##### 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 September 30, 2007
 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1041 521 Corporate Center Drive 
Fort Mill, South Carolina
    
    29707(Address of principal executive offices)
    
    (Zip Code)
 (803) 835-2000
 þ o
  o þ o
 o þ




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##### 



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 nine months ended September 30, 2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2007 and December 31, 2006 (Audited)
    
    
    4Condensed Consolidated Statements of Stockholders  Equity 
For the nine months ended September 30, 2007 and the year ended December 31,
2006 (Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows  For the nine months ended September 30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    19ITEM 3  Quantitative and Qualitative Disclosure of Market Risk
    
    
    30ITEM 4  Controls and Procedures
    
    
    30PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    31ITEM 1A  Risk Factors
    
    
    31ITEM 6  Exhibits and Reports on Form 8-K
    
    
    32SIGNATURES
    
    
    33EX-10.2 Wellman, Inc. Fifth Amended and Restated Management Incentive Compensation PlanEX-18 Preferability Letter from Ernst & Young LLP regarding a change in accounting methodEX-31.1 Certification of the Chief Executive Officer pursuant to Section 302EX-31.2 Certification of the Chief Financial Officer pursuant to Section 302EX-32.1 Certification of the Chief Executive Officer pursuant to Section 906EX-32.2 Certification of the Chief Financial Officer pursuant to Section 906
  2




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##### Table of Contents



ITEM
1. FINANCIAL STATEMENTS
 WELLMAN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    270.8
    
    
    $
    307.6
    
    
    $
    889.9
    
    
    $
    919.2Cost of sales
    
    
    271.2
    
    
    
    297.6
    
    
    
    878.5
    
    
    
    888.7Gross profit
    
    
    (0.4
    )
    
    
    10.0
    
    
    
    11.4
    
    
    
    30.5Selling, general and administrative expenses
    
    
    10.9
    
    
    
    12.3
    
    
    
    32.5
    
    
    
    35.5Restructuring charges
    
    
    
    
    
    
    
    
    
    
    3.1
    
    
    
    Provision for uncollectible accounts
    
    
    0.2
    
    
    
    
    
    
    
    0.5
    
    
    
    0.1Other (income) expense, net
    
    
    (1.6
    )
    
    
    35.2
    
    
    
    (12.8
    )
    
    
    42.4Operating loss
    
    
    (9.9
    )
    
    
    (37.5
    )
    
    
    (11.9
    )
    
    
    (47.5
    )Interest expense, net
    
    
    16.0
    
    
    
    15.7
    
    
    
    46.3
    
    
    
    41.9Loss from continuing operations before income taxes
    
    
    (25.9
    )
    
    
    (53.2
    )
    
    
    (58.2
    )
    
    
    (89.4
    )Income tax benefit
    
    
    (3.6
    )
    
    
    (18.9
    )
    
    
    (3.6
    )
    
    
    (31.3
    )Loss from continuing operations
    
    
    (22.3
    )
    
    
    (34.3
    )
    
    
    (54.6
    )
    
    
    (58.1
    )Earnings (loss) from discontinued operations, net
of income taxes (benefit)
    
    
    4.3
    
    
    
    (1.3
    )
    
    
    0.9
    
    
    
    (5.2
    )Net loss
    
    $
    (18.0
    )
    
    $
    (35.6
    )
    
    $
    (53.7
    )
    
    $
    (63.3
    )Net loss attributable to common stockholders:Net loss
    
    $
    (18.0
    )
    
    $
    (35.6
    )
    
    $
    (53.7
    )
    
    $
    (63.3
    )Accretion
    
    
    (4.0
    )
    
    
    (3.6
    )
    
    
    (11.5
    )
    
    
    (10.6
    )Net loss attributable to common stockholders
    
    $
    (22.0
    )
    
    $
    (39.2
    )
    
    $
    (65.2
    )
    
    $
    (73.9
    )Basic and diluted net loss per common share:Net loss attributable to common stockholders from
continuing operations
    
    $
    (0.81
    )
    
    $
    (1.19
    )
    
    $
    (2.05
    )
    
    $
    (2.15
    )Net earnings (loss) attributable to common
stockholders from discontinued operations
    
    
    0.13
    
    
    
