time the product is delivered to the customer's premises (FOB destination)
based on an agreement with the customer.

CASH AND CASH EQUIVALENTS

         The Company considers all short-term investments purchased with a
maturity of three months or less to be cash equivalents for purposes of the
Consolidated Statements of Cash Flows.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

         The Company records all of its derivative instruments as either assets
or liabilities on its balance sheet at their respective fair values. The
accounting for changes in the fair value (i.e., gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and on the type of hedging relationship. The Company
formally assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
For those derivative instruments that qualify as hedging instruments, the
Company must designate the hedging instrument, based on the exposure being
hedged, as either a fair value

                                       43

<PAGE>

hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
For fair value hedges, the gain or loss on the derivative instrument as well as
the offsetting loss or gain on the hedged item attributable to the hedged risk
are recognized in current earnings during the period of the change in fair
values. For cash flow hedges, the effective portion of the gain or loss on the
derivative instrument is reported as a component of other comprehensive income
(loss) and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings, with the ineffective portion, if any,
being recognized in current earnings during the period of the change.

ALLOWANCES FOR DOUBTFUL ACCOUNTS

         The Company performs periodic credit evaluations of its customers and
generally does not require collateral. A reserve for uncollectible accounts
receivable is established based on the Company's evaluation of the
credit-worthiness of its customers and the potential risks inherent in their
businesses.

INVENTORIES

         Inventories are stated at the lower of cost or market. Costs are
determined for all inventories using the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment is carried at cost. Depreciation for
assets is provided based on their estimated useful lives and is computed using
the straight-line and units of production methods. Estimated useful lives are 30
to 40 years for buildings and improvements and 3 to 20 years for machinery and
equipment.

         For idle equipment where the Company utilized the straight-line
depreciation method, the Company either records depreciation at a reduced rate
or does not record depreciation on the assets. The following table provides the
amount of reduced depreciation for assets depreciated using the straight-line
depreciation method during the periods noted and the net book value of the
assets that were idle at the end of those periods:

<TABLE>
<CAPTION>
                                                         Net Book Value at End of         Pretax Impact of Reducing
                                                                  Period                         Depreciation
                                                                  ------                         ------------
<S>                                                      <C>                              <C>
As of and for the year ending
December 31, 2000                                                $  7,883                           $ 1,556

As of and for the year ending
December 31,2001                                                 $ 16,258                           $ 1,313

As of and for the year ending
December 31,2002                                                 $  9,019                           $ 1,147
</TABLE>

         In addition, the Company has a staple fiber line at its Pearl River
facility that was depreciated using the units of production method that has been
idle since December 2000. As a result, no depreciation has been recorded on this
asset since such date. This line has a net book value of approximately $192,000
at December 31, 2002.

         Expenditures which materially increase productivity, change capacities,
or extend useful lives are capitalized in property, plant and equipment. Routine
maintenance, repairs and replacement costs are charged to expense in the period
incurred. The Company does not accrue for major maintenance and repairs.
Periodically,

                                       44

<PAGE>

the Company conducts a complete shutdown and inspection of equipment
(turnaround) at its facilities to perform necessary repairs and replacements.
Costs associated with these turnarounds are capitalized and are generally
amortized over the period until the next turnaround.

         Effective January 1, 2002, the Company was required to adopt SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." In
accordance with SFAS No. 144, when an asset is held for sale, it is measured at
the lower of its carrying amount or fair value less costs of disposal. The fair
value of an asset is the amount at which that asset could be bought or sold in a
current transaction between willing parties. Judgment is required in determining
the fair value of the assets, and the fair value could differ from the actual
amount received upon disposal.

GOODWILL AND OTHER INTANGIBLE ASSETS

         Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets." With the adoption of SFAS No. 142, the Company no
longer amortizes goodwill but instead tests goodwill for impairment at least
annually at the reporting unit level. Goodwill is tested for impairment by
comparing the fair value of the reporting unit to its carrying value, including
goodwill. The fair value is determined based on the present value of estimated
future discounted cash flows. If the fair value exceeds the carrying value, no
impairment loss is recognized. If the carrying value exceeds the fair value, the
goodwill of the reporting unit is potentially impaired. A comparison is then
made between the implied fair value of the goodwill, as defined by SFAS No. 142,
and the carrying value of the goodwill. If the implied fair value is less, an
impairment loss equal to the difference is recognized. This implied fair value
then becomes the new carrying value of the goodwill for future impairment tests.

         The estimate of future discounted cash flows is based upon, among other
things, certain assumptions about future operating performance. Estimates of
future discounted cash flows may differ from actual cash flows due to, among
other things, changes in economic conditions, the Company's business model, or
the Company's operating performance.

STOCK OPTION PLANS

         The Company has elected to follow Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, in accounting for its employee stock options. Under APB 25, any
difference between the exercise price of the Company's employee stock options
and the market price of the underlying stock on the date of grant is recognized
as compensation expense over the vesting period of the options (intrinsic value
method).

INCOME TAXES

         Income taxes have been provided using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities. Deferred
income taxes resulting from such differences are recorded based on the enacted
tax rates that will be in effect when the differences are expected to reverse.

ENVIRONMENTAL EXPENDITURES

         Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated. Expenditures that relate to an existing condition
caused by past operations and that do not contribute to current or future
revenue generation are expensed or charged to the aforementioned liability.

                                       45

<PAGE>

FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME (LOSS)

         The financial statements of foreign subsidiaries have been translated
into U.S. dollar equivalents in accordance with FASB Statement No. 52, "Foreign
Currency Translation." All balance sheet accounts have been translated using the
exchange rates in effect at the balance sheet date. Income statement amounts
have been translated using the average exchange rate for the year. The gains and
losses resulting from the changes in exchange rates from year to year have been
reported in other comprehensive income (loss). The effect on the Consolidated
Statements of Operations of transaction gains and losses is insignificant for
all years presented.

         Accumulated other comprehensive loss is comprised of foreign currency
translation adjustments, minimum pension liability adjustments, and the
effective portion of the gain (loss) for derivatives designated and accounted
for as cash flow hedges. Substantially all of the earnings associated with the
Company's investments in foreign entities are considered to be permanently
invested, and no provision for U.S. federal and state income taxes on those
earnings or translation adjustments has been provided.

         The components of and changes in other comprehensive loss are as
follows:

<TABLE>
<CAPTION>
                                                                                                                  ACCUMULATED
                                                               FOREIGN            MINIMUM         FAIR VALUE         OTHER
                                                        CURRENCY TRANSLATION      PENSION            OF          COMPREHENSIVE
                                                             ADJUSTMENTS         LIABILITY       DERIVATIVES         LOSS
                                                             -----------         ---------       -----------         ----
<S>                                                     <C>                      <C>             <C>             <C>
Balance at December 31, 1999                                 $   (6,019)         $      --        $      --        $   (6,019)
  Changes during year (net of taxes of $858)                     (3,184)            (1,460)              --            (4,644)
                                                             ----------          ---------        ---------        ----------
Balance at December 31, 2000                                     (9,203)            (1,460)              --           (10,663)
  Changes during year (net of taxes of $2,569)                   (6,311)            (4,951)            (112)          (11,374)
                                                             ----------          ---------        ---------        ----------
Balance at December 31, 2001                                    (15,514)            (6,411)            (112)          (22,037)
  Changes during year (net of taxes of $2,161)                   21,413             (3,751)           1,132            18,794
                                                             ----------          ---------        ---------        ----------
Balance at December 31, 2002                                 $    5,899          $ (10,162)       $   1,020        $   (3,243)
                                                             ==========          =========        =========        ==========
</TABLE>

ADVERTISING COSTS

         Advertising costs are charged to expense as incurred. Such costs were
approximately $1,200, $2,100, and $1,800 for 2002, 2001, and 2000, respectively.

RESEARCH AND DEVELOPMENT COSTS

         Research and development costs are expensed as incurred. Such costs
were approximately $17,300, $14,600 and $15,500 for 2002, 2001, and 2000,
respectively.

DEFERRED DEBT COSTS

         Debt issuance costs are amortized using the interest method over the
life of the associated debt.

                                       46

<PAGE>

GRANT ACCOUNTING

         The Company has received various grants, including capital and
operating grants, from the state of Mississippi and other local authorities in
connection with the construction of its Pearl River facility. The capital grants
without stipulated operating requirements have been recorded as a reduction of
property, plant and equipment. The capital grants with stipulated operating
requirements have been recorded as deferred revenue and are included in income
as the requirements stipulated in the grant are satisfied. The operating grants
are recorded as a reduction of operating expenses in the period the reduction
occurs. See note 13.

STOCK BASED COMPENSATION

         The Company grants stock options for a fixed number of shares to
employees and directors. Prior to 1998, the exercise price was equal to or
greater than the fair value of the shares at the date of grant. Beginning with
options granted in 1998, the exercise price is equal to the average of the
highest and lowest sales prices of the Company's common stock over a period of
20 days prior to the date of the grant. Since the Company accounts for stock
option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees," it recognizes compensation expense over the vesting period
for the difference between the exercise price and the fair value of the shares
at the date of grant. The difference between the employee purchase price and the
fair value of restricted stock awarded under the Deferred Compensation and
Restricted Stock Plan is considered to be compensatory. The amount of non-cash
compensation expense recognized in 2002, 2001, and 2000 under these plans was
not material. See note 11.

RECLASSIFICATION

         Certain 2001 and 2000 amounts have been reclassified to conform to the
2002 presentation.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (or FIN 46), "Consolidation of Variable Interest
Entities." FIN 46 requires a variable interest entity to be consolidated by a
parent company if that company is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to receive a majority of
the entity's residual returns or both. A variable interest entity is a
corporation, partnership, trust or any other legal structure used for business
purposes that either (a) does not have equity investors with voting rights or
(b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. These variable interest entities are
commonly referred to as special-purpose entities or off-balance sheet financing.
A variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in research and development or other
activities on behalf of another company. The consolidation requirements of FIN
46 apply immediately to variable interest entities created after January 31,
2003. The consolidation requirements of FIN 46 apply to older entities in the
first fiscal year or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply to all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established.

         The only contractual obligation that may be impacted by FIN 46 is a
sale and leaseback transaction the Company entered into in 1999. The Company
expects to restructure the sale and leaseback transaction prior to July 1, 2003.
If the Company is able to restructure the sale and leaseback transaction, it
will not be impacted by FIN 46. Otherwise, the Company will be required to
consolidate the transaction and either record the impact as a cumulative effect
of an accounting change or restate the prior years' financial information. Other
than normal financing risks, the Company does not have any exposure to risks as
a result of this transaction. The Company does not expect the adoption of FIN 46
to affect its compliance with debt covenants.

                                       47

<PAGE>

2.       ACCOUNTING CHANGES

GOODWILL AND OTHER INTANGIBLE ASSETS

         Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets."
This accounting standard addresses financial accounting and reporting for
goodwill and other intangible assets and requires that goodwill amortization be
discontinued and replaced with annual tests of impairment. Other intangible
assets continue to be amortized over their estimated useful lives, whereas
intangibles with indefinite lives are not amortized, but are tested annually for
impairment. In accordance with SFAS No. 142, goodwill amortization was
discontinued as of January 1, 2002. In addition, the Company completed its
initial assessment of goodwill using the two-step approach described in SFAS No.
142. Goodwill was tested for impairment by comparing the fair value of the
reporting units to their carrying value, including goodwill. The fair value was
determined based on the present value of estimated future discounted cash flows.
Since the carrying value of the Fibers and Recycled Products Group (or FRPG)
assets exceeded their fair value, a comparison was then made between the implied
fair value of the goodwill, as defined by SFAS No. 142, and the carrying value
of the goodwill. Goodwill related to the FRPG was determined to be impaired and,
as required by this Statement, was reduced by $197,054 to its implied fair
value. The reduction was recorded as a cumulative effect of an accounting
change. Goodwill was previously evaluated for impairment by comparing the entity
level unamortized goodwill balance to projected undiscounted cash flows, which
did not result in an indicated impairment. The Company did not have any
intangible assets with indefinite lives at December 31, 2002 or 2001.

         A reconciliation of previously reported financial statement information
to adjusted amounts reflecting the elimination of goodwill amortization for the
comparable periods prior to the adoption of SFAS No. 142 is as follows:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED                 YEAR ENDED
                                                                           DECEMBER 31, 2001          DECEMBER 31, 2000
                                                                           -----------------          -----------------
<S>                                                                        <C>                        <C>
Net earnings as reported                                                      $  8, 389                    $ 32,768
Goodwill amortization                                                            8, 444                       8,455
                                                                              ---------                    --------
                                                                              $  16,833                    $ 41,223
                                                                              =========                    ========
Basic net earnings per common share as reported                               $    0.27                    $   1.04
Adjusted basic net earnings per common share                                  $    0.53                    $   1.31

Diluted net earnings per common share as reported                             $    0.26                    $   1.03
Adjusted diluted net earnings per common share                                $    0.53                    $   1.29
</TABLE>

                                       48

<PAGE>

         The changes in the net carrying value of goodwill by reportable
operating segments for the year ended December 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                                  FRPG                    PPG                  TOTAL
                                                               ---------               --------              ---------
<S>                                                            <C>                     <C>                   <C>
Goodwill, net at December 31, 2001                             $ 197,054               $ 33,404              $ 230,458
Impairment loss, reported as a cumulative
  effect of an accounting change                                (197,054)                    --               (197,054)
Currency translation adjustment                                       --                  1,637                  1,637
                                                               ---------                                     ---------
Goodwill, net at December 31, 2002                             $     -0-               $ 35,041              $  35,041
                                                               =========               ========              =========
</TABLE>

         Other intangible assets and related amortization expense as of and for
the year ended December 31, 2002 were not significant.

ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

         Effective January 1, 2002, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" for a disposal of a segment of a business.

         In January 2002, the Company announced plans to refocus the strategy of
its polyester fibers business in order to be less dependent on commodity fibers.
As a result of its review of strategic alternatives, in March 2002, the Company
adopted a plan to sell its partially oriented yarn (POY) business and its small
recycled fine denier polyester staple fiber business with manufacturing
facilities located in Fayetteville, North Carolina and Marion, South Carolina,
respectively. These businesses are reported as discontinued operations in the
Company's financial statements.

         On June 18, 2002, the Company sold the property, plant and equipment
and inventory of its POY business. The aggregate sales price was $1,682 in cash
(including the reimbursement of certain business expenses) and the assumption of
certain liabilities. The total loss on disposal of the assets of the Company's
POY business for the year ended December 31, 2002 was $16,237, net of taxes. The
net loss is included in discontinued operations in the Company's Consolidated
Statements of Operations.

         The assets of the Company's small recycled fine denier polyester staple
fiber business with a manufacturing facility in Marion, South Carolina are
reported separately in the Company's Consolidated Balance Sheet at December 31,
2002. The Company recorded an impairment charge of $4,698, net of taxes, in the
first quarter of 2002 to reflect the assets at their estimated fair value less
costs of disposal. The Company expects to sell its Marion assets by the end of
the first quarter of 2003.

