##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q
 (Mark one) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2005 OR o
    
    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)
 Registrants telephone
number, including area code: (803) 835-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o As of April 29, 2005, there were 32,444,627 shares of the registrants Class A common stock,
$0.001 par value, outstanding and no shares of Class B common stock outstanding.




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##### Table of Contents



WELLMAN, INC.
INDEX Page No.PART I  FINANCIAL INFORMATIONITEM 1  Financial Statements (Unaudited, except where noted)Condensed Consolidated Statements of Operations  For the three months ended March 31, 2005 and 2004
    
    
    3Condensed Consolidated Balance Sheets  March 31, 2005 and December 31, 2004 (Audited)
    
    
    4Condensed Consolidated Statements of Stockholders Equity  For the three months ended March 31, 2005 and the year ended December 31, 2004 (Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows  For the three months ended March 31, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16ITEM 3  Quantitative and Qualitative Disclosure About Market Risk
    
    
    20ITEM 4  Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    20ITEM 6  Exhibits and Reports on Form 8-K
    
    
    22SIGNATURES
    
    
    23SECTION 302 CERTIFICATION OF CEOSECTION 302 CERTIFICATION OF CFOSECTION 906 CERTIFICATION OF CEOSECTION 906 CERTIFICATION OF CFO
 2




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##### Table of Contents



ITEM 1.FINANCIAL STATEMENTS 
 WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In millions, except per share data) Three Months endedMarch 31,2005
    
    
    2004Net sales
    
    $
    386.3
    
    
    $
    293.8Cost of sales
    
    
    340.8
    
    
    
    276.4Gross profit
    
    
    45.5
    
    
    
    17.4Selling, general and administrative expenses
    
    
    18.1
    
    
    
    14.5Non-capitalizable financing costs
    
    
    
    
    
    
    40.2Provision for uncollectible accounts
    
    
    
    
    
    
    0.3Restructuring charges
    
    
    
    
    
    
    0.3Other expense
    
    
    1.8
    
    
    
    1.2Operating income (loss)
    
    
    25.6
    
    
    
    (39.1
    )Interest expense, net
    
    
    10.4
    
    
    
    7.5Earnings (loss) before income taxes (benefit)
    
    
    15.2
    
    
    
    (46.6
    )Income tax expense (benefit)
    
    
    4.2
    
    
    
    (18.4
    )Net earnings (loss)
    
    $
    11.0
    
    
    $
    (28.2
    )Net earnings (loss) attributable to common stockholders:Net earnings (loss)
    
    $
    11.0
    
    
    $
    (28.2
    )Accretion of preferred stock
    
    
    (4.0
    )
    
    
    (3.0
    )Net earnings (loss) attributable to common stockholders
    
    $
    7.0
    
    
    $
    (31.2
    )Basic net earnings (loss) per common share:Net earnings (loss) attributable to common stockholders
    
    $
    0.22
    
    
    $
    (0.99
    )Diluted net earnings (loss) per common share:Net earnings (loss) attributable to common stockholders
    
    $
    0.20
    
    
    $
    (0.99
    )Dividends per common share
    
    $
    0.05
    
    
    $
    0.05
 See Notes to Condensed Consolidated Financial Statements.   3




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WELLMAN, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    8.2
    
    
    $
    5.6Accounts receivable, less allowance of $2.2 in 2005 and $2.6 in 2004
    
    
    193.3
    
    
    
    200.2Inventories
    
    
    173.5
    
    
    
    145.0Prepaid expenses and other current assets
    
    

    25.3
    
    
    
    27.1Total current assets
    
    
    400.3
    
    
    
    377.9Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    139.4
    
    
    
    140.4Machinery and equipment
    
    
    1,091.0
    
    
    
    1,095.9Construction in progress
    
    
    16.1
    
    
    
    11.01,246.5
    
    
    
    1,247.3Less accumulated depreciation
    
    
    601.3
    
    
    
    591.8Property, plant and equipment, net
    
    
    645.2
    
    
    
    655.5Goodwill, net
    
    
    37.6
    
    
    
    38.2Other assets, net
    
    
    89.5
    
    
    
    95.3$
    1,172.6
    
    
    $
    1,166.9LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    103.5
    
    
    $
    113.3Accrued liabilities
    
    
    42.2
    
    
    
    49.2Total current liabilities
    
    
    145.7
    
    
    
    162.5Long-term debt
    
    
    487.5
    
    
    
    471.5Deferred income taxes and other liabilities
    
    
    108.3
    
    
    
    106.4Total liabilities
    
    
    741.5
    
    
    
    740.4Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized, 4,502,143
shares issued and outstanding
    
    
    57.6
    
    
    
    56.0Series B preferred stock, $0.001 par value; 6,700,000 shares authorized, issued and
outstanding
    