    (0.04
    )
    
    
    0.03
    
    
    
    (0.17
    )Net loss attributable to common stockholders
    
    $
    (0.68
    )
    
    $
    (1.23
    )
    
    $
    (2.02
    )
    
    $
    (2.32
    )Dividends per common share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.06
    
    
    $
    0.12
  3




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##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    2.3
    
    
    $
    Accounts receivable, less allowance of $2.3 in 2007 and $2.2 in 2006
    
    
    150.3
    
    
    
    161.4Inventories
    
    
    94.0
    
    
    
    114.3Prepaid expenses and other current assets
    
    
    34.3
    
    
    
    34.6Current assets held for sale
    
    
    
    
    
    
    59.6Total current assets
    
    
    280.9
    
    
    
    369.9Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    90.3
    
    
    
    83.8Machinery and equipment
    
    
    956.4
    
    
    
    949.8Construction in progress
    
    
    8.1
    
    
    
    8.71,054.8
    
    
    
    1,042.3Less accumulated depreciation
    
    
    521.8
    
    
    
    485.1Property, plant and equipment, net
    
    
    533.0
    
    
    
    557.2Other assets and deferred income taxes, net
    
    
    21.1
    
    
    
    33.8Non-current assets held for sale
    
    
    
    
    
    
    32.4$
    835.0
    
    
    $
    993.3LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    61.0
    
    
    $
    80.9Accrued liabilities
    
    
    21.9
    
    
    
    33.5Current portion of long-term debt
    
    
    
    
    
    
    0.3Current liabilities associated with assets held for sale
    
    
    
    
    
    
    30.3Total current liabilities
    
    
    82.9
    
    
    
    145.0Long-term debt
    
    
    578.3
    
    
    
    577.0Deferred income taxes and other liabilities
    
    
    51.4
    
    
    
    51.2Non-current liabilities associated with assets held for sale
    
    
    
    
    
    
    13.0Total liabilities
    
    
    712.6
    
    
    
    786.2Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized,
4,502,143 shares issued and outstanding
    
    
    72.1
    
    
    
    67.5Series B preferred stock, $0.001 par value; 6,700,000 shares authorized, issued
and outstanding
    
    
    107.3
    
    
    
    100.4Class A common stock, $0.001 par value; 100,000,000 shares authorized,
35,374,382 shares issued in 2007 and 35,202,944 in 2006
    
    
    
    
    
    
    Class B common stock, $0.001 par value, 5,500,000 shares authorized, no shares
issued
    
    
    
    
    
    
    Paid-in capital
    
    
    248.2
    
    
    
    248.3Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income (loss)
    
    
    (0.6
    )
    
    
    28.4Accumulated deficit
    
    
    (260.0
    )
    
    
    (192.9
    )Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    122.4
    
    
    
    207.1$
    835.0
    
    
    $
    993.3
  4




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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Series A
    
    
    Series B
    
    
    Class A
    
    
    
    
    
    
    
    
    
    
    AccumulatedPreferred
    
    
    Preferred
    
    
    Common
    
    
    
    
    
    
    Common
    
    
    OtherStock Issued
    
    
    Stock Issued
    
    
    Stock Issued
    
    
    Paid-In
    
    
    Stock
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Treasury(in millions)
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Warrants
    
    
    Income (Loss)
    
    
    (Deficit)
    
    
    Stock
    
    
    TotalBalance at December 31, 2005
    
    
    4.5
    
    
    $
    61.7
    
    
    
    6.7
    
    
    $
    91.8
    
    
    
    34.9
    
    
    $
    
    
    
    $
    247.2
    
    
    $
    4.9
    
    
    $
    22.2
    
    
    $
    (61.5
    )
    
    $
    (49.5
    )
    
    $
    316.8Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (112.4
    )
    
    
    
    
    
    
    (112.4
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.5
    
    
    
    
    
    
    
    
    
    
    
    6.5Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (106.2
    )Cash dividends ($0.14 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.6
    )
    
    
    
    
    
    
    (4.6
    )Accretion
    
    
    
    
    
    
    5.8
    
    
    
    
    
    
    
    8.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.4
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.1Balance at December 31, 2006
    
    
    4.5
    
    
    
    67.5
    
    
    
