##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 OR
 o
    
    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
 
 WELLMAN, INC.
  
 Delaware
    
    04-1671740(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1041 521 Corporate Center DriveFort Mill, South Carolina
    
    29715(Address of principal executive offices)
    
    (Zip Code)
 (803) 835-2000
 þ o
 þ o




---



WELLMAN, INC.
 INDEX
 Page No.PART I  FINANCIAL INFORMATIONITEM 1  Financial Statements (Unaudited, except where noted)Condensed Consolidated Statements of Operations  For the three and six months ended June 30, 2005 and 2004
    
    
    3Condensed Consolidated Balance Sheets  June 30, 2005 and December 31, 2004 (Audited)
    
    
    4Condensed
Consolidated Statements of Stockholders  Equity  For the six months ended June 30, 2005 and the year ended December 31, 2004 (Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows  For the six months ended June 30, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    21ITEM 4  Controls and Procedures
    
    
    21PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    22ITEM 4  Submission of Matters to a Vote of Security Holders
    
    
    24ITEM 6  Exhibits and Reports on Form 8-K
    
    
    25SIGNATURES
    
    
    26EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO
  2




---



##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 WELLMAN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
  Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    345.0
    
    
    $
    329.0
    
    
    $
    731.3
    
    
    $
    622.8Cost of sales
    
    
    326.4
    
    
    
    305.7
    
    
    
    667.2
    
    
    
    582.1Gross profit
    
    
    18.6
    
    
    
    23.3
    
    
    
    64.1
    
    
    
    40.7Selling, general and administrative expenses
    
    
    13.7
    
    
    
    13.8
    
    
    
    31.8
    
    
    
    28.3Non-capitalizable financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40.2Provision for uncollectible accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Restructuring charges
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.6
    
    
    
    1.1Other expense, net
    
    
    26.0
    
    
    
    1.1
    
    
    
    27.8
    
    
    
    2.3Operating income (loss)
    
    
    (21.7
    )
    
    
    7.6
    
    
    
    3.9
    
    
    
    (31.5
    )Interest expense, net
    
    
    11.2
    
    
    
    10.1
    
    
    
    21.6
    
    
    
    17.6Loss before income tax benefit
    
    
    (32.9
    )
    
    
    (2.5
    )
    
    
    (17.7
    )
    
    
    (49.1
    )Income tax benefit
    
    
    (10.2
    )
    
    
    (1.0
    )
    
    
    (6.0
    )
    
    
    (19.4
    )Net loss
    
    $
    (22.7
    )
    
    $
    (1.5
    )
    
    $
    (11.7
    )
    
    $
    (29.7
    )Net loss attributable to common stockholders:Net loss
    
    $
    (22.7
    )
    
    $
    (1.5
    )
    
    $
    (11.7
    )
    
    $
    (29.7
    )Accretion of preferred stock
    
    
    (3.4
    )
    
    
    (3.0
    )
    
    
    (7.4
    )
    
    
    (6.0
    )Net loss attributable to common stockholders
    
    $
    (26.1
    )
    
    $
    (4.5
    )
    
    $
    (19.1
    )
    
    $
    (35.7
    )Basic and diluted net loss per common share:Net loss attributable to common stockholders
    
    $
    (0.82
    )
    
    $
    (0.14
    )
    
    $
    (0.60
    )
    
    $
    (1.13
    )Dividends per common share
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.10
    
    
    $
    0.10
  3




---



##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  June 30,
    
    December 31,2005
    
    2004(Unaudited)
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    4.3
    
    
    $
    5.6Accounts receivable, less allowance of $2.1 in 2005 and $2.6 in 2004
    
    
    162.7
    
    
    
    200.2Inventories
    
    
    163.6
    
    
    
    145.0Prepaid expenses and other current assets
    
    
    26.7
    
    
    
    27.1Total current assets
    
    
    357.3
    
    
    
    377.9Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    137.9
    
    
    
    140.4Machinery and equipment
    
    
    1,078.2
    
    
    
    1,095.9Construction in progress
    
    
    31.1
    
    
    
