##### 



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 March 31, 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. EmployerIdentification No.)1041 521 Corporate Center DriveFort Mill, South Carolina
    
    29715(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 months ended March 31, 2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets   March 31, 2007 and December 31, 2006 (Audited)
    
    
    4Condensed
Consolidated Statements of Stockholders Equity  For the three months ended March 31, 2007
and the year ended December 31, 2006 (Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows  For the three months ended March 31, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17ITEM 3  Quantitative and Qualitative Disclosure About Market Risk
    
    
    26ITEM 4  Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    27ITEM 6  Exhibits and Reports on Form 8-K
    
    
    28SIGNATURES
    
    
    29
 2




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##### 



ITEM 1. FINANCIAL STATEMENTS
 WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
 Three Months endedMarch 31,2007
    
    
    2006Net sales
    
    $
    354.5
    
    
    $
    326.0Cost of sales
    
    
    348.6
    
    
    
    316.6Gross profit
    
    
    5.9
    
    
    
    9.4Selling, general and administrative expenses
    
    
    13.7
    
    
    
    13.9Provision for uncollectible accounts
    
    
    0.1
    
    
    
    0.1Restructuring charges
    
    
    2.9
    
    
    
    0.4Other (income) expense, net
    
    
    (2.7
    )
    
    
    6.1Operating loss
    
    
    (8.1
    )
    
    
    (11.1
    )Interest expense, net
    
    
    15.2
    
    
    
    12.6Loss from continuing operations before income tax expense (benefit)
    
    
    (23.3
    )
    
    
    (23.7
    )Income tax expense (benefit)
    
    
    0.1
    
    
    
    (8.2
    )Loss from continuing operations
    
    
    (23.4
    )
    
    
    (15.5
    )Loss from discontinued operations, net of income taxes
    
    
    (0.9
    )
    
    
    (0.5
    )Net loss
    
    $
    (24.3
    )
    
    $
    (16.0
    )Net loss attributable to common stockholders:Net loss
    
    $
    (24.3
    )
    
    $
    (16.0
    )Accretion
    
    
    (3.7
    )
    
    
    (3.4
    )Net loss attributable to common stockholders
    
    $
    (28.0
    )
    
    $
    (19.4
    )Basic and diluted net loss per common share:Net loss attributable to common stockholders from continuing operations
    
    $
    (0.84
    )
    
    $
    (0.59
    )Net loss attributable to common stockholders from discontinued operations
    
    
    (0.03
    )
    
    
    (0.02
    )Net loss attributable to common stockholders
    
    $
    (0.87
    )
    
    $
    (0.61
    )Dividends per common share
    
    $
    0.02
    
    
    $
    0.05
  3




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##### 



WELLMAN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, less allowance of $2.3 in 2007 and $2.2 in 2006
    
    
    199.8
    
    
    
    190.7Inventories
    
    
    128.0
    
    
    
    143.6Prepaid expenses and other current assets
    
    
    33.6
    
    
    
    35.6Total current assets
    
    
    361.4
    
    
    
    369.9Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    99.6
    
    
    
    99.5Machinery and equipment
    
    
    1,043.4
    
    
    
    1,041.2Construction in progress
    
    
    10.6
    
    
    
    9.01,153.6
    
    
    
    1,149.7Less accumulated depreciation
    
    
    574.1
    
    
    
    560.3Property, plant and equipment, net
    
    
    579.5
    
    
    
    589.4Other assets and deferred income taxes, net
    
    
    52.7
    
    
    
    34.0$
    993.6
    
    
    $
    993.3LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    105.0
    
    
    $
    95.2Accrued liabilities
    
    
    32.8
    
    
    
    38.8Accrued liabilities associated with assets held for sale
    
    
    7.7
    
    
    
    10.7Current portion of long-term debt
    
    
    0.3
    
    
    
    0.3Total current liabilities
    
    
    145.8
    
    
    
    145.0Long-term debt
    
    
    581.7
    
    
    
    579.3Deferred income taxes and other liabilities
    
    
    84.8
    
    
    
    61.9Total liabilities
    
    
    812.3
    
    
    