    6.7
    
    
    
    100.4
    
    
    
    35.2
    
    
    
    
    
    
    
    248.3
    
    
    
    4.9
    
    
    
    28.4
    
    
    
    (192.9
    )
    
    
    (49.5
    )
    
    
    207.1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53.7
    )
    
    
    
    
    
    
    (53.7
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27.3
    )
    
    
    
    
    
    
    
    
    
    
    (27.3
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82.7
    )Cash dividends ($0.06 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )Accretion
    
    
    
    
    
    
    4.6
    
    
    
    
    
    
    
    6.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.5
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Balance at September 30, 2007
(unaudited)
    
    
    4.5
    
    
    $
    72.1
    
    
    
    6.7
    
    
    $
    107.3
    
    
    
    35.4
    
    
    $
    
    
    
    $
    248.2
    
    
    $
    4.9
    
    
    $
    (0.6
    )
    
    $
    (260.0
    )
    
    $
    (49.5
    )
    
    $
    122.4
  5




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##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(UNAUDITED)
 2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (53.7
    )
    
    $
    (63.3
    )Adjustments to reconcile net loss to net cash used in operating activities:(Earnings) loss from discontinued operations, net of tax
    
    
    (0.9
    )
    
    
    5.2Depreciation
    
    
    32.3
    
    
    
    35.1Amortization
    
    
    1.0
    
    
    
    1.4Amortization of acquisition costs of long-term raw material contract
    
    
    11.8
    
    
    
    11.8Amortization in interest expense, net
    
    
    3.2
    
    
    
    3.3Deferred income taxes and other
    
    
    (3.2
    )
    
    
    (32.6
    )Johnsonville fibers disposal costs, net
    
    
    (4.1
    )
    
    
    34.0Changes in operating assets and liabilities
    
    
    0.7
    
    
    
    (65.1
    )Net cash used in operating activities
    
    
    (12.9
    )
    
    
    (70.2
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (8.4
    )
    
    
    (23.5
    )Net cash used in investing activities
    
    
    (8.4
    )
    
    
    (23.5
    )Cash flows from financing activities:Borrowings under long-term debt, net
    
    
    1.9
    
    
    
    100.0Dividends paid on common stock
    
    
    (1.9
    )
    
    
    (3.9
    )Debt issuance and financing costs
    
    
    
    
    
    
    (2.4
    )Net cash provided by financing activities
    
    
    
    
    
    
    93.7Discontinued Operations:Operating activities
    
    
    (8.1
    )
    
    
    (0.2
    )Investing activities
    
    
    33.4
    
    
    
    (3.1
    )Financing activities
    
    
    (1.7
    )
    
    
    3.3Net cash
provided by discontinued operations
    
    
    23.6
    
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    Increase (decrease) in cash and cash equivalents
    
    
    2.3
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    2.3
    
    
    $
    Supplemental cash flow data:Cash paid during the period for:Interest, net
    
    $
    43.8
    
    
    $
    39.4Income taxes
    
    $
    0.6
    
    
    $
    0.7
  6




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##### Table of Contents



WELLMAN, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
 1. BASIS OF PRESENTATION
   2. ACCOUNTING CHANGES AND RECENTLY ISSUED PRONOUNCEMENTS
 Accounting Changes
   7




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##### Table of Contents



New Pronouncements
   3. INVENTORIES
  September 30,
    
    
    December 31,(In millions)
    
    2007
    
    
    2006Raw materials
    
    $
    35.8
    
    
    $
    40.7Finished and semi-finished goods
    
    
    54.5
    
    
    
    70.7Supplies
    
    
    3.7
    
    
    
    2.9$
    94.0
    
    
    $
    114.3
 8




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##### Table of Contents



4. JOHNSONVILLE FIBERS CLOSURE
    EmployeeRestructuring(In millions)
    
    ChargesAccruals during the third quarter of 2006
    
    $
    4.1Payments during 2006
    
    
    (1.6
    )Adjustments to accrual in fourth quarter of 2006
    
    
    (0.2
    )Remaining accrual at December 31, 2006
    
    
    2.3Payments in first quarter of 2007
    
    
    (1.9
    )Remaining accrual at March 31, 2007
    
    
    0.4Payments in second quarter of 2007
    
    
    (0.2
    )Remaining accrual at June 30, 2007
    
    
    0.2Payments in third quarter of 2007
    
    
    (0.1
    )Adjustments to accrual in third quarter of 2007
    
    
    (0.1
    )Remaining accrual at September 30, 2007
    
    $
    0.0
 5. RESTRUCTURING CHARGES
  9




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##### Table of Contents



Severance(In millions)
    
