##### 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 March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 1-10033
 WELLMAN, INC.
  Delaware
    
    04-1671740(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1041 521 Corporate Center 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, 2006 and 2005
    
    
    3Condensed Consolidated Balance Sheets -
March 31, 2006 and December 31, 2005 (Audited)
    
    
    4Condensed Consolidated Statements of Stockholders Equity -
For the three months ended March 31, 2006 and the year ended December
31, 2005 (Audited)
    
    
    5Condensed Consolidated Statements of Cash Flows -
For the three months ended March 31, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16ITEM 3  Quantitative and Qualitative Disclosure About Market Risk
    
    
    20ITEM 4  Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONITEM 1  Legal Proceedings
    
    
    20ITEM 6  Exhibits and Reports on Form 8-K
    
    
    21SIGNATURES
    
    
    22EX-4.1 Amended & Restated Credit AgreementEX-18 Preferability letter from Ernst & YoungEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certificaton of CEOEX-32.2 Section 906 Certification of CFO
  2




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 WELLMAN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
  Three Months endedMarch 31,2006
    
    
    2005Net sales
    
    $
    342.7
    
    
    $
    386.3Cost of sales
    
    
    333.3
    
    
    
    340.1Gross profit
    
    
    9.4
    
    
    
    46.2Selling, general and administrative expenses
    
    
    15.0
    
    
    
    18.0Provision for uncollectible accounts
    
    
    0.1
    
    
    
    Restructuring charges
    
    
    0.4
    
    
    
    Other expense
    
    
    6.1
    
    
    
    1.8Operating income (loss)
    
    
    (12.2
    )
    
    
    26.4Interest expense, net
    
    
    12.6
    
    
    
    10.4Earnings (loss) before income taxes (benefit)
    
    
    (24.8
    )
    
    
    16.0Income tax expense (benefit)
    
    
    (8.8
    )
    
    
    4.4Net earnings (loss)
    
    $
    (16.0
    )
    
    $
    11.6Net earnings (loss) attributable to common stockholders:Net earnings (loss)
    
    $
    (16.0
    )
    
    $
    11.6Accretion
    
    
    (3.4
    )
    
    
    (4.0
    )Net earnings (loss) attributable to common stockholders
    
    $
    (19.4
    )
    
    $
    7.6Basic net earnings (loss) per common share:Net earnings (loss) attributable to common stockholders
    
    $
    (0.61
    )
    
    $
    0.24Diluted net earnings (loss) per common share:Net earnings (loss) attributable to common stockholders
    
    $
    (0.61
    )
    
    $
    0.22Dividends per common share
    
    $
    0.05
    
    
    $
    0.05
  3




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##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, less allowance of $2.1 in 2006 and 2005
    
    
    203.3
    
    
    
    160.3Inventories
    
    
    172.8
    
    
    
    162.3Prepaid expenses and other current assets
    
    
    20.1
    
    
    
    21.7Total current assets
    
    
    396.2
    
    
    
    344.3Property, plant and equipment, at cost:Land, buildings and improvements
    
    
    138.5
    
    
    
    138.0Machinery and equipment
    
    
    1,089.5
    
    
    
    1,085.5Construction in progress
    
    
    52.5
    
    
    
    45.81,280.5
    
    
    
    1,269.3Less accumulated depreciation
    
    
    636.0
    
    
    
    622.0Property, plant and equipment, net
    
    
    644.5
    
    
    
    647.3Goodwill, net
    
    
    33.4
    
    
    
    33.4Other assets, net
    
    
    47.0
    
    
    
    51.5$
    1,121.1
    
    
    $
    1,076.5LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    109.7
    
    
    $
    102.4Accrued liabilities
    
    
    43.8
    
    
    
    45.8Current portion of long-term debt
    
    
    0.2
    
    
    
    0.2Total current liabilities
    
    
    153.7
    
    
    
    148.4Long-term debt
    
    
    563.3
    
    
    
    498.4Deferred income taxes and other liabilities
    
    
    101.9
    
    
    
    112.9Total liabilities
    
    
    818.9
    
    
    