    786.2Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized,
4,502,143 shares issued and outstanding
    
    
    69.0
    
    
    
    67.5Series B preferred stock, $0.001 par value; 6,700,000 shares authorized,
issued and outstanding
    
    
    102.6
    
    
    
    100.4Class A common stock, $0.001 par value; 100,000,000 shares authorized,
35,331,250 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
    
    
    247.3
    
    
    
    248.3Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income
    
    
    28.6
    
    
    
    28.4Accumulated deficit
    
    
    (221.6
    )
    
    
    (192.9
    )Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    181.3
    
    
    
    207.1$
    993.6
    
    
    $
    993.3
  4




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##### 



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24.3
    )
    
    
    
    
    
    
    (24.3
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24.1
    )Cash dividends ($0.02 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (0.7
    )Accretion
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.7
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Balance at March 31, 2007
(unaudited)
    
    
    4.5
    
    
    $
    69.0
    
    
    
    6.7
    
    
    $
    102.6
    
    
    
    35.3
    
    
    $
    
    
    
    $
    247.3
    
    
    $
    4.9
    
    
    $
    28.6
    
    
    $
    (221.6
    )
    
    $
    (49.5
    )
    
    $
    181.3
  5




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##### 



WELLMAN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006(UNAUDITED)
 2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (24.3
    )
    
    $
    (16.0
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating
activities:Loss from discontinued operations, net of tax
    
    
    0.9
    
    
    
    0.5Depreciation
    
    
    12.9
    
    
    
    12.6Amortization
    
    
    0.2
    
    
    
    0.6Amortization
of acquisition costs of long-term raw material contract
    
    
    3.9
    
    
    
    3.9Amortization in interest expense, net
    
    
    1.1
    
    
    
    1.1Deferred income taxes
    
    
    (0.1
    )
    
    
    (8.3
    )Changes in assets and liabilities
    
    
    9.6
    
    
    
    (46.9
    )Net cash provided by (used in) operating activities
    
    
    4.2
    
    
    
    (52.5
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (2.5
    )
    
    
    (8.9
    )Net cash used in investing activities
    
    
    (2.5
    )
    
    
    (8.9
    )Cash flows from financing activities:Borrowings under long-term debt, net
    
    
    2.2
    
    
    
    64.6Dividends paid on common stock
    
    
    (0.7
    )
    
    
    (1.6
    )Net cash provided by financing activities
    
    
    1.5
    
    
    
    63.0Discontinued Operations:Operating activities
    
    
    (2.8
    )
    
    
    (1.1
    )Investing activities
    
    
    (0.4
    )
    
    
    (0.4
    )Financing activities
    
    
    (0.1
    )
    
    
    (0.1
    )Net cash used in discontinued operations
    
    
    (3.3
    )
    
    
    (1.6
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    0.1
    
    
    
    Increase in cash and cash equivalents
    
    
    0.0
    
    
    
    0.0Cash and cash equivalents at beginning of period
    
    
    0.0
    
    
    
    0.0Cash and cash equivalents at end of period
    
    $
    0.0
    
    
    $
    0.0Supplemental cash flow data:Cash paid during the period for:Interest, net
    
    $
    14.7
    
    
    $
    11.9Income taxes
    
    $
    0.4
    
    
    $
    0.3
  6




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##### 



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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##### 



New Pronouncements
   3.
    
    INVENTORIES
  March 31,
    
    
    December 31,(In millions)
    
    2007
    
    
    2006Raw materials
    
    $
    58.8
    
    
    $
    54.9Finished and semi-finished goods
    
    
    63.4
    
    
    
    82.8Supplies
    
    
    5.8
    
    
    
    5.9$
    128.0
    
    
    $
    143.6
 8




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##### 



4.
    
    JOHNSONVILLE FIBERS CLOSURE
 ®


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 during 2007
    
    
    (1.9
    )Remaining accrual at March 31, 2007
    
    $
    0.4
  5.
    
    RESTRUCTURINGS
   9




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##### 



6.
    