    AccrualAccruals recorded in first quarter of 2007
    
    $
    2.9Payments in first quarter 2007
    
    
    (1.5
    )Accrual balance at March 31, 2007
    
    
    1.4Payments in second quarter of 2007
    
    
    (1.2
    )Remaining accrual at June 30, 2007
    
    
    0.2Payments in third quarter of 2007
    
    
    (0.1
    )Remaining accrual at September 30, 2007
    
    $
    0.1
  6. DISCONTINUED OPERATIONS
    10




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##### Table of Contents



WIL
    
    $
    92.0European PET resins business
    
    
    $
    92.0
  Accounts receivable, net
    
    $
    29.3Inventories
    
    
    29.3Prepaid expenses and other current assets
    
    
    1.0Total current assets held for sale
    
    
    59.6Property, plant and equipment, net
    
    
    32.2Other assets and deferred income taxes, net
    
    
    0.2Total non-current assets held for sale
    
    
    32.4Total assets held for sale
    
    $
    92.0
  WIL
    
    $
    32.6European PET resins business
    
    
    10.7$
    43.3
  Accounts payable
    
    $
    14.3Accrued liabilities
    
    
    16.0Total current liabilities associated with assets held for sale
    
    
    30.3Long-term debt
    
    
    2.4Deferred income taxes and other liabilities
    
    
    10.6Total non-current liabilities associated with assets held for sale
    
    
    13.0Total liabilities associated with assets held for sale
    
    $
    43.3
  European PETWIL
    
    
    Resins(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    7.3
    
    
    $
    28.7
    
    
    $
    
    
    
    $
    25.9Loss from discontinued operations
before income tax benefit
    
    $
    (0.4
    )
    
    $
    (3.1
    )
    
    $
    
    
    
    $
    (1.1
    )Income tax benefit
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.0
    )Loss from discontinued operations, net
    
    
    (0.4
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    (0.1
    )Gain on disposal of business
    
    
    3.1
    
    
    
    
    
    
    
    2.1
    
    
    
    Income tax expense
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposal of business, net
    
    
    2.6
    
    
    
    
    
    
    
    2.1
    
    
    
    Earnings (loss) from discontinued
operations, net
    
    $
    2.2
    
    
    $
    (1.2
    )
    
    $
    2.1
    
    
    $
    (0.1
    )
 11




---



##### Table of Contents



European PETWIL
    
    
    Resins(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    76.4
    
    
    $
    88.3
    
    
    $
    33.0
    
    
    $
    60.0Earnings (loss) from discontinued
operations before income tax expense
(benefit)
    
    $
    1.0
    
    
    $
    (5.9
    )
    
    $
    (0.9
    )
    
    $
    (3.7
    )Income tax expense (benefit)
    
    
    0.3
    
    
    
    (2.1
    )
    
    
    
    
    
    
    (2.3
    )Earnings (loss) from discontinued
operations, net
    
    
    0.7
    
    
    
    (3.8
    )
    
    
    (0.9
    )
    
    
    (1.4
    )Gain (loss) on disposal of business
    
    
    3.1
    
    
    
    
    
    
    
    (1.5
    )
    
    
    Income tax expense (benefit)
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    Gain (loss) on disposal of business, net
    
    
    2.6
    
    
    
    
    
    
    
    (1.5
    )
    
    
    Earnings (loss) from discontinued
operations, net
    
    $
    3.3
    
    
    $
    (3.8
    )
    
    $
    (2.4
    )
    
    $
    (1.4
    )
 7. BORROWINGS
      8. OTHER (INCOME) EXPENSE, NET
  12




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Johnsonville fibers closure costs, net (See
Note 4)
    
    $
    (1.0
    )
    
    $
    34.1
    
    
    $
    (3.1
    )
    