    759.7Stockholders equity:Series A preferred stock, $0.001 par value, 5,000,000 shares authorized,
4,502,143shares issued and outstanding
    
    
    63.0
    
    
    
    61.7Series B preferred stock, $0.001 par value; 6,700,000 shares authorized,
issued and
outstanding
    
    
    93.9
    
    
    
    91.8Class A common stock, $0.001 par value; 100,000,000 shares authorized,
35,190,944 shares issued in 2006 and 34,946,722 in 2005
    
    
    
    
    
    
    Class B common stock, $0.001 par value, 5,500,000 shares authorized, no shares
issued
    
    
    
    
    
    
    Paid-in capital
    
    
    247.6
    
    
    
    247.2Common stock warrants
    
    
    4.9
    
    
    
    4.9Accumulated other comprehensive income
    
    
    24.8
    
    
    
    22.2Accumulated deficit
    
    
    (82.5
    )
    
    
    (61.5
    )Less common stock in treasury at cost: 2,500,000 shares
    
    
    (49.5
    )
    
    
    (49.5
    )Total stockholders equity
    
    
    302.2
    
    
    
    316.8$
    1,121.1
    
    
    $
    1,076.5
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##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedSeries A
    
    
    Series B
    
    
    Class A
    
    
    
    
    
    
    Common
    
    
    Other
    
    
    AccumulatedPreferred
    
    
    Preferred
    
    
    Common
    
    
    Paid-In
    
    
    Stock
    
    
    Comprehensive
    
    
    Earnings/
    
    
    TreasuryStock Issued
    
    
    Stock Issued
    
    
    Stock Issued
    
    
    Capital
    
    
    Warrants
    
    
    Income
    
    
    (Deficit)
    
    
    Stock
    
    
    Total(in millions)
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance at December 31, 2004
    
    
    4.5
    
    
    $
    56.0
    
    
    
    6.7
    
    
    $
    83.3
    
    
    
    34.5
    
    
    $
    
    
    
    $
    245.5
    
    
    $
    4.9
    
    
    $
    37.0
    
    
    $
    19.1
    
    
    $
    (49.5
    )
    
    $
    396.3Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59.9
    )
    
    
    
    
    
    
    (59.9
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15.7
    )
    
    
    
    
    
    
    
    
    
    
    (15.7
    )Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74.7
    )Cash dividends ($0.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.5
    )
    
    
    
    
    
    
    (6.5
    )Accretion
    
    
    
    
    
    
    5.7
    
    
    
    
    
    
    
    8.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.2
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7Balance 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.0
    )
    
    
    
    
    
    
    (16.0
    )Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    2.5Fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.4
    )Cash dividends ($0.05 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.6
    )Accretion
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.4
    )
    
    
    
    
    
    
    Issuance of restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4Balance at March 31, 2006 (unaudited)
    
    
    4.5
    
    
    $
    63.0
    
    
    
    6.7
    
    
    $
    93.9
    
    
    
    35.2
    
    
    $
    
    
    
    $
    247.6
    
    
    $
    4.9
    
    
    $
    24.8
    
    
    $
    (82.5
    )
    
    $
    (49.5
    )
    
    $
    302.2
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##### Table of Contents



WELLMAN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
 (UNAUDITED)
  2006
    
    
    2005Cash flows from operating activities:Net earnings (loss)
    
    $
    (16.0
    )
    
    $
    11.6Adjustments to reconcile net earnings (loss) to net cash used in operating
activities:Depreciation
    
    
    13.2
    
    
    
    14.0Amortization
    
    
    4.5
    
    
    
    4.8Amortization in interest expense, net
    
    
    1.1
    
    
    
    0.9Deferred income taxes and other
    
    
    (9.2
    )
    
    
    3.3Changes in assets and liabilities
    
    
    (47.2
    )
    
    
    (40.3
    )Net cash used in operating activities
    
    
    (53.6
    )
    
    
    (5.7
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (9.3
    )
    
    
    (6.5
    )Net cash used in investing activities
    
    
    (9.3
    )
    
    
    (6.5
    )Cash flows from financing activities:Borrowings under long-term debt, net
    
    
    64.6
    
    
    
