##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period fromto
 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
    
    29715(Address of principal executive offices)
    
    (Zip Code)
 (803) 835-2000
 þ 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, 2005 and 2004
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2005 and December 31, 2004 (Audited)
    
    
    4Condensed
Consolidated Statements of Stockholders Equity  For the nine months ended September 30, 2005 and the year ended December 31,
2004 (Audited)
    
    
    5Condensed
Consolidated Statements of Cash Flows  For the nine months ended September 30, 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 Disclosures About Market Risk
    
    
    23ITEM 4  Controls and Procedures
    
    
    23PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    24ITEM 6  Exhibits and Reports on Form 8-K
    
    
    25SIGNATURES
    
    
    26EX-31.1 Section 302 Certification C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.
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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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    344.3
    
    
    $
    310.0
    
    
    $
    1,075.6
    
    
    $
    932.8Cost of sales
    
    
    312.4
    
    
    
    295.5
    
    
    
    979.6
    
    
    
    877.6Gross profit
    
    
    31.9
    
    
    
    14.5
    
    
    
    96.0
    
    
    
    55.2Selling, general and administrative expenses
    
    
    14.9
    
    
    
    14.6
    
    
    
    46.7
    
    
    
    42.9Provision for uncollectible accounts
    
    
    0.4
    
    
    
    
    
    
    
    0.4
    
    
    
    0.3Restructuring charges
    
    
    
    
    
    
    1.3
    
    
    
    0.6
    
    
    
    2.4Other expense, net
    
    
    15.3
    
    
    
    0.6
    
    
    
    43.1
    
    
    
    43.1Operating income (loss)
    
    
    1.3
    
    
    
    (2.0
    )
    
    
    5.2
    
    
    
    (33.5
    )Interest expense, net
    
    
    11.6
    
    
    
    10.5
    
    
    
    33.2
    
    
    
    28.1Loss before income tax benefit
    
    
    (10.3
    )
    
    
    (12.5
    )
    
    
    (28.0
    )
    
    
    (61.6
    )Income tax benefit
    
    
    (4.1
    )
    
    
    (4.9
    )
    
    
    (10.1
    )
    
    
    (24.3
    )Net loss
    
    $
    (6.2
    )
    
    $
    (7.6
    )
    
    $
    (17.9
    )
    
    $
    (37.3
    )Net loss attributable to common stockholders:Net loss
    
    $
    (6.2
    )
    
    $
    (7.6
    )
    
    $
    (17.9
    )
    
    $
    (37.3
    )Accretion of preferred stock
    
    
    (3.4
    )
    
    
    (3.1
    )
    
    
    (10.8
    )
    
    
    (9.1
    )Net loss attributable to common stockholders
    
    $
    (9.6
    )
    
    $
    (10.7
    )
    
    $
    (28.7
    )
    
    $
    (46.4
    )Basic and diluted net loss per common share:Net loss attributable to common stockholders
    
    $
    (0.30
    )
    
    $
    (0.34
    )
    
    $
    (0.91
    )
    
    $
    (1.47
    )Dividends per common share
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.15
    
    
    $
    0.15
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##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    
    
    
    $
    5.6Accounts receivable, less allowance of $2.1 in 2005 and $2.6 in 2004
    
    
    178.1
    
    
    
    200.2Inventories
    
    
    162.3
    
    
    
    145.0Prepaid expenses and other current assets
    
    
    19.8
    
    
    
    27.1Total current assets
    
    
    360.2
    
    
    
    377.9Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    138.3
    
    
    
    140.4Machinery and equipment
    
    
    1,081.3
    
    
    
    1,095.9Construction in progress
    
    
    43.0
    
    
    
    11.01,262.6
    
    
    
    1,247.3Less accumulated depreciation
    
    
    613.5
    
    
    
    591.8Property, plant and equipment, net
    
    
    649.1
    
    
    
    655.5Goodwill, net
    
    
    36.7
    
    
    
    38.2Other assets, net
    
    
    78.7
    
    
    
    95.3$
    1,124.7
    
    
    $
    1,166.9LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    84.3
    
    
    $
    113.3Accrued liabilities
    
    
    48.3
    
    
    
    49.2Current portion of long-term debt
    
    
    0.2
    
    
    
    Total current liabilities
    
    
    132.8
    
    
    
    162.5Long-term debt
    
    
    513.2
    
    
    
    471.5Deferred income taxes and other liabilities
    
    
    88.7
    
    
    
    106.4Total liabilities
    
    
    734.7
    
    
    
    740.4Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized, 4,502,143
shares issued and outstanding
    