    
    85.7
    
    
    
    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
    
    
    246.4
    
    
    
    245.5Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income
    
    
    25.3
    
    
    
    31.0Retained earnings
    
    
    60.7
    
    
    
    55.3Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    431.1
    
    
    
    426.5$
    1,172.6
    
    
    $
    1,166.9
 See Notes to Condensed Consolidated Financial Statements.   4




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CONDENSED 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 earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.0
    
    
    
    
    
    
    
    11.0Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.4
    )
    
    
    
    
    
    
    
    
    
    
    (6.4
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.3Cash dividends ($0.05 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.6
    )Accretion of preferred stock
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.0
    )
    
    
    
    
    
    
    Exercise of stock options, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    

    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7Balance at March 31, 2005
(unaudited)
    
    
    4.5
    
    
    $
    57.6
    
    
    
    6.7
    
    
    $
    85.7
    
    
    
    34.9
    
    
    $
    
    
    
    $
    246.4
    
    
    $
    4.9
    
    
    $
    25.3
    
    
    $
    60.7
    
    
    $
    (49.5
    )
    
    $
    431.1
 See Notes to Condensed Consolidated Financial Statements.   5




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WELLMAN, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
 2005
    
    
    2004Cash flows from operating activities:Net earnings (loss)
    
    $
    11.0
    
    
    $
    (28.2
    )Adjustments to reconcile net earnings (loss) to net cash used in operating
activities:Depreciation
    
    
    14.0
    
    
    
    13.6Amortization
    
    
    4.8
    
    
    
    3.1Amortization in interest expense, net
    
    
    0.9
    
    
    
    0.8Deferred income taxes and other
    
    
    3.1
    
    
    
    (19.4
    )Non-capitalizable financing costs
    
    
    
    
    
    
    21.0Changes in assets and liabilities
    
    
    (39.5
    )
    
    
    (42.0
    )Net cash used in operating activities
    
    
    (5.7
    )
    
    
    (51.1
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (6.5
    )
    
    
    (1.9
    )Purchase of sale-leaseback assets
    
    
    
    
    
    
    (150.0
    )Pre-payment of raw material contract
    
    
    
    
    
    
    (77.1
    )Net cash used in investing activities
    
    
    (6.5
    )
    
    
    (229.0
    )Cash flows from financing activities:Borrowings under long-term debt, net
    
    
    15.8
    
    
    
    114.7Termination of swaps
    
    
    
    
    
    
    (11.9
    )Dividends paid on common stock
    
    
    (1.6
    )
    
    
    (1.5
    )Debt issuance costs
    
    
    
    
    
    
    (18.0
    )Exercise of employee stock options
    
    
    0.2
    
    
    
    Net cash provided by financing activities
    
    
    14.4
    
    
    
    83.3Effect of exchange rate changes on cash and cash equivalents
    
    
    0.4
    
    
    
    0.3Increase (decrease) in cash and cash equivalents
    
    
    2.6
    
    
    
    (196.5
    )Cash and cash equivalents at beginning of period
    
    
    5.6
    
    
    
    205.5Cash and cash equivalents at end of period
    
    $
    8.2
    
    
    $
    9.0
 See Notes to Condensed Consolidated Financial Statements.   6




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WELLMAN, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1.
    
    BASIS OF PRESENTATION
 The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the three-month period
ended March 31, 2005 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2005. The Condensed Consolidated Balance Sheet (Balance Sheet) at December 31, 2004 has been
derived from the audited consolidated financial statements at that date but does not include all of
the information and footnotes required by GAAP for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes thereto included in
Wellman, Inc.s (which, together with its subsidiaries, is
herein referred to as the Company )
annual report on Form 10-K for the year ended December 31, 2004. Certain 2004 amounts have been reclassified to conform to the 2005 presentation. 2.
    
    INVENTORIES
 Inventories consisted of the following: March 31,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    55.7
    
    
    $
    47.5Finished and semi-finished goods
    
    
    110.3
    
    
    
    90.2Supplies
    
    
    7.5
    
    
    
    7.3$
    173.5
    
    
    $
    145.0
 3.
    