    11.01,247.2
    
    
    
    1,247.3Less accumulated depreciation
    
    
    602.1
    
    
    
    591.8Property, plant and equipment, net
    
    
    645.1
    
    
    
    655.5Goodwill, net
    
    
    36.6
    
    
    
    38.2Other assets, net
    
    
    82.8
    
    
    
    95.3$
    1,121.8
    
    
    $
    1,166.9LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    85.3
    
    
    $
    113.3Accrued liabilities
    
    
    52.1
    
    
    
    49.2Total current liabilities
    
    
    137.4
    
    
    
    162.5Long-term debt
    
    
    492.8
    
    
    
    471.5Deferred income taxes and other liabilities
    
    
    95.4
    
    
    
    106.4Total liabilities
    
    
    725.6
    
    
    
    740.4Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized, 4,502,143
shares issued and outstanding
    
    
    58.9
    
    
    
    56.0Series B preferred stock, $0.001 par value; 6,700,000 shares authorized, issued and
outstanding
    
    
    87.8
    
    
    
    83.3Class A common stock, $0.001 par value; 100,000,000 shares authorized,
34,944,627 shares issued in 2005 and 34,531,747 in 2004
    
    
    
    
    
    
    Class B common stock, $0.001 par value, 5,500,000 shares authorized, no shares
issued
    
    
    
    
    
    
    Paid-in capital
    
    
    246.3
    
    
    
    245.5Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income
    
    
    14.8
    
    
    
    31.0Retained earnings
    
    
    33.0
    
    
    
    55.3Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    396.2
    
    
    
    426.5$
    1,121.8
    
    
    $
    1,166.9
  4




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedSeries A
    
    Series B
    
    Class A
    
    
    
    
    
    Common
    
    OtherPreferred
    
    Preferred
    
    Common
    
    Paid-In
    
    Stock
    
    Comprehensive
    
    Retained
    
    TreasuryStock Issued
    
    Stock Issued
    
    Stock Issued
    
    Capital
    
    Warrants
    
    Income
    
    Earnings
    
    Stock
    
    Total(in millions)
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    AmountBalance at December 31, 2003
    
    
    4.5
    
    
    $
    51.0
    
    
    
    6.7
    
    
    $
    76.0
    
    
    
    34.4
    
    
    $
    
    
    
    $
    245.3
    
    
    $
    4.9
    
    
    $
    25.2
    
    
    $
    112.7
    
    
    $
    (49.5
    )
    
    $
    465.6Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38.8
    )
    
    
    
    
    
    
    (38.8
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.3
    
    
    
    
    
    
    
    
    
    
    
    10.3Minimum pension liability
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.4
    )
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33.0
    )Cash dividends ($0.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.3
    )
    
    
    
    
    
    
    (6.3
    )Equity transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Accretion of preferred stock
    
    
    
    
    
    
    5.0
    
    
    
    
    
    
    
    7.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.3
    )
    
    
    
    
    
    
    Exercise of stock options, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Balance at December 31, 2004
    
    
    4.5
    
    
    
    56.0
    
    
    
    6.7
    
    
    
    83.3
    
    
    
    34.5
    
    
    
    
    
    
    
    245.5
    
    
    
    4.9
    
    
    
    31.0
    
    
    
    55.3
    
    
    
    (49.5
    )
    
    
    426.5Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.7
    )
    
    
    
    
    
    
    (11.7
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.6
    )
    
    
    
    
    
    
    
    
    
    
    (16.6
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27.9
    )Cash dividends ($0.10 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.2
    )
    
    
    
    
    
    
    (3.2
    )Accretion of preferred stock
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    4.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.4
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8Balance at June 30, 2005 (unaudited)
    
    
    4.5
    
    
    $
    58.9
    
    
    
    6.7
    
    
    $
    87.8
    
    
    
    34.9
    
    
    $
    
    
    
    $
    246.3
    
    
    $
    4.9
    
    
    $
    14.8
    
    
    $
    33.0
    
    
    $
    (49.5
    )
    