    
    60.3
    
    
    
    56.0Series B preferred stock, $0.001 par value; 6,700,000 shares authorized, issued and
outstanding
    
    
    89.8
    
    
    
    83.3Class A common stock, $0.001 par value; 100,000,000 shares authorized,
34,946,722 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
    
    
    246.7
    
    
    
    245.5Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income
    
    
    16.0
    
    
    
    31.0Retained earnings
    
    
    21.8
    
    
    
    55.3Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    390.0
    
    
    
    426.5$
    1,124.7
    
    
    $
    1,166.9
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##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedSeries A
    
    Series B
    
    Class A
    
    
    
    
    
    Common
    
    OtherPreferred
    
    Preferred
    
    Common
    
    Paid-In
    
    Stock
    
    Comprehensive
    
    Retained
    
    TreasuryStock Issued
    
    Stock Issued
    
    Stock Issued
    
    Capital
    
    Warrants
    
    Income
    
    Earnings
    
    Stock
    
    Total(in millions)
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    AmountBalance at December 31, 2003
    
    
    4.5
    
    
    $
    51.0
    
    
    
    6.7
    
    
    $
    76.0
    
    
    
    34.4
    
    
    $
    
    
    
    $
    245.3
    
    
    $
    4.9
    
    
    $
    25.2
    
    
    $
    112.7
    
    
    $
    (49.5
    )
    
    $
    465.6Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38.8
    )
    
    
    
    
    
    
    (38.8
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.3
    
    
    
    
    
    
    
    
    
    
    
    10.3Minimum pension liability
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.4
    )
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33.0
    )Cash dividends ($0.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.3
    )
    
    
    
    
    
    
    (6.3
    )Equity transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Accretion of preferred stock
    
    
    
    
    
    
    5.0
    
    
    
    
    
    
    
    7.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.3
    )
    
    
    
    
    
    
    Exercise of stock options, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Balance at December 31, 2004
    
    
    4.5
    
    
    
    56.0
    
    
    
    6.7
    
    
    
    83.3
    
    
    
    34.5
    
    
    
    
    
    
    
    245.5
    
    
    
    4.9
    
    
    
    31.0
    
    
    
    55.3
    
    
    
    (49.5
    )
    
    
    426.5Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.9
    )
    
    
    
    
    
    
    (17.9
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.8
    )
    
    
    
    
    
    
    
    
    
    
    (15.8
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32.9
    )Cash dividends ($0.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.8
    )
    
    
    
    
    
    
    (4.8
    )Accretion of preferred stock
    
    
    
    
    
    
    4.3
    
    
    
    
    
    
    
    6.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.8
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2Balance
at September 30, 2005 (unaudited)
    
    
    4.5
    
    
    $
    60.3
    
    
    
    6.7
    
    
    $
    89.8
    
    
    
    34.9
    
    
    $
    
    
    
    $
    246.7
    
    
    $
    4.9
    
    
    $
    16.0
    
    
    $
    21.8
    
    
    $
    (49.5
    )
    
    $
    390.0
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WELLMAN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
 (UNAUDITED)
  2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (17.9
    )
    
    $
    (37.3
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    39.8
    
    
    
    41.7Amortization
    
    
    13.0
    
    
    
    11.0Amortization in interest expense, net
    
    
    3.2
    
    
    
    2.9Deferred income taxes and other
    
    
    (12.0
    )
    
    
    (26.3
    )Non-capitalizable financing costs
    
    
    
    
    
    
    21.0Changes in operating assets and liabilities
    
    
    (27.6
    )
    
    
    (43.0
    )Net cash used in operating activities
    
    
    (1.5
    )
    
    
    (30.0
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (40.8
    )
    
    
    (6.9
    )Purchase of sale-leaseback assets
    
    
    
    
    
    
    (150.0
    )Pre-payment of raw material contract
    
    
    
    
    
    
    (77.1
    )Net cash used in investing activities
    
    
    (40.8
    )
    
    
    (234.0
    )Cash flows from financing activities:Borrowings under long-term debt, net
    
    
    41.4
    
    
    
    107.3Termination of swaps
    
    
    
    
    
    
    (11.9
    )Dividends paid on common stock
    
    
    (4.8
    )
    
    
    (4.7
    )Debt issuance costs
    
    
    
    
    
    
    (18.0
    )Issuance of restricted stock
    
    
    
    
    
    
    0.1Net cash provided by financing activities
    
    
    36.6
    
    
    
    72.8Effect of exchange rate changes on cash and cash equivalents
    
    
    0.1
    
    
    