    DISCONTINUED OPERATIONS
    For the Three MonthsEnded March 31,(In millions)
    
    2007
    
    
    2006Net sales
    
    $
    19.8
    
    
    $
    16.7Loss from discontinued operations before
income tax expense (benefit)
    
    $
    (0.8
    )
    
    $
    (1.1
    )Income tax expense (benefit)
    
    
    0.1
    
    
    
    (0.6
    )Loss from discontinued operations, net
    
    $
    (0.9
    )
    
    $
    (0.5
    )
  7.
    
    OTHER (INCOME) EXPENSE, NET
  10




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##### 



For the Three Months EndedMarch 31,(in millions)
    
    2007
    
    
    2006Legal and Settlement Costs
    
    $
    (1.9
    )
    
    $
    Johnsonville
fibers closure costs (See Note 4)
    
    
    (1.0
    )
    
    
    Hurricane Katrina costs, net
    
    
    0.2
    
    
    
    5.7Costs relating to anti-dumping activities, net
    
    
    
    
    
    
    0.4$
    (2.7
    )
    
    $
    6.1
  1 2
    8.
    
    NET LOSS PER COMMON SHARE
  11




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##### 



Three Months EndedMarch 31,(In millions, except per share data)
    
    2007
    
    
    2006Numerator for basic and diluted net loss attributable to common
stockholders
per common share:Loss from continuing operations
    
    $
    (23.4
    )
    
    $
    (15.5
    )Accretion(a)
    
    
    (3.7
    )
    
    
    (3.4
    )Net loss attributable to common stockholders from continuing operations
    
    
    (27.1
    )
    
    
    (18.9
    )Net loss attributable to common stockholders from discontinued
operations
    
    
    (0.9
    )
    
    
    (0.5
    )Net loss attributable to common stockholders
    
    $
    (28.0
    )
    
    $
    (19.4
    )Denominator:Denominator for basic net loss attributable to common stockholders per
common share  weighted-average shares
    
    
    32.2
    
    
    
    31.8Effect 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
    
    
    32.2
    
    
    
    31.8
 
 (a)
    
    Accretion is recorded based on the fair market value of the increase in the liquidation
preference of the preferred stock.(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. 9.
    
    DEFINED BENEFIT PLANS
  Domestic Plans
    
    
    Foreign PlansFor the Quarter Ended
    
    
    For the Quarter Ended(In millions)
    
    March 31, 2007
    
    
    March 31, 2006
    
    
    March 31, 2007
    
    
    March 31, 2006Service cost
    
    $
    
    
    
    $
    0.2
    
    
    $
    0.8
    
    
    $
    0.9Interest cost
    
    
    0.9
    
    
    
    0.9
    
    
    
    1.2
    
    
    
    1.0Expected return on assets
    
    
    (0.9
    )
    
    
    (0.8
    )
    
    
    (1.5
    )
    
    
    (1.2
    )Total net periodic
pension expense
    
    $
    0.0
    
    
    $
    0.3
    
    
    $
    0.5
    
    
    $
    0.7
 Employer contributions
  12




---



##### 



10.
    
    COMMITMENTS AND CONTINGENCIES
     Three Months endedMarch 31,(In millions)
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    5.1
    
    
    $
    6.6Changes in remediation costs
    
    
    
    
    
    
    0.1Expenditures
    
    
    
    
    
    
    (0.1
    )Balance at end of period
    
    $
    5.1
    
    
    $
    6.6
     13




---



##### 



Three Months EndedMarch 31,(In millions)
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    3.6
    
    
    $
    4.9Adjustments to accruals
    
    
    (1.9
    )
    
    
    Expenditures
    
    
    
    
    
    
    Balance at end of period
    
    $
    1.7
    
    
    $
    4.9
  11.
    
    FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
   14




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##### 



12.
    