    $
    396.2
  5




---



##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
 (UNAUDITED)
  2005
    
    2004Cash flows from operating activities:Net loss
    
    $
    (11.7
    )
    
    $
    (29.7
    )Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:Depreciation
    
    
    27.2
    
    
    
    27.8Amortization
    
    
    8.7
    
    
    
    7.0Amortization in interest expense, net
    
    
    2.1
    
    
    
    1.9Deferred income taxes and other
    
    
    (7.2
    )
    
    
    (20.9
    )Non-capitalizable financing costs
    
    
    
    
    
    
    21.0Changes in operating assets and liabilities
    
    
    (13.8
    )
    
    
    (50.1
    )Net cash provided by (used in) operating activities
    
    
    5.3
    
    
    
    (43.0
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (24.5
    )
    
    
    (4.3
    )Purchase of sale-leaseback assets
    
    
    
    
    
    
    (150.0
    )Pre-payment of raw material contract
    
    
    
    
    
    
    (77.1
    )Net cash used in investing activities
    
    
    (24.5
    )
    
    
    (231.4
    )Cash flows from financing activities:Borrowings under long-term debt, net
    
    
    20.9
    
    
    
    115.0Termination of swaps
    
    
    
    
    
    
    (11.9
    )Dividends paid on common stock
    
    
    (3.2
    )
    
    
    (3.2
    )Debt issuance costs
    
    
    
    
    
    
    (18.0
    )Net cash provided by financing activities
    
    
    17.7
    
    
    
    81.9Effect of exchange rate changes on cash and cash equivalents
    
    
    0.2
    
    
    
    0.3Decrease in cash and cash equivalents
    
    
    (1.3
    )
    
    
    (192.2
    )Cash and cash equivalents at beginning of period
    
    
    5.6
    
    
    
    205.5Cash and cash equivalents at end of period
    
    $
    4.3
    
    
    $
    13.3Supplemental cash flow data:Cash paid during the period for:Interest, net
    
    $
    19.7
    
    
    $
    13.9Income taxes
    
    $
    0.8
    
    
    $
    0.5
  6




---



##### Table of Contents



WELLMAN, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  1. BASIS OF PRESENTATION
      7




---



##### Table of Contents



2. INVENTORIES
  June 30,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    56.6
    
    
    $
    47.5Finished and semi-finished goods
    
    
    99.8
    
    
    
    90.2Supplies
    
    
    7.2
    
    
    
    7.3$
    163.6
    
    
    $
    145.0
 3. RESTRUCTURING CHARGES
  SeveranceCostsAccruals during the second quarter of 2005
    
    $
    0.4Cash payments
    
    
    (0.2
    )Accrual balance at June 30, 2005
    
    $
    0.2
  8




---



##### Table of Contents



SeveranceCostsAccrual balances at December 31, 2003
    
    $
    6.1Accruals during the first half of 2004
    
    
    1.1Cash payments
    
    
    (6.2
    )Currency translation adjustments
    
    
    (0.1
    )Accrual balances at June 30, 2004
    
    
    0.9Accruals during the remainder of 2004
    
    
    1.8Cash payments during the remainder of 2004
    
    
    (1.3
    )Currency translation adjustments during the
remainder of 2004
    
    
    0.2Accrual balances at December 31, 2004
    
    
    1.6Cash payments
    
    
    (1.0
    )Currency translation adjustments
    
    
    (0.1
    )Accrual balances at June 30, 2005
    
    $
    0.5
  4. OTHER EXPENSE, NET
  5. NET LOSS PER COMMON SHARE
  Three Months
    
    Six MonthsEnded
    
    EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Numerator for basic and diluted net loss attributable to common
stockholders per common share:Net loss attributable to common stockholders
    
    $
    (26.1
    )
    
    $
    (4.5
    )
    
    $
    (19.1
    )
    
    $
    (35.7
    )Denominator:Denominator for basic and diluted net loss attributable to
common stockholders per common
share  weighted-average shares
    
    
    31.7
    
    
    
    31.6
    
    
    
    31.7
    
    
    