    0.3Decrease in cash and cash equivalents
    
    
    (5.6
    )
    
    
    (190.9
    )Cash and cash equivalents at beginning of period
    
    
    5.6
    
    
    
    205.5Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    14.6Supplemental cash flow data:Cash paid during the period for:Interest, net
    
    $
    30.2
    
    
    $
    23.4Income taxes
    
    $
    1.0
    
    
    $
    0.6
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WELLMAN, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1. BASIS OF PRESENTATION
      7




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##### Table of Contents



2. INVENTORIES
  September 30,
    
    
    December 31,(in millions)
    
    2005
    
    
    2004Raw materials
    
    $
    69.4
    
    
    $
    47.5Finished and semi-finished goods
    
    
    84.0
    
    
    
    90.2Supplies
    
    
    8.9
    
    
    
    7.3$
    162.3
    
    
    $
    145.0
 3. RESTRUCTURING CHARGES
  Severance(in millions)
    
    CostsAccruals during the second quarter of 2005
    
    $
    0.4Cash payments
    
    
    (0.2
    )Accrual balance at June 30, 2005
    
    
    0.2Cash payments
    
    
    0.0Accrual balance at September 30, 2005
    
    $
    0.2
  8




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##### Table of Contents



Severance(in millions)
    
    CostsAccrual balances at December 31, 2003
    
    $
    6.1Accruals during the first nine months of 2004
    
    
    2.4Cash payments
    
    
    (6.5
    )Currency translation adjustments
    
    
    (0.1
    )Accrual balances at September 30, 2004
    
    
    1.9Accruals during the remainder of 2004
    
    
    0.5Cash payments during the remainder of 2004
    
    
    (1.0
    )Currency translation adjustments during the
remainder of 2004
    
    
    0.2Accrual balances at December 31, 2004
    
    
    1.6Cash payments
    
    
    (1.3
    )Currency translation adjustments
    
    
    (0.1
    )Accrual balances at September 30, 2005
    
    $
    0.2
  4. BORROWINGS
   5. OTHER EXPENSE, NET
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Legal Costs (1)
    
    $
    8.0
    
    
    $
    1.3
    
    
    $
    35.9
    
    
    $
    3.6Hurricane Katrina Costs (2)
    
    
    7.4
    
    
    
    
    
    
    
    7.4
    
    
    
    Non-capitalizable
financing costs(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40.2Rebates from anti-dumping duties
    
    
    (0.1
    )
    
    
    (0.7
    )
    
    
    (0.2
    )
    
    
    (0.7
    )$
    15.3
    
    
    $
    0.6
    
    
    $
    43.1
    
    
    $
    43.1
 9




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##### Table of Contents



(1)
    
    Legal Costs consists of fees, settlements, and other expenses in connection with an
investigation by the Department of Justice (which it has since abandoned) and related
civil litigation.(2)
    
    Hurricane Katrina Costs consists of costs incurred related to hurricane Katrina,
which include damage to inventory, costs to clean up site, costs to
repair damaged equipment and costs incurred at the site until normal
operations are restored.(3)
    
    Non-capitalizable financing costs consist of costs,
including non-cash charges, to terminate certain swap agreements, to
pre-pay penalties, to write-off certain debt issuance costs, and
other costs incurred as a result of the Company's February 2004
Financing.   6. NET LOSS PER COMMON SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator for basic and diluted net loss attributable to common
stockholders per common share:Net loss attributable to common stockholders
    
    $
    (9.6
    )
    
    $
    (10.7
    )
    
    $
    (28.7
    )
    
    $
    (46.4
    )Denominator:Denominator for basic and diluted net loss attributable to
common stockholders per common share  weighted-average shares
    
    
    31.7
    
    
    
    31.6
    
    
    
    31.7
    
    
    
    31.6
 7. DEFINED BENEFIT PLANS
  10




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in millions)
    
    Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    ForeignService cost
    
    $
    0.5
    
    
    $
    0.6
    
    
    $
    0.1
    
    
    $
    0.5
    
    
    $
    0.8
    
    
    $
    2.0
    
    
    $
    0.4
    
    
    $
    1.6Interest cost
    
    
    0.8
    
    
    
    0.9
    
    
    
    0.8
    
    
    
    0.9
    
    
    
    2.4
    
    
    
    2.9
    
    
    
    2.5
    
    
    
    2.6Expected return on assets
    
    
    (0.9
    )
    
    
    (1.2
    )
    
    
    (0.8
    )
    
    
    (1.4
    )
    