    RESTRUCTURING CHARGES
 In November 2003, the Company announced a plan with Company-wide cost reduction initiatives
that included eliminating levels of management, reducing the number of employees, and other
organizational and administrative consolidations and changes. The Company incurred severance and
contract termination costs in its FRPG segment of $0.3 in the first quarter of 2004 associated with
this plan. These costs were reflected in operating income (loss) in the Condensed Consolidated
Statements of Operations. The following represents changes in the accruals since December 31,
2003. 7




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SeveranceCostsAccrual balances at December 31, 2003
    
    $
    6.1Accruals during the first quarter of 2004
    
    
    0.3Cash payments
    
    
    (4.4
    )Currency translation adjustments
    
    
    (0.1
    )Accrual balances at March 31, 2004
    
    
    1.9Accruals during the remainder of 2004
    
    
    2.6Cash payments during the remainder of 2004
    
    
    (3.1
    )Currency translation adjustments during the
remainder of 2004
    
    
    0.2Accrual balances at December 31, 2004
    
    
    1.6Accruals during the first quarter of 2005
    
    
    Cash payments
    
    
    (1.0
    )Currency translation adjustments
    
    
    (0.1
    )Accrual balances at March 31, 2005
    
    $
    0.5
 The reduction in the number of employees was completed by the end of 2004; however, due to
union negotiations, certain payments were not made in 2004 but are expected to be paid out during
2005. 4.
    
    OTHER EXPENSE
 Other
expense for the three months ended March 31, 2005 and 2004 was $1.8 and $1.2,
respectively. Other expense consisted of legal fees and other expenses in connection with an investigation by the
Department of Justice (DOJ) into pricing in the polyester staple fiber industry (which the DOJ
has since abandoned) and related civil litigation (Legal Costs). 5.
    
    NET EARNINGS (LOSS) PER COMMON SHARE
 The following table sets forth the computation of basic and diluted net earnings (loss)
attributable to common stockholders per common share for the periods indicated: Three Months EndedMarch 31,2005
    
    
    2004Numerator:Net earnings (loss)
    
    $
    11.0
    
    
    $
    (28.2
    )Accretion of preferred stock
    
    
    (4.0
    )
    
    
    (3.0
    )Basic net earnings (loss) attributable to common stockholders
    
    
    7.0
    
    
    
    (31.2
    )Effect of dilutive securities:Accretion of preferred stock
    
    
    4.0
    
    
    
    Diluted net earnings (loss) attributable to common stockholders
    
    $
    11.0
    
    
    $
    (31.2
    )
 8




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##### Table of Contents



Three Months EndedMarch 31,2005
    
    
    2004Denominator:Basic weighted-average common shares
    
    
    31.7
    
    
    
    31.6Effect of dilutive securities:Employee stock options, warrants, and restricted stock
    
    
    0.7
    
    
    
    Preferred stock  if converted
    
    
    21.4
    
    
    
    Dilutive common shares, if converted
    
    
    22.1
    
    
    
    Diluted adjusted weighted-average shares
    
    
    53.8
    
    
    
    31.6Basic net earnings (loss) per common share:Net earnings (loss) attributable to common stockholders
    
    $
    0.22
    
    
    $
    (0.99
    )Diluted net earnings (loss) per common share:Net earnings (loss) attributable to common stockholders
    
    $
    0.20
    
    
    $
    (0.99
    )
 6.
    
    DEFINED BENEFIT PLANS
 The components of the Companys net periodic pension cost are as follows for the periods
indicated: Domestic Plans
    
    
    Foreign PlansFor the Quarter Ended
    
    
    For the Quarter EndedMarch 31, 2005
    
    
    March 31, 2004
    
    
    March 31, 2005
    
    
    March 31, 2004Service cost
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    0.7
    
    
    $
    0.5Interest cost
    
    
    0.8
    
    
    
    0.8
    
    
    
    1.0
    
    
    
    0.9Expected return on assets
    
    
    (0.9
    )
    
    
    (0.9
    )
    
    
    (1.3
    )
    
    
    (1.4
    )Net amortization and deferral
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.2Total net periodic
pension expense
    
    $
    0.3
    
    
    $
    0.3
    
    
    $
    0.9
    
    
    $
    0.2
 Employer contributions The Company expects to contribute $3.1 to its domestic defined benefit plans in 2005 and $2.8
to its foreign plans in 2005. As of March 31, 2005, no contributions have been made to its
domestic plans and $1.3 has been contributed to its foreign plans. 7.
    
    BORROWING ARRANGEMENTS
 Long-term debt consists of the following: 9




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March 31,
    
    
    December 31,2005
    
    
    2004Revolving Credit Facility
    
    $
    40.8
    
    
    $
    25.0First Lien Term Loan
    
    
    185.0
    
    
    
    185.0Second Lien Term Loan
    
    
    260.7
    
    
    
    260.5Other
    
    
    1.0
    
    
    