         The net operating results for the POY and recycled fine denier
polyester staple fiber businesses for the year ending December 31, 2002 have
been reflected as discontinued operations in the Company's Consolidated
Statements of Operations. In addition, in accordance with SFAS No. 144, the
prior year information has been reclassified to reflect separately the assets of
the discontinued operations and the loss from discontinued operations.

                                       49

<PAGE>

         Results for discontinued operations consist of the following:

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER
                                                                     2002            2001             2000
                                                                     ----            ----             ----
<S>                                                               <C>             <C>               <C>
Net sales                                                         $  29,285       $   74,237        $  97,780
                                                                  =========       ==========        =========
Loss from discontinued operations before tax benefit                 (4,177)          (7,742)          (4,075)
Tax benefit                                                          (1,462)          (2,710)          (1,426)
                                                                  ---------       ----------        ---------
Net loss from discontinued operations                                (2,715)          (5,032)          (2,649)
                                                                  ---------       ----------        ---------
Loss on disposal of POY business and impairment
loss to record remaining assets at fair value less
cost of disposal                                                    (32,209)              --               --
Tax benefit                                                         (11,273)              --               --
                                                                  ---------
Net loss on disposal of POY business and impairment loss to
record remaining assets at fair value less cost of disposal         (20,936)              --               --
                                                                  ---------       ----------        ---------
Net loss from discontinued operations                             $ (23,651)      $   (5,032)       $  (2,649)
                                                                  =========       ==========        =========
</TABLE>

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

         Effective January 1, 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended. This
Statement requires the Company to recognize all of its derivative instruments as
either assets or liabilities on its balance sheet at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and on the type of hedging relationship. For those derivative
instruments that are designated and qualify as hedging instruments, a company
must designate the hedging instrument, based upon the exposure being hedged, as
either a fair value hedge, cash flow hedge or a hedge of a net investment in a
foreign operation.

         As described below, the Company utilized only two types of derivatives
in 2002 and 2001, fair value hedges and cash flow hedges. For derivative
instruments that are designated and qualify as a fair value hedge (i.e., hedging
the exposure to changes in the fair value of an asset or a liability or an
identified portion thereof that is attributable to a particular risk), the gain
or loss on the derivative instrument as well as the offsetting loss or gain on
the hedged item attributable to the hedged risk are recognized in current
earnings during the period of the change in fair values. For derivative
instruments that are designated and qualify as a cash flow hedge (i.e., hedging
the exposure to variability in expected future cash flows that is attributable
to a particular risk), the effective portion of the gain or loss on the
derivative instrument is reported as a component of other comprehensive income
(loss) and reclassified into income in the same period or periods during which
the hedged transaction affects income. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present value of
future cash flows of the hedged item, if any, is recognized in current income
during the period of change.

         The Company utilizes interest rate swaps to manage the interest rate
characteristics of certain debt. At January 1, 2001, the Company had interest
rate swaps relating to $50,000 of its fixed-rate debt which exactly match the
terms of the underlying debt instruments. These swaps, effectively converting
the fixed-rate debt to floating-rate debt, qualify and are accounted for as fair
value hedges. The Consolidated Balance Sheet at December 31, 2001 reflected
$2,556 for the fair market value of the swaps in other assets, offset by a

                                       50

<PAGE>

corresponding change in the fair value of the underlying debt. These swaps were
terminated during 2002, resulting in a gain of $1,464. This gain will be
recognized as a reduction in interest expense over the remaining life of the
debt. During 2002 the Company entered into interest rate swaps that effectively
convert $40,000 of its fixed-rate debt to floating-rate debt at an effective
interest rate of six-month Libor + 1.42% (approximately 3.5% at December 31,
2002). These swaps qualify as fair value hedges under SFAS 133. The Company
estimates it would receive $5,331 if these agreements were terminated at
December 31, 2002. In accordance with SFAS 133, the Company increased its debt
at December 31, 2002 by this amount with a corresponding increase in other
assets for the fair value of the swaps.

         The Company operates in international markets and utilizes derivatives
to minimize the effect of changes in currency exchange rates. The Company's
European businesses use foreign exchange contracts with maturities of less than
twelve months to reduce the exchange risk associated with sales and accounts
receivable denominated in other foreign currencies. Contracts that are
identified as hedging underlying receivables are fair value hedges, whereas
contracts that are identified as hedging future sales are cash flow hedges. The
notional amount of the Company's fair value contracts was approximately $14,000
and $0 at January 1, 2001 and December 31, 2001, respectively, and the fair
value of these contracts was $633 and $0, respectively. The changes in the fair
value hedges were offset by changes in the fair value of the underlying
receivables. There were no fair value hedge contracts at December 31, 2002.
There were no cash flow hedge contracts at January 1, 2001. At December 31, 2002
and 2001, the notional amount of the cash flow hedges was approximately $31,657
and $11,883, respectively, and the fair value of these contracts was
approximately $1,025 and $(137), respectively. At December 31, 2002 and 2001,
these forward contracts resulted in an unrealized gain (loss) in accumulated
other comprehensive loss of $1,020 and $(112), respectively, which will be
realized when the underlying transaction gain or loss is recognized in income.

         There was no cumulative effect of adoption of Statement No. 133 at
January 1, 2001, and the impact on net earnings in 2001 was not material.

3.       VARIABLE INTEREST ENTITIES

         During 1999, the Company sold certain production equipment to a trust
in connection with a sale and leaseback transaction. The lease meets the
definition of a variable interest entity under FASB Interpretation No. 46 (or
FIN 46), effective for quarters beginning after June 15, 2003. Under the new
requirements of FIN 46, it is likely that the sale and leaseback transaction
will qualify as a variable interest entity, whereby the Company, as the primary
beneficiary, will be required to consolidate the entity. Alternatively, the
Company may restructure this leasing obligation prior to its adoption of FIN 46
on July 1, 2003.

         The lease has been classified as an operating lease. The lease has a
term of five years, contains purchase and lease renewal options at projected
future fair market values and has a residual value guarantee of approximately
$127,300. The net book value of the equipment sold totaled approximately
$118,000. The gain realized from this sale, totaling approximately $32,000, has
been deferred and is being credited to income as reductions in rental expense
ratably over the lease term. The gross rent expense approximates the amount of
interest expense incurred by the trust that owns the equipment. Interest expense
for the trust is determined by indices that approximate LIBOR and/or commercial
paper (which have a close correlation) and by a fee that is based on the
Company's credit worthiness as determined by the rating agencies. The net rent
expense is the gross rent expense reduced by the amortization of the deferred
gain relating to the sale of the equipment. Gross rent expense totaled
approximately $8,661 and $8,339 for 2002 and 2001, respectively.

         In September 2002, the Company replaced its existing receivables
purchase agreement. Under the new agreement, the Company may sell without
recourse up to $80,000 in an undivided interest in certain of its

                                       51

<PAGE>

domestic trade accounts receivable, on a revolving basis, through an
unconsolidated receivables subsidiary. The Company does not expect FIN 46 to
have any impact on the treatment of its asset securitization program.

         At December 31, 2002 and 2001, trade accounts receivable of
approximately $64,200 and $76,000, respectively, were sold. The sales of trade
accounts receivable have been reflected as a reduction of accounts receivable in
the Company's Consolidated Balance Sheet. The discounts incurred by the Company
on the sale of the trade accounts receivables during 2002 and 2001 of
approximately $1,336 and $2,925, respectively, were charged to selling, general,
and administrative expenses.

4.       INVENTORIES

         Inventories related to continuing operations consist of the following:

<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                          2002             2001
                                                                                        --------         --------
<S>                                                                                     <C>              <C>
Raw materials                                                                           $ 38,142         $ 56,179
Finished and semi-finished goods                                                          67,286           72,628
Supplies                                                                                   7,878            8,483
                                                                                        --------         --------
                                                                                        $113,306         $137,290
                                                                                        ========         ========
</TABLE>

5.       ACCRUED LIABILITIES

         Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                          2002             2001
                                                                                        --------         --------
<S>                                                                                     <C>              <C>
Payroll and other compensation                                                          $  4,740         $  5,321
Retirement plans                                                                           5,868            6,431
Property and other taxes                                                                   5,367            6,021
Interest                                                                                   2,222            1,912
Other                                                                                     11,794           14,754
                                                                                        --------         --------
                                                                                        $ 29,991         $ 34,439
                                                                                        ========         ========
</TABLE>

6.       PRODUCTION OUTAGE

         In May 2001, the Company experienced a production outage at its
Palmetto Plant in Darlington, South Carolina, which resulted in a temporary
shutdown of the entire facility. The power outage caused lost production volumes
of approximately 80 million pounds, split equally between its two reportable
operating segments. Total costs and property damage associated with this outage
was approximately $9,900 ($6,433 after tax), or $0.20 per diluted share. During
the second quarter of 2001, the Company reduced its property damage expense for
that portion of the insurance claim by approximately $3,400 ($2,185 after tax),
or $0.07 per diluted share. In the fourth quarter of 2001, the Company settled
its property damage and business interruption insurance claims and recorded
additional income of approximately $7,200 ($4,697 after tax), or $0.15 per
diluted share. These costs and the related income from business interruption
insurance were reflected in cost of sales in 2001.

                                       52

<PAGE>

7.       BORROWING ARRANGEMENTS

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                          2002             2001
                                                                                        --------         --------
<S>                                                                                     <C>              <C>
Revolving credit loan facility and bid loans                                            $  5,000         $114,908
Uncommitted lines of credit                                                               25,508           40,000
8.41% senior unsecured note, due February 2003                                            50,390           52,556
7.55% senior unsecured note, due December 2011                                            45,331           40,000
Variable rate senior unsecured note, due November 2004 (3.3% at 12/31/02)                 35,000           35,000
7.46% senior unsecured note, due September 2009                                           25,000               --
Economic development revenue bonds, at variable interest rates, due 2010-2023             50,680           50,680
                                                                                        --------         --------
                                                                                         236,909          333,144
     Less current portion                                                                 70,405               --
                                                                                        --------         --------
                                                                                        $166,504         $333,144
                                                                                        ========         ========
</TABLE>

         In September 2002, the Company borrowed $25,000 from John Hancock Life
Insurance Company as senior unsecured indebtedness at an annual fixed rate of
7.46%, payable semi-annually. The principal is due in a single payment in
September 2009. The proceeds were used to pay down other debt.

         In December 2001, the Company borrowed $40,000 pursuant to a 7.55%
senior unsecured note due December 2011. The proceeds were used to pay down
other debt. In conjunction with this financing, the Company entered into
interest rate swaps that effectively converted the $40,000 of fixed-rate debt to
floating-rate debt at an effective interest rate of six-month LIBOR + 1.42%
(approximately 3.5% at December 31, 2002). These swaps have been designated and
accounted for as fair value hedges under SFAS No. 133. The Company estimates it
would receive $5,331 if these agreements were terminated at December 31, 2002.
In accordance with SFAS No. 133, the Company increased its debt at December 31,
2002 by this amount with a corresponding increase in other assets for the fair
value of these swaps. This debt approximated market at December 31, 2002.

         In November 2001, the Company borrowed $35,000 pursuant to a senior
unsecured note. The note has a floating interest rate based on LIBOR with a
single principal payment due in November 2004. The proceeds were used to pay
down other debt.

         The Company borrowed $50,000 in February 2000 pursuant to an 8.41%
senior unsecured note due February 2003. The proceeds were used to pay down
other debt. In conjunction with this financing, the Company entered into
interest rate swaps, which effectively convert the total amount of this
fixed-rate debt to floating-rate debt. During 2002, the Company terminated these
swaps, resulting in a gain of $1,464. This gain will be recognized as a
reduction in interest expense over the remaining life of the debt. The debt was
repaid on its maturity date.

         The Company elected not to renew its $125,000 364-day revolving credit
facility upon its maturity in September 2002. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Capital Resources and Liquidity."

         Terms, rates and maturity dates for the uncommitted lines of credit are
agreed upon by the Bank and the Company at each borrowing date. At December 31,
2002, the remaining maturities on the domestic outstanding borrowings ranged
from 2 to 60 days with interest rates averaging 2.1%. At year-end, the Company
had

                                       53

<PAGE>

approximately $49,400 available under these lines. Based on its debt level as of
December 31, 2002, the Company could have had an average of approximately
$284,100 of additional debt outstanding during the year without amending the
terms of its debt agreements.

         The economic development revenue bonds (the Bonds) are tenderable by
the holders. The Bonds are secured by letters of credit aggregating
approximately $51,000 at December 31, 2002. The average effective borrowing rate
on these bonds at December 31, 2002 was approximately 1.33%.

         The Company's financing agreements contain normal financial and
restrictive covenants. The most restrictive of these covenants permits a maximum
leverage ratio of 55% and requires EBITDA to exceed 3.5 times interest expense.
The Company is in compliance with these covenants.

         The Company has reclassified approximately $70,405 of its debt to
current portion at December 31, 2002, since these amounts will either be repaid
or refinanced within the next twelve months. Subsequent to year-end, the Company
received $20,000 of proceeds from the sale of a convertible subordinated note,
which is due in February 2009. These proceeds were used to pay the current
portion of existing debt. As a result of this transaction, $20,000 of the
Company's currently due debt was shown as long-term at December 31, 2002. For
additional information, see Item 1. "Recent Developments - Private Equity
Investment."

         Scheduled annual maturities of debt are: 2003 - $70,405; 2004 -
$35,000; 2005 - $0; 2006 - $0; 2007 - $0, and varying amounts thereafter through
2023.

         The carrying amounts of the Company's borrowings under its variable
rate credit agreements approximate their fair value at December 31, 2002 and
2001. The fair value of the Company's fixed-rate credit agreements has been
obtained from the lender and calculated according to the terms of the agreement.
The fair value of the Company's fixed-rate debt, including the related swaps,
approximated its carrying value at December 31, 2002 and 2001.

         During 2002, 2001 and 2000, the Company capitalized interest of $303,
$1,531 and $8,333, respectively, as part of the cost of capital projects under
construction. Interest expense (net) includes interest income of $3,480, $1,563
and $3,310 for 2002, 2001 and 2000, respectively.

8.       INCOME TAXES

         For financial reporting purposes, earnings from continuing operations
before income taxes are as follows:

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                                       ------------------------
                                                               2002                2001           2000
                                                             --------            --------       --------
<S>                                                          <C>                 <C>            <C>
United States                                                $ 28,522            $  2,844       $ 23,579
Foreign                                                         6,912              14,432         25,401
                                                             --------            --------       --------
                                                             $ 35,434            $ 17,276       $ 48,980
                                                             ========            ========       ========
</TABLE>

                                       54

<PAGE>

         Significant components of the provision for income taxes are as
follows:

<TABLE>
<CAPTION>
                                    YEARS ENDED DECEMBER 31,
                                    ------------------------
                          2002                2001                2000
                          ----                ----                ----
<S>                    <C>                 <C>                 <C>
Current:
  Federal              $  (20,238)         $        1          $   (2,593)
  State                       681                 115                 123
  Foreign                     377                 199                 568
                       ----------          ----------          ----------
                          (19,180)                315              (1,902)
                       ----------          ----------          ----------
Deferred:
  Federal                  28,887               3,443              13,342
  State                      (727)                 (2)                886
  Foreign                      56                  98               1,237
                       ----------          ----------          ----------
                           28,216               3,539              15,465
                       ----------          ----------          ----------
                       $    9,036          $    3,854          $   13,563
                       ==========          ==========          ==========
</TABLE>

         The current federal benefit of $20,238 is related to a net operating
loss carryback attributable to the Job Creation and Worker Assistance Act
enacted in March 2002. This Act increased the carryback period on net operating
losses generated in 2001 from 2 years to 5 years, resulting in a refund of
$20,238 in 2002.