    
    (2.6
    )
    
    
    (3.8
    )
    
    
    (2.6
    )
    
    
    (4.2
    )Net amortization
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.9
    
    
    
    1.5
    
    
    
    0.7
    
    
    
    0.5Total
estimated net periodic pension expense
    
    $
    0.7
    
    
    $
    0.8
    
    
    $
    0.3
    
    
    $
    0.2
    
    
    $
    1.5
    
    
    $
    2.6
    
    
    $
    1.0
    
    
    $
    0.5
 Employer contributions
  8. STOCK OPTIONS
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(in millions, except per share data)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common stockholders, as reported
    
    $
    (9.6
    )
    
    $
    (10.7
    )
    
    $
    (28.7
    )
    
    $
    (46.4
    )Add: Stock-based employee compensation expense
included in reported net loss, net of related tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.2
    )Pro forma net loss attributable to common stockholders
    
    $
    (9.6
    )
    
    $
    (10.8
    )
    
    $
    (28.8
    )
    
    $
    (46.6
    )
 11




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Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to common stockholders per basic
and diluted share:As reported
    
    $
    (0.30
    )
    
    $
    (0.34
    )
    
    $
    (0.91
    )
    
    $
    (1.47
    )Pro forma
    
    $
    (0.30
    )
    
    $
    (0.34
    )
    
    $
    (0.91
    )
    
    $
    (1.47
    )
 9. COMMITMENTS AND CONTINGENCIES
    Nine Months EndedSeptember 30,(in millions)
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    7.0
    
    
    $
    6.5Changes in estimated remediation costs
    
    
    
    
    
    
    0.1Expenditures
    
    
    (0.4
    )
    
    
    (0.1
    )Balance at end of period
    
    $
    6.6
    
    
    $
    6.5
    12




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10.
    
    FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE INCOME
   13




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11. SEGMENT INFORMATION
  The PPG manufactures:
    
    PermaClear® solid-stated and amorphous PET resin for use in the manufacturing of soft
drink bottles and other food and beverage packaging and
    
    EcoClear® PET resin, utilizing recycled PET materials to meet customers recycled
content PET resin requirements.The FRPG manufactures:
    
    Fortrel® chemical-based polyester staple fibers for use in apparel, non-woven, home
furnishing, and industrial products,
    
    recycled-based polyester and nylon staple fibers for use in home furnishing, non-woven
and industrial products, and
    
    recycled-based nylon and polyester engineering resins for use in the injection molding
industry.
  Fibers andPackaging Products
    
    
    Recycled Products(in millions)
    
    Group
    
    
    Group
    
    
    TotalThree months ended September 30, 2005Revenues
    
    $
    197.2
    
    
    $
    147.1
    
    
    $
    344.3Segment profit
    
    
    14.1
    
    
    
    2.9
    
    
    
    17.0Assets
    
    
    719.6
    (a)
    
    
    314.5
    
    
    
    1,034.1Three months ended September 30, 2004Revenues
    
    $
    174.0
    
    
    $
    136.0
    
    
    $
    310.0Segment profit (loss)
    
    
    2.2
    
    
    
    (2.3
    )
    
    
    (0.1
    )Assets
    
    
    735.8
    
    
    
    308.0
    
    
    
    1,043.8Nine months ended September 30, 2005Revenues
    
    $
    621.2
    
    
    $
    454.4
    
    
    $
    1,075.6Segment profit
    
    
    42.1
    
    
    
    7.2
    
    
    
    49.3Nine months ended September 30, 2004Revenues
    
    $
    526.2
    
    
    $
    406.6
    
    
    $
    932.8Segment profit (loss)
    
    
    14.1
    
    
    
    (1.8
    )
    
    
    12.3
 14




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##### Table of Contents



(a)
    
    This includes the Companys Pearl River facility, which had a net book value of $293.1
million at September 30, 2005 and was temporarily shutdown due to hurricane Katrina (see
Note 5).  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Segment Profit (Loss)Total for reportable segments
    
    $
    17.0
    
    
    $
    (0.1
    )
    
    $
    49.3
    
    
    $
    12.3Provision for uncollectible accounts
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )
    
    
    (0.3
    )Restructuring charges (See Note 3)
    
    
    
    
    
    
    (1.3
    )
    
    
    (0.6
    )
    
    
    (2.4
    )Other expense, net (See Note 5)
    
    
    (15.3
    )
    
    
    (0.6
    )
    
    
    (43.1
    )
    
    
    (43.1
    )Interest expense, net
    
    
    (11.6
    )
    
    
    (10.5
    )
    