    31.6
 9




---



##### Table of Contents



6. DEFINED BENEFIT PLANS
  Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    
    
    
    June 30,2005
    
    2004
    
    2005
    
    2004Domestic
    
    Foreign
    
    Domestic
    
    Foreign
    
    Domestic
    
    Foreign
    
    Domestic
    
    ForeignService cost
    
    $
    0.2
    
    
    $
    0.7
    
    
    $
    0.1
    
    
    $
    0.6
    
    
    $
    0.3
    
    
    $
    1.4
    
    
    $
    0.3
    
    
    $
    1.1Interest cost
    
    
    0.8
    
    
    
    1.0
    
    
    
    0.8
    
    
    
    0.9
    
    
    
    1.6
    
    
    
    2.0
    
    
    
    1.6
    
    
    
    1.7Expected return on assets
    
    
    (0.9
    )
    
    
    (1.3
    )
    
    
    (0.8
    )
    
    
    (1.4
    )
    
    
    (1.8
    )
    
    
    (2.6
    )
    
    
    (1.7
    )
    
    
    (2.8
    )Net amortization
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.6
    
    
    
    1.0
    
    
    
    0.5
    
    
    
    0.3Total estimated net periodic
pension expense
    
    $
    0.4
    
    
    $
    0.9
    
    
    $
    0.3
    
    
    $
    0.2
    
    
    $
    0.7
    
    
    $
    1.8
    
    
    $
    0.7
    
    
    $
    0.3
 Employer contributions
  7. STOCK OPTIONS
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common stockholders, as reported
    
    $
    (26.1
    )
    
    $
    (4.5
    )
    
    $
    (19.1
    )
    
    $
    (35.7
    )Add: Stock-based employee compensation expense
included in reported net loss, net of related tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Pro forma net loss attributable to common stockholders
    
    $
    (26.1
    )
    
    $
    (4.6
    )
    
    $
    (19.2
    )
    
    $
    (35.8
    )
 10




---



##### Table of Contents



Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common stockholders per basic
and diluted share:As reported
    
    $
    (0.82
    )
    
    $
    (0.14
    )
    
    $
    (0.60
    )
    
    $
    (1.13
    )Pro forma
    
    $
    (0.82
    )
    
    $
    (0.14
    )
    
    $
    (0.60
    )
    
    $
    (1.13
    )
 8. COMMITMENTS AND CONTINGENCIES
     Six Months EndedJune 30,2005
    
    
    2004Balance at beginning of period
    
    $
    7.0
    
    
    $
    6.5Changes in estimated remediation costs
    
    
    
    
    
    
    0.1Expenditures
    
    
    (0.3
    )
    
    
    (0.1
    )Balance at end of period
    
    $
    6.7
    
    
    $
    6.5
  11




---



##### Table of Contents




         12




---



##### Table of Contents



9. FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE INCOME
   10. SEGMENT INFORMATION
  The PPG manufactures:
    
    PermaClear® solid-stated and amorphous PET resin for use in the manufacturing of soft
drink bottles and other food and beverage packaging and
    
    EcoClear® PET resin, utilizing recycled PET materials to meet customers recycled
content PET resin requirements.The FRPG manufactures:
    
    Fortrel® chemical-based polyester staple fibers for use in apparel, non-woven, home
furnishing, and industrial products,
    
    recycled-based polyester and nylon staple fibers for use in home furnishing, non-woven
and industrial products, and
    
    recycled-based nylon and polyester engineering resins for use in the injection molding
industry.
  13




---



##### Table of Contents



Packaging
    
    
    Fibers andProducts
    
    
    Recycled ProductsGroup
    
    
    Group
    
    
    TotalThree months ended June 30, 2005Revenues
    
    $
    195.2
    
    
    $
    149.8
    
    
    $
    345.0Segment profit
    
    
    3.5
    
    
    
    1.4
    
    
    
    4.9Assets
    
    
    734.2
    
    
    
    297.6
    
    
    
    1,031.8Three months ended June 30, 2004Revenues
    
    $
    189.9
    
    
    $
    139.1
    
    
    $
    329.0Segment profit
    
    
    8.0
    
    
    