         The difference between the provision for income taxes and income taxes
computed at the statutory income tax rate on income from continuing operations
is explained as follows:

<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                                           ------------------------
                                                                 2002                2001                2000
                                                                 ----                ----                ----
<S>                                                              <C>                 <C>                 <C>
Computed at statutory rate                                       35.0%               35.0%               35.0%
State taxes, net of federal benefit                                --                  .6                  .8
Differences in income tax rates between the United
  States and foreign countries                                   (5.6)              (27.7)              (14.5)
Amortization of goodwill                                           --                16.2                 5.7
Credits                                                          (2.3)               (2.9)                (.4)
Other, net                                                       (1.6)                1.1                 1.1
                                                                 ----                ----                ----
Effective tax rate                                               25.5%               22.3%               27.7%
                                                                 ====                ====                ====
</TABLE>

         As a result of the adoption of SFAS No. 142, "Goodwill and Other
Intangible Assets", goodwill is no longer amortized for book purposes.
Therefore, this item no longer increases the effective tax rate.

                                       55

<PAGE>

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax effects
of these differences are as follows:

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                                ------------
                                          2002                2001
                                          ----                ----
<S>                                    <C>                 <C>
Depreciation                           $  249,327          $  235,948
Foreign                                     7,477               6,502
Other                                      (2,089)              1,911
                                       ----------          ----------
Total deferred tax liabilities            254,715             244,361
                                       ----------          ----------
Domestic carry forward                    131,406             135,382
Foreign carry forward                       6,710               6,963
Other                                      11,848              11,518
                                       ----------          ----------
Total deferred tax assets                 149,964             153,863
Valuation allowance                        32,270              32,814
                                       ----------          ----------
Net deferred tax assets                   117,694             121,049
                                       ----------          ----------
Net deferred tax liabilities           $  137,021          $  123,312
                                       ==========          ==========
</TABLE>

         At December 31, 2002, the Company had a federal net operating loss
(NOL) of approximately $284,471 available for carryforward which begins to
expire in 2019 and $3,971 of federal tax credit carryforwards which begin to
expire in 2018. Additionally, the Company had approximately $503,884 of state
NOLs available for carryforward which begin to expire in 2003. The Company also
had foreign NOLs of approximately $19,171 that may be carried forward
indefinitely. The valuation allowance, which is primarily attributable to state
and foreign NOLs and federal tax credits, decreased by $544 during 2002, mainly
due to the current and future expected utilization of foreign and state NOLs.

         Deferred taxes have not been provided for approximately $179,712 of
undistributed earnings of foreign subsidiaries. The Company intends to reinvest
such undistributed earnings for an indefinite period except for distributions
upon which incremental taxes would not be material. If all such earnings were
distributed, the Company would be subject to both U.S. income taxes (subject to
a potential adjustment for foreign tax credits) and foreign withholding taxes.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its hypothetical
calculation.

9.       ENVIRONMENTAL MATTERS

         The Company's operations are subject to extensive laws and regulations
governing air emissions, wastewater discharges and solid and hazardous waste
management activities. As discussed in note 1, the Company's policy is to
expense environmental remediation costs when it is both probable that a
liability has been incurred and the amount can be reasonably estimated. While it
is often difficult to reasonably quantify future environmental-related
expenditures, the Company currently estimates its future non-capital
expenditures related to environmental matters to range between approximately
$5,700 and $20,200 on an undiscounted basis. In connection with these
expenditures, the Company has accrued undiscounted liabilities of approximately
$9,250 and $10,500 at December 31, 2002 and 2001, respectively, which are
reflected as other noncurrent liabilities in the Company's Consolidated Balance
Sheets. These accruals represent management's best estimate of probable
non-capital environmental expenditures. In addition, aggregate future capital
expenditures related to environmental matters are expected to range from
approximately $6,500 to $17,000. These non-capital and capital expenditures are
expected to be incurred over the next 10 to 20 years. The Company believes that
it is

                                       56

<PAGE>

entitled to recover a portion of these expenditures under indemnification and
escrow agreements. The final resolution of these contingencies could result in
expenses different than current accruals, and therefore could have an impact on
the Company's consolidated financial results in a future reporting period.
However, management believes the ultimate outcome will not have a significant
effect on the Company's consolidated results of operations, financial position,
or liquidity.

         The following represents changes in accrued undiscounted liabilities
for environmental remediation costs:

<TABLE>
<CAPTION>
                                                    2002                2001                2000
                                                    ----                ----                ----
<S>                                              <C>                 <C>                 <C>
(in thousands)
Balance at beginning of year                     $   10,462          $   13,037          $   15,283
Changes in remediation costs                           (752)             (1,193)             (1,753)
Expenditures                                           (489)             (1,333)               (403)
Foreign currency translation adjustments                 29                 (49)                (90)
                                                 ----------          ----------          ----------
Balance at end of year                           $    9,250          $   10,462          $   13,037
                                                 ==========          ==========          ==========
</TABLE>

         The changes in remediation costs for the period January 1, 2000 to
December 31, 2002 were primarily the result of more current information reducing
the expected costs associated with the Company's European environmental costs
and the expected costs associated with groundwater remediation at one of the
Company's South Carolina plants.

         There are no environmental matters from which a material loss is
reasonably possible in addition to amounts currently accrued.

10.      RETIREMENT PLANS

         The Company has defined benefit plans and defined contribution pension
plans that cover substantially all employees. The Company also has an employee
stock ownership plan (ESOP) covering substantially all domestic employees. The
defined contribution plan and the ESOP provide for Company contributions based
on the earnings of eligible employees. Expense related to the defined
contribution plan amounted to $5,152, $6,019 and $6,021 for the years ended
December 31, 2002, 2001 and 2000, respectively. Expense related to the ESOP
amounted to $1,679, $2,647 and $2,551 for the years ended December 31, 2002,
2001 and 2000, respectively. All ESOP shares are considered outstanding for the
Company's earnings per share computations. Dividends paid on ESOP shares are
included in the overall dividends.

         Benefits under the European businesses' defined benefit plans are based
on employees' compensation and length of service, while benefits under defined
benefit plans covering domestic employees are based on employees' compensation
and length of service or at stated amounts based on length of service. The
Company's policy is to fund amounts which are actuarially determined to provide
the plans with sufficient assets to meet future benefit payment requirements.
Assets of the plans are invested in equity securities, debt securities, money
market instruments, and insured products.

         Net periodic pension cost (benefit) is determined using assumptions as
of the beginning of each year. Funding status of the plans is determined using
assumptions as of the end of the year. Unrecognized net actuarial gains or
losses are amortized using the "corridor method" as defined by SFAS No. 87, for
the Company's domestic defined benefit plans and Dutch plan. As permitted by
SFAS No. 87, a systematic method of amortization is used to amortize actuarial
gains and losses for its Irish defined benefit plans. For the Irish

                                       57

<PAGE>

plans, the Company separately identifies gains and losses on the plan's assets
and projected benefit obligations and uses an attribution method, which spreads
the entire gain or loss each year, without regard to the corridor over a period
of five years, subject to the minimum amortization requirements of SFAS No. 87.

         The following table summarizes information on the Company's domestic
and foreign defined benefit plans:

<TABLE>
<CAPTION>
                                                                               DOMESTIC PLANS                 FOREIGN PLANS
                                                                             2002           2001           2002           2001
                                                                             ----           ----           ----           ----
<S>                                                                       <C>            <C>            <C>            <C>
Change in benefit obligation:
  Benefit obligation at beginning of year                                 $   49,810     $   46,262     $   39,583     $   34,796
  Contributions                                                                   --             --            250            182
  Service cost                                                                   376            345          1,636          1,316
  Interest cost                                                                3,482          3,412          2,504          1,973
  Actuarial (gain) loss                                                       (1,293)         1,873           (461)         4,328
  Benefits paid                                                               (2,404)        (2,176)        (1,792)          (757)
  Exchange gain (loss)                                                            --             --          7,391         (2,255)
  Change in plan provisions                                                       --             94             --             --
                                                                          ----------     ----------     ----------     ----------
  Benefit obligation at end of year                                           49,971         49,810         49,111         39,583
                                                                          ----------     ----------     ----------     ----------
Change in fair value of plan assets:

  Fair value of plan assets at beginning of year                              39,818         44,120         51,611         57,333
  Actual return on plan assets                                                (4,335)        (2,197)        (7,648)        (1,611)
  Contributions                                                                  208             71          1,729            182
  Benefits paid                                                               (2,404)        (2,176)        (1,792)          (757)
  Exchange gain (loss)                                                            --             --          8,535         (3,536)
                                                                          ----------     ----------     ----------     ----------
Fair value of plan assets at end of year                                      33,287         39,818         52,435         51,611
                                                                          ----------     ----------     ----------     ----------

Funded status                                                                (16,684)        (9,992)         3,324         12,028
Unrecognized net actuarial loss                                               15,103          9,099         16,224          3,257
Unrecognized prior service cost                                                   84             94             --             --
Unrecognized transition obligation                                                36             72           (166)          (157)
                                                                          ----------     ----------     ----------     ----------
Prepaid (accrued) pension cost                                            $   (1,461)    $     (727)    $   19,382     $   15,128
                                                                          ==========     ==========     ==========     ==========
Amounts recognized in the statement of financial position consist of:
  Prepaid benefit cost                                                         $  --     $      364     $   19,023     $   15,623
  Accrued benefit liability                                                  (16,684)       (10,447)          (419)        (1,093)
  Intangible asset                                                               120             94             --             --
  Accumulated other comprehensive loss                                        15,103          9,262            778            598
                                                                          ----------     ----------     ----------     ----------
Net amount recognized in the Consolidated Balance Sheet                   $   (1,461)    $     (727)    $   19,382     $   15,128
                                                                          ==========     ==========     ==========     ==========
</TABLE>

         The projected benefit obligation applicable to pension plans with
accumulated benefit obligations in excess of plan assets was $50,536 and $49,371
at December 31, 2002 and 2001, respectively. The accumulated benefit obligation
related to these plans was $49,123 and $48,109, while the fair value of plan
assets was $32,877 and $36,568 at December 31, 2002 and 2001, respectively.

                                       58

<PAGE>

         Components of net periodic cost (benefit) and significant
weighted-average assumptions were as follows:

<TABLE>
<CAPTION>
                                                 2002                              2001                              2000
                                                 ----                              ----                              ----
                                       DOMESTIC         FOREIGN          DOMESTIC         FOREIGN          DOMESTIC         FOREIGN
                                        PLANS            PLANS            PLANS            PLANS            PLANS            PLANS
                                        -----            -----            -----            -----            -----            -----
<S>                                    <C>              <C>              <C>              <C>              <C>              <C>
Service Cost                           $   376          $ 1,636          $   345          $ 1,316          $   287          $ 1,317
Interest Cost                            3,482            2,504            3,412            1,973            3,291            2,126
Expected return on plan assets          (3,471)          (4,144)          (3,856)          (4,230)          (4,026)          (3,887)
Net amortization and deferral              555              112                8           (4,145)             (69)          (4,272)
                                       -------          -------          -------          -------          -------          -------
Net periodic pension cost (benefit)    $   942          $   108          $   (91)         $(5,086)         $  (517)         $(4,716)
                                       =======          =======          =======          =======          =======          =======

Discount rate                             6.75%            5.71%            7.25%            5.92%            7.50%            5.92%
Expected return on plan assets            9.00%            8.25%            9.00%            7.39%            9.00%            7.41%
Rate of compensation increase               --             3.21%              --             3.21%              --             3.00%
</TABLE>

         The assumptions used in computing the net periodic pension costs
reflect current discount rates and anticipated future returns on plan assets and
expected compensation increases. The discount rate is determined by reviewing
the rates of return on high quality fixed income investments currently available
with maturity dates corresponding with the maturity of the pension benefits. The
expected return on plan assets is based on the expected long term rate of return
on plan assets taking into account the plans' asset allocation (primarily
between equity and debt securities), giving appropriate consideration to
historical plan returns. The rate of compensation increase is determined by
taking into consideration future economic conditions, such as inflation and the
Company's expected future compensation levels when compared to historical
performance.

11.      STOCKHOLDER'S EQUITY

         The Company has stock option plans for employees (the Plans) that
authorize the grant of non-qualified stock options (NQSOs). For all options
granted in connection with the Plans, the option period extends for 11 years
from the date of grant with the shares vesting at 20% per year over the first
five years. The exercise price for options granted prior to 1998 is equal to the
fair value of the Company's common stock at the date of grant. For options
granted after 1997, the exercise price is equal to the average of the highest
and lowest sales prices of the Company's common stock over a period of 20 days
prior to the date of the grant. In addition, the Company has a Directors Stock
Option Plan. Each year during the term of this Plan, each eligible director is
granted an option for 1,000 shares on the eighth business day after the Company
publicly announces its annual earnings. The option period extends for 11 years
from the grant date with the shares being 100% vested one year after the grant
date. The exercise price is equal to the average of the highest and lowest sales
price of the Company's common stock over a period of 20 days prior to the date
of the grant.

         The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options. Under APB 25, any
difference between the exercise price of the Company's employee stock options
and the market price of the underlying stock on the date of grant is recognized
as compensation expense over the vesting period of the options. The alternative
fair value accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models for
determining compensation expense.