    1.0Total long-term debt
    
    $
    487.5
    
    
    $
    471.5
 On February 10, 2004, the Company closed on $625.0 of debt financings (the February 2004
Financing). This financing consisted of a five-year, $175.0 Revolving Credit Facility with an
annual interest rate from inception through May 2005 of either LIBOR plus 250 basis points (the
Credit Spread) or the prime rate plus 125 basis points, at the Companys option on outstanding
borrowings for the period; a five-year, $185.0 First Lien Term Loan with an annual interest rate of
three-month LIBOR plus 400 basis points paid quarterly; and a six-year, $265.0 Second Lien Term
Loan with an annual interest rate of three-month LIBOR plus 675 basis points paid quarterly.
Beginning in May 2005, pricing on the Revolving Credit Facility will be based on the Companys
Leverage Ratio as defined in the Revolving Credit Facility. The Credit Spread over LIBOR and the
prime rate will range from 200 to 275 basis points and 100 to 125 basis points, respectively. The
First and Second Lien Term Loans have a LIBOR floor of 200 basis points. The Company may elect to
pre-pay the First Lien Term Loan for 102% and 101% of its face amount in the first and second year
after its issuance, respectively, and at par thereafter. The Second Lien Term Loan was issued at a
2% discount, and in certain circumstances, the Company may elect to pre-pay this loan at 105% and
103% of its face amount in the third and fourth years after its issuance, respectively, and at par
thereafter. The net proceeds from this financing of approximately $489.5 plus $206.4 in cash were used to: Pay Balance Sheet Debt
    
    $
    370.0Purchase PET Resin Assets (Sale and Leaseback)
    
    
    150.0Pre-pay Raw Material Contract
    
    
    77.1Purchase Accounts Receivable
    
    
    51.4Pay February 2004 Financing Costs
    
    
    18.0Pay Pre-payment Penalties
    
    
    13.9Terminate Swap Agreements
    
    
    11.9Pay Interest and Fees
    
    
    3.6$
    695.9
 In 2004, the Company incurred the following expenses (including non-cash charges) as a part of
this financing: Termination of Swap Agreements
    
    $
    14.4Pre-payment Penalties
    
    
    13.9Write-Off of Debt Issuance Costs
    
    
    6.6Other Expenses
    
    
    5.3Non-Capitalizable Financing Costs
    
    $
    40.2
 10




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As part of the restructuring of the sale and leaseback transaction in June of 2003, the
Company entered into three swaps, each with a notional amount of $50.0, which were designated as
cash flow hedges. These swaps hedged the Companys exposure to variability in cash flows
attributable to rent expense paid in relation to the sale and leaseback transaction. As part of
the February 2004 Financing, the Company terminated two of the three swaps and redesignated the
third as a cash flow hedge against debt entered into in conjunction with the February 2004
Financing. The termination, redesignation and refinancing resulted in an overall cost of $14.4,
which was net of $3.8 that was previously included in other comprehensive income (loss). The Revolving Credit Facility is collateralized by a first lien on the Companys domestic
accounts receivable, inventory, and related intangibles. Availability under the Revolving Credit
Facility is determined by the amount of eligible accounts receivable and inventory. Borrowings
under the First Lien Term Loan are primarily collateralized by a first priority security interest
in the Companys domestic real property, plant and equipment. Borrowings under the Second Lien
Term Loan are collateralized by a second priority security interest in substantially all of the
Companys domestic assets. These debt agreements contain financial and restrictive covenants. The terms of the Revolving
Credit Facility require that the Company maintain available liquidity (as defined in the Revolving
Credit Facility) of at least $55.0 or maintain a Fixed Charge Coverage Ratio initially of at least
1.0:1.0. This ratio increases to 1.05:1.0 beginning with the four quarters ending December 31,
2006 and further increases to 1.10:1.0 beginning with the four quarters ending March 31, 2008. The
Fixed Charge Coverage Ratio, as defined in the Revolving Credit Facility, is earnings before
interest, taxes, depreciation and amortization divided by the sum of cash taxes, cash interest
expense, capital expenditures and certain payments related to the Companys equity for the same
period. There are certain liquidity thresholds which must be met in order for the Company to settle
lawsuits or pay judgments. There are other restrictions which include limitations on capital
expenditures, asset sales and dispositions, the incurrence or guarantee of additional debt,
acquisitions, certain payments and investments, affiliate and subsidiary transactions, payment of
dividends, repurchase of stock, and excess cash. The Companys current financing agreements permit a quarterly dividend rate of up to
$0.09 per share and Restricted Payments (as defined in the First and Second Lien Term Loans) can
not exceed $15.0 in aggregate over the life of the financings. Restricted Payments include
dividend payments when the Companys earnings are below a certain level, stock redemption payments,
principal payments of subordinated debt prior to its maturity, and certain investments. As of
March 31, 2005, the Company had paid approximately $8.0 in
dividends from February 10, 2004 to March 31, 2005, which are considered
Restricted Payments and has $7.0 available for Restricted Payments during the remaining term of the
financings. The Company is in compliance with all debt
covenants. 8.
    
    STOCK OPTIONS
 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 SFAS No. 123, Accounting for Stock-Based Compensation, requires use of option
valuation models for determining compensation expense. The Companys net earnings (loss) would
not have been impacted if the Company had applied the fair value recognition provisions of SFAS No.
123 to stock-based employee compensation for the three months ended March 31, 2005 and 2004. 11




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##### Table of Contents



9.
    