    $
    34.1Hurricane Katrina (proceeds) costs, net
    
    
    
    
    
    
    0.9
    
    
    
    (5.9
    )
    
    
    8.0Legal and settlement costs
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    Costs relating to anti-dumping activities, net
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    
    
    
    
    0.3Other
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    $
    (1.6
    )
    
    $
    35.2
    
    
    $
    (12.8
    )
    
    $
    42.4
  1 2
     9. NET LOSS PER COMMON SHARE
  13




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator for basic and diluted net loss attributable to common
stockholders per common share:Loss from continuing operations
    
    $
    (22.3
    )
    
    $
    (34.3
    )
    
    $
    (54.6
    )
    
    $
    (58.1
    )Accretion (a)
    
    
    (4.0
    )
    
    
    (3.6
    )
    
    
    (11.5
    )
    
    
    (10.6
    )Net loss attributable to common stockholders from continuing
operations
    
    
    (26.3
    )
    
    
    (37.9
    )
    
    
    (66.1
    )
    
    
    (68.7
    )Net earnings (loss) attributable to common stockholders from
discontinued operations
    
    
    4.3
    
    
    
    (1.3
    )
    
    
    0.9
    
    
    
    (5.2
    )Net loss attributable to common stockholders
    
    $
    (22.0
    )
    
    $
    (39.2
    )
    
    $
    (65.2
    )
    
    $
    (73.9
    )Denominator:Denominator for basic net loss attributable to common
stockholders per common share  weighted-average shares
    
    
    32.3
    
    
    
    31.9
    
    
    
    32.3
    
    
    
    31.9Effect of dilutive securities:Employee stock options, warrants, and restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock  if converted (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted net loss attributable to common
stockholders per common share  adjusted weighted-average
shares
    
    
    32.3
    
    
    
    31.9
    
    
    
    32.3
    
    
    
    31.9
 
 (a)
    
    On June 27, 2007, the conversion price for the Warburg Pincus preferred stock was set
at $6.75. Accretion is the sum of (i) the greater of the stated increase in the
liquidation preference or the fair market value of increase of the liquidation preference
and (ii) the amortization of the reduction in book value of the preferred stock that
resulted from the issuance of warrants.(b)
    
    These shares were not included in the EPS calculation, since their effect would have
been anti-dilutive, but may be included under the if-converted method in future
calculations. 10. DEFINED BENEFIT PLANS
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.5Interest cost
    
    
    0.9
    
    
    
    0.9
    
    
    
    2.7
    
    
    
    2.6Expected return on assets
    
    
    (0.9
    )
    
    
    (0.8
    )
    
    
    (2.7
    )
    
    
    (2.4
    )Total net periodic pension cost
    
    $
    
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    0.7
 Employer contributions
  14




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##### Table of Contents



11. COMMITMENTS AND CONTINGENCIES
     Nine Months EndedSeptember 30,(In millions)
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    5.1
    
    
    $
    6.6Changes in remediation costs
    
    
    0.9
    
    
    
    (0.4
    )Expenditures
    
    
    (0.4
    )
    
    
    (0.1
    )Balance at end of period
    
    $
    5.6
    
    
    $
    6.1
     15




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##### Table of Contents



Nine Months EndedSeptember 30,(In millions)
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    3.6
    
    
    $
    4.9Adjustments to accruals
    
    
    (1.9
    )
    
    
    Payments
    
    
    (1.4
    )
    
    
    (1.2
    )Balance at end of period
    
    $
    0.3
    
    
    $
    3.7
  12.
    
    FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
   16




---



##### Table of Contents



13. SEGMENT INFORMATION
   ® ® ® ®
 ® ®
   Chemical-
    
    
    Recycled-(In millions)
    

Based Segment
    
    
    Based Segment
    
    

    TotalThree months ended September 30, 2007Revenues
    
    $
    256.8
    
    
    $
    14.0
    
    
    $
    270.8Segment profit (loss)
    
    
    2.9
    
    
    
    (0.9
    )
    
    
    2.0Depreciation and amortization from continuing
operations
    
    
    12.7
    
    
    
    0.6
    
    
    
    13.3Assets
    
    
    726.4
    
    
    
    42.8
    
    
    