                                       59

<PAGE>

         Pro forma information regarding net earnings (loss) and earnings (loss)
per common share is required by Statement 123, which also requires that the
information be determined as if the Company has accounted for its employee stock
options granted subsequent to December 31, 1994 under the fair value method of
that Statement. The fair value for these options was estimated as of the date of
grant using a Black-Scholes option pricing model with the following assumptions
for 2002, 2001 and 2000, respectively: risk-free interest rate of 3.82%, 4.96%
and 4.98%; a dividend yield of 1.36%, 1.29% and 1.23%; volatility factors of the
expected market price of the Company's common stock of .470, .470 and .463; and
a weighted-average expected life of the option of 8 years, 8 years and 7 years.
The weighted-average fair value of options granted in 2002 was $8.29 for
employees and $7.82 for directors, due to different grant dates, $10.26 and
$9.06 for options granted in 2001 and 2000, respectively.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

         For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:

<TABLE>
<CAPTION>
                                                                         2002                2001                2000
                                                                         ----                ----                ----
<S>                                                                   <C>                 <C>                 <C>
Net earnings (loss), as reported                                      $ (194,307)         $    8,389          $   32,768
Pro forma compensation expense determined under fair
value based method for all awards, net of related tax effects             (2,299)             (2,461)             (2,173)
                                                                      ----------          ----------          ----------
Pro forma net earnings (loss)                                         $ (196,606)         $    5,928          $   30,595
                                                                      ==========          ==========          ==========

Earnings (loss) per share:
Basic earnings per common share, as reported                          $    (6.15)         $     0.27          $     1.04
Basic earnings per common share, pro forma                            $    (6.23)         $     0.19          $     0.98

Diluted earnings per common share, as reported                        $    (6.07)         $     0.26          $     1.03
Diluted earnings per common share, pro forma                          $    (6.14)         $     0.19          $     0.96
</TABLE>

                                       60

<PAGE>

         A summary of the Company's stock option activity and related
information for the three years ended December 31, 2002 follows:

<TABLE>
<CAPTION>
                                                            WEIGHTED
                                                          AVERAGE PRICE
                                          SHARES           PER SHARE
                                        ---------         -------------
<S>                                     <C>               <C>
Outstanding December 31, 1999           3,012,003          $    19.07
  Granted                                 563,950               17.53
  Exercised                               (82,470)              17.18
  Cancelled                              (246,450)              28.23
                                        ---------          ----------
Outstanding December 31, 2000           3,247,033               18.15
  Granted                                 582,600               16.61
  Exercised                               (44,490)              16.97
  Cancelled                              (215,930)              18.27
                                        ---------          ----------
Outstanding December 31, 2001           3,569,213               17.91
  Granted                                 313,200               15.24
  Exercised                                (2,200)               9.55
  Cancelled                              (214,445)              19.44
                                        ---------          ----------
Outstanding December 31, 2002           3,665,768          $    17.59
                                        =========          ==========
</TABLE>

         At December 31, 2002, 2001, and 2000, options for 2,334,636, 2,126,028
and 1,952,205 shares, respectively, were exercisable. At December 31, 2002,
1,032,715 shares were available for future option grants. The following
summarizes information related to stock options outstanding at December 31,
2002:

<TABLE>
<CAPTION>
Range of exercise prices                                                          $9.64 TO $18.94             $20.63 TO $29.25
                                                                                  ---------------             ----------------
<S>                                                                               <C>                         <C>
Number outstanding at December 31, 2002                                              2,965,418                      700,350
Weighted-average remaining contractual life                                          7.2 years                    2.9 years
Weighted-average exercise price of options outstanding                                  $15.94                       $24.61
Number exercisable at December 31, 2002                                              1,634,286                      700,350
Weighted-average exercise price of options exercisable                                  $16.15                       $24.61
</TABLE>

         The Company also has a deferred compensation and restricted stock plan
(Restricted Stock Plan). Pursuant to the Restricted Stock Plan, certain
officers, directors and managers of the Company are required to defer a certain
portion of their compensation and may elect to defer additional compensation
that is exchanged for restricted stock. Shares granted are subject to certain
restrictions on transferability. The exercise price for restricted stock awards
granted in 1998 was 85% of the average of the highest and lowest sales prices of
the common stock on the date the Plan was approved by the stockholders and on
each of the 15 business days before and after that date. The Plan was amended,
effective as of December 1, 1998, whereby the exercise price for restricted
stock awards granted after 1998 was 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 day of the prior calendar quarter and on each of the 15 days before and
after that date. A total of 1,000,000 shares of common stock are reserved for
issuance under the Restricted Stock Plan. During 2002 and 2001, participants
purchased 31,172 and 33,874 shares of common stock, respectively, at an average
price of approximately $13.41 and $12.64 per share. Also, upon termination of
the Directors Retirement and Deferred Compensation Plans during 1998, directors
elected to rollover amounts under these plans to the Restricted Stock Plan
resulting in the issuance of 59,441 shares of common stock. The amount of
non-cash compensation expense associated with purchases during 2002 and 2001 was
not material.

                                       61

<PAGE>

         On August 31, 2001, the Board of Directors authorized and declared a
dividend of one common stock purchase right for each outstanding share of common
stock under the stockholder rights plan (the Plan). The Plan provides each
stockholder of record one common stock purchase right for each share of common
stock. The rights are represented by the common stock certificates and are not
separately traded from the common stock and are not currently exercisable. The
rights become exercisable only if a person acquires beneficial ownership of 20%
or more of the Company's common stock or announces a tender offer or exchange
offer that would result in beneficial ownership of 20% or more of the Company's
common stock, at which time each right would enable the holder to buy shares of
the common stock at a discount to the then market price. The Company may redeem
the rights for $.01 per right, subject to adjustment, at any time before the
acquisition by a person or group of 20% or more of the Company's common stock.
The rights have a 10-year term. On February 12, 2003, the Board of Directors of
the Company amended the terms of the Plan to provide that the rights are not
exercisable in connection with the equity investment. See note 17.

         Although the Rights should not interfere with a business combination
approved by the Board of Directors, they may cause substantial dilution to a
person or group that attempts to acquire the Company on terms not approved by
the Board, except pursuant to an offer conditioned on a substantial number of
Rights being acquired.

12.      EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted
earnings (loss) per share for the years indicated:

<TABLE>
<CAPTION>
                                                                                 2002                2001                2000
                                                                                 ----                ----                ----
<S>                                                                           <C>                 <C>                 <C>
Numerator for basic and diluted net earnings (loss) per common share:
  Earnings from continuing operations                                         $   26,398          $   13,422          $   35,417
  Loss from discontinued operations                                              (23,651)             (5,033)             (2,649)
  Cumulative effect of accounting change                                        (197,054)                 --                  --
                                                                              ----------          ----------          ----------
  Net earnings (loss)                                                         $ (194,307)         $    8,389          $   32,768
                                                                              ==========          ==========          ==========
Denominator:
  Denominator for basic net earnings (loss) per common share -
   weighted-average shares                                                        31,579              31,542              31,367
  Effect of dilutive securities:
    Employee stock options and restricted stock                                      436                 489                 517
                                                                              ----------          ----------          ----------
  Denominator for diluted net earnings (loss) per common share
   - adjusted weighted-average shares                                             32,015              32,031              31,884
                                                                              ==========          ==========          ==========
</TABLE>

13.      COMMITMENTS AND CONTINGENCIES

         The Company has commitments and contingent liabilities, including legal
proceedings, environmental liabilities (see note 9), letters of credit (see note
7), commitments relating to certain state incentives, raw material purchase
commitments, and various operating lease commitments.

         In January 2001, the Company received a document subpoena in connection
with a federal grand jury investigation of pricing practices in the polyester
staple industry. The Company cooperated and continues to cooperate with the
investigation by producing documents in response to this subpoena. In September
2002, the U.S. Department of Justice announced the indictment of a former sales
manager of one of the Company's competitors for conspiring to fix prices and
allocate customers for polyester staple beginning in September 1999

                                       62

<PAGE>

and ending in January 2001. On October 31, 2002, the U.S. Department of Justice
announced that it was filing informations against another competitor and one of
its former officers as a result of their agreement to plead guilty to
participating in a conspiracy to fix prices and allocate customers in the
polyester staple industry. Neither the Company nor any of its employees has been
charged with any wrongdoing, and the Company vehemently denies that it or any of
its employees have engaged in price fixing or customer allocation.

         Following the disclosure of the investigation, the indictment of a
competitor's employee and the informations and guilty pleas of another
competitor and its employee, the Company, along with certain other companies,
has been named as a defendant in fifty-two actions brought by direct and
indirect purchasers of polyester staple fiber for violations of federal, state
and Canadian antitrust laws. In each lawsuit, the plaintiffs allege that the
defendants engaged in a conspiracy to fix the price of polyester staple fiber in
violation of the Sherman Act, state antitrust, state unfair competition and/or
Canadian antitrust laws. Some of these actions seek certification of a class
including all persons who directly or indirectly purchased polyester staple
fiber similarly affected by such alleged conduct. The plaintiffs in most cases
seek damages of unspecified amounts, attorney's fees and costs and unspecified
relief. In addition, certain of the actions claim restitution, injunction
against alleged illegal conduct and other equitable relief.

         The producers of polyester fiber, including the Company, may become
subject to additional proceedings and lawsuits under federal and state antitrust
and unfair competition laws. Furthermore, the federal grand jury investigation
is ongoing and additional indictments may result. The Company intends to
vigorously defend against the civil claims and any civil or criminal claims or
proceedings that may be brought against it in the future. If a material adverse
judgment occurs, the Company's business, financial condition, profitability and
cash flows may be adversely impacted.

         In order to receive certain state grants, the Company agreed to meet
certain conditions, including capital expenditures and employment levels at its
Pearl River facility. During 2002 and 2001, the Company recognized grant income
of $6,000 and $6,250, respectively. The Company had deferred grant income of
$1,500 and $7,500 at December 31, 2002 and 2001, respectively, which it expects
to recognize as these conditions are satisfied. The deferred income is included
in other current liabilities and other liabilities in the Company's Consolidated
Balance Sheets.

         The Company has entered into commitments to purchase raw materials in
the ordinary course of its trade or business. The minimum payments under these
commitments approximate $19,300 per year. The commitments extend for varying
periods up to 7 years, and the prices are not in excess of current market
prices.

         During 1999, the Company sold certain production equipment in
connection with a sale and leaseback transaction. This lease has been classified
as an operating lease, has a lease term of five years, contains purchase and
lease renewal options at projected future fair market values, and a residual
value guarantee. See note 3.

         Approximate minimum rental commitments under noncancelable leases
(including the sale and leaseback transaction and its residual value guarantee)
during each of the next five years and thereafter are as follows: 2003 -
$17,912; 2004 - $138,822; 2005 - $5,293; 2006 - $1,559; 2007 - $1,236; and
thereafter - $57.

         Rent expense for cancelable and noncancelable operating leases was
$10,182, $10,113 and $12,770 for the years ended December 31, 2002, 2001 and
2000, respectively.

         The Company is responding to a subpoena issued by the U.S. Department
of Justice in connection with an investigation of pricing practices in the
polyester staple fiber industry and has been named in various civil claims and
legal actions with respect to the alleged pricing practices and in other claims
and actions arising in the ordinary course of business.

                                       63

<PAGE>
         With respect to the claims and actions arising in the ordinary course
of its business, the Company does not believe these will have a material adverse
effect, if any, on its consolidated financial position or results of operations.
Because of the early stage and complexity of the U.S. Department of Justice
investigation and the related civil claims, the Company has not formed an
opinion about whether these proceedings will have a material adverse effect on
the Company's consolidated financial position or results of operations.


14.      DERIVATIVES AND FINANCIAL INSTRUMENTS

         The Company utilizes derivative instruments, principally swap and
forward contracts, to enhance its ability to manage risk, including interest
rates and foreign currency fluctuations, which exist as part of its ongoing
business. These contracts hedge transactions and balances for periods consistent
with the related exposures. The Company does not utilize financial instruments
for trading or other speculative purposes.

         The Company utilizes interest rate swap agreements to manage interest
rate exposure and to achieve a desired proportion of variable and fixed-rate
debt. At December 31, 2002, the Company had interest rate swaps that effectively
converted $40,000 of fixed-rate debt to floating-rate debt at an effective
interest rate of six-month LIBOR +1.42% (approximately 3.5% at December 31,
2002). In addition to the above swaps, at December 31, 2001, the Company had
interest rate swaps that effectively converted $50,000 of fixed-rate debt to
floating-rate debt. During 2002, these swaps were terminated, resulting in a
gain of $1,464. This gain will be recognized as a reduction to interest expense
over the remaining life of the debt. These swaps have been designated and
accounted for as fair value hedges in accordance with SFAS No. 133. The
estimated fair value of the interest rate swaps are calculated based on readily
available dealer quotes. These values represent the estimated amounts that the
Company would pay or receive to terminate the contracts. The Company estimates
it would receive $5,331 if these agreements were terminated at December 31,
2002. In accordance with SFAS No. 133, the Company increased its debt at
December 31, 2002 by this amount with a corresponding increase in other assets
for the fair value of the interest rate swaps.

         The Company operates in international markets and use foreign exchange
contracts with maturities of less than twelve months to hedge existing foreign
exchange exposures. Foreign currency contracts require the Company at a future
date to either buy or sell foreign currency in exchange for U.S. dollars and
other currencies. The notional amounts of such contracts were $31,657 and
$11,883 at December 31, 2002 and 2001, respectively.

CONCENTRATION OF CREDIT RISK

         Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of foreign currency and
interest rate contracts described above and in note 7 and temporary cash
investments and trade accounts receivable. The counterparties to the contractual
arrangements are a diverse group of major financial institutions with which the
Company also has other financial relationships. The Company is exposed to credit
loss in the event of nonperformance by these counterparties. However, the
Company does not anticipate nonperformance by the other parties, and no material
loss would be expected from nonperformance by any one of such counterparties.
The Company places its temporary cash investments with high credit quality
institutions. Concentration of credit risk with respect to trade accounts
receivable is managed by an in-house professional credit staff or is insured.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Seven of the Company's
customers comprise approximately 36.5% of its total accounts receivable
(including those receivables in the Company's asset securitization program). In
addition, approximately 50.3%of our total accounts receivable (including those
receivables in the Company's asset securitization program) are included in our
FRPG customer base, which continues to face competitive challenges presented by
the imports of textile and apparel fiber and finished goods. A down turn in the
financial condition of any of these customers would have a negative impact on
our financial results of operations.

                                       64

<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.

         Cash and cash equivalents, accounts receivable, accounts payable and
equity-linked investment: The carrying amounts reported in the consolidated
balance sheets approximate their fair value.

         Borrowing arrangements: See note 7.

         Interest rate instruments: The fair value of interest rate instruments
is the estimated amount that the Company would receive or pay to terminate the
agreements at the reporting date, taking into account current interest rates and
the current creditworthiness of the counterparties.

         All of the Company's estimates of fair value and termination
cost/benefit for its derivative financial instruments are based on readily
available dealer quotes as to the amounts the Company would receive or pay to
terminate the contracts.

         The following table summarizes the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                                   2002                          2001
                                                                                   ----                          ----
                                                                          CARRYING                     CARRYING
                                                                           AMOUNT       FAIR VALUE      AMOUNT       FAIR VALUE
                                                                           ------       ----------      ------       ----------
<S>                                                                      <C>            <C>           <C>            <C>
Nonderivatives
  Cash and cash equivalents                                              $      --      $      --     $    1,814     $    1,814
  Accounts receivable                                                       68,762         68,762         54,674         54,674
  Accounts payable                                                          68,671         68,671         57,398         57,398
  Borrowing arrangements                                                   236,909        236,909        333,144        333,144
Derivatives - receive (pay):
  Interest rate instruments                                                  5,331          5,331          2,556          2,556
  Forward foreign currency contracts                                         1,025          1,025           (137)          (137)
</TABLE>

15.      OPERATING SEGMENT AND GEOGRAPHIC AREAS

         The Company's operations are classified into two reportable operating
segments: the Packaging Products Group (PPG) and the Fibers and Recycled
Products Group (FRPG).