    COMMITMENTS AND CONTINGENCIES
 The Company has commitments and contingent liabilities, including legal proceedings,
environmental liabilities, commitments relating to certain state incentives, and various operating
lease commitments. The Companys operations are subject to extensive laws and regulations governing air
emissions, wastewater discharges and solid and hazardous waste management activities. 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 $3.3 and $13.8 on an undiscounted basis. In connection with these expenditures, the
Company has accrued undiscounted liabilities of approximately $6.8 and $7.0 at March 31, 2005 and
December 31, 2004, respectively, which are reflected as other noncurrent liabilities in the
Companys 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 $6.2 to $16.8. These non-capital
and capital expenditures are expected to be incurred over the next 15 to 30 years. 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: Three Months endedMarch 31,2005
    
    
    2004Balance at beginning of period
    
    $
    7.0
    
    
    $
    6.5Changes in remediation costs
    
    
    
    
    
    
    0.1Expenditures
    
    
    (0.2
    )
    
    
    (0.1
    )Foreign currency translation adjustments
    
    
    
    
    
    
    Balance at end of period
    
    $
    6.8
    
    
    $
    6.5
 There are no environmental matters from which a material loss is reasonably possible in
addition to amounts currently accrued. The Company has entered into multiple raw material purchase agreements in the ordinary course
of business, which contain early cancellation penalties. The Company is involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of this ordinary course
litigation will not have a material adverse effect, if any, on the Companys consolidated financial
position or results of operations. Beginning in September 2002, several producers of polyester staple fiber, including the
Company, were named in various civil actions asserting claims based on alleged price fixing and market
allocation in the polyester staple industry. These proceedings are summarized below. 12




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The
Company and certain other persons were named as defendants in 65 actions brought by direct and
indirect purchasers of polyester staple fiber for violations of federal and state 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 and state unfair
competition 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
Company and certain other persons were named as defendants in actions filed in the Superior Court
of Justice for Ontario, the Supreme Court of British Columbia, and the Superior Court for Quebec,
Canada, by plaintiffs purporting to represent classes of direct and indirect purchasers of
polyester staple fiber. The Company has entered into an agreement to resolve all of the Canadian
litigation by payment of $0.05. The settlement agreement provides that the Company denies
the allegations and believes that it is not liable. This settlement is subject to Court approval
in each of the Courts where the matters are pending and remains terminable under certain
circumstances. The Court approval hearings are currently scheduled to
occur in May and June 2005. In addition to the foregoing, the Company may become subject to additional proceedings and
lawsuits under federal and state antitrust and unfair competition laws. The Company vehemently
denies that it or its employees engaged in price fixing or customer allocation and it intends to
vigorously defend against the civil claims and any civil claims or proceedings that may be brought
against the Company in the future. Because of the uncertainties and complexity of these civil
claims, the Company has not formed an opinion about whether these proceedings will have a material
adverse effect on its consolidated financial position or results of operations. 10.
    
    FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 The financial statements of foreign subsidiaries have been translated into U.S. dollar
equivalents in accordance with SFAS 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 period to period have been reported in
other comprehensive income (loss). The effect on the Statements of Operations of transaction gains
and losses is insignificant for all periods presented. Accumulated other comprehensive income (loss) is comprised of foreign currency translation,
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.
Comprehensive income (loss) was $5.3 and $(36.5) for the three months ended March 31, 2005 and
2004, respectively. 13




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##### Table of Contents



11.
    
    SEGMENT INFORMATION
 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:  
    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:
    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. 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.
Intersegment transactions, which are not material, have been eliminated and historical exchange
rates have been applied to the data. The accounting policies are the same as those described in
the Companys annual report on Form 10-K for the year ended December 31, 2004. Packaging
    
    
    Fibers andProducts
    
    
    Recycled ProductsGroup
    
    
    Group
    
    
    TotalThree months ended March 31, 2005Revenues
    
    $
    228.8
    
    
    $
    157.5
    
    
    $
    386.3Segment profit
    
    
    24.5
    
    
    
    2.9
    
    
    
    27.4Assets
    
    
    778.9
    
    
    
    313.4
    
    
    
    1,092.3Three months ended March 31, 2004Revenues
    
    $
    162.3
    
    
    $
    131.5
    
    
    $
    293.8Segment profit (loss)
    
    
    3.9
    
    
    
    (1.0
    )
    
    
    2.9Assets
    
    
    766.7
    
    
    
    313.4
    
    
    
    1,080.1
 Following are reconciliations to corresponding totals in the accompanying Condensed
Consolidated Financial Statements: 14




