##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 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.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    04-1671740(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1041 521 Corporate Center DriveFort 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 six months ended June 30, 2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets -
June 30, 2007 and December 31, 2006 (Audited)
    
    
    4Condensed Consolidated Statements of Stockholders  Equity -
For the six months ended June 30, 2007 and the year ended December 31, 2006
(Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows -
For the six months ended June 30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    18ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    28ITEM 4  Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    29ITEM 4  Submission of Matters to a Vote of Security Holders
    
    
    30ITEM 6  Exhibits and Reports on Form 8-K
    
    
    31SIGNATURES
    
    
    32EX-10.2 WELLMAN, INC. FOURTH AMENDED AND RESTATED MANAGEMENT INCENTIVE COMPENSATION PLAN FOR THE EXECUTIVE GROUPEX-10.12 EMPLOYMENT AGREEMENT DATED AS OF AUGUST 8, 2007 BETWEEN THE COMPANY AND STEVEN L. ATESEX-10.13 EMPLOYMENT AGREEMENT DATED AS OF AUGUST 8, 2007 BETWEEN THE COMPANY AND IAN K.SHAWEX-10.14 EMPLOYMENT AGREEMENT DATED AS OF AUGUST 8, 2007 BETWEEN THE COMPANY AND DAVID R. STYKAEX-31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002EX-31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002EX-32.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002EX-32.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
  2




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##### Table of Contents



ITEM 1.
    
    FINANCIAL STATEMENTS
 WELLMAN,
INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    333.7
    
    
    $
    345.2
    
    
    $
    688.2
    
    
    $
    671.2Cost of sales
    
    
    322.2
    
    
    
    331.3
    
    
    
    670.8
    
    
    
    647.9Gross profit
    
    
    11.5
    
    
    
    13.9
    
    
    
    17.4
    
    
    
    23.3Selling, general and administrative expenses
    
    
    12.1
    
    
    
    13.0
    
    
    
    25.8
    
    
    
    26.9Restructuring charges
    
    
    0.2
    
    
    
    1.1
    
    
    
    3.1
    
    
    
    1.5Provision for uncollectible accounts
    
    
    0.2
    
    
    
    
    
    
    
    0.3
    
    
    
    0.1Other (income) expense, net
    
    
    (8.5
    )
    
    
    1.1
    
    
    
    (11.2
    )
    
    
    7.2Operating income (loss)
    
    
    7.5
    
    
    
    (1.3
    )
    
    
    (0.6
    )
    
    
    (12.4
    )Interest expense, net
    
    
    15.3
    
    
    
    14.0
    
    
    
    30.5
    
    
    
    26.6Loss from continuing operations before income taxes
    
    
    (7.8
    )
    
    
    (15.3
    )
    
    
    (31.1
    )
    
    
    (39.0
    )Income tax expense (benefit)
    
    
    
    
    
    
    (4.4
    )
    
    
    0.1
    
    
    
    (12.6
    )Loss from continuing operations
    
    
    (7.8
    )
    
    
    (10.9
    )
    
    
    (31.2
    )
    
    
    (26.4
    )Loss from discontinued operations, net of income taxes
(benefit)
    
    
    (3.6
    )
    
    
    (0.8
    )
    
    
    (4.5
    )
    
    
    (1.3
    )Net loss
    
    $
    (11.4
    )
    
    $
    (11.7
    )
    
    $
    (35.7
    )
    
    $
    (27.7
    )Net loss attributable to common stockholders:Net loss
    
    $
    (11.4
    )
    
    $
    (11.7
    )
    
    $
    (35.7
    )
    
    $
    (27.7
    )Accretion
    
    
    (3.8
    )
    
    
    (3.6
    )
    
    
    (7.5
    )
    
    
    (7.0
    )Net loss attributable to common stockholders
    
    $
    (15.2
    )
    
    $
    (15.3
    )
    
    $
    (43.2
    )
    