         The PPG manufactures:

         -    solid-stated PET resin for use in the manufacture of soft
              drink bottles and other food and beverage packaging,

         -    EcoClear(R) PET resin, utilizing post-consumer beverage
              bottles to meet customers' recycled content PET resin
              requirements, and

         -    amorphous resin for internal solid-stating (a process which
              upgrades and purifies the resin) and, to a lesser extent, for
              sale to external customers.

                                       65

<PAGE>

         The FRPG manufactures:

         -    chemical-based polyester staple fibers for use in apparel,
              non-wovens, home products, and industrial products,

         -    recycled-based polyester and nylon staple fibers for use in
              furniture, pillows, comforters, industrial products, carpets
              and rugs, and

         -    recycled-based polyester and nylon engineering resins for use
              in the injection molding industry.

         Generally, the Company evaluates segment profit (loss) on the basis of
operating profit (loss) less certain charges for research and development costs,
administrative costs, and amortization expenses in a manner consistent with how
it allocates charges in its Management Incentive Compensation Plan for the
Executive Group. Intersegment transactions, which are not material, have been
eliminated and historical exchange rates have been applied to the data. The
accounting policies of the reportable operating segments are the same as those
described in the Summary of Significant Accounting Policies in note 1.

         As discussed in note 2, the Company sold its POY business during 2002.
The assets of this business, which were previously reported as part of the
Company's FRPG, were reported as discontinued operations in the Company's
financial statements for the six months ending June 30, 2002. The assets of the
Company's small recycled fine denier polyester staple fiber business are being
reported as property, plant and equipment of discontinued operations, net in the
Company's Consolidated Balance Sheet at December 31, 2002. The net operating
results for this business for the current period has been reflected as
discontinued operations in the Company's financial statements. In addition, in
accordance with SFAS No. 144, the prior years' segment information has been
restated to reflect segment profit (loss) from continuing operations and to
include the assets of the discontinued operations as corporate assets.

<TABLE>
<CAPTION>
                                                                                     FIBERS AND
                                                                 PACKAGING            RECYCLED
                                                                  PRODUCTS            PRODUCTS
                           2002                                    GROUP                GROUP               TOTAL
                           ----                                    -----                -----               -----
<S>                                                              <C>                 <C>                 <C>
Revenues                                                         $  524,781          $  489,187          $1,013,968
Segment profit (loss)                                                50,045              (4,357)             45,688
Assets                                                              406,083             504,520             910,603
Amortization and depreciation from continuing operations             24,759              30,934              55,698
Capital expenditures for continuing operations                       14,352               7,296              21,648

                           2001
                           ----
Revenues                                                         $  533,210          $  476,350          $1,009,560
Segment profit (loss)                                                64,699             (29,466)             35,233
Assets                                                              384,335             757,920           1,142,255
Amortization and depreciation from continuing operations             21,831              39,301              61,132
Capital expenditures for continuing operations                       15,800              12,284              28,084

                           2000
                           ----
Revenues                                                         $  499,261          $  522,282          $1,021,543
Segment profit , exclusive of restructuring benefit                  62,643               3,503              66,146
Restructuring benefit                                                   290                 503                 793
                                                                 ----------          ----------          ----------
Segment profit                                                       62,933               4,006              66,939
                                                                 ----------          ----------          ----------
Assets                                                              440,090             807,124           1,247,214
Amortization and depreciation from continuing operations             20,582              41,005              61,587
Capital expenditures for continuing operations                        6,947              31,579              38,526
</TABLE>

                                       66

<PAGE>

         Following are reconciliations to corresponding totals in the
accompanying consolidated financial statements:

<TABLE>
<CAPTION>
                                                                    2002                2001                2000
                                                                    ----                ----                ----
<S>                                                              <C>                 <C>                 <C>
Segment Profit
  Total for Reportable Segments                                  $   45,688          $   35,233          $   66,939
  Interest Expense, Net                                             (10,254)            (17,957)            (17,959)
                                                                 ----------          ----------          ----------
  Earnings (Loss) Before Income Taxes and Cumulative Effect of
   Accounting Change                                             $   35,434          $   17,276          $   48,980
                                                                 ==========          ==========          ==========
Assets
  Total for Reportable Segments                                  $  910,603          $1,142,255          $1,247,214
  Corporate Assets (1)                                               51,426              88,167              80,273
                                                                 ----------          ----------          ----------
  Total Assets                                                   $  962,029          $1,230,422          $1,327,487
                                                                 ==========          ==========          ==========
</TABLE>

(1)      Corporate assets include prepaid expenses, construction in progress and
         other assets not allocated to the segments.

         Net sales and operating income (loss) for the years ended December 31,
2002, 2001 and 2000 and long-lived assets at the end of each year, classified by
the major geographic areas in which the company operates, are as follows:

<TABLE>
<CAPTION>
                                                                    2002                2001                2000
                                                                    ----                ----                ----
<S>                                                              <C>                 <C>                 <C>
Net sales
  U.S                                                            $  861,559          $  837,974          $  859,943
  Europe                                                            152,409             171,586             161,600
                                                                 ----------          ----------          ----------
                                                                 $1,013,968          $1,009,560          $1,021,543
                                                                 ==========          ==========          ==========
Operating income
  U.S                                                            $   31,650          $   13,864          $   38,967
  Europe                                                             14,038              21,369              27,972
                                                                 ----------          ----------          ----------
                                                                 $   45,688          $   35,233          $   66,939
                                                                 ==========          ==========          ==========
Long-lived assets
  U.S                                                            $  654,888          $  686,750          $  714,323
  Europe                                                             46,172              41,179              42,586
                                                                 ----------          ----------          ----------
                                                                 $  701,060          $  727,929          $  756,909
                                                                 ==========          ==========          ==========
</TABLE>

Revenues are attributed to countries based on the location where the products
were produced.

                                       67

<PAGE>

16.      QUARTERLY FINANCIAL DATA (UNAUDITED)

         Quarterly financial information for the years ended December 31, 2002
and 2001 is summarized as follows:

<TABLE>
<CAPTION>
                                                   MARCH 31,          JUNE 30,       SEPT. 30,           DEC. 31,         TOTAL
          QUARTER ENDED                           2002(1)(3)          2002(1)         2002(1)            2002(2)           2002
          -------------                           ----------          -------         -------            -------           ----
<S>                                               <C>                <C>             <C>                <C>             <C>
Net sales                                         $  239,972         $ 268,026       $ 257,333          $ 248,637       $1,013,968
Gross profit                                          26,423            38,259          25,262             25,279          115,223
Earnings from continuing operations                    5,618            12,769           4,708              3,303           26,398
Earnings (loss) from discontinued
  operations                                         (20,173)           (3,398)           (161)                81          (23,651)
Earnings (loss) before cumulative
  effect of accounting change                        (14,555)            9,371           4,547              3,384            2,747
Cumulative effect of accounting
  change                                            (197,054)               --              --                 --         (197,054)
Net earnings (loss)                               $ (211,609)        $   9,371       $   4,547          $   3,384       $ (194,307)
Basic net earnings (loss) per common
 share:
  Continuing operations                           $     0.18         $    0.40       $    0.15          $    0.11       $     0.84
  Discontinued operations                              (0.64)            (0.11)          (0.01)              0.00            (0.75)
  Cumulative effect of accounting
   change                                              (6.24)               --              --                 --            (6.24)

                                                  ----------         ---------       ---------          ---------       ----------
  Net earnings (loss)                             $    (6.70)        $    0.29       $    0.14          $    0.11       $    (6.15)
                                                  ==========         =========       =========          =========       ==========
Diluted net earnings (loss) per common share:

  Continuing operations                           $     0.18         $    0.40       $    0.15          $    0.11       $     0.82
  Discontinued operations                              (0.63)            (0.11)          (0.01)              0.00            (0.73)
  Cumulative effect of accounting
   change                                              (6.16)               --              --                 --            (6.16)
                                                  ----------         ---------       ---------          ---------       ----------
  Net earnings (loss)                             $    (6.61)        $    0.29       $    0.14          $    0.11       $    (6.07)
                                                  ==========         =========       =========          =========       ==========
</TABLE>

                                       68

<PAGE>

<TABLE>
<CAPTION>
                                                   MARCH 31,          JUNE 30,       SEPT. 30,           DEC. 31,          TOTAL
           QUARTER ENDED                            2001(1)          2001(1)(4)       2001(1)           2001(1)(5)        2001(1)
           -------------                            -------          ----------       -------           ----------        -------
<S>                                               <C>                <C>             <C>                <C>             <C>
Net sales                                         $  269,042         $ 262,962       $ 253,259          $ 224,297       $1,009,560
Gross profit                                          28,674            29,473          28,657             21,217          108,021
Earnings from continuing operations                    3,930             4,955           4,224                313           13,422
Loss from discontinued operations                     (1,070)           (1,894)         (1,178)              (891)          (5,033)
Net earnings (loss)                               $    2,860         $   3,061       $   3,046          $    (578)      $    8,389
Basic net earnings (loss)per common
 share:
  Continuing operations                           $     0.12         $    0.16       $    0.14          $    0.01       $     0.43
  Discontinued operations                              (0.03)            (0.06)          (0.04)             (0.03)           (0.16)
                                                  ----------         ---------       ---------          ---------       ----------
  Net earnings (loss)                             $     0.09         $    0.10       $    0.10          $   (0.02)      $     0.27
                                                  ==========         =========       =========          =========       ==========
Diluted net earnings (loss) per common share:

  Continuing operations                           $     0.12         $    0.16       $    0.14          $    0.01       $     0.43
  Discontinued operations                              (0.03)            (0.06)          (0.04)             (0.03)           (0.16)
                                                  ----------         ---------       ---------          ---------       ----------
  Net earnings (loss)                             $     0.09         $    0.10       $    0.10          $   (0.02)      $     0.26
                                                  ==========         =========       =========          =========       ==========
</TABLE>

(1)      Certain amounts have been reclassified to conform to the 2002 full-year
         presentation.

(2)      Quarterly net earnings include proceeds of $4,365 ($2,837 after tax),
         or $0.09 per diluted share, received under the Continued Dumping and
         Subsidy Offset Act of 2000, and a charge of $4,000 ($2,600 after tax),
         or $0.08 per diluted share, for expected losses on accounts receivable.

(3)      Quarterly net earnings include a cumulative effect of an accounting
         change of $(197,054), or $(6.16) per diluted share, for the impairment
         of goodwill. For additional information, see note 2.

(4)      Quarterly net earnings include the after-tax financial impact of the
         property damage and other cost associated with the production outage of
         $9,896 ($6,433 after tax), or $0.20 per diluted share, and income from
         property damage claims of $3,361 ($2,185 after tax), or $0.07 per
         diluted share.

(5)      Quarterly net loss reflects income from property damage and business
         interruption insurance of $7,226 ($4,697 after tax), or $0.15 per
         diluted share.

                                       69

<PAGE>

17.      SUBSEQUENT EVENT

         In February 2003, the Company entered into an agreement to sell up to
$125,400 of perpetual convertible preferred stock with Warburg Pincus Private
Equity, VIII, L.P. ("Warburg Pincus VIII"), a global private equity firm. With
the signing of this agreement, Warburg Pincus VIII invested $20,000 in the form
of a convertible subordinated note that will be automatically converted into
preferred stock upon satisfaction of certain conditions, and received a warrant
to purchase 1,250,000 shares of our common stock at an exercise price of $11.25
per share. Proceeds from this transaction will be used primarily to pay down
existing debt.

         On November 4, 2002, the Company entered into a non-binding letter of
intent Warburg Pincus VIII that provided the basic economic framework for and
the material terms of a private equity investment valued at $11.25 per share for
the initial portion of their investment and $11.25 per share, or if lower, 110%
of the volume-weighted average closing price of its common stock over a
specified 20 trading day period for the balance of their investment. The $11.25
per share price represented a $0.59 (5.5%) premium over the closing price of the
Company's common stock on that date. After the completion of due diligence and
documentation, the Company entered into a definitive securities purchase
agreement with Warburg Pincus VIII on February 12, 2003 on substantially the
same terms agreed to in the letter of intent providing for the issuance of the
convertible notes in an aggregate initial principal amount of up to $49,950, up
to 5,000,000 shares of the Company's Series A preferred stock, 6,700,000 shares
of the Company's Series B preferred stock and warrants to purchase 2,500,000
shares of common stock for up to $125,400 in cash (exclusive of the exercise
price of the warrants). Upon consummation of the transaction, which is subject
to stockholder approval, and assuming exercise of all warrants by Warburg Pincus
VIII for cash, Warburg Pincus VIII will own approximately 30% of the Company's
outstanding voting securities. This amount is subject to increase under certain
conditions to a maximum of approximately 49% of the Company's outstanding common
stock during the next five years.

         At the time of signing the agreement, the Company issued to Warburg
Pincus VIII the initial warrant to purchase 1,250,000 shares of its common stock
at an exercise price of $11.25 per share and Warburg Pincus VIII purchased a
note in an initial principal amount of $20,000 at par. In addition, the Company
appointed Oliver Goldstein, a vice president of Warburg Pincus LLC, to its board
as a designee of Warburg Pincus VIII. When certain conditions are met, including
stockholder approval of the transaction, and the Company obtaining a new
$175,000 senior revolving credit facility, the following will occur:

                  -        the outstanding initial note will automatically
                           convert into shares of Series A preferred stock and
                           Warburg Pincus VIII will purchase for $30,000 in cash
                           an additional 2,666,666 shares of Series A preferred
                           stock at $11.25 per share so that Warburg Pincus VIII
                           will own an aggregate of approximately 4,500,000
                           shares of Series A preferred stock;

                  -        Warburg Pincus VIII will purchase 6,700,000 shares of
                           Series B preferred stock at a price per share equal
                           to the Series B purchase price, which is equal to the
                           lower of $11.25 or 110% of the volume-weighted
                           average closing price of the Company's common stock
                           over a 20-day period;

                  -        the Company will issue to Warburg Pincus VIII the
                           additional warrant to purchase 1,250,000 shares of
                           its common stock at an exercise price equal to the
                           Series B purchase price; and

                  -        the Company will appoint a second director designated
                           by Warburg Pincus VIII to its board.

         If shareholder approval and other conditions are not met, the preferred
stock and, subject to certain exceptions, the additional warrant will not be
issued to Warburg Pincus VIII. In such case, subject to certain conditions,
including the Company obtaining a new $150,000 senior revolving credit facility,
Warburg Pincus VIII will purchase the additional note in the initial principal
amount of $29,950 at par and a second director

                                       70

<PAGE>

designated by Warburg Pincus VIII will be appointed to the Company's board. The
resulting $49,950 in initial aggregate principal amount of the notes then
outstanding, by their terms, will not be convertible into Series A preferred
stock but will instead be convertible only into the Company's common stock at a
conversion price of $11.25 per share. Warburg Pincus VIII will continue to hold
the initial warrant. The amount of common stock issuable upon conversion or
exercise of the $49,950 in initial principal amount of notes and the warrants
would be limited to 19.99% of the common stock outstanding on February 12, 2003.