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##### Table of Contents



Three Months EndedMarch 31,2005
    
    
    2004Segment ProfitTotal for reportable segments
    
    $
    27.4
    
    
    $
    2.9Non-capitalizable financing costs
    
    
    
    
    
    
    (40.2
    )Restructuring charges
    
    
    
    
    
    
    (0.3
    )Provision for uncollectible accounts
    
    
    
    
    
    
    (0.3
    )Other expense
    
    
    (1.8
    )
    
    
    (1.2
    )Interest expense, net
    
    
    (10.4
    )
    
    
    (7.5
    )Earnings (loss) before income taxes (benefit)
    
    $
    15.2
    
    
    $
    (46.6
    )AssetsTotal for reportable segments
    
    $
    1,092.3
    
    
    $
    1,080.1Corporate assets(1)
    
    
    80.3
    
    
    
    74.1$
    1,172.6
    
    
    $
    1,154.2
   (1)
    Corporate assets include cash, certain prepaid expenses,
construction in progress, and certain other assets not allocated
to the segments. 15




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##### Table of Contents



ITEM 2.
    
    MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 GENERAL We are principally engaged in the manufacturing and marketing of high-quality PermaClear®

brand PET (polyethylene terephthalate) packaging resins, Fortrel® brand polyester staple fibers
and Wellamid® engineering resins. We believe we are the worlds largest PET plastics recycler,
utilizing a significant amount of recycled raw materials in our manufacturing operations. As of
March 31, 2005, 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. 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® PET resins
are produced by the PPG from purified terephtalic acid (PTA) and monoethylene glycol (MEG). These
resins are primarily used in the manufacture of plastic soft drink bottles and other food and
beverage packaging. The FRPG produces Fortrel® polyester staple fibers and other polyester and
nylon staple fibers that are primarily used in apparel, non-woven, home furnishing and industrial
products. These fibers are produced from PTA and MEG and recycled raw 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
staple fiber in the United States 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 negatively impact the United States and European fiber markets, adversely
affecting our operating results. Our profitability is primarily determined by our sales volume and raw material margins, which
is the difference between net selling price and raw material cost. Both PET resin and polyester
staple fiber volume and 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 one-cent per pound change in
raw material margin on approximately 2.2 billion pounds of resin and fiber sales volumes results in
an annual change of approximately $22.0 in pre-tax earnings. Volumes, 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. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2004 Total net sales for the three months ended March 31, 2005 increased
$92.5, or 31.5%, to $386.3 from $293.8 for the corresponding period in 2004 due to the following: 16




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##### Table of Contents



PPG
    
    
    FRPG
    
    
    TOTALNet selling prices
    
    $
    64.1
    
    
    $
    28.2
    
    
    $
    92.3Sales volumes
    
    
    1.3
    
    
    
    (4.0
    )
    
    
    (2.7
    )Foreign currency translation
    
    
    1.1
    
    
    
    1.8
    
    
    
    2.9$
    66.5
    
    
    $
    26.0
    
    
    $
    92.5
 Net selling price increases were initiated in both segments during 2005 and 2004 due to
improved market conditions and higher raw material costs. Total cost of sales for the three months ended March 31, 2005
increased $64.4, or 23.3%, to $340.8 from $276.4 for the corresponding period in 2004 due to the
following: PPG
    
    
    FRPG
    
    
    TOTALRaw material costs
    
    $
    43.5
    
    
    $
    20.0
    
    
    $
    63.5Plant added costs
    
    
    (0.3
    )
    
    
    (2.1
    )
    
    
    (2.4
    )Foreign currency translation
    
    
    0.9
    
    
    
    2.4
    
    
    
    3.3$
    44.1
    
    
    $
    20.3
    
    
    $
    64.4
 The higher raw material costs are due primarily to higher purchase prices in both our chemical
and recycled-based businesses. The primary factor contributing to the higher purchase prices is a
tight supply/demand balance for both chemical and recycled-based raw materials. Plant added costs were lower compared to the same period last year as a result of our ongoing
cost reduction efforts which more than offset higher depreciation and amortization, principally
resulting from the February 2004 Financing. As a result of the foregoing, gross profit increased by $28.1 to $45.5 in the 2005 period
compared to $17.4 in the 2004 period. Selling, general and administrative expenses were $18.1, or 4.7% of net sales, in the 2005
period compared to $14.5, or 4.9% of net sales, in the 2004 period. The higher spending was
primarily due to our reinstatement of certain salary and benefit programs effective January 1,
2005. We incurred $40.2 of non-capitalizable costs associated with our financing in the first
quarter of 2004. For additional information on the February 2004 Financing, see Note 7 to the
Condensed Consolidated Financial Statements. We incurred restructuring charges of $0.3 for the three months ended March 31, 2004. For
additional information on our cost reduction programs, see Note 3 to the Condensed Consolidated
Financial Statements. Other expense consisted of $1.8 and $1.2 of Legal Costs (see Part II, Item 1. Legal
Proceedings and Notes 4 and 9 to the Condensed Consolidated Financial Statements) for the three
months ended March 31, 2005 and 2004, respectively. As a result of the foregoing, we reported operating income of $25.6 in the 2005 period
compared to an operating loss of $39.1 in the 2004 period. 17