    $
    (34.7
    )Basic and diluted net loss per common share:Net loss attributable to common stockholders from
continuing operations
    
    $
    (0.36
    )
    
    $
    (0.46
    )
    
    $
    (1.20
    )
    
    $
    (1.05
    )Net loss attributable to common stockholders from
discontinued operations
    
    
    (0.11
    )
    
    
    (0.02
    )
    
    
    (0.14
    )
    
    
    (0.04
    )Net loss attributable to common stockholders
    
    $
    (0.47
    )
    
    $
    (0.48
    )
    
    $
    (1.34
    )
    
    $
    (1.09
    )Dividends per common share
    
    $
    0.02
    
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.10
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##### Table of Contents



WELLMAN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, less allowance of $2.6 in 2007 and $2.2 in 2006
    
    
    185.6
    
    
    
    190.7Inventories
    
    
    146.2
    
    
    
    143.6Prepaid expenses and other current assets
    
    
    33.6
    
    
    
    35.6Total current assets
    
    
    365.4
    
    
    
    369.9Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    100.0
    
    
    
    99.5Machinery and equipment
    
    
    1,045.9
    
    
    
    1,041.2Construction in progress
    
    
    12.6
    
    
    
    9.01,158.5
    
    
    
    1,149.7Less accumulated depreciation
    
    
    588.2
    
    
    
    560.3Property, plant and equipment, net
    
    
    570.3
    
    
    
    589.4Other assets and deferred income taxes, net
    
    
    47.7
    
    
    
    34.0$
    983.4
    
    
    $
    993.3LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    95.7
    
    
    $
    95.2Accrued liabilities
    
    
    32.3
    
    
    
    38.8Accrued liabilities associated with assets held for sale
    
    
    
    
    
    
    10.7Current portion of long-term debt
    
    
    
    
    
    
    0.3Total current liabilities
    
    
    128.0
    
    
    
    145.0Long-term debt
    
    
    599.5
    
    
    
    579.3Deferred income taxes and other liabilities
    
    
    85.5
    
    
    
    61.9Total liabilities
    
    
    813.0
    
    
    
    786.2Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized,
4,502,143 shares issued and outstanding
    
    
    70.5
    
    
    
    67.5Series B preferred stock, $0.001 par value; 6,700,000 shares authorized, issued
and outstanding
    
    
    104.9
    
    
    
    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
    
    
    247.7
    
    
    
    248.3Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income
    
    
    29.3
    
    
    
    28.4Accumulated deficit
    
    
    (237.4
    )
    
    
    (192.9
    )Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    170.4
    
    
    
    207.1$
    983.4
    
    
    $
    993.3
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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedSeries A
    
    
    Series B
    
    
    Class A
    
    
    
    
    
    
    Common
    
    
    OtherPreferred
    
    
    Preferred
    
    
    Common
    
    
    Paid-In
    
    
    Stock
    
    
    Comprehensive
    
    
    Accumulated
    
    
    TreasuryStock Issued
    
    
    Stock Issued
    
    
    Stock Issued
    
    
    Capital
    
    
    Warrants
    
    
    Income
    
    
    (Deficit)
    
    
    Stock
    
    
    Total(in millions)
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35.7
    )
    
    
    
    
    
    
    (35.7
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34.8
    )Cash dividends ($0.04 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.3
    )
    
    
    
    
    
    
    (1.3
    )Accretion
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    4.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.5
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )Balance at June 30, 2007
(unaudited)
    
    
    4.5
    
    
    $
    70.5
    
    
    
    6.7
    
    
    $
    104.9
    
    
    
    35.4
    
    
    $
    
    
    
    $
    247.7
    
    
    $
    4.9
    
    
    $
    29.3
    
    
    $
    (237.4
    )
    
    $
    (49.5
    )
    
    $
    170.4
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##### Table of Contents



WELLMAN, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(UNAUDITED)
 2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (35.7
    )
    
    $
    (27.7
    )Adjustments to reconcile net loss to net cash used in operating activities:Loss from discontinued operations, net of tax
    