    769.2Three months ended September 30, 2006
(Restated)Revenues
    
    $
    271.5
    
    
    $
    36.1
    
    
    $
    307.6Segment profit
    
    
    14.4
    
    
    
    1.6
    
    
    
    16.0Depreciation and amortization from continuing
operations
    
    
    14.1
    
    
    
    1.8
    
    
    
    15.9Assets
    
    
    797.6
    
    
    
    78.4
    
    
    
    876.0
 17




---



##### Table of Contents



Chemical-
    
    
    Recycled-Based Segment
    
    

Based Segment
    
    
    TotalNine months ended September 30, 2007Revenues
    
    $
    836.6
    
    
    $
    53.3
    
    
    $
    889.9Segment profit
    
    
    24.4
    
    
    
    (3.4
    )
    
    
    21.0Depreciation and amortization from continuing
operations
    
    
    43.5
    
    
    
    1.6
    
    
    
    45.1Nine months ended September 30, 2006
(Restated)Revenues
    
    $
    798.9
    
    
    $
    120.3
    
    
    $
    919.2Segment profit
    
    
    39.0
    
    
    
    8.0
    
    
    
    47.0Depreciation and amortization from continuing
operations
    
    
    42.9
    
    
    
    5.4
    
    
    
    48.3
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Segment Profit (Loss)Total for reportable segments
    
    $
    2.0
    
    
    $
    16.0
    
    
    $
    21.0
    
    
    $
    47.0Interest expense, net
    
    
    (16.0
    )
    
    
    (15.7
    )
    
    
    (46.3
    )
    
    
    (41.9
    )Depreciation and amortization
    
    
    (13.3
    )
    
    
    (15.9
    )
    
    
    (45.1
    )
    
    
    (48.3
    )Permitted Adjustments (1)
    
    
    1.4
    
    
    
    (37.6
    )
    
    
    12.2
    
    
    
    (46.2
    )Loss from continuing operations before income tax
Benefit
    
    $
    (25.9
    )
    
    $
    (53.2
    )
    
    $
    (58.2
    )
    
    $
    (89.4
    )AssetsTotal for reportable segments
    
    $
    769.2
    
    
    $
    876.0Corporate assets (2)
    
    
    65.8
    
    
    
    196.8$
    835.0
    
    
    $
    1,072.8
 
 (1)
    
    Permitted Adjustments are adjustments specified in our debt
agreements, which are used in the calculation of EBITDA, as defined
that is used to report our segment profit (loss). Permitted
adjustments included the following for the periods indicated: Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Permitted Adjustments:Johnsonville fibers disposal costs, net (See Note 4)
    
    $
    1.0
    
    
    $
    (34.1
    )
    
    $
    3.1
    
    
    $
    (34.1
    )Hurricane Katrina proceeds (costs), net (See Note 8)
    
    
    
    
    
    
    (0.9
    )
    
    
    5.9
    
    
    
    (8.0
    )Legal and settlement costs (See Note 8)
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    Gain on sale of assets (See Note 8)
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    Provision for uncollectible accounts
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    (0.1
    )Non-cash inventory reserves
    
    
    
    
    
    
    (2.6
    )
    
    
    
    
    
    
    (3.8
    )Other
    
    
    0.6
    
    
    
    
    
    
    
    0.4
    
    
    
    (0.2
    )Total Permitted Adjustments
    
    $
    1.4
    
    
    $
    (37.6
    )
    
    $
    12.2
    
    
    $
    (46.2
    )
 
 (2)
    
    Corporate assets include cash, certain prepaid expenses, construction
in progress, and certain other assets not allocated to the segments. 14. SUBSEQUENT EVENT
  18




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 RECENT DEVELOPMENTS
 Strategic Alternatives
  Sale of European Recycled-Based Fibers Business
  GENERAL
  ® ®
 ® ®
 19




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IMPACT OF ACCOUNTING CHANGES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Accounting Changes
   20




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##### Table of Contents



New Pronouncements
   RESULTS OF OPERATIONS
 THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2006
  21




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(In millions)
    
    Chemical-
Based
    
    
    Recycled-
Based
    
    
    TotalNet SalesSales volumes
    
    $
    (1.9
    )
    
    $
    (22.3
    )
    