         If more than that amount of common stock would otherwise be issuable
upon conversion or exercise of the notes and warrants, the excess shares would
not be issued. Instead, upon conversion, Warburg Pincus VIII would be entitled
to receive the cash excess share payment in an amount equal to the excess of the
current market value of the Company's common stock over the conversion price in
effect under the notes for the unissued excess shares. Since the number of
shares issuable would be less than 20% of the number of shares of common stock
outstanding on February 12, 2003, the issuance of the notes and warrants would
not require stockholder approval under the New York Stock Exchange rules.

                                       71

<PAGE>

REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wellman, Inc.

         We have audited the accompanying consolidated balance sheets of
Wellman, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2002. Our audits also included the
financial statement schedules listed in the Index at Item 8. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits. We did not audit the financial statements and
schedules of a wholly owned subsidiary of the Company, which statements reflect
total assets constituting 9% as of December 31, 2002 and 2001, and net sales of
9% for each of the three years in the period ended December 31, 2002 of the
related consolidated totals. Those financial statements and schedules were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for such wholly owned
subsidiary, is based solely on the report of other auditors.

         We conducted our audits in accordance with auditing standards generally
accepted in the 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 and the report of other
auditors provide a reasonable basis for our opinion.

         In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Wellman, Inc. at December 31,
2002 and 2001, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, based on our audits and the report of other auditors, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

         As discussed in note 2 to the Consolidated Financial Statements, in
2002 the Company changed its method of accounting for goodwill and other
intangible assets and for the impairment or disposal of long-lived assets. In
2001, the Company changed its method of accounting for derivative instruments
and hedging activities.

                                                               ERNST & YOUNG LLP

Charlotte, North Carolina
February 12, 2003

                                       72

<PAGE>

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                       BALANCE AT        CHARGED TO
                                      BEGINNING OF        COSTS AND                                             BALANCE AT
          DESCRIPTION                     YEAR            EXPENSES            OTHER          DEDUCTIONS         END OF YEAR
          -----------                     ----            --------            -----          ----------         -----------
<S>                                   <C>                <C>                <C>              <C>                <C>
Allowance for doubtful accounts
 Receivable:
Year ended December 31, 2002            $  3,871          $  4,212          $     76          $    484(a)         $  7,675
                                        ========          ========          ========          ========            ========

Year ended December 31, 2001            $  3,968          $    112          $    (33)         $    176(a)         $  3,871
                                        ========          ========          ========          ========            ========

Year ended December 31, 2000            $  4,415          $    148          $    (25)         $    570(a)         $  3,968
                                        ========          ========          ========          ========            ========
</TABLE>

(a) Accounts written off and reduction of allowance.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

None.

                                    PART III

                                       73

<PAGE>

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth information regarding our directors and
executive officers as of March 31, 2003:

                                       74

<PAGE>

<TABLE>
<CAPTION>
                                                     PRINCIPAL OCCUPATION DURING                      DIRECTOR
          NAME AND AGE                                   THE PAST FIVE YEARS                            SINCE
-------------------------------       -------------------------------------------------------      --------------
<S>                                   <C>                                                          <C>
Thomas M. Duff, 55.............       Chairman since 1999 and Chief Executive Officer and          August 1985
                                      director of Wellman since its inception in 1985.
                                      President from 1985 to 1999.

James B. Baker, 57.............       Managing Partner of River Associates Investments, LLC        August 1994
                                      (private equity investment fund) since 2001 and partner
                                      of River Associates Investments, LLC from 1993 to
                                      2001. Prior to 1993, President and Chief Operating
                                      Officer (1991-1992) and Senior Vice President
                                      (1987-1991) of CONSTAR International, Inc. (plastic
                                      container manufacturer). Chairman of the Finance and
                                      Audit Committee and member of the Governance Committee.

Clifford J. Christenson, 53           President of Wellman since 1999, Executive Vice              November 1995
                                      President of Wellman from 1993 to 1999 and Chief
                                      Operating Officer since 1995.

Oliver Goldstein, 31.........         Vice President, Warburg Pincus L.L.C., a private equity      February 2003
                                      investment firm, since January 2001. Associate of
                                      Warburg Pincus L.L.C from July 1999 to December 2000.
                                      Prior to 1999, Mr. Goldstein served in various
                                      capacities at Fenway Partners, Inc. and Goldman, Sachs
                                      and Co. Director of Alliant Protection Services, Inc.
                                      and Customized Database Systems, Inc.

Richard F. Heitmiller, 74......       President of Richard F. Heitmiller, Inc. (consulting         November 1988
                                      firm) since 1982. Chairmen of the Board of Radici
                                      Spandex from 2001 to March 31, 2002. Vice Chairman,
                                      Chief Executive Officer and President of Globe
                                      Manufacturing from 1998 to 2001. From 1971 until 1982,
                                      various executive positions with Arthur D. Little, Inc.
                                      (management consultants) and Vice President of its
                                      Decision Resources subsidiary. Chairmen of the
                                      Governance Committee and member of the Finance and
                                      Audit Committee.

Gerard J. Kerins, 55...........       Vice-Chairman of ICG Commerce, Inc., a procurement           August 1999
                                      services provider, since July 2002. Chairman of the
                                      Board, Insulair, Inc. (producer of paper packaging)
                                      since March 2000. President, CEO and director of
                                      Continental PET Technologies, Inc. (producer of PET
                                      containers from 1983 to 1998. Member of the
                                      Compensation Committee.
</TABLE>

                                       75

<PAGE>

<TABLE>
<CAPTION>
                                                     PRINCIPAL OCCUPATION DURING                      DIRECTOR
          NAME AND AGE                                   THE PAST FIVE YEARS                            SINCE
-------------------------------       -------------------------------------------------------      --------------
<S>                                   <C>                                                          <C>
James E. Rogers, 57............       President of SCI Investors, Inc. (investment company)        September 1993
                                      since 1993. From 1991 until 1993, President and Chief
                                      Executive Officer of Specialty Coatings International,
                                      Inc. (a manufacturer). Prior to 1991, Senior Vice
                                      President and Group Executive of James River
                                      Corporation (a paper manufacturer). Mr. Rogers is also
                                      a director and member of the Compensation Committee of
                                      Owens & Minor, Inc. (a medical and surgical supplies
                                      distributor), a director and member of the Compensation
                                      Committee of Chesapeake Corp. (a packaging
                                      manufacturer), and a director and member of the
                                      Compensation and Audit Committees of Cadmus
                                      Communications Corporation (an integrated graphic
                                      communications provider). Member of the Finance and
                                      Audit Committee and the Compensation Committee.

Marvin O. Schlanger, 54........       Principal of Cherry Hill Chemical Investments, LLC (a        January 1999
                                      chemical and allied industries management services
                                      firm) since 1998. Chairman and CEO of Resolution
                                      Performance Products, Inc. (a specialty chemicals
                                      company) since 2000. President and Chief Executive
                                      Officer of ARCO Chemical Company in 1998: Executive
                                      Vice President and Chief Operating Officer of ARCO
                                      Chemical Company from 1994 to 1998: prior to 1994,
                                      Chief Financial Officer and director. Also a director,
                                      chairman of the Finance and Planning Committee and
                                      member of the Audit Committee of UGI Corporation
                                      (utility holding company). Chairman of the
                                      Compensation Committee and member of the Governance
                                      Committee.

Roger A. Vandenberg, 55........       President of Cariad Capital, Inc. (investment advisor)       August 1985
                                      since its inception in 1992. Mr. Vandenberg is also a
                                      director, member of the Compensation Committee and
                                      chairman of the Audit Committee of Monaco Coach
                                      Corporation (a manufacturer of motor homes). Member of
                                      the Finance and Audit Committee.
</TABLE>

                                       76

<PAGE>

ITEM 11.          EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

         Our Compensation Committee of the Board of Directors (the "Committee")
is composed entirely of non-employee directors. The Committee has responsibility
for administering the annual Management Incentive Compensation Plan, the stock
option plans and the Deferred Compensation and Restricted Stock Plan. The
Committee is also responsible for making compensation recommendations to the
Board with respect to the five executive officers whose fiscal 2002 compensation
is disclosed on the Summary Compensation Table below. In this capacity, the
Committee determines the salary, management incentive plan awards and stock
option grants for those executive officers, following administrative policies
and practices that it establishes from time to time in accordance with the terms
and provisions of the plans. This Committee Report describes the executive
compensation program strategy, the components of the compensation program, and
the manner in which 2002 compensation determinations were made by the Committee
with respect to the Chairman and Chief Executive Officer, Thomas M. Duff, whose
compensation is determined by the Committee meeting in executive session without
Mr. Duff or other members of management being present. Similar determinations
were made by the Committee with respect to the other four executive officers,
after taking into consideration the recommendations submitted by Mr. Duff.

         Stock Ownership Policy. In February 1998 the Board of Directors, at the
recommendation of the Compensation Committee, adopted a Statement of Policy
which requires directors and executive officers to beneficially own targeted
levels of Wellman Common Stock based on their compensation levels. The Board
believes that increasing management's ownership of the Common Stock will more
closely align the interests of management and the stockholders and will motivate
management to manage Wellman for long-term growth and profitability. In order to
implement the Statement of Policy, Wellman adopted the Deferred Compensation and
Restricted Stock Plan. Under this Plan, executives are required to defer any
amounts payable under the Management Incentive Compensation Plan over their
target percentage and may elect to defer up to 50% of any other cash
compensation payable to them. Restricted stock awards are granted for such
deferred compensation. The number of shares of restricted stock issued is equal
to the cash value of the compensation earned divided by 85% of the average of
the highest and lowest sales prices of Wellman Common Stock reported on the New
York Stock Exchange for a specified 31 day period at the end of the quarter.

         Compensation Strategy. The Committee endeavors to maintain an officer
compensation program which is competitive with the practices of public
corporations of similar revenue size. The structure for the compensation of the
executive officers consists of three primary components: base salary, the
Management Incentive Plan and stock options. The Committee believes a
substantial component of executive officer total compensation should be based on
Wellman's financial performance. The Management Incentive Plan compensates
executive officers commensurate with Wellman's financial performance and other
strategic goals, and annual stock option grants ensure that longer-term
incentive compensation is directly related to increases in the market value of
Wellman's Common Stock.

         The remainder of this Committee Report describes the components of our
officer compensation program and the manner in which these were administered in
2002.

         Base Salary. Base salary forms the foundation of the officer
compensation program. The Committee has periodically engaged compensation
consultants to survey market practices to ensure executive officer salaries
remain competitive in a manner which properly reflects the performance of the
incumbent officers.

         Mr. Duff's 2002 annual salary shown in the Summary Compensation Table
falls within the second quartile of competitive practice for corporations with
revenues of comparable size. The second quartile is defined as

                                       77

<PAGE>

above the 25(th) percentile and below the 50(th) percentile. The average 2002
salaries of the other executive officers approximated the second quartile of
competitive practice for their peers in corporations with revenues of comparable
size.

         Management Incentive Plan. Under the Management Incentive Plan ("MIP"),
annual bonuses earned by the executive officers and other plan participants are
directly related to achieving targets established for corporate and/or operating
unit profit and achieving individual strategic expectations established early in
the year. The Committee establishes for each participant in the MIP a maximum
targeted award based on a percentage of base salary and the portion of that
target award which is to be based upon achieving strategic goals.

         Our Chief Executive Officer's target MIP award for 2002 was 65% of base
salary; 30% of the target award was based upon achieving strategic expectations
and 70% was based upon achieving financial objectives. The target awards for the
other executive officers ranged from 25% to 65% of base salary; 35% to 50% of
the target awards were based upon achieving strategic expectations and 50% to
65% was based upon achieving financial objectives.

         Based on his performance in 2002, the Committee recommended the payment
of an annual bonus of $369,000 to our CEO (which constitutes 51% of his base
salary).

         Stock Options. Annual stock option grants represent the third component
of Wellman's executive compensation program. All stock options are granted with
exercise prices equal to the average of fair market value of the stock on the 20
days preceding the date of grant so that optionees share in the future growth in
market value of Wellman's Common Stock. To ensure stock options provide a
longer-term stockholder value-based incentive, 20% of the options granted in a
year become exercisable (i.e., the optionee can purchase the option shares) on
the first through fifth anniversaries of the grant date, provided the optionee
remains an employee.

         The Chief Executive Officer submits proposed stock option grants for
the executive officers (other than himself) to the Committee for approval. In
making the final determination of option grants, the Committee considers the
individual executive's scope of responsibility, individual performance, the
levels of profits and return on assets of the corporation and of its operating
divisions (with no specific target levels being established), competitive levels
of option grants, and the aggregate number of options awarded to the executive
to date. The Committee, in its discretion, assigns relative weights to these
factors as it deems appropriate.

         The Option Grants Table below shows the terms and size of 2002 option
grants made to the executive officers named in the Summary Compensation Table
below.

         The values shown under the "Grant Date Value" column of this table
represent an estimate of the potential value of these grants. These projections
should not be construed as a forecast of future stock price or the compensation
that will be realized from the actual exercise of these options. Unless the
future price of Wellman's stock is higher than $15.24 per share, the exercise
price of the 2002 options, these options will have no value.

                                       78

<PAGE>

         The Committee believes that the compensation paid by the Corporation to
the executive officers will be fully deductible.

         This report has been provided by the Compensation Committee.

                                                   The Compensation Committee
                                                   Marvin O. Schlanger, Chairman
                                                   Gerard Kerins
                                                   James E. Rogers
                                                   Roger A. Vandenberg

                                       79

<PAGE>

                  COMPENSATION TABLES

         The following table summarizes the compensation for the years ended
December 31, 2002, 2001 and 2000 of Wellman's chief executive officer and the
four other most highly compensated executive officers.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                           ANNUAL COMPENSATION                              LONG-TERM COMPENSATION AWARDS
                             ------------------------------------------------------   -------------------------------------------
                                                                                                      SECURITIES
                                                                        OTHER         RESTRICTED      UNDERLYING      ALL OTHER
  NAME AND PRINCIPAL                                                    ANNUAL          STOCK          OPTIONS       COMPENSATION
      POSITION               YEAR      SALARY(1)       BONUS(1)     COMPENSATION(2)   AWARDS(1)(3)       (4)              (5)
-----------------------      ----     -----------     ----------    ---------------   ------------    ----------     ------------
<S>                          <C>      <C>             <C>           <C>               <C>             <C>            <C>
Thomas M. Duff
Chairman, CEO                2002     $   720,000     $  369,000      $   72,857      $        0             0       $    136,807
                             2001     $   720,000     $  200,043      $   73,734      $        0        86,000       $    171,379
                             2000     $   720,000     $  154,160      $   73,734      $        0        85,000       $    170,701
Clifford J. Christenson
President, COO               2002     $   435,000     $  243,000      $   42,991      $        0        40,000       $     78,866
                             2001     $   431,250     $  149,702      $   42,635      $   15,095        76,000       $    102,137
                             2000     $   413,125     $   83,179      $   41,402      $   11,030        75,000       $    101,318
John R. Hobson
Vice President,
Fibers and Recycled
Products Group               2002     $   275,000     $  141,000      $   27,600      $      640        20,000       $     53,772
                             2001     $   273,750     $   51,762      $   27,600      $    2,442        40,000       $     66,761
                             2000     $   270,000     $   82,251      $   27,600      $    6,658        35,000       $     65,856
Keith R. Phillips
Vice President and
Chief Financial Officer      2002     $   265,000     $  167,000      $   25,833      $    6,306        25,000       $     50,731
                             2001     $   261,250     $  107,658      $   25,476      $   12,971        40,000       $     55,859
                             2000     $   244,375     $   76,082      $   23,915      $   11,101        35,000       $     54,881
Joseph C. Tucker
Vice President
Corporate Development        2002     $   237,000     $  102,000      $   24,385      $    4.207        20,000       $     46,033
                             2001     $   234,500     $   75,676      $   24,158      $    7,094        35,000       $     51,246
                             2000     $   224,625     $   73,627      $   23,474      $    7,399        30,000       $     50,320
</TABLE>

------------------

(1)  Under the Deferred Compensation and Restricted Stock Plan, employees may
     elect to defer specified amounts of salary, bonus and other cash
     compensation. Restricted stock awards are granted for such deferred amounts
     for 2002. The amounts of salary and bonus set forth include the following
     deferred amounts: Mr. Duff, $0 and $0; Mr. Christenson, $0 and $0; Mr.
     Hobson, $0 and $3,500; Mr. Phillips, $0 and $34,500; and Mr. Tucker,
     $11,000 and $10,000. The shares of restricted stock issued in connection
     with these deferred amounts are reflected in the Restricted Stock Awards
     column above.