    
    4.5
    
    
    
    1.3Depreciation
    
    
    25.9
    
    
    
    25.9Amortization
    
    
    0.6
    
    
    
    1.1Amortization of acquisition costs of long-term raw material contract
    
    
    7.8
    
    
    
    7.8Amortization in interest expense, net
    
    
    2.2
    
    
    
    2.1Deferred income taxes and other
    
    
    (1.0
    )
    
    
    (13.3
    )Changes in operating assets and liabilities
    
    
    (4.6
    )
    
    
    (54.1
    )Net cash used in operating activities
    
    
    (0.3
    )
    
    
    (56.9
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (6.1
    )
    
    
    (21.0
    )Net cash used in investing activities
    
    
    (6.1
    )
    
    
    (21.0
    )Cash flows from financing activities:Borrowings under long-term debt, net
    
    
    20.4
    
    
    
    89.9Dividends paid on common stock
    
    
    (1.3
    )
    
    
    (3.3
    )Debt issuance and financing costs
    
    
    
    
    
    
    (2.3
    )Net cash provided by financing activities
    
    
    19.1
    
    
    
    84.3Discontinued Operations:Operating activities
    
    
    (10.4
    )
    
    
    (5.4
    )Investing activities
    
    
    (2.3
    )
    
    
    (0.9
    )Financing activities
    
    
    
    
    
    
    (0.1
    )Net cash used in discontinued operations
    
    
    (12.7
    )
    
    
    (6.4
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    Decrease in cash and cash equivalents
    
    
    
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    Supplemental cash flow data:Cash paid during the period for:Interest, net
    
    $
    29.2
    
    
    $
    24.6Income taxes
    
    $
    0.6
    
    
    $
    0.4
  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
  June 30,
    
    
    December 31,(In millions)
    
    2007
    
    
    2006Raw materials
    
    $
    53.1
    
    
    $
    54.9Finished and semi-finished goods
    
    
    87.3
    
    
    
    82.8Supplies
    
    
    5.8
    
    
    
    5.9$
    146.2
    
    
    $
    143.6
 4. JOHNSONVILLE FIBERS CLOSURE
 ®
 8




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##### Table of Contents



EmployeeRestructuring(In millions)
    
    ChargesAccruals during the third quarter of 2006
    
    $
    4.1Adjustments to accrual in fourth quarter of 2006
    
    
    (0.2
    )Payments during 2006
    
    
    (1.6
    )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
    
    $
    0.2
  5. RESTRUCTURING CHARGES
  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
    
    $
    0.2
   9




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##### Table of Contents



Severance(In millions)
    
    AccrualAccruals recorded in first quarter of 2006
    
    $
    0.4Accrual balance at March 31, 2006
    
    
    0.4Adjustments to accrual in second quarter of 2006
    
    
    1.1Payments in second quarter of 2006
    
    
    (0.4
    )Remaining accrual at June 30, 2006
    
    $
    1.1
  6. DISCONTINUED OPERATIONS
    For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    13.2
    
    
    $
    17.3
    
    
    $
    33.0
    
    
    $
    34.0Loss from discontinued operations
before income tax
Benefit
    
    $
    (0.4
    )
    
    $
    (1.5
    )
    
    $
    (0.9
    )
    
    $
    (2.6
    )Income tax benefit
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (1.3
    )Loss from discontinued operations, net
    
    
    (0.4
    )
    
    
    (0.8
    )
    
    
    (0.9
    )
    
    
    (1.3
    )Loss on disposal of business
    
    
    (3.2
    )
    
    
    
    
    
    
    (3.6
    )
    
    
    Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on disposal of business, net
    
    
    (3.2
    )
    
    
    
    
    
    
    (3.6
    )
    
    
    Loss from discontinued operations, net
    
    $
    (3.6
    )
    
    $
    (0.8
    )
    
    $
    (4.5
    )
    
    $
    (1.3
    )
 7. BORROWINGS
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##### Table of Contents