    $
    (24.2
    )Net selling prices
    
    
    (12.8
    )
    
    
    0.2
    
    
    
    (12.6
    )Decrease in net sales
    
    
    (14.7
    )
    
    
    (22.1
    )
    
    
    (36.8
    )Cost of SalesVolume effect
    
    
    (0.9
    )
    
    
    (20.2
    )
    
    
    (21.1
    )Raw material unit costs
    
    
    (10.9
    )
    
    
    0.9
    
    
    
    (10.0
    )Plant added unit costs
    
    
    4.9
    
    
    
    (0.2
    )
    
    
    4.7Decrease in cost of sales
    
    
    (6.9
    )
    
    
    (19.5
    )
    
    
    (26.4
    )Decrease in gross profit
    
    $
    (7.8
    )
    
    $
    (2.6
    )
    
    $
    (10.4
    )
       Three Months EndedSeptember 30,(In millions)
    
    2007
    
    
    2006Johnsonville fibers closure costs, net
    
    $
    (1.0
    )
    
    $
    34.1Hurricane Katrina (proceeds) costs, net
    
    
    
    
    
    
    0.9Costs relating to anti-dumping activities, net
    
    
    (0.1
    )
    
    
    0.2Other
    
    
    (0.5
    )
    
    
    $
    (1.6
    )
    
    $
    35.2
  22




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##### Table of Contents



NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006
  23




---



##### Table of Contents



(In millions)
    

Chemical-
Based
    
    
    Recycled-
Based
    
    
    TotalNet SalesSales volumes
    
    $
    42.5
    
    
    $
    (66.2
    )
    
    $
    (23.7
    )Net selling prices
    
    
    (4.8
    )
    
    
    (0.8
    )
    
    
    (5.6
    )Increase (decrease) in net
sales
    
    
    37.7
    
    
    
    (67.0
    )
    
    
    (29.3
    )Cost of SalesVolume effect
    
    
    40.9
    
    
    
    (59.5
    )
    
    
    (18.6
    )Raw material unit costs
    
    
    16.1
    
    
    
    2.0
    
    
    
    18.1Plant added unit costs
    
    
    (9.6
    )
    
    
    (0.1
    )
    
    
    (9.7
    )Increase (decrease) in cost
of sales
    
    
    47.4
    
    
    
    (57.6
    )
    
    
    (10.2
    )Decrease in gross profit
    
    $
    (9.7
    )
    
    $
    (9.4
    )
    
    $
    (19.1
    )
       24




---



##### Table of Contents



Nine MonthsEndedSeptember 30,(In millions)
    
    2007
    
    
    2006Johnsonville fibers closure costs, net (See
Note 4)
    
    $
    (3.1
    )
    
    $
    34.1Hurricane Katrina (proceeds) costs, net
    
    
    (5.9
    )
    
    
    8.0Legal and settlement costs
    
    
    (1.9
    )
    
    
    Gain on sale of assets
    
    
    (1.4
    )
    
    
    Costs relating to anti-dumping activities, net
    
    
    
    
    
    
    0.3Other
    
    
    (0.5
    )
    
    
    $
    (12.8
    )
    
    $
    42.4
        25




---



##### Table of Contents



OUTLOOK
      26




---



##### Table of Contents



CAPITAL RESOURCES AND LIQUIDITY
        27




---



##### Table of Contents



28




---



##### Table of Contents



For the Quarter EndedDec. 31,
    
    
    Mar. 31,
    
    
    Jun. 30,
    
    
    Sept. 30,(In Millions)
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    TotalFixed ChargesCash interest expense
    
    
    14.8
    
    
    
    14.7
    
    
    
    14.5
    
    
    
    14.6
    
    
    
    58.6Capital expenditures
    
    
    3.4
    
    
    
    2.5
    
    
    
    2.8
    
    
    
    3.1
    
    
    
    11.8Cash payment of taxes
    
    
    0.0
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.3Dividend payments
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    2.6Total Fixed Charges
    
    
    18.9
    
    
    
    18.1
    
    
    
    18.0
    
    
    
    18.3
    
    
    
    73.3EBITDA, as definedLoss from continuing operations
    
    $
    (38.2
    )
    
    $
    (24.1
    )
    