    1.5
    
    
    
    9.5Assets
    
    
    759.1
    
    
    
    312.4
    
    
    
    1,071.5Six months ended June 30, 2005Revenues
    
    $
    424.0
    
    
    $
    307.3
    
    
    $
    731.3Segment profit
    
    
    28.0
    
    
    
    4.3
    
    
    
    32.3Six months ended June 30, 2004Revenues
    
    $
    352.2
    
    
    $
    270.6
    
    
    $
    622.8Segment profit
    
    
    11.9
    
    
    
    0.5
    
    
    
    12.4
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Segment ProfitTotal for reportable segments
    
    $
    4.9
    
    
    $
    9.5
    
    
    $
    32.3
    
    
    $
    12.4Non-capitalizable financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40.2
    )Provision for uncollectible accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Restructuring charges (See note 3)
    
    
    (0.6
    )
    
    
    (0.8
    )
    
    
    (0.6
    )
    
    
    (1.1
    )Other expense, net (See note 4)
    
    
    (26.0
    )
    
    
    (1.1
    )
    
    
    (27.8
    )
    
    
    (2.3
    )Interest expense, net
    
    
    (11.2
    )
    
    
    (10.1
    )
    
    
    (21.6
    )
    
    
    (17.6
    )Loss before income tax benefit
    
    $
    (32.9
    )
    
    $
    (2.5
    )
    
    $
    (17.7
    )
    
    $
    (49.1
    )AssetsTotal for reportable segments
    
    $
    1,031.8
    
    
    $
    1,071.5Corporate assets (1)
    
    
    90.0
    
    
    
    78.3$
    1,121.8
    
    
    $
    1,149.8
 
 (1)
    
    Corporate assets include cash, prepaid expenses, construction in progress, and
certain other assets not allocated to the segments. 14




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (In millions, except per share data)
 GENERAL
       RECENT DEVELOPMENTS
  15




---



##### Table of Contents



RESULTS OF OPERATIONS
 THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED
JUNE 30, 2004
  PPG
    
    FRPG
    
    TOTALNet selling prices
    
    $
    32.6
    
    
    $
    26.1
    
    
    $
    58.7Sales volumes
    
    
    (27.7
    )
    
    
    (16.4
    )
    
    
    (44.1
    )Foreign currency translation
    
    
    0.5
    
    
    
    0.9
    
    
    
    1.4$
    5.4
    
    
    $
    10.6
    
    
    $
    16.0
    PPG
    
    FRPG
    
    TOTALRaw material costs
    
    $
    8.9
    
    
    $
    10.0
    
    
    $
    18.9Plant added costs
    
    
    1.1
    
    
    
    (1.1
    )
    
    
    Foreign currency translation
    
    
    0.5
    
    
    
    1.3
    
    
    
    1.8$
    10.5
    
    
    $
    10.2
    
    
    $
    20.7
     16




---



##### Table of Contents



SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004
  PPG
    
    FRPG
    
    TOTALNet selling prices
    
    $
    95.5
    
    
    $
    54.3
    
    
    $
    149.8Sales volumes
    
    
    (25.3
    )
    
    
    (20.5
    )
    
    
    (45.8
    )Foreign currency translation
    
    
    1.6
    
    
    
    2.9
    
    
    
    4.5$
    71.8
    
    
    $
    36.7
    
    
    $
    108.5
   17




---



##### Table of Contents



PPG
    
    FRPG
    
    TOTALRaw material costs
    
    $
    52.6
    
    
    $
    30.1
    
    
    $
    82.7Plant added costs
    
    
    0.5
    
    
    
    (3.1
    )
    
    
    (2.6
    )Foreign currency translation
    
    
    1.5
    
    
    
    3.5
    
    
    
    5.0$
    54.6
    
    
    $
    30.5
    
    
    $
    85.1
             18




---



##### Table of Contents



IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
   OUTLOOK
    19




---



##### Table of Contents



CAPITAL RESOURCES AND LIQUIDITY
     20




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
   
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
  
 ITEM 4.
    