    
    In June 2007, we purchased a three year $50.0 million interest rate cap
which provides that for quarterly periods when three-month LIBOR exceeds 6.50% on
its reset date, we will receive the difference between the three-month LIBOR and
6.50% for such periods;
    
    In July 2007, we entered into a two year $50.0 million interest rate
swap where we receive three-month LIBOR and pay 5.255% quarterly;
    
    In July 2007, we entered into a two year $50.0 million interest rate
collar which provides that for quarterly periods when three-month LIBOR exceeds
6.00% on its reset date, we will receive the difference between the three-month
LIBOR and 6.00%, and for quarterly periods when three-month LIBOR is less than 3.61%
on its reset date, we will pay the difference between the three-month LIBOR and
3.61%.
 8. OTHER (INCOME) EXPENSE, NET
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,(in millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Hurricane Katrina (proceeds) costs, net
    
    $
    (6.1
    )
    
    $
    1.4
    
    
    $
    (5.9
    )
    
    $
    7.1Johnsonville fibers closure costs, net (See
Note 4)
    
    
    (1.1
    )
    
    
    
    
    
    
    (2.1
    )
    
    
    Legal and settlement costs
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    Gain on sale of assets
    
    
    (1.4
    )
    
    
    
    
    
    
    (1.4
    )
    
    
    Costs relating to anti-dumping activities, net
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    0.1$
    (8.5
    )
    
    $
    1.1
    
    
    $
    (11.2
    )
    
    $
    7.2
  1 2
   11




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##### Table of Contents



9. NET LOSS PER COMMON SHARE
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator for basic and diluted net loss attributable to common
stockholders per common share:Loss from continuing operations
    
    $
    (7.8
    )
    
    $
    (10.9
    )
    
    $
    (31.2
    )
    
    $
    (26.4
    )Accretion (a)
    
    
    (3.8
    )
    
    
    (3.6
    )
    
    
    (7.5
    )
    
    
    (7.0
    )Net loss attributable to common stockholders from continuing
operations
    
    
    (11.6
    )
    
    
    (14.5
    )
    
    
    (38.7
    )
    
    
    (33.4
    )Net loss attributable to common stockholders from
discontinued
operations
    
    
    (3.6
    )
    
    
    (0.8
    )
    
    
    (4.5
    )
    
    
    (1.3
    )Net loss attributable to common stockholders
    
    $
    (15.2
    )
    
    $
    (15.3
    )
    
    $
    (43.2
    )
    
    $
    (34.7
    )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
  12




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)
    
    Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    Foreign
    
    
    Domestic
    
    
    ForeignService cost
    
    $
    
    
    
    $
    0.8
    
    
    $
    0.2
    
    
    $
    1.1
    
    
    $
    
    
    
    $
    1.6
    
    
    $
    0.4
    
    
    $
    2.2Interest cost
    
    
    0.9
    
    
    
    1.2
    
    
    
    0.9
    
    
    
    1.2
    
    
    
    1.8
    
    
    
    2.4
    
    
    
    1.7
    
    
    
    2.4Expected return on assets
    
    
    (0.9
    )
    
    
    (1.6
    )
    
    
    (0.8
    )
    
    
    (1.3
    )
    
    
    (1.8
    )
    
    
    (3.1
    )
    
    
    (1.6
    )
    
    
    (2.6
    )Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Total net periodic
pension expense
    
    $
    0.0
    
    
    $
    0.4
    
    
    $
    0.3
    
    
    $
    1.0
    
    
    $
    0.0
    
    
    $
    0.9
    
    
    $
    0.5
    
    
    $
    1.9
 Employer contributions
  11. COMMITMENTS AND CONTINGENCIES
     13




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##### Table of Contents



Six Months EndedJune 30,(In millions)
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    5.1
    
    
    $
    6.6Changes in remediation costs
    
    
    0.5
    
    
    
    (0.2
    )Expenditures
    
    
    (0.2
    )
    
    
    (0.1
    )Balance at end of period
    
    $
    5.4
    
    
    $
    6.3
        14




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##### Table of Contents



Six Months EndedJune 30,(In millions)
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    3.6
    
    
    $
    4.9Adjustments to accruals
    
    
    (1.9
    )
    
    
    Payments
    
    
    (1.2
    )
    
    
    (1.2
    )Balance at end of period
    
    $
    0.5
    
    
    $
    3.7
  12.
    
    FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
   13.
    
    SEGMENT INFORMATION
   
    
    PermaClear®, PermaClear HP®, and Thermaclear Ti®
solid-stated PET resin from chemical-based raw materials for use in the manufacturing of
plastic beverage bottles and other food packaging and
    
    Fortrel® chemical-based polyester staple fiber for use in home furnishing,
non-woven, apparel, and industrial products.
  
    
    Wellamid® and Wellamid Ecolon® recycled-based nylon engineering
resin in the U.S. for use in the injection molding industry and
 15




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##### Table of Contents




    
    Recycled-based polyester staple fiber in Europe under the trade names of
Wellbond®, Wellene®, and Fillwell® for use in
non-woven, home furnishing, and industrial products.
  Chemical-
    
    
    Recycled-(In millions)
    
    Based Segment
    
    
    Based Segment
    
    
    TotalThree months ended June 30, 2007Revenues
    
    $
    284.0
    
    
    $
    49.7
    
    
    $
    333.7Segment profit (loss) (a)
    
    
    16.7
    
    
    
    (0.1
    )
    
    
    16.6Depreciation and amortization from continuing
operations
    
    
    15.4
    
    
    
    1.9
    
    
    
    17.3Assets
    
    
    773.1
    
    
    
    140.0
    
    
    
    913.1Three months ended June 30, 2006 (Restated)Revenues
    
    $
    275.5
    
    
    $
    69.7
    
    
    $
    345.2Segment profit (a)
    
    
    16.0
    
    
    
    2.7
    
    
    
    18.7Depreciation and amortization from continuing
operations
    
    
    14.7
    
    
    
    3.0
    
    
    
    17.7Assets
    
    
    857.1
    
    
    
    196.8
    
    
    
    1,053.9Six months ended June 30, 2007Revenues
    
    $
    579.8
    
    
    $
    108.4
    
    
    $
    688.2Segment profit (a)
    
    
    21.5
    
    
    
    1.4
    
    
    
    22.9Depreciation and amortization from continuing
operations
    
    
    30.7
    
    
    
    3.6
    
    
    
    34.3Six months ended June 30, 2006 (Restated)Revenues
    
    $
    527.4
    
    
    $
    143.8
    
    
    $
    671.2Segment profit (a)
    
    
    24.6
    
    
    
    6.3
    
    
    
    30.9Depreciation and amortization from continuing
operations
    
    
    28.8
    
    
    
    6.0
    
    
    
    34.8
 
 (a)
    
    The measurement for segment profit (loss) is EBITDA, as defined.  16




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Segment Profit (Loss) (a)Total for reportable segments
    
    $
    16.6
    
    
    $
    18.7
    
    
    $
    22.9
    
    
    $
    30.9Interest expense, net
    
    
    (15.3
    )
    
    
    (14.0
    )
    
    
    (30.5
    )
    
    
    (26.6
    )Depreciation and amortization
    
    
    (17.3
    )
    
    
    (17.7
    )
    
    
    (34.3
    )
    
    
    (34.8
    )Permitted Adjustments (1)
    
    
    8.2
    
    
    
    (2.3
    )
    
    
    10.8
    
    
    
    (8.5
    )Loss from continuing operations before income tax
Benefit
    
    $
    (7.8
    )
    
    $
    (15.3
    )
    
    $
    (31.1
    )
    
    $
    (39.0
    )AssetsTotal for reportable segments
    
    $
    913.1
    
    
    $
    1,053.9Corporate assets (2)
    
    
    70.3
    
    
    