    $
    (8.2
    )
    
    $
    (22.3
    )
    
    $
    (92.8
    )Income tax expense (benefit)
    
    
    (6.9
    )
    
    
    
    
    
    
    
    
    
    
    (3.6
    )
    
    
    (10.5
    )Interest expense, net
    
    
    15.3
    
    
    
    15.1
    
    
    
    15.2
    
    
    
    16.0
    
    
    
    61.6Depreciation and amortization
    
    
    15.1
    
    
    
    15.8
    
    
    
    16.0
    
    
    
    13.3
    
    
    
    60.2Permitted Adjustments (a)
    
    
    22.4
    
    
    
    (2.5
    )
    
    
    (8.3
    )
    
    
    (1.4
    )
    
    
    10.2EBITDA, as defined
    
    $
    7.7
    
    
    $
    4.3
    
    
    $
    14.7
    
    
    $
    2.0
    
    
    $
    28.7Consolidated Fixed Charge Coverage Ratio
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.39:1
 
 (a)
    
    Permitted Adjustments are adjustments specified in our Debt Agreements which are
used in the calculation of EBITDA, as defined. The following table details Permitted
Adjustments for the periods indicated: For the Quarter EndedDec. 31,
    
    
    Mar. 31,
    
    
    Jun. 30,
    
    
    Sept. 30,(In Millions)
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    TotalGoodwill impairment
    
    $
    33.4
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    33.4Pension actuarial gain
    
    
    (2.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.6
    )Hurricane Katrina
(proceeds) costs, net
    
    
    (6.6
    )
    
    
    0.2
    
    
    
    (6.1
    )
    
    
    
    
    
    
    (12.5
    )Johnsonville fibers disposal
costs, net
    
    
    (2.4
    )
    
    
    (1.0
    )
    
    
    (1.1
    )
    
    
    (1.0
    )
    
    
    (5.5
    )Legal and settlement costs
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    
    
    
    
    (1.9
    )Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    (1.4
    )Other
    
    
    0.6
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    (0.4
    )
    
    
    0.7Total Permitted
Adjustments
    
    $
    22.4
    
    
    $
    (2.5
    )
    
    $
    (8.3
    )
    
    $
    (1.4
    )
    
    $
    10.2
     29




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##### Table of Contents



FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and Procedures.Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness
of the Companys disclosure controls and procedures (as such term is
defined in Rules 13a  15(e) and 15d  15(e) under the Securities Act
of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this report. Based on this evaluation, our Chief Executive
Officer and the Chief Financial Officer have concluded that, as of the
end of the period covered by this report, our disclosure controls and
procedures are effective in bringing to their attention on a timely
basis material information relating to the Company required to be
included in the Companys periodic filings under the Exchange Act.(b)
    
    Changes in Internal Controls.During the quarter ended September 30,
2007, we implemented the first phase of a new enterprise resource
planning (ERP) system, which resulted in certain changes in
internal controls. The Company is in the process of resolving
certain data migration and system implementation issues and additional
mitigating controls have been put in place during the transition to
the new system.There were no other changes in our internal control over financial
reporting that occurred during our most recent fiscal quarter that
materially affected, or are reasonably likely to materially effect,
our internal control over financial reporting.
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PART II  OTHER INFORMATION
 
 ITEM
1. LEGAL PROCEEDINGS.
      ITEM
1A. RISK FACTORS.
  Delisting from the New York Stock Exchange
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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.4.10
    
    Agreement for the Sale and Purchase of the shares of Wellman International Trading
and MJR Recycling BV (Exhibit 4.10 of the Companys Form 8-K filed on August 1,
2007 incorporated by reference herein10.2
    
    Wellman, Inc. Fifth Amended and Restated Management Incentive Compensation Plan
for the Executive Group18
    
    Preferability Letter from Ernst & Young LLP regarding a change in accounting method31.1
    
    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
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SIGNATURES
  WELLMAN, INC.Dated
November 9, 2007
    
    By /s/ Keith R. PhillipsChief Financial Officer and
Vice President
(Principal Financial Officer)Dated
November 9, 2007
    
    By /s/ David R. StykaChief Accounting Officer,
Vice President and Controller
(Principal Accounting Officer)
 33