    
    
    CONTROLS AND PROCEDURES
 (a)
    
    Based on an evaluation of the effectiveness of the Companys
disclosure controls and procedures as of June 30, 2005, 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, were effective on that date.
 21




---



##### Table of Contents



(b)
    
    Based upon an evaluation of whether any change in the Companys
internal control over financial reporting (as defined in Rule
13a-15(f) promulgated under the Exchange Act) that materially
affected, or is reasonably likely to materially affect, such internal
control occurred during the period covered by this Report, both the
Chief Executive Officer and the Chief Financial Officer of the Company
concluded that no such change occurred .
 
 PART
II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
       22




---



##### Table of Contents



23




---



##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    Our Annual Meeting of Stockholders was held on May 17, 2005.(b)
    
    See (c) 1. below for the names of each director elected at the meeting.(c)
    
    At the Annual Meeting of Stockholders, the stockholders voted on the following matters:1.
    
    The vote for election of seven directors by
stockholders of common stock to serve for a term
of one year, expiring at the 2006 Annual Meeting
of Stockholders, or until their successors are
elected and qualified was as follows:
 Name
    
    For
    
    
    Against/WithheldThomas M. Duff
    
    
    28,158,257
    
    
    
    1,076,978James B. Baker
    
    
    28,172,974
    
    
    
    1,062,261Richard F. Heitmiller
    
    
    28,156,706
    
    
    
    1,078,529Gerard J. Kerins
    
    
    28,480,607
    
    
    
    754,628David J. McKittrick
    
    
    28,469,177
    
    
    
    766,058James E. Rogers
    
    
    28,051,553
    
    
    
    1,183,682Roger A. Vandenberg
    
    
    28,158,532
    
    
    
    1,076,703
 As a result, all of the above nominees were elected to the Board. (*)2.
    
    The vote for election of two directors by stockholders of Preferred
Stock to serve for a term of one year, expiring at the 2006 Annual
Meeting of Stockholders, or until their successors are elected and
qualified was as follows:
 Name
    
    For
    
    
    Against/WithheldDavid A. Barr
    
    
    11,202,143
    
    
    0Oliver M. Goldstein
    
    
    11,202,143
    
    
    0
 3.
    
    The combined vote for the proposal to ratify the selection by the
Board of Directors of Ernst & Young LLP as independent auditors to
examine our consolidated financial statements for the fiscal year
ending December 31, 2005: 42,126,832 votes cast for, 71,712 votes cast
against, and 28,282 abstentions. As a result, the Boards selection
of Ernst & Young LLP was approved. (*)
 (*)
    
    Under the rules of the New York Stock Exchange, brokers holding shares
in street name have the authority to vote certain matters when they
have not received instructions from the beneficial owners. Brokers
that did not receive such instructions were entitled to vote on each
of the above proposals. As a result, broker non-votes had no effect
on the outcome of these proposals.(d)
    
    Not applicable.
 24




---



##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
  4
    (a)
    
    Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant has
not filed herewith any instrument with respect to long-term debt,
which does not exceed 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis. The registrant hereby
agrees to furnish a copy of any such instrument to the Securities and
Exchange Commission upon request.
 31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
  (1)
    
    The Company filed a Form 8-K on April 27, 2005 for the purpose of
disclosing its first quarter 2005 results, historical adjusted EBITDA
and Post Financing Adjusted EBITDA.(2)
    
    The Company filed a Form 8-K on June 16, 2005 for the purpose of
disclosing its announcement that it will record a pretax charge of
$24.0 that relates to its expected cost to defend and/or settle all
civil claims alleging that the Company engaged in price fixing for
sales of polyester staple fiber.
 25




---



##### Table of Contents



SIGNATURES
  WELLMAN, INC.Dated August 9, 2005
    By /s/ Keith R. PhillipsChief Financial Officer andVice President

(Principal Financial Officer) Dated August 9, 2005
    By /s/ Mark J. RudayChief Accounting Officer,Vice President and Controller

(Principal Accounting Officer) 26