    82.0$
    983.4
    
    
    $
    1,135.9
 
 (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
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Permitted Adjustments:Hurricane Katrina proceeds (costs), net (See Note 8)
    
    $
    6.1
    
    
    $
    (1.4
    )
    
    $
    5.9
    
    
    $
    (7.1
    )Johnsonville fibers disposal costs, net (See Note 4)
    
    
    1.1
    
    
    
    
    
    
    
    2.1
    
    
    
    Legal and settlement costs (See Note 8)
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    Gain on sale of assets (See Note 8)
    
    
    1.4
    
    
    
    
    
    
    
    1.4
    
    
    
    Provision for uncollectible accounts
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.1
    )Non-cash inventory reserves
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    (1.2
    )Other
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Total Permitted Adjustments
    
    $
    8.2
    
    
    $
    (2.3
    )
    
    $
    10.8
    
    
    $
    (8.5
    )
 
 (2)
    
    Corporate assets include cash, certain prepaid expenses,
construction in progress, and certain other assets not allocated
to the segments. 14. SUBSEQUENT EVENT
   17




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##### Table of Contents



ITEM 2.
    
    MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 RECENT DEVELOPMENTS
 Sale of European Recycled-Based Fibers Business
   New Organization
  GENERAL
 ® ®
 ® ®
  18




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IMPACT OF ACCOUNTING CHANGES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
    19




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RESULTS OF OPERATIONS
 THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED
JUNE 30, 2006
  Chemical-
    
    
    Recycled-(In millions)
    
    Based
    
    
    Based (a)
    
    
    TotalNet SalesSales volumes
    
    $
    (3.9
    )
    
    $
    (22.6
    )
    
    $
    (26.5
    )Net selling prices
    
    
    12.4
    
    
    
    0.7
    
    
    
    13.1Foreign currency translation
    
    
    
    
    
    
    1.9
    
    
    
    1.9Increase (decrease) in net sales
    
    
    8.5
    
    
    
    (20.0
    )
    
    
    (11.5
    )Cost of SalesVolume effect
    
    
    (3.1
    )
    
    
    (20.7
    )
    
    
    (23.8
    )Raw material unit costs
    
    
    9.6
    
    
    
    0.8
    
    
    
    10.4Plant added unit costs
    
    
    2.2
    
    
    
    0.7
    
    
    
    2.9Foreign currency translation
    
    
    
    
    
    
    1.4
    
    
    
    1.4Increase (decrease) in cost of sales
    
    
    8.7
    
    
    
    (17.8
    )
    
    
    (9.1
    )Decrease in gross profit
    
    $
    (0.2
    )
    
    $
    (2.2
    )
    
    $
    (2.4
    )
 
 (a)
    
    This includes the results for our European recycled-based fibers
business that was sold in July 2007. For additional information, see Note 14 to
the Condensed Consolidated Financial Statements.   20




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##### Table of Contents



Three MonthsEnded June 30,(In millions)
    
    2007
    
    
    2006Hurricane Katrina (proceeds) costs, net
    
    $
    (6.1
    )
    
    $
    1.4Johnsonville fibers closure costs, net
    
    
    (1.1
    )
    
    
    Gain on sale of assets
    
    
    (1.4
    )
    
    
    Costs relating to anti-dumping activities, net
    
    
    0.1
    
    
    
    (0.3
    )$
    (8.5
    )
    
    $
    1.1
      21




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SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS ENDED JUNE 30, 2006
  Chemical-
    
    
    Recycled-(In millions)
    
    Based
    
    
    Based (a)
    
    
    TotalNet SalesSales volumes
    
    $
    41.4
    
    
    $
    (41.6
    )
    
    $
    (0.2
     )Net selling prices
    
    
    11.0
    
    
    
    1.5
    
    
    
    12.5Foreign currency translation
    
    
    
    
    
    
    4.7
    
    
    
    4.7Increase (decrease) in net sales
    
    
    52.4
    
    
    