(2)  Includes Wellman's contributions to life insurance premiums or payments in
     lieu thereof (Mr. Duff, $72,857; Mr. Christenson, $42,991; Mr. Hobson,
     $27,600; Mr. Phillips, $25,833; and Mr. Tucker, $24,385 in 2002).

(3)  These amounts are the dollar values of restricted stock awards granted
     under the Deferred Compensation and Restricted Stock Plan. Each value is
     determined by multiplying the number of shares in each award by the closing
     market price of Wellman Common Stock on the date of grant and subtracting
     the consideration paid by the Named Executive Officer. Holders of
     restricted stock receive the same cash dividends as other stockholders
     owning Wellman Common Stock.

(4)  None of the options granted were options with tandem SARs and no
     free-standing SARs were granted.

                                       80

<PAGE>

(5)  Consists of Wellman's contributions to employee retirement (Mr. Duff,
     $19,870; Mr. Christenson, $19,703; Mr. Hobson, $19,501; Mr. Phillips,
     $19,402; and Mr. Tucker, $19,444 in 2002), supplemental retirement (Mr.
     Duff, $113,762; Mr. Christenson, $56,110; Mr. Hobson, $30,790; Mr.
     Phillips, $27,764; and Mr. Tucker, $23,117 in 2002), and employee stock
     ownership plan (Mr. Duff, $3,175; Mr. Christenson, $3,052; Mr. Hobson,
     $3,481; Mr. Phillips, $3,565; and Mr. Tucker, $3,473 in 2002).

The aggregate number of all restricted stock and net value at December 31, 2002
(determined by taking the number of shares issued at December 31, 2002
multiplied by the closing market price on December 31, 2002, net of any
consideration paid) are shown below. The aggregate amount paid for these shares
was $1,778,026. Amounts shown do not include the restricted shares issued in
connection with the bonuses for 2002 since such bonuses were not paid until
March 2003.

<TABLE>
<CAPTION>
                                      AGGREGATE
                                     RESTRICTED       NET
                                       SHARES        VALUE
                                     ----------      -----
<S>                                  <C>             <C>
Mr. Duff........................       41,348         $ 0
Mr. Christenson.................       38,566         $ 0
Mr. Hobson......................       11,597         $ 0
Mr. Phillips....................       23,936         $ 0
Mr. Tucker......................       19,213         $ 0
</TABLE>

                        OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information relating to option grants
pursuant to the Option Plan in the year ended December 31, 2002 to the
individuals named in the Summary Compensation Table above.

<TABLE>
<CAPTION>
                                                      OPTION GRANTS IN LAST FISCAL YEAR
                                                             INDIVIDUAL GRANTS
                                   -------------------------------------------------------------------
                                     NUMBER OF     % OF TOTAL
                                    SECURITIES      OPTIONS        EXERCISE
                                    UNDERLYING     GRANTED TO       OR BASE
                                      OPTIONS     EMPLOYEES IN       PRICE     EXPIRATION   GRANT DATE
             NAME                  GRANTED(1)(2)   FISCAL YEAR      ($/SH)        DATE       VALUE(3)
             ----                  -------------  ------------     --------    ----------   ---------
<S>                                <C>            <C>              <C>         <C>          <C>
Thomas M. Duff.............                0            0%         $ 15.24      3/21/13     $       0
Clifford J. Christenson....           40,000         13.0%         $ 15.24      3/21/13     $ 331,600
John R. Hobson.............           20,000          6.5%         $ 15.24      3/21/13     $ 165,800
Keith R. Phillips..........           25,000          8.1%         $ 15.24      3/21/13     $ 207,250
Joseph C. Tucker...........           20,000          6.5%         $ 15.24      3/21/13     $ 165,800
</TABLE>

------------------

(1)  None of the options granted were options with tandem SARs and no
     free-standing SARs were granted.

(2)  All options granted to the named executives were granted on March 21, 2002
     pursuant to the Option Plan. The options generally become exercisable in
     20% increments on March 21, 2003, 2004, 2005, 2006 and 2007. If a Change of
     Control (as defined in the Option Plan) occurs, these options would
     immediately become exercisable.

                                       81

<PAGE>

(3)  Based on the Black-Scholes option pricing model. The use of this model
     should not be construed as an endorsement of its accuracy at valuing
     options. The actual value, if any, an executive may realize will depend on
     the excess of the stock price over the exercise price on the date the
     option is exercised, so there is no assurance the actual value realized
     will be at or near the value estimated by the Black-Scholes model. The
     estimated value ($8.29 per option) under that model are based on the
     following assumptions:

<TABLE>
<S>                                       <C>
Stock price at March 21, 2002.........    $  16.49
Exercise price........................    $  15.24
Expected option term..................     8 years
Stock price volatility................        .470
Dividend yield........................        1.36%
Risk-free interest rate...............        3.82%
</TABLE>

                             YEAR-END OPTION VALUES

         The following table sets forth certain information as of December 31,
2002 with respect to unexercised options to purchase Wellman Common Stock
granted under the Option Plan to the individuals named in the Summary
Compensation Table above. No options were exercised in 2002 by such individuals.

<TABLE>
<CAPTION>
                                     NUMBER OF SECURITIES                    VALUE OF
                                    UNDERLYING UNEXERCISED           UNEXERCISED IN-THE-MONEY
                                      OPTIONS AT YEAR-END               OPTIONS AT YEAR-END
                                ------------------------------      ---------------------------
            NAME                EXERCISABLE      UNEXERCISABLE      EXERCISABLE   UNEXERCISABLE
            ----                ------------     -------------      -----------   -------------
<S>                             <C>              <C>                <C>           <C>
Thomas M. Duff.............       335,960           163,640         $   195,426     $  130,284
Clifford J. Christenson....       248,360           172,240         $   112,266     $   74,844
John R. Hobson.............       141,440            89,760         $    67,914     $   45,276
Keith R. Phillips..........       138,960            92,640         $    61,446     $   40,964
Joseph C. Tucker...........       111,640            79,760         $    56,364     $   37,576
</TABLE>

DIRECTORS' COMPENSATION.

         In 2002, each non-employee director received fees of $35,000 per year,
split equally between cash and restricted stock, plus $1,500 for each board or
committee meeting attended in person and $750 for each telephonic meeting
attended. Each chairperson of the Board committees also received an annual fee
of $4,000.

         Each year, each non-employee director also receives options to acquire
1,000 shares of Wellman's Common Stock.

         Employee directors receive no compensation for their Board service.

                                       82


<PAGE>

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                                     (a)                     (b)                       (c)
                                              -----------------       -----------------        --------------------
                                                                                               Number of securities
                                                  Number of                                     remaining available
                                               securities to be           Weighted-             for future issuance
                                                 issued upon          average exercise             under equity
                                                 exercise of             price of               compensation plans
                                                 outstanding            outstanding           (excluding securities
                                              options, warrants       options, warrants        reflected in column
           Plan category                          and rights             and rights                    (a))
           -------------                          ----------             ----------                    ----
<S>                                           <C>                     <C>                     <C>
Equity compensation
  plans approved by
  security holders.....................           3,665,768               $ 17.59                  1,032,715

Equity compensation
  plans not approved
  by security holders..................                  --                    --                         --

        Total..........................           3,665,768               $ 17.59                  1,032,715
                                                  =========               =======                  =========
</TABLE>

Of the 3,665,768 securities to be issued upon exercise of outstanding options,
2,334,636 were options exercisable at December 31, 2002. For additional
information concerning our equity compensation plans, see discussion in Note 11
to our consolidated financial statements.

                                       83

<PAGE>

         The following table shows, as of March 31, 2003, our Common Stock owned
beneficially by our directors and executive officers and all persons we know to
be beneficial owners of more than five percent of our Common Stock. Unless
indicated otherwise, all persons have sole voting and investment power over the
shares listed. Of our directors and executive officers, only Messrs. Duff and
Christenson beneficially own more than one percent of Wellman's outstanding
shares of common stock.

<TABLE>
<CAPTION>
                                                          AMOUNT             PERCENTAGE
                                                       BENEFICIALLY           OF COMMON
                  NAME                                   OWNED (1)              STOCK
                  ----                                 ------------          -----------
<S>                                                    <C>                   <C>
Wellington Management Company, LLP
75 State Street
Boston, MA  02109(2)                                     2,855,700              8.96%
Dimensional Fund Advisors Inc
1299 Ocean Avenue
Santa Monica, CA  90401(3)                               2,498,100              7.84%
Thomas M. Duff(5)                                          857,133              2.69%
James B. Baker (4)(6)                                       42,505                 -
Clifford J. Christenson(5)                                 403,684              1.27%
Oliver Goldstein(4)                                              -                 -
Richard F. Heitmiller(4)                                    26,748                 -
Gerard J. Kerins(4)                                         10,251                 -
James E. Rogers(4)                                          29,932                 -
Marvin O. Schlanger(4)                                      12,923                 -
Roger A. Vandenberg(4)                                      52,567                 -
John R. Hobson(5)                                          199,983                 -
Keith R. Phillips(5)                                       205,651                 -
Joseph C. Tucker(5)                                        173,669                 -
Ernest Taylor(5)                                           134,716                 -
Mark J. Rosenblum(5)                                       126,991                 -
Michael Dewsbury(5)                                        125,067                 -
Audrey L. Goodman (5)(7)                                    31,839                 -
All Directors and Executive Officers as a Group          2,433,659               7.6%
(16 persons)
</TABLE>

(1) "Beneficial ownership" is a technical term broadly defined by the SEC to
mean more than ownership in the usual sense. So, for example, a person
"beneficially" owns our Common Stock not only if he holds it directly, but also
if he indirectly (through a relationship, a position as a director or trustee,
or a contract or understanding) has or shares the power to vote the stock, or to
sell it, or has the right to acquire it within 60 days.

(2) Wellington Management Company, LLP, an investment advisor registered under
the Investment Advisors Act of 1940, has shared voting power over 1,389,500
shares and shared investment power over 2,855,700 shares.

(3) Dimensional Fund Advisors Inc., an investment advisor registered under the
Investment Advisors Act of 1940, has sole voting and investment power over the
shares listed in its role as investment advisor or manager of various investment
companies, commingled group trusts and separate accounts. Dimensional Fund
Advisors, Inc. disclaims beneficial ownership of these securities.

                                       84

<PAGE>

(4) The number of shares shown for each non-employee director includes the
following shares that may be acquired upon exercise of stock options that were
exercisable as of March 31, 2003 or that will become exercisable within 60 days
of that date: Mr. Baker, 8,000; Mr. Goldstein, 0; Mr. Heitmiller, 10,000; Mr.
Kerins, 3,000; Mr. Rogers, 9,000; Mr. Schlanger, 4,000; and Mr. Vandenberg,
10,000.

The number of shares shown for each non-employee director also includes the
following restricted shares that were awarded under the Deferred Compensation
and Restricted Stock Plan: Mr. Baker, 31,229; Mr. Goldstein, 0; Mr. Heitmiller,
12,414; Mr. Kerins, 4,251; Mr. Rogers, 15,932; Mr. Schlanger, 5,423; and Mr.
Vandenberg, 38,591.

(5) The number of shares shown for each executive officer includes the following
shares that may be acquired upon exercise of stock options that were exercisable
as of March 31, 2003 or that will become exercisable within 60 days of that
date: Mr. Duff, 397,080; Mr. Christenson, 303,280; Mr. Hobson, 171,320; Mr.
Phillips, 168,280; Dr. Tucker, 137,520; Mr. Taylor, 113,080; Mr. Rosenblum,
108,200; Mr. Dewsbury, 95,000; and Ms. Goodman, 28,600.

The number of shares shown for each executive officer also includes the
following restricted shares that were acquired under the Deferred Compensation
and Restricted Stock Plan: Mr. Duff, 41,348; Mr. Christenson, 38,566; Mr.
Hobson, 11,597; Mr. Phillips, 23,936; Dr. Tucker, 19,213; Mr. Taylor, 4,411; Mr.
Rosenblum, 12,109; Mr. Dewsbury, 3,635; and Ms. Goodman, 0.

The number of shares shown for each executive officer also includes the number
of shares of our Common Stock beneficially owned indirectly as of March 31, 2003
by such officer in our Employee Stock Ownership Plan and our Retirement Plan,
respectively: Mr. Duff, 4,837 and 34,868; Mr. Christenson, 4,736 and 57,102; Mr.
Hobson, 5,300 and 11,766; Mr. Phillips, 4,011 and 9,424; Dr. Tucker, 4,990 and
11,055; Mr. Taylor, 4,879 and 7,501; Mr. Rosenblum, 4,976 and 194; Mr. Dewsbury,
4,431 and 17,701; and Ms. Goodman, 2,989 and 0.

(6) Of the shares listed for Mr. Baker, 200 are owned by his wife.

(7) Of the shares listed for Ms. Goodman, 250 are owned by her husband.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         For Compensation of directors and officers, see Item 11. "Executive
Compensation."

ITEM 14.          CONTROLS AND PROCEDURES

         (a)      Based on an evaluation of the effectiveness of the Company's
                  disclosure controls and procedures as of March 26, 2003, both
                  the Chief Executive Officer and the Chief Financial Officer of
                  the Company concluded that the Company's disclosure controls
                  and procedures, as defined in Rules 13a--14(c) and 15d --
                  14(c) promulgated under the Securities Exchange Act of 1934,
                  are effective.

         (b)      There have been no significant changes in the Company's
                  internal controls or in other factors that could significantly
                  affect these controls subsequent to the date of their
                  evaluation. There were no corrective actions with regard to
                  significant deficiencies and material weaknesses.