    
    (33.2
    )
    
    
    (28.1
    )Loss before income tax benefit
    
    $
    (10.3
    )
    
    $
    (12.5
    )
    
    $
    (28.0
    )
    
    $
    (61.6
    )AssetsTotal for reportable segments
    
    $
    1,034.1
    
    
    $
    1,043.8Corporate assets (1)
    
    
    90.6
    
    
    
    79.0$
    1,124.7
    
    
    $
    1,122.8
 
 (1)
    
    Corporate assets include cash, prepaid expenses, construction in progress, and certain other
assets not allocated to the segments. 15




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (In millions, except per share
data)
 GENERAL
       RECENT DEVELOPMENTS
  16




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RESULTS OF OPERATIONS
 THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2004
  PPG
    
    
    FRPG
    
    
    TOTALNet selling prices
    
    $
    23.1
    
    
    $
    24.1
    
    
    $
    47.2Sales volumes
    
    
    
    
    
    
    (13.2
    )
    
    
    (13.2
    )Foreign currency translation
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.3$
    23.2
    
    
    $
    11.1
    
    
    $
    34.3
   17




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##### Table of Contents



PPG
    
    
    FRPG
    
    
    TOTALRaw material costs
    
    $
    10.1
    
    
    $
    6.6
    
    
    $
    16.7Plant added costs
    
    
    0.9
    
    
    
    (1.4
    )
    
    
    (0.5
    )Foreign currency translation
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.7$
    11.1
    
    
    $
    5.8
    
    
    $
    16.9
           18




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##### Table of Contents



NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004
  PPG
    
    
    FRPG
    
    
    TOTALNet selling prices
    
    $
    119.2
    
    
    $
    78.6
    
    
    $
    197.8Sales volumes
    
    
    (25.8
    )
    
    
    (34.1
    )
    
    
    (59.9
    )Foreign currency translation
    
    
    1.7
    
    
    
    3.2
    
    
    
    4.9$
    95.1
    
    
    $
    47.7
    
    
    $
    142.8
   PPG
    
    
    FRPG
    
    
    TOTALRaw material costs
    
    $
    63.1
    
    
    $
    36.6
    
    
    $
    99.7Plant added costs
    
    
    1.0
    
    
    
    (4.9
    )
    
    
    (3.9
    )Foreign currency translation
    
    
    1.6
    
    
    
    4.6
    
    
    
    6.2$
    65.7
    
    
    $
    36.3
    
    
    $
    102.0
     19




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IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
  20




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OUTLOOK
      21




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CAPITAL RESOURCES AND LIQUIDITY
     22




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FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
   
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 (a)
    
    Based on an evaluation of the effectiveness of the Companys
disclosure controls and procedures as of September 30, 2005, both the
Chief Executive Officer and the Chief Financial Officer of the Company
concluded that the Companys disclosure controls and procedures, as
defined in Rules 13a14(c) and 15d  14(c) promulgated under the
Securities Exchange Act of 1934, were effective on that date.
 23




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##### Table of Contents



(b)
    
    Based upon an evaluation of whether any change in the Companys
internal control over financial reporting (as defined in Rule
13a-15(f) promulgated under the Exchange Act) that materially
affected, or is reasonably likely to materially affect, such internal
control occurred during the period covered by this Report, both the
Chief Executive Officer and the Chief Financial Officer of the Company
concluded that no such change occurred.
 
 PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
       24




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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 July 27, 2005 for the purpose of
disclosing its second quarter 2005 results, historical adjusted EBITDA
and Post Financing Adjusted EBITDA.(2)
    
    The Company filed a Form 8-K on September 6, 2005 for the purpose of
disclosing information related to its Pearl River Facility located in
Hancock County, Mississippi.(3)
    
    The Company filed a Form 8-K on September 12, 2005 for the purpose of
disclosing its announcement that it will record a pre-tax charge of
$8.0 million in the third quarter of 2005 arising from the settlement
of the federal class action lawsuits of direct purchasers alleging
that the Company engaged in price fixing and customer allocation
relating to sales of polyester staple fiber.(4)
    
    The Company filed a Form 8-K on September 22, 2005 for the purpose of
disclosing additional information concerning its Pearl River facility.
 25




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SIGNATURES
  WELLMAN, INC.Dated November 8, 2005
    By /s/ Keith R. PhillipsChief Financial Officer andVice President
(Principal Financial Officer)Dated November 8, 2005
    By /s/ Mark J. RudayChief Accounting Officer,Vice President and Controller
(Principal Accounting Officer) 26