    (35.4
    )
    
    
    17.0Cost of SalesVolume effect
    
    
    36.5
    
    
    
    (38.1
    )
    
    
    (1.6
    )Raw material unit costs
    
    
    16.5
    
    
    
    1.7
    
    
    
    18.2Plant added unit costs
    
    
    1.4
    
    
    
    0.4
    
    
    
    1.8Foreign currency translation
    
    
    
    
    
    
    4.5
    
    
    
    4.5Increase (decrease) in cost of sales
    
    
    54.4
    
    
    
    (31.5
    )
    
    
    22.9Decrease in gross profit
    
    $
    (2.0
    )
    
    $
    (3.9
    )
    
    $
    (5.9
    )
 
 (a)
    
    This includes the results for our European recycled-based fibers business that
was sold in July 2007. For additional information, see Note 14 to the Condensed Consolidated Financial
Statements.  22




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##### Table of Contents



Six MonthsEnded June 30,(In millions)
    
    2007
    
    
    2006Hurricane Katrina (proceeds) costs, net
    
    $
    (5.9
    )
    
    $
    7.1Johnsonville fibers closure costs, net (See Note 4)
    
    
    (2.1
    )
    
    
    Legal and settlement costs
    
    
    (1.9
    )
    
    
    Gain on sale of assets
    
    
    (1.4
    )
    
    
    Costs relating to anti-dumping activities, net
    
    
    0.1
    
    
    
    0.1$
    (11.2
    )
    
    $
    7.2
     23




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OUTLOOK
     24




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CAPITAL RESOURCES AND LIQUIDITY
     25




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26




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For the Quarter EndedSept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,
    
    
    Jun. 30,(In Millions)
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    TotalFixed ChargesCash interest expense
    
    $
    14.8
    
    
    $
    14.8
    
    
    $
    14.7
    
    
    $
    14.5
    
    
    $
    58.8Capital expenditures
    
    
    4.6
    
    
    
    4.3
    
    
    
    2.5
    
    
    
    3.6
    
    
    
    15.0Cash payment of taxes
    
    
    0.3
    
    
    
    (0.6
    )
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.3Dividend payments
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.6
    
    
    
    2.6Total Fixed Charges
    
    $
    20.3
    
    
    $
    19.2
    
    
    $
    18.3
    
    
    $
    18.9
    
    
    $
    76.7EBITDA, as definedLoss from continuing
operations
    
    $
    (35.5
    )
    
    $
    (21.8
    )
    
    $
    (23.4
    )
    
    $
    (7.8
    )
    
    $
    (88.5
    )Income tax expense (benefit)
    
    
    (20.8
    )
    
    
    (3.3
    )
    
    
    0.1
    
    
    
    
    
    
    
    (24.0
    )Interest expense, net
    
    
    15.9
    
    
    
    15.5
    
    
    
    15.2
    
    
    
    15.3
    
    
    
    61.9Depreciation and amortization
    
    
    17.1
    
    
    
    16.3
    
    
    
    17.0
    
    
    
    17.3
    
    
    
    67.7Permitted Adjustments (a)
    
    
    37.6
    
    
    
    2.9
    
    
    
    (2.6
    )
    
    
    (8.2
    )
    
    
    29.7EBITDA, as defined
    
    $
    14.3
    
    
    $
    9.6
    
    
    $
    6.3
    
    
    $
    16.6
    
    
    $
    46.8Consolidated Fixed Charge Coverage Ratio
    
    
    0.61
 
 (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 EndedSept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,
    
    
    Jun. 30,(In Millions)
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    TotalGoodwill impairment
    
    $
    
    
    
    $
    33.4
    
    
    $
    
    
    
    $
    
    
    
    $
    33.4Pension actuarial gain
    
    
    
    
    
    
    (22.2
    )
    
    
    
    
    
    
    
    
    
    
    (22.2
    )Hurricane Katrina
(proceeds) costs, net
    
    
    0.9
    
    
    