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Interest expense, net was $10.4 in the 2005 period compared to $7.5 in the 2004 period. This
was the result of increased long-term debt, higher Credit Spreads, and increased amortization of
debt issuance costs in interest expense due to the February 2004 Financing and higher interest
rates. Our effective tax rate for the three months ending March 31, 2005 on earnings was 27.6%
compared to 39.5% on a net loss for the three months ended March 31, 2004. Our tax rate changed
due to the relative proportion of U.S. to foreign earnings and our overall earnings level. Foreign
earnings are taxed at rates lower than U.S. rates. As a result of the foregoing, we reported net earnings of $11.0, or $0.20 per diluted share,
for the three months ended March 31, 2005, compared to a net loss of $28.2, or $0.99 per diluted
share, for the three months ended March 31, 2004. OUTLOOK The following statements are forward-looking statements and should be read in conjunction with
Forward-Looking Statements; Risks and Uncertainties below. We expect that our operating results for 2005 will be better than our operating results for
2004. We believe this improvement will result primarily from improvements in PET resin and fiber
raw material margins and the continuing effects of our cost reduction programs. We expect fiber
raw material margins to improve due to selling price increases over the last six months. We expect
PET resin capacity utilization in the NAFTA region to remain strong in 2005 as demand is expected
to grow 7-8% while capacity is expected to remain substantially the same. This is expected to
support improved raw material margins for the NAFTA PET resin industry for the full year 2005
compared to 2004. We expect raw material costs to be volatile for the remainder of 2005. This may
impact monthly and quarterly raw material margins because selling prices are announced before raw
material costs are finalized. Recently, China decreased its purchases of polyester chemical raw materials and raw material
prices have declined. However, it is generally expected that Chinese purchases will rebound in the
second half of 2005 resulting in the continuation of a globally tight supply situation for our raw
materials. In a tight market, spot prices are generally higher than contract prices for these raw
materials. Asian polyester producers, particularly Chinese producers, are large spot purchasers,
while U.S. and European polyester producers are primarily contract purchasers of polyester raw
materials. Therefore, if Chinese purchases rebound in the second half of the
year as anticipated, a tighter polyester raw material market is
expected. This should eliminate or reduce the
Asian polyester producers cost advantage. Additionally, the limited raw material supply
may constrain PET resin and polyester fiber imports into the NAFTA region and European Union.
These factors should improve our competitiveness in the PET resin and the polyester staple fiber markets.
We believe our long-term raw material supply contracts in place at March 31, 2005, provide us with
sufficient raw materials for our existing and planned future production requirements through 2007. We expect that the domestic textile chain will continue to be adversely impacted by imports,
especially from China, since all remaining quotas on all textile and apparel imports into the
United States were eliminated as of January 1, 2005, pursuant to the GATT (now known as the World
Trade Organization created as part of the Uruguay Round Agreement enacted in 1994). We expect to
receive a payment under the Continued Dumping and Subsidy Offset Act in the fourth quarter of 2005
which we expect will be less than the amount we received in 2004. 18




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As a result of our cost reduction plans, we expect to reduce our annual controllable costs by
the end of 2005 by approximately $5 million (net of the cost of certain wage and benefit programs
which were reinstated in January 2005) compared to 2004 levels. CAPITAL RESOURCES AND LIQUIDITY Net cash used in operations was $5.7 for the three months ended March 31, 2005, compared to
$51.1 for the three months ended March 31, 2004. Higher net
earnings for the period ended March 31, 2005 were principally
responsible for this change. Net cash used in investing activities amounted to $6.5 in 2005 compared to $229.0 in 2004.
Investing activities were comprised of capital expenditures and in 2004 the purchase of
sale-leaseback assets of $150.0 and the $77.1 pre-payment of a raw material contract, both in
conjunction with the February 2004 Financing (see Note 7 to the Condensed Consolidated Financial
Statements). Capital expenditures were $6.5 in the first quarter of 2005 compared to $1.9 in the
first quarter of 2004. We expect additional capital expenditures of approximately $50 to $55
during the remainder of 2005, primarily due to the expansion of PET resin capacity at our Pearl
River facility. Net cash provided by financing activities amounted to $14.4 in 2005 compared to net cash
provided by financing activities of $83.3 in 2004. For additional information on our long-term
borrowings, including the non-capitalizable financing costs incurred in 2004, see Note 7 to the
Condensed Consolidated Financial Statements. The financial resources available to us at March 31, 2005 included approximately $125.0
available under our Revolving Credit Facility and internally generated funds. We believe these
financial resources will provide us with sufficient liquidity to meet our foreseeable needs for
working capital, capital expenditures and dividends. We are in compliance with all debt covenants.
For additional information on the payment of dividends, see note 7 to the Condensed Consolidated
Financial Statements. FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES Statements contained in this Form 10-Q 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, anticipates, expects 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:
reduced raw material margins; reduced sales volumes; increase in costs; the financial condition of
our customers; polyester staple fiber and textile imports; availability and cost of raw materials;
the impact of litigation arising our of alleged pricing practices in the polyester staple fiber
industry; the actions of our competitors; the effective implementation of our cost reduction
programs; availability of financing, changes in financial markets, interest rates, credit ratings,
and foreign currency exchange rates; regulatory changes; tax risks; U.S. European, Asian and global
economic conditions; prices and volumes of PET resin imports; work stoppages; levels of production
capacity and profitable operations of assets; 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. 19