    15.8Dividends paid on common stock
    
    
    (1.6
    )
    
    
    (1.6
    )Exercise of employee stock options
    
    
    
    
    
    
    0.2Net cash provided by financing activities
    
    
    63.0
    
    
    
    14.4Effect of exchange rate changes on cash and cash equivalents
    
    
    (0.1
    )
    
    
    0.4Increase in cash and cash equivalents
    
    
    
    
    
    
    2.6Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    5.6Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    8.2Supplemental cash flow data:Cash paid during the period for:Interest, net
    
    $
    11.9
    
    
    $
    9.9Income taxes
    
    $
    0.3
    
    
    $
    0.7
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WELLMAN, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
  1. BASIS OF PRESENTATION
   2. ACCOUNTING CHANGES
   7




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(In millions, except per share data)
 For the Three Months
Ended March 31, 2006As
    
    
    Effect of
    
    
    AsReported
    
    
    Change
    
    
    AdjustedOperating Income
    
    $
    25.6
    
    
    $
    0.8
    
    
    $
    26.4Income Tax Expense
    
    $
    4.2
    
    
    $
    0.2
    
    
    $
    4.4Net Earnings Attributable
to Common Stockholders
    
    $
    7.0
    
    
    $
    0.6
    
    
    $
    7.6Basic Net Earnings Per
Common Share
    
    $
    0.22
    
    
    $
    0.02
    
    
    $
    0.24Diluted Net Earnings Per
Common Share
    
    $
    0.20
    
    
    $
    0.02
    
    
    $
    0.22
  (In millions)
 As of December 31, 2005As
    
    
    Effect of
    
    
    AsReported
    
    
    Change
    
    
    AdjustedOther assets
    
    $
    73.7
    
    
    $
    (22.2
    )
    
    $
    51.5Other noncurrent liabilities
    
    $
    (102.5
    )
    
    $
    (10.4
    )
    
    $
    (112.9
    )Accumulated other comprehensive
income (loss)
    
    $
    (11.3
    )
    
    $
    33.5
    
    
    $
    22.2Accumulated earnings (deficit)
    
    $
    4.6
    
    
    $
    (66.1
    )
    
    $
    (61.5
    )Total stockholders equity
    
    $
    349.4
    
    
    $
    (32.6
    )
    
    $
    316.8
   8




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##### Table of Contents



3. INVENTORIES
  March 31,
    
    
    December 31,(In millions)
    
    2006
    
    
    2005Raw materials
    
    $
    67.9
    
    
    $
    61.5Finished and semi-finished goods
    
    
    96.6
    
    
    
    92.2Supplies
    
    
    8.3
    
    
    
    8.6$
    172.8
    
    
    $
    162.3
 4. RESTRUCTURING CHARGES
   5. BORROWINGS
  6. OTHER EXPENSE
  9




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##### Table of Contents



Three months endedMarch 31,(in millions)
    
    2006
    
    
    2005Hurricane Katrina costs
    
    $
    5.7
    
    
    $
    Anti-dumping costs
    
    
    0.4
    
    
    
    Legal Costs
    
    
    
    
    
    
    1.8$
    6.1
    
    
    $
    1.8
  Direct damage to plant site -
    
    Costs incurred to repair and/or restore all
machinery, equipment, foundations, and
buildings to their normal operating
condition.Fixed costs 
    
    Salaries, wages, property insurance,
electricity, and waste water treatment costs
incurred during the shutdown period.Incremental freight costs 
    
    Additional freight costs incurred above our
normal freight expense, primarily due to the
disruption in rail service.Infrastructure support 
    
    Costs to maintain an adequate living
environment for both our employees and
contract workers starting with the initial
repair period and continuing in order to
maintain proper staffing levels to operate
the plant.Inventory spoilage 
    
    Costs representing the difference between
the inventory cost at the time of the
hurricane less the net realizable value of
inventory that was damaged or spoiled as a
result of the hurricane.Rail car damage 
    
    Costs of repairing all of our leased rail
cars that were damaged during the hurricane.Rail car leases 
    
    Monthly lease cost related to the rail cars
that were damaged and thus inoperable.
   10