    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
    
    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.
  (In millions)
    
    Chemical-Based
    
    Recycled-BasedThree months ended March 31, 2007
    
    Segment
    
    Segment
    
    TotalRevenues
    
    $
    295.8
    
    
    $
    58.7
    
    
    $
    354.5Segment profit
    
    $
    4.8
    
    
    $
    1.5
    
    
    $
    6.3Depreciation and amortization from continuing
operations
    
    $
    15.3
    
    
    $
    1.7
    
    
    $
    17.0Assets
    
    $
    779.9
    
    
    $
    144.3
    
    
    $
    924.2
 15




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##### 



(In millions)
    
    Chemical-Based
    
    Recycled-BasedThree months ended March 31, 2006 (Restated)
    
    Segment
    
    Segment
    
    TotalRevenues
    
    $
    251.9
    
    
    $
    74.1
    
    
    $
    326.0Segment profit
    
    $
    8.6
    
    
    $
    3.6
    
    
    $
    12.2Depreciation and amortization from continuing
operations
    
    $
    14.1
    
    
    $
    3.0
    
    
    $
    17.1Assets
    
    $
    811.7
    
    
    $
    189.6
    
    
    $
    1,001.3
  Three Months EndedMarch 31,(In millions)
    
    2007
    
    
    2006Segment ProfitTotal for reportable segments
    
    $
    6.3
    
    
    $
    12.2Interest expense, net
    
    
    (15.2
    )
    
    
    (12.6
    )Depreciation and amortization
    
    
    (17.0
    )
    
    
    (17.1
    )Provision for uncollectible accounts
    
    
    (0.1
    )
    
    
    (0.1
    )Other income
(expense), net
    
    
    2.7
    
    
    
    (6.1
    )Loss from continuing operations before income tax expense (benefit)
    
    $
    (23.3
    )
    
    $
    (23.7
    )AssetsTotal for reportable segments
    
    $
    924.2
    
    
    $
    1,001.3Corporate assets (1)
    
    
    69.4
    
    
    
    119.8$
    993.6
    
    
    $
    1,121.1
 
 (1)
    
    Corporate assets include cash, certain prepaid expenses,
construction in progress, and certain other assets not allocated
to the segments. 16




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##### 



ITEM 2.
    
    MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 GENERAL
 ® ® ® ®
  ® ®
 ® ®
   17




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##### 



IMPACT OF ACCOUNTING CHANGES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
    18




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##### 



RECENT DEVELOPMENTS
 New Organization
  RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
  Chemical-
    
    
    Recycled-(In millions)
    
    Based
    
    
    Based
    
    
    TotalNet SalesSales volumes
    
    $
    45.3
    
    
    $
    (18.9
    )
    
    $
    26.4Net selling prices
    
    
    (1.4
    )
    
    
    0.7
    
    
    
    (0.7
    )Foreign currency translation
    
    
    
    
    
    
    2.8
    
    
    
    2.8Increase (decrease) in net sales
    
    
    43.9
    
    
    
    (15.4
    )
    
    
    28.5Cost of SalesVolume effect
    
    
    39.4
    
    
    
    (17.1
    )
    
    
    22.3Raw material unit costs
    
    
    7.2
    
    
    
    
    
    
    
    7.2Plant added unit costs
    
    
    (0.8
    )
    
    
    0.6
    
    
    
    (0.2
    )Foreign currency translation
    
    
    
    
    
    
    2.7
    
    
    
    2.7Increase (decrease) in cost of
sales
    
    
    45.8
    
    
    
    (13.8
    )
    
    
    32.0Decrease in gross profit
    
    $
    (1.9
    )
    
    $
    (1.6
    )
    
    $
    (3.5
    )
 19




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##### 



Three MonthsEnded March 31,(In millions)
    
    2007
    
    
    2006Legal and settlement costs
    
    $
    (1.9
    )
    
    $
    Johnsonville fibers closure costs
    
    
    (1.0
    )
    
    
    Hurricane Katrina costs, net
    
    
    0.2
    
    
    
    5.7Costs relating to anti-dumping activities, net
    
    
    
    
    
    
    0.4$
    (2.7
    )
    
    $
    6.1
   20




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##### 







OUTLOOK
   21




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##### 



st st st th st
  22




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##### 



CAPITAL RESOURCES AND LIQUIDITY
    
  23




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##### 



24




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##### 



For the Quarter EndedJun. 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,(In Millions)
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    TotalFixed ChargesCash interest expense
    