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##### Table of Contents



For a more complete description of the prominent risks and uncertainties inherent in our
business, see our Form 10-K for the year ended December 31, 2004. 
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
 For information about our derivative financial instruments, see Item 7A. Quantitative and
Qualitative Disclosure About Market Risk of our Form 10-K for the year ended December 31, 2004. 
 ITEM 4.
    
    CONTROLS AND PROCEDURES
  (a)
    Based on an evaluation of the effectiveness of the Companys
disclosure controls and procedures as of March 31, 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.(b)
    As a result of the Companys ongoing evaluation of internal control
over financial reporting, the Company implemented improved procedures
during the first quarter of 2005 as it relates to information
technology general controls. Management has identified no other
changes in the Companys internal control over financial reporting
that occurred during the first quarter of 2005 that have materially
affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting. 
 PART II  OTHER INFORMATION 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 Beginning in September 2002, several producers of polyester staple fiber, including Wellman,
were named in various civil actions asserting claims based on alleged price fixing and market
allocation in the polyester staple industry. These proceedings are summarized below. Wellman
and certain other persons were named as defendants in twenty-four (24) 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 ten 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. Fourteen of the cases are brought by plaintiffs who do
not purport to represent a class. Certain of these cases name employees of Wellman and other
companies as defendants. 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
were originally filed in the 20




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U.S.
District Court for the Middle District of Alabama, U.S. District Court for the Northern District of
California, U.S. District Court for the Middle District of Georgia, 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, U.S. District Court for the District of
South Carolina and U.S. District Court for the Western District of Virginia. 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, forty-one 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. In all of these cases, the
plaintiffs seek damages of unspecified amounts, attorneys fees and costs and unspecified relief.
Two of the indirect purchaser cases filed in Massachusetts were dismissed. The dismissal of one of
those cases has been appealed and the appeal is currently pending. Wellman
and certain other persons were named as defendants in actions filed in the Superior Court of
Justice for Ontario, the Supreme Court of British Columbia, and the Superior Court for Quebec,
Canada, by plaintiffs purporting to represent classes of direct and indirect purchasers of
polyester staple fiber. The Company has entered into an agreement to resolve all of the Canadian
litigation by payment of $0.05. The settlement agreement provides that the Company denies
the allegations and believes that it is not liable. This settlement is subject to Court approval
in each of the Courts where the matters are pending and remains terminable under certain
circumstances. The Court approval hearings are currently scheduled to
occur in May and June 2005. In addition to the foregoing, Wellman may become subject to additional proceedings and
lawsuits under federal and state antitrust and unfair competition laws. Wellman vehemently denies
that we or our employees engaged in price fixing or customer allocation and we intend to vigorously
defend against the civil claims and any civil claims or proceedings that may be brought against us
in the future. Because of the uncertainties and complexity of these 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. 21




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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 4(a)
    
    Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant has
not filed herewith any instrument with respect to long-term debt,
which does not exceed 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis. The registrant hereby
agrees to furnish a copy of any such instrument to the Securities and
Exchange Commission upon request.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
 (b) Reports on Form 8-K. (1)
    
    The Company filed a Form 8-K on February 16, 2005 to announce its (1)
Fourth Quarter 2004 results, (2) Historical Adjusted EBITDA and Post
Financing Adjusted EBITDA, and (3) Information on Cost Reduction
Programs.
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WELLMAN, INC.Dated May 9, 2005
    
    By /s/ Keith R. PhillipsChief Financial Officer andVice President(Principal Financial Officer)Dated May 9, 2005
    
    By /s/ Mark J. RudayChief Accounting Officer,Vice President and Controller(Principal Accounting Officer)
 23