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7. NET EARNINGS (LOSS) PER COMMON SHARE
  Three Months EndedMarch 31,(In millions, except per share data)
    
    2006
    
    
    2005Numerator:Net earnings (loss)
    
    $
    (16.0
    )
    
    $
    11.6Accretion
    
    
    (3.4
    )
    
    
    (4.0
    )Basic net earnings (loss) attributable to common stockholders
    
    
    (19.4
    )
    
    
    7.6Effect of dilutive securities:Accretion
    
    
    
    
    
    
    4.0Diluted net earnings (loss) attributable to common stockholders
    
    $
    (19.4
    )
    
    $
    11.6Denominator:Basic weighted-average common shares
    
    
    31.8
    
    
    
    31.7Effect of dilutive securities:Employee stock options, warrants, and restricted stock
    
    
    
    
    
    
    0.7Preferred stock  if converted
    
    
    
    
    
    
    21.4Dilutive common shares, if converted
    
    
    
    
    
    
    22.1Diluted adjusted weighted-average shares
    
    
    31.8
    
    
    
    53.8Basic net earnings (loss) per common share:Net earnings (loss) attributable to common stockholders
    
    $
    (0.61
    )
    
    $
    0.24Diluted net earnings (loss) per common share:Net earnings (loss) attributable to common stockholders
    
    $
    (0.61
    )
    
    $
    0.22
 8. DEFINED BENEFIT PLANS
  11




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Domestic Plans
    
    
    Foreign PlansFor the Quarter Ended
    
    
    For the Quarter Ended(In millions)
    
    March 31, 2006
    
    
    March 31, 2005
    
    
    March 31, 2006
    
    
    March 31, 2005Service cost
    
    $
    0.2
    
    
    $
    0.1
    
    
    $
    1.1
    
    
    $
    0.7Interest cost
    
    
    0.9
    
    
    
    0.8
    
    
    
    1.2
    
    
    
    1.0Expected return on assets
    
    
    (0.8
    )
    
    
    (0.9
    )
    
    
    (1.3
    )
    
    
    (1.3
    )Curtailment gain
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    Total net periodic
pension expense
    
    $
    0.3
    
    
    $
    0.0
    
    
    $
    0.9
    
    
    $
    0.4
 Employer contributions
  9. COMMITMENTS AND CONTINGENCIES
   12




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##### Table of Contents



Three Months endedMarch 31,(In millions)
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    6.6
    
    
    $
    7.0Changes in remediation costs
    
    
    0.1
    
    
    
    Expenditures
    
    
    (0.1
    )
    
    
    (0.2
    )Balance at end of period
    
    $
    6.6
    
    
    $
    6.8
     13




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##### Table of Contents



10. FOREIGN CURRENCY TRANSLATION AND ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
   11. SEGMENT INFORMATION
   
    
    PermaClear® and PermaClear HP® solid-stated and amorphous PET resin from chemical-based
raw materials for use in the manufacturing of plastic 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 fiber for use in apparel, non-woven,
home furnishing, and industrial products,
    
    recycled-based polyester and nylon staple fiber for use in home furnishing, non-woven
and industrial products, and
    
    Wellamid Ecolon® and Wellamid® recycled-based nylon and polyester engineering
resin, primarily for use in the injection molding industry.
  14




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##### Table of Contents



Packaging
    
    
    Fibers andProducts
    
    
    Recycled Products(In millions)
    
    Group
    
    
    Group
    
    
    TotalThree months ended March 31, 2006Revenues
    
    $
    194.6
    
    
    $
    148.1
    
    
    $
    342.7Segment profit (loss)
    
    
    (5.3
    )
    
    
    (0.3
    )
    
    
    (5.6
    )Assets
    
    
    737.9
    
    
    
    306.7
    
    
    
    1,044.6Three months ended March 31, 2005Revenues
    
    $
    228.8
    
    
    $
    157.5
    
    
    $
    386.3Segment profit (loss)
    
    
    24.7
    
    
    
    3.5
    
    
    
    28.2Assets
    
    
    778.9
    
    
    
    313.4
    
    
    
    1,092.3
  Three Months EndedMarch 31,(In millions)
    