                                       85

<PAGE>

ITEM 15.          PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

         The aggregate fees billed by Ernst & Young LLP for professional
services rendered for the audit of Wellman's annual financial statements and for
the reviews of the financial statements included in Wellman's Quarterly Reports
on Form 10-Q were approximately $645,700 and $545,000 for the years ended
December 31, 2002 and 2001, respectively.

AUDIT-RELATED FEES

         The aggregate fees billed by Ernst and Young LLP for audit-related
services, which principally include audits of employee benefit plans and
accounting consultations, were approximately $182,600 and $120,000 in 2002 and
2001, respectively.

TAX FEES

         The aggregate fees billed by Ernst and Young LLP for tax services,
including tax compliance, tax advice, and tax planning, were approximately
$366,300 and $200,000 in 2002 and 2001, respectively.

ALL OTHER FEES

         Ernst & Young LLP did not render any services to Wellman in 2002 and
2001 which would be included in this category.

                                       86

<PAGE>

                                     PART IV

ITEM 16.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K

(a)1.    Financial Statements

         The consolidated financial statements included in Item 8 are filed as
         part of this annual report.

   2.    Financial Statement Schedules

         The consolidated financial statement schedules included in Item 8 is
         filed as part of this annual report.

   3.    Exhibits

         Pursuant to Item 601(b)(4)(iii) of Regulation S-K, we have not filed
         herewith any instrument with respect to long-term debt which does not
         exceed 10% of our consolidated assets. We hereby agree to furnish a
         copy of any such instrument to the Securities and Exchange Commission
         upon request.

<TABLE>
<CAPTION>
EXHIBIT NUMBER                        DESCRIPTION
--------------                        -----------
<S>                <C>
3(a)(1)            Restated Certificate of Incorporation, dated June 1, 1987
                   (Exhibit 3(a)(1) of the Company's Form 10-Q for the quarter
                   ended June 30, 2000 incorporated by reference herein)

3(a)(2)            Certificate of Amendment to Restated Certificate of
                   Incorporation, dated May 18, 1989 (Exhibit 3(a)(2) of the
                   Company's Form 10-Q for the quarter ended June 30, 2000
                   incorporated by reference herein)

3(a)(3)            Certificate of Amendment to Restated Certificate of
                   Incorporation, dated May 30, 1990 (Exhibit 3(a)(3) of the
                   Company's Form 10-Q for the quarter ended June 30, 2000
                   incorporated by reference herein)

3(a)(4)            Certificate of Amendment to Restated Certificate of
                   Incorporation, dated February 16, 1994 (Exhibit 3(a)(4) of
                   the Company's Form 10-Q for the quarter ended June 30, 2000
                   incorporated by reference herein)

3(b)               Restated By-Laws, as of May 18, 1999 (Exhibit 3(b) of the
                   Company's Form 10-Q for the quarter ended June 30, 1999
                   incorporated by reference herein)

4(a)(1)            Loan Agreement dated as of September 28, 1999 by and between
                   the Company and Fleet National Bank, N.A., as administrative
                   agent, and certain other financial institutions (Exhibit
                   4(a)(1) of the Company's Form 10-Q for the quarter ended
                   September 30, 1999 incorporated by reference herein)

4(a)(2)            Amendment to Loan Agreement, dated April 28, 2000, by and
                   between the Company and Fleet National Bank, N.A., as
                   administrative agent, and certain other financial
                   institutions (Exhibit 4(b) of the Company's Form 10-Q for the
                   quarter ended June 30, 2000 incorporated by reference herein)
</TABLE>

                                       87

<PAGE>

<TABLE>
<S>                <C>
4(a)(3)            Second Amendment to Loan Agreement dated September 15, 2000,
                   by and between the Company and Fleet National Bank, as
                   administrative agent, and certain other financial
                   institutions (Exhibit 4(c) of the Company's Form 10-Q for the
                   quarter ended September 30, 2000 incorporated by reference
                   herein)

4(a)(4)            Third Amendment to Loan Agreement dated September 27, 2000,
                   by and between the Company and Fleet National Bank, as
                   administrative agent, and certain other financial
                   institutions (Exhibit 4(d) of the Company's Form 10-Q for the
                   quarter ended September 30, 2000 incorporated by reference
                   herein)

4(a)(5)            Fourth Amendment to Loan Agreement dated September 26, 2001,
                   by and between the Company and Fleet National Bank, as
                   administrative agent, and certain other financial
                   institutions (Exhibit 4 (a)(5) of the Company's Form 10-Q for
                   the quarter ended September 30, 2001 incorporated by
                   reference herein)

4(a)(6)            Guaranty Agreement executed as of September 29, 1999 by Fiber
                   Industries, Inc. in favor of Fleet National Bank on behalf of
                   Wellman, Inc. (Exhibit 4(a)(2) of the Company's Form 10-Q for
                   the quarter ended September 30, 1999 incorporated by
                   reference herein)

4(a)(7)            Guaranty Agreement executed as of September 29, 1999 by
                   Prince, Inc. (formerly known as Wellman Delaware Holding,
                   Inc.) in favor of Fleet National Bank on behalf of Wellman,
                   Inc. (Exhibit 4(a)(3) of the Company's Form 10-Q for the
                   quarter ended September 30, 1999 incorporated by reference
                   herein)

4(a)(8)            Guaranty Agreement executed as of September 29, 1999 by
                   Wellman of Mississippi, Inc. in favor of Fleet National Bank
                   on behalf of Wellman, Inc. (Exhibit 4(a)(4) of the Company's
                   Form 10-Q for the quarter ended September 30, 1999
                   incorporated by reference herein)

4(b)               Registration Rights Agreement dated as of August 12, 1985 by
                   and among the Company, Thomas M. Duff and others (Exhibit 4.7
                   of the Company's Registration Statement on Form S-1, File No.
                   33-13458, incorporated by reference herein)

4(c)               Rights Agreement dated as of August 31, 2001 between the
                   Company and First Union National Bank, as Rights Agent
                   (Exhibit 4 of the Company's Registration Statement on Form
                   8-A, incorporated by reference herein)

4(d)               Amendment to Rights Agreement dated as of February 12, 2003,
                   by and between Wellman, Inc. and Wachovia Bank, N.A., f/k/a
                   First Union National Bank, as Rights Agent (Exhibit 4.1 to
                   the Company's Form 8-K dated February 27, 2003 incorporated
                   by reference herein)

4(e)               Convertible Subordinated Promissory Note dated February 12,
                   2003 (Exhibit 4(e) to the Company's Form 10-K for the year
                   ended December 31, 2002 filed on March 28, 2002, incorporated
                   by reference herein)

4(f)               Common Stock Purchase Warrant dated as of February 12, 2003
                   for the purchase of 1,250,000 shares of common stock (Exhibit
                   4(f) to the Company's Form 10-K for the year ended December
                   31, 2002 filed on March 28, 2002, incorporated by reference
                   herein)
</TABLE>

                                       88

<PAGE>

<TABLE>
<S>                <C>
4(g)               Securities Purchase Agreement by and between Wellman, Inc.
                   and Warburg Pincus Private Equity VIII, LP, dated as of
                   February 12, 2003 (Exhibit 4(g) to the Company's Form 10-K
                   for the year ended December 31, 2002 filed on March 28, 2002,
                   incorporated by reference herein)

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

10(a)              Employment Agreement dated as of January 1, 1990, as amended
                   by the Third Agreement to said Employment Agreement dated as
                   of January 1, 1997, between the Company and Thomas M. Duff
                   (Exhibit 10(a) of the Company's Form 10-Q for the quarter
                   ended March 31, 2000 incorporated by reference herein)

10(b)              Employment Agreement dated as of December 1, 1994 between the
                   Company and Clifford J. Christenson (Exhibit 10(b) of the
                   Company's Form 10-Q for the quarter ended March 31, 2000
                   incorporated by reference herein)

10(c)              Employment Agreement dated as of December 1, 1994 between the
                   Company and Keith R. Phillips (Exhibit 10(c) of the Company's
                   Form 10-Q for the quarter ended March 31, 2000 incorporated
                   by reference herein)

10(d)              Employment Agreement dated as of May 21, 1996 between the
                   Company and John R. Hobson (Exhibit 10(a) of the Company's
                   Form 10-Q for the quarter ended June 30, 1996 incorporated by
                   reference herein)

10(e)              Employment Agreement dated as of September 21, 1998 between
                   the Company and Joseph C. Tucker (Exhibit 10(e) of the
                   Company's Form 10-K for the year ended December 31, 2001
                   incorporated by reference herein)

10(f)              Employment Agreement dated as of April 10, 2000 between the
                   Company and Michael Dewsbury (Exhibit 10(d) of the Company's
                   Form 10-Q for the quarter ended March 31, 2000 incorporated
                   by reference herein)

10(g)              Employment Agreement dated as of February 15, 2001 between
                   the Company and Mark J. Rosenblum (Exhibit 10(f) of the
                   Company's Form 10-K for the year ended December 31, 2000
                   incorporated by reference herein)

10(h)              Employment Agreement dated as of February 15, 2002 between
                   the Company and Ernest G. Taylor (Exhibit 10(h) of the
                   Company's Form 10-K for the year ended December 31, 2001
                   incorporated by reference herein)

10(i)              Employment Agreement dated as of March 20, 2002 between the
                   Company and Audrey Goodman (Exhibit 10(i) of the Company's
                   Form 10-K for the year-end December 31, 2001 incorporated by
                   reference herein)

10(j)              Wellman, Inc. Directors Stock Option Plan (Exhibit 10(g) of
                   the Company's Form 10-Q for the quarter ended June 30, 2001
                   incorporated by reference herein)
</TABLE>

                                       89

<PAGE>

<TABLE>
<S>                <C>
10(k)              Wellman, Inc. Second Amended and Restated Management
                   Incentive Compensation Plan for the Executive Group (Exhibit
                   10(h) of the Company's Form 10-K for the year ended December
                   31, 2000 incorporated by reference herein)

10(l)              Summary of Executive Life Insurance Plan (Exhibit 10.22 of
                   the Company's Registration Statement on Form S-1, File No.
                   33-13458, incorporated by reference herein)

10(m)              Amended and Restated Executive Retirement Restoration Plan,
                   effective as of January 1, 1993, and as amended as of June 1,
                   1998 and May 31, 2001 (Exhibit 10(m) of the Company's Form
                   10-K for the year ended December 31, 2001 incorporated by
                   reference herein)

10(n)              Wellman, Inc. Amended and Restated 1997 Stock Option Plan
                   (Exhibit 10(k) of the Company's Form 10-Q for the quarter
                   ended June 30, 2001 incorporated by reference herein)

10(o)              Wellman, Inc. Deferred Compensation and Restricted Stock
                   Plan, effective as of February 17, 1998 and as amended as of
                   December 1, 1998 and December 31, 2002 (Exhibit 10(o) to the
                   Company's Form 10-K for the year ended December 31, 2002
                   filed on March 28, 2002, incorporated by reference herein)

OTHER MATERIAL AGREEMENTS

10(p)              Trademark Assignment and License, dated January 28, 1988, by
                   and among Fiber Industries, Inc., Hoechst-Celanese
                   Corporation and Celanese (Exhibit 10.14 of Fiber Industries,
                   Inc.'s Registration Statement on Form S-1, File No. 33-20626,
                   incorporated by reference herein)

10(q)              Inducement Agreement dated April 16, 1996, by and among
                   Wellman of Mississippi, Inc., the Mississippi Department of
                   Economic and Community Development acting for and on behalf
                   of the State of Mississippi, the Mississippi Business
                   Financial Corporation and certain other parties (Exhibit
                   10(u) of the Company's Form 10-K for the year ended December
                   31, 1996 incorporated by reference herein)

10(q)(1)           Supplement to Inducement Agreement dated June 30, 1999, by
                   and among the Mississippi Department of Economic and
                   Community Development acting for and on behalf of the State
                   of Mississippi, the Mississippi Major Economic Impact
                   Authority, the Mississippi Business Finance Corporation and
                   certain other parties (Exhibit 10(n)(1) of the Company's Form
                   10-K for the year ended December 31, 1999 incorporated by
                   reference herein)

21                 Subsidiaries (Exhibit 21 to the Company's Form 10-K for the
                   year ended December 31, 2002 filed on March 28, 2002,
                   incorporated by reference herein)

23(a)              Consent of Ernst & Young LLP

23(b)              Consent of KPMG Chartered Accountants, Dublin, Ireland

28(a)              Report of KPMG Chartered Accountants, Dublin, Ireland
                   (Exhibit 28(a) to the Company's Form 10-K for the year ended
                   December 31, 2002 filed on March 28, 2002, incorporated by
                   reference herein)
</TABLE>

                                       90

<PAGE>

<TABLE>
<S>                <C>
99.1               Periodic Report Certification of CEO

99.2               Periodic Report Certification of CFO

(b)                Reports on Form 8-K

                   None
</TABLE>

                                       91

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 29, 2003.

                                                WELLMAN, INC.

                                                /s/ Thomas M. Duff
                                                --------------------------------
                                                Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on April 29, 2003.

<TABLE>
<CAPTION>
         SIGNATURES                                           TITLE
         ----------                                           -----
<S>                                       <C>
/s/ Thomas M. Duff                        Chairman, Chief Executive Officer and Director
------------------------------            (Principal Executive Officer)
Thomas M. Duff

/s/ Keith R. Phillips                     Vice President and Chief Financial Officer
------------------------------            (Principal Financial Officer)
Keith R. Phillips

/s/ Mark J. Rosenblum                     Vice President, Chief Accounting Officer and
------------------------------            Controller (Principal Accounting Officer)
Mark J. Rosenblum

/s/ James B. Baker                        Director
------------------------------
James B. Baker

/s/ Clifford J. Christenson               President, Chief Operating Officer and Director
------------------------------
Clifford J. Christenson

/s/ Oliver M. Goldstein                   Director
------------------------------
Oliver M. Goldstein

/s/ Richard F. Heitmiller                 Director
------------------------------
Richard F. Heitmiller

/s/ Gerard J. Kerins                      Director
------------------------------
Gerard J. Kerins

/s/ James E. Rogers                       Director
------------------------------
James E. Rogers

/s/ Marvin O. Schlanger                   Director
------------------------------
Marvin O. Schlanger

/s/ Roger A. Vandenberg                   Director
------------------------------
Roger A. Vandenberg
</TABLE>

                                       92

<PAGE>

                                 CERTIFICATIONS

I, Thomas M. Duff, Chief Executive Officer of Wellman, Inc., certify that:

1.       I have reviewed this annual report on Form 10-K/A of Wellman, Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date April 29, 2003                             /s/Thomas M. Duff
                                                 -----------------
                                                 Thomas M. Duff
                                                 Chief Executive Officer

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<PAGE>

                                 CERTIFICATIONS

I, Keith R. Phillips, Chief Financial Officer of Wellman, Inc., certify that:

1.       I have reviewed this annual report on Form 10-K/A of Wellman, Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date April 29, 2003                             /s/Keith R. Phillips
                                                --------------------
                                                Keith R. Phillips
                                                Chief Financial Officer

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