    (6.6
    )
    
    
    0.2
    
    
    
    (6.1
    )
    
    
    (11.6
    )Johnsonville fibers disposal
costs, net
    
    
    34.1
    
    
    
    (2.4
    )
    
    
    (1.0
    )
    
    
    (1.1
    )
    
    
    29.6Legal and settlement costs
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    (1.4
    )Other
    
    
    2.6
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    3.8Total Permitted
Adjustments
    
    $
    37.6
    
    
    $
    2.9
    
    
    $
    (2.6
    )
    
    $
    (8.2
    )
    
    $
    29.7
   27




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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 June 30, 2007, 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)
    
    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.
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    Our Annual Meeting of Stockholders was held on May 15, 2007.(b)
    
    See (c) 1. below for the names of each director elected at the meeting.(c)
    
    At the Annual Meeting of Stockholders, the stockholders voted on the following matters:1.
    
    The votes for election of six directors by stockholders of common stock to serve for a term of one year, expiring at the 2008 Annual Meeting
of Stockholders, or until their successors are elected and qualified were as follows:
 Name
    
    For
    
    
    Against/WithheldThomas M. Duff
    
    
    28,621,005
    
    
    
    1,658,499James B. Baker
    
    
    28,500,374
    
    
    
    1,779,130Richard F. Heitmiller
    
    
    28,446,315
    
    
    
    1,833,189David J. McKittrick
    
    
    28,859,133
    
    
    
    1,420,371James E. Rogers
    
    
    28,548,230
    
    
    
    1,731,274Roger A. Vandenberg
    
    
    28,501,647
    
    
    
    1,777,857
 As a result, all of the above nominees were elected to the Board. (*)2.
    
    The vote for election of one director by stockholders of Preferred
Stock to serve for a term of one year, expiring at the 2008 Annual
Meeting of Stockholders, or until his successor is elected and
qualified was as follows:
 Name
    
    For
    
    Against/WithheldKevin Kruse
    
    
    11,202,143
    
    
    
    0
 3.
    
    The combined vote for the proposal to ratify the selection by the
Board of Directors of Ernst & Young LLP as independent auditors to
examine our consolidated financial statements for the fiscal year
ending December 31, 2007: 45,418,001 votes cast for, 171,259 votes
cast against, and 57,988 abstentions. As a result, the Boards
selection of Ernst & Young LLP was approved. (*)4.
    
    The combined vote for the adoption of the Wellman, Inc. Equity
Incentive Plan effective June 1, 2007: 32,459,691 votes cast for,
1,319,919 votes cast against, and 112,536 abstentions. As a result,
the Wellman, Inc. Equity Incentive Plan, effective June 1, 2007, was
adopted.(*)
    
    No other proposals were made from those present at the Annual Stockholders
Meeting, including the stockholder proposal to auction Wellman, Inc., for which
proxies were solicited.(*)
    
    Under the rules of the New York Stock Exchange, brokers holding shares
in street name have the authority to vote certain matters when they
have not received instructions from the beneficial owners. Brokers
that did not receive such instructions were entitled to vote on each
of the above proposals. As a result, broker non-votes had no effect
on the outcome of these proposals.(d)
    
    Not applicable.
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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.10.2
    
    Wellman, Inc. Fourth Amended and Restated Management Incentive
Compensation Plan for the Executive Group10.12
    
    Employment Agreement dated as of August 8, 2007 between the Company
and Steven L. Ates10.13
    
    Employment Agreement dated as of August 8, 2007 between the Company
and Ian K. Shaw.10.14
    
    Employment Agreement dated as of August 8, 2007 between the Company
and David R. Styka.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
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SIGNATURES
  WELLMAN, INC.Dated August 9, 2007
    
    By /s/ Keith R. PhillipsChief Financial Officer andVice President(Principal Financial Officer)Dated August 9, 2007
    
    By /s/ David R. StykaChief Accounting Officer,Vice President and Controller(Principal Accounting Officer)
 32