    2006
    
    
    2005Segment Profit (Loss)Total for reportable segments
    
    $
    (5.6
    )
    
    $
    28.2Restructuring charges
    
    
    (0.4
    )
    
    
    Provision for uncollectible accounts
    
    
    (0.1
    )
    
    
    Other expense
    
    
    (6.1
    )
    
    
    (1.8
    )Interest expense, net
    
    
    (12.6
    )
    
    
    (10.4
    )Earnings (loss) before income taxes (benefit)
    
    $
    (24.8
    )
    
    $
    16.0AssetsTotal for reportable segments
    
    $
    1,044.6
    
    
    $
    1,092.3Corporate assets (1)
    
    
    76.5
    
    
    
    51.2$
    1,121.1
    
    
    $
    1,143.5
 
 (1)
    
    Corporate assets include cash, certain prepaid expenses,
construction in progress, and certain other assets not allocated
to the segments. 15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 GENERAL
     IMPACT
OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
    RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2005
  16




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##### Table of Contents



(In millions)
    
    PPG
    
    
    FRPG
    
    
    TOTALNet SalesSales volumes
    
    $
    (17.1
    )
    
    $
    (16.0
    )
    
    $
    (33.1
    )Net selling prices
    
    
    (15.4
    )
    
    
    9.7
    
    
    
    (5.7
    )Foreign currency translation
    
    
    (1.7
    )
    
    
    (3.1
    )
    
    
    (4.8
    )Decrease in net sales
    
    
    (34.2
    )
    
    
    (9.4
    )
    
    
    (43.6
    )Cost of SalesVolume effect
    
    
    (12.4
    )
    
    
    (14.3
    )
    
    
    (26.7
    )Raw material unit costs
    
    
    2.4
    
    
    
    7.7
    
    
    
    10.1Plant added unit costs
    
    
    9.2
    
    
    
    5.1
    
    
    
    14.3Foreign currency translation
    
    
    (1.7
    )
    
    
    (2.8
    )
    
    
    (4.5
    )Decrease in cost of sales
    
    
    (2.5
    )
    
    
    (4.3
    )
    
    
    (6.8
    )Decrease in gross profit
    
    $
    (31.7
    )
    
    $
    (5.1
    )
    
    $
    (36.8
    )
         17




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##### Table of Contents



OUTLOOK
      18




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##### Table of Contents



CAPITAL RESOURCES AND LIQUIDITY
     FORWARD-LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
   19




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##### Table of Contents



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, 2006, 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.
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    20




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##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 (a)
    
    Exhibits.
 Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant has not filed
herewith any instrument with respect to long-term debt, which does not exceed
10% of the total assets of the registrant and its subsidiaries on a
consolidated basis. The registrant hereby agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon request.4.1
    
    Amended and Restated Credit Agreement dated as of May 4, 2006, between Wellman,
Inc. and Deutsche Bank Trust Company Americas as administrative agent and
collateral agent; Deutsche Bank Securities, Inc. as lead arranger and bookrunner;
JP Morgan Chase Bank, N.A. as Syndication Agent; and General Electric Capital
Corporation, LaSalle Business Credit, LLC, and Wachovia Capital Finance as
Co-Documentation Agents.18
    
    Preferability Letter from Ernst & Young LLP regarding change in accounting principle31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 (b)
    
    Reports on Form 8-K.
 (1)
    
    The Company filed a Form 8-K on February 15, 2006 to announce its
fourth quarter and full year 2005 results and Historical Adjusted
EBITDA.(2)
    
    The Company filed a Form 8-K on January 4, 2006 pursuant to Item 1.01
whereby its Board of Directors voted on December 30, 2005, to vest all
remaining unvested stock options awarded to employees in August 2003.
 21




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##### Table of Contents



SIGNATURES
  WELLMAN, INC.Dated May 9, 2006
    
    By /s/ Keith R. PhillipsChief Financial Officer and
Vice President
(Principal Financial Officer)Dated May 9, 2006
    
    By /s/ Mark J. RudayChief Accounting Officer,
Vice President and Controller
(Principal Accounting Officer)
 22