    $
    12.7
    
    
    $
    14.8
    
    
    $
    14.8
    
    
    $
    14.7
    
    
    $
    57.0Capital expenditures
    
    
    12.7
    
    
    
    4.6
    
    
    
    4.3
    
    
    
    2.5
    
    
    
    24.1Cash payment of taxes
    
    
    0.1
    
    
    
    0.3
    
    
    
    (0.6
    )
    
    
    0.4
    
    
    
    0.2Dividend payments
    
    
    1.7
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    3.7Total Fixed Charges
    
    $
    27.2
    
    
    $
    20.3
    
    
    $
    19.2
    
    
    $
    18.3
    
    
    $
    85.0EBITDA, as definedLoss from continuing
operations
    
    $
    (10.9
    )
    
    $
    (35.5
    )
    
    $
    (21.8
    )
    
    $
    (23.4
    )
    
    $
    (91.6
    )Income tax expense (benefit)
    
    
    (4.4
    )
    
    
    (20.8
    )
    
    
    (3.3
    )
    
    
    0.1
    
    
    
    (28.4
    )Interest expense, net
    
    
    14.0
    
    
    
    15.9
    
    
    
    15.5
    
    
    
    15.2
    
    
    
    60.6Depreciation and amortization
    
    
    17.7
    
    
    
    17.1
    
    
    
    16.3
    
    
    
    17.0
    
    
    
    68.1Permitted Adjustments (a)
    
    
    2.3
    
    
    
    37.6
    
    
    
    2.9
    
    
    
    (2.6
    )
    
    
    40.2EBITDA, as defined
    
    $
    18.7
    
    
    $
    14.3
    
    
    $
    9.6
    
    
    $
    6.3
    
    
    $
    48.9Consolidated Fixed Charge Coverage Ratio
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.58:1.0
  For the Quarter EndedJun. 30,
    
    
    Sept. 30,
    
    
    Dec. 31,
    
    
    Mar. 31,(In Millions)
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    TotalGoodwill impairment
    
    $
    
    
    
    $
    
    
    
    $
    33.4
    
    
    $
    
    
    
    $
    33.4Pension actuarial gain
    
    
    
    
    
    
    
    
    
    
    (22.2
    )
    
    
    
    
    
    
    (22.2
    )Johnsonville fibers disposal
costs, net
    
    
    
    
    
    
    34.1
    
    
    
    (2.4
    )
    
    
    (1.0
    )
    
    
    30.7Legal and settlement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    (1.9
    )Hurricane Katrina costs, net
    
    
    1.4
    
    
    
    0.9
    
    
    
    (6.6
    )
    
    
    0.2
    
    
    
    (4.1
    )Other
    
    
    0.9
    
    
    
    2.6
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    4.3Total Permitted
Adjustments
    
    $
    2.3
    
    
    $
    37.6
    
    
    $
    2.9
    
    
    $
    (2.6
    )
    
    $
    40.2
   25




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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 March 31, 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 on 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.
 26




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##### 



PART II  OTHER INFORMATION
 ITEM 1.
    
    LEGAL PROCEEDINGS
      27




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##### 



ITEM 6.
    
    EXHIBITS AND REPORTS ON FORM 8-K
   10.1
    
    Wellman, Inc. 2007 Restricted Stock Grant Agreement, effective April
2, 2007, between the Company and Steven L. Ates10.2
    
    Wellman, Inc. 2007 Restricted Stock Grant Agreement, effective April
2, 2007, between the Company and Mark J. Ruday10.3
    
    Wellman, Inc. 2007 Restricted Stock Grant Agreement, effective April
2, 2007, between the Company and Ian K. Shaw10.4
    
    Wellman, Inc. 2007 Restricted Stock Grant Agreement, effective April
2, 2007, between the Company and David R. Styka31.1
    
    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
 28




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##### 



SIGNATURES
  WELLMAN, INC.Dated May 10, 2007
    By
    
    /s/ Keith R. PhillipsChief Financial Officer and Vice
President
(Principal Financial Officer)Dated May 10, 2007
    By
    
    /s/ David R. StykaChief Accounting Officer,Vice President and Controller (Principal Accounting Officer) 29